<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended
June 30, 1999
[_] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period
from _________________ to ____________
Commission file number : 0-10124
-------
Aviation Group, Inc.
--------------------
(Name of Small Business Issuer in Its Charter)
Texas 75-2631373
------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
700 North Pearl Street, Suite 2170, Dallas, Texas 75201
------------------------------------------------- -----------------------
(Address of Principal Executive Offices) (Zip Code)
214/922/8100
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
-------------------------------- ---------------------
$.01 par value Common Stock Boston Stock Exchange
Redeemable Common Stock Warrants Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
$0.01 par value Common Stock
- --------------------------------------------------------------------------------
(Title of Class)
Redeemable Common Stock Warrants
- --------------------------------------------------------------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _______
-----
<PAGE>
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [_].
State issuer's revenues for its most recent fiscal year. $22,553,000
-------------
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)
$4,281,000 at close on September 30, 1999.
- ------------------------------------------
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
3,573,929 shares of Common Stock were outstanding as of September 30, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders scheduled to be held on November 30, 1999 are incorporated by
reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes _______ No X
-----
<PAGE>
PART I
Item 1. Description of Business.
General
Aviation Group, Inc., a Texas corporation (the "Company"), is a provider of
services and products to airline companies and other aviation firms. Its
primary market is the United States. The Company has historically grown via the
acquisition of other aviation service businesses that complement and strengthen
its existing operations. While the Company continues to review and analyze
other businesses for potential acquisition on terms and conditions it deems
advantageous for its shareholders, it has also begun to pursue a merger or sale
with larger aviation service companies that may have an interest in all or part
of the Company's operating entities.
The Company was organized in December 1995 to consolidate the ownership of
Tri-Star Aircraft Services, Inc. ("TriStar Paint"), Tri-Star Airline Services,
Inc. ("Airline Services") and Pride Aviation, Inc. At that time, the Company
acquired all of the outstanding shares in TriStar Paint and Airline Services
from The Sanders Companies, Inc. ("Sanders Companies") in exchange for the
issuance of 1,000,000 shares of Common Stock to Sanders Companies. Sanders
Companies is wholly owned by the Company's President and Chief Executive
Officer, Lee Sanders. On March 1, 1996, in connection with the Company's
acquisition of Pride Aviation, the Company paid $486,000 cash and issued 10%,
five-year Convertible Notes in the aggregate principal amount of $857,000 and
100,250 shares of Common Stock.
On August 19, 1997, the Company closed an initial public offering (the
"IPO") of 1,150,000 shares of its Common Stock and 1,150,000 Redeemable Common
Stock Purchase Warrants (the "Warrants") which resulted in net proceeds to the
Company of $5,180,000. On August 19, 1997, the Company acquired all of the
outstanding stock of Casper Air Service, a Wyoming corporation ("CAS"). CAS is
a full-service, fixed-base operating station ("FBO") located in Casper, Wyoming.
Pursuant to the acquisition of CAS, the Company paid approximately $1,167,000 in
cash and issued 153,565 shares of Common Stock with a value of approximately
$883,000.
On March 23, 1998, the Company acquired all of the outstanding equity
interests in Aero Design, Inc. and Battery Shop, L.L.C. (collectively, "Aero
Design") in exchange for the payment of $753,000 in cash and the issuance of
134,068 shares of Common Stock with a value of approximately $547,000. Aero
Design manufactures, sells and repairs aircraft replacement batteries at its
facilities near Nashville, Tennessee. On August 28, 1998, the Company acquired
100% of the common stock of General Electrodynamics Corporation ("GEC") in
exchange for 112,029 shares of Common Stock with a value of approximately
$294,000. GEC manufactures and sells truck scales, aircraft scales and other
aviation components used by the aviation maintenance and transportation
industries.
The Company is currently organized into three divisions devoted to the
Company's primary lines of business. These business divisions are as follows:
. Overhaul Services Division: This division comprises Aircraft Paint Services
and Component Overhaul Services. Aircraft Paint Services, through Aviation
Exteriors Louisiana, Inc. (formerly known as Pride Aviation, Inc.) and
Aviation Exteriors Portland, Inc. (collectively "AvEx"), provides painting
and paint stripping services for commercial and freight aircraft at their
facilities located in Portland, Oregon and New Iberia, Louisiana. AvEx's
primary customers are United Parcel Service and Federal Express. The
Company's TriStar Paint operations located in Dallas, Texas were
transferred to Aviation Exteriors Louisiana, Inc. during 1998, and, in
January 1999, the Company executed a lease and established a new paint
facility at Greenville, Mississippi through a new subsidiary, Aviation
Exteriors Greenville, Inc.
In March 1998, the Company established Component Overhaul Services by
acquiring Aero Design, Inc., a Tennessee-based manufacturer of aircraft
batteries for the commercial airline industry, and Battery Shop, LLC, a
sister company that repairs batteries for the aviation industry. On August
28, 1998, this division was expanded through the acquisition of GEC.
. Ground Handling & Services Division: Through Airline Services, the Ground
Handling & Services Division provides aircraft ground handling and cleaning
services to a variety of passenger and freight airlines such as United
Parcel Service, Champion Airlines, United Airlines, Inc., and Northwest
Airlines, among others, primarily at DFW International in Texas.
3
<PAGE>
. FBO Division: In July 1996, the Company began to operate its FBO Division,
and acquired CAS in August 1997. This fixed base operation, located at
Natrona County International Airport in Casper, Wyoming, provides fuel and
light maintenance services to general aviation, corporate and light freight
aircraft customers. The Company began a restructuring of its CAS operations
during the quarter ended June 30, 1999, including the elimination of
unprofitable departments and expense cuts designed to bring this division
to profitability during the year ended June 30, 2000.
The Company believes that airline companies will increase the outsourcing
of their maintenance and service requirements to third party vendors in the
future. There are over 10,000 maintenance and service vendors worldwide in the
aviation industry, and there has been significant consolidation within the
industry as companies have sought to acquire businesses and achieve larger size
and product capability.
The principal executive offices of the Company are located at 700 North
Pearl Street, Suite 2170, Dallas, Texas 75201, telephone number (214) 922-8100.
Industry Overview
The airline industry is currently experiencing revenue growth along with
increased profitability. Several new airlines have commenced operation in this
expanding market. These airlines constitute potential customers for the
Company's services. Aviation activity is expected to increase significantly
over the next ten years. According to the current Boeing Global Market
Forecast, passenger traffic will grow at an average annual rate of 5.2% through
2016, and that 86% of the current fleet of aircraft will be replaced during that
time.
The aircraft maintenance, repair, and operation ("MRO") industry segment is
projected to grow at 4-6% annually over the next ten years as airlines expand
their fleets. Much of this MRO growth is expected to be absorbed by the third-
party outsourcing service providers. There are more than 4,800 Boeing, Douglas
and Airbus passenger and cargo aircraft in service in North America. This fleet
requires 53 million man-hours of maintenance annually, and the industry
estimates that 40% of this effort will be provided by third-party providers.
Industry Consolidation & Generic Parts Manufacturing
As a result of the growth and strength of the aviation industry described
above, merger and acquisition activity has increased significantly over the last
five years. Specifically, the engine overhaul market, the MRO/heavy maintenance
market, and the ground service/handling market have particularly undergone
significant consolidation. The Company has sought to identify, acquire and
operate businesses that meet specific niche criteria that can generate and
sustain profits representing attractive candidates for future acquisition by
other larger aviation service firms.
As the world fleet of aircraft has grown, it has also aged. Airplanes are
being kept in service for longer periods. These aircraft require constant
maintenance and replacement of parts and systems. In recent years, third-party
vendors have begun to engineer and offer to the marketplace generic replacement
parts as price-competitive alternatives to those manufactured and sold by the
original equipment manufacturers ("OEM's). These parts must meet all standards
of the original parts and be approved by the FAA. Such parts can generate
significant revenues and profits for industry participants. Aviation Group,
through its ownership of Aero Design, Inc., is on the for-front of this trend,
and manufactures a complete line of replacement batteries and battery components
for virtually the entire world fleet of aircraft. This market position has high
potential value to the industry and represents an opportunity for shareholder
wealth in the future as an operating unit of the Company or as a candidate for
merger or sale to a larger aviation entity.
Overhaul Services Division
Paint Services. AvEx provides painting, paint stripping, and other
aircraft coating services to major passenger and freight airlines. The Company
paints some corporate aircraft and was recently awarded its first significant
military aircraft contract from Boeing. This division's operations include
aircraft stripping and painting services, light aircraft maintenance, and
interior refurbishment programs. The type and quality of paint and other
supplies utilized by the Company is generally dictated to the Company by its
customers, subject to FAA and EPA guidelines. In most cases, the Company's
customers arrange for the sources of paint supplies that it utilizes. The
Company believes that there are available numerous sources for the paint and
other supplies utilized by the Company.
4
<PAGE>
AvEx was incorporated as Pride Aviation, Inc. in the state of Oklahoma in
1990. During the year ended June 30, 1999, it changed its name to Aviation
Exteriors Louisiana, Inc. ("AvEx Louisiana") and began employing the trade name
AvEx. The administrative offices along with its primary aircraft painting
facilities are located in New Iberia, Louisiana. In September 1990, AvEx
Louisiana obtained its first certificate from the Federal Aviation
Administration ("FAA") to operate an approved repair station at its facilities
in New Iberia, Louisiana. Since that time, the certificate has been expanded to
permit it to conduct certain FAA classes of inspections and light maintenance
for a variety of jet aircraft. AvEx Louisiana is also certified to perform
structural repairs on certain equipment in a variety of jet aircraft. AvEx
Louisiana's painting facilities located in New Iberia, Louisiana can house all
narrow-bodied jets. Of a total of three hangars, one hangar has been built to
accommodate wide-bodied jets such as the Boeing 767 and McDonnell Douglas DC-10
aircraft.
United Airlines accounted for approximately 34% of Company revenues for the
year ended June 30, 1998, and 16% for the year ended June 30, 1999. This
contract was completed during the fiscal 1999 year. During the 1999 fiscal
year, AvEx executed a five-year contract with United Parcel Service to paint its
fleet of cargo aircraft. This contract represented 6% of revenues during the
fiscal 1999 year. AvEx continues to market its paint facilities to other major
airlines, cargo companies, and other aircraft owners.
The Company, through AvEx Louisiana, is presently constructing a new
Boeing-747-sized wide body aircraft hangar at its New Iberia, Louisiana
facilities. This $9.5 million facility was funded with $5 million in state and
federal grants, and with $4.5 million in Iberia Parish long term bonds. The
facility is expected to be completed in the fall of 2000, and significantly
increases the Company's capabilities and opportunities to provide its services
to owners of large Boeing-747-sized aircraft. See "--Facilities."
In September 1997, the Company, through Aviation Exteriors Portland, Inc.
("AvEx Portland"), was awarded a contract to paint newly manufactured wide-body
aircraft for Boeing Commercial Airplane Group ("Boeing"). The contract was for
seven aircraft, and was completed in February 1998. AvEx Portland leased a
hangar facility in Portland, Oregon in which it performed this work for Boeing
and, in May 1998, was awarded a three-year contract to paint aircraft for
Federal Express at its Portland facility. This contract accounted for 15% of
Company revenues during the year ended June 30, 1999. In January 1999, the
Company formed Aviation Exteriors Greenville, Inc. ("AvEx Greenville"). AvEx
Greenville executed a ten-year lease on a narrow-body aircraft paint facility in
Greenville, Mississippi and anticipates utilizing this facility for painting
regional, corporate and smaller airline aircraft.
Overhaul Services. In March 1998, the Company established the Overhaul
Services division by acquiring Aero Design, Inc., a Tennessee-based manufacturer
of aircraft batteries for the commercial airline industry, and Battery Shop,
LLC, a sister company that repairs batteries and battery temperature sensors for
the aviation industry. Aero Design manufactures and sells its products under
product manufacturing approvals ("PMA's") from the FAA into the replacement
market directly to airlines and other aircraft owners and through aviation
product distributors.
During the fiscal year ended June 30, 1999, Aero Design increased its sales
40% over the prior year and obtained additional PMA's from the FAA for batteries
representing approximately 90% of the world's fleet, including "main ship"
batteries, which are the main battery power sources for aircraft. These new
products along with Aero Design's existing products are expected to achieve
significant revenue and profit growth during the fiscal 2000 year.
On August 28, 1998, the Company acquired GEC, a 43-year old specialty
manufacturer of aircraft and trucking transportation equipment scales and other
aviation components based in Arlington, Texas. GEC markets its products
directly to airlines and maintenance operators worldwide. During the fiscal
1999 year, the Company reorganized the operations of GEC, lowered its operating
expenses and began to develop new products/services to strengthen its existing
business. Additionally, the Company has begun to explore marketing and service
joint ventures with third parties to enhance GEC's operating and financial
performance. These activities are expected to continue during the fiscal 2000
year.
5
<PAGE>
Ground Handling & Service Division
Through Airline Services, the Company engages in the cleaning and handling
of aircraft. Airline Services provides its customers with a variety of support
services including baggage handling, aircraft interior cleaning, exterior washes
and lavatory/water services. Airline Services presently operates at the Dallas-
Fort Worth International Airport. Marginal operations located at Oakland
International, San Francisco, Los Angeles, Kansas City International, and Ft.
Lauderdale, Florida were terminated during the fiscal 1998 and 1999 years.
Airline Services currently provides some or all of these services for United
Airlines, United Parcel Service, American Trans Air, Champion Air, Northwest
Airlines, and other customers.
Interior cleaning is performed between flights at the airport. This
involves cleaning the inside of the cockpit, cabin and galleys, servicing the
lavatories, fresh water facilities and stocking the aircraft with magazines, air
sickness bags and emergency cards. All pricing for this service is based on
airline specifications. Exterior cleaning involves cleaning the exterior of the
aircraft during nighttime layovers. Typically, an aircraft's exterior will be
cleaned once during a two or three week cycle. Airline Services uses specially
designed equipment and pressure sprayers to clean the exteriors of the aircraft.
Similar to interior cleaning, all pricing for this service is based on airline
specifications. During the fiscal 1999 year, Airline Services began to provide
ticket counter check-in and baggage handling and passenger services for certain
of its charter airline customers.
FBO Division
In July 1996, the Company began to operate a third business segment, its
FBO & Airport Management Division. In August 1997, the Company acquired CAS, a
50-year old, full-service FBO located in Casper, Wyoming. CAS is a full service
FBO located at Natrona County International Airport in Casper, Wyoming and has
been in business continuously since 1946. CAS historically provided aircraft
line services, aircraft repair and maintenance, parts distribution, and aircraft
sales. CAS has been a Cessna dealer since 1969. Upon its purchase by the
Company, the aircraft charter business was discontinued and the remaining
related aircraft are held for resale.
The aircraft line services offered by CAS include aircraft refueling, de-
icing, cleaning and heating, and weather information, refreshments, lounge areas
and ground transportation for pilots and passengers. CAS's FAA certified
service department provides maintenance and overhaul services for both piston
and turbo-charged aircraft engines, including Pratt & Whitney, Gulfstream
Aerospace Commander, Bell Helicopter 206 Series, Garrett AiResearch, Piper and
Cessna engines.
Marginally profitable and non-profitable aircraft propeller and parts sales
and distribution departments were discontinued at CAS during the year ended June
30, 1999. Management determined that market pressure on propeller service and
parts margins did not justify CAS retaining these business areas of operation.
Other departments have reduced costs and been overhauled in an effort to obtain
profitability for the CAS operation. CAS's fuel sales, hangar management, and
aircraft maintenance departments generated profits during the year ended June
30, 1999, and are being retained as operating departments of CAS. The Company
has had discussions and negotiations with certain parties regarding the sale of
all or part of the CAS operations. Such discussions have not yet led to a
definitive agreement to sell CAS.
Acquisitions of Complementary Businesses and Merger or Sale Opportunities
A key element of the Company's strategy historically involved growth
through acquisitions of other companies, assets or product or service lines that
would complement or expand the Company's existing businesses. Since 1996, the
Company has purchased five separate companies. Management believed that
acquisitions would enable it to leverage its fixed costs of operations and
further expand the products and services that it could offer to its customers.
The Company intended to use its common stock as the major source of its capital
to execute its acquisition strategy.
While management was successful in identifying candidates that met its
acquisition criteria, the trading price of the Company's shares and the level of
trading volume experienced in the public marketplace created a significantly
negative environment for acquiring aviation businesses for the Company using
shares for consideration. Company management has endeavored since 1998 to
improve this condition, while continuing to incur high corporate overhead costs
necessary to properly operate and maintain an anticipated larger aviation
service enterprise.
6
<PAGE>
In the present view of management, the Company's stock is trading below the
value of its existing underlying companies and acquisitions at present share
price levels would be dilutive to existing shareholders, while the continuation
of its corporate overhead strategy would erode shareholder value. Accordingly,
in August 1999, the Board of Directors, in an effort to maximize shareholder
value, approved a management plan to engage investment advisors and pursue the
additional strategy of selling all or part of the Company's businesses.
The Company is presently in discussions with certain third parties
regarding the sale or merger of the Company, and is also in discussions with
certain third parties regarding the sale of certain segments of the Company's
operations on an individual basis. Other parties interested in the Company's
status as a public company have expressed an interest in a business combination,
spin-off, or other transaction. While this process is underway, management
continues to cut overhead costs and focus its energies on the maximization of
its existing business units. There can be no assurance that such activities
will generate a sale or merger of the Company or any of its business units, or
that if such transaction occurs the resulting consideration will significantly
enhance shareholder value.
Advertising and Marketing
To date, the Company has generated most of its revenues from direct sales
and customer referrals. The Company also utilizes direct mailings and trade
journal advertisements as a secondary source of advertising and public
relations. The Company has full-time marketing representatives who contact
directly the maintenance and service executives of airlines and other aviation
customers to generate business for the Company. Notwithstanding the highly
competitive nature of the industry, management of the Company believes that
additional customers may be obtained by the Company.
Customers
AvEx provides stripping and painting services to major carriers in the
airline industry. AvEx's past and current customers include United Airlines,
Continental Airlines, Boeing Commercial Aircraft Group, Federal Express, United
Parcel Service, Delta, Southwest Airlines, Northwest Airlines and Piedmont
Airlines.
Aero Design sells its products to aircraft parts distributors around the
world, and directly to airlines in certain instances. Since the completion of
its FAA approval process for its generic battery product lines, Aero Design has
recently begun to increase its marketing activities and hopes to achieve
significant revenue growth during the fiscal 2000 year and beyond.
Airline Services performs ground handling services at DFW International
Airport. Its primary customers consist of United Airlines, Champion Airlines,
American Trans Air, Northwest Airlines, and UPS. For the fiscal year ended June
30, 1999, ground handling services accounted for approximately 7% of the total
revenues of the Company, versus 8% for the fiscal 1998 year.
Regulation
Environmental Regulation. The Resource Conservation and Recovery Act of
1976, as amended ("RCRA"), is a federal statute providing a comprehensive
program for regulating the generation, treatment, storage and disposal of
hazardous waste. Federal regulations adopted by the United States Environmental
Protection Agency ("EPA") pursuant to RCRA govern waste handling activities
involving substances that are either listed as hazardous or have certain
specified hazardous characteristics (e.g., corrosive, ignitable). Under RCRA,
liability and stringent operating requirements are imposed on businesses that
generate hazardous waste.
Federal and state environmental laws include statutes intended to allocate
the cost of remedying past contamination among specifically identified parties.
The Comprehensive Environmental Response, Compensation and Liability Act as
amended ("CERCLA" or "Superfund"), 42 U.S.C. 9601 et. seq., imposes strict and
joint and several liability upon owners or operators of facilities at, from, or
to which a release of hazardous substances has occurred, upon parties who
generated hazardous substances that were released at such facilities, and upon
parties who arranged for the transportation or disposal of hazardous substances
to applicable facilities.
The day-to-day operations of the Company are also subject to regulation
under the Clean Air Act, as amended ("CAA"). In particular, the EPA and state
agencies have promulgated, or are required to promulgate, regulations which
affect or will affect the operations of the Company. These regulations include
New Source Performance Standards ("NSPS") and National Emission Standards for
Hazardous Air Pollutants ("NESHAPs").
7
<PAGE>
NSPS and NESHAP rules may require additional controls on emissions of certain
listed hazardous air pollutants ("HAPs"). The CAA identifies chemicals that the
Company uses and/or processes, such as methylene chloride, phenol and methyl
ethyl ketone, as HAPs for purposes of regulation. The CAA may also require the
Company to maintain operating permits for its facilities' air emissions. The EPA
has announced plans to impose more stringent standards for ozone and particulate
matter. Regulations promulgated to achieve these standards may require
additional controls on emissions of particulate matter and volatile organic
compounds.
The Company must comply with RCRA, CERCLA, CAA and other federal, state and
local environmental protection laws, and the regulations promulgated thereunder,
in its operations and facilities. These laws and regulations are particularly
applicable to the paints and paint stripping chemicals and solvents used by the
Company in its operations. The Company could be held liable as a current or
former operator for releases of hazardous substances at its facilities. The
Company could also incur liability for cleanup costs at off-site facilities to
which the Company shipped hazardous substances for treatment, handling, storage,
or disposal. Management of the Company believes that the Company's operations
and facilities are in material compliance with all federal, state and local
environmental laws and regulations and that the Company's hazardous waste
management practices minimize the potential for release of hazardous substances
into the environment. The Company has not experienced any significant
environmental regulatory problems in the past, and to date, the Company has not
been subject to any significant fines, penalties or other liabilities under
these laws and regulations. However, no assurance can be given that such laws,
regulations or interpretations thereof will not necessitate significant
expenditures by the Company or otherwise have a material adverse impact on the
Company's operations or financial condition in the future.
Aviation Regulation. The FAA regulates all aspects of the airline and
aircraft industries. The Company's subsidiaries have certifications from the
FAA to operate aircraft repair stations. Such certifications are limited as to
the kinds of repair and maintenance activities that may be performed by the
Company's subsidiaries at their certified facilities. The FAA regularly
inspects these facilities for compliance with FAA regulations and guidelines.
Failure to comply with FAA regulations and guidelines could result in a loss of
certification. A loss of certification for a particular facility would prevent
that facility from performing any aircraft repair or maintenance operations.
The Company believes that its subsidiaries are in compliance in all material
respects with the FAA's regulations and guidelines. Nevertheless, no assurance
can be given that such regulations and guidelines or any FAA enforcement actions
may not have a material adverse effect on the Company's operations and financial
condition in the future.
Competition
The airlines services industry is highly competitive. Each of the
Company's subsidiaries is in direct competition with other companies. Many
heavy maintenance facilities perform aircraft stripping and painting services as
an adjunct to their maintenance operations and, consequently, directly compete
with the Company. The owners of these heavy maintenance facilities include Dee
Howard Company, Pemco, Tramco, Inc. and Raytheon.
The Company's Ground Handling & Service Division has several competitors.
Some of the Company's larger competitors include Pedus, Intex and World Aviation
Services. These competitors provide interior and exterior aircraft cleaning
services and light catering services similar to those provided by the Company.
The Company's FBO & Airport Management Division has only one smaller
competitor in the sale of fuel and no competition in any of its other services
at Natrona County International Airport in Casper, Wyoming. CAS believes that
the primary competitive factors in this marketplace are price, quality,
engineering and customer service. CAS's remote location in Casper, Wyoming in
some cases constitutes a competitive advantage (on-site fuel sales) and
sometimes a disadvantage (aircraft repairs).
Employees
The Company presently provides employment to approximately 400 employees
throughout the United States. AvEx employs approximately 250 employees,
depending upon seasonality. At August 31, 1999, Airline Services had an
aggregate of approximately 60 employees, CAS had a total of 38 employees, Aero
Design had eight employees, and GEC had 39 employees. Corporate management has
five employees, and management believes its employee relations to be good. No
employees are covered by collective bargaining agreements.
8
<PAGE>
Training
The Company provides formal classroom training to its employees with
respect to the safe handling of hazardous substances, occupational safety and
health, aircraft maintenance procedures and other safety and operational
procedures that are fundamental to its operations. On-the-job training is also
emphasized to ensure that classroom knowledge is transformed to operational
skills. Much of the Company's training program is mandated by the FAA and OSHA.
Insurance
The Company carries $200,000,000 of insurance for general aviation
liability and $200,000,000 of hangarkeeper insurance, as required by its
customers, and customary coverage for other business insurance. While the
Company believes its insurance is adequate, there can be no assurance that such
coverage will fully protect it against all losses which it might sustain.
Moreover, the Company's insurance for aircraft liability carries a deductible
requiring the Company to pay $20,000 of any loss or damage.
Risk Factors
Risk of Future Losses from Operations. The Company experienced losses
before income taxes of $1,997,000 and $2,106,000 for the year ended June 30,
1998 and year ended June 30, 1999, respectively. These losses were primarily
due to goodwill and amortization from the AvEx and CAS acquisitions, CAS
operating losses and restructuring costs, and increased corporate overhead
incurred to support the Company's acquisition activities. While many of these
costs are non-recurring in nature, there can be no assurance that the Company
will be profitable or that the Company's businesses will be successful in the
future. Overhead costs and corporate expense levels during the past two years
were instituted and incurred by management in anticipation of supporting the
acquisition of other aviation service companies in accordance with the Company's
growth strategy. While the Company was successful in making some acquisitions,
the size and volume of this activity did not necessitate the corporate overhead
levels that previously existed. Therefore, management began during the second
half of fiscal 1999 year to reduce costs, manage the Company with a greater
focus on current operating and financial performance, and consider strategic
joint ventures and/or combination with other aviation service companies. There
can be no assurance that these steps will permit the Company to achieve
profitability.
Dependence on Certain Customers. For the fiscal year ended June 30, 1999,
three AvEx customers accounted for $8,455,000, or 37% of revenues of the
Company. Of this amount, $3,672,000 or 16% was from United Airlines, Inc.
AvEx's aircraft stripping and painting services contract with United Airlines,
Inc. ("United") provided approximately 34% of the Company's revenues for the
year ended June 30, 1998. The contract with United expired during fiscal 1999.
The Company has successfully attracted additional paint contracts from other
companies, and continues to pursue additional work on an ongoing basis. While
the Company has broadened its customer base, any termination of a material
contract or material curtailment of plane deliveries by AvEx's major customers,
including reductions as a result of economic or competitive industry pressures,
would adversely affect the Company's business, financial conditions and results
of operation.
General Customer Risks Related to the Airline Industry. The airline
industry is significantly affected by general economic conditions. Because a
substantial portion of business and personal airline travel is discretionary,
the industry tends to experience adverse financial results during general
economic downturns. Economic and competitive conditions since deregulation of
the airline industry in 1978 have contributed to a number of bankruptcies and
liquidations among airlines. A worsening of current economic conditions, or an
extended period of recession nationally or regionally, could have a material
adverse effect on the Company's operations. The Company will not have any
control over these general economic conditions.
Year 2000 Compliance and Business Disruption Risks. The Company's customers
and vendors comprise major commercial passenger and freight airlines and related
maintenance and service customers that serve the airline and aviation
maintenance industry. Additionally, these airlines utilize aircraft and other
flight and computer equipment in the ongoing management of their businesses. The
industry in general is regulated by and overseen by the Federal Aviation
Administration, which itself operates flight maintenance, regulation, and
control functions for the industry at large. The Company is presently working
with its major customers and vendors to define and implement Year-2000
safeguards and systems management procedures. The nature and severity of such
issues is difficult to detect and measure, however, and significant business
interruptions from Year-2000 system breakdowns within the aviation industry may
occur whose impact on the Company may be material in scope and amount.
9
<PAGE>
Seasonality. The Company's Overhaul and Service Division experiences
significant seasonality and quarter-to-quarter variability in its stripping and
painting operations. The annual operating cycle generally reflects escalating
strip and paint revenues during non-summer and non-holiday periods. The
Company's painting revenues are adversely affected during the airlines' peak
traffic seasons of the summer months and the November and December holidays.
Currently, a significant percentage of the Company's revenue is generated by the
Overhaul and Service Division.
No Assurance of Successful Sale or Acquisitions. The Company intends to
consider acquisitions of other companies that could complement the Company's
existing business, including acquisitions of complementary service and product
lines. There can be no assurance that suitable acquisition candidates can be
identified, or that, if identified, adequate and acceptable financing sources
will be available to the Company that would enable it to consummate these
transactions. The Company is presently in discussions with certain third parties
regarding a sale or merger of all or a part of its businesses, and is also in
discussions with certain third parties regarding the sale of certain segments of
the Company's operations on an individual basis. Other parties interested in
the Company's status as a public company have expressed interest in a business
combination, spin-off, or other transaction. There can be no assurance that
such activities will generate a sale or merger of the Company or any of its
businesses or that if such transaction occurs the resulting consideration will
significantly enhance shareholder value.
Risks of Aviation Repair Business. The Company's business exposes it to
possible claims for personal injury, death or property damage which may result
from the failure or malfunction of propellers, avionics systems, accessories and
engines serviced. The Company currently has in force aviation products,
premises and hangarkeepers insurance which the Company believes provides
coverage in amounts and on terms that are generally consistent with industry
practice. During the last five years, the Company has not experienced any
material product liability claims related to its products.
Additional Financings or Offerings. There can be no assurance that the
Company's current capital resources will be sufficient to enable the Company to
implement fully its business strategies. As a result, the Company may need to
raise additional funds through equity or debt financings. No assurance can be
given that such additional financings will be available on terms acceptable to
the Company, if at all. Further, any such financings may result in further
dilution to the Company's stock and higher interest expense and may not be on
terms that are favorable to the Company.
Dependence on Key Personnel. The Company's future success depends, in large
part, on the efforts and abilities of its management team, including Lee
Sanders. The loss of the services of any of these managers could have a
material adverse affect on the business of the Company. The Company has
employment agreements with Mr. Sanders and certain other members of its
management team. Mr. Sanders is currently the owner of approximately 29% of the
Company's outstanding Common Stock.
Control by Existing Shareholders and Certain Transactions. The directors,
officers, and principal shareholders of the Company beneficially own a
substantial portion of the Company's outstanding Common Stock. As a result,
these persons will have a significant influence on the affairs and management of
the Company, as well as on all matters requiring shareholder approval, including
electing and removing members of the Company's Board of Directors, causing the
Company to engage in transactions with affiliated entities, causing or
restricting the sale or merger of the Company, and changing the Company's
dividend policy. Such concentration of ownership and control could have the
effect of delaying, deferring, or preventing a change in control of the Company,
even when such a change of control would be in the best interest of the
Company's other shareholders.
Competition. The airline services industry is highly competitive. Each of
the Company's subsidiaries is in direct competition with other companies.
Because many of the Company's competitors have greater resources than the
Company, no guarantee or assurance can be given that the Company will be able to
compete successfully in providing its services at a competitive but profitable
price.
Environmental Regulation; Hazardous Materials. The Company's operations are
subject to a substantial amount of government regulation. In particular, the
Environmental Protection Agency ("EPA") and state and local regulatory
authorities regulate, among other things, emissions to air, discharges to water
and the generation, use, storage, transportation, treatment and disposal of the
substances employed by the Company in its aircraft stripping and painting
operations. The Company's facilities may require operating permits that are
subject to revocation, modification and renewal, violations of which may provide
for substantial fines and civil or criminal sanctions. The
10
<PAGE>
operation of any facility that handles chemical substances entails risk of
adverse environmental impact, including exposure to such substances, and there
can be no assurance that material costs or liabilities will not be incurred to
rectify any such damage. In addition, potentially significant expenditures could
be required in order to comply with environmental, health and safety laws and
regulations that may be adopted or imposed in the future.
FAA Regulation. The Federal Aviation Administration (the "FAA") regulates
most of the Company's business operations. The Company's painting business and
battery manufacturing and repair business is dependent upon continued compliance
with the requirements of the FAA and maintenance of the FAA's certifications of
the Company's subsidiaries. These certifications allow the Company's
subsidiaries to perform their services as well as other repair and maintenance
services at their facilities. CAS's operations, including charter aircraft,
parts sales and repair and maintenance operations, are subject to regulation by
the FAA and requires FAA's certificates. Loss of any necessary FAA
certifications could have a material adverse effect on the Company's operations
and financial condition.
Possible Volatility of Stock Price. The securities of many emerging
companies have experienced significant price and volume fluctuations that are,
at times, unrelated or disproportionate to the operating performance of such
companies. Such fluctuations may be the result of changes in conditions
affecting the economy in general, analysts' reports, general trends in the
industry, role of market makers, and other events or factors beyond the
Company's control. These conditions may have a material adverse effect on the
market price of the Company's Common Stock and publicly held Warrants.
Effect of Preferred Stock on Rights of Common Stock. The Company's Articles
of Incorporation authorize the Board of Directors of the Company to issue "blank
check" preferred stock, the relative rights, powers, preferences, limitations,
and restrictions of which may be fixed or altered from time to time by the Board
of Directors. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting, or other rights that could adversely affect the voting power
and other rights of the holders of Common Stock. The preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying, or
preventing a change in control of the Company that shareholders might consider
to be in the Company's best interests. Although the Company has no present
intention of issuing any shares of preferred stock, there can be no assurance
that the Company will not do so in the future.
No Dividends. Since its capitalization, the Company has paid no dividends on
its Common Stock. The Company does not presently intend to pay any dividends on
its Common Stock. Dividend payments in the future may only be made out of
legally available funds, and, if the Company experiences substantial losses,
such funds may not be available.
Listing and Maintenance Criteria for Securities; Penny Stock Rules. The
Company's Common Stock and Warrants are presently listed on The Nasdaq SmallCap
Market ("Nasdaq") and the Boston Stock Exchange (the "BSE"). If the Common
Stock or the Warrants fail to maintain such listings, the market value of the
Common Stock and Warrants likely would decline and holders likely would find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, the Common Stock and Warrants.
Forward-Looking Statements and Associated Risks. This Report contains
forward-looking statements including statements regarding, among other items,
the Company's business strategies, continued growth in the Company's markets,
and anticipated trends in the Company's business and the industry in which it
operates. The words "believe," "expect," "anticipate," "intends," "forecast,"
"project," and similar expressions identify forward-looking statements. Such
forward-looking statements are based upon the Company's expectations and are
subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from such forward-
looking statements, as a result of the factors described under this "Risk
Factors" section and elsewhere herein, including among others, regulatory or
economic influences. In light of these risks and uncertainties, there can be no
assurance that any forward-looking information contained in this Report will in
fact transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.
11
<PAGE>
Item 2. Description of Property
Facilities
New Iberia Facilities. AvEx Louisiana leases from the Iberia Parish
Airport Authority (the "Authority") four aircraft hangars and office space at
Acadiana Regional Airport in New Iberia, Louisiana. The Acadiana Regional
Airport has a 200 foot by 8002 foot runway, load rated for all military and
commercial aircraft. Normal hours of operation for AvEx Louisiana are 24 hours
per day, seven days per week.
AvEx Louisiana leases aircraft maintenance Hangar 88 together with
adjoining corporate offices for an annual rental of $120,000. The initial term
of this lease expires on August 1, 2000. These facilities were constructed
prior to 1960. This lease also covers a 3.369 acre automobile parking area.
Hangar 88 is 160 feet wide by 185 feet deep with 40 foot hangar doors on both
the east and west side. A taxiway leading to both sides of the hangar allows
this building to house two narrow body aircraft at one time.
On land adjacent to the Hangar 88 complex, construction of a new aircraft
maintenance Hangar 88-C was completed in 1995 using $2,900,000 of bond funds
provided by the State of Louisiana. It is 185 feet wide by 223 feet deep, with
40 foot hangar doors and a tail door which is an additional 20 feet in height,
and is capable of housing wide-bodied McDonnell Douglas DC-10 aircraft. Hangar
88-C is leased by AvEx Louisiana for an initial term expiring October 1, 2023 at
an annual rental of $158,000. The Hangar 88 and 88-C complex constitute AvEx
Louisiana's major facilities at the Acadiana Regional Airport.
AvEx Louisiana also leases a smaller aircraft maintenance hangar for an
annual rental of $60,000. The initial term of the lease expires on February 1,
2001. This hangar is used by AvEx Louisiana to paint Boeing 737 aircraft, which
may be completely enclosed within the hangar while being painted.
Each of the three leases allows the Authority and AvEx Louisiana to agree
to extensions and requires rental escalations of 10% every five years. The
leases also require AvEx Louisiana to pay fuel fees of 16% of its cost for
aircraft fuel and lubricating oils. AvEx Louisiana is usually able to charge
these fuel fees to its customers.
AvEx Louisiana has executed a 30-year operating lease with the Authority
for purposes of obtaining funds from the State of Louisiana to build a larger
hangar for the housing and maintenance of Boeing 747 aircraft. The State of
Louisiana and the U.S. government have approved grants totaling $4.5 million to
pay part of the cost of construction of a hangar at Acadiana Regional Airport.
Iberia Parish financed the remaining cost of the hangar construction through a
bond issuance. This project is targeted for completion in the fall of 2000, and
will thereafter require annual rental payments of $420,000. The estimated
total cost of the hangar is $9,500,000.
Portland Facilities. AvEx Portland leases two hangars and office space at
the Airtrans Center at Portland International Airport. Portland International
Airport has a 11,011 foot by 150 foot runway load rated for all commercial and
military aircraft. The facility is presently being used for aircraft painting
for the Federal Express contract. The paint hangar consists of a 112,000 square
foot maintenance hangar and a two-story, 65,000 square foot shop and office
area. The hangar is 320 feet by 350 feet with 50.5 foot hangar doors, with an
additional tail door 19 feet high. The lease requires rent equal to 10% of the
revenues of AvEx Portland earned from its Portland painting activities.
Greenville Facilities. In January 1999, the Company formed AvEx Greenville
and executed a ten year lease on a 28,000 square foot paint facility at the Mid
Delta Regional Airport in Greenville, Mississippi. This facility can
accommodate airplanes up to Boeing-727 in size, and AvEx Greenville pays $9,000
per month for the facility.
Dallas Office Space. The Company also occupies 5,900 square feet of office
space at 700 North Pearl Street, Suite 2170, Dallas, Texas, pursuant to a
sublease that expires in September 1999. The Company pays a monthly rental of
$7,120.
Casper Facilities. In connection with the acquisition of CAS in August
1997, the Company acquired certain real property and leases related to the
operations of CAS. The Company leases from the Natrona County International
Airport Authority the land underlying its main hangar and office building and
three groups of hangars for the storage of aircraft.
12
<PAGE>
The lease of the land underlying CAS's main hangar and office building
expires December 31, 2009 and requires a monthly rental of $2,000 per month.
This lease also requires that the building and improvements on the leased
property vest to the Natrona County International Airport Authority at the
expiration of the lease term.
The Company also leases land underlying the three storage hangars. These
leases require a monthly payment totaling the greater of $479 per month or 7% of
the sublease rentals received. These leases expire from January 31, 2002 to
August 31, 2006.
Tennessee Facilities. Aero Design utilizes approximately 3,000 square feet
of manufacturing and office space in Nashville, Tennessee under a two-year lease
at the monthly rate of $1,500 plus expenses. These facilities are deemed
adequate for Aero Design's growth during the next fiscal year. Suitable
facilities in the nearby area are sufficient to support additional growth.
Arlington Facilities. GEC operates an approximately 20,000 square foot
manufacturing and operating facility in Arlington, Texas under a short term
lease. Rent payments are $5,000 per month plus all utilities and taxes. These
premises are deemed sufficient for the operation of the enterprise during the
fiscal 2000 year.
Item 3. Legal Proceedings
The Company is not involved in any material pending legal proceeding other
than ordinary routine litigation considered to be incidental to its business and
other than the following litigation.
Along with the cash and stock consideration paid to the sellers of CAS in
August 1997, the Company agreed at the time of the CAS purchase to remit to the
sellers of CAS additional cash consideration with respect to their shares of
Common Stock if certain conditions were satisfied. In August 1998, the Company
filed a lawsuit seeking a declaratory judgment in its favor that the conditions
to this additional payment had not been met. The sellers filed a suit at the
same time seeking payment of amounts allegedly owing to them. The dispute is
presently being litigated as Frederick C. Werner, et al. v. Aviation Group,
----------------------------------------------
Inc., Civil Action No. 98-CV-1062-B, United States District Court for Wyoming.
- ----
Management presently believes that its position regarding the nonpayment of
these sums will ultimately be upheld.
A former employee of GEC filed suit against GEC in December 1998, alleging
that he injured himself on the job due to GEC's negligence. This suit is styled
Amador Trevino v. General Electrodynamics Corporation, Cause No. CC-98-11952-C
- -----------------------------------------------------
in the County Court at Law No. 4, Dallas County, Texas. The plaintiff seeks
$155,000 in actual damages plus interest and costs. GEC denies the plaintiff's
claims and allegations. Management intends to vigorously defend the suit and
believes that this suit will not have a materially adverse impact on the
Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
13
<PAGE>
PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
On August 19, 1997, the Company closed an initial public offering (the
"IPO") of its $.01 par value Common Stock (symbol: AVGP) and Redeemable Common
Stock Purchase Warrants (symbol: AVGPW). The Company sold 1,150,000 shares of
Common Stock, and 1,150,000 Common Stock Purchase Warrants. These securities
have been listed with and trade on the Nasdaq SmallCap Market and the Boston
Stock Exchange since completion of the IPO. There was no public trading market
for the Company's securities prior to that time.
As of October 4, 1999, the Company had 69 holders of record of Common Stock
and nine holders of record of Warrants.
The following table sets forth, for the fiscal quarters indicated, the high
and low closing sales prices of the Company's Common Stock (since August 13,
1997) based on information published by the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
Common Stock Trading Price
--------------------------
Fiscal Year 1998 High Low
- ---------------- ---- ----
<S> <C> <C>
August 13, 1997 - September 30, 1997.. $10.375 $8.125
October 1, 1997 - December 31, 1997... 9.125 7.500
January 1, 1998 - March 31, 1998...... 8.375 3.375
April 1, 1998 - June 30, 1998......... 4.375 3.000
Fiscal Year 1999
- ----------------
July 1, 1998 - September 30, 1998..... 3.875 2.250
October 1, 1998 - December 31, 1998... 2.313 1.625
January 1, 1999 - March 31, 1999...... 2.938 1.781
April 1, 1999 - June 30, 1999......... 2.250 1.250
</TABLE>
During the last two fiscal years, the Company has not paid any Common Stock
dividends. The Company does not anticipate payment of any dividends on its
Common Stock in the near future because the Company intends to retain earnings
to fund growth of its operations.
During the fiscal year ended June 30, 1999, the Company issued, or agreed
to issue, the following unregistered securities whose issuance has not
previously been reported.
In September 1998, the Company issued 5,217 shares of Common Stock to a stock
broker pursuant to his exercise of outstanding warrants previously held by him.
These shares were issued, on a cashless basis, in exchange for the exercise and
surrender of a total of 8,000 warrants. The warrants were exercisable at $1.00
per share. These shares were issued in reliance upon the exemption from
registration of the Securities Act of 1933, as amended (the "Securities Act"),
provided by Section 4(2) thereof.
In July 1998, Robert Schneider, then a director of the Company, exercised his
warrants in an unregistered transaction to purchase 32,434 shares of Common
Stock. These shares were issued, on a cashless basis, in exchange for the
exercise and surrender of a total of 43,245 warrants. The warrants were
exercisable at $1.00 per share. These shares were issued in reliance upon the
exemption from registration under the Securities Act provided by Section 4(2)
thereof.
In May 1999, six holders of the Company's outstanding 10% Convertible Notes
agreed to convert the principal and interest payments payable under their Notes
on March 31, June 30 and September 30, 1999 totaling $221,000 for a total of
126,427 shares of Common Stock. The Company agreed to reduce the conversion
price for these Notes from $4.50 per share generally, or $3.00 per share in the
case of one of the Notes, to $1.75 per share. These shares were issued in
reliance upon the exemption from registration under the Securities Act provided
by Section 3(9) thereof. These shares were issued in exchange solely for the
cancellation of a portion of the outstanding debt represented by the Convertible
Notes.
14
<PAGE>
In June 1999, two existing shareholders of the Company loaned the Company a
total of $600,000. These loans are due December 31, 1999 and bear interest at
9% per annum. As part of the consideration for making these loans, the Company
issued to the lenders warrants to purchase a total of 200,000 shares of Common
Stock at an exercise price of $1.00 per share. These warrants expire on June
30, 2002. These warrants were issued in reliance upon the exemption from
registration under the Securities Act provided by Section 4(2) thereof. The
Company considers the lenders to be sophisticated and knowledgeable investors.
In October 1998, the Company issued to RAS Securities Corp. and one of the
principals of RAS warrants to purchase an aggregate of 100,000 shares of Common
Stock expiring in October 2003. The warrants were issued in consideration for
their efforts in obtaining acquisition candidates and raising capital for the
Company. Each of the parties were issued warrants having an exercise price of
$3.00 per share for 5,000 shares, $3.50 per share for 5,000 shares, $4.50 per
share for 10,000 shares, $5.50 per share for 10,000 shares, $6.50 per share for
10,000 shares, $7.50 per share for 5,000 shares, and $8.00 per share for 5,000
shares. The Company relied upon the exemption from registration under the
Securities Act provided by Section 4(2) thereof, and considers both of the
recipients to be sophisticated and knowledgeable investors.
In January 1999, the Company agreed to issue to Josephthal & Co. warrants to
purchase an aggregate of 100,000 shares exercisable at $2.125 per share expiring
in January 2004. These warrants have not yet been issued. These warrants are a
part of the consideration payable by the Company for investment banking services
to be provided by Josephthal & Co. in connection with the Company's capital
raising activities. In agreeing to issue the warrants, the Company relied upon
the exemption from registration under the Securities Act provided by Section
4(2) thereof. The Company considers Josephthal & Co. to be a sophisticated and
knowledgeable investor.
In July 1999, the Company agreed to issue to the Louisiana Economic
Development Corporation ("LEDC") warrants to purchase 15,000 shares of Common
Stock exercisable at $2.125 per share expiring in July 2002. These warrants are
to be issued in consideration for the guaranty provided by the LEDC for $500,000
in lease payments under the Company's new hangar lease in New Iberia, Louisiana.
In agreeing to issue the warrants, the Company relied upon the exemption from
registration under the Securities Act provided by Section 4(2) thereof. The
LEDC is an existing shareholder of the Company and considered by the Company to
be a sophisticated and knowledgeable investor.
In connection with the Company's purchase of Aero Design, Inc. and Battery
Shop, L.L.C., the Company (i) promised to pay to the former owners of those
entities a portion of the pre-tax net profits of those entities in excess of
$359,000 for three years, (ii) guaranteed to protect them from any losses of up
to $450,000 realized by them upon the resale of their shares of Common Stock
issued in connection with the purchase, and (iii) promised to pay to Mr. Lynn a
royalty equal to 2 1/2% of the Company's net sales from new products for which
the Company obtains new PMA licenses developed by Aero Design through Mr. Lynn's
efforts. In May 1999, they agreed to accept the issuance of 153,250 shares of
Common Stock in exchange for a release and cancellation of the guaranty by the
Company against any loss on a resale of their shares of Common Stock, agreed to
accept the issuance of 1,500 shares of Common Stock in exchange for any cash
profit participation payable for the year ended March 31, 1999, and agreed to
accept the issuance of 500 shares of Common Stock in satisfaction of the
Company's royalty obligation for the year ended March 31, 1999. All of the
foregoing shares have been or will be issued to the former owners in reliance
upon the exemption from registration under the Securities Act provided by
Section 4(2) or 3(9) thereof. These two individuals are existing shareholders
of the Company, are executive officers or directors of Aero Design and active in
Aero Design's business, and are considered by the Company to be sophisticated
and knowledgeable investors.
15
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management continues its efforts to reduce overhead costs, and expects
improvements in future periods, principally from reductions in Aviation Group
corporate overhead, insurance cost reductions, and reductions in accounting,
legal, and other indirect expenses. Reductions in non-essential division
operating expenses, along with elimination of marginal products and services
that do not provide future growth or near-term profits are also being pursued.
Overhead costs and corporate expense levels during the past two years were
instituted and incurred by management in anticipation of supporting the
acquisition of other aviation service companies in accordance with the Company's
growth strategy. While the Company continues to pursue growth via the
acquisition of such entities on a selected basis, such activity is subject to
the Company's ability to attract financing for such transactions. There can
presently be no assurance that such financing will be available in amounts and
at prices beneficial to existing shareholders and operations, and the absence of
such financing could have a materially negative effect on the Company's
operations. Therefore, management began during fiscal 1999 to reduce costs,
manage the Company with a greater focus on current operating and financial
performance, and consider strategic joint ventures and/or combinations with
other aviation service companies.
<TABLE>
<CAPTION>
Year Ended June 30,
Total Company 1999 1998
- ------------- ----------------- ------------------
<S> <C> <C>
Revenues $ 22,553,000 $ 18,244,000
Cost of revenue (16,407,000) (14,618,000)
Operating and other expenses (4,257,000) ( 2,769,000)
------------ ------------
Operating division income $ 1,889,000 $ 857,000
------------ ------------
Corporate Overhead (1,534,000) (1,389,000)
Depreciation and amortization (978,000) (694,000)
Non-recurring costs incurred (1) (641,000) (401,000)
Acquisition activity costs incurred (2) (262,000) (100,000)
Interest income 11,000 116,000
Interest expense (3) (591,000) (386,000)
------------ ------------
Pre-tax loss $(2,106,000) $(1,997,000)
============ ============
</TABLE>
_______________________
(1) Includes operating losses and costs incurred in departments eliminated by
the Company, along with certain start-up costs associated with adding new
product and service lines of business, as further disclosed in the Division
Summaries included herein.
(2) Includes costs associated with the Company's pursuit of acquisitions and
purchase-price financing related thereto, including $123,000 in non-cash
expense during the June 30, 1999 fiscal year relating to the issuance of
Common Stock warrants to third parties for investment/acquisition services.
(3) Includes $149,000 in non-cash financing costs during the June 30, 1999
fiscal year associated with the Company's restructuring of certain debt
payments and stock price guarantees as described further herein.
Overhaul & Service Division
- ---------------------------
Revenues consist primarily of gross revenues from stripping and painting
and other aircraft coating services to major passenger and freight airlines and
corporate aircraft and aviation related companies. Beginning January 1, 1999,
the Company officially changed the name of its painting operations from Pride
Aviation to Aviation Exteriors ("Avex") for each of the locations. This name
change coincides with the Company's enhanced marketing efforts in this division,
and management believes that such efforts will result in enhanced market
awareness and reputation for its painting businesses. During fiscal 1999, the
Company executed a hangar-facility operating lease and incurred start up costs
leading to the opening of a new paint facility in Greenville, Mississippi.
The Company's battery manufacturing subsidiary Aero Design is positioning
for significant growth. During the fiscal 1999 year, Aero Design applied for
and won approval from the FAA for numerous additional manufacturing licenses
relating to its line of commercial and general aviation replacement batteries.
These new licenses will allow Aero Design to focus its activities in fiscal 2000
on growth in sales and operating profits.
16
<PAGE>
General Electrodynamics Corporation (acquired in August, 1998) comprises the
remaining operating activities of this division. This subsidiary is not included
in Division operating results for fiscal 1998.
Costs of revenues consist largely of direct and indirect labor, direct
material and supplies, insurance and other indirect costs applicable to the
completion of each contract or order. Operating expenses consist of all general
and administrative and operating costs not included in costs of sales, including
but not limited to facilities rent, indirect labor and other overhaul costs.
This division of the Company now consists of five locations. In addition to
the Avex paint locations at Acadiana Regional Airport in New Iberia, Louisiana,
Portland Airport in Portland, Oregon, and the new paint facility in Greenville,
Mississippi, recent acquisitions have added the complementary operations of Aero
Design, Inc. in Mt. Juliet, Tennessee, and General Electrodynamics Corporation
of Arlington, Texas to this division.
During the year ended June 30, 1999, the paint division performed services
for three customers whose sales represented 75% of total revenues of this
division. For the year ended June 30, 1998, the paint division performed
services for one customer whose sales represented 68% of total revenues for this
division.
<TABLE>
<CAPTION>
Year ended June 30,
Overhaul Services 1999 1998
- ----------------- ---- ----
<S> <C> <C>
Revenues $ 15,097,000 $10,536,000
Cost of revenue (10,155,000) (7,900,000)
Operating and other expenses (3,356,000) (1,513,000)
------------ ----------
Recurring division income 1,586,000 1,123,000
------------ ----------
Depreciation and goodwill amortization (652,000) (422,000)
Facility start-up and restructuring costs (1) (264,000) (296,000)
Interest income -- 3,000
Interest expense (168,000) (40,000)
------------ ----------
Pre-tax income (loss) $ 502,000 $ 368,000
============ ==========
</TABLE>
_______________________________
(1) Includes $223,000 in start-up costs relating to the opening of the
Greenville, Mississippi facility and $41,000 in costs relating to the
transfer of remaining Dallas paint operations to New Iberia, Louisiana
during the year ended June 30, 1999. Includes $207,000 relating to the
Dallas paint operations and related transfer to Louisiana, and $89,000 in
Portland, Oregon start-up costs relating to the multi-year Federal Express
contract incurred during the year ended June 30, 1998.
Ground Handling & Service Division
- ----------------------------------
Revenues are derived primarily by providing commercial airlines with a
variety of support services including aircraft interior cleaning, exterior
washes, lavatory and water services and ramp services and baggage handling.
Costs of revenues consist largely of direct and indirect labor, direct material
and supplies, and other indirect costs. Operating expenses consist of all
general and administrative and operating costs not included in costs of sales.
This division operates principally at Dallas-Fort Worth International Airport
since 1990.
Certain marginal non-DFW operating locations have been eliminated during
the past twelve months. During the year ended June 30, 1999, the Company
recognized $44,000 in non-recurring costs associated with these shutdowns. Such
costs for the year ended June 30, 1998 were $72,000.
17
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30,
Ground Handling & Services 1999 1998
- -------------------------- ---- ----
<S> <C> <C>
Revenues $1,553,000 $1,462,000
Cost of revenue (811,000) (1,049,000)
Operating and other expenses (455,000) (321,000)
---------- ----------
Recurring division income 287,000 92,000
---------- ----------
Depreciation and amortization (110,000) (49,000)
Non-recurring facility shutdown costs (44,000) (72,000)
Interest income -- --
Interest expense (14,000) (8,000)
---------- ----------
Pre-tax income $ 119,000 $ (37,000)
========== ==========
</TABLE>
FBO Operations & Airport Management
- -----------------------------------
In August 1997, the Company acquired Casper Air Service, Inc. ("CAS"),
which operates a fixed-base operation in Casper, Wyoming. This fixed base
operation, located at Natrona County International Airport in Casper, Wyoming,
provides fuel and light maintenance services to general aviation, corporate and
light freight aircraft customers. During the fiscal 1999 year, the Company has
eliminated certain marginal lines of operations at CAS, including the aircraft
propellers and parts distribution departments. Operating losses and non-
recurring charges associated with these eliminated departments totaled $333,000
for the year ended June 30, 1999. Such activities generated $33,000 during the
fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Year ended June 30,
FBO Operations 1999 1998
- -------------- ---- ----
<S> <C> <C>
Revenues $ 5,903,000 $6,246,000
Cost of revenue (5,441,000) (5,669,000)
Operating and other expenses (446,000) (935,000)
----------- ----------
Recurring division income (loss) 16,000 (358,000)
Depreciation and amortization (194,000) (216,000)
Loss from eliminated departments (333,000) (33,000)
Interest income 9,000 46,000
Interest expense (114,000) (109,000)
----------- -------------
Pre-tax income $ (616,000) $ (670,000)
=========== =============
</TABLE>
Aviation Group - Corporate Overhead
- -----------------------------------
Operating expenses consist of all general and administrative and operating
costs to provide management to the Company's divisions, to support expected
growth, and to seek acquisition targets, not directly attributable to the
divisions' operations. These charges include legal, accounting, travel and other
related overhead. During the fiscal years ended June 30, 1999 and 1998, the
Company incurred $262,000 and $100,000, respectively, in non-amortizable
acquisition related costs. Direct costs associated with the Company's status as
a public company, along with increases in travel and corporate marketing and
operations accounted for the rise is overhead in fiscal 1999. Management
continues its efforts to reduce overhead costs, and expects additional
improvements in future periods, principally from reductions in Aviation Group
management overhead, insurance cost reductions, and reductions in accounting,
legal, and other indirect expenses.
18
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30,
Aviation Group- Corporate 1999 1998
- ------------------------- ---- ----
<S> <C> <C>
Operating and other expenses $(1,534,000) $(1,389,000)
Depreciation and amortization (22,000) (7,000)
Acquisition activity costs (1) (262,000) (100,000)
Interest income 2,000 67,000
Interest expense (2) (295,000) (229,000)
------------ ------------
Total Corporate Expenses $(2,111,000) $(1,658,000)
============ ============
</TABLE>
____________________
(1) Includes costs associated with the Company's pursuit of acquisitions and
purchase-price financing related thereto, including $123,000 in non-cash
expense during the June 30, 1999 fiscal year relating to the issuance of
Common Stock warrants to third parties for investment/acquisition
services.
(2) Includes $149,000 in non-cash financing costs during the June 30, 1999
fiscal year associated with the Company's restructuring of certain debt
payments and stock price guarantees as described further herein.
General
The Company, through its three operating divisions, offers a broad range of
services to the aviation industry. The Company planned to capture a larger
market share of the services its operating divisions provide and currently being
outsourced by the airline and corporate aircraft industry, including but not
limited to, painting airline and corporate aircraft, corrosion cleaning, ground
handling services, fueling, and passenger service. The Company has historically
grown through acquisitions and internal growth, and is additionally pursuing the
sale or merger of all or part of its businesses into a larger aviation service
company or other entity.
Seasonality and Variability of Results
The Company's Overhaul and Service Division experiences significant
seasonality and quarter-to-quarter variability in its stripping and painting
operations. The annual operating cycle generally reflects escalating strip and
paint revenues during non-summer and non-holiday periods. The Company's painting
revenues are adversely affected during the airlines' peak traffic seasons of the
summer months and the November and December holidays. At August 31, 1999, the
paint division had contracts for the painting of aircraft totaling approximately
$20,000,000 extending through the year 2002, beginning primarily in January
2000. Currently, a significant percentage of the Company's revenue is generated
by the Overhaul and Service Division.
Fiscal Year Ended June 30, 1999 Compared to the Fiscal Year Ended June 30, 1998
The Company's net revenue increased by $4,309,000 or 24%, for the year
ended June 30, 1999 compared to the year ended June 30, 1998. This increase in
revenue resulted primarily from the Company's Overhaul & Service Division, which
contributed net revenue totaling $15,097,000 for 1999 compared to $10,536,000
for 1998. These increases were from the Company's acquisition of Aero Design and
GEC, and increases in paint operations at the Company's Portland location.
Revenues from Ground Handling for the year ending June 30, 1999 increased
6% to $1,553,000 from $1,462,000 for the year ended June 30, 1998. Gross margins
increased during the period to 48% in fiscal 1999 from 29% in fiscal 1998, the
result of the Company's focus on its more profitable DFW operating location.
The Company's cost of revenues increased by $1,789,000 to $16,407,000 for
the year ended June 30, 1999 from $14,618,000 for the year ended June 30, 1998.
This increase in cost of revenues resulted primarily from the acquisitions of
Aero Design and GEC. Cost of revenues decreased as a percentage, relative to net
revenue, to 73%, for the fiscal year ended June 30, 1999 from 80% for the year
ended June 30, 1998. This improvement is the result of increases in Overhaul &
Service Division operating activities, which generate higher margins.
The Company's operating expenses increased by $2,062,000 to $6,734,000 for
the year ended June 30, 1999 from $4,672,000 for the year ended June 30, 1998.
This increase in operating expenses resulted primarily from the acquisitions of
Aero Design and GEC, and internal growth in the Company's paint operations.
Corporate
19
<PAGE>
overhead also included $123,000 in expense related to the value of Company
common stock warrants issued to certain financial and investment advisors
relating to acquisition activities.
Goodwill amortization and depreciation increased by $284,000 to $978,000
for the year ended June 30, 1999. This increase related to the acquisition by
the Company of Aero Design and GEC. Interest expense for the year ended was up
$205,000 during fiscal 1999 to $591,000 for the year ended June 30, 1999, versus
$386,000 for the year ended June 30, 1998. This increase resulted primarily from
interest expense in the Company's GEC subsidiary acquired in August 1998, and
$133,000 in finance charges relating to the Company's restructuring of certain
stock price guarantees in August 1998 as described further in Note H to the
Company's financial statements.
Financial Condition and Liquidity
A key element of the Company's strategy historically involved growth
through acquisitions of other companies, assets or product or service lines that
would complement or expand the Company's existing businesses. Since 1996, the
Company has purchased five separate companies. Management believed that
acquisitions would enable it to leverage its fixed costs of operations and
further expand the products and services that it could offer to its customers.
The Company intended to use its common stock as the major source of its capital
to execute its acquisition strategy.
While management was successful in identifying candidates that met its
acquisition criteria, the trading price of the Company's shares and the level of
trading volume experienced in the public marketplace has created a significantly
negative environment for acquiring aviation businesses for the Company using its
stock as consideration. Company management has endeavored since 1998 to remedy
this condition, while continuing to incur high corporate overhead costs
necessary to properly operate and maintain a larger aviation service enterprise.
In the present view of management, the Company's stock is trading below the
value of its existing underlying companies and acquisitions at present share
price levels would be dilutive to existing shareholders, while the continuation
of its corporate overhead strategy would erode shareholder value. Additionally,
the Company's operating subsidiaries other than CAS, while generating profits
and positive cashflow from operations, continue to be hindered by the corporate
overhead associated with the Company's original strategy of acquiring additional
aviation companies with a combination of cash and Company common stock.
Accordingly, in August 1999, the Board of Directors approved a management plan
to engage investment advisors and pursue the additional strategy of selling all
or part of the Company's businesses.
The Company is presently in discussions with certain third parties
regarding sale or merger of the Company, and is also in discussions with certain
third parties regarding the sale of certain segments of the Company's operations
on an individual basis. Other parties interested in the Company's status as a
public company have expressed interest in a business combination, spin-off, or
other transaction. While this process is underway, management continues to cut
overhead costs and focus its energies on the maximization of its existing
business units. There can be no assurance that such activities will generate a
sale or merger of the Company or any of its business units, or that if such
transaction occurs, the resulting consideration will significantly enhance
shareholder value.
Exclusive of the AvEx acquisition, the Company made capital expenditures
during the year ended June 30, 1999 and June 30, 1998 of $334,000 and $776,000,
respectively. The majority of capital expenditures incurred during the
aforementioned periods relates to equipment purchased to enhance the existing
operating facilities and computerized systems.
The Company realized approximately $5.3 million net proceeds from its IPO
in August 1997. The proceeds have been used to repay the 10% Bridge Notes of
$500,000, fund the cash portions of the CAS acquisition of $1,167,000 and the
Aero Design acquisition of $753,000, repay approximately $700,000 of bank and
other indebtedness, and general working capital for operations and other
corporate purposes. In August 1998 the Company entered into a $3,000,000 three-
year working capital financing arrangement with CIT Finance. The Company's
availability under this line is determined based on receivable and inventory
levels. Borrowings under the CIT line of credit were $1,259,000 at June 30,
1999, representing full borrowing under the line. Short term borrowings net of
repayments in fiscal year 1999 of $1,004,000 were used primarily in the
repayment of $425,000 in notes payable and $483,000 in long term debt.
Accelerated growth from current levels or material disruptions in business
activity could require additional debt or equity financing from external funding
sources.
20
<PAGE>
The Company is working to replace aircraft paint work during the first and
second quarters of the fiscal 2000 year at volume levels similar to those under
its United Airlines contract that expired in June 1999. At August 31, 1999, the
Company had contracts for the painting of aircraft totaling approximately
$20,000,000 extending through the year 2002, beginning primarily in January
2000, including military paint work as a subcontractor for Boeing. The Company
is aggressively pursuing contracts with various aircraft operators and owners
that are present in the marketplace. Management, therefore, is required to plan
cash flow for its operating peaks and valleys accordingly.
The Company has incurred significant losses from operations in fiscal years
1999 and 1998 and had a working capital deficit of $2,073,000 at June 30, 1999.
The Company generated $103,000 in cash flow from operating activities in fiscal
year 1999. This resulted from a net loss of $2,305,000 offset primarily by
$1,344,000 of non-cash charges and the net reduction of operating assets and
increase in operating liabilities of approximately $1,000,000. In June 1999, the
Company borrowed $600,000 from two of its shareholders. This loan bears interest
at 9% per annum, is payable at December 31, 1999 and is secured by a pledge of
the Company's stock in all of its subsidiaries except Aero Design, Inc., Battery
Shop, L.L.C. and General Electrodynamics Corporation.
Management has implemented certain cost-saving measures and arranged for
disposal of certain additional operating departments in CAS. Management has also
arranged for the conversion of certain current maturities of its 10% convertible
note obligations to common stock. The Company believes that these steps will
allow it to achieve positive cash flow in fiscal year 2000. Management also is
negotiating for the sale of certain fixed assets it believes will generate
approximately $500,000 of cash for the Company and allow it to finance its near-
term working capital requirements during fiscal 2000. These transactions
combined with Company expense reduction activities and the potential sale of
some or all of the Company's operating divisions can enable it to meet its
obligations during fiscal 2000. Any significant failure to achieve anticipated
cost savings or a sale of fixed assets or any significant business interruptions
or loss of significant customers could adversely affect the Company's cash flow
plans.
Year 2000 Compliance Issues
The Company's customers and vendors comprise major commercial passenger and
freight airlines and related maintenance and service customers that serve the
airline and aviation maintenance industry. Additionally, these airlines utilize
aircraft and other flight and computer equipment in the ongoing management of
their businesses. The industry in general is regulated by and overseen by the
Federal Aviation Administration, which itself operates flight maintenance,
regulation, and control functions for the industry at large.
The Company is presently working with its major customers and vendors to
define and implement Year-2000 safeguards and systems management procedures. The
nature and severity of such issues is difficult to detect and measure, however,
and significant business interruptions from Year-2000 system breakdowns within
the aviation industry may occur whose impact on the Company may be material in
scope and amount. Following is a summary of the principle strategic areas of
Year-2000 exposure and the status of Company efforts to monitor, measure, and
implement protective measures:
a) Accounting and financial record-keeping: The Company utilizes
off-the-shelf accounting and payroll software, operated on
standard personal computer file servers and hardware. The
Company's principle accounting packages have been upgraded
according to vendor software upgrades and are believed to be
Year-2000 compliant. The Company's CAS subsidiary has
historically used a mainframe-based system that the Company
strengthened during fiscal 1999 with a PC-based system, and
management expects all CAS systems to be Year-2000 compliant by
calendar 1999 year end . The cost of these upgrades is expected
to be less than $25,000.
b) Automated transfer of receipts and deposits with lenders and bank
depositories: The Company utilizes automated transfer
telecommunications and PC-based software to transfer monies
between divisions and their respective banks and lenders. The
Company has endeavored to confirm that such institutions have
installed sufficient Year-2000 compliant systems and procedures
to insure routine operations, and believes that business
disruption risk from this area is presently minimal.
21
<PAGE>
Item 7. Financial Statements.
Consolidated Financial Statements of Aviation Group, Inc. and Subsidiaries
<TABLE>
<S> <C>
Report of Independent Accountants dated September 17, 1999 by Hein +
Associates, LLP F-1
Report of Independent Accountants dated October 12, 1998 by
PricewaterhouseCoopers LLP F-2
Consolidated balance sheet as of June 30, 1999 F-3
Consolidated statements of operations for the years ended June 30, 1999
and the year ended June 30, 1998 F-4
Consolidated statements of changes in shareholders' equity for the period
from July 1, 1997 through June 30, 1999 F-5
Consolidated statements of cash flows for the years ended June 30, 1999
and 1998 F-6
Notes to consolidated financial statements F-7
</TABLE>
22
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
The information required by this item with respect to the change in the
Company's principal independent accountants from PricewaterhouseCoopers LLP to
Hein + Associates, LLP, effective April 19, 1999, has been previously reported
in the Company's Form 8-K Current Report dated April 19, 1999.
23
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The discussions under the captions "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement for the
Annual Meeting of Shareholders of the Company scheduled to be held on November
30, 1999 (the "Proxy Statement") are incorporated herein by reference.
Item 10. Executive Compensation.
The discussion under the caption "Executive Compensation" in the Proxy
Statement is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The discussion under the caption "Principal Holders of Common Stock" in the
Proxy Statement is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The discussion under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by reference.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following documents are included as exhibits to this Form 10-KSB Annual
Report and are filed herewith unless otherwise indicated. Exhibits incorporated
by reference are so indicated by asterisks.
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company filed with the Texas
Secretary of State, as amended*
3.2 Amended and Restated Bylaws of the Company*
4.1 Articles of Incorporation of the Company (filed as Exhibit 3.1)*
4.2 Form of Certificate representing Common Stock*
4.3 Form of Warrant Agreement dated August 13, 1997 between the Company,
Continental Stock Transfer & Trust Co., Inc., and Duke & Co., Inc.*
4.4 Form of Warrant Certificate (attached as Exhibit A to Form of Warrant
Agreement filed as Exhibit 4.3)*
4.5 Form of 10% Convertible Note of the Company maturing March 1, 2001*
4.6 Form of Underwriter's Warrant Agreement dated August 13, 1997 by and
between Company and Duke & Co., Inc.*
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
10.1 Aviation Group, Inc. 1997 Stock Option Plan*
10.2 First Amended and Restated Employment Agreement between Company and
Lee Sanders*
10.3 Employment Agreement dated March 1, 1996, by and between the Company
and Paul Lubomirski*
10.4 Consulting Agreement dated March 1, 1996, by and between the Company
and Charles E. Weed*
10.5 Form of Warrant Agreement for warrants granted as of April 28, 1998
and table listing directors or executive officers who received
warrants and related information****
10.6 Lease and Operating Agreement between Aviation Exteriors Louisiana,
Inc. and Iberia Parish Airport Authority, dated December 28, 1994,
relating to Hangar No. 88-C*
10.7 Warrant Agreement dated as of October 20, 1998 between Paul Taboada
and the Company
10.8 Warrant Agreement dated as of July 31, 1999 between the Company and
the Louisiana Economic Development Corporation
10.9 Lease and Operating Agreement between Iberia Parish Airport Authority
and Aviation Exteriors Louisiana, Inc., dated July 23, 1991, relating
to Hangar No. 88, as amended by that certain Agreement dated December
10, 1992*
10.10 Loan and Security Agreement dated August 21, 1998 between the CIT
Group/Credit Finance, Inc. and Tri-Star Airline Services, Inc.,
Aviation Exteriors Louisiana, Inc., Casper Air Service, Aero Design,
Inc., and AvEx Aviation Portland, Inc.****
10.11 Guaranty dated August 21, 1998 from the Company in favor of The CIT
Group/Credit Finance, Inc.****
10.12 9% Note due December 31, 1999 dated June 11, 1999 in the original
principal amount of $100,000 made by the Company payable to the order
of John Chidlow
10.13 9% Note due December 31, 1999 dated June 11, 1999 in the original
principal amount of $500,000 made by the Company payable to the order
of Jerry R. Webb
10.14 Pledge Agreement dated as of June 11, 1999 from the Company in favor
of Jerry R. Webb and John Chidlow
10.15 Warrant Agreement dated as of June 11, 1999 between the Company and
John H. Chidlow
10.16 Warrant Agreement dated as of June 11, 1999 between Jerry R. Webb and
the Company
10.17 Warrant Agreement dated as of October 20, 1998 between RAS Securities
Corp. and the Company
10.18 Form of 10% Convertible Note (included as Exhibit 4.5)*
10.19 Form of Pledge Agreement from the Company in favor of holders of 10%
Convertible Notes*
10.20 Warrant Agreement dated as of August 31, 1999 between the Company and
Hank Clements
10.21 Employment Agreement between Company and John Arcari*
10.22 First Amendment to Consulting Agreement between Company and Charles
Weed*
10.23 Warrant Agreement dated as of August 31, 1999 between the Company and
Robert Schneider
10.24 747 Hangar Lease Agreement between Iberia Parish Government, Iberia
Parish Airport Authority and Aviation Exteriors Louisiana, Inc.,
dated June 23, 1999
10.25 Agreement between United Parcel Service Co. and Aviation Exteriors
Louisiana, Inc. (f/k/a Pride Aviation, Inc.) dated January 1, 1999
10.26 First Amendment to Employment Agreement between the Company and Paul
Lubomirski dated August 18, 1997*
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
10.27 First Amendment to First Amended and Restated Employment Agreement
between the Company and Lee Sanders dated August 18, 1997*
10.28 Amendment to Employment Agreement between the Company and Lee Sanders
dated August 28, 1998****
10.29 First Amendment to Stock Purchase Agreement among the Company, Aero
Design, Inc., Battery Shop, LLC, Carolyn Lynn and Grady Lynn dated as
of April 30, 1999
10.30 Aircraft Paint Services Agreement dated April 24, 1998 between
Federal Express Corporation and AvEx Aviation, Inc.**
10.31 Stock Purchase Agreement dated as of August 28, 1998 among Aviation
Group, Inc., General Electrodynamics Corporation, Omega Management
Corporation and Thomas J. Smith***
10.32 Forms of Amendments to Nonqualified Warrant Agreements and Qualified
Stock Option Agreements to amend exercise prices, together with a
listing of the options and warrants that were amended and the new
exercise prices per share
10.33 Amendment and Second Amendment to June 30, 1996 Warrant Agreement
between the Company and Richard L. Morgan
11.1 Computation of Net Loss per Common Share
21.1 List of Subsidiaries of the Company
27.1 Financial Data Schedule
</TABLE>
* Incorporated herein by reference to the Form SB-2 Registration Statement of
the Company (File No. 333-22727).
** Incorporated herein by reference to the Form 10-QSB Quarterly Report for
the quarter ended March 31, 1998.
*** Incorporated by reference to the Form 8-K Current Report dated August 28,
1998.
**** Incorporated by reference to the Form 10-KSB Annual Report for the year
ended June 30, 1998.
(b) Reports on Form 10-K. The Company filed a Form 8-K Current Report dated
April 19, 1999 during the last fiscal quarter of the fiscal year ended
June 30, 1999. The Form 8-K reported the change in the Company's
independent accountants from PricewaterhouseCoopers LLP to Hein +
Associates, LLP.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: October 7, 1999.
AVIATION GROUP, INC.
/s/ RICHARD L. MORGAN
By: ___________________________________
Richard L. Morgan, Executive Vice
President & Chief Financial Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ LEE SANDERS
_______________________________ Chairman of the Board and Chief October 11, 1999
Lee Sanders Executive Officer
/s/ RICHARD L. MORGAN
_______________________________ Director, Executive Vice October 7, 1999
Richard L. Morgan President, Chief Financial
Officer and Chief Accounting
Officer
/s/ CHARLES WEED
_______________________________ Director October 7, 1999
Charles Weed
/s/ GORDON WHITENER
_______________________________ Director October 11, 1999
Gordon Whitener
/s/ HANK CLEMENTS
_______________________________ Director October 11, 1999
Hank Clements
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Aviation Group, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheet of Aviation Group,
Inc. and subsidiaries as of June 30, 1999, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Aviation Group, Inc. and subsidiaries at June 30, 1999, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Hein + Associates LLP
Hein + Associates LLP
Dallas, Texas
September 17, 1999
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Aviation Group, Inc.
In our opinion, the accompanying consolidated statements of operations, of
changes in shareholders' equity and of cash flows present fairly, in all
material respects, the results of operations and of cash flows of Aviation
Group, Inc. and its subsidiaries for the year ended June 30, 1998 in conformity
with generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Dallas, Texas
October 12, 1998
F-2
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1999
<TABLE>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 84,000
Restricted cash and time deposit 538,000
Accounts receivable, net of allowance of $138,000 2,200,000
Inventory, net 1,547,000
Prepaid expenses and other 170,000
-----------
Total current assets 4,539,000
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation 4,050,000
GOODWILL, net 4,144,000
OTHER ASSETS 319,000
-----------
Total other assets 8,513,000
-----------
Total assets $13,052,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt 463,000
Current portion of capital lease obligations 164,000
Short-term borrowings, net of discount of $140,000 2,316,000
Accounts payable 2,334,000
Accrued and other liabilities 1,335,000
-----------
Total current liabilities 6,612,000
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities 880,000
Capital lease obligations, net of current maturities 439,000
-----------
Total long-term liabilities 1,319,000
-----------
Total liabilities 7,931,000
-----------
COMMITMENTS AND CONTINGENCIES (Notes G and H)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none outstanding -
Common stock, $.01 par value, 10,000,000 shares authorized,
3,573,929 shares issued and outstanding 36,000
Additional paid-in capital 9,766,000
Accumulated deficit (4,681,000)
-----------
Total shareholders' equity 5,121,000
-----------
Total liabilities and shareholders' equity $13,052,000
===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
REVENUE $22,553,000 $18,244,000
COST OF REVENUE 16,407,000 14,618,000
----------- -----------
Gross profit 6,146,000 3,626,000
----------- -----------
OPERATING EXPENSES:
General and administrative expenses 6,734,000 4,672,000
Depreciation and amortization 978,000 694,000
----------- -----------
Total operating expenses 7,712,000 5,366,000
----------- -----------
Loss from operations (1,566,000) (1,740,000)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 11,000 116,000
Other, net 40,000 13,000
Interest expense (591,000) (386,000)
----------- -----------
Total other income (expense) (540,000) (257,000)
----------- -----------
Loss before provision for income taxes (2,106,000) (1,997,000)
PROVISION (BENEFIT) FOR INCOME TAXES 199,000 (359,000)
----------- -----------
NET LOSS $(2,305,000) $(1,638,000)
=========== ===========
LOSS PER SHARE, basic and diluted $ (0.67) $ (0.54)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,419,161 3,059,632
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 1, 1997 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
-------------------
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES, July 1, 1997 1,600,250 $16,000 $1,951,000 $ (738,000) $ 1,229,000
Issuance of shares and
warrants in connection with
initial public offering 1,150,000 11,500 5,168,500 - 5,180,000
Issuance of shares in
connection with acquisition
of Casper Air Service, Inc. 153,565 1,600 881,400 - 883,000
Stock warrants issued in
connection with acquisitions - - 26,000 - 26,000
Issuance of shares in
connection with acquisition
of Aero Design, Inc. and
Battery Shop, LLC 134,068 1,400 545,600 - 547,000
Issuance of shares in
connection with Bridge
Notes Warrants 43,478 400 (400) - -
Issuance of shares in connection
with conversion of note
payable 82,153 800 367,200 - 368,000
Issuance of shares in connection
with conversion of 10%
convertible note 975 - 3,000 - 3,000
Stock warrants exercised 129,112 1,300 (300) - 1,000
Issuance of shares in connection
with settlement of note payable 3,000 - 15,000 - 15,000
Net loss - - - (1,638,000) (1,638,000)
--------- ------- ---------- ------------ -----------
BALANCES, June 30, 1998 3,296,601 33,000 8,957,000 (2,376,000) 6,614,000
Issuance of shares in connection
with acquisition of General
Electrodynamics Corporation 112,029 1,000 293,000 - 294,000
Issuance of shares for principal
and interest payments on notes 126,428 2,000 237,000 - 239,000
Value of warrants issued and
shares granted with notes - - 156,000 - 156,000
Value of warrants issued for
services - - 123,000 - 123,000
Exercise of warrants 38,871 - - - -
Net loss - - - (2,305,000) (2,305,000)
--------- ------- ---------- ------------ -----------
BALANCES, June 30, 1999 3,573,929 $36,000 $9,766,000 $(4,681,000) $ 5,121,000
========= ======= ========== ============ ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-5
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,305,000) $(1,638,000)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and amortization 978,000 694,000
Accreted interest 16,000 64,000
Deferred income taxes 191,000 (359,000)
Loss on disposal of assets 36,000 -
Interest paid with common stock 34,000 -
Warrants issued for services 123,000 -
(Increase) decrease in accounts receivable 64,000 (587,000)
Decrease in inventories 676,000 567,000
Decrease in prepaids and other current assets 107,000 70,000
Increase in accounts payable 519,000 275,000
Increase (decrease) in accrued and other liabilities (261,000) 414,000
Other (75,000) 69,000
----------- -----------
Net cash provided (used) by operating activities 103,000 (431,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from GEC acquisition 41,000 -
Cash paid for acquisitions - (2,235,000)
Payments for hangar facility costs - (35,000)
Advances from related parties - 29,000
Increase in restricted cash (338,000) (200,000)
Proceeds from redemption of certificate of deposit - 100,000
Proceeds from sale of marketable securities - 113,000
Proceeds from sale of property and equipment 17,000 -
Payments for property and equipment additions (344,000) (776,000)
----------- -----------
Net cash used by investing activities (624,000) (3,004,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 1,859,000 720,000
Repayments of short-term borrowings (855,000) (607,000)
Repayment of notes payable (425,000) (500,000)
Proceeds from issuance of long-term debt - 225,000
Principal payments on long-term debt (483,000) (1,647,000)
Proceeds from issuance of common stock - 5,565,000
----------- -----------
Net cash provided by financing activities 96,000 3,756,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (425,000) 321,000
CASH AND CASH EQUIVALENTS, beginning of year 509,000 188,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 84,000 $ 509,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR
INTEREST AND INCOME TAXES:
Cash paid for interest $ 424,000 $ 287,000
Cash paid for income taxes - 4,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of common stock and warrants in connection with acquisitions $ 294,000 $ 1,456,000
Machinery and equipment acquired under capital leases 484,000 183,000
Conversion of notes payable and accrued interest to common stock 239,000 371,000
</TABLE>
See accompanying notes to these consolidated financial statements.
F-6
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND DESCRIPTION OF BUSINESS
Aviation Group, Inc. (the "Company") (a Texas corporation) was formed on
December 4, 1995 for the purposes of combining certain aircraft service
operations formerly owned by The Sanders Companies, Inc. ("Sanders") and to
acquire additional aircraft servicing related businesses. Sanders was 100%
owned by Lee Sanders, Chairman and chief executive officer of the Company.
On February 21, 1996, the Company acquired Pride Aviation, Inc. , which was
subsequently renamed Aviation Exteriors Louisiana, Inc. ("AvEx") in a
business combination accounted for as a purchase. AvEx operates a Federal
Aviation Administration ("FAA") approved repair station and provides
aircraft painting and maintenance services. In August 1997, the Company
acquired Casper Air Service, Inc. ("CAS"). CAS is a full service fixed base
operation ("FBO") located at Natrona County International Airport in
Casper, Wyoming and offers aircraft line services, repair and maintenance,
parts distribution and aircraft sales. In March 1998, the Company acquired
all of the outstanding common stock of Aero Design, Inc. and all of the
outstanding ownership interests of Battery Shop, LLC (collectively, "Aero
Design"), two sister companies involved in the manufacturing and overhaul
of replacement batteries for the aviation industry. Aero Design is located
outside Nashville, Tennessee. In August 1998, the Company acquired all the
outstanding common stock of General Electrodynamics Corporation ("GEC").
GEC manufactures and sells aircraft scales and other aviation components
used by the aviation maintenance and transportation industries and is
located in Arlington, Texas. See Note C.
In August 1997, the Company completed an initial public offering ("IPO") of
its common stock (See Note J).
The Company is currently organized into three operating divisions: overhaul
and service, ground handling and services, and fixed base operation ("FBO")
and airport management. The overhaul and service division includes two
business segments for financial reporting purposes: painting and
maintenance and manufacturing. The painting and maintenance business
segment provides painting and paint stripping services and certain
maintenance for commercial and freight aircraft at the Company's FAA
approved repair stations in New Iberia, Louisiana and Portland, Oregon. The
manufacturing business segment manufactures and sells aircraft batteries,
scales and other aviation components to customers throughout the United
States and Europe. The ground handling and services division provides
aircraft ground handling and light catering services to a variety of
passenger and freight airlines at the Dallas/Fort Worth International
Airport. Services at other airports were terminated in fiscal years 1998
and 1999. The FBO and airport management division provides fuel and light
maintenance services to general aviation, corporate and light freight
aircraft customers at an airport in Casper, Wyoming. The ground handling
and services and the FBO and airport management divisions are each
considered separate business segments for financial reporting purposes.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying consolidated financial statements present the consolidated
results of the Company and its majority owned subsidiaries. All
intercompany balances and transactions have been eliminated in
consolidation.
F-7
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition
-------------------
Revenues are recognized as services are performed or when products are
shipped.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted Time Deposit
-----------------------
The Company's restricted time deposit consists of a bank certificate of
deposit which matures in October 1999. The certificate of deposit
collateralizes an open letter of credit (See Note H) and is restricted as
to withdrawal as long as the associated letter of credit is outstanding.
Inventories
-----------
Aircraft held for resale are valued at the lower of cost or market, with
cost determined by the specific identification method. Parts and supplies
inventories are stated at the lower of cost or market, with cost determined
by the average costing method. Aircraft scales and aviation components
inventories are stated at the lower of cost or market, with cost determined
by the first-in-first-out method. Provision is made for estimated excess
and obsolete inventories.
Inventories consisted of the following at June 30, 1999:
Aircraft held for sale $ 170,000
Raw materials, parts and supplies 1,377,000
-----------
$ 1,547,000
===========
Goodwill
--------
Goodwill represents the cost in excess of fair value of the net assets
(including tax attributes) acquired in acquisitions. Goodwill is being
amortized on a straight-line basis over periods ranging from 20 to 25
years. Amortization expense for the years ended June 30, 1999 and 1998 was
$217,000 and $99,000, respectively. Accumulated amortization totaled
$384,000 at June 30, 1999.
Property and Equipment
----------------------
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation has been provided using straight line and double declining
balance methods over the estimated useful lives of the assets which range
from 5 to 30 years.
Long-Lived Assets
-----------------
The Company's policy is to periodically review the net realizable value of
its long-lived assets, including goodwill, through an assessment of the
estimated future cash flows related to such assets. In the event that
F-8
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets are found to be carried at amounts in excess of estimated
undiscounted future cash flows, then the assets will be adjusted for
impairment to a level commensurate with a discounted cash flow analysis of
the underlying assets. Based upon its most recent analysis, the Company
believes no impairment of long-lived assets exists at June 30, 1999.
Income Taxes
------------
The Company accounts for income taxes using an asset and liability
approach. Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income.
Earnings (Loss) Per Share
-------------------------
Basic earnings or loss per share ("EPS") is calculated by dividing the
income or loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Debt and
equity instruments convertible into shares of common stock at June 30, 1999
and 1998 were excluded from the computation of diluted EPS because their
inclusion would have been antidilutive.
Comprehensive Income (Loss)
---------------------------
Comprehensive income or loss is defined as all changes in stockholders'
equity, exclusive of transactions with owners, such as capital investments.
Comprehensive income or loss includes net income or loss, changes in
certain assets and liabilities that are reported directly in equity such as
translation adjustments on investments in foreign subsidiaries, and certain
changes in minimum pension liabilities. The Company's comprehensive loss
was equal to its net loss for the years ended June 30, 1999 and 1998.
Fair Value of Financial Instruments
-----------------------------------
For certain of the Company's financial instruments, including cash
equivalents, accounts receivable, short-term borrowings and accounts
payable, the carrying amounts approximate fair value due to their short
maturities. Management believes the carrying amount reported for long-term
debt approximates fair value based on current interest rates for debt with
similar terms and maturities.
Liquidity
---------
The Company has incurred significant losses from operations in fiscal years
1999 and 1998 and has a working capital deficit of $2,073,000 at June 30,
1999. Management has implemented certain cost-saving measures and arranged
for disposal of certain non-profitable departments, which it believes will
allow the Company to achieve positive cash flow in fiscal year 2000.
Management has also arranged for the conversion of certain short-term
obligations to common stock and is negotiating for the sale of certain
fixed assets it believes will generate about $500,000 of additional working
capital for the Company during the first or second quarter of fiscal 2000.
Management is also confident that its credit facilities with banks (total
of $1,656,000 at June 30, 1999) will continue to be available for the
foreseeable future. Based on these considerations, management believes the
Company will be able to meet its obligations through fiscal year 2000.
Reclassifications
-----------------
Certain reclassifications have been made to prior period amounts to conform
to the current year presentation.
F-9
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. ACQUISITIONS
General Electrodynamics Corporation
-----------------------------------
In August 1998, the Company acquired all the outstanding common stock of
GEC in exchange for 112,029 shares of the Company's common stock valued at
approximately $294,000. In addition, the Company agreed to remit to the
former shareholder of GEC up to $300,000 of any collections from certain
government contracts, net of direct expenses, received by GEC after the
acquisition. The former shareholder of GEC relinquished the right to those
collections in a subsequent settlement with the Company. The acquisition
was accounted for using the purchase method and the purchase price has been
allocated to the net assets acquired based on their estimated fair values.
The results of GEC are included in the accompanying financial statements
beginning September 1, 1998. The excess of the purchase price over the fair
value of the net assets acquired of $1,244,000 has been recorded as
goodwill and is being amortized using the straight-line method over twenty
years.
Casper Air Service, Inc.
------------------------
Concurrent with the IPO in August 1997, the Company acquired all of the
outstanding common stock of CAS. The purchase price of $2,400,000 included
$1,167,000 in cash, 153,565 shares of the Company's common stock valued at
approximately $883,000 and transaction costs. The acquisition was accounted
for using the purchase method and the purchase price was allocated to the
net assets acquired based on their estimated fair values. The results of
CAS are included in the accompanying financial statements beginning August
20, 1997. The excess of the purchase price over the fair value of the net
assets acquired (including tax attributes) of $1,041,000 was recorded as
goodwill and is being amortized using the straight-line method over 20
years.
Aero Design, Inc. and Battery Shop, LLC
---------------------------------------
In March 1998, the Company acquired all of the outstanding common stock and
ownership interests of Aero Design. The purchase price of $1,550,000
included $753,000 in cash and 134,068 shares of the Company's common stock
valued at approximately $547,000 and transaction costs. The terms of the
acquisition agreement provide for additional consideration to be paid if
Aero Design's results of operations exceed certain targeted levels. The
Company also agreed to protect the sellers from losses (up to $450,000)
realized upon the resale of the Company's stock for a period of 540 days
from closing of the acquisition. The Company agreed to issue the sellers
153,250 shares of common stock in fiscal year 2000 to satisfy this
guarantee. The acquisition was accounted for using the purchase method and
the purchase price was allocated to the net assets acquired based on their
estimated fair values. The results of Aero Design are included in the
accompanying financial statements beginning March 24, 1998. The excess of
the purchase price over the fair value of the net assets acquired
(including tax attributes) of $1,442,000 was recorded as goodwill and is
being amortized using the straight-line method over 25 years.
Supplemental Pro Forma Results of Operations (Unaudited)
--------------------------------------------------------
The following unaudited pro forma summary presents the consolidated results
of operations for the years ended June 30, 1999 and 1998 as if the CAS and
Aero Design acquisitions had occurred as of the beginning of the Company's
1998 fiscal year and as if the GEC acquisition had occurred at the
beginning of each respective fiscal year presented. The summarized
information does not purport to be indicative of what would have occurred
had the acquisitions actually been made as of such dates or of results
which may occur in the future.
F-10
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999 1998
---------- ----------
Revenues $ 23,160,000 $ 23,737,000
Net loss $ (2,295,000) $ (1,513,000)
Net loss per share (basic and diluted) $ (0.67) $ (0.46)
Adjustments made in arriving at pro forma unaudited results of operations
included adjustment related to discontinued charter operations, additional
depreciation expense, amortization of goodwill and related tax adjustments.
D. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 1999:
Machinery and equipment $ 3,624,000
Buildings and leasehold improvements 993,000
Furniture, fixtures and office equipment 491,000
Aircraft and vehicles 714,000
------------
5,822,000
Less accumulated depreciation (1,772,000)
------------
$ 4,050,000
============
Depreciation expense charged to operations for the years ended June 30,
1999 and 1998 was $761,000 and $595,000, respectively.
E. SHORT-TERM BORROWINGS
Line of Credit Facilities
-------------------------
In August 1998, the Company's operating subsidiaries (other than GEC)
obtained a $3,000,000 line of credit facility with the CIT Group/Credit
Finance, Inc. for working capital management purposes. The line of credit
bears interest at prime plus 1.5% (total of 7.75% at June 30, 1999) and
extends through August 2001. Amounts available for borrowings are based on
the level and composition of the Company's accounts receivable and
inventory. Amounts borrowed are repayable from lock box collections of the
Company's accounts receivable. Outstanding borrowings under this line of
credit at June 30, 1999 were $1,259,000. No additional borrowings were
available under the terms of the line of credit at June 30, 1999. The line
of credit is collateralized by substantially all of the assets of the
Company's operating subsidiaries (other than GEC) and guaranteed by the
Company.
In addition, GEC has a note payable to a bank under a revolving credit
agreement with a balance of $397,000 at June 30, 1999. Interest is at the
bank's index rate plus 0.25% (total of 8.25% at June 30, 1999). The note is
collateralized by equipment, inventory and accounts receivable of GEC and
is due in October 1999.
Other Short-Term Borrowings
---------------------------
In June 1999, the Company borrowed $600,000 and executed notes payable to
two individuals. The principal and interest at 9% are due at maturity of
December 31, 1999. The notes are collateralized by stock of the Company's
subsidiaries (except GEC). In connection with the notes, the Company issued
the note holders
F-11
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
warrants to purchase a total of 200,000 shares of the Company's common stock
at $1.00 per share through June 2002. The warrants include a cashless
exercise feature and the exercise price may be adjusted in certain
circumstances, as specified in the agreement. The Company also granted 40,000
shares of common stock to a director as a finder's fee in connection with the
notes. The shares were issued in July 1999. The estimated value of the
warrants at the date of issuance of $106,000 and the quoted value of the
shares at the grant date of $50,000 have been accounted for as a discount to
the notes which is being amortized to expense over the seven-month life of
the notes.
The Company owes $200,000 without interest to a previous owner of GEC in
connection with a non-compete agreement. The balance is due in full in May
2000.
F. LONG-TERM DEBT
Long-term debt consisted of the following at June 30, 1999:
<TABLE>
<S> <C>
Convertible notes payable, payable in quarterly installments totaling $72,000
beginning April 1, 1998, bearing interest at 10%, maturing March 1,
2001 and collateralized by the Company's shares of common stock of
Aviation Exterior Louisiana, Inc. The notes are convertible into shares
of common stock of the Company at conversion prices ranging from
$3.00 to $4.50 per share, subject to adjustment for certain equity
transactions. $ 377,000
Note payable to a bank, interest at bank base rate (9.50% at June 30, 1999);
collateralized by equipment, inventories, accounts receivable and
intangibles of GEC. Due in monthly payments of $17,000 plus interest
through April 2003. 792,000
Note payable to an aircraft finance company, payable in monthly
installments of $10,000, including interest at prime plus 2.0% (9.75% at June
30, 1999), maturing January 2000, collateralized by certain aircraft and
equipment. 53,000
Various notes payable to a bank, payable in varying installments, including
interest at rates ranging from 9.25% to 9.5%, maturing through
December 2002 and collateralized by certain aircraft. 53,000
Various other notes payable, including $15,000 loan from shareholder 68,000
----------
Total 1,343,000
Less current maturities of long-term debt (463,000)
----------
Total long-term debt $ 880,000
==========
</TABLE>
Notes payable with due on demand provisions have been classified as a current
liability in the accompanying balance sheets.
F-12
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of long-term debt are as follows:
Year ending June 30,
--------------------
2000 $ 463,000
2001 470,000
2002 230,000
2003 180,000
----------
$1,343,000
==========
G. LEASES
Capital Leases
--------------
The Company leases certain machinery and equipment under arrangements
classified as capital leases. The net book value of machinery and equipment
recorded under capital leases totaled approximately $600,000 at June 30,
1999. Amortization expense associated with assets held under capital leases
is included in depreciation and amortization expense for the years ended June
30, 1999 and 1998.
Future minimum lease payments at June 30, 1999, together with the present
value of the minimum lease payments are:
Years ended June 30,
--------------------
2000 $ 219,000
2001 206,000
2002 128,000
2003 123,000
2004 52,000
-----------
Total minimum lease payments 728,000
Less amount representing interest (125,000)
-----------
Total present value of minimum lease payments 603,000
Less current portion (164,000)
-----------
Long-term obligation $ 439,000
===========
Operating Leases
----------------
The Company leases various equipment and office and hanger facilities under
cancelable and non-cancelable rental arrangements. Rental expenses from
operating leases for the years ended June 30, 1999 and 1998 were $1,493,000
and $1,466,000, respectively.
Minimum future lease payments for non-cancelable operating leases for the
next five years and thereafter are as follows:
Years ending June 30,
---------------------
2000 $ 755,000
2001 552,000
2002 463,000
2003 411,000
2004 388,000
Thereafter 8,645,000
-----------
$11,214,000
===========
F-13
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H. COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of Aero Design discussed in Note C, the
Company entered into a royalty agreement which provides that the Company will
pay the former owners of Aero Design a royalty of 2.5% of net revenues
associated with new product license agreements developed during the seven
year period beginning with the acquisition date. The royalties earned under
the agreement were insignificant in fiscal years 1999 and 1998.
The Company entered into an agreement with a third party firm to provide
financial advisory and consulting services to the Company. The terms of the
agreements provide that the Company will pay the firm $125,000 in the event
of a successful acquisition, capital infusion, financing or similar
transaction. The agreement remains effective until canceled by either party.
The Company, in connection with the production of revenue, produces chemical
waste, which is temporarily stored on the Company's premises. Costs for
disposal are expensed by the Company as waste is produced. The provision for
disposal of waste on hand totaled $9,000 as of June 30, 1999, and is included
in accrued liabilities in the accompanying balance sheet.
Certain of the Company's subsidiaries are partially self-insured for employee
medical claims. Insurance with independent insurance carriers is maintained
to cover medical claims in excess of self-insured limits. The Company's self-
insured limits vary by month and policy year and are based on various factors
including the number of employees and dependents covered and certain
experience factors. In addition to aggregate annual and monthly limitations,
the Company's exposure is further limited to specific limits per covered
individual.
In August 1998, four shareholders of the Company acquired 82,165 shares of
the Company's common stock from the parties that sold CAS to the Company (see
Note C). The Company guaranteed a minimum value for the shares of $3.50 per
share through August 1999 (subsequently extended to March 2000). The
difference between the guarantee value and actual stock price may be settled
in stock or cash at the shareholders' option. The Company records the fair
value of the guarantee as a liability and expense and adjusts for changes in
the fair value at each financial statement date. The liability associated
with the guarantee at June 30, 1999 and the net amount that has been recorded
to expense in the period is $133,000.
The parties that sold CAS to the Company filed a lawsuit in fiscal year 1999,
alleging the Company owed them $2.75 per share for the 82,165 shares referred
to above related to a stock price guarantee when the Company acquired CAS.
The Company believes the sellers' actions voided the guarantee and no amounts
are due. The Company intends to vigorously defend the action.
A former employee of GEC filed suit against GEC in December 1998, alleging
that he injured himself on the job due to GEC's negligence. The plaintiff
seeks $155,000 in actual damages plus interest and costs. GEC denies the
plaintiff's claims and allegations. Management intends to vigorously defend
the suit and believes that this suit will not have a materially adverse
impact on the Company.
The Company is involved in certain other legal proceedings in the normal
course of business. Management believes none of these matters will have a
material effect on the Company's results of operations or financial position.
The Company was required to post an irrevocable letter of credit in
connection with a parts supplies agreement with Cessna Aircraft Company. The
letter of credit expires in October 1999.
F-14
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. STOCK OPTIONS AND WARRANTS
1997 Stock Option Plan
----------------------
The Company's 1997 Stock Option Plan (the "Option Plan") was adopted by the
Company's Board of Directors and shareholders in February 1997. The purpose
of the Option Plan is to provide increased incentives to key employees and
directors of the Company to render services and exert maximum effort for the
business success of the Company. The Company has reserved 150,000 shares of
its common stock for issuance upon exercise of such options.
The Board of Directors or its Compensation Committee has the authority to
select key employees and directors to whom stock options are granted as well
as determining vesting schedules and other terms. The options vest ratably
over five years and can have a term of up to ten years. The aggregate fair
market value of the stock with respect to which incentive stock options are
first exercisable in any calendar year may not exceed $100,000 per incident.
The exercise price of incentive stock options must not be less than the fair
market value of the common stock on the date of grant.
In fiscal years 1998 and 1999, the Company's Board of Directors approved the
issuance of 88,000 incentive stock options. Of these, 59,000 were issued in
replacement for and cancellation of previously issued options. The exercise
price on all the options granted was the market price at the date of grant
except for options for 50,000 shares which were granted at 110% of market
price. All of the options were repriced in fiscal 1999 to the current market
price of $1.69 per share, (except for the 50,000 shares which were repriced
to $1.86 per share).
Warrant Issuances
-----------------
In connection with a private placement of stock in 1996, the Company issued
280,000 warrants to investment advisors and other parties. 200,000 warrants
were issued with an exercise price of $1.00 per share and 80,000 were issued
to a director with an exercise price of $2.50 per share. These warrants were
scheduled to expire February 28, 1999. The exercise price and number of
shares issuable under the warrants are subject to adjustment for certain
equity transactions and other circumstances. The warrants also contain a
"cashless" exercise feature whereby the warrants may be surrendered in
exchange for a number of shares to be determined based on the difference
between the exercise price and the market price for the Company's common
stock. During fiscal year 1998, holders of the $1.00 warrants surrendered
144,755 warrants to purchase 129,112 shares of common stock. Additional
warrants were surrendered to purchase 38,871 shares of common stock and the
remainder expired in fiscal year 1999. In August 1999, the $2.50 warrants
were extended to March 31, 2003 and repriced to the current market price of
$1.69 per share.
The Company issued 1,150,000 redeemable common stock purchase warrants in
connection with its IPO discussed in Note J. These warrants entitle the
holders to purchase, anytime after two years from the effective date of the
offering, 1.058 shares of common stock per each warrant for $6.52. The
warrants expire five years from the effective date of the IPO and are
redeemable at a price of $0.10 per warrant, with consent of the underwriter,
upon 30 days written notice, provided that the average closing bid quotations
or sales prices of the common stock equal or exceed $9.49 for 20 consecutive
trading days ending on the tenth day prior to the date on which the Company
gives notice of redemption. None of the warrants had been exercised as of
June 30, 1999.
F-15
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also sold 100,000 warrants (the "Underwriter's Warrants") to the
Underwriters of its IPO, for $0.001 per warrant. Each warrant entitles the
holder to purchase a share of common stock at $9.49 and also to receive an
Underlying Warrant whose term is identical to the warrants described above
except that the exercise price is $11.38. The Underwriter's Warrants are
exercisable for four years beginning one year after the effective date of the
IPO. None of these warrants had been exercised as of June 30, 1999.
In April 1998, the Board of Directors elected to grant 350,000 warrants to
officers, directors and consultants of the Company. In addition, the Board
approved the issuance of warrants to purchase 52,000 shares of common stock
in replacement for and cancellation of previously issued warrants to purchase
an aggregate of 52,000 shares of common stock. The original exercise price on
all the warrants granted was the market price at the date of grant. However,
the 350,000 warrants were repriced to the current market price of $1.69 per
share in August 1999.
During fiscal year 1999, the Company granted warrants to various parties to
purchase a total of 260,000 warrants at per share prices ranging from $2.13
to $9.00 and terms ranging from two to five years. The warrants were granted
for services and were recorded as expense based on the estimated fair values
of the warrants, which totaled $123,000.
Additional warrants were issued in fiscal year 1999 in connection with notes
payable as described in Note E.
SFAS No. 123 Information
------------------------
Pro forma information regarding net loss and loss per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
outstanding stock purchase warrants and employee stock options under the fair
value method of that statement. The fair value of each warrant and option
grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1999 and
1998.
1999 1998
---- ----
Dividend yield none none
Risk free interest rate 5.25% 5.74%
Expected volatility 0.85 0.30
Expected lives (years) 1.0 5.5
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period while the estimated
fair value of the warrants is expensed on the grant date. The Company's pro
forma net loss and loss per share were as follows for the years ending June
30, 1999 and 1998:
1999 1998
----------- -----------
Net Loss
As reported $(2,305,000) $(1,638,000)
=========== ===========
Pro forma $(2,310,000) $(2,103,000)
=========== ===========
Loss per share - Basic and Diluted
As reported $ (0.67) $ (0.45)
=========== ===========
Pro forma $ (0.67) $ (0.69)
=========== ===========
F-16
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of stock purchase warrant transactions and stock option transactions
under the Option Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price
-------- --------
<S> <C> <C>
Outstanding at June 30, 1997 56,500 $ 5.53
Granted 513,000 3.96
Exercised - -
Forfeited/Canceled (99,500) 6.86
-------- --------
Outstanding at June 30, 1998 470,000 3.54
Granted 470,000 2.89
Repriced - previous (435,000) 3.50
Repriced - new 435,000 1.69
Exercised - -
Forfeited/Canceled (33,000) 3.50
-------- --------
Outstanding at June 30, 1999 907,000 $ 2.33
======== ========
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price
-------- --------
<S> <C> <C>
Exercisable Warrants and Options:
June 30, 1998 396,600 $ 3.50
======== ========
June 30, 1999 841,000 $ 2.33
======== ========
</TABLE>
<TABLE>
<CAPTION>
Exercise Price Exercise Price Exercise Price
Less than Equal to Greater than
Market Price Market Price Market Price
-------------- -------------- --------------
<S> <C> <C> <C>
Weighted average fair value of warrants
and options granted during the years ended:
June 30, 1998 $ - $ 1.57 $ -
============== ============== ==============
June 30, 1999 $ 0.53 $ 0.71 $ 0.31
============== ============== ==============
</TABLE>
The following table summarizes information about the stock purchase warrants and
the fixed price stock options outstanding June 30, 1999. All the warrants and
approximately 22,000 of the options are exercisable at June 30, 1999.
<TABLE>
<CAPTION>
Weighted
Average Weighted
Outstanding Remaining Average
at Contractual Exercise
Exercise Prices: June 30, 1999 Life (months) Price
- ---------------- ------------- ------------- --------
<S> <C> <C> <C>
$1.00 - $1.69 635,000 48 $1.47
$2.13 - $3.00 110,000 54 $2.21
$3.50 - $5.50 82,000 51 $4.23
$6.00 - $9.00 80,000 34 $7.31
</TABLE>
F-17
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. SHAREHOLDERS' EQUITY
Initial Public Offering
-----------------------
On August 19, 1997, the Company closed an initial public offering of its
common stock and redeemable common stock purchase warrants. The Company
sold 1,150,000 shares of common stock at a price of $5.75 per share and
1,150,000 common stock purchase warrants at a price of $0.10 per warrant.
Proceeds from the stock offering totaled $5,180,000, net of approximately
$1,548,000 of associated underwriting discounts and offering expenses.
Preferred Stock
---------------
The Company has 5,000,000 shares of preferred stock authorized, none of
which are issued at June 30, 1999. The preferred stock may be issued in
series and with rights and preferences as determined by the Company's Board
of Directors.
K. RELATED PARTY TRANSACTIONS
The Company has a consulting arrangement with a member of the Board of
Directors. The consulting arrangement provides for monthly fees of $4,000
and reimbursement of certain expenses. The term of the current agreement
extends through February 2000. Fees paid under this arrangement totaled
$48,000 and $59,200 for the years ended June 30, 1999 and 1998,
respectively.
In connection with the acquisition of Aero Design in fiscal year 1998, the
Company paid $25,000 in fees and issued 20,000 common stock warrants to RAS
Securities, a company affiliated with a member of the Company's Board of
Directors.
Other related party transactions are described in Notes E, H and I.
L. PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes consists of a deferred tax
provision of $199,000 in fiscal year 1999 and a deferred tax benefit of
$359,000 in fiscal year 1998.
The following is a reconciliation of taxes computed at the federal
statutory rate to the provision for income taxes included in the financial
statements:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Tax benefit computed by applying federal statutory rate $(716,000) $(679,000)
Expenses not deductible for tax purposes (a) 74,000 71,000
Other - (52,000)
Valuation allowance 841,000 301,000
--------- ---------
Provision (benefit) for income taxes $ 199,000 $(359,000)
========= =========
</TABLE>
(a) Principally goodwill amortization.
F-18
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities consisted of the following at June 30, 1999:
<TABLE>
<S> <C>
Assets:
Net operating loss carryforward $ 1,548,000
Investment tax credits 81,000
Other 114,000
-----------
1,743,000
Less: Valuation allowance (1,223,000)
-----------
Total deferred tax assets 520,000
-----------
Deferred tax liabilities - property and equipment (520,000)
-----------
Net deferred tax assets $ -
===========
</TABLE>
For income tax purposes, the Company has available at June 30, 1999, unused
federal net operating loss carryforwards (NOL) of approximately $4,900,000,
which may be applied against future taxable income of the Company, expiring
in various years from 2005 to 2019. The NOL related to businesses acquired
are subject to certain annual limitations on their usage. The Company's
valuation allowance against deferred tax assets increased from $382,000 at
June 30, 1998 to $1,223,000 at June 30, 1999 due to an increase in the NOL
and to a change in the Company's assessment as to the likelihood of
utilization of the NOL in the future. Under the Internal Revenue Code, the
utilization of the NOL could be limited if certain changes in ownership of
the Company's common stock were to occur.
M. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution ("401(k)") employee benefit
plan, which is open to all employees meeting certain age and length of
service requirements. Employees may contribute up to 15% of their
compensation to the plan subject to statutory limits. Employer
contributions to the plan are discretionary and no employer contributions
have been made to date.
N. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Substantially all of the Company's accounts receivable at June 30, 1999,
resulted from sales to third party companies in the airline industry. This
concentration of customers may impact the Company's overall credit risk
either positively or negatively, in that these entities may be similarly
affected by changes in economic or other conditions. The Company believes
that the risk is mitigated by the size, reputation and nature of its
customers. Although the Company generally does not require collateral or
other security to support customer receivables, it may have certain rights,
such as the ability to place liens on aircraft services, in the event of
nonpayment by its customers.
During the year ended June 30, 1999, the Company derived approximately 16%
and 15% of its revenues from United Airlines and Federal Express, customers
of its overhaul and service division. During the year ended June 30, 1998,
the Company derived approximately 34% and 13% of its revenues from United
Airlines and Boeing, respectively, customers of its overhaul and service
division.
Accounts receivable from two customers at June 30, 1999 represented
approximately 29% of the total accounts receivable.
F-19
<PAGE>
AVIATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
O. BUSINESS SEGMENT INFORMATION
The following table summarizes financial information by the Company's four
business segments and corporate for fiscal years 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net revenues:
Painting and maintenance $11,162,000 $10,222,000
Manufacturing 3,935,000 314,000
Ground handling and services 1,553,000 1,462,000
FBO and airport management 5,903,000 6,246,000
Corporate - -
----------- -----------
Total $22,553,000 $18,244,000
=========== ===========
Operating income (loss):
Painting and maintenance $ 443,000 $ 247,000
Manufacturing 187,000 155,000
Ground handling and services 133,000 (29,000)
FBO and airport management (511,000) (607,000)
Corporate (1,818,000) (1,506,000)
----------- -----------
Total $(1,566,000) $(1,740,000)
=========== ===========
Total assets:
Painting and maintenance $ 6,380,000 $ 4,226,000
Manufacturing 2,196,000 1,898,000
Ground handling and services 638,000 782,000
FBO and airport management 3,384,000 4,015,000
Corporate 454,000 980,000
----------- -----------
Total $13,052,000 $11,901,000
=========== ===========
Depreciation and amortization
Painting and maintenance $ 442,000 $ 435,000
Manufacturing 210,000 22,000
Ground handling and services 110,000 49,000
FBO and airport management 194,000 181,000
Corporate 22,000 7,000
----------- -----------
Total $ 978,000 $ 694,000
=========== ===========
Capital expenditures (including capital leases):
Painting and maintenance $ 592,000 $ 291,000
Manufacturing 87,000 -
Ground handling and services 52,000 361,000
FBO and airport management 68,000 241,000
Corporate 29,000 66,000
----------- -----------
Total $ 828,000 $ 959,000
=========== ===========
</TABLE>
There were no significant intersegment sales or transfers for either
period. Operating income by business segment excludes interest and other
miscellaneous income and interest expense. Corporate assets consist
primarily of cash and cash equivalents and prepaid expenses.
F-20
<PAGE>
EXHIBIT 10.7
AVIATION GROUP,
AND
PAUL TABOADA
----------------------
WARRANT AGREEMENT
Dated as of October 20, 1998
1
<PAGE>
WARRANT AGREEMENT
-----------------
This WARRANT AGREEMENT (the "Agreement") is dated as of October 20, 1998
between AVIATION GROUP, INC., a Texas corporation (the "Company"), and PAUL
TABOADA, a New York resident, his heirs, personal representatives, and assigns
(collectively, "Taboada").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, under that certain Letter Agreement dated as of October 20, 1998
between the company, Taboada, and RAS Securities Corp. ("RAS"), the Company has
issued to Taboada warrants ("Warrants") to purchase an aggregate of 50,000
shares of Common Stock (as defined in Section 9.5), $.01 par value, of the
Company,
NOW, THEREFORE, in consideration of the premises, the agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. Effective herewith, Taboada is hereby granted the right to
-----
purchase, at any time prior to 5:00 p.m., Dallas, Texas time on October 20,
2003, 50,000 shares of Common Stock (the "Shares"). One share of Common Stock is
hereinafter referred to as a "Warranty Security" and more than one collectively
referred to as the "Warrant Securities." The exercise price of each Warrant
shall be as follows (subject to adjustment as provided in Section 9) subject to
the terms and conditions of this Agreement:
Number of Warrants Price
5,000 $3.00
5,000 3.50
10,000 4.50
10,000 5.50
10,000 6.50
5,000 7.50
5,000 8.00
2. Consideration. In return for the original grant of the Warrants, RAS
-------------
Securities Corp. and Taboada will provide and have provided services as
described in that certain letter dated October 20, 1998 by and between the
Company, RAS Securities Corp., and Taboada.
3. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
---------
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
4. Exercise of Warrant.
-------------------
2
<PAGE>
4.1 Method of Exercise. The Warrants initially are exercisable at an
------------------
aggregate initial exercise price (subject to adjustment as provided in
Section 9 hereof) per Warrant Security set forth in Section 7 hereof
payable by certified or official bank check, subject to adjustment as
provided in Section 9 hereof. Upon surrender of a Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with
payment of the Exercise Price (as hereinafter defined) for the Warrant
Securities purchased at the Company's principal offices (presently located
at 700 North Pearl, Suite 2170, Dallas, Texas 75201) the registered holder
of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holders thereof, in whole or part (but not
as to fractional shares of the Common Stock). In the case of the purchase
of less than all Warrant Securities purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate
of like tenor for the balance of the Warrant Securities purchasable
thereunder.
4.2 Exercise by Surrender of Warrant. In addition to the method of
--------------------------------
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time
and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section
4.1. The number of shares of Common Stock to be issued pursuant to this
Section 4.2 shall be equal to the difference between (a) the number of
shares of Common Stock in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of shares of
Common Stock in respect of which the Warrants are exercised multiplied by
the Exercise Price (as hereinafter defined) and the denominator of which
shall be the Market Price (as defined in Section 4.3).
4.3 Definition of Market Price. As used herein, the phrase "Market
--------------------------
Price" at any date shall be deemed to be the last reported sale price, or,
in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted to trading or by The Nasdaq Stock
Market's National Market or Smallcap Market ("Nasdaq"), or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted by the NASD or such
similar organization, the fair market value of a share of Common Stock as
determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it. Notwithstanding
the foregoing, for purposes of Section 8, the Market Price of a share of
Common Stock shall be determined by reference to the relevant information
set forth above during the thirty (30) trading days immediately preceding
the date of the event requiring the determination of the Market Price
(except that, in the event of a public offering of shares of Common Stock,
the Market Price of a share of Common Stock shall be determined by
reference to the trading day immediately preceding the effective date of
the public offering and not such thirty (30) trading day period).
5. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without
3
<PAGE>
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Sections 6 and 8 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the Shares
(and/or other securities, property or rights issuable upon the exercise of the
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Restriction On Transfer of Warrants. The Holder of a Warrant
-----------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof. This Agreement is binding upon any Holder(s) of a Warrant Certificate
and their respective heirs, successors, and permitted assigns. The Holder may
assign interests granted by this Agreement, subject to the any other limitations
in the Agreement, provided that the transferee agrees to be bound by the terms
of this Agreement as if such transferee were a Holder and, provided further,
that the assignment is made pursuant to an effective registration statement
under the Securities Act or a valid exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). If requested by the
Company, the Holder shall have furnished to the Company an opinion of counsel
reasonably satisfactory to the Company to such effect.
7. Exercise Price.
--------------
7.1 Initial and Adjusted Exercise Price. Except as otherwise
-----------------------------------
provided in Section 8 hereof, the initial exercise price of each Warrant
shall be as described in Section 1 herein per Warrant Security. The
adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 8 hereof.
7.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
8. Registration Rights.
-------------------
8.1 Piggyback Registration.
----------------------
(a) If, at any time prior to the seventh anniversary of the date
of this Agreement, the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Act"),
either for its own account or the account of any other security holder
or holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or
comparable registration statement), it shall give written notice, at
least thirty
4
<PAGE>
(30) days prior to the filing of each such registration statement, to
any Holder(s) of Registrable Securities (as hereinafter defined), of
its intention to do so. If such Holder(s) notify the Company within
twenty-one (21) days after the receipt of any such notice of its or
their desire to include any Registrable Securities in such proposed
registration statement, the Company shall afford such Holder(s) of
such Registrable Securities the opportunity to have any such
Registrable Securities registered for resale by the Holder(s) under
such registration statement. The term "Registrable Securities" means
(i) all shares of Common Stock owned by a Holder as a result of the
exercise of a Warrant, and (ii) all shares of Common Stock which a
Holder has an option to purchase under a Warrant, until, in the case
of any such security described by (i) or (ii), (a) such security is
disposed of in accordance with an effective registration statement
under the Securities Act, (b) such security is saleable by the Holder
pursuant to Rule 144(k), (c) such security is saleable by the Holder
pursuant to Rule 144 without regard to any volume limitations, or (d)
such security is distributed to the public pursuant to Rule 144.
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company
shall so advise any Holder(s) as part of the written notice given
pursuant to Section 8.1(a) hereof. The right of any such Holder(s) to
registration pursuant to this Section 8.1 shall not be conditioned
upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent
hereinafter provided.
(c) Notwithstanding the provisions of this Section 8.1, the
Company shall have the right at any time after it shall have given
written notice pursuant to Section 8.1(a) hereof (irrespective of
whether a written request for inclusion of any such securities shall
have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the
effective date thereof.
8.2 Covenants of the Company with Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 8.1 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to have any
registration statements declared effective at the earliest practicable
time and shall furnish each Holder desiring to sell Registrable
Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs, expenses and fees
(excluding fees and expenses of Holder(s)' counsel and any
underwriting or selling commissions), in connection with all
registration statements filed pursuant to Section 8.1 hereof
including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. If the Company
shall fail to comply with the provisions of Section 8.2(a), the
Company shall, in addition to any other equitable or other relief
available to the Holder(s), extend the exercise period of the Warrants
by such number of days as shall equal the delay caused by the
Company's failure.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as
5
<PAGE>
reasonably are requested by the Holder(s); provided that, the Company
shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 16 of the Act or Section 21(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act
or otherwise, arising from such registration statement except for
matters for which the Company is indemnified under subsection 8.2(e)
hereof.
(e) The Holder(s) of the Registrable Securities to be sold
pursuant to a registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the
Company within the meaning of Section 16 of the Act or Section 21(a)
of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in
such registration statement.
(f) For a period of ninety (90) days after the effectiveness of
any registration statement filed pursuant to Section 8.1 hereof, the
Company shall not permit any other registration statement (other than
(1) a registration statement relating to the securities for which the
Company has made available to the Holder(s) of the Registrable
Securities piggyback registration rights hereunder and (2) a
registration statement filed on Forms S-4 or S-8 or a shelf
registration on Form S-3) to be or remain effective during the
effectiveness of a registration statement or a shelf registration on
Form S-3 filed pursuant to Section 8.1 hereof, without the prior
written consent of the Holders of the Registrable Securities
representing a majority of such securities.
(g) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such registration
statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
6
<PAGE>
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(h) The Company shall as soon as practicable after the effective
date of any registration statement filed pursuant to Section 8.1
hereof, and in any event within fifteen (15) months thereafter, make
"generally available to its security holders" (within the meaning of
Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the act and covering a period
of at least twelve (12) consecutive months beginning after the
effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of
all written correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and
permit each Holder and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(j) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness
thereof.
8.3 Restrictive Legends. The Warrant Certificates, any certificates
-------------------
representing the Shares underlying the Warrants and any of the other
securities issuable upon exercise of the Warrants shall bear the following
restrictive legend:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended ("Act"), and may not be offered or sold except
pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144
under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) an
opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an
exemption from registration under such Act is
available.
7
<PAGE>
9. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
9.1 Computation of Adjusted Exercise Price. Except as hereinafter
--------------------------------------
provided, in the event the Company shall at any time after the date hereof
issue or sell any shares of Common Stock including shares held in the
Company's treasury (other than (i) the issuances or sales referred to in
Section 9.7 hereof, (ii) shares of Common Stock issued upon the exercise of
any options, rights or warrants to subscribe for shares of Common Stock, or
(iii) shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock), for a consideration
per share less than the Market Price in effect immediately prior to the
issuance or sale of such shares, or without consideration, then forthwith
upon such issuance or sale, the Exercise Price shall (until another such
issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (i) an amount equal to the
sum of (a) the total number of shares of Common Stock outstanding
immediately prior to the issuance or sale of such shares, multiplied by the
Exercise Price in effect immediately prior to such issuance or sale, and
(b) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (ii) the total number of shares
of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price
in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section
9.3 hereof.
For the purposes of this Section 9 the term Exercise Price shall mean
the Exercise Price per share of Common Stock set forth in Section 7 hereof,
as adjusted from time to time pursuant to the provisions of this Section 9.
For the purposes of any computation to be made in accordance with this
Section 9.1, the following provisions shall be applicable:
(a) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of
the cash consideration therefor shall be deemed to be the amount of
cash received by the Company for such shares (or, if shares of Common
Stock are offered by the Company for subscription, the subscription
price, or, if either of such securities shall be sold to underwriters
or dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
(b) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash shall
be deemed to be the value of such consideration as determined in good
faith by the Board of Directors of the Company and shall include any
amounts payable to security holders or any affiliates thereof
including, without limitation, pursuant to any employment agreement,
royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such amounts being valued
for the purposes hereof at the aggregate amount payable thereunder,
whether such payments are absolute or contingent, and irrespective of
the
8
<PAGE>
period or uncertainty of payment, the rate of interest, if any, or the
contingent nature thereof; provided, however, that if any Holder(s)
does not agree with such evaluation, a mutually acceptable independent
appraiser shall make such evaluation, the cost of which shall be borne
by the Company.
(c) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(d) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 9.1.
(e) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights, warrants and upon the conversion
or exchange of convertible or exchangeable securities.
9.2 Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof
----------
issue options, rights or warrants to subscribe for shares of Common Stock,
or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Market Price in
effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Section 9.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall
be deemed to be issued and outstanding at the time such options,
rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in such options, rights
or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue
or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding
at the time of issuance of such securities, and for a consideration
equal to the consideration (determined in the same manner as
consideration received on the issue or sale of shares of Common Stock
in accordance with the terms of the Warrants) received by the Company
for such securities, plus the
9
<PAGE>
minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in
subsection (a) of this Section 9.2, or in the price per share at which
the securities referred to in subsection (b) of this Section 8.2 are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants
or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options,
rights or warrants or the conversion or exchange of such convertible
or exchangeable securities.
9.3 Subdivision and Combination. In case the Company shall at any
---------------------------
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
9.4 Adjustment in Number of Securities. Upon each adjustment of the
----------------------------------
Exercise Price pursuant to the provisions of this Section 9, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise
price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Securities issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
9.5 Definition of Common Stock. For the purpose of this Agreement,
--------------------------
the term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Articles of Incorporation of the Company as amended as
of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from
no par value to par value. In the event that the Company shall after the
date hereof issue securities with greater or superior voting rights than
the shares of Common Stock outstanding as of the date hereof, the Holder,
at its option, may receive upon exercise of any Warrant either shares of
Common Stock or a like number of such securities with greater or superior
voting rights.
9.6 Merger or Consolidation. In case of any consolidation of the
-----------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock),
the corporation formed by such consolidation or merger shall execute and
deliver to the Holder a supplemental warrant agreement providing that the
holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which
such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide
10
<PAGE>
for adjustments which shall be identical to the adjustments provided in
Section 9. The above provision of this subsection shall similarly apply to
successive consolidations or mergers.
9.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
------------------------------------------------
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of such adjustment shall be less than two
cents ($.02) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents
($.02) per Warrant Security; or
(c) If the Exercise Price would be less than the par value per
share of Common Stock.
9.8 Dividends and Other Distributions. In the event that the Company
---------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value,
the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled
to receive at the time of such dividend or distribution as if the Warrants
had been exercised immediately prior to such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of
this Section 9.8.
11
<PAGE>
9.9 Statement on Warrant Certificate. Irrespective of any
--------------------------------
adjustments in the Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrants, the Warrant Certificate or certificates
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
10. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designed by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to issue fractional shares of Common Stock upon the exercise of
Warrants. Warrants may only be exercised in such multiples as are required to
permit the issuance by the Company of one or more whole shares of Common Stock.
If one or more Warrants shall be presented for exercise in full at the same time
by the same Holder, the number of whole shares of Common Stock which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares of Common Stock purchasable on exercise of the
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions provided herein, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current Market Price of a share of Common
Stock, determined in accordance with Section 4.3 hereof.
12. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other Securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder.
13. Notices to Warrant Holders. Nothing contained in this Agreement shall
--------------------------
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
12
<PAGE>
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable other than in cash, or a cash dividend or distribution
payable other than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of such events, the Company shall give written notice
of such event to the Holders at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer book, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4 hereof
or to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments. The Company and TABOADA may from time to
--------------------------
time supplement or amend this Agreement without the approval of any Holders of
the Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and TABOADA may deem necessary
or desirable and which the Company and TABOADA deem shall not adversely affect
the interests of the Holders of the Warrant Certificates. If TABOADA no longer
owns any Warrants, then this Agreement may be amended by the Company and the
Holders of a majority of the then outstanding Warrants.
16. Successors. All the covenants and provisions of this Agreement shall
----------
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
13
<PAGE>
17. Governing Law; Submission to Jurisdiction. This Agreement and each
-----------------------------------------
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Texas and for all purposes shall be construed in
accordance with the laws of such State without giving effect to the rules of
such State governing the conflicts of laws.
The Company, TABOADA and any other registered Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
Texas or of the United States of America for the Northern District of Texas, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, TABOADA and any other registered Holders hereby irrevocably waive
any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, TABOADA and the Holders
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 14 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company, TABOADA and any other registered Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
18. Entire Agreement; Modification. This Agreement contains the entire
------------------------------
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
--------
for convenience of reference only and are not intended, nor shall they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or corporation other than the Company and
TABOADA and any other registered Holder(s) of the Warrant Certificates or
Warrants Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
TABOADA and any other registered Holders of Warrant Certificates or Warrant
Securities.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
23. Replacement of Prior Warrant Agreement. The parties hereto agree that
--------------------------------------
the Prior Warrant Agreement is no longer in force and effect and is superseded
and replaced in part by this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ Richard L. Morgan
--------------------------------
Name: Richard L. Morgan
------------------------------
Title: CFO
-----------------------------
/s/ Paul Taboada
-----------------------------------
Paul Taboada
15
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., DALLAS, TEXAS TIME, OCTOBER 20, 2003
No. W- 42 Warrants to Purchase
50,000 Shares of Common Stock
WARRANT CERTIFICATE
-------------------
This Warrant Certificate certifies that Paul Taboada, or registered
assigns, is the registered holder of 50,000 Warrants to purchase initially, at
any time, until 5:00 p.m. Dallas, Texas time on April 28, 2003 ("Expiration
Date"), up to 50,000 fully-paid and non-assessable shares of common stock, $.01
par value ("Common Stock") of AVIATION GROUP, INC., a Texas corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), at the following initial exercise prices, subject
to adjustment in certain events (the "Exercise Price").
Number of Warrants Price
------------------ -----
5,000 $3.00
5,000 3.50
10,000 4.50
10,000 5.50
10,000 6.50
5,000 7.50
5,000 8.00
The shares of Common Stock will be issued upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the Warrant
Agreement dated as of October 20, 1998 between the Company and Paul Taboada (the
"Warrant Agreement"). Payment of the Exercise Price shall be made by certified
or official bank check payable to the order of the Company or by surrender of
this Warrant Certificate.
16
<PAGE>
No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ________________________.
AVIATION GROUP, INC.
[SEAL] By:_____________________________________
Name:___________________________________
Attest: Title:__________________________________
17
<PAGE>
Name:__________________________
Title:_________________________
18
<PAGE>
EXHIBIT 10.8
AVIATION GROUP, INC.
AND
LOUISIANA ECONOMIC DEVELOPMENT CORPORATION
______________
WARRANT AGREEMENT
Dated as of July 31, 1999
1
<PAGE>
WARRANT AGREEMENT
-----------------
This REPLACEMENT WARRANT AGREEMENT (the "Agreement") is dated as of August
31, 1999 between AVIATION GROUP, INC., a Texas corporation (the "Company"), and
the Louisiana Economic Development Corporation, a Louisiana corporation
("LEDC").
W I T N E S S E T H:
- - - - - - - - - -
In consideration of the premises, the agreements set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant. Effective herewith, LEDC is hereby granted the right to
-----
purchase, at any time prior to 5:00 p.m., Dallas, Texas time on July 31, 2002,
15,000 shares of Common Stock (the "Shares"). One share of Common Stock is
hereinafter referred to as a "Warranty Security" and more than one collectively
referred to as the "Warrant Securities." The exercise price of each Warrant
shall equal (subject to adjustment as provided in Section 9) $2.125 per Warrant
Security subject to the terms and conditions of this Agreement.
2. Consideration. In return for the original grant of warrants, LEDC will
-------------
provide certain financial guarantees relating to the construction of an aircraft
painting hangar in New Iberia, Louisiana.
3. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
---------
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
4. Exercise of Warrant.
-------------------
4.1 Method of Exercise. The Warrants initially are exercisable at an
------------------
aggregate initial exercise price (subject to adjustment as provided in
Section 9 hereof) per Warrant Security set forth in Section 7 hereof
payable by certified or official bank check, subject to adjustment as
provided in Section 9 hereof. Upon surrender of a Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with
payment of the Exercise Price (as hereinafter defined) for the Warrant
Securities purchased at the Company's principal offices (presently located
at 700 North Pearl, Suite 2170, Dallas, Texas 75201) the registered holder
of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holders thereof, in whole or part (but not
as to fractional shares of the Common Stock). In the case of the purchase
of less than all Warrant Securities purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate
of like tenor for the balance of the Warrant Securities purchasable
thereunder.
2
<PAGE>
4.2 Exercise by Surrender of Warrant. In addition to the method of
--------------------------------
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time
and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section
4.1. The number of shares of Common Stock to be issued pursuant to this
Section 4.2 shall be equal to the difference between (a) the number of
shares of Common Stock in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of shares of
Common Stock in respect of which the Warrants are exercised multiplied by
the Exercise Price (as hereinafter defined) and the denominator of which
shall be the Market Price (as defined in Section 4.3).
4.3 Definition of Market Price. As used herein, the "Market Price"
--------------------------
at any date shall be deemed to be the last reported sale price, or, in case
no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by The Nasdaq Stock
Market's National Market or Smallcap Market ("Nasdaq"), or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted by the NASD or such
similar organization, the fair market value of a share of Common Stock as
determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it. Notwithstanding the
foregoing, for purposes of Section 8, the Market Price of a share of Common
Stock shall be determined by reference to the relevant information set
forth above during the thirty (30) trading days immediately preceding the
date of the event requiring the determination of the Market Price (except
that, in the event of a public offering of shares of Common Stock, the
Market Price of a share of Common Stock shall be determined by reference to
the trading day immediately preceding the effective date of the public
offering and not such thirty (30) trading day period).
5. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 6 and 8 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
(and/or other securities, property or rights issuable upon the exercise of the
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
3
<PAGE>
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Restriction On Transfer of Warrants. The Holder of a Warrant
-----------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof. This Agreement is binding upon any Holder(s) of a Warrant Certificate
and their respective heirs, successors, and permitted assigns. The Holder may
assign interests granted by this Agreement, subject to the any other limitations
in the Agreement, provided that the transferee agrees to be bound by the terms
of this Agreement as if such transferee were a Holder and, provided further,
that the assignment is made pursuant to an effective registration statement
under the Securities Act or a valid exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). If requested by the
Company, the Holder shall have furnished to the Company an opinion of counsel
reasonably satisfactory to the Company to such effect.
7. Exercise Price.
--------------
7.1 Initial and Adjusted Exercise Price. Except as otherwise
-----------------------------------
provided in Section 8 hereof, the initial exercise price of each Warrant
shall be $2.125 per Warrant Security. The adjusted exercise price shall be
the price which shall result from time to time from any and all adjustments
of the initial exercise price in accordance with the provisions of Section
8 hereof.
7.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
8. Registration Rights.
-------------------
8.1 Piggyback Registration.
----------------------
(a) If, at any time prior to the seventh anniversary of the date
of this Agreement, the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Act"),
either for its own account or the account of any other security holder
or holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or
comparable registration statement), it shall give written notice, at
least thirty (30) days prior to the filing of each such registration
statement, to any Holder(s) of Registrable Securities (as hereinafter
defined), of its intention to do so. If such Holder(s) notify the
Company within twenty-one (21) days after the receipt of any such
notice of its or their desire to include any Registrable Securities in
such proposed registration statement, the Company shall afford such
Holder(s) of such Registrable Securities the opportunity to have any
such Registrable Securities registered for resale by the Holder(s)
under such registration statement. The term "Registrable Securities"
means (i) all shares of Common Stock owned by a Holder as a result of
the exercise of a Warrant, and (ii) all shares of Common Stock which a
Holder has an option to purchase under a Warrant, until, in the case
of any such security described by (i) or (ii), (a) such security is
disposed of in accordance with an
4
<PAGE>
effective registration statement under the Securities Act, (b) such
security is saleable by the Holder pursuant to Rule 144(k), (c) such
security is saleable by the Holder pursuant to Rule 144 without regard
to any volume limitations, or (d) such security is distributed to the
public pursuant to Rule 144.
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company
shall so advise any Holder(s) as part of the written notice given
pursuant to Section 8.1(a) hereof. The right of any such Holder(s) to
registration pursuant to this Section 8.1 shall not be conditioned
upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent
hereinafter provided.
(c) Notwithstanding the provisions of this Section 8.1, the
Company shall have the right at any time after it shall have given
written notice pursuant to Section 8.1(a) hereof (irrespective of
whether a written request for inclusion of any such securities shall
have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the
effective date thereof.
8.2 Covenants of the Company with Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 8.1 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to have any
registration statements declared effective at the earliest practicable
time and shall furnish each Holder desiring to sell Registrable
Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs, expenses and fees
(excluding fees and expenses of Holder(s)' counsel and any
underwriting or selling commissions), in connection with all
registration statements filed pursuant to Section 8.1 hereof
including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. If the Company
shall fail to comply with the provisions of Section 8.2(a), the
Company shall, in addition to any other equitable or other relief
available to the Holder(s), extend the exercise period of the Warrants
by such number of days as shall equal the delay caused by the
Company's failure.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested
by the Holder(s); provided that, the Company shall not be obligated to
execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any
such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 16 of the Act or Section 21(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably
5
<PAGE>
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement
except for matters for which the Company is indemnified under
subsection 8.2(e) hereof.
(e) The Holder(s) of the Registrable Securities to be sold
pursuant to a registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the
Company within the meaning of Section 16 of the Act or Section 21(a)
of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in
such registration statement.
(f) For a period of ninety (90) days after the effectiveness of
any registration statement filed pursuant to Section 8.1 hereof, the
Company shall not permit any other registration statement (other than
(1) a registration statement relating to the securities for which the
Company has made available to the Holder(s) of the Registrable
Securities piggyback registration rights hereunder and (2) a
registration statement filed on Forms S-4 or S-8 or a shelf
registration on Form S-3) to be or remain effective during the
effectiveness of a registration statement or a shelf registration on
Form S-3 filed pursuant to Section 8.1 hereof, without the prior
written consent of the Holders of the Registrable Securities
representing a majority of such securities.
(g) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such registration
statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(h) The Company shall as soon as practicable after the effective
date of any registration statement filed pursuant to Section 8.1
hereof, and in any event within fifteen (15) months thereafter, make
"generally available to its security holders" (within the meaning of
Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the act and covering a
6
<PAGE>
period of at least twelve (12) consecutive months beginning after the
effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of
all written correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and
permit each Holder and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(j) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness
thereof.
8.3 Restrictive Legends. The Warrant Certificates, any certificates
-------------------
representing the Shares underlying the Warrants and any of the other
securities issuable upon exercise of the Warrants shall bear the following
restrictive legend:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended ("Act"), and may not be offered or sold except
pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144
under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) an
opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an
exemption from registration under such Act is
available.
7
<PAGE>
9. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
9.1 Computation of Adjusted Exercise Price. Except as hereinafter
--------------------------------------
provided, in the event the Company shall at any time after the date hereof
issue or sell any shares of Common Stock including shares held in the
Company's treasury (other than (i) the issuances or sales referred to in
Section 9.7 hereof, (ii) shares of Common Stock issued upon the exercise of
any options, rights or warrants to subscribe for shares of Common Stock, or
(iii) shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock), for a consideration
per share less than the Market Price in effect immediately prior to the
issuance or sale of such shares, or without consideration, then forthwith
upon such issuance or sale, the Exercise Price shall (until another such
issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (i) an amount equal to the
sum of (a) the total number of shares of Common Stock outstanding
immediately prior to the issuance or sale of such shares, multiplied by the
Exercise Price in effect immediately prior to such issuance or sale, and
(b) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (ii) the total number of shares
of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price
in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section
9.3 hereof.
For the purposes of this Section 9 the term Exercise Price shall mean
the Exercise Price per share of Common Stock set forth in Section 7 hereof,
as adjusted from time to time pursuant to the provisions of this Section 9.
For the purposes of any computation to be made in accordance with this
Section 9.1, the following provisions shall be applicable:
(a) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of
the cash consideration therefor shall be deemed to be the amount of
cash received by the Company for such shares (or, if shares of Common
Stock are offered by the Company for subscription, the subscription
price, or, if either of such securities shall be sold to underwriters
or dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
(b) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash shall
be deemed to be the value of such consideration as determined in good
faith by the Board of Directors of the Company and shall include any
amounts payable to security holders or any affiliates thereof
including, without limitation, pursuant to any employment agreement,
royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such
8
<PAGE>
amounts being valued for the purposes hereof at the aggregate amount
payable thereunder, whether such payments are absolute or contingent,
and irrespective of the period or uncertainty of payment, the rate of
interest, if any, or the contingent nature thereof; provided, however,
that if any Holder(s) does not agree with such evaluation, a mutually
acceptable independent appraiser shall make such evaluation, the cost
of which shall be borne by the Company.
(c) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(d) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 9.1.
(e) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights, warrants and upon the conversion
or exchange of convertible or exchangeable securities.
9.2 Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof
----------
issue options, rights or warrants to subscribe for shares of Common Stock,
or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Market Price in
effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Section 9.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall
be deemed to be issued and outstanding at the time such options,
rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in such options, rights
or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue
or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or
exchangeable securities shall be
9
<PAGE>
deemed to be issued and outstanding at the time of issuance of such
securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue
or sale of shares of Common Stock in accordance with the terms of the
Warrants) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in
subsection (a) of this Section 9.2, or in the price per share at which
the securities referred to in subsection (b) of this Section 8.2 are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants
or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options,
rights or warrants or the conversion or exchange of such convertible
or exchangeable securities.
9.3 Subdivision and Combination. In case the Company shall at any
---------------------------
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
9.4 Adjustment in Number of Securities. Upon each adjustment of the
----------------------------------
Exercise Price pursuant to the provisions of this Section 9, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise
price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Securities issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
9.5 Definition of Common Stock. For the purpose of this Agreement,
--------------------------
the term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Articles of Incorporation of the Company as amended as
of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from
no par value to par value. In the event that the Company shall after the
date hereof issue securities with greater or superior voting rights than
the shares of Common Stock outstanding as of the date hereof, the Holder,
at its option, may receive upon exercise of any Warrant either shares of
Common Stock or a like number of such securities with greater or superior
voting rights.
9.6 Merger or Consolidation. In case of any consolidation of the
-----------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock),
the corporation formed by such consolidation or merger shall execute and
deliver to the Holder a supplemental warrant agreement providing that the
holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until
10
<PAGE>
the expiration of such Warrant) to receive, upon exercise of such Warrant,
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation or merger, by a holder of the number of
shares of Common Stock of the Company for which such Warrant might have
been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 9. The
above provision of this subsection shall similarly apply to successive
consolidations or mergers.
9.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
------------------------------------------------
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of such adjustment shall be less than two
cents ($.02) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents
($.02) per Warrant Security; or
(c) If the Exercise Price would be less than the par value per
share of Common Stock.
9.8 Dividends and Other Distributions. In the event that the Company
---------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value,
the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled
to receive at the time of such dividend or distribution as if the Warrants
had been exercised immediately prior to such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of
this Section 9.8.
9.9 Statement on Warrant Certificate. Irrespective of any
--------------------------------
adjustments in the Exercise Price or the number or kind of shares
purchasable upon the exercise of the Warrants, the Warrant Certificate or
certificates theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
10. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing
11
<PAGE>
in the aggregate the right to purchase the same number of Warrant Securities in
such denominations as shall be designed by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to issue fractional shares of Common Stock upon the exercise of
Warrants. Warrants may only be exercised in such multiples as are required to
permit the issuance by the Company of one or more whole shares of Common Stock.
If one or more Warrants shall be presented for exercise in full at the same time
by the same Holder, the number of whole shares of Common Stock which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares of Common Stock purchasable on exercise of the
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions provided herein, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current Market Price of a share of Common
Stock, determined in accordance with Section 4.3 hereof.
12. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other Securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder.
13. Notices to Warrant Holders. Nothing contained in this Agreement shall
--------------------------
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable other than in cash, or a cash dividend or distribution
payable other than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
12
<PAGE>
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of such events, the Company shall give written notice
of such event to the Holders at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer book, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4 hereof
or to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments. The Company and LEDC may from time to
--------------------------
time supplement or amend this Agreement without the approval of any Holders of
the Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and LEDC may deem necessary or
desirable and which the Company and LEDC deem shall not adversely affect the
interests of the Holders of the Warrant Certificates. If LEDC no longer owns any
Warrants, then this Agreement may be amended by the Company and the Holders of a
majority of the then outstanding Warrants.
16. Successors. All the covenants and provisions of this Agreement shall
----------
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
-----------------------------------------
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Texas and for all purposes shall be construed in
accordance with the laws of such State without giving effect to the rules of
such State governing the conflicts of laws.
The Company, LEDC and any other registered Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
Texas or of the United States of America for the Northern District of Texas, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, LEDC and any other registered Holders hereby irrevocably waive any
13
<PAGE>
objection to such exclusive jurisdiction or inconvenient forum. Any such process
or summons to be served upon any of the Company, LEDC and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, LEDC and any other registered Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
18. Entire Agreement; Modification. This Agreement contains the entire
------------------------------
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
--------
for convenience of reference only and are not intended, nor shall they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or corporation other than the Company and LEDC
and any other registered Holder(s) of the Warrant Certificates or Warrants
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole benefit of the Company and LEDC and any
other registered Holders of Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
23. Replacement of Prior Warrant Agreement. The parties hereto agree that
--------------------------------------
the Prior Warrant Agreement is no longer in force and effect and is superseded
and replaced in part by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ Richard L. Morgan
------------------------------------
Name: Richard L. Morgan
----------------------------------
Title: CFO
---------------------------------
14
<PAGE>
LOUISIANA ECONOMIC DEVELOPMENT
CORPORATION
By:____________________________________
Name:__________________________________
Title:_________________________________
15
<PAGE>
EXHIBIT A
---------
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., DALLAS, TEXAS TIME, July 31, 2002
No. W-________ Warrants to Purchase
________ Shares of Common Stock
WARRANT CERTIFICATE
-------------------
This Warrant Certificate certifies that ______________________, or
registered assigns, is the registered holder of _______________ Warrants to
purchase initially, at any time, until 5:00 p.m. Dallas, Texas time on July 31,
2002 ("Expiration Date"), up to _______________ fully-paid and non-assessable
shares of common stock, $.01 par value ("Common Stock") of AVIATION GROUP, INC.,
a Texas corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $2.125 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Replacement Warrant Agreement dated as of
July 31, 1999 between the Company and Louisiana Economic Development Corporation
(the "Warrant Agreement"). Payment of the Exercise Price shall be made by
certified or official bank check payable to the order of the Company or by
surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
16
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ________________.
AVIATION GROUP, INC.
[SEAL] By:____________________________________
Name:__________________________________
Attest: Title:_________________________________
Name:_____________________________
Title:____________________________
17
<PAGE>
EXHIBIT 10.12
================================================================================
THIS INSTRUMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ANY STATES SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS
THEREUNDER. THIS INSTRUMENT MAY CONSTITUTE A "SECURITY" FOR THE PURPOSES OF SUCH
LAWS, AND, AS SUCH, MAY NOT BE FURTHER SOLD OR TRANSFERRED BY THE HOLDER IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SUCH LAWS OR AN EXEMPTION THEREUNDER
APPLICABLE TO SUCH SALE OR TRANSFER.
================================================================================
9% NOTE
DUE DECEMBER 31, 1999
AVIATION GROUP, INC., A TEXAS CORPORATION
$100,000.00
Date: June 11, 1999 No. 2
FOR VALUE RECEIVED, Aviation Group, Inc., a Texas corporation (the
"Company"), promises to pay to the order of the registered holder John Chidlow
the sum of One Hundred Thousand Dollars ($100,000.00) plus interest at the rate
of nine percent (9%) per annum accruing from the date hereof on the unpaid
indebtedness hereof until finally paid. Said principal and accrued interest
shall be paid by the Company in lawful money of the United States of America, at
the Holder's offices in Shreveport, Louisiana, or at such other place as may be
designated in writing by the Holder, to the registered holder hereof as follows:
(a) All outstanding principal and accrued interest shall be due and
payable on or before December 31, 1999.
1. Prepayment. The principal or interest hereunder may be prepaid at any
----------
time without penalty or payment premium. Unless otherwise agreed to in writing,
or otherwise required by applicable law, payments will be applied first to
unpaid accrued interest, then to principal, and any remaining amount to any
unpaid collection costs, delinquency charges and other charges; provided,
however, upon delinquency or other Event of Default (as hereinafter defined),
Holder reserves the right to apply payments among principal, interest,
delinquency charges, collection costs and other charges, at its discretion. All
prepayments shall be applied to the indebtedness owing hereunder in such order
and manner as Holder may from time to time determine in its sole discretion.
2. Secured Status of Holder. This debt instrument is secured by, and the
------------------------
holder of this instrument shall also be entitled to the benefits of, that
certain Pledge Agreement dated of even date herewith executed by the Company
(the "Pledge Agreement") pursuant to which the Company has pledged the stock in
certain of its subsidiaries.
3. Default. If a payment is ten (10) or more days late, the Company will
-------
pay a delinquency charge in an amount equal to the greater of (i) 5.0% of the
amount of the delinquent payment up to the maximum of $250.00, or (ii) $25.00.
Upon an Event of Default, including failure to pay upon final maturity, holder,
at its option, may also, if permitted under applicable law and in addition to
any other remedies available, do one or both of the following: (a) increase the
interest rate provided for herein by three (3.00) percentage points and (b) add
any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note. In the event of any one
or more of the following events of default (each an "Event of Default"), (i) any
failure by the Company to make any payment of principal or interest hereunder
when due, (ii) the
-1-
<PAGE>
filing of a petition by or against the Company under the provisions of any state
insolvency law or under the provisions of the Federal Bankruptcy Act (for
bankruptcy or reorganization or other relief), or (iii) any assignment by the
Company for the benefit of its creditors, (iv) any representation, warranty,
certification or statement made by the Company herein, or in the Pledge
Agreement or the Warrant dated of even date herewith executed by the Company in
favor of the registered holder or any related agreement (collectively, the
"Documents"), or which is contained in any certificate, document or financial or
other statement furnished at any time under or in connection with the Documents,
shall prove to have been untrue in any material respect when made; (v) judgments
or orders for the payment of money which in the aggregate at any one time exceed
$25,000.00 and are not covered by insurance have been rendered against the
Company or any of its subsidiaries by a court of competent jurisdiction and such
judgments or orders shall continue unsatisfied and unstayed for a period of 60
days; or (vi) default in any provision (including payment) of any agreement
governing the terms of any debt of the Company or any subsidiary in excess of
$25,000.00, which has not been cured within five (5) days of the expiration of
any applicable period of grace associated therewith, the holder hereof may, at
such holder's option without further notice or demand, declare the entire unpaid
balance hereof immediately due and payable and, in addition, exercise any of its
rights and remedies under the Pledge Agreement. Any delay or failure on the part
of the holder in exercising any rights hereunder or under the Pledge Agreement
shall not operate as a waiver of said rights; acceptance of any payment after
its due date shall not be deemed a waiver of the right to require prompt payment
when due of all other sums; and acceptance of any payment after the holder has
declared the entire indebtedness due and payable shall not cure any default or
Event of Default of the maker or operate as a waiver of any rights of the holder
hereunder. The Company agrees that all advances hereunder shall be used solely
for business, commercial, investment or other similar purposes.
The rights, remedies and recourses of the holder hereof, as provided in
this Note and in any of the other Documents, shall be cumulative and concurrent
and may be pursued separately, successively or together as often as occasion
therefore shall arise, at the sole discretion of the holder hereof.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, the Company agrees to pay, in addition to all
other sums payable hereunder, all costs and expenses of collection, including,
but not limited to, reasonable attorney's fees.
Company and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
4. Registered Holder and Exchange. Prior to due presentment for
------------------------------
registration of transfer of this instrument, the Company may treat the
registered holder as the person exclusively entitled to receive payments and
notices and otherwise to exercise rights hereunder. Subject to the restrictions
on transfer herein contained, this instrument is exchangeable, on its surrender
by the registered owner to the Company, for two or more new instruments of like
tenor and date, representing in the aggregate the same principal amount of this
instrument, in denominations designated by the registered holder at the time of
surrender.
5. Miscellaneous. This instrument does not entitle the holder to any
-------------
voting rights or other rights as a shareholder of the Company, or to any other
rights whatsoever except the rights herein expressed.
This instrument is not subject to redemption. No provisions of this
instrument restrict any declaration of dividends by the Company, require the
maintenance by the Company of any reserves or any minimum financial condition,
or restrict the incurrence of additional debt or the issuance of
-2-
<PAGE>
additional securities by the Company. This instrument is not issued pursuant to
a trust indenture, and no third party trustee shall act on behalf of or
represent the holder of this instrument or monitor the compliance of the Company
with the provisions hereof on behalf of the holder.
IN WITNESS WHEREOF, Aviation Group, Inc. has caused this instrument to be
executed in its name and behalf and its corporate seal to be hereto affixed by
its President, thereunto duly authorized, as of the day and year first above
written.
ATTEST: AVIATION GROUP, INC.
/s/ Tamara M. Wagner By: /s/ Richard L. Morgan
- -------------------------------- --------------------------------
Its: Corporate Secretary Its: CFO
--------------------------- -------------------------------
-3-
<PAGE>
TRANSFER FORM
-------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to:
Name: _______________________________________________
Address: _____________________________________________
_____________________________________________
this instrument and irrevocably appoints ___________________________________
attorney (with full power of substitution) to transfer this instrument on the
books of Aviation Group, Inc.
Date:__________________________ SIGNATURE:
________________________________________
(Please sign exactly as name appears on
instrument)
Taxpayer Identification Number:
________________________________________
In the presence of: Signature guaranteed by:
_______________________________ ________________________________________
-4-
<PAGE>
EXHIBIT 10.13
================================================================================
THIS INSTRUMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ANY STATES SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS
THEREUNDER. THIS INSTRUMENT MAY CONSTITUTE A "SECURITY" FOR THE PURPOSES OF SUCH
LAWS, AND, AS SUCH, MAY NOT BE FURTHER SOLD OR TRANSFERRED BY THE HOLDER IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SUCH LAWS OR AN EXEMPTION THEREUNDER
APPLICABLE TO SUCH SALE OR TRANSFER.
================================================================================
9% NOTE
DUE DECEMBER 31, 1999
AVIATION GROUP, INC., A TEXAS CORPORATION
$500,000.00
Date: June 11, 1999 No. 1
FOR VALUE RECEIVED, Aviation Group, Inc., a Texas corporation (the
"Company"), promises to pay to the order of the registered holder Jerry R. Webb
the sum of Five Hundred Thousand Dollars ($500,000.00) plus interest at the rate
of nine percent (9%) per annum accruing from the date hereof on the unpaid
indebtedness hereof until finally paid. Said principal and accrued interest
shall be paid by the Company in lawful money of the United States of America, at
the Holder's offices in Shreveport, Louisiana, or at such other place as may be
designated in writing by the Holder, to the registered holder hereof as follows:
(a) All outstanding principal and accrued interest shall be due and
payable on or before December 31, 1999.
1. Prepayment. The principal or interest hereunder may be prepaid at any
----------
time without penalty or payment premium. Unless otherwise agreed to in writing,
or otherwise required by applicable law, payments will be applied first to
unpaid accrued interest, then to principal, and any remaining amount to any
unpaid collection costs, delinquency charges and other charges; provided,
however, upon delinquency or other Event of Default (as hereinafter defined),
Holder reserves the right to apply payments among principal, interest,
delinquency charges, collection costs and other charges, at its discretion. All
prepayments shall be applied to the indebtedness owing hereunder in such order
and manner as Holder may from time to time determine in its sole discretion.
2. Secured Status of Holder. This debt instrument is secured by, and the
------------------------
holder of this instrument shall also be entitled to the benefits of, that
certain Pledge Agreement dated of even date herewith executed by the Company
(the "Pledge Agreement") pursuant to which the Company has pledged the stock in
certain of its subsidiaries.
3. Default. If a payment is ten (10) or more days late, the Company will
-------
pay a delinquency charge in an amount equal to the greater of (i) 5.0% of the
amount of the delinquent payment up to the maximum of $250.00, or (ii) $25.00.
Upon an Event of Default, including failure to pay upon final maturity, holder,
at its option, may also, if permitted under applicable law and in addition to
any other remedies available, do one or both of the following: (a) increase the
interest rate provided for herein by three (3.00) percentage points and (b) add
any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note. In the event of any one
or more of the following events of default (each an "Event of Default"), (i) any
failure by the Company to make any payment of principal or interest hereunder
when due, (ii) the
-1-
<PAGE>
filing of a petition by or against the Company under the provisions of any state
insolvency law or under the provisions of the Federal Bankruptcy Act (for
bankruptcy or reorganization or other relief), or (iii) any assignment by the
Company for the benefit of its creditors, (iv) any representation, warranty,
certification or statement made by the Company herein, or in the Pledge
Agreement or the Warrant dated of even date herewith executed by the Company in
favor of the registered holder or any related agreement (collectively, the
"Documents"), or which is contained in any certificate, document or financial or
other statement furnished at any time under or in connection with the Documents,
shall prove to have been untrue in any material respect when made; (v) judgments
or orders for the payment of money which in the aggregate at any one time exceed
$25,000.00 and are not covered by insurance have been rendered against the
Company or any of its subsidiaries by a court of competent jurisdiction and such
judgments or orders shall continue unsatisfied and unstayed for a period of 60
days; or (vi) default in any provision (including payment) of any agreement
governing the terms of any debt of the Company or any subsidiary in excess of
$25,000.00, which has not been cured within five (5) days of the expiration of
any applicable period of grace associated therewith, the holder hereof may, at
such holder's option without further notice or demand, declare the entire unpaid
balance hereof immediately due and payable and, in addition, exercise any of its
rights and remedies under the Pledge Agreement. Any delay or failure on the part
of the holder in exercising any rights hereunder or under the Pledge Agreement
shall not operate as a waiver of said rights; acceptance of any payment after
its due date shall not be deemed a waiver of the right to require prompt payment
when due of all other sums; and acceptance of any payment after the holder has
declared the entire indebtedness due and payable shall not cure any default or
Event of Default of the maker or operate as a waiver of any rights of the holder
hereunder. The Company agrees that all advances hereunder shall be used solely
for business, commercial, investment or other similar purposes.
The rights, remedies and recourses of the holder hereof, as provided in
this Note and in any of the other Documents, shall be cumulative and concurrent
and may be pursued separately, successively or together as often as occasion
therefore shall arise, at the sold discretion of the holder hereof.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, the Company agrees to pay, in addition to all
other sums payable hereunder, all costs and expenses of collection, including,
but not limited to, reasonable attorney's fees.
Company and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
4. Registered Holder and Exchange. Prior to due presentment for
------------------------------
registration of transfer of this instrument, the Company may treat the
registered holder as the person exclusively entitled to receive payments and
notices and otherwise to exercise rights hereunder. Subject to the restrictions
on transfer herein contained, this instrument is exchangeable, on its surrender
by the registered owner to the Company, for two or more new instruments of like
tenor and date, representing in the aggregate the same principal amount of this
instrument, in denominations designated by the registered holder at the time of
surrender.
5. Miscellaneous. This instrument does not entitle the holder to any
-------------
voting rights or other rights as a shareholder of the Company, or to any other
rights whatsoever except the rights herein expressed.
This instrument is not subject to redemption. No provisions of this
instrument restrict any declaration of dividends by the Company, require the
maintenance by the Company of any reserves or any minimum financial condition,
or restrict the incurrence of additional debt or the issuance of
-2-
<PAGE>
additional securities by the Company. This instrument is not issued pursuant to
a trust indenture, and no third party trustee shall act on behalf of or
represent the holder of this instrument or monitor the compliance of the Company
with the provisions hereof on behalf of the holder.
IN WITNESS WHEREOF, Aviation Group, Inc. has caused this instrument to be
executed in its name and behalf and its corporate seal to be hereto affixed by
its President, thereunto duly authorized, as of the day and year first above
written.
ATTEST: AVIATION GROUP, INC.
/s/ Tamara M. Wagner By: /s/ Richard L. Morgan
- --------------------------------- ---------------------------------
Its: Corporate Secretary Its: CFO
---------------------------- --------------------------------
-3-
<PAGE>
TRANSFER FORM
-------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to:
Name: ________________________________________________
Address: ________________________________________________
________________________________________________
this instrument and irrevocably appoints ___________________________________
attorney (with full power of substitution) to transfer this instrument on the
books of Aviation Group, Inc.
Date:__________________________ SIGNATURE:
________________________________________
(Please sign exactly as name appears on
instrument)
Taxpayer Identification Number:
________________________________________
In the presence of: Signature guaranteed by:
______________________________ ________________________________________
-4-
<PAGE>
EXHIBIT 10.14
PLEDGE AGREEMENT
---------------------------------
Dated as of June 11, 1999
In consideration of the loan contemporaneously granted to Aviation Group,
Inc., a Texas corporation ("Debtor"), by Jerry R. Webb and John Chidlow
("Secured Parties"), Aviation Group, Inc. ("Owner") hereby pledges and assigns
to Secured Parties, and grants a security interest to Secured Parties in, the
property described below belonging to (or an interest in which belongs to)
Owner:
1. The following stock is pledged as property ("Collateral")
a) Certificate No. 2, representing 1,000 shares and 100% ownership
of common stock of Aviation Exteriors Greenville, Inc., a
Mississippi corporation, formerly Pride Aviation Greenville, Inc.
b) Certificate No. 1, representing 1,000 shares and 100% ownership
of common stock of Aviation Exteriors Portland, Inc. an Oregon
corporation, formerly Pride Aviation Portland, Inc.
c) Certificate No. 2, representing 1,000 shares and 100% ownership
of common stock of Tri-Star Airline Services, Inc., a Texas
corporation.
d) Certificate No. 112, representing 133,165.3223 shares and 100%
ownership of common stock of Casper Air Service, a Wyoming
corporation.
e) 10,000 shares of Aviation Exteriors Louisiana, Inc., a Louisiana
corporation, formerly Pride Aviation, Inc. Secured Parties hereby
acknowledge and agree that all of his rights under this Pledge
Agreement with respect to these shares are subordinate to all
rights granted to certain holders of 10% Convertible Notes due
March 1, 2001, dated August 1, 1996.
2. All dividends, cash, options, warrants, rights and other property,
received, or proceeds from time to time received, or receivable in respect of,
in exchange for, or in connection with such property, and all proceeds from the
sale of such property.
All stock certificates, other than certificates pledged to the holders of
the 10% Convertible notes, are being delivered to Jerry R. Webb ("Agent"), who
hereby agrees to hold the certificates as agent and bailee for each of the
Secured Parties therein. Owner shall also deliver executed blank stock powers
corresponding to such certificates to Agent. Any future instrument or stock
certificate representing any part of the Collateral that the Owner subsequently
receives and that requires taking possession to perfect a security interest
therein shall be promptly delivered by Owner to Agent for the benefit of the
Secured Parties. Agent is hereby authorized to act with respect to the
Collateral in his possession on behalf of and pursuant to the instructions of
the Secured Parties in connection with the foreclosure of the security interest
created hereby in the Collateral.
The security interests granted herein are to secure the following (all of
which is hereinafter called the "Obligations"):
1
<PAGE>
(a) All debts and obligations of Owner to Secured Parties evidenced by
those certain 9% Promissory Notes dated of even date made payable on or before
December 31, 1999, to the order of Secured Parties by Owner as more particularly
described on Exhibit "A" hereto, together with any and all renewals, extensions,
and refinancings of, and modifications and additions to, the foregoing (the
"Notes"); and
(b) All costs incurred by Secured Parties to obtain, preserve, perfect and
enforce the security interests herein granted, collect the Obligations, and
maintain, preserve, collect and enforce the Collateral, and including but not
limited to reasonable attorneys' fees and expenses of sale.
Any liquidating distributions and any additional securities or other
property issued or distributed with respect to any of the Collateral, including
all or any dividends, exchanges, or substitutions, shall be pledged as
additional collateral hereunder, shall be delivered to Secured Parties (or to
Agent on behalf of Secured Parties if the Collateral is an investment or stock
certificate, and shall constitute "Collateral" as that term is defined herein.
Without prior consent of the Secured Parties, no additional shares of these
subsidiaries will be issued.
Upon the occurrence of a default or event of default under any of the Notes
(after any notice and cure period specified therein), Secured Parties, without
limitation and without further notice except as expressly provided herein or in
the Notes, are entitled to foreclose on the Collateral and in such event Secured
Parties shall have:
(1) All remedies and rights available under the Texas Business and Commerce
Code and other applicable laws; and
(2) All remedies and rights under the Notes.
Other than the exercise of reasonable care to assure the safe custody of
any Collateral in Secured Parties' possession from time to time, Secured Parties
do not have any obligation, duty or responsibility with respect to the
Collateral. Without limiting the generality of the foregoing, Secured Parties
shall not have any obligation, duty or responsibility to do any of the
following: (a) ascertain any maturities, calls, conversions, exchanges, offers,
tenders or similar matters relating to the Collateral or informing Debtor with
respect to any such matters; (b) fix, preserve or exercise any right, privilege
or option (whether conversion, redemption or otherwise) with respect to the
Collateral unless (i) Debtor makes written demand to Secured Parties to do so,
(ii) such written demand is received by Secured Parties in sufficient time to
permit Secured Parties to take the action demanded in the ordinary course of
their business, and (iii) Debtor provides additional collateral, acceptable to
Secured Parties in their sole discretion; (c) collect any amounts payable in
respect of the Collateral (Secured Parties being liable to account to Debtor
only for what Secured Parties may actually receive or collect thereon); (d) sell
all or any portion of the Collateral to avoid market loss; (e) sell all or any
portion of the Collateral unless and until (i) Debtor makes written demand upon
Secured Parties to sell the Collateral, and (ii) Debtor provides additional
collateral, acceptable to Secured Parties in their sole discretion; or (f) hold
the Collateral for or on behalf of any Parties other than Debtor.
2
<PAGE>
Debtor hereby represents and warrants the following to Secured Parties:
(a) Due Authorization. The execution, delivery and performance of
-----------------
this Agreement, the Note and the Warrant dated of even date herewith, executed
by Debtor in favor of Secured Parties (collectively, the "Documents") have been
duly authorized by all necessary corporate action of Debtor.
(b) Enforceability. This Agreement and the other Documents constitute
--------------
legal, valid and binding Obligations of Debtor, enforceable in accordance with
their respective terms, except as limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of creditors' rights and
except to the extent specific remedies may generally be limited by equitable
principles.
(c) Ownership and Liens. Except as otherwise expressly set forth
-------------------
herein, Debtor has good and marketable title to the Collateral free and clear of
all liens, security interests, encumbrances or adverse claims, except for the
security interest created by this Agreement. No dispute, right of setoff,
counterclaim or defense exists with respect to all or any part of the
Collateral. Except as otherwise expressly set forth herein, Debtor has not
executed any other security agreement currently affecting the Collateral and no
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording office except as may have
been executed or filed in favor of Secured Parties. The capital stock that
constitutes the Collateral represents the percentage of the issued and
outstanding capital stock of the respective issuer as set forth in Section 1
above.
(d) No Conflicts or Consents. Neither the ownership, the intended use
------------------------
of the Collateral by Debtor, the grant of the security interest by Debtor to
Secured Parties herein nor the exercise by Secured Parties of their rights or
remedies hereunder, will (i) conflict with any provision of (A) any domestic or
foreign law, statute, rule or regulation, (B) the articles of incorporation or
bylaws of Debtor, or (C) except as disclosed by Debtor to Secured Parties in
writing prior to the date of this Agreement, any agreement, judgment, license,
order or permit applicable to or binding upon Debtor or otherwise affecting the
Collateral, or (ii) result in or require the creation of any lien, charge or
encumbrance upon any assets or properties of Debtor or of any person. No
consent, approval, authorization or order of, and no notice to or filing with,
any court, governmental authority or third party is required in connection with
the grant by Debtor of the security interest herein or the exercise by Secured
Parties of its rights and remedies hereunder.
(e) Security Interest. Debtor has and will have at all times full
-----------------
right, power and authority to grant a security interest in the Collateral to
Secured Parties in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance (except as otherwise expressly
set forth herein). This Agreement creates a legal, valid and binding security
interest in favor of Secured Parties in the Collateral.
(f) Solvency of Debtor. As of the date hereof, and after giving
------------------
effect to this Agreement and the completion of all other transactions
contemplated by Debtor at the time of the execution of this Agreement, (i)
Debtor is and will be solvent, (ii) the fair saleable value of Debtor's assets
exceeds and will continue to exceed Debtor's liabilities (both fixed and
contingent), (iii) Debtor is paying and will continue to be able to pay its
debts as they mature,
3
<PAGE>
and (iv) if Debtor is not an individual, Debtor has and will have sufficient
capital to carry on Debtor's businesses and all businesses in which Debtor is
about to engage.
(g) Securities. Any certificates evidencing securities pledged as
----------
Collateral are valid and genuine and have not been altered. All securities
pledged as Collateral have been duly authorized and validly issued, are fully
paid and non-assessable, and were not issued in violation of the preemptive
rights of any Parties or of any agreement by which Debtor or the issuer thereof
is bound. No restrictions or conditions exist with respect to the transfer or
voting of any securities pledged as Collateral, except as has been disclosed to
Secured Parties in writing. To the best of Debtor's knowledge, no issuer of such
securities (other than securities of a class which are publicly traded) has any
outstanding stock rights, rights to subscribe, options, warrants or convertible
securities outstanding or any other rights outstanding entitling any Parties to
have issued to such Parties capital stock of such issuer, except as has been
disclosed to Secured Parties in writing.
Debtor will comply with the covenants contained herein at all times during
the period of time this Agreement is effective unless Secured Parties shall
otherwise consent in writing.
(a) Ownership and Liens. Debtor will maintain good and marketable
-------------------
title to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by this
Agreement and the security interests and other encumbrances expressly specified
herein.
(b) Adverse Claim. Debtor covenants and agrees to promptly notify
-------------
Secured Parties of any claim, action or proceeding affecting title to the
Collateral, or any part thereof, or the security interest created hereunder and,
at Debtor's expense, defend Secured Parties' security interest in the Collateral
against the claims of any third Parties. Debtor also covenants and agrees to
promptly deliver to Secured Parties a copy of all written notices received by
Debtor with respect to the Collateral, including without limitation, notices
received from the issuer of any securities pledged hereunder as Collateral.
(c) Delivery of Instruments and/or Certificates. Contemporaneously
-------------------------------------------
herewith, Debtor covenants and agrees to deliver to Secured Parties any
certificates, documents or instruments representing or evidencing the
Collateral, with Debtor's endorsement thereon and/or accompanied by proper
instruments of transfer and assignment duly executed in blank with, if requested
by Secured Parties, signatures guaranteed by a member or member organization in
good standing of an authorized Securities Transfer Agents Medallion Program, all
in form and substance satisfactory to Secured Parties.
(d) Further Assurances. Debtor will contemporaneously with the
------------------
execution hereof and from time to time thereafter at its expense promptly
execute and deliver all further instruments and documents and take all further
action necessary or appropriate or that Secured Parties may request in order (i)
to perfect and protect the security interest created or purported to be created
hereby and the first priority of such security interest, (ii) to enable Secured
Parties to exercise and enforce its rights and remedies hereunder in respect of
the Collateral, and (iii) to otherwise effect the purposes of this Agreement,
including without limitation: (A) obtaining written confirmation from the issuer
of any securities pledged as Collateral of the pledge of such securities, in
form and substance satisfactory to Secured Parties; (C) cooperating with Secured
4
<PAGE>
Parties in registering the pledge of any securities pledged as Collateral with
the issuer of such securities; (D) delivering notice of Secured Parties'
security interest in any securities pledged as Collateral to any securities or
financial intermediary, clearing corporation or other Parties required by
Secured Parties, in form and substance satisfactory to Secured Parties; and (E)
obtaining written confirmation of the pledge of any securities constituting
Collateral from any securities or financial intermediary, clearing corporation
or other Parties required by Secured Parties, in form and substance satisfactory
to Secured Parties. When applicable law provides more than one method of
perfection of Secured Parties' security interest in the Collateral, Secured
Parties may choose the method(s) to be used.
(e) Transfer or Encumbrance. Debtor will not (i) sell, assign (by
-----------------------
operation of law or otherwise) or transfer Debtor's rights in any of the
Collateral, (ii) grant a lien or security interest in the Collateral to any
Parties other than Secured Parties, or (iii) deliver actual or constructive
possession of any certificate, instrument or document evidencing and/or
representing any of the Collateral to any Parties other than Secured Parties.
(f) Dilution of Ownership. As to any securities pledged as Collateral
---------------------
(other than securities of a class which are publicly traded), Debtor will not
consent to or approve of the issuance of (i) any additional shares of any class
of securities of such issuer (unless immediately upon issuance additional
securities are pledged and delivered to Secured Parties pursuant to the terms
hereof to the extent necessary to give Secured Parties a security interest after
such issuance in at least the same percentage of such issuer's outstanding
securities as Secured Parties had before such issuance), (ii) any instrument
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such securities, or (iii) any warrants, options, contracts or other
commitments entitling any third Parties to purchase or otherwise acquire any
such securities.
(g) Restrictions on Securities. Debtor will not enter into any
--------------------------
agreement creating, or otherwise permit to exist, any restriction or condition
upon the transfer, voting or control of any securities pledged as Collateral,
except as consented to in writing by Secured Parties.
Each of the following constitutes an "Event of Default" under this
Agreement:
(a) Default Under Documents. The occurrence of any Event of Default
-----------------------
under any of the Documents; or
(b) Execution on Collateral. The Collateral or any portion thereof is
-----------------------
taken on execution or other process of law in any action against Debtor; or
(c) Action by Other Lienholder. The holder of any lien or security
--------------------------
interest on any of the assets of Debtor, including without limitation, the
Collateral (without hereby implying the consent of Secured Parties to the
existence or creation of such lien or security interest on the Collateral),
declares a default thereunder or institutes foreclosure or other proceedings for
the enforcement of its remedies thereunder; or
5
<PAGE>
(d) Dilution of Ownership. The issuer of any securities (other than
---------------------
securities of a class which are publicly traded) constituting Collateral
hereafter issues any shares of any class of capital stock (unless immediately
upon issuance, additional securities are pledged and delivered to Secured
Parties pursuant to the terms hereof to the extent necessary to give Secured
Parties a security interest after such issuance in at least the same percentage
of such issuer's outstanding securities as Secured Parties had before such
issuance) or any options, warrants or other rights to purchase any such capital
stock; or
(e) Bankruptcy of Issuer. (i) The issuer of any securities
--------------------
constituting Collateral files a petition for relief under any Applicable
Bankruptcy Law, (ii) an involuntary petition for relief is filed against any
such issuer under any Applicable Bankruptcy Law and such involuntary petition is
not dismissed within thirty (30) days after the filing thereof, or (iii) an
order for relief naming any such issuer is entered under any Applicable
Bankruptcy Law.
If an Event of Default shall have occurred, and without limiting any other
rights and remedies provided herein, under any of the other Documents or
otherwise available to Secured Parties, Secured Parties may exercise any right
or remedy available to any of them under applicable law.
Unless the property pledged hereunder threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Secured Parties
will give Owner reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or any other intended
disposition thereof is to be made. The requirements of reasonable notice shall
be met if such notice is mailed, postage prepaid, to the address of Owner shown
at the end of this Agreement at least ten (10) days before the time of the sale
or disposition. The proceeds of any such sale shall be applied, first, to the
payment of all costs and expenses of collection, storage, custody, and the sale
and delivery of the Collateral, including reasonable attorneys' fees and
expenses of Secured Parties in connection therewith, and next to the payment of
such of the Obligations and in such order of application as Secured Parties may
from time to time select. Any remaining surplus may be retained by Secured
Parties as security hereunder until all the Obligations shall have terminated.
If, in the opinion of Secured Parties, there is any question that a public
or semi-public sale or distribution of any Collateral will violate any state or
federal securities law, Secured Parties in their discretion (a) may offer and
sell securities privately to purchasers who will agree to take them for
investment purposes and not with a view to distribution and who will agree to
imposition of restrictive legends on the certificates representing the security,
or (b) may sell such securities in an intrastate offering under Section 3(a)(l1)
of the Securities Act of 1933, as amended, and no sale so made in good faith by
Secured Parties shall be deemed to be not "commercially reasonable" because so
made. Owner shall cooperate fully with Secured Parties in all respects in
selling or realizing upon all or any part of the Collateral.
No delay on the part of Secured Parties in the exercise of any right or
remedy shall operate as waiver thereof, and no single or partial exercise of
Secured Parties of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy. No action of Secured
Parties permitted hereunder shall impair or affect the rights of Secured Parties
in and to the Collateral. This agreement shall inure to the benefit of Secured
Parties and their successors and assigns.
6
<PAGE>
This Agreement shall be governed by the laws of the State of Texas,
including the version of the uniform Commercial Code adopted in such state.
OWNER:
Address: AVIATION GROUP, INC.
700 North Pearl Street
Suite 2170 By: /s/ Richard L. Morgan
Dallas, Texas 75201 --------------------------
Name: Richard L. Morgan
------------------------
Title: CFO
-----------------------
SECURED PARTIES:
/s/ Jerry R. Webb
-----------------------------
Jerry R. Webb
/s/ John H. Chidlow
-----------------------------
John Chidlow
7
<PAGE>
EXHIBIT "A"
Description of Notes
---------------------------------
Original Principal Amount
-------------------------
Payee Name of Note
---------- -------
Jerry R. Webb $500,000
John Chidlow $100,000
<PAGE>
EXHIBIT 10.15
AVIATION GROUP, INC.
AND
JOHN H. CHIDLOW
___________
WARRANT AGREEMENT
Dated as of June 11, 1999
<PAGE>
WARRANT AGREEMENT
-----------------
This WARRANT AGREEMENT (the "Agreement") is dated as of June 11, 1999
between AVIATION GROUP, INC., a Texas corporation (the "Company"), and Jerry R.
Webb, and his successors and assigns (collectively, "HOLDER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, under that certain Note dated as of June 11, 1999 between the
Company and HOLDER, the HOLDER loaned certain funds to the Company,
NOW, THEREFORE, in consideration of the premises, the agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. Effective herewith, HOLDER is hereby granted the right to
-----
purchase, at any time prior to 5:00 p.m., Dallas, Texas time on June 30, 2002,
166,667 shares of Common Stock (the "Shares"). One share of Common Stock is
hereinafter referred to as a "Warranty Security" and more than one collectively
referred to as the "Warrant Securities." The exercise price of each Warrant
shall equal (subject to adjustment as provided in Section 9) $1.00 per Warrant
Security subject to the terms and conditions of this Agreement.
2. Consideration. In return for the loan of funds to the Company by the
-------------
HOLDER, the Company grants this Warrant to HOLDER.
3. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
---------
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
4. Exercise of Warrant.
-------------------
4.1 Method of Exercise. The Warrants initially are exercisable at an
------------------
aggregate Exercise Price (as defined in Section 7) per Warrant Security,
payable by certified or official bank check. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for
the Warrant Securities purchased at the Company's principal offices
(presently located at 700 North Pearl, Suite 2170, Dallas, Texas 75201) the
registered Holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common
Stock so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holders thereof, in whole
or part (but not as to fractional shares of the Common Stock). In the case
of the purchase of less than all Warrant Securities purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon
the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Warrant Securities
purchasable thereunder.
<PAGE>
4.2 Exercise by Surrender of Warrant. In addition to the method of
--------------------------------
payment set forth in Section 4.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time
and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section
4.1. The number of shares of Warrant Securities to be issued pursuant to
this Section 4.2 shall be equal to the difference between (a) the number of
shares of Common Stock in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the product of the number
of shares of Common Stock in respect of which the Warrants are exercised
multiplied by the Exercise Price per Warrant Security and the denominator
of which shall be the Market Price of a Share of Common Stock(as defined in
Section 4.3).
4.3 Definition of Market Price. As used herein, the "Market Price"
--------------------------
at any date shall be deemed to be the last reported sale price, or, in case
no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by The Nasdaq Stock
Market's National Market or Smallcap Market ("Nasdaq"), or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted by the NASD or such
similar organization, the fair market value of a share of Common Stock as
determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it. Notwithstanding the
foregoing, for purposes of Section 9, the Market Price of a share of Common
Stock shall be determined by reference to the relevant information set
forth above during the thirty (30) trading days immediately preceding the
date of the event requiring the determination of the Market Price (except
that, in the event of a public offering of shares of Common Stock, the
Market Price of a share of Common Stock shall be determined by reference to
the trading day immediately preceding the effective date of the public
offering and not such thirty (30) trading day period).
5. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for Warrant Securities and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 6 and 8 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Warrant
Securities (and/or other securities, property or rights issuable upon the
exercise of the Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company under its
corporate seal
<PAGE>
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Restriction On Transfer of Warrants. The Holder of a Warrant
-----------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof. This Agreement is binding upon any Holder(s) of a Warrant Certificate
and their respective heirs, successors, and permitted assigns. The Holder may
assign interests granted by this Agreement, subject to the any other limitations
in the Agreement, provided that the transferee agrees to be bound by the terms
of this Agreement as if such transferee were a Holder and, provided further,
that the assignment is made pursuant to an effective registration statement
under the Securities Act or a valid exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). If requested by the
Company, the Holder shall have furnished to the Company an opinion of counsel
reasonably satisfactory to the Company to such effect.
7. Exercise Price.
--------------
7.1 Initial and Adjusted Exercise Price. Except as otherwise
-----------------------------------
provided in Section 9 hereof, the initial exercise price of each Warrant
shall be $1.00 per Warrant Security. The adjusted exercise price shall be
the price which shall result from time to time from any and all adjustments
of the initial exercise price in accordance with the provisions of Section
9 hereof.
7.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
8. Registration Rights.
-------------------
8.1 Piggyback Registration.
----------------------
(a) If, at any time the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Act"),
either for its own account or the account of any other security Holder
or Holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or
comparable registration statement), it shall give written notice, at
least thirty (30) days prior to the filing of each such registration
statement, to any Holder(s) of Registrable Securities (as hereinafter
defined), of its intention to do so. If such Holder(s) notify the
Company within twenty-one (21) days after the receipt of any such
notice of its or their desire to include any Registrable Securities in
such proposed registration statement, the Company shall afford such
Holder(s) of such Registrable Securities the opportunity to have any
such Registrable Securities registered for resale by the Holder(s)
under such registration statement. The term "Registrable Securities"
means (i) all shares of Common Stock owned by a Holder as a result of
the exercise of a Warrant, and (ii) all shares of Common Stock which a
Holder has an option to purchase under a Warrant, until, in the case
of any such security described by (i) or (ii), (a) such security is
disposed of in accordance with an effective registration statement
under the Securities Act, (b) such security is saleable
<PAGE>
by the Holder pursuant to Rule 144(k), or (c) such security is
distributed to the public pursuant to Rule 144.
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company
shall so advise any Holder(s) as part of the written notice given
pursuant to Section 8.1(a) hereof. The right of any such Holder(s) to
registration pursuant to this Section 8.1 shall not be conditioned
upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent
hereinafter provided.
(c) Notwithstanding the provisions of this Section 8.1, the
Company shall have the right at any time after it shall have given
written notice pursuant to Section 8.1(a) hereof (irrespective of
whether a written request for inclusion of any such securities shall
have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the
effective date thereof.
8.2 Covenants of the Company with Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 8.1 hereof, the Company
covenants and agrees as follows:
(a) The Company shall
(i) use its best efforts to have any registration
statements declared effective at the earliest
practicable time and shall furnish each Holder
desiring to sell Registrable Securities such number of
prospectuses as shall reasonably be requested.
(ii) With respect to any registration statement filed
pursuant to this Agreement, keep such registration
statement effective until the sooner to occur of (A)
such time as the Holders of Registrable Securities
covered by such registration statement have completed
the distribution of all Registrable Securities
described in the registration statement, and (B) such
time as all of the Registrable Securities covered by
such registration statement may be sold without any
volume limitation pursuant to rule 144 promulgated
under the Act and (C) three (3) years following the
date hereof (the "Registration Maintenance Period").
(iii) 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 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 material fact or omits to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances then
existing.
<PAGE>
(iv) As promptly as practicable after becoming aware of
such event, notify each holder of the happening of any
event of which the Company has knowledge, as a result
of which the prospectus included in the 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, in light of
the circumstances under which they were made, not
misleading, and use its best efforts promptly to
prepare a supplement or amendment to the registration
statement to correct such untrue statement or
omission, and deliver a number of copies of such
supplement or amendment to each Holder as such Holder
may reasonably request.
(v) Provide Holders with a written notice of the date that
the registration statement registering the resale of
the Registrable Securities is declared effective by
the SEC, and the date or dates when the registration
is no longer effective.
(b) The Company shall pay all costs, expenses and fees
(excluding fees and expenses of Holder(s)' counsel and any Holder's
underwriting or selling commissions), in connection with all
registration statements filed pursuant to Section 8.1 hereof
including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. If the Company
shall fail to comply with the provisions of Section 8.2(a), the
Company shall, in addition to any other equitable or other relief
available to the Holder(s), extend the exercise period of the Warrants
by such number of days as shall equal the delay caused by the
Company's failure.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested
by the Holder(s); provided that, the Company shall not be obligated to
execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any
such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 16 of the Act or Section 21(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act
or otherwise, arising from such registration statement except for
matters for which the Company is indemnified under subsection 8.2(e)
hereof.
(e) The Holder(s) of the Registrable Securities to be sold
pursuant to a registration statement shall severally, and not jointly,
indemnify the Company, its officers and directors and each person, if
any, who controls the Company within the
<PAGE>
meaning of Section 16 of the Act or Section 21(a) of the Exchange Act,
against all loss, claim, damage or expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under
the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders for specific inclusion in
such registration statement.
(f) For a period of ninety (90) days after the effectiveness of
any registration statement filed pursuant to Section 8.1 hereof, the
Company shall not permit any other registration statement (other than
(1) a registration statement relating to the securities for which the
Company has made available to the Holder(s) of the Registrable
Securities piggyback registration rights hereunder and (2) a
registration statement filed on Forms S-4 or S-8) to be or remain
effective during the effectiveness of a registration statement or a
shelf registration on Form S-3 filed pursuant to Section 8.1 hereof,
without the prior written consent of the Holders of the Registrable
Securities representing a majority of such securities.
(g) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such registration
statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(h) The Company shall as soon as practicable after the effective
date of any registration statement filed pursuant to Section 8.1
hereof, and in any event within fifteen (15) months thereafter, make
"generally available to its security Holders" (within the meaning of
Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the act and covering a period
of at least twelve (12) consecutive months beginning after the
effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder
participating in the offering and requesting the correspondence and
memoranda described below and to the managing underwriters, copies of
all written correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and
permit each Holder and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the
<PAGE>
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation
shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers
and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder or underwriter shall
reasonably request.
(j) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness
thereof.
8.3 Restrictive Legends. The Warrant Certificates, any certificates
-------------------
representing the Shares underlying the Warrants and any of the other
securities issuable upon exercise of the Warrants shall bear the following
restrictive legend:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended ("Act"), and may not be offered or sold except
pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144
under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) an
opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an
exemption from registration under such Act is
available.
8.4 Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders the benefits of
Rule 144 promulgated under the Act and any other rule
or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public
without registration, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule
144;
(b) file with the SEC in a timely manner all reports
and other documents required of the company under
the Act and the 1934 Act, and
(c) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request
(i) a written statement by the Company, if true,
that it has complies with the reporting
requirement of SEC Rule 144, the Act and the 1934
Act, (ii) a copy of the most recent annual or
quarterly report of the Company and (iii) such
other information as may be reasonable requested
in availing any Holder of any rule or regulation
of the SEC which permits the selling of ann such
securities without registration.
<PAGE>
9. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
9.1 Computation of Adjusted Exercise Price. Except as hereinafter
--------------------------------------
provided, in the event the Company shall at any time after the date hereof
issue or sell any shares of Common Stock including shares held in the
Company's treasury (other than (i) the issuances or sales referred to in
Section 9.7 hereof, or (ii) shares of Common Stock issued upon the exercise
of any options, rights or warrants to subscribe for shares of Common Stock
outstanding on the date hereof, or (iii) shares of Common Stock issued upon
the direct or indirect conversion or exchange of securities outstanding on
the date hereof for shares of Common Stock), for a consideration per share
less than the Market Price in effect immediately prior to the issuance or
sale of such shares, or without consideration, then forthwith upon such
issuance or sale, the Exercise Price shall (until another such issuance or
sale) be reduced to the price (calculated to the nearest full cent) equal
to the quotient derived by dividing (i) an amount equal to the sum of (a)
the total number of shares of Common Stock outstanding immediately prior to
the issuance or sale of such shares, multiplied by the Exercise Price in
effect immediately prior to such issuance or sale, and (b) the aggregate of
the amount of all consideration, if any, received by the Company upon such
issuance or sale, by (ii) the total number of shares of Common Stock
outstanding immediately after such issuance or sale; provided, however,
that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect
immediately prior to such computation, except in the case of a combination
of outstanding shares of Common Stock, as provided by Section 9.3 hereof.
For the purposes of any computation to be made in accordance with this
Section 9.1, the following provisions shall be applicable:
(a) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of
the cash consideration therefor shall be deemed to be the amount of
cash received by the Company for such shares (or, if shares of Common
Stock are offered by the Company for subscription, the subscription
price, or, if either of such securities shall be sold to underwriters
or dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
(b) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash shall
be deemed to be the value of such consideration as determined in good
faith by the Board of Directors of the Company and shall include any
amounts payable to security Holders or any affiliates thereof
including, without limitation, pursuant to any employment agreement,
royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such amounts being valued
for the purposes hereof at the aggregate amount payable thereunder,
whether such payments are absolute or contingent, and irrespective of
the period or uncertainty of payment, the rate of interest, if any, or
the contingent nature
<PAGE>
thereof; provided, however, that if any Holder(s) does not agree with
such evaluation, a mutually acceptable independent appraiser shall
make such evaluation, the cost of which shall be borne by the Company.
(c) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(d) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
Holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 9.1.
(e) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights, warrants and upon the conversion
or exchange of convertible or exchangeable securities.
9.2 Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof
----------
issue options, rights or warrants to subscribe for shares of Common Stock,
or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Market Price in
effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Section 9.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall
be deemed to be issued and outstanding at the time such options,
rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in such options, rights
or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue
or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding
at the time of issuance of such securities, and for a consideration
equal to the consideration (determined in the same manner as
consideration received on the issue or sale of shares of Common Stock
in accordance
<PAGE>
with the terms of the Warrants) received by the Company
for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in
subsection (a) of this Section 9.2, or in the price per share at which
the securities referred to in subsection (b) of this Section 8.2 are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants
or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options,
rights or warrants or the conversion or exchange of such convertible
or exchangeable securities.
9.3 Subdivision and Combination. In case the Company shall at any
---------------------------
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
9.4 Adjustment in Number of Securities. Upon each adjustment of the
----------------------------------
Exercise Price pursuant to the provisions of this Section 9, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise
price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Securities issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
9.5 Definition of Common Stock. For the purpose of this Agreement,
--------------------------
the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Articles of Incorporation of the
Company as amended as of the date hereof, or (ii) any other class
of stock resulting from successive changes or reclassifications of
such Common Stock consisting solely of changes in par value, or
from par value to no par value, or from no par value to par value.
In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the shares
of Common Stock outstanding as of the date hereof, the Holder, at
its option, may receive upon exercise of any Warrant either shares
of Common Stock or a like number of such securities with greater or
superior voting rights.
9.6 Merger or Consolidation. In case of any consolidation of the
-----------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock),
the corporation formed by such consolidation or merger shall execute and
deliver to the Holder a supplemental warrant agreement providing that the
Holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and
<PAGE>
amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a Holder of the number of shares of Common
Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 9. The above provision of
this subsection shall similarly apply to successive consolidations or
mergers.
9.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
------------------------------------------------
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of such adjustment shall be less than two
cents ($.02) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents
($.02) per Warrant Security; or
(c) If the Exercise Price would be less than the par value per
share of Common Stock.
9.8 Dividends and Other Distributions. In the event that the Company
---------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value,
the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled
to receive at the time of such dividend or distribution as if the Warrants
had been exercised immediately prior to such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of
this Section 9.8.
9.9 Statement on Warrant Certificate. Irrespective of any
--------------------------------
adjustments in the Exercise Price or the number or kind of shares
purchasable upon the exercise of the Warrants, the Warrant Certificate or
certificates theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
10. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designed by the Holder thereof at the time of such surrender.
<PAGE>
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to issue fractional shares of Common Stock upon the exercise of
Warrants. Warrants may only be exercised in such multiples as are required to
permit the issuance by the Company of one or more whole shares of Common Stock.
If one or more Warrants shall be presented for exercise in full at the same time
by the same Holder, the number of whole shares of Common Stock which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares of Common Stock purchasable on exercise of the
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions provided herein, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current Market Price of a share of Common
Stock, determined in accordance with Section 4.3 hereof.
12. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other Securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder.
13. Notices to Warrant Holders. Nothing contained in this Agreement shall
--------------------------
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the Holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable other than in cash, or a cash dividend or distribution
payable other than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the Holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
<PAGE>
then, in any one or more of such events, the Company shall give written notice
of such event to the Holders at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer book, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4 hereof
or to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments. The Company and HOLDER may from time to
--------------------------
time supplement or amend this Agreement without the approval of any Holders of
the Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and HOLDER may deem necessary
or desirable and which the Company and HOLDER deem shall not adversely affect
the interests of the Holders of the Warrant Certificates. If HOLDER no longer
owns any Warrants, then this Agreement may be amended by the Company and the
Holders of a majority of the then outstanding Warrants.
16. Successors. All the covenants and provisions of this Agreement shall
----------
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
-----------------------------------------
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Texas and for all purposes shall be construed in
accordance with the laws of such State without giving effect to the rules of
such State governing the conflicts of laws.
The Company, HOLDER and any other registered Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
Texas or of the United States of America for the Northern District of Texas, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, HOLDER and any other registered Holders hereby irrevocably waive
any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, HOLDER and the Holders
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 14 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company, HOLDER and any other registered
<PAGE>
Holders agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its/their
reasonable legal costs and expenses relating to such action or proceeding and/or
incurred in connection with the preparation therefor.
18. Entire Agreement; Modification. This Agreement contains the entire
------------------------------
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
--------
for convenience of reference only and are not intended, nor shall they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or corporation other than the Company and HOLDER
and any other registered Holder(s) of the Warrant Certificates or Warrants
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole benefit of the Company and HOLDER and
any other registered Holders of Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ Richard L. Morgan
----------------------------------
Name: RICHARD L. MORGAN
--------------------------------
Title: CFO
-------------------------------
HOLDER.
By: /s/ John H. Chidlow
----------------------------------
Name: John H. Chidlow
--------------------------------
Title:_______________________________
<PAGE>
EXHIBIT A
---------
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., DALLAS, TEXAS TIME, JUNE 30, 2002
No. W-02 Warrants to Purchase
---- ________ Shares of Common Stock
WARRANT CERTIFICATE
-------------------
This Warrant Certificate certifies that ______________________, or
registered assigns, is the registered Holder of _______________ Warrants to
purchase initially, at any time, until 5:00 p.m. Dallas, Texas time on June 30,
2002 ("Expiration Date"), up to _______________ fully-paid and non-assessable
shares of common stock, $.01 par value ("Common Stock") of AVIATION GROUP, INC.,
a Texas corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $1.00 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Warrant Agreement dated as of June 30,
1999 between the Company and ___________________________ (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check payable to the order of the Company or by surrender of this
Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
Holders (the words "Holders" or "Holder" meaning the registered Holders or
registered Holder) of the Warrants.
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the Holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
Holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the Holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered Holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the Holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ________________.
AVIATION GROUP, INC.
[SEAL] By:__________________________________
Name:________________________________
Attest: Title:_______________________________
Name:____________________________
Title:___________________________
<PAGE>
EXHIBIT 10.16
AVIATION GROUP, INC.
AND
JERRY R. WEBB
________
WARRANT AGREEMENT
Dated as of June 11, 1999
<PAGE>
WARRANT AGREEMENT
-----------------
This WARRANT AGREEMENT (the "Agreement") is dated as of June 11, 1999
between AVIATION GROUP, INC., a Texas corporation (the "Company"), and
Jerry R. Webb, and his successors and assigns (collectively, "HOLDER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, under that certain Note dated as of June 11, 1999 between the
Company and HOLDER, the HOLDER loaned certain funds to the Company,
NOW, THEREFORE, in consideration of the premises, the agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. Effective herewith, HOLDER is hereby granted the right to
-----
purchase, at any time prior to 5:00 p.m., Dallas, Texas time on June 30, 2002,
166,667 shares of Common Stock (the "Shares"). One share of Common Stock is
hereinafter referred to as a "Warranty Security" and more than one collectively
referred to as the "Warrant Securities." The exercise price of each Warrant
shall equal (subject to adjustment as provided in Section 9) $1.00 per Warrant
Security subject to the terms and conditions of this Agreement.
2. Consideration. In return for the loan of funds to the Company by the
-------------
HOLDER, the Company grants this Warrant to HOLDER.
3. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof; with
---------
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
4. Exercise of Warrant.
-------------------
4.1 Method of Exercise. The Warrants initially are exercisable at an
------------------
aggregate Exercise Price (as defined in Section 7) per Warrant Security,
payable by certified or official bank check. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for
the Warrant Securities purchased at the Company's principal offices
(presently located at 700 North Pearl, Suite 2170, Dallas, Texas 75201) the
registered Holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common
Stock so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holders thereof, in whole
or part (but not as to fractional shares of the Common Stock). In the case
of the purchase of less than all Warrant Securities purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon
the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Warrant Securities
purchasable thereunder.
<PAGE>
4.2 Exercise by Surrender of Warrant. In addition to the method of
--------------------------------
payment set forth in Section 4.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time
and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section
4.1. The number of shares of Warrant Securities to be issued pursuant to
this Section 4.2 shall be equal to the difference between (a) the number of
shares of Common Stock in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the product of the number
of shares of Common Stock in respect of which the Warrants are exercised
multiplied by the Exercise Price per Warrant Security and the denominator
of which shall be the Market Price of a Share of Common Stock(as defined in
Section 4.3).
4.3 Definition of Market Price. As used herein, the "Market Price" at
--------------------------
any date shall be deemed to be the last reported sale price, or, in case no
such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by The Nasdaq Stock
Market's National Market or Smallcap Market ("Nasdaq"), or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted by the NASD or such
similar organization, the fair market value of a share of Common Stock as
determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it. Notwithstanding the
foregoing, for purposes of Section 9, the Market Price of a share of Common
Stock shall be determined by reference to the relevant information set
forth above during the thirty (30) trading days immediately preceding the
date of the event requiring the determination of the Market Price (except
that, in the event of a public offering of shares of Common Stock, the
Market Price of a share of Common Stock shall be determined by reference to
the trading day immediately preceding the effective date of the public
offering and not such thirty (30) trading day period).
5. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for Warrant Securities and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 6 and 8 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Warrant
Securities (and/or other securities, property or rights issuable upon the
exercise of the Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company under its
corporate seal
<PAGE>
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Restriction On Transfer of Warrants. The Holder of a Warrant
-----------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof. This Agreement is binding upon any Holder(s) of a Warrant Certificate
and their respective heirs, successors, and permitted assigns. The Holder may
assign interests granted by this Agreement, subject to the any other limitations
in the Agreement, provided that the transferee agrees to be bound by the terms
of this Agreement as if such transferee were a Holder and, provided further,
that the assignment is made pursuant to an effective registration statement
under the Securities Act or a valid exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). If requested by the
Company, the Holder shall have furnished to the Company an opinion of counsel
reasonably satisfactory to the Company to such effect.
7. Exercise Price.
--------------
7.1 Initial and Adjusted Exercise Price. Except as otherwise provided
-----------------------------------
in Section 9 hereof, the initial exercise price of each Warrant shall be
$1.00 per Warrant Security. The adjusted exercise price shall be the price
which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 9
hereof.
7.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
8. Registration Rights.
-------------------
8.1 Piggyback Registration.
----------------------
(a) If, at any time the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Act"),
either for its own account or the account of any other security Holder
or Holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or
comparable registration statement), it shall give written notice, at
least thirty (30) days prior to the filing of each such registration
statement, to any Holder(s) of Registrable Securities (as hereinafter
defined), of its intention to do so. If such Holder(s) notify the
Company within twenty-one (21) days after the receipt of any such
notice of its or their desire to include any Registrable Securities in
such proposed registration statement, the Company shall afford such
Holder(s) of such Registrable Securities the opportunity to have any
such Registrable Securities registered for resale by the Holder(s)
under such registration statement. The term "Registrable Securities"
means (i) all shares of Common Stock owned by a Holder as a result of
the exercise of a Warrant, and (ii) all shares of Common Stock which a
Holder has an option to purchase under a Warrant, until, in the case
of any such security described by (i) or (ii), (a) such security is
disposed of in accordance with an effective registration statement
under the Securities Act, (b) such security is saleable
<PAGE>
by the Holder pursuant to Rule 144(k), or (c) such security is
distributed to the public pursuant to Rule 144.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company
shall so advise any Holder(s) as part of the written notice given
pursuant to Section 8.1(a) hereof. The right of any such Holder(s) to
registration pursuant to this Section 8.1 shall not be conditioned
upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent
hereinafter provided.
(c) Notwithstanding the provisions of this Section 8.1, the
Company shall have the right at any time after it shall have given
written notice pursuant to Section 8.1(a) hereof (irrespective of
whether a written request for inclusion of any such securities shall
have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the
effective date thereof.
8.2 Covenants of the Company with Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 8.1 hereof, the Company covenants
and agrees as follows:
(a) The Company shall
(i) use its best efforts to have any registration
statements declared effective at the earliest
practicable time and shall furnish each Holder
desiring to sell Registrable Securities such number of
prospectuses as shall reasonably be requested.
(ii) With respect to any registration statement filed
pursuant to this Agreement, keep such registration
statement effective until the sooner to occur of (A)
such time as the Holders of Registrable Securities
covered by such registration statement have completed
the distribution of all Registrable Securities
described in the registration statement, and (B) such
time as all of the Registrable Securities covered by
such registration statement may be sold without any
volume limitation pursuant to rule 144 promulgated
under the Act and (C) three (3) years following the
date hereof (the "Registration Maintenance Period").
(iii) Notify each Holder of Registrable Securitie covered by
such registration statement at any time when a
prospectus relating thereto is required to be
delivered under the Act of the happening of any event
as a result of which the prospectus included in such
registration statement, as then in effect, includes an
untrue statement of material fact or omits to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances then
existing.
<PAGE>
(iv) As promptly as practicable after becoming aware of such
event, notify each holder of the happening of any event of
which the Company has knowledge, as a result of which the
prospectus included in the registration statement, as then
in effect, includes an untrue statement of a material fact
or omits to state a material that required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a
supplement or amendment to the registration statement to
correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request.
(v) Provide Holders with a written notice of the date that the
registration statement registering the resale of the
Registrable Securities is declared effective by the SEC,
and the date or dates when the registration is no longer
effective.
(b) The Company shall pay all costs, expenses and fees (excluding
fees and expenses of Holder(s)' counsel and any Holder's underwriting or
selling commissions), in connection with all registration statements filed
pursuant to Section 8.1 hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
If the Company shall fail to comply with the provisions of Section 8.2(a),
the Company shall, in addition to any other equitable or other relief
available to the Holder(s), extend the exercise period of the Warrants by
such number of days as shall equal the delay caused by the Company's
failure.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Registrable Securities included in a
registration statement for offering and sale under the securities or blue
sky laws of such states as reasonably are requested by the Holder(s);
provided that, the Company shall not be obligated to execute or file any
general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 16
of the Act or Section 21(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them
may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement except for matters for which the Company
is indemnified under subsection 8.2(e) hereof.
(e) The Holder(s) of the Registrable Securities to be sold pursuant
to a registration statement shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls
the Company within the
<PAGE>
meaning of Section 16 of the Act or Section 21(a) of the Exchange Act,
against all loss, claim, damage or expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the
Act, the Exchange Act or otherwise, arising from information furnished by
or on behalf of such Holders for specific inclusion in such registration
statement.
(f) For a period of ninety (90) days after the effectiveness of any
registration statement filed pursuant to Section 8.1 hereof, the Company
shall not permit any other registration statement (other than (1) a
registration statement relating to the securities for which the Company has
made available to the Holder(s) of the Registrable Securities piggyback
registration rights hereunder and (2) a registration statement filed on
Forms S-4 or S-8) to be or remain effective during the effectiveness of a
registration statement or a shelf registration on Form S-3 filed pursuant
to Section 8.1 hereof, without the prior written consent of the Holders of
the Registrable Securities representing a majority of such securities.
(g) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) a "cold
comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement)
signed by the independent public accountants who have issued a report on
the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters
in underwritten public offerings of securities.
(h) The Company shall as soon as practicable after the effective date
of any registration statement filed pursuant to Section 8.1 hereof, and in
any event within fifteen (15) months thereafter, make "generally available
to its security Holders" (within the meaning of Rule 158 under the Act) an
earnings statement (which need not be audited) complying with Section 11(a)
of the act and covering a period of at least twelve (12) consecutive months
beginning after the effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder participating
in the offering and requesting the correspondence and memoranda described
below and to the managing underwriters, copies of all written
correspondence between the Commission and the Company, its counsel or
auditors and all memoranda relating to discussions with the Commission or
its staff with respect to the registration statement and permit each Holder
and underwriters to do such investigation, upon reasonable advance notice,
with respect to information contained in or omitted from the
<PAGE>
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent
auditors, all to such reasonable extent and at such reasonable times and as
often as any such Holder or underwriter shall reasonably request.
(j) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
8.3 Restrictive Legends. The Warrant Certificates, any certificates
-------------------
representing the Shares underlying the Warrants and any of the other securities
issuable upon exercise of the Warrants shall bear the following restrictive
legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"), and
may not be offered or sold except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent applicable,
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) an opinion of counsel, if
such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is
available.
8.4 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the company under the Act and the 1934 Act,
and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the
Company, if true, that it has complies with the reporting
requirement of SEC Rule 144, the Act and the 1934 Act, (ii) a copy
of the most recent annual or quarterly report of the Company and
(iii) such other information as may be reasonable requested in
availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration.
<PAGE>
9. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
9.1 Computation of Adjusted Exercise Price. Except as hereinafter
--------------------------------------
provided, in the event the Company shall at any time after the date hereof issue
or sell any shares of Common Stock including shares held in the Company's
treasury (other than (i) the issuances or sales referred to in Section 9.7
hereof, or (ii) shares of Common Stock issued upon the exercise of any options,
rights or warrants to subscribe for shares of Common Stock outstanding on the
date hereof, or (iii) shares of Common Stock issued upon the direct or indirect
conversion or exchange of securities outstanding on the date hereof for shares
of Common Stock), for a consideration per share less than the Market Price in
effect immediately prior to the issuance or sale of such shares, or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (i) an
amount equal to the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to the issuance or sale of such shares, multiplied
by the Exercise Price in effect immediately prior to such issuance or sale, and
(b) the aggregate of the amount of all consideration, if any, received by the
Company upon such issuance or sale, by (ii) the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided, however,
that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as provided by Section 9.3 hereof.
For the purposes of any computation to be made in accordance with this
Section 9.1, the following provisions shall be applicable:
(a) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by
the Company for subscription, the subscription price, or, if either of
such securities shall be sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price) before deducting therefrom any compensation paid or discount allowed
in the sale, underwriting or purchase thereof by underwriters or dealers or
others performing similar services, or any expenses incurred in connection
therewith.
(b) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock
for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be
the value of such consideration as determined in good faith by the Board of
Directors of the Company and shall include any amounts payable to security
Holders or any affiliates thereof including, without limitation, pursuant
to any employment agreement, royalty, consulting agreement, covenant not to
compete, earnout or contingent payment right or similar arrangement,
agreement or understanding, whether oral or written; all such amounts being
valued for the purposes hereof at the aggregate amount payable thereunder,
whether such payments are absolute or contingent, and irrespective of the
period or uncertainty of payment, the rate of interest, if any, or the
contingent nature
<PAGE>
thereof, provided, however, that if any Holder(s) does not agree with such
evaluation, a mutually acceptable independent appraiser shall make such
evaluation, the cost of which shall be borne by the Company.
(c) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(d) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business
on the date fixed for the determination of security Holders entitled to
receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (ii)
of this Section 9.1.
(e) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of
options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
9.2 Options, Rights, Warrants and Convertible and Exchangeable Securities.
---------------------------------------------------------------------
In case the Company shall at any time after the date hereof issue options,
rights or warrants to subscribe for shares of Common Stock, or issue any
securities convertible into or exchangeable for shares of Common Stock, for a
consideration per share less than the Market Price in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration, the Exercise Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 9.1 hereof; provided that:
(a) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in such options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with
the terms of the Warrants), if any, received by the Company for such
options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable securities
shall be deemed to be issued and outstanding at the time of issuance of
such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or
sale of shares of Common Stock in accordance
<PAGE>
with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the
Company upon the conversion or exchange thereof.
(c) If any change shall occur in the price per share provided for in
any of the options, rights or warrants referred to in subsection (a) of
this Section 9.2, or in the price per share at which the securities
referred to in subsection (b) of this Section 8.2 are convertible or
exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
9.3 Subdivision and Combination. In case the Company shall at any time
---------------------------
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
9.4 Adjustment in Number of Securities. Upon each adjustment of the
----------------------------------
Exercise Price pursuant to the provisions of this Section 9, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
9.5 Definition of Common Stock. For the purpose of this Agreement, the
--------------------------
term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Articles of Incorporation of the Company as amended
as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that the Company shall
after the date hereof issue securities with greater or superior voting
rights than the shares of Common Stock outstanding as of the date
hereof, the Holder, at its option, may receive upon exercise of any
Warrant either shares of Common Stock or a like number of such
securities with greater or superior voting rights.
9.6 Merger or Consolidation. In case of any consolidation of the Company
-----------------------
with, or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the Holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and
<PAGE>
amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a Holder of the number of shares of Common
Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 9. The above provision of
this subsection shall similarly apply to successive consolidations or
mergers.
9.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
------------------------------------------------
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of such adjustment shall be less than two
cents ($0.2) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents
($.02) per Warrant Security; or
(c) If the Exercise Price would be less than the par value per
share of Common Stock.
9.8 Dividends and Other Distributions. In the event that the Company
---------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value,
the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled
to receive at the time of such dividend or distribution as if the Warrants
had been exercised immediately prior to such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of
this Section 9.8.
9.9 Statement on Warrant Certificate. Irrespective of any adjustments
--------------------------------
in the Exercise Price or the number or kind of shares purchasable upon the
exercise of the Warrants, the Warrant Certificate or certificates
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
10. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designed by the Holder thereof at the time of such surrender.
<PAGE>
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be required
-----------------------------------
to issue fractional shares of Common Stock upon the exercise of Warrants.
Warrants may only be exercised in such multiples as are required to permit the
issuance by the Company of one or more whole shares of Common Stock. If one or
more Warrants shall be presented for exercise in full at the same time by the
same Holder, the number of whole shares of Common Stock which shall be issuable
upon such exercise thereof shall be computed on the basis of the aggregate
number of shares of Common Stock purchasable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions provided herein, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current Market Price of a share of Common
Stock, determined in accordance with Section 4.3 hereof.
12. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other Securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder.
13. Notices to Warrant Holders. Nothing contained in this Agreement shall
--------------------------
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the Holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable other than in cash, or a cash dividend or
distribution payable other than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to all the Holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
<PAGE>
then, in any one or more of such events, the Company shall give written notice
of such event to the Holders at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer book, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4 hereof
or to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments. The Company and HOLDER may from time to
--------------------------
time supplement or amend this Agreement without the approval of any Holders of
the Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and HOLDER may deem necessary
or desirable and which the Company and HOLDER deem shall not adversely affect
the interests of the Holders of the Warrant Certificates. If HOLDER no longer
owns any Warrants, then this Agreement may be amended by the Company and the
Holders of a majority of the then outstanding Warrants.
16. Successors. All the covenants and provisions of this Agreement shall
----------
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Governing Law: Submission to Jurisdiction. This Agreement and each
-----------------------------------------
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Texas and for all purposes shall be construed in
accordance with the laws of such State without giving effect to the rules of
such State governing the conflicts of laws.
The Company, HOLDER and any other registered Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
Texas or of the United States of America for the Northern District of Texas, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, HOLDER and any other registered Holders hereby irrevocably waive
any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, HOLDER and the Holders
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 14 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company, HOLDER and any other registered
<PAGE>
Holders agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its/their
reasonable legal costs and expenses relating to such action or proceeding and/or
incurred in connection with the preparation therefor.
18. Entire Agreement: Modification. This Agreement contains the entire
------------------------------
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
--------
for convenience of reference only and are not intended, nor shall they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or corporation other than the Company and HOLDER
and any other registered Holder(s) of the Warrant Certificates or Warrants
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole benefit of the Company and HOLDER and
any other registered Holders of Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ Richard L. Morgan
--------------------------------
Name: Richard L. Morgan
------------------------------
Title: CFO
-----------------------------
HOLDER.
By: /s/ Jerry R. Webb
--------------------------------
Name: Jerry R. Webb
------------------------------
Title:_____________________________
<PAGE>
EXHIBIT A
---------
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., DALLAS, TEXAS TIME, JUNE 30, 2002
No. W-_________ Warrants to Purchase
________ Shares of Common Stock
WARRANT CERTIFICATE
-------------------
This Warrant Certificate certifies that ______________________, or
registered assigns, is the registered Holder of______________ Warrants to
purchase initially, at any time, until 5:00 p.m. Dallas, Texas time on June 30,
2002 ("Expiration Date"), up to ______________ fully-paid and non-assessable
shares of common stock, $.0l par value ("Common Stock") of AVIATION GROUP, INC.,
a Texas corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $1.00 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Warrant Agreement dated as of June 30,
1999 between the Company and ____________________ (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
payable to the order of the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
Holders (the words "Holders" or "Holder" meaning the registered Holders or
registered Holder) of the Warrants.
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the Holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
Holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the Holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered Holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the Holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of________________
AVIATION GROUP, INC.
[SEAL] By:__________________________________
Name:________________________________
Attest: Title:_______________________________
Name:___________________________
Title:__________________________
<PAGE>
EXHIBIT 10.17
AVIATION GROUP, INC.
AND
RAS SECURITIES, INC.
______________
WARRANT AGREEMENT
Dated as of October 20, 1998
1
<PAGE>
WARRANT AGREEMENT
-----------------
This WARRANT AGREEMENT (the "Agreement") is dated as of October 20, 1998
between AVIATION GROUP, INC., a Texas corporation (the "Company"), and RAS
SECURITIES, a New York COMPANY and assigns (collectively, "RAS").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, under that certain Letter Agreement dated as of October 20, 1998
between the company, Paul Taboada, and RAS Securities Corp. ("RAS"), the Company
has issued to RAS warrants ("Warrants") to purchase an aggregate of 50,000
shares of Common Stock (as defined in Section 9.5), $.01 par value, of the
Company,
NOW, THEREFORE, in consideration of the premises, the agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. Effective herewith, RAS is hereby granted the right to
-----
purchase, at any time prior to 5:00 p.m., Dallas, Texas time on October 20,
2003, 50,000 shares of Common Stock (the "Shares"). One share of Common Stock is
hereinafter referred to as a "Warranty Security" and more than one collectively
referred to as the "Warrant Securities." The exercise price of each Warrant
shall be as follows (subject to adjustment as provided in Section 9) subject to
the terms and conditions of this Agreement:
Number of Warrants Price
5,000 $3.00
5,000 3.50
10,000 4.50
10,000 5.50
10,000 6.50
5,000 7.50
5,000 8.00
2. Consideration. In return for the original grant of the Warrants, Paul
-------------
Taboada and RAS will provide and have provided services as described in that
certain letter dated October 20, 1998 by and between the Company, Paul Taboada,
and RAS.
3. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
---------
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
4. Exercise of Warrant.
-------------------
4.1 Method of Exercise. The Warrants initially are exercisable at an
------------------
aggregate initial exercise price (subject to adjustment as provided in
Section 9 hereof) per Warrant Security set forth in Section 7 hereof
payable by certified or official bank check, subject to
2
<PAGE>
adjustment as provided in Section 9 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for
the Warrant Securities purchased at the Company's principal offices
(presently located at 700 North Pearl, Suite 2170, Dallas, Texas 75201) the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common
Stock so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holders thereof, in whole
or part (but not as to fractional shares of the Common Stock). In the case
of the purchase of less than all Warrant Securities purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon
the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Warrant Securities
purchasable thereunder.
4.2 Exercise by Surrender of Warrant. In addition to the method of
--------------------------------
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time
and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section
4.1. The number of shares of Common Stock to be issued pursuant to this
Section 4.2 shall be equal to the difference between (a) the number of
shares of Common Stock in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of shares of
Common Stock in respect of which the Warrants are exercised multiplied by
the Exercise Price (as hereinafter defined) and the denominator of which
shall be the Market Price (as defined in Section 4.3).
4.3 Definition of Market Price. As used herein, the phrase "Market
--------------------------
Price" at any date shall be deemed to be the last reported sale price, or,
in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted to trading or by The Nasdaq Stock
Market's National Market or Smallcap Market ("Nasdaq"), or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted by the NASD or such
similar organization, the fair market value of a share of Common Stock as
determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it. Notwithstanding the
foregoing, for purposes of Section 8, the Market Price of a share of Common
Stock shall be determined by reference to the relevant information set
forth above during the thirty (30) trading days immediately preceding the
date of the event requiring the determination of the Market Price (except
that, in the event of a public offering of shares of Common Stock, the
Market Price of a share of Common Stock shall be determined by reference to
the trading day immediately preceding the effective date of the public
offering and not such thirty (30) trading day period).
5. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 6 and 8 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
3
<PAGE>
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
(and/or other securities, property or rights issuable upon the exercise of the
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Restriction On Transfer of Warrants. The Holder of a Warrant
-----------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof. This Agreement is binding upon any Holder(s) of a Warrant Certificate
and their respective heirs, successors, and permitted assigns. The Holder may
assign interests granted by this Agreement, subject to the any other limitations
in the Agreement, provided that the transferee agrees to be bound by the terms
of this Agreement as if such transferee were a Holder and, provided further,
that the assignment is made pursuant to an effective registration statement
under the Securities Act or a valid exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). If requested by the
Company, the Holder shall have furnished to the Company an opinion of counsel
reasonably satisfactory to the Company to such effect.
7. Exercise Price.
--------------
7.1 Initial and Adjusted Exercise Price. Except as otherwise
-----------------------------------
provided in Section 8 hereof, the initial exercise price of each Warrant
shall be as described in Section 1 herein per Warrant Security. The
adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 8 hereof.
7.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
8. Registration Rights.
-------------------
8.1 Piggyback Registration.
----------------------
(a) If, at any time prior to the seventh anniversary of the date
of this Agreement, the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Act"),
either for its own account or the account of any other security holder
or holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or
comparable registration statement), it shall give written notice, at
least thirty (30) days prior to the filing of each such registration
statement, to any Holder(s) of Registrable Securities (as hereinafter
defined), of its intention to do so. If such Holder(s) notify the
Company within twenty-one (21) days after the receipt of any such
notice of its or their desire to include any Registrable Securities in
such proposed registration statement, the Company shall afford such
Holder(s) of such Registrable Securities the opportunity to have any
such Registrable Securities registered for resale by the Holder(s)
under such registration statement. The term
4
<PAGE>
"Registrable Securities" means (i) all shares of Common Stock owned by
a Holder as a result of the exercise of a Warrant, and (ii) all shares
of Common Stock which a Holder has an option to purchase under a
Warrant, until, in the case of any such security described by (i) or
(ii), (a) such security is disposed of in accordance with an effective
registration statement under the Securities Act, (b) such security is
saleable by the Holder pursuant to Rule 144(k), (c) such security is
saleable by the Holder pursuant to Rule 144 without regard to any
volume limitations, or (d) such security is distributed to the public
pursuant to Rule 144.
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company
shall so advise any Holder(s) as part of the written notice given
pursuant to Section 8.1(a) hereof. The right of any such Holder(s) to
registration pursuant to this Section 8.1 shall not be conditioned
upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent
hereinafter provided.
(c) Notwithstanding the provisions of this Section 8.1, the
Company shall have the right at any time after it shall have given
written notice pursuant to Section 8.1(a) hereof (irrespective of
whether a written request for inclusion of any such securities shall
have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the
effective date thereof.
8.2 Covenants of the Company with Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 8.1 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to have any
registration statements declared effective at the earliest practicable
time and shall furnish each Holder desiring to sell Registrable
Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs, expenses and fees
(excluding fees and expenses of Holder(s)' counsel and any
underwriting or selling commissions), in connection with all
registration statements filed pursuant to Section 8.1 hereof
including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. If the Company
shall fail to comply with the provisions of Section 8.2(a), the
Company shall, in addition to any other equitable or other relief
available to the Holder(s), extend the exercise period of the Warrants
by such number of days as shall equal the delay caused by the
Company's failure.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested
by the Holder(s); provided that, the Company shall not be obligated to
execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any
such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 16 of the Act or Section 21(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against
5
<PAGE>
all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under
the Act, the Exchange Act or otherwise, arising from such registration
statement except for matters for which the Company is indemnified
under subsection 8.2(e) hereof.
(e) The Holder(s) of the Registrable Securities to be sold
pursuant to a registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the
Company within the meaning of Section 16 of the Act or Section 21(a)
of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in
such registration statement.
(f) For a period of ninety (90) days after the effectiveness of
any registration statement filed pursuant to Section 8.1 hereof, the
Company shall not permit any other registration statement (other than
(1) a registration statement relating to the securities for which the
Company has made available to the Holder(s) of the Registrable
Securities piggyback registration rights hereunder and (2) a
registration statement filed on Forms S-4 or S-8 or a shelf
registration on Form S-3) to be or remain effective during the
effectiveness of a registration statement or a shelf registration on
Form S-3 filed pursuant to Section 8.1 hereof, without the prior
written consent of the Holders of the Registrable Securities
representing a majority of such securities.
(g) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such registration
statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(h) The Company shall as soon as practicable after the effective
date of any registration statement filed pursuant to Section 8.1
hereof, and in any event within fifteen (15) months thereafter, make
"generally available to its security holders" (within the meaning of
Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the act and covering a period
of at least twelve (12) consecutive months beginning after the
effective date of the registration statement.
6
<PAGE>
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of
all written correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and
permit each Holder and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(j) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness
thereof.
8.3 Restrictive Legends. The Warrant Certificates, any certificates
-------------------
representing the Shares underlying the Warrants and any of the other
securities issuable upon exercise of the Warrants shall bear the following
restrictive legend:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended ("Act"), and may not be offered or sold except
pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144
under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) an
opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an
exemption from registration under such Act is
available.
9. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
9.1 Computation of Adjusted Exercise Price. Except as hereinafter
--------------------------------------
provided, in the event the Company shall at any time after the date hereof
issue or sell any shares of Common Stock including shares held in the
Company's treasury (other than (i) the issuances or sales referred to in
Section 9.7 hereof, (ii) shares of Common Stock issued upon the exercise of
any options, rights or warrants to subscribe for shares of Common Stock, or
(iii) shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock), for a consideration
per share less than the Market Price in effect immediately prior to the
issuance or sale of such shares, or without consideration, then forthwith
upon such issuance or sale, the Exercise Price shall (until another such
issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (i) an amount equal to the
sum of (a) the total number of shares of Common Stock outstanding
immediately prior to the issuance or sale of such shares, multiplied by the
Exercise Price in effect immediately prior to such issuance or sale, and
(b) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (ii) the total number of shares
of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price
in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section
9.3 hereof.
7
<PAGE>
For the purposes of this Section 9 the term Exercise Price shall mean
the Exercise Price per share of Common Stock set forth in Section 7 hereof,
as adjusted from time to time pursuant to the provisions of this Section 9.
For the purposes of any computation to be made in accordance with this
Section 9.1, the following provisions shall be applicable:
(a) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of
the cash consideration therefor shall be deemed to be the amount of
cash received by the Company for such shares (or, if shares of Common
Stock are offered by the Company for subscription, the subscription
price, or, if either of such securities shall be sold to underwriters
or dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
(b) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash shall
be deemed to be the value of such consideration as determined in good
faith by the Board of Directors of the Company and shall include any
amounts payable to security holders or any affiliates thereof
including, without limitation, pursuant to any employment agreement,
royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such amounts being valued
for the purposes hereof at the aggregate amount payable thereunder,
whether such payments are absolute or contingent, and irrespective of
the period or uncertainty of payment, the rate of interest, if any, or
the contingent nature thereof; provided, however, that if any
Holder(s) does not agree with such evaluation, a mutually acceptable
independent appraiser shall make such evaluation, the cost of which
shall be borne by the Company.
(c) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(d) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 9.1.
(e) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights,
8
<PAGE>
warrants and upon the conversion or exchange of convertible or
exchangeable securities.
9.2 Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof
----------
issue options, rights or warrants to subscribe for shares of Common Stock,
or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Market Price in
effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Section 9.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall
be deemed to be issued and outstanding at the time such options,
rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in such options, rights
or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue
or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding
at the time of issuance of such securities, and for a consideration
equal to the consideration (determined in the same manner as
consideration received on the issue or sale of shares of Common Stock
in accordance with the terms of the Warrants) received by the Company
for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in
subsection (a) of this Section 9.2, or in the price per share at which
the securities referred to in subsection (b) of this Section 8.2 are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants
or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options,
rights or warrants or the conversion or exchange of such convertible
or exchangeable securities.
9.3 Subdivision and Combination. In case the Company shall at any
---------------------------
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
9.4 Adjustment in Number of Securities. Upon each adjustment of the
----------------------------------
Exercise Price pursuant to the provisions of this Section 9, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise
price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect
9
<PAGE>
immediately prior to such adjustment by the number of Warrant Securities
issuable upon exercise of the Warrants immediately prior to such adjustment
and dividing the product so obtained by the adjusted Exercise Price.
9.5 Definition of Common Stock. For the purpose of this Agreement,
--------------------------
the term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Articles of Incorporation of the Company as amended as
of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from
no par value to par value. In the event that the Company shall after the
date hereof issue securities with greater or superior voting rights than
the shares of Common Stock outstanding as of the date hereof, the Holder,
at its option, may receive upon exercise of any Warrant either shares of
Common Stock or a like number of such securities with greater or superior
voting rights.
9.6 Merger or Consolidation. In case of any consolidation of the
-----------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock),
the corporation formed by such consolidation or merger shall execute and
deliver to the Holder a supplemental warrant agreement providing that the
holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which
such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 9. The above provision of this subsection
shall similarly apply to successive consolidations or mergers.
9.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
------------------------------------------------
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of such adjustment shall be less than two
cents ($.02) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents
($.02) per Warrant Security; or
(c) If the Exercise Price would be less than the par value per
share of Common Stock.
9.8 Dividends and Other Distributions. In the event that the Company
---------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value,
the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of
10
<PAGE>
indebtedness, securities or any other thing of value that they would have
been entitled to receive at the time of such dividend or distribution as if
the Warrants had been exercised immediately prior to such dividend or
distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Section 9.8.
11
<PAGE>
9.9 Statement on Warrant Certificate. Irrespective of any
--------------------------------
adjustments in the Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrants, the Warrant Certificate or certificates
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
10. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designed by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to issue fractional shares of Common Stock upon the exercise of
Warrants. Warrants may only be exercised in such multiples as are required to
permit the issuance by the Company of one or more whole shares of Common Stock.
If one or more Warrants shall be presented for exercise in full at the same time
by the same Holder, the number of whole shares of Common Stock which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares of Common Stock purchasable on exercise of the
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions provided herein, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current Market Price of a share of Common
Stock, determined in accordance with Section 4.3 hereof.
12. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other Securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder.
13. Notices to Warrant Holders. Nothing contained in this Agreement shall
--------------------------
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
12
<PAGE>
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable other than in cash, or a cash dividend or distribution
payable other than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of such events, the Company shall give written notice
of such event to the Holders at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer book, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4 hereof
or to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments. The Company and RAS may from time to time
--------------------------
supplement or amend this Agreement without the approval of any Holders of the
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and RAS may deem necessary or
desirable and which the Company and RAS deem shall not adversely affect the
interests of the Holders of the Warrant Certificates. If RAS no longer owns any
Warrants, then this Agreement may be amended by the Company and the Holders of a
majority of the then outstanding Warrants.
16. Successors. All the covenants and provisions of this Agreement shall
----------
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
-----------------------------------------
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of
13
<PAGE>
Texas and for all purposes shall be construed in accordance with the laws of
such State without giving effect to the rules of such State governing the
conflicts of laws.
The Company, RAS and any other registered Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
Texas or of the United States of America for the Northern District of Texas, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, RAS and any other registered Holders hereby irrevocably waive any
objection to such exclusive jurisdiction or inconvenient forum. Any such process
or summons to be served upon any of the Company, RAS and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, RAS and any other registered Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
18. Entire Agreement; Modification. This Agreement contains the entire
------------------------------
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
--------
for convenience of reference only and are not intended, nor shall they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or corporation other than the Company and RAS
and any other registered Holder(s) of the Warrant Certificates or Warrants
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole benefit of the Company and RAS and any
other registered Holders of Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
23. Replacement of Prior Warrant Agreement. The parties hereto agree that
--------------------------------------
the Prior Warrant Agreement is no longer in force and effect and is superseded
and replaced in part by this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ RICHARD L. MORGAN
-------------------------------
Name: Richard L. Morgan
-------------------------------
Title: CFO
-------------------------------
______________________________________
RAS SECURITIES
15
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., DALLAS, TEXAS TIME, OCTOBER 20, 2003
No. W- Warrants to Purchase
50,000 Shares of Common Stock
WARRANT CERTIFICATE
-------------------
This Warrant Certificate certifies that RAS SECURITIES, or registered
assigns, is the registered holder of 50,000 Warrants to purchase initially, at
any time, until 5:00 p.m. Dallas, Texas time on April 28, 2003 ("Expiration
Date"), up to 50,000 fully-paid and non-assessable shares of common stock, $.01
par value ("Common Stock") of AVIATION GROUP, INC., a Texas corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), at the following initial exercise prices, subject
to adjustment in certain events (the "Exercise Price").
Number of Warrants Price
------------------ -----
5,000 $3.00
5,000 3.50
10,000 4.50
10,000 5.50
10,000 6.50
5,000 7.50
5,000 8.00
The shares of Common Stock will be issued upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the Warrant
Agreement dated as of October 20, 1998 between the Company and RAS SECURITIES
(the "Warrant Agreement"). Payment of the Exercise Price shall be made by
certified or official bank check payable to the order of the Company or by
surrender of this Warrant Certificate.
16
<PAGE>
No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ________________________.
AVIATION GROUP, INC.
[SEAL] By:___________________________________
Name:_________________________________
Attest: Title:________________________________
17
<PAGE>
EXHIBIT 10.20
AVIATION GROUP, INC.
AND
Hank Clements
____________
WARRANT AGREEMENT
Dated as of August 31, 1999
1
<PAGE>
WARRANT AGREEMENT
-----------------
This REPLACEMENT WARRANT AGREEMENT (the "Agreement") is dated as of August
31, 1999 between AVIATION GROUP, INC., a Texas corporation (the "Company"), and
Hank Clements, a resident of Texas ("CLEMENTS").
W I T N E S S E T H:
- - - - - - - - - -
In consideration of the premises, the agreements set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant. Effective herewith, CLEMENTS is hereby granted the right to
-----
purchase, at any time prior to 5:00 p.m., Dallas, Texas time on August 31, 2004,
2,500 shares of Common Stock (the "Shares"). One share of Common Stock is
hereinafter referred to as a "Warranty Security" and more than one collectively
referred to as the "Warrant Securities." The exercise price of each Warrant
shall equal (subject to adjustment as provided in Section 9) $1.68 per Warrant
Security subject to the terms and conditions of this Agreement.
2. Consideration. In return for the original grant of warrants, CLEMENTS
-------------
will provide counsel to the Company as a member of its Board of Directors.
3. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
---------
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
4. Exercise of Warrant.
-------------------
4.1 Method of Exercise. The Warrants initially are exercisable at an
------------------
aggregate initial exercise price (subject to adjustment as provided in
Section 9 hereof) per Warrant Security set forth in Section 7 hereof
payable by certified or official bank check, subject to adjustment as
provided in Section 9 hereof. Upon surrender of a Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with
payment of the Exercise Price (as hereinafter defined) for the Warrant
Securities purchased at the Company's principal offices (presently located
at 700 North Pearl, Suite 2170, Dallas, Texas 75201) the registered holder
of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holders thereof, in whole or part (but not
as to fractional shares of the Common Stock). In the case of the purchase
of less than all Warrant Securities purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate
of like tenor for the balance of the Warrant Securities purchasable
thereunder.
2
<PAGE>
4.2 Exercise by Surrender of Warrant. In addition to the method of
--------------------------------
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time
and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section
4.1. The number of shares of Common Stock to be issued pursuant to this
Section 4.2 shall be equal to the difference between (a) the number of
shares of Common Stock in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of shares of
Common Stock in respect of which the Warrants are exercised multiplied by
the Exercise Price (as hereinafter defined) and the denominator of which
shall be the Market Price (as defined in Section 4.3).
4.3 Definition of Market Price. As used herein, the "Market Price"
--------------------------
at any date shall be deemed to be the last reported sale price, or, in case
no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by The Nasdaq Stock
Market's National Market or Smallcap Market ("Nasdaq"), or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted by the NASD or such
similar organization, the fair market value of a share of Common Stock as
determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it. Notwithstanding the
foregoing, for purposes of Section 8, the Market Price of a share of Common
Stock shall be determined by reference to the relevant information set
forth above during the thirty (30) trading days immediately preceding the
date of the event requiring the determination of the Market Price (except
that, in the event of a public offering of shares of Common Stock, the
Market Price of a share of Common Stock shall be determined by reference to
the trading day immediately preceding the effective date of the public
offering and not such thirty (30) trading day period).
5. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 6 and 8 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
(and/or other securities, property or rights issuable upon the exercise of the
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
3
<PAGE>
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Restriction On Transfer of Warrants. The Holder of a Warrant
-----------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof. This Agreement is binding upon any Holder(s) of a Warrant Certificate
and their respective heirs, successors, and permitted assigns. The Holder may
assign interests granted by this Agreement, subject to the any other limitations
in the Agreement, provided that the transferee agrees to be bound by the terms
of this Agreement as if such transferee were a Holder and, provided further,
that the assignment is made pursuant to an effective registration statement
under the Securities Act or a valid exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). If requested by the
Company, the Holder shall have furnished to the Company an opinion of counsel
reasonably satisfactory to the Company to such effect.
7. Exercise Price.
--------------
7.1 Initial and Adjusted Exercise Price. Except as otherwise
-----------------------------------
provided in Section 8 hereof, the initial exercise price of each Warrant
shall be $1.68 per Warrant Security. The adjusted exercise price shall be
the price which shall result from time to time from any and all adjustments
of the initial exercise price in accordance with the provisions of Section
8 hereof.
7.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
8. Registration Rights.
-------------------
8.1 Piggyback Registration.
----------------------
(a) If, at any time prior to the seventh anniversary of the date
of this Agreement, the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Act"),
either for its own account or the account of any other security holder
or holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or
comparable registration statement), it shall give written notice, at
least thirty (30) days prior to the filing of each such registration
statement, to any Holder(s) of Registrable Securities (as hereinafter
defined), of its intention to do so. If such Holder(s) notify the
Company within twenty-one (21) days after the receipt of any such
notice of its or their desire to include any Registrable Securities in
such proposed registration statement, the Company shall afford such
Holder(s) of such Registrable Securities the opportunity to have any
such Registrable Securities registered for resale by the Holder(s)
under such registration statement. The term "Registrable Securities"
means (i) all shares of Common Stock owned by a Holder as a result of
the exercise of a Warrant, and (ii) all shares of Common Stock which a
Holder has an option to purchase under a Warrant, until, in the case
of any such security described by (i) or (ii), (a) such security is
disposed of in accordance with an
4
<PAGE>
effective registration statement under the Securities Act, (b) such
security is saleable by the Holder pursuant to Rule 144(k), (c) such
security is saleable by the Holder pursuant to Rule 144 without regard
to any volume limitations, or (d) such security is distributed to the
public pursuant to Rule 144.
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company
shall so advise any Holder(s) as part of the written notice given
pursuant to Section 8.1(a) hereof. The right of any such Holder(s) to
registration pursuant to this Section 8.1 shall not be conditioned
upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent
hereinafter provided.
(c) Notwithstanding the provisions of this Section 8.1, the
Company shall have the right at any time after it shall have given
written notice pursuant to Section 8.1(a) hereof (irrespective of
whether a written request for inclusion of any such securities shall
have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the
effective date thereof.
8.2 Covenants of the Company with Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 8.1 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to have any
registration statements declared effective at the earliest practicable
time and shall furnish each Holder desiring to sell Registrable
Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs, expenses and fees
(excluding fees and expenses of Holder(s)' counsel and any
underwriting or selling commissions), in connection with all
registration statements filed pursuant to Section 8.1 hereof
including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. If the Company
shall fail to comply with the provisions of Section 8.2(a), the
Company shall, in addition to any other equitable or other relief
available to the Holder(s), extend the exercise period of the Warrants
by such number of days as shall equal the delay caused by the
Company's failure.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested
by the Holder(s); provided that, the Company shall not be obligated to
execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any
such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 16 of the Act or Section 21(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably
5
<PAGE>
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement
except for matters for which the Company is indemnified under
subsection 8.2(e) hereof.
(e) The Holder(s) of the Registrable Securities to be sold
pursuant to a registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the
Company within the meaning of Section 16 of the Act or Section 21(a)
of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in
such registration statement.
(f) For a period of ninety (90) days after the effectiveness of
any registration statement filed pursuant to Section 8.1 hereof, the
Company shall not permit any other registration statement (other than
(1) a registration statement relating to the securities for which the
Company has made available to the Holder(s) of the Registrable
Securities piggyback registration rights hereunder and (2) a
registration statement filed on Forms S-4 or S-8 or a shelf
registration on Form S-3) to be or remain effective during the
effectiveness of a registration statement or a shelf registration on
Form S-3 filed pursuant to Section 8.1 hereof, without the prior
written consent of the Holders of the Registrable Securities
representing a majority of such securities.
(g) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such registration
statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(h) The Company shall as soon as practicable after the effective
date of any registration statement filed pursuant to Section 8.1
hereof, and in any event within fifteen (15) months thereafter, make
"generally available to its security holders" (within the meaning of
Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the act and covering a
6
<PAGE>
period of at least twelve (12) consecutive months beginning after the
effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of
all written correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and
permit each Holder and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(j) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness
thereof.
8.3 Restrictive Legends. The Warrant Certificates, any certificates
-------------------
representing the Shares underlying the Warrants and any of the other
securities issuable upon exercise of the Warrants shall bear the following
restrictive legend:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended ("Act"), and may not be offered or sold except
pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144
under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) an
opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an
exemption from registration under such Act is
available.
7
<PAGE>
9. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
9.1 Computation of Adjusted Exercise Price. Except as hereinafter
--------------------------------------
provided, in the event the Company shall at any time after the date hereof
issue or sell any shares of Common Stock including shares held in the
Company's treasury (other than (i) the issuances or sales referred to in
Section 9.7 hereof, (ii) shares of Common Stock issued upon the exercise of
any options, rights or warrants to subscribe for shares of Common Stock, or
(iii) shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock), for a consideration
per share less than the Market Price in effect immediately prior to the
issuance or sale of such shares, or without consideration, then forthwith
upon such issuance or sale, the Exercise Price shall (until another such
issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (i) an amount equal to the
sum of (a) the total number of shares of Common Stock outstanding
immediately prior to the issuance or sale of such shares, multiplied by the
Exercise Price in effect immediately prior to such issuance or sale, and
(b) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (ii) the total number of shares
of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price
in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section
9.3 hereof.
For the purposes of this Section 9 the term Exercise Price shall mean
the Exercise Price per share of Common Stock set forth in Section 7 hereof,
as adjusted from time to time pursuant to the provisions of this Section 9.
For the purposes of any computation to be made in accordance with this
Section 9.1, the following provisions shall be applicable:
(a) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of
the cash consideration therefor shall be deemed to be the amount of
cash received by the Company for such shares (or, if shares of Common
Stock are offered by the Company for subscription, the subscription
price, or, if either of such securities shall be sold to underwriters
or dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
(b) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash shall
be deemed to be the value of such consideration as determined in good
faith by the Board of Directors of the Company and shall include any
amounts payable to security holders or any affiliates thereof
including, without limitation, pursuant to any employment agreement,
royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such
8
<PAGE>
amounts being valued for the purposes hereof at the aggregate amount
payable thereunder, whether such payments are absolute or contingent,
and irrespective of the period or uncertainty of payment, the rate of
interest, if any, or the contingent nature thereof; provided, however,
that if any Holder(s) does not agree with such evaluation, a mutually
acceptable independent appraiser shall make such evaluation, the cost
of which shall be borne by the Company.
(c) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(d) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 9.1.
(e) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights, warrants and upon the conversion
or exchange of convertible or exchangeable securities.
9.2 Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof
----------
issue options, rights or warrants to subscribe for shares of Common Stock,
or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Market Price in
effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Section 9.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall
be deemed to be issued and outstanding at the time such options,
rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in such options, rights
or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue
or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or
exchangeable securities shall be
9
<PAGE>
deemed to be issued and outstanding at the time of issuance of such
securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue
or sale of shares of Common Stock in accordance with the terms of the
Warrants) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(c) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in
subsection (a) of this Section 9.2, or in the price per share at which
the securities referred to in subsection (b) of this Section 8.2 are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants
or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options,
rights or warrants or the conversion or exchange of such convertible
or exchangeable securities.
9.3 Subdivision and Combination. In case the Company shall at any
---------------------------
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
9.4 Adjustment in Number of Securities. Upon each adjustment of the
----------------------------------
Exercise Price pursuant to the provisions of this Section 9, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise
price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Securities issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
9.5 Definition of Common Stock. For the purpose of this Agreement,
--------------------------
the term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Articles of Incorporation of the Company as amended as
of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from
no par value to par value. In the event that the Company shall after the
date hereof issue securities with greater or superior voting rights than
the shares of Common Stock outstanding as of the date hereof, the Holder,
at its option, may receive upon exercise of any Warrant either shares of
Common Stock or a like number of such securities with greater or superior
voting rights.
9.6 Merger or Consolidation. In case of any consolidation of the
-----------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock),
the corporation formed by such consolidation or merger shall execute and
deliver to the Holder a supplemental warrant agreement providing that the
holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until
10
<PAGE>
the expiration of such Warrant) to receive, upon exercise of such Warrant,
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation or merger, by a holder of the number of
shares of Common Stock of the Company for which such Warrant might have
been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 9. The
above provision of this subsection shall similarly apply to successive
consolidations or mergers.
9.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
------------------------------------------------
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of such adjustment shall be less than two
cents ($.02) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents
($.02) per Warrant Security; or
(c) If the Exercise Price would be less than the par value per
share of Common Stock.
9.8 Dividends and Other Distributions. In the event that the Company
---------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value,
the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled
to receive at the time of such dividend or distribution as if the Warrants
had been exercised immediately prior to such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of
this Section 9.8.
9.9 Statement on Warrant Certificate. Irrespective of any
--------------------------------
adjustments in the Exercise Price or the number or kind of shares
purchasable upon the exercise of the Warrants, the Warrant Certificate or
certificates theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
10. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing
11
<PAGE>
in the aggregate the right to purchase the same number of Warrant Securities in
such denominations as shall be designed by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to issue fractional shares of Common Stock upon the exercise of
Warrants. Warrants may only be exercised in such multiples as are required to
permit the issuance by the Company of one or more whole shares of Common Stock.
If one or more Warrants shall be presented for exercise in full at the same time
by the same Holder, the number of whole shares of Common Stock which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares of Common Stock purchasable on exercise of the
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions provided herein, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current Market Price of a share of Common
Stock, determined in accordance with Section 4.3 hereof.
12. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other Securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder.
13. Notices to Warrant Holders. Nothing contained in this Agreement shall
--------------------------
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable other than in cash, or a cash dividend or distribution
payable other than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
12
<PAGE>
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of such events, the Company shall give written notice
of such event to the Holders at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer book, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4 hereof
or to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments. The Company and CLEMENTS may from time to
--------------------------
time supplement or amend this Agreement without the approval of any Holders of
the Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and CLEMENTS may deem necessary
or desirable and which the Company and CLEMENTS deem shall not adversely affect
the interests of the Holders of the Warrant Certificates. If CLEMENTS no longer
owns any Warrants, then this Agreement may be amended by the Company and the
Holders of a majority of the then outstanding Warrants.
16. Successors. All the covenants and provisions of this Agreement shall
----------
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
-----------------------------------------
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Texas and for all purposes shall be construed in
accordance with the laws of such State without giving effect to the rules of
such State governing the conflicts of laws.
The Company, CLEMENTS and any other registered Holders hereby agree that
any action, proceeding or claim against it arising out of, or relating in any
way to, this Agreement shall be brought and enforced in the courts of the State
of Texas or of the United States of America for the Northern District of Texas,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, CLEMENTS and any other registered Holders hereby
irrevocably waive
13
<PAGE>
any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, CLEMENTS and the
Holders (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address set
forth in Section 14 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the party so served in any action, proceeding or
claim. The Company, CLEMENTS and any other registered Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
18. Entire Agreement; Modification. This Agreement contains the entire
------------------------------
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
--------
for convenience of reference only and are not intended, nor shall they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or corporation other than the Company and
CLEMENTS and any other registered Holder(s) of the Warrant Certificates or
Warrants Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
CLEMENTS and any other registered Holders of Warrant Certificates or Warrant
Securities.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
23. Replacement of Prior Warrant Agreement. The parties hereto agree that
--------------------------------------
the Prior Warrant Agreement is no longer in force and effect and is superseded
and replaced in part by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ RICHARD L. MORGAN
-------------------------------
Name: Richard L. Morgan
-------------------------------
Title: CFO
-------------------------------
14
<PAGE>
HANK CLEMENTS
By: /s/ HANK CLEMENTS
-------------------------------
Name:
--------------------------------
Title:
--------------------------------
Title:________________________________
15
<PAGE>
EXHIBIT A
---------
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., DALLAS, TEXAS TIME, AUGUST 31, 2004
No. W-________ Warrants to Purchase
________ Shares of Common Stock
WARRANT CERTIFICATE
-------------------
This Warrant Certificate certifies that ______________________, or
registered assigns, is the registered holder of _______________ Warrants to
purchase initially, at any time, until 5:00 p.m. Dallas, Texas time on August
31, 2004 ("Expiration Date"), up to _______________ fully-paid and non-
assessable shares of common stock, $.01 par value ("Common Stock") of AVIATION
GROUP, INC., a Texas corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $1.68 per
share of Common Stock upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Replacement Warrant Agreement dated as of
August 31, 1999 between the Company and Hank Clements (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
payable to the order of the Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
16
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ________________.
AVIATION GROUP, INC.
[SEAL] By:___________________________________
Name:_________________________________
Attest: Title:________________________________
Name:______________________________
Title:_____________________________
17
<PAGE>
Exhibit 10.23
AVIATION GROUP, INC.
AND
Robert Schneider
----------------------
WARRANT AGREEMENT
Dated as of August 31, 1999
1
<PAGE>
WARRANT AGREEMENT
-----------------
This REPLACEMENT WARRANT AGREEMENT (the "Agreement") is dated as of August
31, 1999 between AVIATION GROUP, INC., a Texas corporation (the "Company"), and
Robert Schneider, a resident of New York ("SCHNEIDER").
W I T N E S S E T H:
- - - - - - - - - -
In consideration of the premises, the agreements set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant. Effective herewith, SCHNEIDER is hereby granted the right to
-----
purchase, at any time prior to 5:00 p.m., Dallas, Texas time on August 31, 2002,
6,000 shares of Common Stock (the "Shares"). One share of Common Stock is
hereinafter referred to as a "Warranty Security" and more than one collectively
referred to as the "Warrant Securities." The exercise price of each Warrant
shall equal (subject to adjustment as provided in Section 9) $3.00 per Warrant
Security subject to the terms and conditions of this Agreement.
2. Consideration. In return for the original grant of warrants, SCHNEIDER
-------------
has provided counsel to the Company as a member of its Board of Directors, and
has surrendered and terminated of his Warrants for 15,000 shares of Company
stock previously awarded.
3. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
---------
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
4. Exercise of Warrant.
-------------------
4.1 Method of Exercise. The Warrants initially are exercisable at an
------------------
aggregate initial exercise price (subject to adjustment as provided in
Section 9 hereof) per Warrant Security set forth in Section 7 hereof
payable by certified or official bank check, subject to adjustment as
provided in Section 9 hereof. Upon surrender of a Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with
payment of the Exercise Price (as hereinafter defined) for the Warrant
Securities purchased at the Company's principal offices (presently located
at 700 North Pearl, Suite 2170, Dallas, Texas 75201) the registered holder
of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Common Stock so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holders thereof, in whole or part (but not
as to fractional shares of the Common Stock). In the case of the purchase
of less than all Warrant Securities purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate
of like tenor for the balance of the Warrant Securities purchasable
thereunder.
2
<PAGE>
4.2 Exercise by Surrender of Warrant. In addition to the method of
--------------------------------
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time
and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section
4.1. The number of shares of Common Stock to be issued pursuant to this
Section 4.2 shall be equal to the difference between (a) the number of
shares of Common Stock in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of shares of
Common Stock in respect of which the Warrants are exercised multiplied by
the Exercise Price (as hereinafter defined) and the denominator of which
shall be the Market Price (as defined in Section 4.3).
4.3 Definition of Market Price. As used herein, the "Market Price"
--------------------------
at any date shall be deemed to be the last reported sale price, or, in case
no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by The Nasdaq Stock
Market's National Market or Smallcap Market ("Nasdaq"), or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted by the NASD or such
similar organization, the fair market value of a share of Common Stock as
determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it. Notwithstanding
the foregoing, for purposes of Section 8, the Market Price of a share of
Common Stock shall be determined by reference to the relevant information
set forth above during the thirty (30) trading days immediately preceding
the date of the event requiring the determination of the Market Price
(except that, in the event of a public offering of shares of Common Stock,
the Market Price of a share of Common Stock shall be determined by
reference to the trading day immediately preceding the effective date of
the public offering and not such thirty (30) trading day period).
5. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 6 and 8 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
(and/or other securities, property or rights issuable upon the exercise of the
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
3
<PAGE>
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Restriction On Transfer of Warrants. The Holder of a Warrant
-----------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof. This Agreement is binding upon any Holder(s) of a Warrant Certificate
and their respective heirs, successors, and permitted assigns. The Holder may
assign interests granted by this Agreement, subject to the any other limitations
in the Agreement, provided that the transferee agrees to be bound by the terms
of this Agreement as if such transferee were a Holder and, provided further,
that the assignment is made pursuant to an effective registration statement
under the Securities Act or a valid exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). If requested by the
Company, the Holder shall have furnished to the Company an opinion of counsel
reasonably satisfactory to the Company to such effect.
7. Exercise Price.
--------------
7.1 Initial and Adjusted Exercise Price. Except as otherwise
-----------------------------------
provided in Section 8 hereof, the initial exercise price of each Warrant
shall be $3.00 per Warrant Security. The adjusted exercise price shall be
the price which shall result from time to time from any and all adjustments
of the initial exercise price in accordance with the provisions of Section
8 hereof.
7.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
8. Registration Rights.
-------------------
8.1 Piggyback Registration.
----------------------
(a) If, at any time prior to the seventh anniversary of the date
of this Agreement, the Company proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Act"),
either for its own account or the account of any other security holder
or holders of the Company possessing registration rights ("Other
Stockholders") (other than pursuant to Form S-4, Form S-8 or comparable
registration statement), it shall give written notice, at least thirty
(30) days prior to the filing of each such registration statement, to
any Holder(s) of Registrable Securities (as hereinafter defined), of
its intention to do so. If such Holder(s) notify the Company within
twenty-one (21) days after the receipt of any such notice of its or
their desire to include any Registrable Securities in such proposed
registration statement, the Company shall afford such Holder(s) of such
Registrable Securities the opportunity to have any such Registrable
Securities registered for resale by the Holder(s) under such
registration statement. The term "Registrable Securities" means (i) all
shares of Common Stock owned by a Holder as a result of the exercise of
a Warrant, and (ii) all shares of Common Stock which a Holder has an
option to purchase under a Warrant, until, in the case of any such
security described by (i) or (ii), (a) such security is disposed of in
accordance with an
4
<PAGE>
effective registration statement under the Securities Act, (b) such
security is saleable by the Holder pursuant to Rule 144(k), (c) such
security is saleable by the Holder pursuant to Rule 144 without regard
to any volume limitations, or (d) such security is distributed to the
public pursuant to Rule 144.
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company
shall so advise any Holder(s) as part of the written notice given
pursuant to Section 8.1(a) hereof. The right of any such Holder(s) to
registration pursuant to this Section 8.1 shall not be conditioned
upon their participation in such underwriting and the inclusion of
their Registrable Securities in the underwriting to the extent
hereinafter provided.
(c) Notwithstanding the provisions of this Section 8.1, the
Company shall have the right at any time after it shall have given
written notice pursuant to Section 8.1(a) hereof (irrespective of
whether a written request for inclusion of any such securities shall
have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the
effective date thereof.
8.2 Covenants of the Company with Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 8.1 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to have any
registration statements declared effective at the earliest practicable
time and shall furnish each Holder desiring to sell Registrable
Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs, expenses and fees (excluding
fees and expenses of Holder(s)' counsel and any underwriting or
selling commissions), in connection with all registration statements
filed pursuant to Section 8.1 hereof including, without limitation,
the Company's legal and accounting fees, printing expenses, blue sky
fees and expenses. If the Company shall fail to comply with the
provisions of Section 8.2(a), the Company shall, in addition to any
other equitable or other relief available to the Holder(s), extend the
exercise period of the Warrants by such number of days as shall equal
the delay caused by the Company's failure.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are requested
by the Holder(s); provided that, the Company shall not be obligated to
execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any
such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 16 of the Act or Section 21(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably
5
<PAGE>
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement
except for matters for which the Company is indemnified under
subsection 8.2(e) hereof.
(e) The Holder(s) of the Registrable Securities to be sold
pursuant to a registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the
Company within the meaning of Section 16 of the Act or Section 21(a)
of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in
such registration statement.
(f) For a period of ninety (90) days after the effectiveness of
any registration statement filed pursuant to Section 8.1 hereof, the
Company shall not permit any other registration statement (other than
(1) a registration statement relating to the securities for which the
Company has made available to the Holder(s) of the Registrable
Securities piggyback registration rights hereunder and (2) a
registration statement filed on Forms S-4 or S-8 or a shelf
registration on Form S-3) to be or remain effective during the
effectiveness of a registration statement or a shelf registration on
Form S-3 filed pursuant to Section 8.1 hereof, without the prior
written consent of the Holders of the Registrable Securities
representing a majority of such securities.
(g) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such registration
statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(h) The Company shall as soon as practicable after the effective
date of any registration statement filed pursuant to Section 8.1
hereof, and in any event within fifteen (15) months thereafter, make
"generally available to its security holders" (within the meaning of
Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the act and covering a
6
<PAGE>
period of at least twelve (12) consecutive months beginning after the
effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of
all written correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the registration statement and
permit each Holder and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(j) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness
thereof.
8.3 Restrictive Legends. The Warrant Certificates, any certificates
-------------------
representing the Shares underlying the Warrants and any of the other
securities issuable upon exercise of the Warrants shall bear the following
restrictive legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
and may not be offered or sold except pursuant to (i) an
effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7
<PAGE>
9. Adjustments to Exercise Price and Number of Securities.
------------------------------------------------------
9.1 Computation of Adjusted Exercise Price. Except as hereinafter
--------------------------------------
provided, in the event the Company shall at any time after the date hereof
issue or sell any shares of Common Stock including shares held in the
Company's treasury (other than (i) the issuances or sales referred to in
Section 9.7 hereof, (ii) shares of Common Stock issued upon the exercise of
any options, rights or warrants to subscribe for shares of Common Stock, or
(iii) shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock), for a consideration
per share less than the Market Price in effect immediately prior to the
issuance or sale of such shares, or without consideration, then forthwith
upon such issuance or sale, the Exercise Price shall (until another such
issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (i) an amount equal to the
sum of (a) the total number of shares of Common Stock outstanding
immediately prior to the issuance or sale of such shares, multiplied by the
Exercise Price in effect immediately prior to such issuance or sale, and
(b) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (ii) the total number of shares
of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price
in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section
9.3 hereof.
For the purposes of this Section 9 the term Exercise Price shall mean
the Exercise Price per share of Common Stock set forth in Section 7 hereof,
as adjusted from time to time pursuant to the provisions of this Section 9.
For the purposes of any computation to be made in accordance with this
Section 9.1, the following provisions shall be applicable:
(a) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock
are offered by the Company for subscription, the subscription price,
or, if either of such securities shall be sold to underwriters or
dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith.
(b) In case of the issuance or sale (other than as a dividend or
other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash shall
be deemed to be the value of such consideration as determined in good
faith by the Board of Directors of the Company and shall include any
amounts payable to security holders or any affiliates thereof
including, without limitation, pursuant to any employment agreement,
royalty, consulting agreement, covenant not to compete, earnout or
contingent payment right or similar arrangement, agreement or
understanding, whether oral or written; all such
8
<PAGE>
amounts being valued for the purposes hereof at the aggregate amount
payable thereunder, whether such payments are absolute or contingent,
and irrespective of the period or uncertainty of payment, the rate of
interest, if any, or the contingent nature thereof; provided, however,
that if any Holder(s) does not agree with such evaluation, a mutually
acceptable independent appraiser shall make such evaluation, the cost
of which shall be borne by the Company.
(c) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(d) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 9.1.
(e) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights, warrants and upon the conversion
or exchange of convertible or exchangeable securities.
9.2 Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof
----------
issue options, rights or warrants to subscribe for shares of Common Stock,
or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share less than the Market Price in
effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Section 9.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under such options, rights or warrants shall
be deemed to be issued and outstanding at the time such options,
rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in such options, rights
or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue
or sale of shares in accordance with the terms of the Warrants), if
any, received by the Company for such options, rights or warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or
exchangeable securities shall be
9
<PAGE>
deemed to be issued and outstanding at the time of issuance of such
securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue
or sale of shares of Common Stock in accordance with the terms of the
Warrants) received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof.
(c) If any change shall occur in the price per share provided for
in any of the options, rights or warrants referred to in subsection
(a) of this Section 9.2, or in the price per share at which the
securities referred to in subsection (b) of this Section 8.2 are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants
or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options,
rights or warrants or the conversion or exchange of such convertible
or exchangeable securities.
9.3 Subdivision and Combination. In case the Company shall at any
---------------------------
time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
9.4 Adjustment in Number of Securities. Upon each adjustment of the
----------------------------------
Exercise Price pursuant to the provisions of this Section 9, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise
price of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Securities issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
9.5 Definition of Common Stock. For the purpose of this Agreement,
--------------------------
the term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Articles of Incorporation of the Company as amended as
of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from
no par value to par value. In the event that the Company shall after the
date hereof issue securities with greater or superior voting rights than
the shares of Common Stock outstanding as of the date hereof, the Holder,
at its option, may receive upon exercise of any Warrant either shares of
Common Stock or a like number of such securities with greater or superior
voting rights.
9.6 Merger or Consolidation. In case of any consolidation of the
-----------------------
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock),
the corporation formed by such consolidation or merger shall execute and
deliver to the Holder a supplemental warrant agreement providing that the
holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and
10
<PAGE>
amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 9. The above provision of
this subsection shall similarly apply to successive consolidations or
mergers.
9.7 No Adjustment of Exercise Price in Certain Cases. No adjustment
------------------------------------------------
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants; or
(b) If the amount of such adjustment shall be less than two cents
($.02) per Warrant Security, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so
carried forward, shall amount to at least two cents ($.02) per Warrant
Security; or
(c) If the Exercise Price would be less than the par value per
share of Common Stock.
9.8 Dividends and Other Distributions. In the event that the Company
---------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value,
the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled
to receive at the time of such dividend or distribution as if the Warrants
had been exercised immediately prior to such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of
this Section 9.8.
9.9 Statement on Warrant Certificate. Irrespective of any
--------------------------------
adjustments in the Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrants, the Warrant Certificate or certificates
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
10. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designed by the Holder thereof at the time of such surrender.
11
<PAGE>
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
11. Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to issue fractional shares of Common Stock upon the exercise of
Warrants. Warrants may only be exercised in such multiples as are required to
permit the issuance by the Company of one or more whole shares of Common Stock.
If one or more Warrants shall be presented for exercise in full at the same time
by the same Holder, the number of whole shares of Common Stock which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares of Common Stock purchasable on exercise of the
Warrants so presented. If any fraction of a share of Common Stock would, except
for the provisions provided herein, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay an amount in cash equal to
such fraction multiplied by the then current Market Price of a share of Common
Stock, determined in accordance with Section 4.3 hereof.
12. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other Securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder.
13. Notices to Warrant Holders. Nothing contained in this Agreement shall
--------------------------
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable other than in cash, or a cash dividend or distribution
payable other than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
12
<PAGE>
then, in any one or more of such events, the Company shall give written notice
of such event to the Holders at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer book, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 4 hereof or
to such other address as the Company may designate by notice to the
Holders.
15. Supplements and Amendments. The Company and SCHNEIDER may from time
--------------------------
to time supplement or amend this Agreement without the approval of any Holders
of the Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and SCHNEIDER may deem
necessary or desirable and which the Company and SCHNEIDER deem shall not
adversely affect the interests of the Holders of the Warrant Certificates. If
SCHNEIDER no longer owns any Warrants, then this Agreement may be amended by the
Company and the Holders of a majority of the then outstanding Warrants.
16. Successors. All the covenants and provisions of this Agreement shall
----------
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
-----------------------------------------
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Texas and for all purposes shall be construed in
accordance with the laws of such State without giving effect to the rules of
such State governing the conflicts of laws.
The Company, SCHNEIDER and any other registered Holders hereby agree that
any action, proceeding or claim against it arising out of, or relating in any
way to, this Agreement shall be brought and enforced in the courts of the State
of Texas or of the United States of America for the Northern District of Texas,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, SCHNEIDER and any other registered Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company,
SCHNEIDER and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and
13
<PAGE>
binding upon the party so served in any action, proceeding or claim. The
Company, SCHNEIDER and any other registered Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
18. Entire Agreement; Modification. This Agreement contains the entire
------------------------------
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
--------
for convenience of reference only and are not intended, nor shall they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or corporation other than the Company and
SCHNEIDER and any other registered Holder(s) of the Warrant Certificates or
Warrants Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
SCHNEIDER and any other registered Holders of Warrant Certificates or Warrant
Securities.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
23. Replacement of Prior Warrant Agreement. The parties hereto agree that
--------------------------------------
the Prior Warrant Agreement is no longer in force and effect and is superseded
and replaced in part by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ RICHARD L. MORGAN
-------------------------------------
Name: Richard L. Morgan
-----------------------------------
Title: CFO
----------------------------------
ROBERT SCHNEIDER
By: /s/ ROBERT SCHNEIDER
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
14
<PAGE>
EXHIBIT A
---------
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., DALLAS, TEXAS TIME, AUGUST 31, 2002
No. W-________ Warrants to Purchase
________ Shares ofCommon Stock
WARRANT CERTIFICATE
-------------------
This Warrant Certificate certifies that ______________________, or
registered assigns, is the registered holder of _______________ Warrants to
purchase initially, at any time, until 5:00 p.m. Dallas, Texas time on August
31, 2002 ("Expiration Date"), up to _______________ fully-paid and non-
assessable shares of common stock, $.01 par value ("Common Stock") of AVIATION
GROUP, INC., a Texas corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $3.00 per
share of Common Stock upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Replacement Warrant Agreement dated as of
August 31, 1999 between the Company and Robert Schneider.(the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check payable to the order of the Company or by surrender of this
Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., Dallas, Texas time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
15
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ________________.
AVIATION GROUP, INC.
[SEAL] By:_________________________________
Name:_______________________________
Attest: Title:______________________________
Name:_______________________
Title:______________________
16
<PAGE>
EXHIBIT 10.24
747 HANGAR
LEASE AGREEMENT
BETWEEN
IBERIA PARISH GOVERNMENT
IBERIA PARISH AIRPORT AUTHORITY
AND
AVIATION EXTERIORS LOUISIANA, INC.
June 23/rd/, 1999
<PAGE>
747 HANGAR LEASE
UNITED STATES OF AMERICA
STATE OF LOUISIANA
PARISH OF IBERIA
LEASE AND OPERATING AGREEMENT BETWEEN IBERIA PARISH GOVERNMENT, IBERIA
PARISH AIRPORT AUTHORITY AND AVIATION EXTERIORS LOUISIANA, INC., TO ESTABLISH
AND OPERATE AS A HEAVY AIRCRAFT MAINTENANCE OPERATOR AT ACADIANA REGIONAL
AIRPORT, IBERIA PARISH, LOUISIANA
This agreement, made in the City of New Iberia and Parish of Iberia, State
of Louisiana and entered into this 23rd day of June, 1999.
By and Between
IBERIA PARISH GOVERNMENT, herein represented by and acting through WILFRED
"WILL" LANGLINAIS, Iberia Parish President, duly authorized by resolution of the
Iberia Parish Council, a certified copy of which is annexed hereto, and IBERIA
PARISH AIRPORT AUTHORITY, an agency of Iberia Parish Government, duly created,
organized and existing under and by virtue of a resolution of the Police Jury of
Iberia Parish, Louisiana on January 26, 1966, Resolution Number 6, herein
represented by and acting through R. CHRIS JORDAN, its Chairman, duly authorized
by a Resolution of the Iberia Parish Airport Authority (a certified copy of
which is attached hereto), having 5217 North/South Taxi Road, New Iberia LA
70560, as its permanent mailing address, the said Iberia Parish Government and
Iberia Parish Airport Authority hereinafter sometimes referred to collectively
as "LESSOR", and AVIATION EXTERIORS LOUISIANA, INCORPORATED, F/K/A/ PRIDE
AVIATION, INC., an Oklahoma corporation, herein represented by and acting
through PAUL LUBOMIRSKI, its President, duly authorized by a resolution of the
Board of Directors of said corporation, (a certified copy of which is attached
hereto) having 1218 Hangar Drive, New Iberia, LA 70560, as its permanent mailing
address, hereinafter referred to as "LESSEE",
WITNESSETH
WHEREAS, the Lessor now operates a public airport certified under FAA Part
139 designated as Acadiana Regional Airport, located in Iberia Parish,
Louisiana, hereinafter referred to as Airport; and
WHEREAS, the Lessee desires to expand its heavy aircraft maintenance
operation on the Airport; and,
<PAGE>
WHEREAS, Lessor has determined that a site is available to Lessee to be
used for heavy aircraft maintenance operations, as described under La. R.S.
2:135.1(I).
NOW, THEREFORE, for and in consideration of the premises and mutual
undertakings, agreements and covenants hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I. PREMISES LEASED, PURPOSE, OBJECTS, RIGHTS AND PRIVILEGES
A. Leased Premises
1.00 Upon payment by Lessee of the considerations provided, and upon the
observance and performance of all the covenants, terms and conditions on
Lessee's part to be observed and performed, Lessee shall peaceably and quietly
hold and enjoy the leased premises for the term or terms hereby stipulated
without hindrance or interruption by Lessor or any other person or persons
lawfully or equitably claiming by, through or under Lessor.
1.02 Lessor does hereby lease to Lessee and Lessee does hereby accept and
lease from Lessor the land, buildings and improvements of the airport, more
particularly described as follows:
A. 747/777 AIRCRAFT MAINTENANCE AND PAINT HANGAR NO. 90
A certain tract of land, irregular in shape with improvements, said tract
of land being located at Acadiana Regional Airport (the old USNAAS) in Iberia
Parish, Louisiana, measuring and containing 8.884 superficial acres of land, and
being more particularly described as follows:
The POINT OF BEGINNING is a point on the west side of Hangar Drive, designated
as Point "Y" on the attached plat, and having USNAAS coordinates of
Y=40,761.00' and X=5l,648.44';
Thence, S12 degrees 27'E 370.00'W to Point "S" and corner;
Thence, leaving Hangar Drive S77 degrees 30'W 770.19' to Point "J" and corner;
Thence, S12 degrees 30'E 450.0 to a Point "I" and corner, at the North edge of
existing common aircraft ramp area "A";
Thence, along the North edge of the existing common aircraft ramp area "A" S77
degree 30'W 124.38' to Point "I" and corner; Thence, leaving the North edge of
the existing common aircraft ramp area "A" N12 degrees 30'W 819.98' to Point "X"
and corner; Thence, N77 degrees 30'E 894.90' to Point "Y", the POINT OF
BEGINNING.
Said tract of land is more particularly shown and depicted on attached Plat of
Survey by G.K. Pratt Munson, R.L.S. No. 2794, dated latest revision October 31,
1997, attached hereto and made a part hereof.
Said tract of land is shown as "Proposed Lease", "Tract E", contains 387,021
square feet of area or 8.884 acres of land.
<PAGE>
B. Purposes, Objects, Rights and Privileges
1.05 This agreement vests Lessee with the right and privilege to operate
as a heavy aircraft (in excess of 88,000 Pounds.) maintenance operator on the
airport and the leased premises shall be used by Lessee solely for said
purposes, as defined by the Federal Aviation Act of 1958 as amended and the
Minimum Standards and Requirements for the Conduct of Commercial Aeronautical
Services and Activities at Acadiana Regional Airport adopted November 7, 1979,
as amended on August 30, 1989, where applicable and as described under La. R.S.
2:135.1(I).
1.06 Lessee agrees to provide, and is herein required to provide the
aforementioned and described services and the right and privileges to operate as
a heavy aircraft (in excess of 88,000 Pounds.) maintenance operator hereby
granted shall exist so long as the character of the facilities operated or
services furnished shall be consistent with the requirements of the Federal
Aviation Act of 1958, as amended, and the Minimum Standards and Requirements for
the Conduct of Commercial Aeronautical Services and Activities at Acadiana
Regional Airport adopted November 7, 1979, as amended on August 30, 1989, where
applicable and as described under La. R.S. 2:135.1(I).
1.07 Lessee shall not engage in those aircraft and aviation services
customarily rendered by a Fixed Based Operator (FBO) under the Airport Minimum
Standards for Acadiana Regional Airport. Any such activity is considered a
breach of this lease, and at its option, Lessor may impose a civil penalty of
not more than $5,000.00 for each violation. Lessee agrees not to engage in such
activity and acknowledges notice of Lessor's rights to enforcement by
termination of this lease or the imposition of civil penalties.
ARTICLE II. TERM OF LEASE, EXTENSIONS AND OPTIONS TO EXTEND; LESSOR/LESSEE
CONSTRUCTION; INDEPENDENT CONTRACTOR STATUS
A. Term of Lease, Extensions and Options to Extend
2.00 This lease shall be for a primary term of thirty (30) years from the
effective date hereof designated as the 1st day of April, 2000.
2.01 The term of this lease may be extended by agreement of Lessor and
Lessee for an additional period not to exceed twenty-five years without
advertising or competitive bidding in accordance with the provisions of
Louisiana Revised Statutes, Title II, Section 135.1(I). Any extensions of the
lease shall contain an appropriate escalation in the rent and other terms and
conditions as are acceptable to Lessor and Lessee.
B. Lessor's Construction
2.02 Lessor agrees to construct a wide-bodied aircraft hangar on the
immovable property described in paragraph 1.02 hereinabove in accordance with
plans and specifications more particularly as
<PAGE>
set forth in Exhibit A annexed hereto. Lessor has advertised for public bids for
the construction of the aforesaid wide-bodied hangar and bids were opened on
December 22, 1998. Lessor's obligations under this lease are conditioned upon
Lessor executing a construction contract for the aforedescribed wide-bodied
aircraft hangar having a contract price of not more than Nine Million Two
Hundred Eleven Thousand Four Hundred Eighty-Four Dollars ($9,211,484.00), with
a duly qualified, licensed and bonded contractor, after a formal bidding
process, as required by law.
2.03 In the event that construction of the wide-bodied hangar described
hereinabove is not completed on or before April 1, 2000, through no fault of the
Iberia Parish Airport Authority, the commencement date of this lease agreement
shall be delayed until said construction is ready for occupancy, but in no case
shall this lease commence later than November 1, 2000. If construction is
substantially completed in the middle of a month, rentals for said month shall
be prorated based on a daily rental of $1,167.00.
2.04 Lessor may employ all efforts necessary to apply for and obtain
local, state and federal grants, loans and other aids to improve the runways,
taxiways, landing fields, air traffic control and other facilities on the
airport but is not obligated to do so.
C. Lessee's Construction
2.05 Lessee may construct buildings and improvements on the leased
premises to facilitate its operations and to conduct its activities and
services.
2.06 All improvements shall be made in accordance with plans and
specifications provided by the Lessee. Engineering or architectural expertise
required for these improvements shall be provided by duly licensed professional
engineers or architects. All engineering or architectural fees associated with
these improvements shall be the responsibility of the Lessee.
2.07 All plans and specifications for proposed construction shall be
submitted to the Airport Authority and approved by same prior to the
commencement of construction. Lessee shall demand or provide l00% performance
and lien insurance on all such construction and name Lessor as co-obligee,
additional insured, named insured or third party beneficiary.
2.08 All aviation hangars and buildings constructed by Lessee shall be
constructed of building materials commonly employed in aviation hangar
construction and of similar architectural design to the present facilities at
Acadiana Regional Airport and contain sufficient area to conduct minimum
services therefrom.
2.09 All buildings and improvements constructed at Lessee's expense
shall, upon completion, be free and clear of all laborers, mechanics,
materialmen, contractor, surveyor and architectural liens, privileges, judgments
and obligations excepting valid and approved mortgages for construction or
operations.
<PAGE>
2.10 Lessee shall provide adequate adjacent hard surfaced parking to its
buildings and improvements to accommodate aircraft, employees, guests, and
business invitees.
2.11 Upon completion of any such improvements, Lessee shall present to
Lessor a statement of the "Construction and/or Alteration Costs" which shall
include all monies paid by Lessee for actual demolition, construction or
alterations, including architectural, engineering costs and other pertinent fees
and charges.
2.12 All such improvements made by Lessee shall be and remain the property
of Lessor at the termination of the lease.
2.13 Lessee shall at all times keep these improvements in good operating
condition and they shall be returned to the Airport Authority in good operating
condition at the end of the lease period, normal wear and tear excepted.
D. Independent Contractor Status
2.14 Lessor and Lessee agree that Lessee will maintain independent
contractor status during the term of this lease and will not be an agent of the
Lessor. It is agreed and understood that, as an independent contractor, such
status will not constitute any liability of any nature on the part of the Lessor
for Lessee's operation and activities.
ARTICLE III. RENTALS AND OTHER CONSIDERATIONS
A. Rentals
3.00 Lessee, in consideration of the possession and use of the premises
shall be obligated to pay Lessor a rental of $35,000 per month ($420,000.00 per
year) due in advance on the first day of each consecutive month during the lease
term. The first payment is due on the first day of April, 2000. In the event
that the hangar to be constructed is not ready for occupancy on the first day of
the calendar month, the first rental payment shall include rental at the rate of
$1,167.00 per day from date of occupancy by the Lessee until the first day of
the next month. Thereafter, rentals will be due, in advance, on the first day of
each calendar month. Lessor and Lessee acknowledge and agree that the monthly
rental was determined after considering the market rental value of the leased
premises, appropriate rental escalation figures and the general benefit which
the prospective tenant is predicted to have on the economy of Iberia Parish. In
lieu of a lower initial monthly rental figure and a periodic rental escalation
clause, the parties have agreed, for their mutual benefit, to pay and accept a
rental of $35,000.00 per month over the entire 30 year term of the lease.
Lessee furnishes herewith an Irrevocable Letter of Credit issued by the
Louisiana Economic Development Corporation for the benefit of the Iberia Parish
Council in the amount of $750,000, guaranteeing payment of Lessee's rental
obligation under the Lease for a period of 36 months after commencement of the
Lease.
<PAGE>
B. Fuel Flowage
3.01 The parties agree that in consideration of Lessee receiving fuel and
lubricating oil for resale at Acadiana Regional Airport for aircraft, it shall
pay to the Airport Authority fuel flowage fees as follows:
(a) an amount equal to four percent (4%) of the operator's invoiced cost of
fuel, never less than three ($0.03) per gallon, for aviation operations at
Acadiana Regional Airport: and
(b) twelve percent (12%) of the operator's invoiced cost of oil and
lubricants, never less than nine ($0.09) per gallon, for aviation operations at
Acadiana Regional Airport.
3.02 Fuel flowage fees are due and payable by Lessee to Lessor, in cash,
monthly on or before the tenth (10th) day of each month. Payments are from fuel
and oil pumped from the previous month. All payments of fuel flowage fees shall
be accompanied by a statement or invoice from the wholesaler or retail fuel and
lubricant distributor.
3.03 In the event that Lessee chooses to install fuel tanks on the leased
premises, it must first secure written approval from Lessor to do so. If
approval is granted by the Authority, then Lessee shall install the tanks in
accordance with rules, regulations and specifications of the Louisiana State
Fire Marshal, Louisiana Department of Environmental Quality (DEQ) and the U.S.
Environmental Protection Agency (EPA) presently in effect and as may be amended
during the term or terms of this lease.
C. Delinquency and Default
3.04 Lessee shall be deemed in default of this lease and agreement if
Lessee fails to remit to Lessor the monthly rental installment (one-twelfth
(1/12) of the annual rental) TEN (10) days after the due date.
3.05 All monthly rental installments due and owing, but unpaid, more than
THIRTY (30) days beyond the due date shall be deemed delinquent and shall be
assessed a delinquency charge of one (1%) percent per month or twelve (12%)
percent per annum on the unpaid balance.
3.06 In the event a dispute arises as to the correct amount of rent due,
Lessor may accept the sum tendered by Lessee under protest, and if a deficiency
is subsequently determined, the delinquency charge shall apply to any
deficiency.
3.07 Should Lessee at any time violate any of the conditions of this lease
requiring the payment of rent, fuel flowage or other monetary obligations, as
stipulated, or upon the filing of a bankruptcy, receivership or respite petition
by or against Lessee, or upon Lessee's suspension, failure or insolvency, the
rent for the whole unexpired term of this lease shall, without demand or putting
Lessee in default, become due and payable and Lessor, at
<PAGE>
its option, has the right to cancel the lease, or re-enter and lease said
premises for such price and on such terms as may be immediately obtainable, and
apply the net amount realized to the payment of the rent. In the event the
premises are re-leased, Lessee would be liable for all Lessor's expenses,
including but not limited to loss of rent and collection expenses.
3.08 Should the premises be vacated or abandoned by Lessee because of
ejectment for breach hereof, or otherwise, or should the Lessee begin to remove
personal property or goods to the prejudice of the Lessor's privilege, then the
rent for the unexpired term, with attorney fees, shall at once become due and
exigible and Lessor, at its option, has the right to cancel the lease, or
re-enter and lease said premises for such price and on such terms as may be
immediately obtainable, and apply the net amount realized to the payment of the
rent. In the event the premises are released, Lessee would be liable for all
Lessor's expenses, including but not limited to loss of rent and collection
expenses.
3.09 The failure of the tenant to pay the rent punctually, or thirty (30)
days beyond the due date, shall be, ipso facto and without demand or putting in
default, grounds to terminate and cancel the lease. In such event, the Lessor
may take such legal steps as are necessary and appropriate under the law to
cancel the lease, to evict the Lessee or sublessees refusing to leave the
grounds leased and to recover monies due the Lessor for past due rentals and
damages for lost rentals occasioned by them. Improvements placed on the property
leased shall be subject to seizure and sale by the Lessor in order to satisfy
the Lessor's claim for monies and/or damages owed.
3.10 At the expiration of this lease, or its termination for failure to
pay the rent and fuel flowage fees, Lessee is obligated to immediately surrender
possession, and should Lessee fail to do so, it consents to pay as liquidated
damages five times the rent per day, with attorney fees and costs. Lessee also
expressly waives any notice to vacate at the expiration of this lease and all
legal delays, and hereby confesses judgement with costs, placing Lessor in
possession to be executed at once. Should Lessor allow or permit Lessee to
remain in the leased premises after the expiration of this lease, this shall not
be construed as a reconduction of this lease.
3.11 Failure to strictly and promptly enforce these conditions shall not
operate as a waiver of Lessor's rights, Lessor expressly reserving the right to
always enforce prompt payment of rent, or to cancel this lease, regardless of
any indulgences or extensions previously granted. Failure to comply with any
condition or obligation of this lease will make Lessee liable for any loss or
damage sustained by Lessor.
3.12 In case suit shall be brought, or an attorney shall be employed, for
recovery of the leased premises, for the recovery of rent or any other amounts
due under the provisions of this lease, or for the enforcement of, or because of
the breach of, any covenant herein contained on the part of Lessee to be kept or
<PAGE>
performed, and a breach shall be established, Lessee shall pay to Lessor all
costs and expenses incurred, including a reasonable attorney's fee.
3.13 Rental payments shall be made payable to the:
Iberia Parish Airport Authority
5217 North/South Taxi Road
New Iberia, LA 70560
or to such other department or address as may be specified by Lessor in writing
from time to time.
ARTICLE IV. UTILITIES
4.00 Lessee agrees to make its own arrangements for all utility
extensions, modification and services and to pay for such services and deposits
on its leased premises. No waste shall be committed or damage done to the
property of the Lessor in the establishment of said utility services.
ARTICLE V. SIGNS
5.00 Lessee is authorized to erect and install signs and advertisements
promoting its name and/or services it may offer subject to Lessor's prior
written consent, provided that such consent will not be unreasonably withheld.
ARTICLE VI. ALTERATIONS, FURNITURE AND FURNISHING
A. Alterations
6.00 Lessee shall not construct or install any additional buildings or
structures on the leased premises nor otherwise alter or modify the leased
premises without first obtaining the written consent of Lessor. Lessor's consent
will not be unreasonably withheld.
6.01 Lessee shall not remove, alter, modify or make any structural changes
in any of the buildings or structures placed thereon without first obtaining the
written consent of Lessor, Lessor's consent will not be unreasonably withheld.
6.02 Lessee shall not modify or make any additions to the plumbing,
electrical or other utilities therein without first obtaining the written
consent of Lessor. Lessor's consent will not be unreasonably withheld.
6.03 For the purpose of this paragraph, any penetration of the roof,
exterior walls, floor and foundation shall be considered a structural change.
6.04 In the event Lessee makes alterations or improvements to the leased
premises, then the use thereof shall be enjoyed by Lessee during the remaining
term of the lease without the payment of additional rental and such alterations
or improvements shall
<PAGE>
become the property of Lessor at the termination of this lease.
B. Furniture or Furnishings
6.05 Lessee agrees to install the necessary furniture, furnishings,
equipment and fixtures necessary for the conduct of its operations with the
Minimum Standards.
ARTICLE VII. MAINTENANCE
7.00 Lessee shall at all times maintain design load limits on all concrete
and paving surfaces of the leased premises and shall not allow overloading of
any concrete or paved surface of the leased area.
7.01 Utility line maintenance outside the Lessee's delineated property
boundary shall be the Lessor's responsibility.
7.02 Lessee shall have responsibility for all maintenance and repairs to
the leased premises caused by its own fault or neglect.
7.03 Subject to the foregoing, Lessor shall have responsibility for
maintenance and repair of the roof, exterior walls (excluding hangar doors),
foundations and all concrete or pavement on the leased premises. Lessee shall
promptly notify Lessor, in writing, of any such item in need of repair.
7.04 Lessee shall have responsibility for all other maintenance and
repairs to the leased premises including, but not limited to, repairs and
replacements to the plumbing system, air-conditioning and heating systems
(including replacement of compressors and other major components), electrical
systems and mechanical systems. Lessee shall also be responsible for repairs and
maintenance to the hangar doors. Lessee's obligations of maintenance and repairs
shall extend to and include both underground and aboveground improvements on the
leased premises.
7.05 All major repairs to electrical and mechanical equipment contained on
the leased premises shall be made by licensed personnel. Other repairs shall be
made by skilled craftsmen performing such work regularly as a trade. Lessee
shall be responsible for maintaining electrical loads within the designed
capacity of the system as installed or modified.
7.06 Subject to the foregoing, Lessee shall maintain the leased premises
in good repair. Lessee shall maintain the leased premises and the assigned
aircraft ramp areas in a neat and sightly condition and shall not permit the
accumulation of waste, trash or debris on airport property. Lessee shall return
the premises to Lessor at the termination of the lease, free from trash or
debris, and in the same condition as when received, ordinary wear and tear
excepted.
<PAGE>
7.07 Collection and on site storage of wrecked or derelict aircraft or
equipment not under repair shall be prohibited under the terms and conditions of
this lease.
7.08 Lessee will not allow any waste, trash, debris, fuels, lubricants or
any other material whatsoever to be discharged onto the leased premises. Lessee
shall dispose or contract with an EPA and/or DEQ approved operator for the
removal and proper disposal of expended lubricating oil, solvents, fuels,
chemical and other products that may accumulate as a result of the Lessee's use
of the leased premises. The Lessor may remove any waste, trash, fuel,
lubricants, or other materials discharged or otherwise placed on said leased
premises by Lessee, its employees, agents, representative, licenses, invitees,
patrons or customers and charge Lessee for such cost including testing, clean
up, labor and material, plus 15% service fee.
ARTICLE VIII. PAYMENT OF TAXES
8.00 Lessee shall be liable for any and all taxes, penalties and interest
thereon assessed, levied or charged by any governmental agency against Lessee's
tangible personal property (inventory, equipment, machinery, furnishings and
other movable assets) situated on the leased premises and against any interest
acquired under this agreement.
8.01 No exemption or waiver from taxes on personal or business property
inures to the benefit of Lessee by association, contract or other relationship
to the Lessor as a public body.
ARTICLE IX. COMPLIANCE WITH LAW
9.00 Lessee while exercising rights granted herein, shall observe and
comply with, and at its own cost and expense, requirements of Federal, State or
local statutes, ordinances, regulations and standards applicable to Lessee or
its use of the leased premises, including but not limited to Exhibit "B",
(Minimum Standards and Requirements for the Conduct of Commercial Aeronautical
Services and Activities at Acadiana Regional Airport and LeMaire Memorial
Airport adopted November 7, 1979, as amended on August 30, 1989) other rules and
regulations promulgated from time to time by the Iberia Parish Airport Authority
and the Iberia Parish Council for administration of the airport.
9.01 Lessee shall procure and maintain during the term of the agreement,
all licenses, permits and similar authorizations required for the conduct of its
business operations.
ARTICLE X. AIRPORT SECURITY
10.00 Lessee agrees that it will, at its own cost and expense, enroll and
participate in the airport security program during the term of this agreement.
ARTICLE XI. RIGHT OF ENTRY, INSPECTION AND ACCOMPLISHMENT OF OBLIGATIONS
<PAGE>
11.00 The Lessor reserves the right to inspect the premises, within
reasonable time periods and upon advance notice and shall be permitted to enter
and view the premises or equipment on the leased premises. Lessor shall at all
reasonable times have the right to enter the premises accompanied by Lessee for
the purpose of inspecting and of making such, if any, repairs that Lessor may be
bound or elect to make.
ARTICLE XII. WAIVER OF LIABILITY, INDEMNITY AND INSURANCE
A. Indemnity
12.00 Lessee assumes full responsibility for the condition of the leased
premises, and all buildings, improvements, fixtures and equipment thereon, and
for all of Lessee's operations but does not assume any responsibility for
Lessor's negligence or the negligence of Lessor's agents, officers, or
employees. In the event that any suit, claim or action by Lessee, its agents,
employees, invitees or third persons is brought against Lessor or the Iberia
Parish Council to recover for, or on account of any injury to person or property
(including death) caused by any vice or defect in or upon said leased premises,
including the buildings, improvements, fixtures and equipment thereon, or on
account of Lessee's operations, Lessee agrees to appear, defend, adjust and
settle said action or claim at its sole cost and expense and to pay and satisfy
any adverse judgment that may be entered on final determination.
12.01 Lessee will defend and indemnify Lessor and save it harmless from
and against any and all claims, actions, loss, cost (including attorney's fees),
damages, expenses, and liability (including statutory liability and liability
under workers' compensation laws) in connection with loss of life, personal
injury and/or damage to property arising from or out of any occurrence in, upon
or at the leased premises, or the occupancy or use by Lessee of the leased
premises or any part thereof, and any activities of the Lessee in the parking
areas and common service areas, sustained by Lessee and all other persons, which
are occasioned wholly or in part by any act or omission of Lessee, Lessee's
partners, agents, sublessees, contractors, subcontractors, invitees, customers,
employees, servants, or concessionaires. In case Lessor, the Iberia Parish
Council members, the Parish President and/or the Airport Director and their
employees and agents should be made a party to any litigation commenced by or
against Lessee, then Lessee shall protect and hold Lessor and said other parties
harmless and shall pay all costs, expenses, and reasonable attorney's fees
incurred or paid in connection with such litigation.
B. Insurance
12.02 Lessee shall provide and maintain, at its expense, the following
insurance coverages, for the duration of this lease and any extensions hereof:
a) Comprehensive Public Liability and Property Damage;
<PAGE>
i) General Liability and Property Damage:
$50,000,000.00 combined single limit,
any one occurrence/offense and annual
aggregate including products, grounding
and completed operations;
b) Commercial Automobile/Motor Vehicle Liability: $1,000,000.00
combined single limit;
c) Workman's Compensation and Employer's Liability: Up to Louisiana
Statutory Limit
d) Hangar Keepers Liability Coverage: $15,000,000.00 any one aircraft,
$30,000,000.00 any one occurrence subject to $15,000.00 deductible
each and every loss;
e) Fire and Extended Coverage (Special Form) on all buildings and
improvements located on the leased premises in an amount equal to
the Replacement Cost of the improvements. Replacement Cost is
defined as cost to replace the building and improvements with like
materials and like configuration, in no case less than
$9,000,000.00.
The Lessee shall be allowed to determine the deductible on this
"All Risk" coverage, not to exceed $25,000 per occurrence on all
perils, but Lessee shall be fully responsible for the payment of
any and all deductible, whatever they may be. The coinsurance
requirement of the policy shall not exceed 80%. Flood and
Earthquake coverage shall not be a requirement of this section.
Said policy shall provide, as a condition for cancellation, 30 days
advanced written notice to Lessor and shall name Lessor and the
Iberia Parish Council as additional interest and loss payee under
the policy.
12.03 Lessee shall furnish Lessor with a certificate evidencing the
insurance policies described in Paragraph 12.02 hereinabove, underwritten by a
good and solvent insurer licensed to do business in the State of Louisiana,
which policies shall name Lessor and the Iberia Parish Council as additional
insureds and shall provide, as a condition precedent to cancellation, 30 days
advance written notice to Lessor and shall also provide a Waiver of Subrogation
in favor of Lessor.
12.04 If through no fault, neglect or design of Lessee, the premises are
destroyed by fire or other casualty, and provided that at the time of such
damage or destruction there exists no default by Lessee under this lease, the
following obligation to repair and/or reconstruction shall apply:
<PAGE>
a) If the cost to repair the damage, including architect's fees,
surety bond, etc., does not exceed the sum determined and payable by an
insurance underwriter under coverage for fire and extended coverage, as
estimated by an architect licensed in the State of Louisiana selected by Lessor
and any bid, acceptable to Lessor, Lessor shall repair the damage as
expeditiously as possible;
b) In the event that repair and/or reconstruction of the damage shall
be undertaken, this lease shall not be canceled, and Lessee shall be entitled to
a proportionate reduction or remission of the rent until such damage has been
repaired;
c) Lessor may, at its option, terminate or cancel this lease if the
cost of repair exceeds sums payable under insurance coverage. In the event the
lease is terminated by Lessor under these provisions, the Lessor shall fairly
apportion the insurance award between Lessor and Lessee, if such insurance award
is made specifically for loss of improvements made to the leased premises by
Lessee.
12.05 Lessee shall cause any and all policies of insurance obtained by
it, including bailee coverage, covering movable property (including aircraft)
located on the leased premises or on the adjoining aircraft apron areas or used
in connection with Lessee's operations conducted thereon and therefrom to
contain a waiver of subrogation against Lessor, the Iberia Parish Council, their
individual members, the Airport Director and their employees and agents.
12.06 In the event Lessee fails to procure any of the insurance required
hereunder, Lessor may, at its option, cause such insurance to be issued at the
cost and expense of Lessee, and all sums advanced for such purpose shall be due
Lessor as charges and expenses plus 15% service charge, payable on or before the
first day of the month following written notice thereof to Lessee.
ARTICLE XIII. NON-DISCRIMINATION
13.00 The Lessee, in exercising any of the rights or privileges herein
granted to it, shall not, on the grounds of age, race, color, creed, sex,
national origin or physical condition, discriminate or permit discrimination
against any person or group of persons in any manner prohibited by Part 21 of
the Regulations of the Secretary of Transportation. The Lessor is hereby granted
the right to take such actions to correct same, anything to the contrary herein
notwithstanding, as the United States may direct, to enforce this non-
discrimination covenant.
13.01 Lessee, as a heavy aircraft maintenance operator, will furnish its
accommodations and/or services on a fair, equal and not unjustly discriminatory
basis to all users thereof and it shall charge, fair, reasonable and not
unjustly charge discriminatory prices for each unit or service; PROVIDED, THAT
the Lessee may be allowed to make reasonable and non-discriminatory discounts,
rebates or other similar type of price reductions to volume
<PAGE>
14.01 During the time of war or national emergency, Lessor shall have
the right to lease the Airport or any part thereof to the United States
Government for military or naval use, and if any such lease is executed, the
provisions of this instrument insofar as they are inconsistent with the lease to
the government shall be suspended, and in that event a just and proportionate
part of the rent hereunder shall be abated. Lessee shall have no claim against
the Lessor for the value of any unexpired term of this lease. Lessee is not
prohibited from asserting any claim or claims for loss of improvements to the
leased premises, leasehold advantages and/or loss of business opportunity
against the United States.
14.02 Any other provisions of this lease notwithstanding, this lease shall
be subordinate to the provisions of any existing or future agreement between
Lessor and the United States, relative to the operation or maintenance of the
Airport, the terms and execution of which has been or may be required as a
condition precedent to the expenditure or reimbursement to Lessor of federal
funds for the development of the Airport or reverter clause in the deed of trust
and/or conveyance to the Parish of Iberia executed by the United States of
America, on the 6th day of May, 1969 filed for record on the 9th day of May,
1969 and recorded at conveyance book 539, folio 119, entry no. 146092, records
of Iberia Parish, Louisiana.
ARTICLE XV. NOTICES, CONSENTS AND APPROVALS
15.00 Notices or other communications to Lessor pursuant to the provisions
hereof shall be sufficient if sent by registered or certified United States
mail, postage prepaid, addressed to the:
IBERIA PARISH AIRPORT AUTHORITY
5217 North/South Taxi Road
NEW IBERIA, LOUISIANA 70560
and to Lessee as follows:
AVIATION EXTERIORS LOUISIANA, INCORPORATED
1218 HANGAR DRIVE
NEW IBERIA, LA. 70560
ARTICLE XVI. COVENANT TO BIND LESSOR AND LESSEE
16.00 This lease and operating agreement and all of the covenants and
conditions contained herein shall be binding upon Lessor and Lessee and upon
their respective heirs, executors, administrators, successors and assigns.
ARTICLE XVII. SUBLETTING, ASSIGNMENT AND MORTGAGE
A. Subletting and Assignment
17.00 Any transfer, sublease or assignment (hereinafter in this lease
referred to as "transfer") of Lessee's interest in the leased premises, or any
portion thereof, must be approved by Lessor, in advance of its consummation or
execution. If Lessee
<PAGE>
grants a transfer, without obtaining prior approval from Lessor, such act shall
constitute a material breach of this lease and grounds for its termination.
17.01 In the event Lessor consents to a transfer, such consent shall not
constitute a waiver of any other condition, term and covenant of this lease. All
such terms, conditions, or covenants shall apply to each and every transferor,
assignee, transferee, subtenant, or other person acquiring rights and/or
interests through Lessee.
17.02 Any document to transfer, sublet or assign the premises or any part
thereof, shall incorporate, directly or by reference, all provisions of this
lease.
17.03 Occupancy of the premises by a prospective transferor, transferee,
sublessee, assignee, or assignor, prior to approval of the transfer, sublease or
assignment by Lessor, shall be deemed an unauthorized activity and shall
constitute a breach of this lease.
17.04 In the event Lessee fails to cease, remove or prohibit an
unauthorized activity, after notice by Lessor, such failure shall constitute a
material breach of this lease and shall be grounds for termination.
17.05 Lessor agrees that it will not arbitrarily or unreasonably withhold
consent to a transfer.
17.06 An application fee of $500.00 shall accompany all requests to
transfer, assign or sublease. This application fee is not refundable.
17.07 Lessor may reasonably withhold its consent to any transfer, if any
of the following conditions exist:
1. Lessee, or any of its successors or assigns, is in default as to
any term, covenant, or condition of this lease, whether notice of
default has or has not been given by Lessee;
2. The prospective transferor or transferee has not agreed, in
writing, to keep, perform, and be bound by all terms, covenants
and conditions of this lease;
3. All terms, covenants and conditions of the transfer, including
the consideration therefor, of any and every kind, has not been
revealed, in writing, to Lessor;
4. Any member of the local, state or federal government, or any
resident Commissioner of Lessor be admitted to any share or part
of this agreement or to any benefit that may arise hereunder.
This provision shall not be constructed to extend to agreements
make with a corporation for the general
<PAGE>
benefit of any such party.
17.08 In no event shall Lessor's consent to a transfer, sublease or
assignment release Lessee from the obligations of this lease.
B. MORTGAGE
17.09 Any mortgage, pledge, hypothecation, encumbrance or subordination
(hereinafter in this lease referred to as "mortgage") of Lessee's leasehold
interest in the leased premises, or any portion thereof, must be approved by
Lessor, in advance of its execution. If Lessee grants a mortgage, without
obtaining prior approval from Lessor, such act shall constitute a material
breach of this lease and grounds for its termination.
17.10 No mortgage, pledge, hypothecation or encumbrance shall bear against
immovable property owned by the Lessor or Iberia Parish Government. Lessee does
not have, nor does this lease and operating agreement grant to it, the
authority, right, or privilege to mortgage lands, buildings or improvements
owned by Lessor or Iberia Parish Government. A mortgage, not approved by Lessor,
shall be deemed void and shall not affect Lessor's rights hereunder.
17.11 Notwithstanding the provisions of Article XVII, paragraph 17.09,
Lessor agrees, upon written request by Lessee, to execute its written consent to
a mortgage of Lessee interests in this leasehold to secure the beneficial
interest of a lender for the purpose of financing construction, development, or
operations on the airport upon and subject to the following covenants and
conditions:
1. Upon application for approval of a leasehold interest mortgage,
Lessee shall furnish Lessor a complete copy of the mortgage and
note to be secured thereby, together with the name and address
of the proposed holder thereof;
2. Said lender and all rights acquired by said lender under said
mortgage shall be subject to each and every covenant, condition,
and restriction set forth in this lease and to all the rights
and interests of Lessor thereunder;
3. In the event of any conflict between the provisions of this
lease and the provisions of any such mortgage, the provisions of
this lease shall govern and control; and
4. Upon and immediately after the recording of a mortgage affecting
the leasehold interest, Lessee, at its expense, shall cause to
be recorded in the Office of the Clerk of Court, Iberia Parish,
Louisiana, a written request by Lessor for notice of default or
any notice of
<PAGE>
seizure and/or sale under the mortgage as provided by the
statutes of the State of Louisiana relating thereto.
17.12 Lessor agrees that it will not terminate this lease on default or
breach on the part of Lessee, if the lender under any mortgage to which Lessor
has given its consent, within ten (10) days after service of written notice on
the lender by Lessor of its intention to terminate this lease for such default
or breach, shall:
1. Cure such default or breach, if the same can cured by the
payment or expenditure of money required to be paid under the
terms of this lease; and
2. Keep and perform all of the other covenants and conditions of
this lease until such time as the security shall be sold upon
foreclosure pursuant to the mortgage or shall be released or
reconveyed thereunder; provided, however, that if the lender
shall fail or refuse to comply with any or all of the provisions
of this paragraph, then and thereupon, Lessor shall be released
from its covenant of forebearance.
17.13 In the event of default not cured as aforementioned, lender shall
commence steps and proceedings for the exercise of the power of seizure and sale
under and pursuant to the mortgage and in the manner provided by law, but
assignee will first offer and Lessor shall have the option to purchase, all
rights, titles and interests in the security encumbered under said mortgage
directly from lender and without public sale for the outstanding balance due on
the note or notes secured by said mortgage.
17.14 In the event Lessor does not exercise its option to purchase from
the lender as provided above, then the prior written consent of Lessor shall not
be required and transfer or conveyance may occur under the following conditions:
a. The transfer of the security at foreclosure sale pursuant to
judicial foreclosure or by an assignment in lieu of foreclosure,
with the transferee expressly assuming and agreeing to perform
all of the obligations under this lease; or,
b. To any subsequent transfer by the lender if the lender is an
established bank, savings and loan association or insurance
company, and is the purchaser at such foreclosure sale, provided
that in such event, the lender forthwith gives notice to Lessor
in writing of any such transfer, setting forth the name and the
express agreement(s) with the transferee or transferor, the
effective date of such transfer, and the express agreement
<PAGE>
of the transferee and transferor assuming and agreeing to
perform all of the obligations under this lease, and submits to
Lessor a copy of the document or transfer.
17.14.1 Under no circumstances shall the tenant, any lender, transferee
of any lender, purchaser at foreclosure sale, or any other party have the right
to occupy the leased premises, or any portion thereof, without payment of the
rent and performance of all of the covenants and obligations contained in this
lease.
17.15 Lessee, for itself, its subsidiaries, affiliates, associates,
representatives, successors, and assigns, as a part of the consideration of this
lease, hereby covenant and agree, as a covenant running with the land, that:
1. No person on the grounds of race, color, creed, age, sex,
national origin or physical condition shall be excluded from
participation, denied the benefits or be otherwise subjected to
discrimination in the use of said facilities:
2. That, in furnishing of services thereon, no person on the
grounds of race, color, creed, age, sex, national origin or physical
condition shall be excluded from participation in, denied the
benefits of, or otherwise be subjected to discrimination:
3. That, Lessee shall use the premises in compliance with all
other requirements imposed by and pursuant to Title 49, Code of
Federal Regulations of the Department of Transportation and the
Civil Rights Act of 1964, as may be amended; and
4. That, in the event of a breach of any of the non-discrimination
covenants, Lessor shall have the right to terminate the lease and to
re-enter and repossess said land and the facilities thereon, and
hold the same as if said lease had never been made or issued.
ARTICLE XVIII. RIGHTS OF THE UNITED STATES GOVERNMENT
18.00 This lease shall he subordinate to the provisions and requirements
of any existing agreement between Lessor and the United States relative to the
development and maintenance of the airport.
(a) In the event any agreement between Lessor and the United States
relative to the development and maintenance of the airport results in a total
condemnation or expropriation of the leased premises for public use or purpose,
the term of this lease shall cease and terminate as of the date title vests in
the condemner and all rentals and other payments shall be paid up to that date,
and Lessee shall have no claim against the Lessor for
<PAGE>
the value of any unexpired term of this lease. Lessee is not prohibited from
asserting any claim or claims for loss of improvements to the leased premises,
leasehold advantages and/or loss of business opportunity against the United
States.
(b) In the event any agreement between Lessor and the United States
relative to the development and maintenance of the airport results in a partial
condemnation or expropriation of the leased premises for public use or purpose,
then Lessor and Lessee shall each have the right to terminate this lease upon
written notice to the other given at least thirty (30) days prior to the date
title vests in the condemner and all rentals and other payment shall be paid up
to that date. Lessee shall have no claim against Lessor for the value of any
unexpired term of this lease. Lessee is not prohibited from asserting any claim
or claims for loss or improvements to the leased premises, leasehold advantages
and/or loss of business opportunity against the United States.
(c) In the event that neither party shall elect to so terminate
this lease, Lessor, to the extent of the condemnation award, if any, shall
repair and restore the portion not affected by the taking so as to constitute
the remaining premises a complete architectural unit. Thereafter, the rental to
be paid by Lessee shall be adjusted according to the ratio that the square
footage of interior and exterior area remaining in the leased premises bears to
the former area, and all of the other terms of this lease shall remain in full
force and effect.
18.01 Lessee agrees to comply with the notification of and review
requirements covered in Part 77 of the Federal Aviation Regulations in the event
any future structure or building is planned or alteration of any present or
future building or structure situated on the premises.
18.02 It is understood and agreed that nothing herein shall be construed
to grant or authorize the granting of an exclusive right within the meaning of
Section 308 of the Federal Aviation Act of 1958.
18.03 There is hereby reserved by Lessor, its successors and assigns, for
the use and benefit of the public, a right of flight for passage of aircraft in
the airspace above the surface of the premises hereby leased together with the
right to cause in said airspace such noise as may be inherent in the operation
of aircraft, now known or hereafter used for navigation of or flight in the air,
using said airspace for landing at, taking off from or operating on the Airport,
subject to applicable controlling flight restrictions.
18.04 Lessee by accepting this lease expressly agrees for itself, its
successors and assigns, that it will not erect nor permit the erection of any
structure or object or permit the growth of any tree on the land leased
hereunder above a mean sea level elevation of 70 feet. In the event the
aforesaid covenant is breached, Lessor reserves the right to enter upon the land
leased hereunder and remove the offending tree or structure, all of which
<PAGE>
shall be at the total expense of Lessee.
18.05 Lessee, by accepting this lease, expressly agrees for itself, its
successors and assigns, that it will not make use of the premises in any manner
which might interfere with the landing and taking off of aircraft from the
Airport, or otherwise constitute a hazard. In the event the aforesaid covenant
is breached, Lessor reserves the right to enter upon the premises hereby leased
and cause the abatement of such interference at the total expense of Lessee.
18.06 This lease and all provisions hereof shall be subject to whatever
right the United States Government now has or in the future may have or acquire,
affecting the control, operations and regulation of said Airport.
18.07 The Lessee and any sublessee, transferee, subtenant, subsidiary,
affiliate, associate, successor or assign for whom consent to acquire an
interest in this leasehold, leased premises and/or privilege under this
operating agreement, is required by the Lessor, shall comply with the
Affirmative Action Plan Program requirements, if it maintains a business located
within Iberia Parish, Louisiana, and uses such business location in any manner
connected with his lease.
18.08 This lease shall be subordinate to and subject to the terms,
conditions, restrictions, and other provisions of any existing permit, lease
and/or agreement between the Lessor and the United States of America and/or any
other local, state or federal agency, relative to the control, operation or
maintenance of the Airport, the execution of which has been or will be required
as a condition precedent to the operation or control of, or to the expenditure
of Federal funds for the Airport. Lessee agrees to be bound by such terms,
conditions, restrictions or provisions.
18.09 Lessee warrants that no improvements shall be erected, placed upon,
operated nor maintained within the premised, nor any business or other activity
conducted or carried on therein or therefrom, in violation of the terms of this
lease, or of any regulation, order of law, statute, by-law, or ordinance of a
governmental agency having jurisdiction and any breach of said warranty shall
constitute a breach of this lease.
ARTICLE XIX. TERMINATION BY LESSOR AND WAIVER OF BREACH
19.00 In the event that Lessee shall fail to perform, keep and observe
any of the terms, covenants or conditions herein, (other than the payment of
rent or fuel flowage fees) Lessor may give written notice to Lessee to use due
diligence to correct such condition or default, and if Lessee fails to correct
such condition or fails to commence action to correct within Thirty (30) days
after receipt of such notice, or fails to diligently pursue such action to
correct after same has been commenced, Lessor may terminate this agreement by
giving ten (10) days notice thereof.
<PAGE>
rental by Lessor for any period or periods after default of any of the terms,
conditions, or covenants shall not be deemed a waiver of any right on the part
of the Lessor to cancel this agreement for failure by Lessee to perform, keep or
observe any of the terms, covenants or conditions of this agreement.
ARTICLE XX. ENVIRONMENTAL MATTERS
Authority's Environmental Representations and Warranties.
20.00 Lessor represents and warrants to Lessee, to the best of its
knowledge, as follows:
a. That the Lessor has duly complied with, and the premises is in
compliance with the provisions of federal, state and local environmental, health
and safety laws, codes, ordinances, rules and/or regulations promulgated
thereunder, except as disclosed in the attached environmental site analysis and
report dated December 17, 1996 and annexed hereto as Exhibit "C".
b. That the Lessor has not received any notice, does not know nor
suspect, any facts which might constitute violations of any federal, state or
local environmental, health or safety laws, codes, ordinances, rules and/or
regulations promulgated thereunder, which relate to the use, ownership or
occupancy of the premises, and is not in violation of any covenants, conditions,
easements, rights of way or restrictions affecting the premises or any rights
appurtenant thereto, except as disclosed in the attached environmental site
analysis report.
c. No emission, spill, release or discharge has occurred except in
accordance with a valid governmental permit, license, certificate or approval,
whether on the premises, or sites adjacent to the premises into or upon (i) the
air, (ii) soils or improvements, (iii) surface water or ground water, or (iv)
the sewer, septic system or waste treatment, storage or disposal system
servicing the premises, involving any toxic or hazardous substances or wastes
used, stored, generated, treated or disposed on or from the premises, except as
disclosed in the attached environmental site analysis report.
d. No complaint, order, directive, claim, citation or notice has
been filed by any governmental authority or any other person or entity with
respect to (i) air emissions, (ii) spills, releases or discharges to soils or
any improvements located thereon, surface water, ground water or the sewer,
septic system or waste treatment, storage or disposal systems servicing the
premises, (iii) noise emissions, (iv) solid or liquid waste disposal, (v) the
use, generation, storage, transportation or disposal of environmental, health or
safety matters affecting Lessor, the premises, and any improvements located
thereon, except as disclosed in the attached environmental site analysis report.
e. Prior to the execution of this Lease, or occupancy of the
premises, whichever is later, no reported occurrence of any hazardous discharge
(as defined in Section 20.03 of this Lease
<PAGE>
Agreement) except in accordance with a valid governmental permit, license,
certificate or approval or an environmental complaint (as defined in Section
20.04 of this Lease Agreement), except as disclosed in the attached
environmental site analysis report.
f. Lessor has provided Lessee with true, accurate and complete
information pertaining to the environmental history of the premises. Throughout
the term of this Lease, Lessor shall promptly furnish to Lessee true, accurate
and complete copies of all sampling and test results obtained from all
environmental and/or health samples and tests taken at and around the premises
including all sampling and tests results taken by any and all prior occupants of
the premises.
20.01 Lessee's Environmental Indemnification of the Lessor. Lessee agrees
to defend, indemnify and hold harmless Lessor from and against any and all
claims, suits, demands, losses, liabilities, damages, and/or judgments, costs
and expenses (including, without limitation, any and all testing and cleanup
costs and attorneys' and consultants' fees) (hereinafter referred to as
"claims") arising directly or indirectly by reason of a hazardous discharge or
environmental complaint or any violation of an environmental protection, health
or safety law regulation, or requirement governing Lessee, its business
operations, assets or equipment, including without limitation any claims:
a. arising directly or indirectly out of, or relating to, any
investigatory, removal or remedial action involving Lessee's facility or any
governmental authority having jurisdiction under any law; or
b. arising directly or indirectly on account of, or in connection
with, any claim or injury or actual injury to any person or property, relating,
regarding, or in any way pertaining to:
(1) any of Lessee's obligations under the provisions of this
lease,
(2) the existence, treatment, storage, disposal, release,
spill, generation, removal, manufacture or other handling of any hazardous
substances or hazardous wastes on the premises by Lessee caused by or the result
of actions or operations of Lessee, or arising in the course of or relating to
Lessee's business, during the lease term provided that the foregoing indemnity
shall not apply to any hazardous discharge or environmental complaint caused by
or related to the Lessor, prior owners, prior operators, prior occupants or
prior tenants of the premises, or which cannot be shown to have been caused by
or the result of actions or operations of Lessee or arising in the course of or
relating to Lessee's business or Lessee's use of the premises.
20.02 In case any action shall be brought against or commenced against
the Lessor, and in which Lessee may be required to indemnify the Lessor in whole
or in part pursuant to Section 20.01, the Lessor shall have the right to assume
the defense thereof, including the employment of counsel. In cases in which the
Lessor
<PAGE>
chooses not to exercise its right to assume its own defense, the Lessor shall
have the right to approve Lessee's choice of counsel, which approval shall not
be unreasonably withheld. In the event that Lessee assumes the defense of the
Lessor subsequent to the Lessor's engagement of defense counsel (it being
understood and agreed that the Lessor shall give Lessee ten (10) days prior
notice before it engages defense counsel), then Lessee shall, upon demand of the
Lessor, immediately reimburse the Lessor for all reasonable legal fees, costs
and disbursements expended or incurred by the Lessor prior to the date Lessee
assumed the defense thereof.
20.03 For purposes of this indemnification, the term "Hazardous
Discharge" shall include any emission, seepage, leakage, spill, discharge,
release or threatened release of any toxic or hazardous substances (as defined
in 42 U.S.C. 9601 et seq.) or hazardous wastes (as defined in 40 C.F.R. 260) at
or from the premises into or upon (i) the air, (ii) surface and subsurface soils
or any improvements located thereon, (iii) surface water or groundwater, or (iv)
the sewer, septic system or waste treatment, storage or disposal system
servicing the premises.
20.04 For purposes of this indemnification, the term "Environmental
Complaint" shall include any complaint, order, directive, claim, citation or
notice by any governmental authority or agency or any person or entity with
respect to (i) air emissions, (ii) spills, releases, or discharges to surface
and subsurface soils or improvements located thereon, surface water,
groundwater, or the sewer, septic system or waste treatment, storage or disposal
systems servicing the premises, (iii) noise emissions, (iv) solid or liquid
waste disposal, (v) use, generation, storage, transportation or disposal of
toxic or hazardous substances or hazardous wastes (as both said terms are
defined hereinabove) or (vi) other environmental, health or safety matters
affecting Lessee's or its operations that occur after the commencement of
Lessee's use of the premises.
20.05 Lessee agrees that the Lessor may at its discretion, conduct such
environmental inspections, audits and test (including soil borings and/or ground
water tests) as it shall deem necessary or desirable in order to evaluate the
environmental status of the premises as it exists. Any and all reports of said
inspections, audits and tests conducted by the Lessor, prior to execution of
this Lease and Agreement, shall define the Environmental Baseline.
20.06 Without limiting any of Lessee's obligations, Lessee agrees
specifically with respect to any contaminants and levels of contamination
identified in the Environmental Baseline as defined in Section 20.05, Lessee
will take appropriate steps, at Lessee's sole cost and expense, to accomplish
any necessary removal, decontamination, site remediation, restoration work,
containment and/or monitoring under any requirement of any governmental entity
having jurisdiction over the premises now or at any time during the lease term.
<PAGE>
20.07 Without limiting any of Lessee's obligations, Lessee agrees
specifically with respect to any contaminants and levels of contamination in
excess of those identified in the Environmental Baseline as defined in Section
20.05 and caused by or as a result of actions or operations of Lessee or arising
in the use of or relating to Lessee's business during the lease term, Lessee
will take appropriate steps, at Lessee's sole cost and expense, to accomplish
any necessary removal, decontamination, site remediation, restoration work,
containment and/or monitoring under any requirement of any governmental entity
having jurisdiction over the premises. The aforementioned indemnity provisions
shall service until all such matters included or referred to herein have been
determined to have prescribed by law.
20.08 Environmental Representations and Warranties.
The Lessor represents and warrants to the Lessee, to the best of its
information, knowledge and belief, as follows:
a. The Lessor acknowledges that it has received a final report of the
Site Survey and Assessment for the Iberia Parish Airport Authority dated
December 17, 1996 and has examined same. The Lessor shall furnish Lessee the
report of Subra Company Environmental Consultants. The Lessor acknowledges that
it may exercise its rights to conduct additional sampling, tests, studies and
examinations as contemplated by Section 20.05 hereof. The Lessor shall fully
inform Lessee of the results of such sampling tests, studies and examination.
b. Throughout the lease term, Lessee shall not undertake or permit any
environmental activity other than (i) in compliance with all applicable laws,
(ii) in such a manner as not to present a significant present or potential
health risk to the Lessor. Lessee shall immediately and fully inform the Lessor
of any such breach. If Lessee shall breach the representation provided in this
section, then, in addition to any other rights and remedies which may be
available to the Lessor under this lease or otherwise at law or in equity,
Lessor may require Lessee to take all actions, or to reimburse the Lessor for
the costs of any and all action taken by the Lessor as are necessary to comply
with all applicable laws and to abate any significant present or potential
health risk with respect to any environmental activity conducted or permitted or
any Hazardous Substances or Hazardous Wastes (as both said terms are defined
hereinabove) present at the premises. Lessee's obligation under this section
shall survive the expiration or earlier termination of this Lease.
20.09 No portion of the premises may be used for the subsurface
disposal or storage of radioactive material and/or for the disposal or
subsurface storage of hazardous materials as such term may be defined by the
regulations of the U.S. Environmental Protection Agency, or any local or state
authority. Any and all hazardous material handled or temporarily stored at or on
the premises shall be contained and used in accordance with all applicable laws
and regulations.
<PAGE>
ARTICLE XXI. SURRENDER OF PREMISES
21.00 Lessee agrees, that upon the expiration of the terms of this
agreement or cancellation thereof, to vacate the leased premises. All buildings
and improvements thereon will be delivered to the Lessor in good condition,
reasonable wear and tear excepted.
21.01 Lessee shall be allowed to remove trade fixtures not of a permanent
nature so long as the leased premises is not damaged or defaced by said removal.
21.02 If Lessee fails to remove trade fixtures more than thirty (30) days
after the expiration of the lease, Lessor may at its option remove same at
Lessee's cost plus 15% service charge.
21.03 All improvements of a permanent nature made by Lessee during the
primary term of the lease or any extension thereof shall become property of the
Lessor at the expiration of the lease and at no cost to Lessor.
ARTICLE XXII. PRIOR AGREEMENTS AND AMENDMENTS
22.00 Lessor and Lessee agree that this lease and operating agreement
contains all that is applicable to operation of a heavy aircraft maintenance
operator at this facility at Acadiana Regional Airport and that all other prior
agreements relative thereto are ineffective.
ARTICLE XXIII. CAPTIONS
23.00 Lessor and Lessee agree that all headings in this lease and
operating agreement are used solely for convenience and shall be disregarded in
the construction of the agreement.
ARTICLE XXIV. COVENANTS AND CONDITIONS
24.00 Lessor and Lessee agree that each provision of this lease and
operating agreement which is performable by the Lessee and Lessor is herewith
deemed a covenant and a condition of this lease and operating agreement.
ARTICLE XXV. VENUE
25.00 Both parties agree that this agreement shall be construed pursuant
to the laws of the State of Louisiana and the venue for returns at law or equity
upon or affecting this lease and agreement shall be: Iberia Parish, Louisiana.
ARTICLE XXVI. PARTIAL INVALIDITY
26.00 If any section, clause, sentence, word, or provisions of this lease
or the application thereof to any party or circumstances shall, to any extent,
be or become invalid or illegal, and such provision shall thereby become null
and void, the remainder of this lease shall not be affected thereby, and each
remaining provision of this lease shall be valid and enforceable to the fullest
extent
<PAGE>
permitted by law.
THIS DONE AND SIGNED at New Iberia, Louisiana on this 23rd day of June,
1999.
WITNESSES: IBERIA PARISH AIRPORT AUTHORITY
/s/ [ILLEGIBLE] /s/ R. Chris Jordan
- ------------------------- -----------------------------------
BY: R. Chris Jordan, Chairman
/s/ Stan Donohue
- -------------------------
AVIATION EXTERIORS LOUISIANA, INC.
(f/k/a Pride Aviation, Inc.)
/s/ [ILLEGIBLE] /s/ Paul Lubomirski
- ------------------------- -----------------------------------
BY: Paul Lubomirski, President
/s/ Denise Broussard
- -------------------------
IBERIA PARISH GOVERNMENT
/s/ Jolyn B. Flemming /s/ Wilfred Langlinais
- ------------------------- -----------------------------------
BY: Wilfred Langlinais,
Parish President
/s/ Nellie B. Landry
- -------------------------
/s/ Cathy M. Viator
--------------------
Notary Public
<PAGE>
EXHIBIT 10.25
Agreement number: 99-01-01-UNITED PARCEL SERVICE
between
UNITED PARCEL SERVICE CO.
and
PRIDE AVIATION, INC.
ARTICLE DESCRIPTION
PAGE
TABLE OF CONTENTS 1
LIST OF EXHIBITS 2
PREAMBLE 3
1 TERMS OF AGREEMENT 3
2 DEFINITIONS 3-5
3 COMPLIANCE WITH FEDERAL AVIATION REGULATIONS 6
4 GENERAL TERMS AND CONDITIONS 6
5 MAINTENANCE SERVICES 7
6 ENGINEERING SERVICES 8
7 DOCUMENTATION 8-9
8 CHARGES AND PAYMENT 9
9 INDEMNITY AND INSURANCE 10-11
10 WARRANTY 11
11 EXCUSABLE DELAY OR FAILURE IN PERFORMANCE 12-13
12 TERMINATION 13
13 MISCELLANEOUS 13-17
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 1 of 17
<PAGE>
EXHIBITS
--------
I AIRCRAFT STATEMENT OF WORK
II FINANCIAL CONSIDERATION AND TERMS OF PAYMENT
III CERTIFICATION OF FAA DRUG TESTING PROGRAM COVERAGE
IV WARRANTY PERIOD
V DELIVERY RECEIPT
VI REDELIVERY RECEIPT
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 2 of 17
<PAGE>
AIRCRAFT MAINTENANCE SERVICES AGREEMENT
---------------------------------------
This Aircraft Maintenance Services Agreement is hereby entered into on the
1/st/ day of January, one thousand nine hundred ninety-nine between Pride
Aviation, Inc. with its office at 1218 Hangar Drive, New Iberia, Louisiana 70560
and 4635 NE Cornfoot Rd., Portland, Oregon 97218("SELLER") and UNITED PARCEL
SERVICE CO. with it's offices at 1400 North Hurstborne Parkway, Louisville,
Kentucky 40223 ("CUSTOMER").
WHEREAS, SELLER maintains and operates facilities for the maintenance and
servicing of Aircraft and component parts; and
WHEREAS, CUSTOMER requires certain Maintenance Services as more
specifically described in Exhibit I, to be performed on Aircraft listed in
Exhibit VII which it owns or operates, from time to time, and/or components used
or usable in the operation of such Aircraft and SELLER is willing to provide or
cause to be provided such services upon the terms, provisions and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agrees as follows:
ARTICLE I
---------
TERMS OF AGREEMENT
------------------
1.01 This Agreement shall be effective as of the 1st day of January 1999,
and shall continue in effect through December 31, 2002, unless extended or
terminated as provided in Article XII.
ARTICLE II
----------
DEFINITIONS
-----------
2.01 The following definitions shall apply to the terms used in this
Agreement and employed by SELLER in the course of performance of its obligations
under this Agreement, unless otherwise defined herein:
(a) "AIRCRAFT" shall mean the Aircraft types listed on Exhibit VII owned
or operated by CUSTOMER, including all attached engines and any
instrument, equipment, apparatus, assembly, part, appurtenance or
accessory attached to, incorporated, or installed in, such Aircraft.
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 3 of 17
<PAGE>
ARTICLE III
-----------
COMPLIANCE WITH FEDERAL AVIATION REGULATIONS
--------------------------------------------
3.01 The services performed under this agreement shall be performed in a
good and workmanlike manner and in accordance with all applicable FAR's
including, but not limited to 14 CFR Parts 91, 121/135, and as applicable, Part
145.
ARTICLE IV
----------
GENERAL TERMS AND CONDITIONS
----------------------------
4.01 During the term of this agreement, SELLER will provide the
facilities, labor, fixtures, equipment, tooling, planning and administration
necessary to perform the SERVICES in compliance with the maintenance program,
the Aircraft workscope, and terms indicated in Exhibit II.
4.02 Unless otherwise agreed to, CUSTOMER will provide to SELLER, upon
delivery of the Aircraft, all applicable work cards, work instructions, lists,
bill of materials, engineering authorizations or other specific documentation
necessary to perform the SERVICES on the Aircraft as described in Exhibit I.
However, this excludes any instruction or documentation regarding waste
materials as described in Section 4.05.
4.03 The CUSTOMER shall, at its sole cost and expense, deliver the
Aircraft or components to SELLER at the repair facility or such other location
as may be mutually agreed upon between the parties hereto. SELLER shall
acknowledge receipt of the Aircraft or component by execution of a delivery
receipt in the form of Exhibit VIII. Redelivery of the Aircraft and components
to CUSTOMER at the repair facility upon completion of the SERVICES hereunder
shall be acknowledged by execution of a redelivery receipt in the form of
Exhibit IX.
4.04 All parts furnished by SELLER pursuant to this agreement shall be an
approved part from a FAA approved source. SELLER will extend to CUSTOMER the
benefit of suppliers, which provide warranty periods more favorable than offered
in Exhibit IV. SELLER shall credit CUSTOMER for the cost to CUSTOMER of any
parts or supplies furnished by SELLER, which prove to be defective. Materials
furnished by SELLER at CUSTOMERS request will be at actual cost as verified by
attached invoice plus freight plus 10% handling up to a maximum of $200 per
item.
4.05 SELLER shall be solely responsible for handling, transportation,
disposal and reporting of all hazardous and other waste material resulting from
or associated with SELLER's performance under this Agreement. SELLER shall
comply with all local, state and federal laws and regulations governing such
waste and shall indemnify and hold CUSTOMER harmless for any and all costs,
including attorney fees, related to such waste.
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 6 of 17
<PAGE>
ARTICLE V
---------
MAINTENANCE SERVICES
--------------------
5.01 During the period this agreement is in effect, SELLER will, upon
request and as mutually agreed, perform MAINTENANCE SERVICES on the Aircraft as
follows:
(a) ROUTINE MAINTENANCE, NON-ROUTINE MAINTENANCE and special inspections
or repairs of the Aircraft, including DEPAINT and PAINT.
(b) Accomplishment of any Airworthiness Directives (AD), supplemental
structural inspection (SSI), or Service Bulletins (SB) applicable to
the Aircraft.
(c) Component overhaul, repair, functional check and modification required
to be performed on components removed from the Aircraft during the
performance of the Maintenance Services for which SELLER has shop
capability at its repair facility. SELLER may, upon CUSTOMER'S prior
approval, arrange with subcontractors for the performance of component
work for which SELLER does not have shop capability. Subcontractors
must be approved in advance by CUSTOMER. In those cases where the
components removed cannot be repaired during performance of services,
CUSTOMER will provide SERVICEABLE COMPONENTS.
5.02 The CUSTOMER shall provide with this contract, a schedule showing to
the best of its ability all of the Aircraft to be serviced during the term of
this contract. CUSTOMER agrees to provide those Aircraft, and retains the
absolute right to substitute alternate Aircraft having the same or similar work
scope or to change the schedule at its sole discretion.
5.03 In the event that SELLER is unable to provide requested services due
to lack of available skills, tooling, labor, or certification to perform the
service, CUSTOMER may provide the work force to complete its requested task at
SELLER's facility, or may remove the Aircraft from SELLER's facility and
complete the work elsewhere.
5.04 Consumables and Expendables will be provided by SELLER, except Paint,
placards, and paint masks for name, logo, & stencils which will be supplied by
the CUSTOMER. CUSTOMER can supply specialty parts and components if the CUSTOMER
so desires.
5.05 SELLER will provide to CUSTOMER, planning services that include
assistance in the preparation of work instructions, ordering of material not
furnished by CUSTOMER, and scheduling of the work included in the MAINTENANCE
SERVICES.
5.06 If during performance of the services, SELLER becomes aware of any
condition which could lead to resultant damage to the Aircraft or any component,
SELLER shall
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 7 of 17
<PAGE>
advise CUSTOMER immediately and obtain CUSTOMER written approval to perform
recommended Non-Routine Maintenance on such Aircraft or component.
ARTICLE VI
----------
ENGINEERING SERVICES
--------------------
6.01 If requested by CUSTOMER and mutually agreed upon, SELLER will
provide, or cause to be provided, engineering services (including documentation)
in support of maintenance services which are not related to normal Aircraft in-
service problems but involve the repair of damage and/or the performance of
modifications to the Aircraft or components at the rates set forth in Exhibit
II. Engineering services provided hereunder shall be in support of the
maintenance services and include, Depaint and Painting of the Aircraft, field
repairs, major system changes or replacements, or modifications affecting
certification and not covered by FAA approved service bulletins.
ARTICLE VII
-----------
DOCUMENTATION
-------------
7.01 CUSTOMER will furnish SELLER with the following documentation, as
applicable, in a timely manner and suitable for the intended purpose as
applicable for the scheduled workscope:
(a) Maintenance Manuals & Revisions
(b) Illustrated Parts Catalog & Revisions
(c) Wiring diagrams and structural repair manual applicable to each
Aircraft & Revisions thereto.
(d) General Maintenance Manual
7.02 All documentation, as provided for above, will be returned to
CUSTOMER at completion of services as provided for in Exhibit II, in
a timely manner. Such shipment will be via UPS Next Day Air or
shipped in a manner designated by the CUSTOMER.
7.03 SELLER will prepare and furnish at no cost to CUSTOMER the following
documentation as requested by the CUSTOMER and applicable to services performed,
in a timely manner and suitable for the intended purpose:
(a) Engineering Authorizations Sign-Off
(b) Completed Work Package
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 8 of 17
<PAGE>
(c) Non-Routine Repair Item Card
(d) FAA Form 337
7.04 SELLER will provide all technical data and publications as described
above in Article 7.03 to CUSTOMER at no charge.
7.05 All technical data provided by SELLER will be in compliance with the
applicable Air Transport Association specifications:
(a) Spec 100 - "Manufacturer's Technical Data"
(b) Spec 101 - "Ground Equipment Technical Data"
(c) Spec 300 - "Packaging of Airline Supplies"
7.06 CUSTOMER shall be responsible for technical information provided to
SELLER by CUSTOMER.
ARTICLE VIII
------------
CHARGES AND PAYMENT
-------------------
8.01 SELLER shall invoice the CUSTOMER for the labor, materials and parts
provided in performance of the Services at the rate applicable for each type of
service as specified in Exhibit II.
8.02 All amounts owed to SELLER shall be due and payable in accordance
with Exhibit II. Invoices for the services shall be mailed to CUSTOMER at:
UNITED PARCEL SERVICE CO.
1400 N. Hurstbourne Pkwy.
Louisville, KY 40223
ATTN: ACCOUNTS PAYABLE
8.03 The CUSTOMER shall pay to SELLER any sales tax billed by SELLER
imposed by any taxing authority required to be paid by SELLER or by CUSTOMER as
a result of the performance of this agreement. If claim is made against SELLER
for any such taxes, SELLER shall notify CUSTOMER immediately upon receipt of
said notice. If requested by CUSTOMER in writing.
SELLER shall, at CUSTOMER's expense, take such action as CUSTOMER may reasonably
direct with respect to such asserted liability and shall not pay any such
charges, except under protest, if payment is necessary. If payment is made,
SELLER shall, at CUSTOMER's expense, take such
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 9 of 17
<PAGE>
NOTICES
-------
13.01 Any notice required or permitted to be given under this agreement
shall be deemed given if in writing and sent by registered mail, facsimile or
express overnight mail.
TO SELLER: Pride Aviation, Inc. Pride Aviation Portland, Inc.
1218 Hangar Drive 4635 NE Cornfoot Rd.
New Iberia, Louisiana 70560 Portland, Oregon 97218
TEL:(318) 365-6646 (503) 331-1248
FAX:(318) 365-6663 (503) 288-6442
ATTENTION: President
TO CUSTOMER: UNITED PARCEL SERVICE CO.
1400 N. Hurstbourne Pkwy
Louisville, KY 40223
ATNN: Vice President of Maintenance & Engineering
TEL: (502) 329-6663
FAX: (502) 329-6654
ASSIGNMENT
13.02 SELLER may not assign this agreement and the services to be
provided hereunder without the prior written consent of the CUSTOMER. Consent by
the CUSTOMER to such assignment in one instance shall not constitute consent to
any other assignment.
AMENDMENTS/CHANGES
13.03 This agreement may not be amended or modified except by written
agreement, signed by the parties hereto.
GOVERNING LAW
13.04 THE LAWS OF THE COMMONWEALTH OF KENTUCKY SHALL GOVERN THIS
AGREEMENT AND ANY CLAIM OR QUESTIONS ARISING HEREUNDER SHALL BE CONSTRUED OR
DETERMINED ACCORDING TO SUCH LAWS.
PARTIAL INVALIDITY
13.05 If any term or condition of this agreement shall be invalid or
unenforceable, the remainder of this agreement to the extent that it is not held
invalid and unenforceable shall continue in full force and effect to the fullest
extent permitted by law.
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 14 of 17
<PAGE>
This article shall not be construed to preclude the reasonable request by
CUSTOMER for samples as it is related to the performance of the services
hereunder or acceptance of commonly distributed promotional material. This
section shall be strictly enforced and any violation on the part of a
representative, employee, or agent of SELLER shall be construed as a material
breach of the agreement.
13.17 CUSTOMER\SELLER shall not make, promise to make, or cause to be made
any payment, loan or gift, directly or indirectly, (1) to or for the use or
benefit of (i) any official or employee of any government or agency or
instrumentality thereof, (ii) any political office, or (iii) any person (if
CUSTOMER\SELLER knows or has reason to know that such paid payments, loans or
gifts will directly or indirectly give pain to any such official, employee,
political party or official thereof, or candidate), or (2) to any person or
entity if such payment, loan or gift would violate the laws of the United States
or of any country or territory in which it would be made. This section shall be
strictly enforced and any violation on the part of a representative, employee,
or agent of either party shall be construed as a material breach of the
agreement.
RIGHT OF INSPECTION
13.18 CUSTOMER will have the right to inspect, together with the FAA, if
required and deemed necessary, SELLER'S facilities and all documents and records
pertaining to the services performed and/or components, assemblies and/or parts
assigned thereto. Such inspection will be permitted to take place on the
condition that CUSTOMER will give reasonable advance notice to this effect to
the SELLER.
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 17 of 17
<PAGE>
EXECUTION AND EFFECTIVENESS
13.19 This agreement may only be executed on behalf of SELLER by an
----
officer of Vice President rank or above, and on behalf of CUSTOMER by the Vice
President of Maintenance and Engineering.
This agreement shall not be effective and shall not be binding on SELLER and
---
CUSTOMER unless executed by such persons on behalf of SELLER and CUSTOMER.
13.20 This agreement shall not bind CUSTOMER unless a completed Exhibit I,
Aircraft Statement of Work, is attached to the agreement. If SELLER performs
work on an Aircraft without having a completed Aircraft statement of work,
CUSTOMER shall only be required to pay, in its discretion, the reasonable value
of such services.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be executed by their duly authorized officers as of the day and year first above
written.
PRIDE AVIATION, INC. (SELLER)
BY:/s/ Lee B. Sanders
CHAIRMAN & CEO
DATE: 12-15-98
UNITED PARCEL SERVICE CO. (CUSTOMER)
BY:/s/ [ILLEGIBLE]
VICE PRESIDENT OF MAINTENANCE AND ENGINEERING
DATE: 1/4/99
AGREEMENT NO. 99-01-01-UNITED PARCEL SERVICE DATE: 1/1/99
Page 18 of 17
<PAGE>
EXHIBIT I
PRIDE AVIATION, INC.
AIRCRAFT STATEMENT OF WORK
AIRCRAFT WORKSCOPE OVERVIEW
- ---------------------------
CUSTOMER will furnish Aircraft to SELLER at its New Iberia, Louisiana or
Portland, Oregon facility in an airworthy condition per FAA requirements. SELLER
will prepare the Aircraft for inspection and perform the following tasks:
A. Bill of Work to Scuff Sand Fuselage, Vertical Stab, Wings, and Horizontals
- Prewash Aircraft as required
- Scuff sand as required for prepaint preparation on the fuselage,
vertical stab, and wings
- Repair proseal as required
- Soap wash to remove sanding residue
B. Bill of Work to Strip the Fuselage and Vertical; Scuff Sand Wings and
Horizontals
- Prewash Aircraft as required
- Chemical strip fuselage and vertical
- Alkaline wash to neutralize stripper
- Detail sand areas masked for strip
- Scuff sand as required for prepaint preparation on composites,
horizontals, and wings
- Remove and replace proseal in areas stripped
- Soap wash to remove sanding residue
- Skin brighten
- Alodine
AGREEMENT NO. 99-01-01-United Parcel Service EXHIBIT I PAGE 1 OF 3
<PAGE>
C. Bill of Work to Paint
- Epoxy prime
- Apply two (2) to three (3) wet coats of colors to recommended
manufacturer's spec as per United Parcel Service Co. blueprints
- Prepare Aircraft for livery colors per United Parcel Service Co.
drawings
- Lay out stripes on fuselage and apply appropriate colors as per United
Parcel Service Co. blueprints
- Apply masks for logo and name, spray appropriate colors to
manufacturer's specs as per United Parcel Service Co. blueprints
- Apply N#'s and fleet #'s
- Apply required placards as per the maintenance manual and United
Parcel Service Co. Job Instruction Cards
D. Non-Routine Work:
Non-Routine items generated from the accomplishment of the above Bill of
Work will be performed on a time and material basis at the rates specified
in Exhibit II. Before proceeding with performance of CUSTOMER request items
and Non-Routine Maintenance, SELLER will obtain approval of the CUSTOMER
Representative, including the estimated hours for that job. If the job
exceeds that numbers of hours, approval of the CUSTOMER Representative must
be obtained before proceeding.
E. Maintenance Program Changes
Any maintenance program changes that alter the Bill of Work as defined
above constitutes a change of scope for the item altered, all other items
remain unchanged.
Except for the Aircraft Statement of Work provided herein, SELLER shall
have no authority to perform any other work. As a condition precedent to
payment of any amounts by CUSTOMER hereunder, SELLER shall have received
prior written authorization to perform such work.
AGREEMENT NO. 99-01-01-United Parcel Service EXHIBIT I PAGE 2 OF 3
<PAGE>
F. Flight Controls
Removal, balance, and reinstallation of the DC-8 rudder is the only flight
control included in the flat rate. All other flight controls that require
removal and balance, as determined by the SRM or the onsite United Parcel
Service Co. representative, will be handled as NON ROUTINE maintenance at
the Over and Above rates defined in Exhibit II.
G. Aircraft Weight and Balance
Weighing of the Aircraft is not included in the flat rate. If CUSTOMER
should request weighing of the Aircraft, weighing will be done by a
subcontracted vendor at pass through billing. Any time required to
configure the Aircraft for weighing, or reconfigure after weighing, will be
billed at the O&A rates in Exhibit II
H. Landing Gear
The flat rate includes painting of all gear doors but does not include
painting of the landing gear or the wheelwells.
L. Composites
The flat rate includes a scuff sand of the composites to remove gloss and
surface imperfections such as orange peel or surface chipping. It does not
include any extensive sanding that may be required for composites that have
checking and crazing. This additional work will be handled as agreed to by
the CUSTOMER representative at O&A rates stated in Exhibit II.
AGREEMENT NO. 99-01-01-United Parcel Service EXHIBIT I PAGE 3 OF 3
<PAGE>
EXHIBIT III
PRIDE AVIATION, INC.
CERTIFICATION OF FAA ANTIDRUG PLAN/ALCOHOL
MISUSE PREVENTION PROGRAM
COMPANY NAME: PRIDE AVIATION, INC.
ADDRESS: ACADIANA REGIONAL AIRPORT
1218 HANGAR DRIVE
NEW IBERIA, LOUISIANA 70560
TELEPHONE: (318) 365-6646
Pride Aviation employees are covered by the following FAA approved drug testing
plan:
FAA Plan I.D. #: D-SW-00389-U
Date Revised: June 3, 1997
AGREEMENT NO. 99-01-01-United Parcel Service EXHIBIT III PAGE 1 OF 1
<PAGE>
EXHIBIT IV
PRIDE AVIATION, INC.
WARRANTY PERIOD
AIRCRAFT
- --------
A. The warranty period as to these Aircraft for all services performed by
SELLER under this agreement shall commence upon redelivery of such Aircraft
and extend for the periods set forth below:
a) Workmanship is warranted unconditionally against workmanship defects
for a period of three years. This includes paint adhesion, but does
not include adhesion of the previously applied paint, nor does it
include abnormal erosion or chipping from impact damage. Paint
warranty is limited to paint manufacturer's warranty.
b) Compliance with all standards, specifications, drawings and
engineering authorizations is warranted for twelve (12) months.
c) SELLER will accomplish warranty work at SELLER'S cost for labor and
materials at no charge to U.P.S. Extensive warranty work may require
input of Aircraft at SELLER'S facility. In such case SELLER will pay
cost of moving Aircraft (crew and fuel) to and from SELLERS facility.
d) This warranty is non-transferable
B. As to components and component parts manufactured by others, the
manufacturer's warranty will be passed on to the CUSTOMER and administered
by SELLER.
AGREEMENT NO. 99-01-01-United Parcel Service EXHIBIT IV PAGE 1 OF 1
<PAGE>
EXHIBIT VI
PRIDE AVIATION, INC.
REDELIVERY DOCUMENT
FORM 1215
FAA APPROVED REPAIR STATION NO. PHPR-948K
CERTIFICATE OF ACCEPTANCE
AIRCRAFT MAINTENANCE SERVICES AGREEMENT
DATE: / /
-----------
AIRCRAFT TYPE:____________
SERIAL NUMBER:___________ REGISTRATION # ___________
We hereby acknowledge receipt of the above referenced Aircraft from Pride
Aviation, Inc. The services and extra work on the Aircraft appear to have been
performed in accordance with the terms and conditions of the Aircraft
Maintenance Service Agreement.
___________________________
Signature
___________________________
Title
___________________________
Company Name
We hereby acknowledge redelivery from Pride Aviation, Inc. to United Parcel
Service at ____, _____, _______, Aircraft identified and equipped as follows:
Time Date Station
A. Aircraft: Manufacturer: _________
Serial No.: ___________
United Parcel Service Co. Pride Aviation Portland Inc.
By: _______________________ By: ___________________________
Title:_____________________ Title:_________________________
Date:____________ Date:____________
AGREEMENT NO. 99-01-01-United Parcel Service EXHIBIT VI PAGE 1 OF 1
<PAGE>
EXHIBIT VII
PRIDE AVIATION, INC.
ADDENDUMS TO THE CONTRACT
Addendum #1 -- The pricing of exterior aircraft painting services and the labor
man-hour rates will remain in effect for a three (3) year period. (Length of
Contract) No cost of living adjustments will be added.
Addendum #2 -- Aviation Group, Inc. through its subsidiary company, Aero Design,
Inc. & Battery LLC will provide United Parcel Service Airlines with $10,000.USD
worth of FAA/PMA approved aircraft batteries, aircraft emergency battery power
packs or battery temperature sensors per year at no cost to United Parcel
Service Airlines for three (3) years upon endorsement of this agreement. Maximum
annual credit allowance under this agreement is $10,000.USD per year.
Addendum #3 -- Aero Design, Inc. & Battery Shop LLC will sell its battery
product line to United Parcel Service Airlines at twenty (20%) below current UPS
costs after the $10,000. USD per year credit has been exhausted.
Addendum #4 -- United Parcel Services Airlines need not send battery assemblies
to Aero Design for recharge. This will be accomplished by UPS in-house.
Addendum #5 -- The "flat rate" for DC8 rudder removal, weight & balance and
reinstallation is $1500.USD as outlined herein.
Addendum #6 -- The sealing of lap seams will be included in the contractual
price for Strip & Paint.
Addendum #7 -- Pride Aviation, Inc. makes contractual commitment that the DC8
rudder calculation approved method will be in place six months from the date
this contract is signed. This action will negate the requirement for rudder
removal from the aircraft.
AGREEMENT NO. 99-01-01-United Parcel Service - EXHIBIT VII - PAGE 1 OF 1
Date: January 1, 1999
<PAGE>
EXHIBIT 10.29
FIRST AMENDMENT
TO STOCK PURCHASE AGREEMENT
---------------------------
This First Amendment to Stock Purchase Agreement is executed by and among
Aviation Group, Inc. (the "Company"), Aero Design, Inc. ("ADI"), Battery Shop,
LLC ("Battery"), and Carolyn Lynn and Grady Lynn (each a "Seller" and
collective, the "Sellers").
RECITALS
--------
WHEREAS, the parties hereto have entered into that certain Stock Purchase
Agreement dated as of March 23, 1998 (the "Agreement") pursuant to which the
Company purchased ADI and Battery from Sellers and issued to Sellers 134.398
shares of Common Stock of the Company (the "Shares");
WHEREAS, in Section 3.4 of the Agreement, the Company guaranteed to protect
Sellers from losses realized by Sellers upon the resale of the Shares, up to a
maximum amount of liability of $450,000.00.
WHEREAS, the market trading price for the Company's Common Stock has
declined significantly since the date of the closing of the purchase under the
Agreement and the Company would have to make substantial payments to Sellers
under its guaranty should Sellers resell their Shares;
WHEREAS, the Company has offered to issue 153,250 registered shares of
Common Stock to Sellers in exchange for a release and cancellation by the
Sellers of the guaranty by the Company against loss on resale of the Shares, and
Sellers are willing to exchange such guaranty right for such new issuance of
shares;
NOW THEREFORE, for and in consideration of the premises and valuable
consideration in hand paid, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 3.4 of the Agreement is hereby deleted in its entirety, and
Sellers, upon receiving negotiable, saleable, public stock (including the formal
opinion of counsel to Company of the ability to publicly sell) shall release and
cancel any rights to payments that they have or may have in the future arising
under Section 3.4 of the Agreement.
2. In exchange for such deletion, release and cancellation, the Company
does hereby agree to issue to Sellers 153,250 shares of Common Stock.
3. The Agreement, as amended hereby, shall continue in full force and
effect in accordance with its terms.
<PAGE>
EXECUTED as of April 30, 1999.
AVIATION GROUP, INC.
By: /s/ Richard Morgan
-------------------------------------
Name: RICHARD MORGAN
-----------------------------------
Title: CFO
----------------------------------
AERO DESIGN, INC.
By: /s/ Richard Morgan
-------------------------------------
Name: RICHARD MORGAN
-----------------------------------
Title: SECRETARY
----------------------------------
BATTERY SHOP, L.L.C.
By: /s/ Richard Morgan
-------------------------------------
Name: RICHARD MORGAN
-----------------------------------
Title: SECRETARY
----------------------------------
/s/ Carolyn Lynn
----------------------------------------
Carolyn Lynn
/s/ Grady Lynn
----------------------------------------
Grady Lynn
<PAGE>
Exhibit 10.32
AMENDMENT TO APRIL 28, 1998
NONQUALIFIED WARRANT AGREEMENT
By and between
AVIATION GROUP, INC. AND ________________
WHEREAS a special meeting of the Board of Director of Aviation Group, Inc.
(the "Company") was held August 17, 1999 wherein the Company agreed to amend the
NONQUALIFIED WARRANT AGREEMENT for ___________ shares of Common Stock of
the Company between the Company and _____________________ dated August 28, 1998
as more fully described in the minutes of said meeting attached herewith,
NOW THEREFORE, the Company hereby amends the exercise price of the Warrant
to $1.6875. All other rights and obligations of the parties described in the
NONQUALIFIED STOCK OPTION AGREEMENT are to remain the same.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By:
_________________________________
__________________________________
<PAGE>
AMENDMENT TO AUGUST 22, 1997
QUALIFIED STOCK OPTION AGREEMENT
By and between
AVIATION GROUP, INC. AND _______________________.
WHEREAS a special meeting of the Board of Director of Aviation Group, Inc.
(the "Company") was held August 17, 1999 wherein the Company agreed to amend the
QUALIFIED STOCK OPTION AGREEMENT for __________________shares of Common Stock of
the Company between the Company and
_______________________________________________dated August 22, 1997 as more
fully described in the minutes of said meeting attached herewith,
NOW THEREFORE, the Company hereby amends the exercise price of the Warrant
to $1.6875. All other rights and obligations of the parties described in the
QUALIFIED STOCK OPTION AGREEMENT are to remain the same.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By:
___________________________________
____________________________________
<PAGE>
QUALIFIED STOCK OPTIONS
AND NON-QUALIFIED STOCK WARRANTS
--------------------------------
QUALIFIED STOCK OPTIONS
-----------------------
<TABLE>
<CAPTION>
Prior New
----- ---
Person Shares Exercise Price Exercise Price
- ------------- ------ -------------- --------------
<S> <C> <C> <C>
Sanders 50,000 $3.50 $1.8563
Arcari 6,000 3.50 1.6875
Lubo 4,000 3.50 1.6875
Leynes 10,000 2.25 1.6875
Taylor 4,000 3.50 1.6875
Fredrickson 1,000 3.50 1.6875
Foster 2,000 3.50 1.6875
Lyn 2,000 3.50 1.6875
Wagner 2,000 3.50 1.6875
Hussey 2,000 3.50 1.6875
Broussard 1,000 3.50 1.6875
Brown 1,000 3.50 1.6875
------
TOTAL 85,000
</TABLE>
NON-QUALIFIED WARRANTS
----------------------
<TABLE>
<CAPTION>
Prior New
----- ---
Person Shares Exercise Price Exercise Price
- ---------- ------- -------------- --------------
<S> <C> <C> <C>
Sanders 200,000 $3.50 $1.6875
Whitener 15,000 3.50 1.6875
Weed 20,000 3.50 1.6875
Morgan 115,000 3.50 1.6875
-------
TOTAL 350,000
</TABLE>
<PAGE>
Exhibit 10.33
AMENDMENT TO JUNE 30, 1996 WARRANT AGREEMENT
By and between
AVIATION GROUP, INC. AND RICHARD L. MORGAN
WHEREAS a special meeting of the Board of Director of Aviation Group, Inc.
(the "Company") was held August 14, 1998 wherein the Company agreed to amend the
WARRANT AGREEMENT between the Company and Richard L. Morgan dated June 30, 1996
as more fully described in the minutes of said meeting and WARRANT AGREEMENT
attached herewith,
NOW THEREFORE, the Company hereby extends the expiration date of the
Warrant to March 31, 2003. All other rights and obligations of the parties
described in the WARRANT AGREEMENT are to remain the same.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ Lee Sanders
---------------------------------
/s/ Richard L. Morgan
------------------------------------
Richard L. Morgan
<PAGE>
SECOND AMENDMENT TO JUNE 30, 1996 WARRANT AGREEMENT
By and between
AVIATION GROUP, INC. AND RICHARD L. MORGAN
WHEREAS a special meeting of the Board of Director of Aviation Group, Inc.
(the "Company") was held August 17, 1999 wherein the Company agreed to amend the
WARRANT AGREEMENT between the Company and Richard L. Morgan dated June 30, 1996
as more fully described in the minutes of said meeting and WARRANT AGREEMENT
attached herewith,
NOW THEREFORE, the Company hereby amends the exercise price of the Warrant
to $1.6875. All other rights and obligations of the parties described in the
WARRANT AGREEMENT are to remain the same.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, as of the day and year first above written.
AVIATION GROUP, INC.
By: /s/ Lee Sanders
----------------------------------------
/s/ Richard L. Morgan
--------------------------------------------
Richard L. Morgan
<PAGE>
EXHIBIT 11.1
AVIATION GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1999 1998
------------ ------------
<S> <C> <C>
Common shares outstanding at beginning of period 3,296,601 1,600,250
Weighted average effect of:
Acquisition of GEC 92,769 -
Conversion of notes payable and accrued interest 10,391 -
Initial public offering - 1,006,250
Acquisition of Casper Air Service - 134,369
Conversion of notes payable - 72,128
Acquisition of Aero Design - 36,310
Exercise of bridge notes warrants - 38,043
Settlement of prepaid debt - 2,500
Exercise of stock warrants 19,400 56,366
Assumed exercise of warrants and options in
accordance with SEC requirements - 113,416
------------ ------------
Weighted average shares outstanding 3,419,161 3,059,632
============ ============
Net (loss) $(2,305,000) $(1,638,000)
============ ============
Computation of net loss per common share:
Net (loss) divided by weighted average shares
outstanding $ (0.67) $ (0.54)
============ ============
</TABLE>
<PAGE>
EXHIBIT 21.1
List of Subsidiaries
NAME OF SUBSIDIARY STATE OF INCORPORATION
TriStar Airline Services, Inc. Texas corporation
TriStar Aircraft Services, Inc. Texas corporation (Inactive)
Aviation Exteriors Louisiana, Inc. Oklahoma corporation
Casper Air Service Wyoming corporation
Aero Design, Inc. Tennessee corporation
Battery Shop, LLC Tennessee limited liability company
Aviation Exteriors Portland, Inc. Oregon corporation
Aviation Exteriors Greenville, Inc. Mississippi corporation
Casper Flying Service Wyoming corporation (Inactive
subsidiary of Casper Air Service)
Redbird Airport Management Company Texas corporation (Inactive)
TriStar Airport Management Company Texas corporation (Inactive)
General Electrodynamics Corporation Texas corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB FOR ITS 1999 FISCAL YEAR
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 84,000
<SECURITIES> 0
<RECEIVABLES> 2,338,000
<ALLOWANCES> (138,000)
<INVENTORY> 1,547,000
<CURRENT-ASSETS> 4,539,000
<PP&E> 5,822,000
<DEPRECIATION> (1,772,000)
<TOTAL-ASSETS> 13,052,000
<CURRENT-LIABILITIES> 4,067,000
<BONDS> 919,000
0
0
<COMMON> 36,000
<OTHER-SE> 5,085,000
<TOTAL-LIABILITY-AND-EQUITY> 13,052,000
<SALES> 22,553,000
<TOTAL-REVENUES> 22,553,000
<CGS> 16,407,000
<TOTAL-COSTS> 16,407,000
<OTHER-EXPENSES> 7,712,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (591,000)
<INCOME-PRETAX> (2,106,000)
<INCOME-TAX> (199,000)
<INCOME-CONTINUING> (2,305,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,305,000)
<EPS-BASIC> (.67)
<EPS-DILUTED> (.67)
</TABLE>
