<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1996
REGISTRATION NO. 333-14013
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERACTIVE FLIGHT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
DELAWARE 11-3197148
<S> <C>
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
</TABLE>
4041 N. CENTRAL AVENUE, SUITE 2000
PHOENIX, ARIZONA 85012
(602) 200-8900
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MICHAIL ITKIS
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
4041 N. CENTRAL AVENUE, SUITE 2000
PHOENIX, ARIZONA 85012
(602) 200-8900
(AGENT FOR SERVICE)
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It is requested that copies of communications be sent to:
THEODORE E. GUTH, ESQ.
IRELL & MANELLA LLP
1800 AVENUE OF THE STARS
SUITE 900
LOS ANGELES, CALIFORNIA 90067
(310) 277-1010
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of the Registration Statement as determined
by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED MAXIMUM
OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PER WARRANT OR AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Redeemable Class B Warrants........... 294,250(2) $ 6.50(1) $1,912,625(1) $ 659.53*
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Class A Common Stock ($.01 par
value)(3)............................ 294,250(3) $14.69(1) $4,322,533 $1,490.53*
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Class A Common Stock ($.01 par
value)(4)............................ 8,765,196(4) $ -- $ -- -- (4)
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Redeemable Class B Warrants(5)........ 1,550,000(5) $ -- $ -- -- (5)
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Class A Common Stock ($0.1 par
value)(5)............................ 3,100,000(5) $ -- $ -- -- (5)
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</TABLE>
(1) Estimated solely for purpose of determining the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low prices per
share of the Redeemable Class B Warrants and the Class A Common Stock
reported on the Nasdaq SmallCap Market on October 8, 1996.
(2) Warrants issued in an April 1996 private placement and registered for
resale hereunder by the holders thereof.
(3) Shares issuable upon exercise of the Redeemable Class B Warrants described
in (2) above.
(4) Shares issuable upon exercise of up to 8,765,196 outstanding Class B
Warrants issued in prior public offerings and previously registered on
Form SB-2, Registration Nos. 33-86928 and 333-02044, for which
registration fees of $21,650 and $8,019 were previously paid. Pursuant to
Rule 429, no additional registration fee is due.
(5) Represents 1,550,000 Class B Warrants and 1,550,000 shares of Class A
Common Stock held by certain securityholders, and an additional 1,550,000
shares of Class A Common Stock issuable upon exercise of such warrants, in
each case previously registered for resale by the Selling Securityholders
on Form SB-2, Registration Nos. 33-86928 and 333-02044, for which
registration fees of 3,741.08 and 5,210.79 were previously paid. Pursuant
to Rule 429, no additional registration fee is due.
* Of the total fee of $2,150.06, $2,009.40 was paid in connection with the
October 11, 1996 filing and $140.66 has been paid concurrently herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
Pursuant to Rule 429 of the Securities Act of 1933, as amended, this
Registration Statement relates to three different offerings, as follows:
OFFERING #1: This Registration Statement relates to (i) 294,250 of the
Company's redeemable class B warrants ("Class B Warrants") acquired by certain
selling securityholders in a private placement in April 1996, and (iii)
294,250 shares of Class A Common Stock underlying such Class B Warrants, all
for resale from time to time by the selling securityholders.
The complete Prospectus relating to Offering #1 follows immediately after
this Explanatory Note.
OFFERING #2: This Registration Statement also relates to the offer (the
"Exercise Offer") by the Company to holders of all of its 10,609,446
outstanding Class B Warrants to reduce to $7.50 the exercise price of such
Class B Warrants during an as yet undetermined period following the
effectiveness of this Registration Statement. This Registration Statement also
relates to the issuance of up to 10,609,446 shares of Class A Common Stock
(the "Class B Warrant Stock") issuable upon exercise of the Company's
outstanding Class B Warrants during and after the Exercise Offer (excluding,
after the Exercise Offer, Class B Warrants held by the selling securityholders
in Offerings #1 and #3). The issuance of the Class B Warrant Stock was
previously registered in the Company's Registration Statements on Form SB-2,
Registration Nos. 333-02044 and 33-86928 (the "SB-2"), and is included in this
Registration Statement to satisfy the Company's undertaking to file a post-
effective amendment to the SB-2.
The complete Prospectus relating to Offering #1 follows immediately after
this Explanatory Note. Following the Prospectus for Offering #1 are pages
(denoted as Alternate Offering #2 Pages) of the Prospectus relating solely to
the Class B Warrant Stock, including alternative front and back cover pages,
and sections entitled "Documents Incorporated by Reference," "Prospectus
Summary," "The Exercise Offer and Warrant Redemption," "Purpose of Exercise
Offer and Use of Proceeds," "Capitalization," "Price Range of Securities,"
"Summary and Pro Forma Financial Data," "Dilution," "Plan of Distribution,"
"Concurrent Offerings" and "Legal Matters" to be used in lieu of the sections
entitled "Documents Incorporated by Reference," "The Company," "Dilution,"
"Selling Securityholders," "Plan of Distribution," "Blair Commission,"
"Concurrent Offerings" and "Legal Matters" in the Prospectus relating to
Offering #1.
OFFERING #3: This Registration Statement also relates to (i) 1,550,000 Class
B Warrants and 1,550,000 shares of Class A Common Stock issued upon exercise
of certain redeemable class A warrants acquired by certain selling
securityholders in connection with the Company's 1994 Bridge Financing and
(ii) an additional 1,550,000 shares of Class A Common Stock underlying the
aforementioned Class B Warrants, all for resale from time to time by the
selling securityholders. The resale of the selling securityholder securities
offered in Offering #3 was previously registered in the Company's Registration
Statement on the above-described SB-2, and is included in this Registration
Statement to satisfy the Company's undertaking to file a post-effective
amendment to the SB-2.
The complete Prospectus relating to Offering #1 follows immediately after
this Explanatory Note. Following the Prospectus for Offering #1 are pages
(denoted as Alternate Offering #3 Pages) of the Prospectus relating solely to
the resale of the selling securityholder securities offered in Offering #3,
including an alternative cover page, and sections entitled "Use of Proceeds,"
"Dilution," "Selling Securityholders," "Concurrent Offerings" and "Legal
Matters" to be used in lieu of the sections entitled "Use of Proceeds,"
"Dilution," "Selling Securityholders," "Concurrent Offerings" and "Legal
Matters" in the Prospectus relating to Offering #1.
<PAGE>
PROSPECTUS
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
294,250 REDEEMABLE CLASS B WARRANTS
294,250 SHARES OF CLASS A COMMON STOCK
This Prospectus relates to 294,250 Redeemable Class B Warrants (the "Class B
Warrants") of Interactive Flight Technologies, Inc., a Delaware corporation
(the "Company"), held by two holders (the "Selling Securityholders"), and the
294,250 shares of Class A Common Stock, $.01 par value ("Class A Common
Stock"), issuable upon the exercise of such 294,250 Class B Warrants. The
294,250 Class B Warrants held by the Selling Securityholders are sometimes
referred to herein as the "Selling Securityholder Warrants" and, together with
the shares of Class A Common Stock issuable upon exercise of the Selling
Securityholder Warrants, the "Selling Securityholder Securities." The Selling
Securityholder Warrants were issued to the Selling Securityholders in exchange
for certain services rendered to the Company. See "Selling Securityholders"
and "Plan of Distribution." Each Class B Warrant entitles the holder to
purchase one share of Class A Common Stock, at an exercise price of $9.75,
subject to adjustment, at any time until March 6, 2000. However, concurrently
herewith, the Company is offering (the "Exercise Offer") to the holders of the
Company's outstanding Class B Warrants to reduce the exercise price of the
outstanding Class B Warrants to $7.50 per share in each case if and only if a
holder exercises his or her Class B Warrants prior to 5:00 P.M., New York City
time, on December 24, 1996, unless such date is extended by the Company.
Following such date through January 16, 1997, a holder will continue to have
the right to exercise his or her Class B Warrants (in accordance with the
terms thereof) at the re-set exercise price of $9.75 per share. The Class B
Warrants are subject to redemption by the Company for $.05 per Warrant, upon
30 days' written notice, if the average closing bid price of the Class A
Common Stock exceeds $13.65 per share (subject to adjustment) for 30
consecutive business days ending within 5 days of the date of the notice of
redemption. This condition has been met, and by notice dated October 23, 1996,
the Company has exercised its right pursuant to the terms of the Warrants to
redeem on January 17, 1997 each Class B Warrant not exercised by January 16,
1997, at 5:00 P.M. New York City time.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.
----------------
The Class A Common Stock and the Company's Class B Common Stock, $.01 par
value (the "Class B Common Stock"), are essentially identical, except that the
Class B Common Stock has six votes per share and the Class A Common Stock has
one vote per share on all matters upon which stockholders may vote. The
holders of Class B Common Stock, the majority of whom are executive officers,
directors and/or principal stockholders of the Company, control approximately
75% of the total voting power and therefore are able to elect all of the
Company's directors and control the Company.
The securities offered by the Selling Securityholders by this Prospectus may
be sold from time to time by the Selling Securityholders or by their
transferees. The distribution of the Selling Securityholder Warrants and the
Class A Common Stock offered hereby by the Selling Securityholders may be
effected in one or more transactions that may take place on the over-the-
counter market, including ordinary brokers' transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such
securities as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholders.
The Selling Securityholders, and intermediaries through whom such securities
are sold, may be deemed underwriters within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. In the event all of the Selling Securityholder
Warrants are exercised, the Company will receive gross proceeds of $2,868,938,
less payment of applicable commissions to D.H. Blair Investment Banking Corp
("Blair"). See "Selling Securityholders," "Plan of Distribution" and "Blair
Commission."
The Class A Common Stock and the Class B Warrants are traded on the Nasdaq
SmallCap Market ("Nasdaq"). On November 15, 1996, the closing sale price of
the Class A Common Stock on Nasdaq was $11.50 per share and the closing sale
price of the Class B Warrants on Nasdaq was $3.875 per Class B Warrant.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 20, 1996.
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING SECURITYHOLDERS OR ANY
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports and other information filed by
the Company with the Commission pursuant to the informational requirements of
the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices at (i) Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, (ii) 7
World Trade Center, 13th Floor, New York, New York 10048, and (iii) 5757
Wilshire Boulevard, Suite 500, Los Angeles, California 90036. Copies of such
material may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a Web site that contains reports, proxy statements,
information statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy statements,
information statements and other information may be found the Commission's
site address, http://www.sec.gov. The Class A Common Stock and the Class B
Warrants are listed on the Nasdaq SmallCap Market ("Nasdaq") and reports,
proxy statements and other information regarding the Company can be inspected
at the offices of such exchange.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the Securities offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto, as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Securities, reference is hereby made to the Registration
Statement, including the exhibits filed or incorporated as a part thereof.
Statements contained herein concerning the provisions of any document are not
necessarily complete and in each instance reference is made to the copy of the
document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by reference to the copy of the
applicable documents filed with the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company under the Exchange
Act with the Commission are incorporated herein by reference: (1) the
Company's Annual Report on Form 10-KSB for the fiscal year ended October 31,
1995, and Amendment No. 1 to the Annual Report on Form 10-KSB/A for the fiscal
year ended October 31, 1995; (2) the Company's Quarterly Reports on Form 10-
QSB dated January 31, 1996, April 30, 1996 and July 31, 1996; and (3) the
description of the Company's Common Stock as set forth in the Company's
registration statement on Form 8-A filed with the Commission on December 31,
1994, as amended by the Company's registration statement on Form 8-A/A filed
with the Commission on March 8, 1995, and any other amendments or reports
thereto filed with the Commission for the purpose of updating such
description.
2
<PAGE>
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares of Common Stock made hereby shall be
deemed to be incorporated in this Prospectus by reference and to be a part
hereof from the date of filing of such documents. Any statement incorporated
herein shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus has been delivered, on the request of such person, a copy of
any and all of the information that has been or may be incorporated by
reference in this Prospectus, other than exhibits thereto. Written or oral
requests for such copies should be directed to Interactive Flight
Technologies, Inc., 4041 N. Central Avenue, Suite 2000, Phoenix, Arizona
85012, Attention: Chief Financial Officer. The telephone number is (602) 200-
8900.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the matters discussed in
this Prospectus and in the documents incorporated by reference herein are
forward-looking statements (within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act) that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those set forth in such forward-looking statements. Such risks
and uncertainties include, without limitation, the failure of passenger use of
the Entertainment Network to generate sufficient revenues, the failure to
execute definitive agreements with additional airlines (or, in the case of
Swissair, with the Swiss lottery organization) on favorable terms or at all,
the failure of the Company to receive sufficient financing to perform its
obligations under its existing and contemplated agreements, the risk of errors
in the assumptions regarding the Company's future capital requirements, the
impact of competition and downward pricing pressures, the effect of changing
economic conditions, risks in technology development, the risks involved in
currency fluctuations, and the other risks and uncertainties detailed in "Risk
Factors" below and in the Company's Registration Statement on Form SB-2 dated
April 4, 1996, the Company's Annual Report on Form 10-KSB and Amendment No. 1
to the Annual Report on Form 10-KSB/A for the fiscal year ended October 31,
1995.
3
<PAGE>
THE COMPANY
Interactive Flight Technologies, Inc. (the "Company") is engaged in the
development, assembly, installation and operation of a computer-based in-
flight entertainment network (the "Entertainment Network"). The first
generation of the Entertainment Network provided aircraft passengers the
opportunity to view movies, to play computer games and, in certain cases where
permitted by applicable law, to gamble through a high-resolution video touch
screen. The Company has also recently developed a second generation of the
Entertainment Network (the "IFEN-2") which includes additional features such
as secure casino gaming, in-flight shopping, a telephone interface system, the
ability for passengers to pay for IFEN-2 usage through their credit cards, and
increased video-on-demand capacity.
To date, the Company has entered into contracts to install and operate the
Entertainment Network on the aircraft of three airlines--Alitalia Airlines
S.p.A. ("Alitalia"), Debonair Airlines ("Debonair"), and Swissair VKB
("Swissair"). Under the Company's agreement with Alitalia (the "Alitalia
Agreement"), the first generation of the Entertainment Network system was
installed in November 1995 in the first class and business class seats of an
Alitalia MD-11 aircraft. Following completion of the test period of this first
installed Entertainment Network system, Alitalia accepted the remainder of the
Alitalia Agreement and the Company accordingly delivered first generation
Entertainment Network systems for installation on an additional four Alitalia
MD-11 aircraft. The agreement provides for the Company to operate the
Entertainment Networks on all five aircraft over a period of approximately
eight years. The Alitalia Agreement does not presently provide for, and is not
expected to provide for, passenger use of gambling features of the
Entertainment Network. Under the Alitalia Agreement, Alitalia is to pay an
aggregate of approximately $2.7 million for the hardware components of the
five Entertainment Network systems, of which $1.1 million has been paid to
date and $1.6 million is currently due and payable.
In March 1996, the Company entered into a second airline contract (the
"Debonair Agreement") with Debonair, a start-up European airline. The Debonair
Agreement provides for the Company to deliver and install IFEN-2 systems
(including video casino style gambling) for all seats on Debonair's entire
fleet, which consists of six RJ-146 aircraft. The aggregate purchase price to
be paid by Debonair for the hardware components of the six IFEN-2 systems and
related spare parts is approximately $5.8 million. However, the Debonair
Agreement provides that, provided Debonair utilizes the casino gaming feature
of the Entertainment Networks, Debonair is not required to pay any up-front
funds to the Company for the six Entertainment Networks. Instead, payments to
the Company will be made solely through a revenue-sharing arrangement, which
provides that the Company will receive a percentage of revenues generated by
the Entertainment Networks, principally casino gaming revenues, until the
aggregate purchase price plus accrued interest for all six Entertainment
Networks is paid, and thereafter the Company will receive a reduced percentage
of such revenues. The Debonair Agreement further provides that if the use of
the casino gaming features of the IFEN-2 systems is ordered by law to cease,
then no further payments of purchase price for each installed system shall be
due.
Effective July 18, 1996, the Company entered into an agreement with Swissair
to provide for delivery and installation by the Company of IFEN-2 systems on
sixteen Swissair MD-11 aircraft and five Swissair B-747 aircraft. The Company
will also provide various maintenance and operational services for the
installed IFEN-2 systems. Subject to execution of an agreement with
Interkantonale Landeslotterie ("ILL"), the operator of the Swiss lottery based
in Zurich, Switzerland, the IFEN-2 systems installed on Swissair aircraft will
allow passengers to participate in various Swiss lottery games, but are not
expected to allow use of the traditional casino style gaming features such as
slots or poker. In the event that no agreement is reached with ILL, either
Swissair or the Company may terminate the Swissair Agreement.
Under the Swissair Agreement, subject to the terms thereof, the Company is
entitled to receive an aggregate of approximately $72 million for the IFEN-2
hardware, plus the costs of installation and certain upgrades. The Company
will also be reimbursed for its projected costs in connection with maintaining
and operating the systems. However, the hardware purchase price and the
operating expenses are payable only out of net revenues received from
passenger participation in the aforementioned lottery games. Further, the
Company may receive
4
<PAGE>
such amounts only after Swissair is first reimbursed from the net lottery
revenues for certain expenses incurred in connection with the installation and
operation of the IFEN-2 systems. Any amounts remaining after payment of the
Company's operating costs and the hardware purchase price will be paid over to
ILL. The Company will also receive a percentage of revenues and commissions
from advertising and shopping services available on the installed IFEN-2
systems.
The Company is aggressively marketing the Entertainment Network to numerous
additional airlines, focusing primarily on international carriers or domestic
carriers with international routes. However, there can be no assurance that
definitive agreements will be executed with any other airlines. See "Risk
Factors."
Since commencement of operations, the Company has developed a substantial
catalogue of proprietary technology and know-how relating to the Entertainment
Network and its related systems. In addition, the Company has an exclusive
license (the "FortuNet License") for technology for airline use from FortuNet,
Inc. ("FortuNet"), a gaming equipment manufacturer that distributes video
gaming networks to casinos and other gaming establishments. The Chief
Executive Officer of the Company, who is also a director and principal
stockholder of the Company, is a former employee of FortuNet and was a
substantial contributor to the development of the technology licensed from
FortuNet.
The Company was incorporated in Delaware in August 1994 and is the successor
by merger to In-Flight Entertainment Services Corp., a New York corporation
incorporated in February 1994. The Company completed an initial public
offering of its securities in March 1995. Unless the context requires or as
otherwise indicated, all references to the "Company" include the predecessor
company. The Company's principal executive offices are located at 4041 N.
Central Avenue, Suite 2000, Phoenix, Arizona 85012, and its telephone number
is (602) 200-8900.
RECENT DEVELOPMENTS
STRATEGIC ALLIANCE WITH HYATT VENTURES, INC.
On November 12, 1996, the Company entered into a Strategic Alliance
Agreement (the "Alliance Agreement") to form a strategic alliance with Hyatt
Ventures, Inc. ("Hyatt"), an affiliate of Hyatt Corporation. Under the terms
of the Alliance Agreement, Hyatt, for itself and through certain of its
affiliates (collectively, the"Hyatt Group"), will use its commercial efforts
to assist the Company in marketing, selling and distributing the Entertainment
Network. The Alliance Agreement also provides that the Hyatt Group will help
develop and coordinate entrepreneurial and institutional financing sources for
the Company.
The Hyatt Group will purchase up to $1 million of the Company's Class A
Common Stock in the open market, at prices not to exceed $14.15 per share, and
will receive warrants to purchase Class A Common Stock comprising up to ten
percent of the fully-diluted outstanding Class A and Class B Common Stock
(after giving effect to the exercise of these warrants). These warrants will
be issued in specified increments as future airline contracts are executed by
the Company. Hyatt will also have the right to designate no less than two
nominees to the Board of Directors of the Company, and may designate
additional nominees if the size of the Board of Directors is increased. Hyatt
has designated John Pritzker, President of Hyatt Ventures, Inc., and Adam
Aron, Chairman and Chief Executive Officer of Vail Resorts, to be its
representatives on the Board. The Hyatt nominated directors will receive
options to purchase an aggregate of 250,000 shares of Class A Common Stock for
$9.875 per share.
Hyatt has the right under the Alliance Agreement to invest in each of up to
six joint ventures in order to raise up to one-third of the financing required
by the Company for specified airline projects and up to two such joint
ventures relating to non-airline projects (each, a "Joint Venture"). The
Alliance Agreement further provides that, at any time following completion of
the installation of all Entertainment Networks initially contemplated to be
financed and sold by a specified airline Joint Venture (or at a similar
mutually agreed upon milestone with respect to any non-airline Joint Venture),
Hyatt shall have the right to convert between fifty percent and one hundred
percent of its initial equity interest in such Joint Venture into shares of
Class A Common Stock. This conversion would be at a rate based on the then
market price of a share of Class A
5
<PAGE>
Common Stock and a valuation of Hyatt's equity interest in the Joint Venture
on the conversion date (as mutually agreed by the parties or, absent such
agreement, as determined by an independent appraiser using a discounted cash
flow method). Such a conversion may not be fully exercised if, after giving
effect thereto, the aggregate ownership of Class A Common Stock by Hyatt or
the Hyatt Group (excluding shares of Class A Common Stock acquired under the
above-described warrants or above-described $1 million open market purchases)
would exceed twenty percent of the aggregate number of shares of voting
securities of the Company then outstanding, calculated on a fully diluted
basis.
Hyatt received four demand registration rights and unlimited "piggyback"
registration rights for all shares of Class A Common Stock acquired under the
Alliance Agreement (other than shares purchased in the open market).
As a fee for its services in negotiating the transaction with Hyatt,
Houlihan Lokey Howard & Zukin (an investment banking firm in which James
Zukin, a director of the Company, has an ownership interest) received warrants
to purchase up to 150,000 shares of Class A Common Stock for $9.875 per share.
RESIGNATION OF DIRECTOR
On November 2, 1996, Steven M. Fieldman, formerly a director of the Company
and the Company's Vice President--Business Development, resigned as an
officer, employee and director of the Company. The Company has retained Mr.
Fieldman as a consultant until August 27, 1999 in exchange for a fee of
$55,000 per year. In connection with this resignation, the Company has agreed
that, notwithstanding Mr. Fieldman's resignation, all of his outstanding
employee or director stock options will continue to vest and be exercisable in
accordance with their respective terms, except that vesting of 300,000 options
granted August 27, 1996 will be partially accelerated. Mr. Fieldman has
further agreed not to sell any shares of capital stock of the Company until
January 31, 1997, and that he will vote his stock on all matters in proportion
to the vote of the other stockholders.
APPROVAL OF EXTENSION OF EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER
On August 27, 1996, the Board of Directors and the Compensation Committee
approved the execution of a new three year Employment Agreement for Michail
Itkis, the Company's Chief Executive Officer. Under the new agreement, Mr.
Itkis will receive a base salary of $250,000 per year, plus an annual bonus to
be determined annually by the Compensation Committee or the Board. On the same
date, the Board also approved the grant of 300,000 stock options to Mr. Itkis,
which will have an exercise price of $9.875 per share and will vest one-third
immediately, one-third in August 1997 and one-third in August 1998.
APPOINTMENT OF NEW CHIEF FINANCIAL OFFICER AND TREASURER
Effective October 12, 1996, the Company appointed John Alderfer to act as
its Chief Financial Officer and Treasurer, replacing Robert Aten in such
positions. Under the terms of his Employment Agreement, Mr. Aten received
severance payments totalling $90,390 as a result of his replacement.
Pursuant to Mr. Alderfer's Employment Agreement he will receive a base
salary of $200,000 per year plus an annual bonus to be determined by the
Compensation Committee or the Board (with a target bonus of 20% of his base
salary). Mr Alderfer also received options to purchase 175,000 shares of Class
A Common Stock for $11.375 per share, which will vest in 1/3 increments on
each of the first three anniversaries of the date of his employment agreement.
FORTUNET LICENSE AGREEMENT
The Company has a license to certain technology from FortuNet, Inc.
("FortuNet"), a gaming equipment manufacturer that distributes video gaming
networks to casinos and other gaming establishments. On November 7, 1996, the
Company entered into an amended and restated version of this license agreement
(the "Restated License Agreement") with FortuNet whereby FortuNet granted the
Company an exclusive, perpetual,
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worldwide license to reproduce, distribute, publicly perform and display,
prepare derivative works, exploit, modify, make, have made, use, sell,
transfer or install any products or services both in domestic and foreign
airlines and flights (the "Exclusive Field of Use") and a non-exclusive
license to conduct such activities outside the Exclusive Field of Use, other
than in bingo halls. In exchange, FortuNet will receive an annual fee of
$100,000 for a period of six years from the date of the Restated License
Agreement and has been issued a warrant to purchase up to 50,000 shares of
Class A Common Stock, for $10.75 per share, exercisable for a five-year period
from the date of the Restated License Agreement. In addition, in connection
with the execution of the Restated License Agreement, Yuri Itkis, the
President of FortuNet and a director of the Company, agreed to terminate his
consulting agreement with the Company and entered into the Amendment to the
Amended and Restated Shareholders' Agreement described more fully below. See
"--Amendment to Shareholders' Agreement."
AMENDMENT TO SHAREHOLDERS' AGREEMENT
On November 12, 1996, the Company, Yuri Itkis, Michail Itkis, Boris Itkis
and Hyatt entered into Amendment No. 2 (the "Amendment") to the Amended and
Restated Shareholders' Agreement, dated October 6, 1994 (the "Shareholders'
Agreement"). Under the Amendment, Hyatt became a party to the Shareholders'
Agreement, and Steven Fieldman and Lance Fieldman ceased to be parties to the
Shareholders' Agreement. The Amendment further provides that Michail Itkis and
Yuri Itkis shall each be entitled to designate one nominee to the Company's
Board of Directors and that Hyatt shall be entitled to designate two nominees
to the Company's Board of Directors. See "--Strategic Alliance with Hyatt
Ventures, Inc." No other parties have any continuing right to nominate a
director under the Shareholders' Agreement. The Amendment also terminated
those provisions in the Shareholders' Agreement that restricted the sale,
transfer or assignment of the parties' stock in the Company. Finally, the
Amendment also terminated certain provisions which governed meetings of the
Board of Directors (and the vote required to approve proposals at such
meetings). Consequently, all such matters are now governed by the Company's
Bylaws and the laws of the State of Delaware, as applicable. As amended, the
Shareholders' Agreement will now terminate on November 12, 1998.
CLASS B WARRANT REDEMPTION
By notice dated October 23, 1996, the Company exercised its right to redeem
on January 17, 1997, for $.05 per share, all Class B Warrants not exercised
prior to 5:00 P.M. on January 16, 1997. In addition, concurrently herewith,
the Company has made the Exercise Offer under which it has offered to all
holders of Class B Warrants to reduce the exercise price of their Class B
Warrants to $7.50 per share for exercises on or prior to December 24, 1996.
See "Description of Capital Stock and Warrants."
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RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing the securities offered hereby.
Limited Operating History; Unproven Viability of Entertainment Network. The
Company was organized in February 1994 and completed its initial public
offering in March 1995. To date, the Company has secured agreements with
Alitalia (for the provision of five first generation Entertainment Network
systems for a total purchase price of approximately $2.7 million plus amounts
received from the sale of service parts, if any), with Debonair (for the
provision of six IFEN-2 Entertainment Networks for a total purchase price of
approximately $5.8 million) and with Swissair (for the provision of twenty-one
IFEN-2 Entertainment Networks for a total purchase price of $72 million), in
the last case subject to agreement with ILL (the Swiss lottery organization).
However, as of the date hereof, the Company has installed systems and received
revenues only under the Alitalia agreement and, with respect to the other
agreements and any future agreements, may experience many of the problems,
delays, expenses and difficulties commonly encountered by early stage
companies, many of which are beyond the Company's control. These include, but
are not limited to, unanticipated problems related to product development,
regulatory compliance, manufacturing, marketing, additional costs and
competition and technological obsolescence, as well as problems associated
with sales or operations in foreign countries. There can be no assurance that
the Company will be able to market the IFEN-2 Entertainment Network to
additional airlines or that once installed, the IFEN-2 Entertainment Networks
will function as intended, meet with customer acceptance or generate any
revenue, or that the Company will ultimately achieve profitability. The
Company has incurred significant development and marketing operating losses to
date and there can be no assurance of future revenues or profits.
The acceptance of the Entertainment Network is dependent on a number of
factors, including the technological quality and features of such product
compared to competitive products, the actual and the perceived ability of the
Company to service the Entertainment Network, consumer demand and the
purchasing patterns of airlines. Many of these factors are beyond the
Company's control. As a result of all of these factors, as well as
unanticipated problems which may be experienced by the Company, the Company is
unable to predict when, if ever, the Entertainment Network will be
commercially successful.
Accumulated Deficit; Operating Losses and Charges to Operations. At July 31,
1996, the Company had an accumulated deficit of approximately $13.3 million.
The Company will be required to continue to expend significant funds in
connection with continued development, manufacturing and marketing activities
with respect to the Entertainment Network which to date have resulted in, and
are expected to continue to result in, operating losses and reductions in
working capital. The extent of future losses and the time required to achieve
profitability are highly uncertain. There can be no assurance that the Company
will be able to achieve profitability on a sustained basis, if at all.
Need for Additional Financing; Potential Cash Shortages. At July 31, 1996,
the Company had working capital of approximately $25.0 million. The Company
increased its working capital in May 1996 from the proceeds of its Class A
Warrant Exercise Offer, its third financing, from which the Company received
net proceeds of approximately $25.2 Million. However, the Company has incurred
additional losses since the Exercise Offer which have again reduced working
capital, and the Company expects that losses will continue for the foreseeable
future. As a result, unless funds are received from additional financing,
working capital is expected to continue to decrease following the initial
increase attributable to receipt of proceeds from the aforementioned Class A
Warrant Exercise Offer.
The Company's revenues have been generated, and are anticipated to be
generated in the future, from sales, installation and servicing of the
Entertainment Network aboard commercial and charter aircraft. The contracts
the Company has executed and is currently negotiating generally provide for
the Company to install the Entertainment Network on an aircraft and to be paid
for the equipment and for its installation and maintenance
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out of revenue generated by passenger use of the installed network on the
aircraft. As a result, the Company must expend significant capital amounts for
the assembly, installation and maintenance of the Entertainment Network on
each aircraft, but revenue as payment for the system will be received, if at
all, only as a result of the use of the system over a potentially significant
period of time. The Company will be required to incur substantial up-front
costs required to perform the Debonair Agreement and the Swissair Agreement.
Moreover, the Company may also enter into commitments to purchase equipment
necessary for additional installations, even in the absence of a purchase
commitment from an airline, if such action is determined to be necessary or
desirable to pursue business opportunities. The Company also expects its cash
requirements to increase in future periods due to higher expenses associated
with increased sales and marketing activities and financing of inventory
purchases, installations and accounts receivable.
As a consequence, the Company will need additional financing to perform
under its existing contracts (i.e., the Alitalia Agreement, the Debonair
Agreement and the Swissair Agreement) in addition to any future contracts that
it may enter into, including those it is currently negotiating. Although the
Company has been in discussions with a number of external sources of capital
to raise portions of the funds needed, there can be no assurances that such
funds will be available in the near future when they will be needed for the
contracts involved. Without additional funding from external capital sources
or from exercise of the Company's outstanding warrants, the Company will not
have sufficient cash to complete all of its existing and pending contracts.
There can be no assurance that the contemplated Class B Warrant Exercise Offer
will be successful or, if successful, will raise sufficient capital to meet
these needs.
Risks Relating to Growth and Expansion. Growth of the Company's business may
place significant pressure on the Company's management, operational and
technical resources. The Company believes that for competitive reasons, it is
important to obtain an installed customer base as early as possible and,
accordingly, the failure to expand operations in the early years of the
Company's business may hinder or preclude significant future growth. If the
Company is successful in obtaining additional agreements with airlines
relating to the installation of Entertainment Networks, the Company will be
required to raise substantial additional funds and deliver large volumes of
quality products to its airline customers on a timely basis at a reasonable
cost to the Company. The Company has no experience in delivering large volumes
of its products and does not have the capacity and may not have the capital
resources to meet wide scale production requirements. The Company currently
has contracts with domestic manufacturers for high-volume production, and may
enter into additional contracts with such domestic and foreign manufacturers.
However, there can be no assurance that any manufacturing arrangement will be
entered into or will be successful, that the Company's efforts to conduct
manufacturing activities will be successful or that the Company or any
supplier will be able to satisfy commercial scale production requirements on a
timely and cost-effective basis. The Company's success will also depend in
part upon its ability to provide its airline customers with timely service and
support. The Company will also be required to develop and improve operational,
management and financial systems and controls. Failure to manage growth would
have a material adverse effect on the business of the Company. Expenses
arising from Company activities to increase market penetration and support
growth will have a negative impact on operating results.
Risks Relating to the Debonair and Swissair Agreements. There are numerous
risks associated with the Debonair Agreement and the Swissair Agreements of
which investors should be aware. First, the Company will be required to incur
substantial up-front costs to perform under these agreements in advance of
receiving any significant payments from Debonair or Swissair. Further, the
Debonair Agreement provides that the only funds to be received by the Company
from Debonair will be in the form of revenue-sharing of the revenues from the
six Entertainment Networks (primarily revenues from the casino gaming).
Likewise, the Swissair Agreement provides that the purchase price for the
hardware, as well as the Company's operating costs, will be paid only out of
lottery revenues from the twenty-one Entertainment Networks (with ILL first
receiving a portion thereof and Swissair then receiving first priority for its
expenses prior to payment of the Company's expenses and the purchase price for
the hardware). Thus, the Company's ability to recoup its up-front costs and/or
derive any profit under the either of these agreements will be dependent upon
a number of factors, including the success of the airlines' respective
businesses, the extent to which passengers utilize the casino and lottery
gaming features of the Entertainment Networks and numerous other factors, most
of which are beyond the Company's control. In
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fact, Debonair is a start-up airline and, consequently, there is no assurance
that it will ever commence operations or, if it does, that its operations will
be successful. To the extent that there are any unanticipated problems
relating to product development, regulatory compliance, manufacturing and
other factors, the costs estimates described above to perform the Debonair
Agreement and the Swissair Agreement may increase significantly, thereby
utilizing a substantially higher amount of the Company's working capital than
currently contemplated.
Second, since these agreements contemplate that the Entertainment Network
will be installed in coach class and will feature casino gaming, the Company
must install and operate the newly-developed IFEN-2 system on both Debonair
and Swissair aircraft. These will represent the first commercial installations
of the IFEN-2 system, and there can be no assurance that the IFEN-2 systems,
once installed, will function properly or meet with customer acceptance.
Third, both of the contracts are subject to the gaming laws of various
jurisdictions. See "--Regulatory Restrictions on Gaming Devices."
Dependence Upon Limited Number of Potential Customers. The sole market for
the Company's products is expected to be commercial airlines. There are a
limited number of major commercial airlines worldwide. Accordingly, even
assuming a sustained commercial viability and the successful marketing of the
Entertainment Network, the Company expects to have contracts with only a
limited number of customers, each of which may account for a substantial
portion of the Company's revenues. The inability to generate new contracts to
replace completed contracts could result in substantial losses in future
fiscal periods. Moreover, because gaming is prohibited on all United States
air carriers and on aircraft operated to or from the United States by foreign
carriers, the Entertainment Network may be commercially less attractive to a
significant segment of the commercial airline market.
Regulatory Restrictions on Gaming Devices. United States law, with certain
exceptions, currently prohibits the knowing transportation of gaming devices
on aircraft operated in interstate air transportation. In addition, states may
prohibit the transportation and use of gaming devices on flights operating
between two points in a single state. Federal law also prohibits the
installation, transportation or operation of gaming devices by any U.S. or
foreign air carrier or for such carriers to permit their use on aircraft
operated to or from the United States in foreign air transportation. The
United States Secretary of Transportation has conducted a study and has
reported to Congress in March 1996, regarding the safety, commercial and
operational issues posed by gaming devices aboard commercial aircraft.
However, this report did recommend that Congress take immediate action to
modify Federal law regarding gaming devices on commercial aircraft and it is
uncertain what effect the report will have, if any. Moreover, the laws
regarding the transmission of gaming data into, out of, or within United
States territory, even where such data was lawfully obtained in another
jurisdiction, are unclear. As a result, there can be no assurance that the
transmission of such data will not be restricted or prohibited. Because gaming
can generally be expected to generate significantly greater revenues and
profitability than other entertainment options expected to be available on the
Entertainment Network, the inability to offer gaming on flights would have a
material adverse impact on the Company's business and on the market acceptance
by airlines of the Entertainment Network. The Company will also be subject to
the laws of foreign jurisdictions which may similarly restrict or prohibit the
gaming or other activities offered on the Entertainment Network.
Requirement For and Uncertainty of Regulatory Approval of Entertainment
Network. The installation and use of the Entertainment Network in each
aircraft type will require prior certification and approvals from the Federal
Aviation Administration ("FAA") and from aeronautical agencies of foreign
governments. Prior to certification and approval, the Entertainment Network
must be installed on an aircraft and tested, including an in-flight test. The
Company has received FAA certification for the Entertainment Network on
Alitalia MD-11 aircraft, and has completed delivery of the Entertainment
Network for installation on five Alitalia MD-11 aircraft. The Company will
require FAA and comparable foreign certification prior to installing the
Entertainment Network on the Debonair RJ-146 and the Swissair MD-11 and B-747
aircraft, and the aircraft of any other airlines with which the Company may
execute agreements in the future. However, there can be no assurance that
further FAA and foreign certifications and approvals will be obtained, or
obtained in a timely fashion in
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connection with the Swissair Agreement or thereafter. In addition, even if FAA
certification is obtained, federal law grants to the FAA the authority to
reexamine at any time the basis upon which certification and approval of the
Entertainment Network may be granted and, if appropriate, to amend or revoke
such certifications and approvals, subject to certain appeal rights.
Risks of Patent Infringement. The use of the Company's technology, including
the patented technology licensed from FortuNet, may give rise to claims that
the Company's products infringe the patents of others. The Company is aware of
a number of United States and foreign patents which include claims relating to
technologies similar to those included in the Entertainment Network. Although
the Company is aware of a foreign patent (and a corresponding U.S.
application) that may cover the Entertainment Network, the Company believes
that this patent is currently unenforceable and cannot be revived because of
the failure to pay certain renewal fees and that, even if this patent were to
become enforceable, the Company can take steps to help ensure that its
activities would not be infringing. However, in the event such patent became
enforceable and an infringement claim were brought against the Company and any
such claim were successful, in addition to any potential liability for
damages, the Company could be required to obtain a license in order to
continue to market the Entertainment Network. There can be no assurance that
the Company would prevail against any such claim or that any license required
would be made available on acceptable terms or at all. In addition, if the
Company becomes involved in any such litigation, it could consume a
substantial portion of the Company's resources and management time and any
resulting liability of the Company may have a material adverse effect on the
Company's results of operations and financial condition. The Company has
agreed to pay all costs and damages associated with any patent infringement
litigation initiated against Alitalia, Debonair, Swissair and ILL.
Uncertainty of Patent Protection; No Assurance of Significant Competitive
Advantage. The Entertainment Network is dependent upon unpatented proprietary
technology and know-how developed by the Company and, to a lesser extent,
patented technology that the Company has licensed from FortuNet. There can be
no assurance that FortuNet's issued patents (or any issued to the Company in
the future) will provide the Company with any significant competitive
advantage or that challenges will not be instituted against the validity or
enforceability of any patent licensed or owned by the Company or, if
instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity and protect against infringement of patents
can be substantial. FortuNet's obligations to indemnify the Company under the
FortuNet License are limited to the amount of license fees payable to FortuNet
under the FortuNet License. Furthermore, there can be no assurance that others
will not independently develop substantially equivalent or more advanced
proprietary information and techniques or otherwise gain access to the
Company's trade secrets or obtain such technology or duplicate the
Entertainment Network. In addition, to the extent that consultants (including
FortuNet), key employees or other third parties apply technological
information developed by them or by others to Company projects, disputes may
arise as to the proprietary rights to such information which may not be
resolved in favor of the Company. There can also be no assurance that the
Company can meaningfully protect its intellectual property (particularly in
countries where there are no patents corresponding to those patents licensed
from FortuNet).
Risks of Foreign Operations; Dependence on Foreign Sales
Representatives. Because the Company believes the Entertainment Network is
commercially more viable on international flights, the Company's principal
customers are expected to be foreign airlines. Moreover, the Company uses and
intends to continue to use the services of sales representatives to negotiate
contracts with foreign airlines. As a result, the Company may become obligated
to pay significant fees to such representatives, who typically charge a
percentage of the contract purchase price. Accordingly, the Company's control
over the negotiating process may be reduced. Further, a substantial portion of
the Company's operations will be subject to various factors characteristic of
conducting business outside the United States, such as import duties, trade
restrictions, work stoppages, foreign currency fluctuations, export controls
or license requirements, political or economic instability, imposition of
government controls and other factors, any or all of which could have a
material adverse effect on the business of the Company. Agreements may also be
more difficult to enforce and receivables more difficult to collect through a
foreign country's legal or currency expatriation systems. In addition, the
laws of certain countries relating to proprietary rights do not protect the
Company's products and intellectual property rights to the same extent as do
the laws of the United States.
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Capital Intensive Purchase; Extensive Sales Cycle; Fluctuations in Revenues
and Operating Results. The outright purchase of an Entertainment Network by an
airline would represent a significant capital investment by such airline.
Airlines are generally faced with increasing pressures to cut costs,
particularly in non-safety related areas, and their ability to pass increased
costs to consumers is limited. Accordingly, the Company anticipates that an
extensive time period will be involved in negotiating and obtaining any actual
purchase commitments from airlines, which may include a test installation in
addition to an evaluation of the technology. In addition, installations are
expected to be conducted in incremental deployments and revenues expected to
be recognized as the installations are completed, so that related receivables
may not be collected for an extended period after installation. As a result,
the Company is unable to predict whether or when any additional purchase
agreements with airlines will be entered into, and the Company may experience
significant fluctuations in revenue and cash flow or periods in which no
revenues are recognized and cash flow shortages are experienced. In addition,
if anticipated sales and installations do not occur when expected,
expenditures and inventory levels could be disproportionately high and the
Company's operating results for that quarter may be adversely affected.
Particularly during the early years of operations, if the Company obtains any
such additional purchase agreements, a limited number of customers may account
for all or substantially all of the Company's revenues.
Seasonality. Because the installation of the Entertainment Network requires
that the aircraft be taken out of service temporarily, and because the
grounding of an aircraft represents a significant lost revenue opportunity for
an airline, the Company believes that a significant portion of installations
will occur during the winter months when air traffic is typically reduced.
Additional variability in revenues and operating results may arise from
budgeting and purchasing patterns of airlines.
Competition. The Company currently competes and will compete with a number
of companies offering in-flight entertainment systems, most of whom (including
but not limited to Sony Transcom, Hughes Avicom, BE Aerospace, Matsushita,
Toshiba and TNCI) have substantially greater financial, management, technical
and other resources than the Company and who offer products, systems or
services similar to the Entertainment Network. There can be no assurance that
the Company will compete effectively with such other companies, or that other
companies will not develop products which are superior to the Company's or
which achieve greater market penetration.
Rapid Technological Change; Need to Introduce New Programming Software. The
markets for in-flight entertainment systems and interactive products are
characterized by rapid technological developments and changes in customer
preferences and requirements. As a result, the Company's success is dependent
upon its ability to update on a regular basis and enhance the Entertainment
Network and to develop or acquire and introduce in a timely manner new
entertainment options and programming software for incorporation in the
Entertainment Network. There can be no assurance that the Company will be
successful in developing or licensing and marketing enhancements of the
Entertainment Network on a timely basis, or at all, that any enhancements will
adequately address changing airline or passenger preferences and demands or
gain the acceptance of the Company's customers or that the cost of licensing
programming software from third parties or developing its own software will
not become prohibitive. If the Entertainment Network does not incorporate
newer technologies and programming software, the Company's business and
operating results may be adversely affected.
Dependence on Programming Software and Product Distributors. The Company
will be required to obtain rights from vendors of programming software to
include such programming software on the Entertainment Network. The Company
has arrangements with certain movie distributors pursuant to which the Company
chooses from lists of available movies from each distributor and compiles the
lists for presentation to the airlines. In addition, in order to provide
shopping channel services, the Company will be required to enter into
arrangements with distributors capable of providing delivery of products
throughout international markets. There can be no assurance that the Company
will be able to negotiate any such agreements or that such agreements will be
on terms favorable to the Company.
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Dependence on Third Party Suppliers and Contractors. The Company assembles
the hardware constituting its Entertainment Network from components purchased
from third party suppliers, and its dependence on such suppliers will reduce
its control over the manufacturing process. In addition, the Company currently
uses single suppliers for certain of the hardware comprising the Entertainment
Network. Although the Company believes that other sources of supply are
available, delays or increased costs associated with locating and procuring
such supplies could have a material adverse effect on the Company.
Further, because the Company lacks the FAA authorization to perform these
functions, the Company must contract with third parties to obtain FAA
certifications of the Entertainment Network on each proposed type of host
aircraft, and to install the Entertainment Networks on customers aircraft. The
Company has contracted with Elsinore Aerospace Services ("Elsinore"), an FAA-
designated engineering representative experienced in flight entertainment
systems, to assist the Company in the application and approval process in
connection with the Debonair systems. Similarly, the Company has contracted
with Hollingsead International to assist with such process in connection with
the Swissair systems and to perform the installation of the Entertainment
Networks on Swissair aircraft. Any breach or delay in performance by either of
these contractors could have a material adverse effect on the Company's
results of operations and its relationships with its airline customers.
Dependence on Key Personnel. The Company's success depends upon the
continued contributions of its executive officers, most of whom are also
principal stockholders of the Company. The Company has obtained key man
insurance on the life of Michail Itkis, the Company's Chief Executive Officer.
The loss of services of, or a material reduction in the amount of time devoted
to, the Company by its executive officers could adversely affect the business
of the Company.
Control by Class B Stockholders and Hyatt; Potential Anti-takeover
Provisions. Holders of the Company's Class B Common Stock control
approximately 75% of the total voting power of the Company, reflecting the
multiple votes afforded to the Class B Common Stock. As a result, such
stockholders are able to elect all of the Company's directors and otherwise
control the Company's operations. The Company, certain of its principal
stockholders and Hyatt have entered into a stockholders' agreement (the
"Stockholders' Agreement") pursuant to which such stockholders have agreed to
vote for the current members of the Board of Directors of the Company or
nominees of such stockholders. The existence of such rights will solidify the
control over the Company by its executive officers and directors and Hyatt.
The Company's Board of Directors is also authorized to issue from time to
time, without stockholder authorization, shares of preferred stock, in one or
more designated series or classes. The Company is also subject to a Delaware
statute regulating business combinations. Any of these provisions could
discourage, hinder or preclude an unsolicited acquisition of the Company and
could make it less likely that stockholders would receive a premium for their
shares as a result of any such attempt.
Charge to Earnings in the Event of Release of Escrow Shares. Currently,
3,200,000 shares of Class B Common Stock owned by officers, directors and
principal stockholders of the Company are held in escrow (the "Escrow
Shares"), and such shares will be released from escrow if the Company attains
certain earnings levels over the next two years or if the Class A Common Stock
trades at certain levels over the next year. The position of the Securities
and Exchange Commission (the "Commission") with respect to such escrow
arrangements provides that in the event any shares are released from escrow to
the stockholders of the Company who are officers, directors, employees or
consultants of the Company, a compensation expense to the Company will be
recorded for financial reporting purposes. Accordingly, the Company will, in
the event of the release of the Escrow Shares, recognize during the period in
which the earnings thresholds are met or such stock levels achieved, a
substantial noncash charge to earnings equal to the fair value of such shares
on the date of their release, which would have the effect of significantly
increasing the Company's loss or reducing or eliminating earnings, if any, at
such time. The recognition of such compensation expense may have a depressive
effect on the market price of the Company's securities. Notwithstanding the
foregoing discussion, there can be no assurance that the Escrow Shares will be
released from escrow.
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Outstanding Warrants and Options. The Company has outstanding (i) 10,609,446
Class B Warrants (including the Selling Securityholder Warrants) to purchase
10,609,446 shares of Class A Common Stock; (ii) 165,000 Class C Warrants held
by the Selling Securityholders, each of which entitles the holder to purchase
one share of Class A Common Stock for an exercise price of $11.00; (iii)
165,000 Class D Warrants held by the Selling Securityholders, each of which
entitles the holder to purchase one share of Class A Common Stock for an
exercise price of $14.00 and (iv) unit purchase options granted to Blair and
its affiliates in connection with the Company's initial public offering (the
"Unit Purchase Options") to purchase an aggregate of 1,120,000 shares of Class
A Common Stock, assuming exercise of the underlying Warrants. In addition, as
of November 15, 1996, the Company had 2,274,200 shares of Class A Common Stock
reserved for issuance upon exercise of options granted under the Company's
Stock Option Plan, and 1,584,200 options were then outstanding under the Stock
Option Plan. Holders of such warrants and options are likely to exercise them
when, in all likelihood, the Company could obtain additional capital on terms
more favorable than those provided by warrants and options. Further, while
these warrants and options are outstanding, the Company's ability to obtain
additional financing on favorable terms may be adversely affected.
Potential Adverse Effect of Redemption of Class B Warrants. The Class B
Warrants are subject to redemption by the Company at a redemption price of
$.05 per Warrant upon not less than 30 days' prior written notice if the
closing bid price of the Class A Common Stock shall have averaged in excess of
$13.65 per share for 30 consecutive trading days ending within 5 days of the
notice. This condition has been met, and by notice dated October 23, 1996, the
Company has exercised its right to redeem the Class B Warrants on January 17,
1997. This redemption of the Class B Warrants could force the holders to
exercise the Class B Warrants and pay the exercise price therefor at a time
when it may be disadvantageous for the holders to do so, to sell the Class B
Warrants at the then current market price when they might otherwise wish to
hold the Class B Warrants, or to accept the redemption price which, at the
time the Class B Warrants are called for redemption, is likely to be
substantially less than the market value of the Class B Warrants.
Current Prospectus and State Registration to Exercise Class B
Warrants. Holders of Class B Warrants will only be able to exercise the Class
B Warrants if (i) a current prospectus under the Securities Act relating to
the securities underlying the Class B Warrants is then in effect, and (ii)
such securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
Class B Warrants reside. With respect to the Selling Securityholder Warrants,
this Prospectus is the prospectus required to be in effect. Although the
Company has undertaken and intends to use its best efforts to maintain a
current prospectus covering the securities underlying the Class B Warrants to
the extent required by Federal securities laws, there can be no assurance that
the Company will be able to do so. The value of the Class B Warrants may be
greatly reduced if a prospectus covering the securities issuable upon the
exercise of the Class B Warrants is not kept current or if the securities are
not qualified, or exempt from qualification, in the states in which the
holders of Class B Warrants reside. If and when the Class B Warrants become
redeemable by the terms thereof, the Company may exercise its redemption right
even if it is unable to qualify the underlying securities for sale under all
applicable state securities laws. Holders of Class B Warrants called for
redemption residing in states where the underlying securities have not been
qualified for sale would generally still be able to sell their Class B
Warrants at the then market price thereof.
Possible Delisting of Securities from the Nasdaq Stock Market. While the
Company's Class A Common Stock and Class B Warrants are listed on the Nasdaq
SmallCap Market, there can be no assurance that the Company will meet the
criteria for continued listing. Continued inclusion on Nasdaq generally
requires that (i) the Company maintain at least $2,000,000 in total assets and
$1,000,000 in capital and surplus, (ii) the minimum bid price of the Class A
Common Stock be $1.00 per share, (iii) there be at least 100,000 shares in the
public float valued at $1,000,000 or more, (iv) the Class A Common Stock have
at least two active market makers, and (v) the Class A Common Stock be held by
at least 300 holders.
If the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Class A Common Stock and Class B Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin
14
<PAGE>
Board." Consequently, the liquidity of the Company's securities could be
impaired, not only in the number of securities which could be bought and sold,
but also through delays in the timing of transactions, reduction in security
analysts' and the news media's coverage of the Company and lower prices for
the Company's securities than might otherwise be attained.
Possible Adverse Effect on Liquidity of the Company's Securities Due to the
Investigation of D.H. Blair Investment Banking Corp. and D.H. Blair & Co.,
Inc. by the Securities and Exchange Commission. The Commission is conducting
an investigation concerning various business activities of Blair and D.H.
Blair & Co., Inc. ("Blair & Co."), the dominant market maker in the Company's
securities. The investigation appears to be broad in scope, involving numerous
aspects of Blair's and Blair & Co.'s compliance with the Federal securities
laws and compliance with the Federal securities laws by issuers whose
securities were underwritten by Blair or Blair & Co., or in which Blair or
Blair & Co. make over-the-counter markets, persons associated with Blair or
Blair & Co., such issuers and other persons. The Company has been advised by
Blair that the investigation has been ongoing since at least 1989 and that it
is cooperating with the investigation. Blair cannot predict whether this
investigation will ever result in any type of formal enforcement action
against Blair or Blair & Co., or, if so, whether any such action might have an
adverse effect on Blair or the Company's securities. An unfavorable resolution
of the Commission's investigation could have the effect of limiting Blair &
Co.'s ability to continue to make a market in the Company's securities, which
could affect the liquidity or price of such securities.
Shares Eligible for Future Sale. Future sales of Class A Common Stock by
existing stockholders pursuant to Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"), or pursuant to a separate prospectus
included a registration statement filed by the Company or otherwise, could
have an adverse effect on the price of the Company's securities. In addition
to the registration statement of which this Prospectus forms a part, the
Company has filed a registration statement under the Securities Act for the
benefit of certain other security holders and which currently covers the
resale of 1,550,000 Class B Warrants and up to 3,100,000 shares of Class A
Common Stock (including those shares purchasable upon exercise of the such
1,550,000 Class B Warrants). In addition, the Company has registered for
resale 2,274,200 shares of Class A Common Stock issuable upon exercise of
options granted or to be granted under the Company's Stock Option Plan. As of
November 15, 1996, 1,584,200 options were outstanding under the Stock Option
Plan. Further, all of the shares of Class A Common Stock issuable upon
conversion of the 3,960,000 shares of Class B Common Stock are eligible for
resale under Rule 144, subject to volume and manner of sale limitations. Blair
has demand and "piggy-back" registration rights covering the securities
underlying the Unit Purchase Option, and the holders of Class C and Class D
Warrants have "piggy-back" registration rights covering the shares underlying
such warrants. Sales of Class A Common Stock, or the possibility of such
sales, in the public market in any of the foregoing manners may adversely
affect the market price of the securities offered hereby.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale by the
Selling Securityholders of the Selling Securityholder Securities offered
hereby; however, to the extent that the Selling Securityholder Warrants are
exercised, the Company will receive proceeds equal to the exercise price
thereof multiplied by the number of warrants exercised. If all of the Selling
Securityholder Warrants are exercised, the Company would receive gross
proceeds of $2,868,938, less payment of the Blair Commission and expenses of
the offering. The Company presently intends to use such proceeds for working
capital and general corporate purposes.
15
<PAGE>
DILUTION
The net tangible book value of the Company as of July 31, 1996 was
$27,201,088 million or $2.27 per share. Net tangible book value per share
represents the amount of total tangible assets less total liabilities of the
Company, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the 294,250 shares of Common Stock offered hereby
(and after deduction of estimated commissions and offering expenses), the pro
forma net tangible book value of the Company at July 31, 1996 would have been
$29,846,579 million, or $2.43 per share. This represents an immediate increase
in such net tangible net book value of $0.16 per share to existing
stockholders and an immediate dilution of $7.32 per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price........................................ $9.75
Net tangible book value before this offering................ $2.27
Increase attributable to new investors...................... .16
-----
Pro forma net tangible book value after this offering......... $2.43
-----
Dilution of net tangible book value to new investors.......... $7.32
=====
</TABLE>
The foregoing excludes 1,584,200 shares that are issuable upon the exercise
of outstanding employee options under the Company's Stock Option Plan as of
November 15, 1996. To the extent that these and other options, stock awards or
warrants that may be issued or are exercised in the future, there will be
further dilution to new investors.
The following table summarizes, on a pro forma basis as of August 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Class A Common Stock purchased from the Company,
the total consideration paid to the Company, and the average consideration
paid per share (before deduction of underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 8,074,329 96.5% $44,129,000 93.9% $5.47
New investors................ 294,250 3.5 2,868,938 6.1 $9.75
--------- ----- ----------- -----
Total...................... 8,368,579 100.0% $46,997,938 100.0%
========= ===== =========== =====
</TABLE>
The foregoing represents potential dilution only as a result of the exercise
of Class B Warrants offered hereby and does not give effect to the purchase of
shares offered in certain concurrent offerings. See "Concurrent Offerings."
16
<PAGE>
SELLING SECURITYHOLDERS
The Selling Securityholders are Banner Aerospace, Inc. ("Banner"), a
Delaware corporation, Leonard Toboroff ("Toboroff") and Blair. Banner and
Toboroff received their respective Class B Warrants in exchange for certain
services rendered to the Company in connection with the Company's proposals to
Swissair, leading up to the execution of the Swissair Agreement. Blair
received its Class B Warrants offered hereby as a fee payable as a result of
the issuance of Class B Warrants to Banner and Toboroff, pursuant to the
agreement described in "Plan of Distribution." Since the Company's inception
in 1994, Blair has performed various services for the Company for which it has
received compensation, including acting as the Underwriter of the Company's
March 1995 initial public offering. Such services are more fully described
under "Plan of Distribution."
The following table sets forth the number of Class B Warrants and underlying
shares of Class A Common Stock beneficially owned by each of the Selling
Securityholders and included herein. Because the Selling Securityholders may
offer all or some of the Selling Securityholder Securities which they own
pursuant to the offering contemplated by this Prospectus, and because there
are currently no agreements, arrangements or understandings with respect to
the sale of any of the Securityholder Securities, no estimate can be given as
to the amount of Selling Securityholder Securities that will be held by the
Selling Securityholders after completion of this offering. The Selling
Securityholder Securities offered by this Prospectus may be offered from time
to time by the Selling Securityholders named below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A
NUMBER OF COMMON STOCK
CLASS B WARRANTS BENEFICIALLY
BENEFICIALLY HELD HELD AND MAXIMUM
AND MAXIMUM AMOUNT TO BE
NAMES OF SELLING SECURITYHOLDERS AMOUNT TO BE SOLD SOLD(1)
-------------------------------- ----------------- -----------------
<S> <C> <C>
Banner Aerospace, Inc.................. 187,500 187,500
Leonard Toboroff....................... 87,500 87,500
D.H. Blair Investment Banking Corp. ... 19,250 19,250
</TABLE>
- --------
(1) Represents shares to be issued upon exercise of the Selling Securityholder
Warrants.
PLAN OF DISTRIBUTION
The sale of all or a portion of the Selling Securityholder Securities
offered hereby by the Selling Securityholders may be effected from time to
time on Nasdaq at prevailing prices at the time of such sales, at prices
related to such prevailing prices or at negotiated prices. The Selling
Securityholders may sell all or a portion of the Selling Securityholder
Securities in private transactions or in the over-the-counter market at prices
related to the prevailing prices of the Selling Securityholder Securities on
Nasdaq at the time of the sale. The Selling Securityholders may effect such
transactions by selling to or through one or more broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Securityholders. For example, the
Selling Securityholder Securities may be sold by one or more of the following
without limitation: (a) a block trade in which the broker or dealer so engaged
will attempt to sell the Selling Securityholder Securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) face to face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Securityholders may arrange for other brokers or dealers to
participate in the resales.
17
<PAGE>
The Selling Securityholders and any broker-dealers that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of shares by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
To the extent required under the Securities Act, a supplemental prospectus
will be filed disclosing (a) the name of any such broker-dealers, (b) the
number of Selling Securityholder Securities involved, (c) the price at which
such Selling Securityholder Securities are to be sold, (d) the commissions
paid or discounts or concessions allowed to such broker-dealers, where
applicable, (e) that such broker-dealers did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus, as supplemented, and (f) other facts material to the transaction.
The Company and the Selling Securityholders may agree to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act. In addition, the Company has agreed to indemnify the Selling
Securityholders and any underwriter with respect to the Selling Securityholder
Securities against certain liabilities, including, without limitation, certain
liabilities under the Securities Act, or, if such indemnity is unavailable, to
contribute toward amounts required to be paid in respect of such liabilities.
The Company has agreed to pay certain costs and expenses incurred in
connection with the registration of the Selling Securityholder Securities,
except that the Selling Securityholders shall be responsible for all selling
commissions, transfer taxes and related charges in connection with the offer
and sale of such Selling Securityholder Securities.
There is no assurance that any of the Selling Securityholders will sell any
or all of the Selling Securityholder Securities. The Company has agreed to
keep the registration statement relating to the offering and sale by the
Selling Securityholders of the Selling Securityholder Securities continuously
effective for a period of two (2) years from the date of this Prospectus.
As of October 1, 1996, there were seven market makers in the Company's
securities. Rule 10b-6 may prohibit Blair from engaging in any market making
activities with regard to the Company's securities for the period from nine
business days (or such other applicable period as Rule 10b-6 may provide)
prior to any solicitation by Blair of the exercise of Class B Warrants until
the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that Blair may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, Blair may
be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable.
In connection with its March 7, 1995, initial public offering (the "IPO")
the Company sold to Blair or its designees, for nominal consideration, the
Unit Purchase Option to purchase up to 280,000 Units substantially identical
to the Units sold in the IPO, except that the warrants included therein are
not subject to redemption by the Company unless, on the redemption date, the
Unit Purchase Option has been exercised and the underlying warrants are
outstanding. The Unit Purchase Option is exercisable during the three year
period commencing March 7, 1997 at an exercise price of $6.00 per Unit,
subject to adjustment in certain events, and the Unit Purchase Option and the
underlying securities are not transferable for a period of three years from
March 7, 1995 except to officers of the Underwriter or to members of the
selling group. The Unit Purchase Option includes a provision permitting Blair
or its designees to elect a cashless exercise. The Company has agreed to
register during the four-year period commencing March 7, 1996, on two separate
occasions, the securities issuable upon exercise thereof under the Securities
Act, the initial such registration to be at the Company's expense and the
second at the expense of the holders. The Company has also granted certain
"piggy-back" registration rights to holders of the Unit Purchase Option. The
Company also paid underwriting fees and selling commissions totalling
approximately $1 million, a substantial portion of which was received by
Blair.
Blair has the right to designate one director to the Company's Board of
Directors for a period of five years from the completion of the IPO. Such
designee may be a director, officer, partner, employee or affiliate of Blair.
As of the date of this Exercise Offer/Prospectus, Blair had not designated a
director to serve on the Board of Directors.
18
<PAGE>
During the five-year period from March 7, 1995, in the event Blair
originates a financing or a merger, acquisition or transaction to which the
Company is a party, Blair will be entitled to receive a finder's fee in
consideration for origination of such transaction. The fee is based on a
percentage of the consideration paid in the transaction ranging from 7% of the
first $1,000,000 to 2 1/2% of any consideration in excess of $9,000,000.
Blair acted as Placement Agent for the Bridge Financing in October and
November 1994 for which it received a Placement Agent fee of $310,000 and a
non-accountable expense allowance of $93,000.
Blair received a fee of approximately $1.34 Million for acting as the
Company's solicitation agent for the exercise of Class A Warrants during the
Company's May 1996 Class A Warrant Exercise Offer. In addition, Blair will act
as solicitation agent for the exercise of Class B Warrants in connection with
the contemplated Class B Warrant Exercise Offer and, assuming exercise of all
Class B Warrants in the offer, Blair will receive a fee of approximately $3.98
million.
The Commission is conducting an investigation concerning various business
activities of Blair. The investigation appears to be broad in scope, involving
numerous aspects of Blair's compliance with the Federal securities laws and
compliance with the Federal securities laws by issuers whose securities were
underwritten by Blair, or in which Blair made over-the-counter markets,
persons associated with Blair, such issuers and other persons. The Company has
been advised by Blair that the investigation has been ongoing since at least
1989 and that it is cooperating with the investigation. Blair cannot predict
whether this investigation will ever result in any type of formal enforcement
action against Blair or, if so, whether any such action might have an adverse
effect on the Company's securities. An unfavorable resolution of the
Commission's investigation could have the effect of limiting such firm's
ability to make a market in the Company's securities, which could affect the
liquidity or price of such securities.
BLAIR COMMISSION
Pursuant to the Warrant Agreement, the Company has agreed not to solicit
Warrant exercises other than through Blair, unless Blair declines to make such
solicitation. Blair has agreed to assist the Company in effecting the Exercise
Offer. Upon any exercise of the Warrants, the Company will pay Blair a fee of
5% of the aggregate Warrant exercise price (the "Blair Commission"), if (i)
the market price of the Company's Class A Common Stock on the date the
Warrants are exercised is greater than the then exercise price of the
Warrants; (ii) the exercise of the Warrants was solicited by a member of the
NASD as designated in writing on the Warrant Certificate subscription form;
(iii) the Warrants are not held in a discretionary account; (iv) disclosure of
compensation arrangements was made both at the time of the offering and at the
time of exercise of the Warrants; and (v) the solicitation of exercise of the
Warrant was not in violation of Rule 10b-6 promulgated under the Exchange Act.
CONCURRENT OFFERINGS
Pursuant to the registration statement of which this Prospectus forms a
part, the Company has registered (i) up to 10,609,446 shares of Class A Common
Stock of the Company, which are issuable upon exercise of the Company's
outstanding Class B Warrants pursuant to the Company's Exercise Offer in which
it has reduced the exercise price of the Class B Warrants to $7.50 through
December 24, 1996, (ii) the resale of 1,550,000 Class B Warrants held by
certain other selling securityholders and the 1,550,000 shares of Class A
Common Stock underlying such Class B Warrants. Sales of such securities, or
the potential of such sales, may have an adverse effect on the market price of
the securities offered hereby.
19
<PAGE>
DESCRIPTION OF CAPITAL STOCK AND WARRANTS
COMMON STOCK
Class A Common Stock. Holders of Class A Common Stock have the right to cast
one vote for each share held of record on all matters submitted to a vote of
holders of Class A Common Stock, including the election of directors. The
Class A and Class B Common Stock vote together as a single class on all
matters on which stockholders may vote, except when class voting is required
by applicable law.
Holders of Class A Common Stock are entitled to receive such dividends,
together with the holders of Class B Common Stock, pro rata based on the
number of shares held, when, as and if declared by the Board of Directors,
from funds legally available therefor, subject to the rights of holders of any
outstanding Preferred Stock. In the case of dividends or other distributions
payable in stock of the Company, including distributions pursuant to stock
splits or division of stock of the Company, only shares of Class A Common
Stock will be distributed. In the event of the liquidation, dissolution or
winding up of the affairs of the Company, all assets and funds of the Company
remaining after the payment of all debts and other liabilities, subject to the
rights of the holders of any outstanding Preferred Stock, shall be
distributed, pro rata, among the holders of the Class A and Class B Common
Stock. Holders of Class A Common Stock are not entitled to preemptive,
subscription, cumulative voting or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Class A Common Stock.
All outstanding shares of Class A Common Stock are, and the shares of Class A
Common Stock offered hereby will be when issued, fully paid and non-
assessable.
Class B Common Stock. Immediately prior to the date hereof there were
3,960,000 shares of Class B Common Stock outstanding held by six stockholders
of record. Each share of Class B Common Stock is entitled to six votes on all
matters on which stockholders may vote, including the election of directors.
The Class A and Class B Common Stock vote together as a single class on all
matters on which stockholders may vote, except when class voting is required
by applicable law.
Holders of Class B Common Stock are entitled to participate together with
the holders of Class A Common Stock, pro rata based on the number of shares
held, in the payment of cash dividends and in the liquidation, dissolution and
winding up of the Company, subject to the rights of holders of any outstanding
Preferred Stock. In the case of dividends, or other distributions payable in
stock of the Company, including distributions pursuant to stock splits or
divisions of stock of the Company, only shares of Class A Common Stock shall
be distributed with respect to Class B Common Stock.
Shares of Class B Common Stock are automatically convertible into an
equivalent number of fully paid and non-assessable shares of Class A Common
Stock upon the sale or transfer of such shares by the original record holder
thereof except to another holder of Class B Common Stock. Each share of Class
B Common Stock also is convertible at any time upon the option of the holder
into one share of Class A Common Stock. There are no preemptive, subscription,
redemption, conversion or cumulative voting rights applicable to the Class B
Common Stock except under the Stockholders' Agreement.
REDEEMABLE CLASS B WARRANTS
Each Class B Warrant entitles the registered holder to purchase one share of
Class A Common Stock at an exercise price of $9.75 at any time after issuance
until 5:00 P.M., New York City Time, on March 6, 2000. However, concurrently
herewith, the Company has made the Exercise Offer to the holders of the
Company's outstanding Class B Warrants to reduce the exercise price of the
outstanding Class B Warrants to $7.50 per share to the extent that a holder
exercises his or her Class B Warrants prior to 5:00 P.M., New York City time,
on December 24, 1996, unless such date is extended by the Company. Following
such date through January 16, 1997, a holder will continue to have the right
to exercise his or her Class B Warrants (in accordance with the terms thereof)
at the re-set exercise price of $9.75 per share. In addition, the Class B
Warrants are subject to redemption by the Company upon 30 days' written notice
at a redemption price of $.05 per Class B Warrant, if
20
<PAGE>
the closing price of the Company's Class A Common Stock for any 30 consecutive
trading days ending within 5 days of the notice of redemption averages in
excess of $13.65 per share. This condition has been met, and by notice dated
October 23, 1996, the Company has exercised its right pursuant to the terms of
the Warrants to redeem on January 17, 1997 each Class B Warrant not exercised
by January 16, 1997, at 5:00 P.M. New York City time.
The Class B Warrants are issued pursuant to the Warrant Agreement among the
Company, Blair and American Stock Transfer & Trust Company, New York, New
York, as Warrant Agent, and are evidenced by warrant certificates in
registered form. The Class B Warrants provide for adjustment of the exercise
price and for a change in the number of shares issuable upon exercise to
protect holders against dilution in the event of a stock dividend, stock
split, combination or reclassification of the Class A Common Stock or upon
issuance of shares of Class A Common Stock at prices lower than the market
price of the Class A Common Stock, with certain exceptions.
The exercise price of the Class B Warrants was determined by negotiation
between the Company and the Underwriter in the Company's initial public
offering and should not be construed to be predictive of or to imply that any
price increases in the Company's securities will occur.
A Class B Warrant may be exercised upon surrender of the Class B Warrant
certificate on or prior to its expiration date (or earlier redemption date) at
the offices of American Stock Transfer & Trust Company, New York, New York,
the Warrant Agent, with the form of "Election to Purchase" on the reverse side
of the Class B Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of shares with respect to
which the Class B Warrant is being exercised. Shares issued upon exercise of
Class B Warrants and payment in accordance with the terms of the Class B
Warrants will be fully paid and non-assessable.
The Class B Warrants do not confer upon the Class B Warrantholder any voting
or other rights of a stockholder of the Company. Upon notice to the Class B
Warrantholders, the Company has the right to reduce the exercise price or
extend the expiration date of the Class B Warrants.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by the law firm of Irell & Manella LLP, Los Angeles, California.
EXPERTS
The financial statements of Interactive Flight Technologies, Inc., as of
October 31, 1995 and for the year then ended, and the cumulative statements of
operations, stockholders' equity (deficiency), and cash flows for the period
February 1, 1994 (inception) through October 31, 1995, have been incorporated
by reference herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick LLP and Richard A. Eisner & Company LLP,
independent certified public accountants incorporated by reference herein
(insofar as such report of Richard A. Eisner & Company LLP relates to the
amounts included for the period from February 1, 1994 (inception) to October
31, 1994), and upon the authority of said firms as experts in accounting and
auditing.
The balance sheet of the Company at October 31, 1994 and the related
statements of operations, stockholders' equity (deficiency) and cash flows for
the period from inception (February 1, 1994) through October 31, 1994
incorporated herein by reference have been audited by, and are incorporated
herein by reference in reliance upon the report of, Richard A. Eisner &
Company LLP, independent certified public accountants, given on the authority
of that firm as experts in accounting and auditing.
21
<PAGE>
Effective May 10, 1995, the Company changed its independent accountants from
Richard A. Eisner & Company LLP ("Eisner") to KPMG Peat Marwick LLP ("Peat
Marwick"). Prior to the retention of Peat Marwick, neither the Company, nor
any person on its behalf, consulted with Peat Marwick regarding the
application of accounting principles to any transaction or the types of audit
opinion that might be rendered on the Company's financial statements. The
decision to change accountants was recommended by the Board of Directors of
the Company. There were no disagreements with Eisner on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to their
satisfaction, would have caused them to make reference in connection with
their opinion to the subject matter of the disagreement.
22
<PAGE>
ALTERNATE OFFERING
#2 PAGES
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
EXERCISE OFFER/PROSPECTUS
OFFER TO REDUCE THE EXERCISE PRICE OF CLASS B WARRANTS TO $7.50
TO HOLDERS OF THE COMPANY'S 10,609,446 CLASS B WARRANTS
FOR EXERCISES BEFORE 5:00 PM ON DECEMBER 24, 1996
ISSUANCE OF UP TO 10,609,446 SHARES OF CLASS A COMMON STOCK
UNDERLYING OUTSTANDING REDEEMABLE CLASS B WARRANTS
Interactive Flight Technologies, Inc. (the "Company"), hereby offers (the
"Exercise Offer"), to the holders (the "Holders") of the Company's outstanding
Class B Redeemable Stock Purchase Warrants (the "Class B Warrants" or
"Warrants") who exercise their Class B Warrants pursuant to the Exercise
Offer, to reduce the exercise price of the outstanding Class B Warrants to
$7.50 per share (from $9.75 per share) for each Class B Warrant so exercised,
in each case if and only if a Holder exercises his or her Class B Warrants
prior to 5:00 P.M., New York City time, on December 24, 1996, unless such date
is extended by the Company as described herein (such date, or such date as so
extended, being referred to as the "Expiration Date"). Following the
Expiration Date and until the Redemption Date described below, a Holder will
continue to have the right to exercise his or her Class B Warrants (in
accordance with the terms thereof) at the re-set exercise price of $9.75 per
share. However, by notice dated October 23, 1996, the Company has exercised
its right pursuant to the terms of the Warrants to redeem (the "Warrant
Redemption") on January 17, 1997 (the "Redemption Date"), each Class B Warrant
not exercised by January 16, 1997, at 5:00 P.M., New York City time.
ACCORDINGLY, ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO 5:00 P.M. NEW YORK
TIME ON JANUARY 16, 1997, WILL CEASE TO BE EXERCISABLE AND WILL REPRESENT ONLY
THE RIGHT TO RECEIVE, ON OR AFTER THE REDEMPTION DATE, $.05 PER WARRANT UPON
SURRENDER THEREOF.
THE EXERCISE OFFER WILL EXPIRE ON DECEMBER 24, 1996, AT 5:00 P.M., NEW
YORK CITY TIME, UNLESS EXTENDED. WITHDRAWAL RIGHTS WILL ALSO EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 24, 1996. FURTHER, ANY CLASS B
WARRANTS NOT EXERCISED BY JANUARY 16, 1997, AT 5:00 P.M. NEW YORK CITY
TIME, WILL CEASE TO BE EXERCISABLE AND WILL THEREAFTER BE REDEEMED ON
JANUARY 17, 1997 FOR $.05 PER WARRANT.
This Exercise Offer/Prospectus also relates to the issuance of up to
10,609,446 shares of the Company's Class A Common Stock, $.01 par value
("Class A Common Stock"), issuable upon exercise of the outstanding Class B
Warrants during and following the Exercise Offer, except that this Exercise
Offer/Prospectus does not relate to the issuance of such shares following the
Exercise Offer to Holders who acquired their Class B Warrants in a transaction
or chain of transactions not involving any public offering.
----------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" ON PAGE 8.
----------------
The Class A Common Stock and the Company's Class B Common Stock, $.01 par
value (the "Class B Common Stock"), are essentially identical in all respects,
except that the Class B Common Stock has six votes per share and the Class A
Common Stock has one vote per share. The Class B Common Stock is convertible
into Class A Common stock on a share-for-share basis. The holders of the Class
B Common Stock, all of whom are executive officers, directors and/or principal
stockholders of the Company, control approximately 75% of the total voting
power of the Company and are therefore able to elect all of the Company's
directors and to control the Company.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS EXERCISE OFFER/ PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Exercise Offer/Prospectus is November 20, 1996
<PAGE>
On March 14, 1995, the Company completed an initial public offering (the
"IPO") of 3,220,000 Units (the "Units"), each Unit consisting of one share of
Class A Common Stock, one redeemable class A warrant (each, a "Class A
Warrant") and one Class B Warrant. Each Class A Warrant entitles the holder to
purchase one share of Class A Common Stock and one Class B Warrant for an
exercise price of $7.00. The components of the Units were transferrable
separately upon issuance. On May 17, 1996, the Company completed an Exercise
Offer pursuant to which the Company offered holders of its redeemable Class A
Warrants who exercised their Class A Warrants (i) to issue an extra 1/2 of a
Class B Warrant for each Class A Warrant exercised by such holder on or prior
to May 17, 1996 (in addition to the one share of Class A Common Stock and one
Class B Warrant issuable upon exercise of the Class A Warrants pursuant to the
terms of the Class A Warrants), and (ii) to reduce the exercise price of the
Class A Warrants to $5.75 per share (from $7.00 per share) with respect to any
such exercise. On July 26, 1996, pursuant to the terms of the Class A
Warrants, the Company redeemed its remaining Class A Warrants for $.05 per
Class A Warrant.
The Class A Common Stock and the Class B Warrants are traded on the Nasdaq
SmallCap Market ("Nasdaq"). On November 15, 1996, the closing sale price of
the Class A Common Stock on Nasdaq was $11.50 per share, and the closing sale
price of the Class B Warrants on Nasdaq was $3.875 per Class B Warrant.
IMPORTANT
Any Holder desiring to exercise all or any portion of his or her Class B
Warrants should either (1) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal, mail or deliver it together with a certified or bank check
payable to "Interactive Flight Technologies, Inc." in the amount of $7.50 per
share exercised in the Exercise Offer and any other required documents to
American Stock Transfer & Trust Company (the "Warrant Agent") and either mail
or deliver the Holder's Class B Warrant certificate(s) to the Warrant Agent or
follow the procedure for book-entry exercise set forth under the caption "The
Exercise Offer--Procedures for Exercising Class B Warrants--Book Entry
Exercise," or (2) request the Holder's broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for him or her. A Holder
having Class B Warrants registered in the name of a broker, dealer, commercial
bank, trust company or other nominee must contact that broker, dealer,
commercial bank, trust company or other nominee if such Holder desires to
exercise such Class B Warrants. Holders who desire to exercise Class B
Warrants and whose certificates for such Class B Warrants are not immediately
available should exercise such Class B Warrants by following the procedures
for guaranteed delivery set forth under the caption "The Exercise Offer--
Procedures for Exercising Class B Warrants--Guaranteed Delivery."
----------------
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MAKING OF
THE EXERCISE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS
IS MAKING ANY RECOMMENDATION TO ANY HOLDER AS TO WHETHER TO EXERCISE CLASS
B WARRANTS PURSUANT TO THE EXERCISE OFFER. EACH HOLDER SHOULD MAKE HIS OR
HER OWN DECISION, AFTER READING THIS EXERCISE OFFER/PROSPECTUS, AS TO
WHETHER TO EXERCISE CLASS B WARRANTS AND, IF SO, HOW MANY CLASS B
WARRANTS TO EXERCISE. THE COMPANY HAS BEEN ADVISED THAT CERTAIN OF ITS
EXECUTIVE OFFICERS OR DIRECTORS INTEND TO EXERCISE THEIR CLASS B
WARRANTS PURSUANT TO THE EXERCISE OFFER.
----------------
Questions and requests for assistance or for additional copies of this
Exercise Offer/Prospectus, the Letter of Transmittal or the Notice of
Guaranteed Delivery may be directed to the Warrant Agent at its address and
telephone number set forth in "The Exercise Offer and Warrant Redemption--
Warrant Agent."
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") with the Commission are
incorporated herein by reference: (1) the Company's Annual Report on Form 10-
KSB for the fiscal year ended October 31, 1995, and Amendment No. 1 to the
Annual Report on Form 10-KSB/A for the fiscal year ended October 31, 1995
(including, but not limited to, the Financial Statements and notes thereto
commencing on page F-1 thereof); (2) the Company's Quarterly Reports on Form
10-QSB dated January 31, 1996, April 30, 1996, and July 31, 1996 (including,
but not limited to, the Financial Statements and notes thereto commencing on
page 3 of each such Quarterly Report); and (3) the description of the
Company's Common Stock as set forth in the Company's registration statement on
Form 8-A filed with the Commission on December 31, 1994, as amended by the
Company's registration statement on Form 8-A/A filed with the Commission on
March 8, 1995, and any other amendments or reports thereto filed with the
Commission for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Exercise Offer/Prospectus and
prior to the termination of the offering of the shares of Common Stock made
hereby shall be deemed to be incorporated in this Exercise Offer/Prospectus by
reference and to be a part hereof from the date of filing of such documents.
Any statement incorporated herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Exercise
Offer/Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Exercise Offer/Prospectus has been delivered, on the request of such
person, a copy of any and all of the information that has been or may be
incorporated by reference in this Exercise Offer/Prospectus, other than
exhibits thereto. Written or oral requests for such copies should be directed
to Interactive Flight Technologies, Inc., 4041 N. Central Avenue, Suite 2000,
Phoenix, Arizona 85012, Attention: Chief Financial Officer. The telephone
number is (602) 200-8900.
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<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
financial statements (including the notes thereto) incorporated by reference
into this Exercise Offer/Prospectus.
THE COMPANY
Interactive Flight Technologies, Inc. (the "Company") is engaged in the
development, assembly, installation and operation of a computer-based in-
flight entertainment network (the "Entertainment Network"). The first
generation of the Entertainment Network provided aircraft passengers the
opportunity to view movies, to play computer games and, in certain cases where
permitted by applicable law, to gamble through a high-resolution video touch
screen. The Company has also recently developed a second generation of the
Entertainment Network (the "IFEN-2") which includes additional features such
as secure casino gaming, in-flight shopping, a telephone interface system, the
ability for passengers to pay for IFEN-2 usage through their credit cards, and
increased video-on-demand capacity.
To date, the Company has entered into contracts to install and operate the
Entertainment Network on the aircraft of three airlines--Alitalia Airlines
S.p.A. ("Alitalia"), Debonair Airlines ("Debonair"), and Swissair VKB
("Swissair"). Under the Company's agreement with Alitalia (the "Alitalia
Agreement"), the first generation of the Entertainment Network system was
installed in November 1995 in the first class and business class seats of an
Alitalia MD-11 aircraft. Following completion of the test period of this first
installed Entertainment Network system, Alitalia accepted the remainder of the
Alitalia Agreement and the Company accordingly delivered first generation
Entertainment Network systems for installation on an additional four Alitalia
MD-11 aircraft. The agreement provides for the Company to operate the
Entertainment Networks on all five aircraft over a period of approximately
eight years. The Alitalia Agreement does not presently provide for, and is not
expected to provide for, passenger use of gambling features of the
Entertainment Network. Under the Alitalia Agreement, Alitalia is to pay an
aggregate of approximately $2.7 million for the hardware components of the
five Entertainment Network systems, of which $1.1 million has been paid to
date and $1.6 million is currently due and payable.
In March 1996, the Company entered into a second airline contract (the
"Debonair Agreement") with Debonair, a start-up European airline. The Debonair
Agreement provides for the Company to deliver and install IFEN-2 systems
(including video casino style gambling) for all seats on Debonair's entire
fleet, which consists of six RJ-146 aircraft. The aggregate purchase price to
be paid by Debonair for the hardware components of the six IFEN-2 systems and
related spare parts is approximately $5.8 million. However, the Debonair
Agreement provides that, provided Debonair utilizes the casino gaming feature
of the Entertainment Networks, Debonair is not required to pay any up-front
funds to the Company for the six Entertainment Networks. Instead, payments to
the Company will be made solely through a revenue-sharing arrangement, which
provides that the Company will receive a percentage of revenues generated by
the Entertainment Networks, principally casino gaming revenues, until the
aggregate purchase price plus accrued interest for all six Entertainment
Networks is paid, and thereafter the Company will receive a reduced percentage
of such revenues. The Debonair Agreement further provides that if the use of
the casino gaming features of the IFEN-2 systems is ordered by law to cease,
then no further payments of purchase price for each installed system shall be
due.
Effective July 18, 1996, the Company entered into an agreement with Swissair
to provide for delivery and installation by the Company of IFEN-2 systems on
sixteen Swissair MD-11 aircraft and five Swissair B-747 aircraft. The Company
will also provide various maintenance and operational services for the
installed IFEN-2 systems. Subject to execution of an agreement with
Interkantonale Landeslotterie ("ILL"), the operator of the Swiss lottery based
in Zurich, Switzerland, the IFEN-2 systems installed on Swissair aircraft will
allow passengers to participate in various Swiss lottery games, but are not
expected to allow use of the traditional casino style gaming features such as
slots or poker. In the event that no agreement is reached with ILL, either
Swissair or the Company may terminate the Swissair Agreement.
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<PAGE>
Under the Swissair Agreement, subject to the terms thereof, the Company is
entitled to receive an aggregate of approximately $72 million for the IFEN-2
hardware, plus the costs of installation and certain upgrades. The Company
will also be reimbursed for its projected costs in connection with maintaining
and operating the systems. However, the hardware purchase price and the
operating expenses are payable only out of net revenues received from
passenger participation in the aforementioned lottery games. Further, the
Company may receive such amounts only after Swissair is first reimbursed from
the net lottery revenues for certain expenses incurred in connection with the
installation and operation of the IFEN-2 systems. Any amounts remaining after
payment of the Company's operating costs and the hardware purchase price will
be paid over to ILL. The Company will also receive a percentage of revenues
and commissions from advertising and shopping services available on the
installed IFEN-2 systems.
The Company is aggressively marketing the Entertainment Network to numerous
additional airlines, focusing primarily on international carriers or domestic
carriers with international routes. However, there can be no assurance that
definitive agreements will be executed with any other airlines. See "Risk
Factors."
Since commencement of operations, the Company has developed a substantial
catalogue of proprietary technology and know-how relating to the Entertainment
Network and its related systems. In addition, the Company has an exclusive
license (the "FortuNet License") for technology for airline use from FortuNet,
Inc. ("FortuNet"), a gaming equipment manufacturer that distributes video
gaming networks to casinos and other gaming establishments. The Chief
Executive Officer of the Company, who is also a director and principal
stockholder of the Company, is a former employee of FortuNet and was a
substantial contributor to the development of the technology licensed from
FortuNet.
The purpose of the Exercise Offer is to raise additional capital by
encouraging Holders to exercise their Class B Warrants. In the absence of the
Exercise Offer, the Company anticipates that its current cash reserves,
together with funds to be received from its current contracts (described
above), will be sufficient to fund the Company's currently-budgeted operations
through December 1996. The Company will require significant additional
financing to continue its operations beyond such date. In the absence of the
Exercise Offer, the Company will not have sufficient resources to deliver all
the Entertainment Networks to Debonair and Swissair as currently contemplated
under the Debonair Agreement and the Swissair Agreement and, therefore, the
ability of the Company to successfully perform under those contracts is
dependent upon raising capital through the Exercise Offer or otherwise.
The Exercise Offer represents, in the opinion of the Company, a critical
opportunity to raise the needed significant capital, particularly in light of
the fact that there is no assurance that the Company will be able to secure
significant capital through other sources. Assuming that 100%, 75% and 50% of
the Class B Warrants are exercised in the Exercise Offer, the Company will
receive net proceeds (after payment of a 5% solicitation fee and estimated
expenses of approximately $80,000) of approximately $75,512,303, $56,614,227
and $37,716,151, respectively. These proceeds, together with the revenues
assumed to be derived under the Company's contracts, would be expected to be
sufficient to fund the Company's operations through approximately October
1998, December 1997, and March 1997, respectively. However, the Company is
engaged in discussions with a number of airlines and, in the event that the
Company obtains commitments from one or more airlines for the purchase of
additional Entertainment Networks financed by the Company, the foregoing
estimates of the Company's liquidity are likely to be significantly shortened,
since the Company anticipates that such agreements will contain extended
payment terms similar to those of its current contracts. See "Risk Factors --
Need for Additional Financing; Potential Cash Shortages."
The Company was incorporated in Delaware in August 1994 and is the successor
by merger to In-Flight Entertainment Services Corp., a New York corporation
incorporated in February 1994. The Company completed an initial public
offering of its securities in March 1995. Unless the context requires or as
otherwise indicated, all references to the "Company" include the predecessor
company. The Company's principal executive offices are located at 4041 N.
Central Avenue, Suite 2000, Phoenix, Arizona 85012, and its telephone number
is (602) 200-8900.
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<PAGE>
SUMMARY OF THE OFFERING
<TABLE>
<C> <S>
Securities Offered............... 10,609,446 shares of Class A Common Stock underlying
outstanding Class B Warrants.
Expiration Date.................. December 24, 1996, unless extended by the Company. The
"Expiration Date" is the original expiration date of
the Exercise Offer or as that date may be extended. See
"The Exercise Offer--Terms of the Exercise Offer."
Redemption Date.................. January 17, 1997
Class B Warrant Exercise Price:
During the Exercise Offer... $7.50 per share.
After the Exercise Offer
(but prior to the
Redemption Date)........... $9.75 per share.
Redemption Price of Class B War-
rants Not Exercised Prior to Re-
demption Date................... $0.05 per Class B Warrant
Shares of Class A Common Stock
Outstanding:
Prior to the Exercise Offer. 8,102,060 shares(1)
After the Exercise Offer.... 18,711,506 shares(1)(2)
Class B Warrants Outstanding:
Prior to the Exercise Offer. 10,609,446 Class B Warrants
After the Exercise Offer.... (3)
Closing Sale Price Prior to
Announcement of Exercise Offer
and Warrant Redemption
(October 16, 1996).............. Class A Common Stock: $11.375 per share
Class B Warrants: $4.25 per Class B Warrant
Current Closing Sale Price
(November 15, 1996)............. Class A Common Stock: $11.50 per share
Class B Warrants: $3.875 per Class B Warrant
Ownership of Class B Warrants.... Certain officers and directors of the Company own Class
B Warrants, and some of these individuals have advised
the Company that they intend to exercise their Class B
Warrants in the Exercise Offer.
Warrant Agent.................... American Stock Transfer and Trust Company, 40 Wall
Street, 46th Floor, New York, NY 10005, 1-800-937-5449
(Reorganization Department).
Method of Exercising............. In order to exercise Class B Warrants, Holders must
follow the procedures set forth under the caption "The
Exercise Offer--Procedures for Exercising Class B
Warrants."
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
Warrant Solicitation Fee......... Pursuant to the terms of the warrant agreement
governing the Class B Warrants, the Company will be
required to pay to D.H. Blair Investment Banking Corp.,
the underwriter of the Company's initial public
offering ("Blair"), a warrant solicitation fee equal to
5% of the gross proceeds received by the Company from
the exercise of Class B Warrants in the Exercise Offer.
See "Plan of Distribution."
Use of Proceeds.................. The net proceeds to the Company will be utilized to
implement the Company's plan of operation, including
performing under its current contracts; marketing the
Entertainment Network to additional airlines and
performing under any contracts executed with such
airlines; and continuing the development of the
Entertainment Network. See "Purpose of Exercise Offer
and Use of Proceeds."
Risk Factors..................... The securities offered hereby involve a high degree of
risk and should not be purchased by investors who
cannot afford the loss of their entire investment. See
"Risk Factors."
</TABLE>
- --------
(Footnotes from page 6)
(1) Excludes (i) 10,609,446 shares of Class A Common Stock issuable upon
exercise of the outstanding Class B Warrants; (ii) 165,000 shares of Class
A Common Stock issuable upon outstanding Class C Warrants; (iii) 165,000
shares of Class A Common Stock issuable upon outstanding Class D Warrants;
(iv) 1,120,000 shares of Class A Common Stock issuable upon exercise of
unit purchase options and the Class A and Class B Warrants contained
therein issued to Blair in the Company's initial public offering; and
(v) 2,274,200 shares of Class A Common Stock reserved for issuance under
the Company's Stock Option Plan, under which, as of the date of this
Exercise Offer/Prospectus, options to purchase 1,584,200 shares of Class A
Common Stock are outstanding. See "Concurrent Offerings" and "Description
of Securities."
(2) Assumes the issuance of 10,609,446 shares of Class A Common Stock, the
maximum number of shares issuable upon the exercise of the maximum number
of Class B Warrants exercisable under the terms of the Exercise Offer.
(3) If 100%, 75% and 50% of the Class B Warrants are exercised in the Exercise
Offer, 0, 2,652,362 and 5,304,723 Class B Warrants, respectively, would
remain outstanding after the Exercise Offer. However, any such remaining
Class B Warrants will be redeemed for $.05 on January 17, 1997, unless
exercised prior thereto.
THE EXERCISE OFFER AND WARRANT REDEMPTION
THE CLASS B WARRANTS
The Class B Warrants are subject to a Warrant Agreement (the "Warrant
Agreement") by and among the
Company, Blair and American Stock Transfer and Trust Company, as Warrant
Agent. Pursuant to the terms of the Warrant Agreement, the Class B Warrants
are exercisable for one share of Class A Common Stock (the "Underlying Stock")
at an exercise price of $9.75, subject to adjustment, at any time prior to the
Redemption Date. See "Description of Securities--Redeemable Class B Warrants."
THE COMPANY IS HEREBY OFFERING, TO HOLDERS WHO EXERCISE THEIR CLASS B
WARRANTS PURSUANT TO THE EXERCISE OFFER, TO REDUCE THE EXERCISE PRICE OF CLASS
B WARRANTS TO $7.50 PER SHARE (FROM $9.75 PER SHARE) FOR EACH CLASS B WARRANT
SO EXERCISED, IF AND ONLY IF A HOLDER EXERCISES HIS OR HER CLASS B WARRANTS
PRIOR TO THE EXPIRATION DATE (AS HEREINAFTER DEFINED).
IN ADDITION, BY NOTICE DATED OCTOBER 23, 1996, THE COMPANY HAS EXERCISED ITS
RIGHT TO REDEEM FOR $.05 ANY CLASS B WARRANT WHICH IS NOT EXERCISED PRIOR TO
JANUARY 16, 1997, AT 5:00 P.M. NEW YORK CITY TIME.
Alt 2-7
<PAGE>
TERMS OF THE EXERCISE OFFER
Pursuant to the Exercise Offer, the Company has offered to reduce to $7.50
the Exercise Price of Class B Warrants to Holders of the Company's 10,609,446
Class B Warrants, for exercises before December 24, 1996. The reduced per
share exercise price of $7.50 was selected by the Company, after consultation
with Blair, as the highest exercise price which would be expected to induce
all or a substantial portion of the Holders to exercise their Class B Warrants
in the Exercise Offer. However, there can be no assurance that the reduction
in exercise price will be sufficient to induce Holders to exercise their
Warrants.
Upon the terms and subject to the conditions of the Exercise Offer, the
Company will accept exercises for any and all Class B Warrants that are
validly exercised in accordance with the terms of the Exercise Offer prior to
the Expiration Date (as hereinafter defined) and not withdrawn in accordance
with the procedures set forth under the caption "--Withdrawal Rights." As used
in the Exercise Offer, the term "Expiration Date" means 5:00 p.m., New York
City time, on December 24, 1996; provided, however, that if the Company, in
its sole discretion, has extended the period of time during which the Exercise
Offer will be open, the term "Expiration Date" means the latest time and date
on which the Exercise Offer, as so extended, will expire.
The Company reserves the right, in its sole discretion, at any time and from
time to time, to extend the period of time during which the Exercise Offer is
open by giving oral or written notice of such extension to the Warrant Agent.
There can be no assurance that the Company will exercise its right to extend
the Exercise Offer. If the Company decides, in its sole discretion, to
decrease the number of Class B Warrants exercisable in the Exercise Offer or
to increase or decrease the $7.50 exercise price applicable in the Exercise
Offer and, at the time that notice of such increase or decrease is first
published, sent or given to holders of Class B Warrants in the manner
specified below, the Exercise Offer is scheduled to expire at any time earlier
than the tenth business day from the date that such notice is first so
published, sent or given, the Exercise Offer will be extended until the
expiration of such period of ten business days.
The Company also expressly reserves the right to (i) delay the acceptance of
exercises of any Class B Warrants not theretofore accepted for exercise in
order to comply in whole or in part with applicable law, (ii) terminate the
Exercise Offer and not accept for exercise any Class B Warrants not
theretofore accepted for exercise upon the occurrence of any of the conditions
specified under the caption "--Certain Conditions of the Exercise Offer," and
(iii) amend the Exercise Offer in any respect at any time and from time to
time.
Any extension, delay, termination or amendment will be followed as promptly
as practicable by public announcement thereof, such announcement in the case
of an extension to be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. For
purposes of the Exercise Offer, a "business day" means any day, other than a
Saturday, Sunday or Federal holiday, on which the principal office of the
Commission in Washington, D.C. is scheduled to be open for business and
consists of the time period from 12:01 a.m. through 12:00 midnight, New York
City time. Without limiting the manner in which the Company may choose to make
any public announcement, except as provided by applicable law (including Rule
13e-4(e)(2) under the Exchange Act), the Company shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a release to the Dow Jones News Service.
The Company confirms that if it makes a material change in the terms of the
Exercise Offer or the information concerning the Exercise Offer, or if it
waives a material condition of the Exercise Offer, the Company will extend the
Exercise Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2)
under the Exchange Act, which require that the minimum period during which an
offer must remain open (to allow for adequate dissemination to Holders and
Holder response) following material changes in the terms of the Exercise Offer
or information concerning the Exercise Offer, other than a change in
percentage of securities exercisable or the $7.50 exercise price applicable in
the Exercise Offer, will depend upon the facts and circumstances, including
the relative materiality of the terms or information. The Company confirms
that its reservation of the right to delay issuance to Holders of the
Underlying Stock in respect of exercise of Class B Warrants which it
Alt 2-8
<PAGE>
has accepted for exercise is limited by Rule 13e-4(f)(5) under the Exchange
Act, which requires that an issuer pay the consideration offered or return the
exercised securities promptly after the termination or withdrawal of the
Exercise Offer.
ACCEPTANCE FOR PAYMENT; PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Exercise Offer
(including, if the Exercise Offer is extended or amended, the terms and
conditions of the Exercise Offer as so extended or amended), the Company will
accept for exercise any and all Class B Warrants validly exercised prior to
the Expiration Date and not withdrawn, as soon as practicable after the
Expiration Date. In all cases, acceptance of exercises of Class B Warrants
pursuant to the Exercise Offer will only be made, and the Underlying Stock
will only be issued, after timely receipt by the Warrant Agent of (i)
certificates for such Class B Warrants or confirmation (a "Book-Entry
Confirmation") of such Class B Warrants in the Warrant Agent's account at The
Depository Trust Company ("DTC"), the Pacific Securities Depository Trust
Company ("PSDTC") or the Philadelphia Depository Trust Company ("Philadep")
(DTC, PSDTC and Philadep being sometimes collectively referred to as the
"Book-Entry Transfer Facilities" or individually referred to as a "Book-Entry
Transfer Facility") pursuant to the procedure set forth under the caption "--
Procedures for Exercising Class B Warrants--Book-Entry Exercise," (ii) a
properly completed and duly executed Letter of Transmittal or manually signed
facsimile thereof (with any required signature guarantees) or, in the case of
book-entry exercise, an Agent's Message (as defined below), (iii) a certified
or bank check payable to "Interactive Flight Technologies, Inc." in the amount
of $7.50 per share exercised in the Exercise Offer, and (iv) any other
documents required by the Letter of Transmittal to American Stock Transfer &
Trust Company (the "Warrant Agent").
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Warrant Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility's system exercising the Class B Warrants which are the
subject of such Book-Entry Confirmation, that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal, and that the
Company may enforce such agreement against such participant.
For purposes of the Exercise Offer, the Company shall be deemed to have
accepted for exercise Class B Warrants as, if and when the Company gives oral
or written notice to the Warrant Agent, as agent for the exercising Holders,
of the Company's acceptance for exercise of such Class B Warrants pursuant to
the Exercise Offer. Subject to the terms and conditions of the Exercise Offer,
issuance of the Underlying Stock with respect to Class B Warrants accepted for
exercise pursuant to the Exercise Offer will be made by the Warrant Agent,
which will act as agent for the exercising Holders for the purpose of
receiving such securities from the Company and transmitting such securities to
exercising Holders. If any exercised Class B Warrants are not accepted for
exercise for any reason, or if certificates are submitted for more Class B
Warrants than are exercised, then certificates for such Class B Warrants not
accepted for exercise or not exercised will be returned (or, in the case of
Class B Warrants exercised by book-entry transfer into the Warrant Agent's
account at a Book-Entry Transfer Facility, such Class B Warrants will be
credited to an account maintained at such Book-Entry Transfer Facility),
without expense to the exercising Holder, as soon as practicable after the
expiration or termination of the Exercise Offer.
If, prior to the Expiration Date, the Company shall increase or decrease the
$7.50 exercise price applicable in the Exercise Offer, the Company will make
applicable the increased or decreased exercise price in respect of, all
Holders whose Class B Warrants are accepted for exercise pursuant to the
Exercise Offer.
PROCEDURES FOR EXERCISING CLASS B WARRANTS
Valid Exercise. For Class B Warrants to be validly exercised pursuant to the
Exercise Offer, a properly completed and duly executed Letter of Transmittal
or manually signed facsimile thereof (with any required signature guarantees),
together with a certified or bank check payable to "Interactive Flight
Technologies, Inc."
Alt 2-9
<PAGE>
in the amount of $7.50 per share so exercised in the Exercise Offer and any
other documents required by the Letter of Transmittal, or, solely in
connection with a book-entry exercise of the Class B Warrants, an Agent's
Message must be received by the Warrant Agent prior to the Expiration Date at
its address set forth in "The Exercise Offer and Warrant Redemption--Warrant
Agent," and either the certificates for such Class B Warrants must be
delivered to the Warrant Agent along with the Letter of Transmittal, or such
Class B Warrants must be delivered pursuant to the procedure for book-entry
transfer set forth below and a Book-Entry Confirmation of receipt of such
Class B Warrants must be received by the Warrant Agent, in each case prior to
the Expiration Date. Holders who are unable to comply with the foregoing
procedures prior to the Expiration Date may exercise Class B Warrants pursuant
to the guaranteed delivery procedures set forth below.
IN ORDER FOR AN EXERCISING HOLDER TO PARTICIPATE IN THE EXERCISE OFFER,
CLASS B WARRANTS MUST BE VALIDLY EXERCISED PRIOR TO THE EXPIRATION DATE, WHICH
IS CURRENTLY 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, DECEMBER 24, 1996.
Book-Entry Exercise. The Warrant Agent will establish accounts with respect
to the Class B Warrants at each of the Book-Entry Transfer Facilities for
purposes of the Exercise Offer within two business days after the date of this
Exercise Offer/Prospectus, and any financial institution that is a participant
in a Book-Entry Transfer Facility system may make book-entry exercises of
Class B Warrants by causing the Book-Entry Transfer Facility to exercise such
Class B Warrants in the Warrant Agent's account at such Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures for
such exercise. However, although exercise of Class B Warrants may be effected
through book-entry at a Book-Entry Transfer Facility, the Letter of
Transmittal (or manually signed facsimile thereof), properly completed and
duly executed (with any required signature guarantees), together with a
certified or bank check payable to "Interactive Flight Technologies, Inc." in
the amount of $7.50 per share so exercised in the Exercise Offer and any other
required documents must, in any case, be transmitted to and received by the
Warrant Agent at its address set forth in "The Exercise Offer and Warrant
Redemption--Warrant Agent" prior to the Expiration Date, or exercising Holders
must comply with the guaranteed delivery procedures set forth below. DELIVERY
OF SUCH DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH
BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
WARRANT AGENT.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or by a
bank, credit union, savings association or other entity which is a member in
good standing of the Securities Transfer Agent's Medallion Program
(collectively, "Eligible Institutions") unless the Class B Warrants exercised
thereby are exercised (i) by a registered Holder of such Class B Warrants
(which term shall include any participant in a Book-Entry Transfer Facility
whose name appears on a security position listing as the owner) who has not
completed the box entitled "Special Issuance Instructions" on the Letter of
Transmittal, or (ii) for the account of an Eligible Institution. See
Instruction 1 of the Letter of Transmittal. If the certificates are registered
in the name of a person other than the signer of the Letter of Transmittal, or
if payment is to be made, or Class B Warrants not exercised or not accepted
for exercise are to be issued, to a person other than the registered Holder,
then the certificates must be endorsed or accompanied by appropriate transfer
powers, in either case signed exactly as the names of the registered Holder
appears on the certificates, and the signatures on the certificates or stock
powers must be guaranteed as aforesaid. See Instruction 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a Holder desires to exercise Class B Warrants
pursuant to the Exercise Offer and certificates for such Class B Warrants are
not immediately available, or the procedure for book-entry transfer cannot be
completed on a timely basis, or time will not permit all required documents to
reach the Warrant Agent prior to the Expiration Date, such Class B Warrants
may nevertheless be exercised if all of the following conditions are met:
(i) such exercise is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided herewith is delivered to the Warrant
Agent in the manner provided below and received by the Warrant Agent prior
to the Expiration Date; and
Alt 2-10
<PAGE>
(iii) the certificates for all exercised Class B Warrants in proper form
for exercise (or Book-Entry Confirmation of exercise of such Class B
Warrants in the Warrant Agent's account at a Book-Entry Transfer Facility
as described above), together with a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), a certified
or bank check payable to "Interactive Flight Technologies, Inc." in the
amount of $7.50 per share so exercised in the Exercise Offer and any other
documents required by the Letter of Transmittal (or, in the case of book-
entry exercise, an Agent's Message), are received by the Warrant Agent
within five New York Stock Exchange trading days after the date of
execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by telegram, telex, facsimile transmission or mail, to the Warrant Agent and
must include a guarantee by an Eligible Institution in the form set forth in
such Notice of Guaranteed Delivery. In all cases, issuance of the Underlying
Stock in respect of Class B Warrants accepted for exercise will be made only
after timely receipt by the Warrant Agent of (i) certificates for such Class B
Warrants (or Book-Entry Confirmation of exercise of such Class B Warrants in
the Warrant Agent's account at a Book-Entry Transfer Facility as described
above), (ii) a properly completed and duly executed Letter of Transmittal or
manually signed facsimile thereof (with any required signature guarantees) or,
in the case of book-entry exercises, an Agent's Message, (iii) a certified or
bank check payable to "Interactive Flight Technologies, Inc." in the amount of
$7.50 per share so exercised in the Exercise Offer, and (iv) any other
documents required by the Letter of Transmittal.
The method of delivery of all documents, including certificates for Class B
Warrants, is at the election and risk of the exercising Holder. If delivery is
by mail, registered or certified mail with return receipt requested, properly
insured, is recommended and sufficient time should be allowed to ensure timely
delivery.
Other Requirements. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for exercise of Class B Warrants
pursuant to any of the procedures described above will be determined in the
sole discretion of the Company, whose determination shall be final and
binding. The Company reserves the absolute right to reject any or all
exercises determined by it not to be in proper form or the acceptance of which
would, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any of the conditions of the Exercise
Offer or any defect or irregularity in any exercise with respect to any
particular Class B Warrants of any particular Holder. The Company's
interpretation of the terms and conditions of the Exercise Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding. No exercise of Class B Warrants will be deemed to have been validly
made until all defects and irregularities have been cured or waived. Neither
the Company or the Warrant Agent or any other person will be under any duty to
give notification of any defects or irregularities in exercises nor will any
of them incur any liability for failure to give any such notification.
If, on or after the date hereof, the Company should split, combine or
otherwise change the Class A Common Stock or Class B Warrants, or shall
disclose that it has taken any such action or if there shall occur any
antidilution adjustment pursuant to the terms of the Class B Warrants or other
adjustment affecting the exercise price or the number of shares of Class A
Common Stock obtainable upon exercise of the Class B Warrants, then, without
prejudice to the Company's rights set forth under the captions "--Terms of the
Exercise Offer" and "--Certain Conditions of the Exercise Offer," the Company,
in its sole discretion, may make such adjustments in the exercise price, the
amount and nature of the securities issuable upon exercise thereof and other
terms of the Exercise Offer as it deems appropriate to reflect such split,
combination or other change.
WITHDRAWAL RIGHTS
Except as stated herein, exercises of Class B Warrants made pursuant to the
Exercise Offer are irrevocable. Class B Warrants exercised pursuant to the
Exercise Offer may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for exercise by the Company, may also be withdrawn
after , 1996. If, for any reason, the Company is delayed in its
acceptance for exercise of any Class B Warrants, or is unable to accept Class
B Warrants for exercise pursuant to the Exercise Offer then, without prejudice
to the
Alt 2-11
<PAGE>
Company's rights under the Exercise Offer, exercised Class B Warrants may be
retained by the Warrant Agent on behalf of the Company and may not be
withdrawn, except to the extent that exercising Holders are entitled to
withdrawal rights as set forth herein.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Warrant Agent
at its address set forth in "The Exercise Offer and Warrant Redemption--
Warrant Agent." Any such notice of withdrawal must specify the name of the
person who exercised the Class B Warrants, the name of the registered
holder(s), if different from the name of the person who exercised the Class B
Warrants, the number of Class B Warrants exercised and the number of Class B
Warrants to be withdrawn. If certificates for Class B Warrants to be withdrawn
have been delivered or otherwise identified to the Warrant Agent, the serial
numbers shown on the particular certificates evidencing the Class B Warrants
to be withdrawn and a signed notice of withdrawal with the signature
guaranteed by an Eligible Institution (except in the case of Class B Warrants
exercised by an Eligible Institution) must be submitted prior to the physical
release of the certificates for the Class B Warrants to be withdrawn. If Class
B Warrants have been exercised pursuant to the procedure for book-entry
transfer described under the caption "--Procedures for Exercising Class B
Warrants--Book-Entry Exercise," the notice of withdrawal must specify the name
and number of the account at the applicable Book-Entry Transfer Facility to be
credited with the withdrawn Class B Warrants.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined in the sole discretion of the
Company, whose determination shall be final and binding. Neither the Company
nor the Warrant Agent or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal nor
will any of them incur any liability for failure to give any such
notification.
Any Class B Warrants withdrawn will be deemed not validly exercised for
purposes of the Exercise Offer. However, withdrawn Class B Warrants may be
reexercised at any subsequent time prior to the Expiration Date by following
any of the procedures described under the caption "--Procedures for Exercising
Class B Warrants."
CERTAIN CONDITIONS OF THE EXERCISE OFFER
Notwithstanding any other provision of the Exercise Offer, the Company shall
not be required to accept for exercise any Class B Warrants exercised, or may
terminate the Exercise Offer, or may delay the acceptance for exercise of
Class B Warrants pursuant to the Exercise Offer, if at any time on or after
, 1996 and before the acceptance for exercise of any such Class B
Warrants or the payment therefor any one or more of the following shall occur:
(a) there shall have occurred (i) any general suspension of, or general
limitation on prices for, or trading in, securities on the Nasdaq SmallCap
Market, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation
(whether or not mandatory) by any governmental agency or authority on, or
any other event that adversely affects, the extension of credit by banks or
other financial institutions, (iii) a material change in United States or
any other currency exchange rates or a suspension of or limitation on the
markets therefor, (iv) a commencement of a war, armed hostilities or other
similar international calamity directly or indirectly involving the United
States, or, (v) in the case of any of the foregoing existing at the time of
the commencement of the Exercise Offer, a material acceleration or
worsening thereof; or
(b) any change (or development involving a prospective change) shall have
occurred or been threatened in the business, properties, assets, financial
condition, operations, results of operation or prospects of the Company
that is or may be materially adverse to the Company, or the Company shall
have become aware of any fact that is or may be materially adverse with
respect to the value of the Class B Warrants; or
Alt 2-12
<PAGE>
(c) there shall have been threatened or instituted or there shall be
pending any action, proceeding, order, decree or injunction by or before
any court, government or governmental agency or other regulatory or
administrative authority, domestic or foreign, that (i) challenges the
exercise of Class B Warrants pursuant to the Exercise Offer or otherwise
relates in any manner to the Exercise Offer, (ii) otherwise could
materially adversely affect the business, properties, assets, stock
ownership, liabilities, financial condition, operations, results of
operations or prospects of the Company, or (iii) in the case of any of the
foregoing existing at the time of the commencement of the Exercise Offer,
any development shall have occurred that the Company, in its sole judgment,
determines to be adverse; or
(d) any action shall have been taken or any statute, rule, regulation or
order shall have been proposed, enacted, promulgated, enforced or deemed to
be applicable to the Exercise Offer by any court, government or
governmental agency or other regulatory or administrative authority,
domestic or foreign, which would or might prohibit, restrict or delay
consummation of the Exercise Offer or materially impair the contemplated
benefits to the Company of the Exercise Offer; or
(e) a tender or exchange offer with respect to some or all of the Class B
Warrants and/or Class A Common Stock, or a merger or acquisition proposal
for the Company, shall have been proposed, announced or made by any group
or person, or the Company shall enter into any agreement with respect to a
merger, other business combination, disposition of assets other than in the
ordinary course of business or issuance of securities with any person;
which, in the sole judgment of the Company in any such case, and regardless of
the circumstances (including any action by the Company) giving rise to any
such condition, makes it inadvisable to proceed with the Exercise Offer or
with such acceptance for exercise.
All the foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to such
condition (including any action or inaction by the Company) or may be waived
by the Company in whole or in part at any time and from time to time in its
sole discretion. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. Any determination by the Company concerning the events
described herein will be final and binding.
WARRANT AGENT
The Warrant Agent is American Stock Transfer & Trust Company. The Warrant
Agent's telephone number is 1-800-937-5449 (Reorganization Department). The
address to which the Warrants, payments of the exercise price of Class B
Warrants and Letters of Transmittal should be mailed or delivered is: 40 Wall
Street, 46th Floor, New York, New York 10005.
FEES AND EXPENSES
The Warrant Agent will receive reasonable and customary compensation for its
services and will be reimbursed for certain out-of-pocket expenses estimated
to total approximately $5,000.
Pursuant to the terms of the Warrant Agreement, the Company has agreed not
to solicit Class B Warrant exercises other than through Blair, unless Blair
declines to make such solicitation. Blair has agreed to assist the Company in
effecting the Exercise Offer. Upon any exercise of the Class B Warrants
commencing March 7, 1996, the Company will pay Blair a fee of 5% of the
aggregate Warrant exercise price, if (i) the market price of the Company's
Class A Common Stock on the date the Warrants are exercised is greater than
the then exercise price of the Warrants; (ii) the exercise of the Warrants was
solicited by a member of the NASD as designated in writing on the Warrant
Certificate subscription form; (iii) the Warrants are not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrants;
and (v) the solicitation of exercise of the Warrant was not in violation of
Rule 10b-6 promulgated under the Exchange Act.
Alt 2-13
<PAGE>
Rule 10b-6 may prohibit Blair from engaging in any market making activities
with regard to the Company's securities for the period from nine business days
(or such other applicable period as Rule 10b-6 may provide) prior to any
solicitation by Blair of the exercise of the Class B Warrants until the later
of the termination of such solicitation activity or the termination (by waiver
or otherwise) of any right that Blair may have to receive a fee for the
exercise of the Class B Warrants following such solicitation. As a result,
Blair may be unable to provide a market for the Company's securities during
the Exercise Offer.
The Company will also reimburse brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
forwarding copies of this Exercise Offer/Prospectus to the beneficial owners
of Class B Warrants held in their names or in forwarding tenders for their
customers.
The expenses of making the Exercise Offer to be incurred by the Company are
estimated at approximately $80,000 (not including the 5% fee payable to
Blair).
WARRANT REDEMPTION
Under the Warrant Agreement, the Class B Warrants are subject to redemption
by the Company for $.05 per Warrant, upon at least 30 days' written notice, if
the average closing bid price of the Class A Common Stock exceeds $13.65 per
share (subject to adjustment) for 30 consecutive business days ending within 5
days of the date of the notice of redemption. This condition was satisfied
during the 30 business day period which commenced September 9, 1996, and ended
October 18, 1996. Accordingly, by notice to Holders dated October 23, 1996,
the Company exercised its right to redeem the Class B Warrants on January 17,
1997 (the "Redemption Date"). As a result, the right of Holders to exercise
their Class B Warrants to purchase shares of the Class A Common Stock of the
Company will terminate at 5:00 p.m., New York Time on January 16, 1997 (i.e.,
the last business day prior to the Redemption Date). After such time, Holders
will have no rights except to receive $.05 for each Class B Warrant upon
surrender thereof.
PURPOSE OF EXERCISE OFFER AND USE OF PROCEEDS
The purpose of the Exercise Offer is to raise additional capital by
encouraging holders of the Class B Warrants to make an investment in the
Company. In the event that 100%, 75% and 50% of the outstanding Class B
Warrants are exercised in the Exercise Offer, the estimated net proceeds to
the Company would be $75,512,303, $56,614,227 and $37,716,151, respectively,
after deducting fees and estimated expenses and without giving effect to the
exercise of remaining Warrants, if any, subsequent to completion of the
Exercise Offer.
The Company anticipates that, in the absence of the Exercise Offer, the
Company's current cash reserves, together with the funds to be received from
its current contracts (described above), will be sufficient to fund the
Company's currently-budgeted operations through December 1996. Beyond such
date, however, the Company will require significant additional financing to
continue its operations. Accordingly, the Exercise Offer represents, in the
opinion of the Company, a critical opportunity to raise the needed significant
capital, particularly in light of the fact that there is no assurance that the
Company will be able to secure significant capital through other sources.
The net proceeds to the Company from the exercise of the Class B Warrants
will be added to the Company's working capital and will be available for any
general corporate uses. The Company intends to utilize the net proceeds from
the Exercise Offer to implement its plan of operation, including performing
its current contracts; marketing the Entertainment Network to additional
airlines and performing under any contracts executed with such airlines; and
continuing the development of the Entertainment Network.
Assuming that 100%, 75% and 50% of the Class B Warrants are exercised in the
Exercise Offer, and without giving effect to the subsequent exercise of
remaining Class B Warrants, if any, prior to the Redemption Date, the Company
currently estimates that net proceeds therefrom, together with its current
cash reserves and
Alt 2-14
<PAGE>
anticipated funds to be received from its current contracts, will be
sufficient to fund its currently-budgeted operations until approximately
October 1998, December 1997 and March 1997, respectively. However, in the
event the Company receives any additional purchase orders from airlines for
any significant number of Entertainment Networks in excess of those currently
contracted for, the foregoing estimate of the Company's liquidity is likely to
be significantly shortened, since the Company anticipates that any future
agreement with airlines, particularly foreign airlines, will contain extended
payment terms similar to those of its current contracts and require the
Company to fund equipment purchases for additional Entertainment Networks
prior to obtaining any payments from such airlines. As a result, or in the
further event of delays in product development or regulatory approvals, cost
overruns or other unanticipated expenses commonly associated with a company in
an early stage of development, the Company may require additional capital. In
addition, the Company will need additional financing following such periods if
it has not obtained a significant number of additional purchase commitments
from airlines and, even if such commitments are obtained, to fund equipment
purchases and installations prior to collection of related receivables from
airline customers. In the event such financing is not obtained, the Company
may be materially adversely affected and may have to cease or substantially
reduce operations.
The foregoing represents the Company's best estimate of its utilization of
the net proceeds from the Exercise Offer and its capital requirements and
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. This estimate is based on
certain assumptions, including that development, testing, regulatory,
manufacturing and installation activities can be completed at budgeted costs.
The estimates are also based upon the current status of the Company's business
operations, its current plans, and current economic, regulatory and industry
conditions. Future events, as well as changes in economic, regulatory or
competitive conditions or the Company's business and the results of the
Company's sales and marketing activities, may make shifts in the allocation of
funds necessary or desirable. In addition, the Company may utilize funds
allocated to working capital for acquisitions of new products or product lines
or other companies and to fund inventory purchases and installations prior to
collection of receivables. The Company does not currently have any agreements,
commitments or arrangements with respect to any proposed acquisitions and
there can be no assurance that any acquisition will be consummated. See
"Forward-Looking Information."
The Company further anticipates a need for additional funding beyond the
proceeds of the Exercise Offer, and may attempt to procure such funds either
in the form of debt or equity financing or both. There can be no assurance
that necessary financing will be obtained. See "Risk Factors--Need for
Additional Financing; Potential Cash Shortages."
Alt 2-15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
July 31, 1996, and (ii) pro forma as of July 31, 1996 to reflect the exercise
of 100%, 75% and 50% of the outstanding Class B Warrants in the Exercise
Offer, and the application of the estimated net proceeds therefrom of
$75,512,303, $56,614,227 and $37,716,151, respectively. This table should be
read in conjunction with the Financial Statements and the Notes thereto
incorporated by reference herein.
<TABLE>
<CAPTION>
JULY 31, PRO FORMA(4)(5) PRO FORMA(4)(6) PRO FORMA(4)(7)
1996 JULY 31, 1996 JULY 31, 1996 JULY 31, 1996
------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Stockholders' Equity:
Preferred Stock, $.01
par value; 5,000,000
shares authorized; no
shares issued and
outstanding.......... -- -- -- --
Class A Common Stock,
$.01 par value;
40,000,000 shares
authorized; 8,046,610
shares issued and
Outstanding(1)(2).... 80,466 186,561 160,037 133,513
Class B Common Stock,
$.01 par value;
3,960,000 shares
authorized; 3,960,000
shares issued and
outstanding(1)(3).... 39,600 39,600 39,600 39,600
Additional paid-in
capital.............. 40,395,426 115,801,634 96,930,082 78,058,530
Accumulated deficit... (13,314,404) (13,314,404) (13,314,404) (13,314,404)
------------ ------------ ------------ ------------
Total stockholders'
equity............. 27,201,088 102,793,391 83,815,315 64,917,239
------------ ------------ ------------ ------------
Total
capitalization..... $ 27,201,088 $102,793,391 $ 83,815,315 $ 64,917,239
============ ============ ============ ============
</TABLE>
- --------
(1) The Class A Common Stock and Class B Common Stock are essentially
identical except that each share of Class A Common Stock is entitled to
one vote and each share of Class B Common Stock is entitled to six votes.
Each share of Class B Common Stock is convertible at any time, and will
convert automatically upon its transfer, into one share of Class A Common
Stock. See "Description of Securities--Common Stock."
(2) Excludes (i) 10,609,446 shares of Class A Common Stock issuable upon
exercise of the outstanding Class B Warrants; (ii) 165,000 shares of Class
A Common Stock issuable upon outstanding Class C Warrants; (iii) 165,000
shares of Class A Common Stock issuable upon outstanding Class D Warrants;
(iv) 1,120,000 shares of Class A Common Stock issuable upon exercise of
the Unit Purchase Option and the Class A and Class B Warrants contained
therein; (v) 2,274,200 shares of Class A Common Stock reserved for
issuance under the Company's Stock Option Plan, under which, as of the
date of this Exercise Offer/Prospectus, options to purchase
1,584,200 shares of Class A Common Stock are outstanding. See "Concurrent
Offerings" and "Description of Securities."
(3) Includes 3,200,000 shares of Class B Common Stock owned by officers,
directors and principal stockholders of the Company which are currently
held in escrow until the Company reaches certain specified performance
levels ("Escrow Shares").
(4) Gives pro forma effect to the exercise of Class B Warrants in the Exercise
Offer net of (i) expenses of the offering estimated to be approximately
$80,000 and (ii) a fee payable to Blair equal to 5% of the aggregate
Warrant exercise price. See "Plan of Distribution." Excludes 27,719 shares
of Class A Common Stock issued between July 31, 1996 and August 31, 1996.
(5) Assumes exercise of 100% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 18,683,775 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer.
(6) Assumes exercise of 75% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 16,031,414 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer, but does not give effect to
the exercise or redemption of any Class B Warrants following the
completion of the Exercise Offer.
(7) Assumes exercise of 50% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 13,379,052 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer, but does not give effect to
the exercise or redemption of any Class B Warrants following the
completion of the Exercise Offer.
Alt 2-16
<PAGE>
PRICE RANGE OF SECURITIES
The Company's Class A Common Stock and Class B Warrants have traded on the
Nasdaq SmallCap Market under the symbols FLYT and FLYTZ, respectively, since
March 7, 1995, the date of the Company's initial public offering. The
following table sets forth the high and low last sale prices for the Company's
securities for the periods commencing March 7, 1995 as reported by the Nasdaq
SmallCap Market. These prices do not reflect retail mark-ups, markdowns or
commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CLASS A COMMON STOCK
March 7, 1995 through April 30, 1995......................... $ 5 1/2 $4 1/2
May 1, 1995 through July 31, 1995............................ 6 1/4 4 7/8
August 1, 1995 through October 31, 1995...................... 10 5/8 5
November 1, 1995 through January 31, 1996.................... 12 1/4 7 1/2
February 1, 1996 through April 30, 1996...................... 12 3/4 9 1/4
May 1, 1996 through July 31, 1996............................ 16 1/8 8 3/8
August 1, 1996 through October 31, 1996...................... 15 3/4 9
November 1, 1996 through November 15, 1996................... 11 1/2 10
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CLASS B WARRANTS
March 7, 1995 through April 30, 1995......................... $ 5/8 $ 1/2
May 1, 1995 through July 31, 1995............................ 1 1/8 1/2
August 1, 1995 through October 31, 1995...................... 4 1/2 1 1/8
November 1, 1995 through January 31, 1996.................... 6 5/8 3 5/8
February 1, 1996 through April 30, 1996...................... 7 7/8 3 1/8
May 1, 1996 through July 31, 1996............................ 8 5 1/8
August 1, 1996 through October 31, 1996...................... 7 1/2 3 1/4
November 1, 1996 through November 15, 1996................... 4 3/8 3 1/4
</TABLE>
The closing sales prices of these securities as of October 16, 1996 (two
days prior to announcement of the Exercise Offer and Warrant Redemption) as
reported by the Nasdaq SmallCap Market were $11.375 per share of Class A
Common Stock and $4.25 per Class B Warrant.
The closing sales prices of these securities as of November 15, 1996 as
reported by the Nasdaq SmallCap Market were $11.50 per share of Class A Common
Stock and $3.875 per Class B Warrant.
As of November 15, 1996, there were 41 record holders of Class A Common
Stock and 22 record holders of Class B Warrants.
Alt 2-17
<PAGE>
SUMMARY AND PRO FORMA FINANCIAL DATA
The summary and pro form a financial data set forth below are derived from,
and are qualified by reference to, the audited Financial Statements
incorporated by reference elsewhere in this Exercise Offer/Prospectus and
should be read in conjunction with those Financial Statements and the notes
thereto.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
FEBRUARY 1, 1994 JULY 31,
(INCEPTION) THROUGH YEAR ENDED ----------------------
OCTOBER 31, 1994 OCTOBER 31, 1995 1995 1996
------------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. -- -- -- $2,920,835
Research and
development expenses. $175,872 $2,380,194 $1,836,607 $2,910,603
Marketing and
administrative
expenses............. 218,770 2,442,415 1,571,485 5,051,234
Interest and debt
expense.............. 7,640 851,218 851,218 --
Net loss.............. (402,282) (5,331,278) (4,027,138) (7,580,847)
Net loss per share.... (.49) (1.86) (1.64) (1.42)
Weighted average
common shares(1)..... 816,200 2,859,384 2,448,205 5,325,487
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED UNAUDITED
AT PRO FORMA(2)(3) PRO FORMA(2)(4) PRO FORMA(2)(5)
OCTOBER 31, AT OCTOBER 31, AT OCTOBER 31, AT OCTOBER 31,
1995 1995 1995 1995
----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............ $6,902,956 $82,415,259 $63,517,183 $44,619,107
Total assets.......... 9,314,802 84,827,105 65,929,029 47,030,953
Total liabilities..... 745,730 745,730 745,730 745,730
Accumulated deficit... (5,733,560) (5,733,560) (5,733,560) (5,733,560)
Total stockholders'
equity (deficit)..... 8,569,072 84,081,375 65,183,299 46,285,223
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED UNAUDITED
PRO FORMA(2)(3) PRO FORMA(2)(4) PRO FORMA(2)(5)
AT JULY 31, AT JULY 31, AT JULY 31, AT JULY 31,
1996 1996 1996 1996
----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $25,045,254 $100,557,557 $ 81,659,481 $62,761,405
Total assets.......... 29,019,580 104,531,883 85,633,807 66,735,731
Total liabilities..... 1,818,492 1,818,492 1,818,492 1,818,492
Accumulated deficit... (13,314,404) (13,314,404) (13,314,404) (13,314,404)
Total stockholders'
equity............... 27,201,088 102,713,391 83,815,315 64,917,239
</TABLE>
- --------
(1) Excludes the 3,200,000 Escrow Shares.
(2) Gives pro forma effect to the exercise of Class B Warrants in the Exercise
Offer, net of (i) expenses of the offering estimated to be approximately
$80,000, and (ii) a fee payable to Blair equal to 5% of the aggregate
Warrant exercise price. See "Plan of Distribution." Excludes 27,719 shares
of Class A Common Stock issued between July 31, 1996 and August 31, 1996.
(3) Assumes exercise of 100% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 18,683,775 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer.
(4) Assumes exercise of 75% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 16,031,414 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer, but does not give effect to
the exercise or redemption of any Class B Warrants following the
completion of the Exercise Offer.
(5) Assumes exercise of 50% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 13,379,052 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer, but does not give effect to
the exercise or redemption of any Class B Warrants following the
completion of the Exercise Offer.
Alt 2-18
<PAGE>
TRANSFER AGENT AND WARRANT AGENT
American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants, and is acting as Warrant Agent in the Exercise Offer.
BUSINESS COMBINATION PROVISIONS
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who
have acquired at least 15% of a corporation's stock. Under the law, a
corporation may not engage in any business combination with any interested
stockholder for a period of three years from the date such person became an
interested stockholder unless certain conditions are satisfied. The statute
contains provisions enabling a corporation to avoid the statute's
restrictions.
The Company has not sought to "elect out" of the statute and, therefore,
upon completion of this offering and the registration of its shares of Class A
Common Stock under the Exchange Act, the restrictions imposed by such statute
will apply to the Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain of the anticipated
federal income tax consequences of the exercise or the redemption of the
Warrants. No representation is made regarding the continued applicability of
the current federal income tax laws or of the current interpretation thereof,
and no attempt is made to consider any applicable state, local or foreign tax
laws. Furthermore, the summary is intended for investors who will hold the
Warrants or the Class A Common Stock as "capital assets" (generally, property
held for investment) within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"). This summary is not intended
for a holder of Warrants who is a dealer in warrants or in the property that
would be received upon exercise of a Warrant, or a holder who received a
Warrant as compensation for services. The tax consequences to any particular
investor may be affected by matters not discussed below.
Consequences to Holder on Exercise of a Warrant. Except as described below,
no gain or loss will be recognized upon the exercise of a Warrant. The holding
period of the Class A Common Stock acquired on the exercise of a Warrant will
commence on the day following the date of exercise. The holding period of
Class A Common Stock purchased upon exercise of a Warrant will not include the
time during which the stockholder held such Warrant.
For federal income tax purposes, the basis of a share of Class A Common
Stock received on exercise of a Class B Warrant will equal the Holder's basis
in the Class B Warrant, plus the amount paid on exercise of the Class B
Warrant. In general, the Holder's tax basis in each Class B Warrant is the
purchase price paid for the Class B Warrant. If the Class B Warrant was
purchased as part of a Unit, the purchase price of a Unit must be allocated
among the Class A Common Stock and the Class A and Class B Warrants comprising
such Unit in proportion to their relative fair market values at the time of
issuance. Normally this allocation would be made on the basis of the trading
values of each element of a Unit immediately after the purchase, but the
allocation must nevertheless be independently made by each investor whether or
not such separate trading values are readily determinable. The amount
allocated to each element of the Unit constitutes the tax basis of that
element.
Alt 2-19
<PAGE>
Consequences to Holder on Redemption of a Warrant. Upon redemption of the
Warrants by the Company, the Holder of a redeemed Warrant will recognize gain
or loss equal to the difference between his or her basis in the Warrant and
the redemption price of the Warrant. If the redemption of a Warrant
constitutes a sale or exchange for federal income tax purposes (and is not
treated as a distribution of earnings and profits as a dividend), and if the
Holder of the Warrant is not a dealer in warrants and the property that would
have been received on exercise of the Warrant (i.e., the Class A Common Stock)
would have constituted a capital asset in the hands of the Holder of the
Warrant, then any gain or loss realized by the Holder will be capital gain or
loss. Such capital gain will be long-term or short-term depending on whether
or not the Warrant had been held for more than one year prior to its
redemption.
Changes in Law. The tax consequences referred to in the preceding paragraphs
are based on the current provisions of the Code. There can be no assurance,
however, that any such provisions may not change in the future, either
retroactively or prospectively, resulting in changes in such tax consequences.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS NOT
TAX ADVICE. ACCORDINGLY, EACH HOLDER OR POTENTIAL PURCHASER OF THE COMPANY'S
SECURITIES SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
UNITS, THE WARRANTS AND THE CLASS A COMMON STOCK, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND OF CHANGES IN APPLICABLE
TAX LAWS.
Alt 2-20
<PAGE>
DILUTION
The net tangible book value of the Company as of July 31, 1996 was
$27,201,088 or $2.27 per share. Net tangible book value per share represents
the amount of total tangible assets less total liabilities of the Company,
divided by the number of shares of Common Stock outstanding. Assuming that
100%, 75% and 50% of the Class B Warrants are exercised in the Exercise Offer,
after giving effect to the resulting sale of the 10,609,446, 7,957,085, or
5,304,723 shares of Common Stock, respectively (and after deduction of
estimated commissions and offering expenses), the pro forma net tangible book
value of the Company at July 31, 1996 would have been $102,713,391,
$83,815,315, or $64,917,239 respectively, or $4.54, $4.19, or $3.75 per share,
respectively. This represents an immediate increase in such net tangible net
book value of $2.27, $1.92, or $1.48 per share, respectively, to existing
stockholders and an immediate dilution of $2.96, $3.31, or $3.75 per share,
respectively, to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<CAPTION>
PERCENTAGE OF
CLASS B WARRANTS
EXERCISED IN THE
EXERCISE OFFER
-----------------
100% 75% 50%
----- ----- -----
<S> <C> <C> <C>
Assumed offering price..................................... $7.50 $7.50 $7.50
Net tangible book value before this offering............. 2.27 2.27 2.27
Increase attributable to new investors................... 2.27 1.92 1.48
Pro forma net tangible book value after this offering...... 4.54 4.19 3.75
----- ----- -----
Dilution of net tangible book value to new investors....... $2.96 $3.31 $3.75
===== ===== =====
</TABLE>
The foregoing excludes 1,584,200 shares that are issuable upon the exercise
of outstanding employee options under the Company's Stock Option Plan as of
November 15, 1996. To the extent that these and other options, stock awards or
warrants that may be issued are exercised in the future, there will be further
dilution to new investors.
The following table summarizes, on a pro forma basis as of August 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Class A Common Stock purchased from the Company,
the total consideration paid to the Company, and the average consideration
paid per share (before deduction of underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
CLASS B WARRANTS SHARES PURCHASED TOTAL CONSIDERATION PRICE
EXERCISED IN THE ------------------ -------------------- PER
EXERCISE OFFER NUMBER PERCENT AMOUNT PERCENT SHARE
---------------- ---------- ------- ------------ ------- -------
<C> <S> <C> <C> <C> <C> <C>
100% Existing stockholders... 8,074,329 43.2% $ 44,129,000 35.7% $5.47
New investors........... 10,609,446 56.8 79,570,845 64.3 $7.50
---------- ----- ------------ -----
Total................... 18,683,775 100.0% $123,699,845 100.0%
========== ===== ============ =====
75% Existing stockholders... 8,074,329 50.4% $ 44,129,000 42.5% $5.47
New investors........... 7,957,085 49.6 59,678,138 57.5 $7.50
---------- ----- ------------ -----
Total................... 16,031,414 100.0% $103,807,138 100.0%
========== ===== ============ =====
50% Existing stockholders... 8,074,329 60.4% $ 44,129,000 52.6% $5.47
New investors........... 5,304,723 39.6 39,785,423 47.4 $7.50
---------- ----- ------------ -----
Total................... 13,379,052 100.0% $ 83,914,423 100.0%
========== ===== ============ =====
</TABLE>
Alt 2-21
<PAGE>
PLAN OF DISTRIBUTION
Pursuant to the Warrant Agreement, the Company has agreed not to solicit
Warrant exercises other than through Blair, unless Blair declines to make such
solicitation. Blair has agreed to assist the Company in effecting the Exercise
Offer. The Company will pay Blair a fee of 5% of the aggregate Warrant
exercise price, if (i) the market price of the Company's Class A Common Stock
on the date the Warrants are exercised is greater than the then exercise price
of the Warrants; (ii) the exercise of the Warrants was solicited by a member
of the NASD as designated in writing on the Warrant Certificate subscription
form; (iii) the Warrants are not held in a discretionary account; (iv)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrants; and (v) the solicitation
of exercise of the Warrant was not in violation of Rule 10b-6 promulgated
under the Exchange Act.
As of October 1, 1996, there were seven market makers in the Company's
securities. Rule 10b-6 may prohibit Blair from engaging in any market making
activities with regard to the Company's securities for the period from nine
business days (or such other applicable period as Rule 10b-6 may provide)
prior to any solicitation by Blair of the exercise of Class B Warrants until
the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that Blair may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, Blair may
be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable.
In connection with its March 1995 initial public offering (the "IPO") the
Company sold to Blair or its designees, for nominal consideration, the Unit
Purchase Option to purchase up to 280,000 Units substantially identical to the
Units sold in the IPO, except that the warrants included therein are not
subject to redemption by the Company unless, on the redemption date, the Unit
Purchase Option has been exercised and the underlying warrants are
outstanding. The Unit Purchase Option is exercisable during the three year
period commencing March 7, 1997 at an exercise price of $6.00 per Unit,
subject to adjustment in certain events, and the Unit Purchase Option and the
underlying securities are not transferable for a period of three years from
March 7, 1995 except to officers of the Underwriter or to members of the
selling group. The Unit Purchase Option includes a provision permitting Blair
or its designees to elect a cashless exercise. The Company has agreed to
register during the four-year period commencing March 7, 1996, on two separate
occasions, the securities issuable upon exercise thereof under the Securities
Act, the initial such registration to be at the Company's expense and the
second at the expense of the holders. The Company has also granted certain
"piggy-back" registration rights to holders of the Unit Purchase Option. The
Company also paid underwriting fees and selling commissions totalling
approximately $1 million, a substantial portion of which was received by
Blair.
Blair has the right to designate one director to the Company's Board of
Directors for a period of five years from the completion of the IPO. Such
designee may be a director, officer, partner, employee or affiliate of Blair.
As of the date of this Exercise Offer/Prospectus, Blair had not designated a
director to serve on the Board of Directors.
During the five-year period from March 7, 1995, in the event Blair
originates a financing or a merger, acquisition or transaction to which the
Company is a party, Blair will be entitled to receive a finder's fee in
consideration for origination of such transaction. The fee is based on a
percentage of the consideration paid in the transaction ranging from 7% of the
first $1,000,000 to 2 1/2% of any consideration in excess of $9,000,000.
Blair acted as Placement Agent for the Bridge Financing in October and
November 1994 for which it received a Placement Agent fee of $310,000 and a
non-accountable expense allowance of $93,000.
Blair received a fee of approximately $1.34 Million for acting as the
Company's solicitation agent for the exercise of Class A Warrants during the
Company's May 1996 Class A Warrant Exercise Offer. In addition, Blair will act
as solicitation agent for the exercise of Class B Warrants in connection with
the contemplated Class B Warrant Exercise Offer and, assuming exercise of all
Class B Warrants in the offer, Blair will receive a fee of approximately $3.98
million.
Alt 2-22
<PAGE>
The Commission is conducting an investigation concerning various business
activities of Blair. The investigation appears to be broad in scope, involving
numerous aspects of Blair's compliance with the Federal securities laws and
compliance with the Federal securities laws by issuers whose securities were
underwritten by Blair, or in which Blair made over-the-counter markets,
persons associated with Blair, such issuers and other persons. The Company has
been advised by Blair that the investigation has been ongoing since at least
1989 and that it is cooperating with the investigation. Blair cannot predict
whether this investigation will ever result in any type of formal enforcement
action against Blair or, if so, whether any such action might have an adverse
effect on the Company's securities. An unfavorable resolution of the
Commission's investigation could have the effect of limiting such firm's
ability to make a market in the Company's securities, which could affect the
liquidity or price of such securities.
CONCURRENT OFFERINGS
Pursuant to the Registration Statement of which this Prospectus forms a
part, the Company has registered for resale by certain securityholders (the
"Selling Securityholders") an aggregate of 1,550,000 shares of Class A Common
Stock and 1,844,250 Class B Warrants (and the 1,844,250 shares of Class A
Common Stock issuable upon exercise of such Class B Warrants). Sales of such
securities, or the potential of such sales, may have an adverse effect on the
market price of the securities offered hereby.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Irell & Manella LLP, Los Angeles, California.
Alt 2-23
<PAGE>
ALTERNATE OFFERING
#3 PAGES
PROSPECTUS
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
1,550,000 SHARES OF CLASS A COMMON STOCK
1,550,000 REDEEMABLE CLASS B WARRANTS AND
1,550,000 SHARES OF CLASS A COMMON STOCK ISSUABLE
UPON EXERCISE OF THE REDEEMABLE CLASS B WARRANTS
This Prospectus relates to up to 1,550,000 shares of Class A Common Stock,
$.01 par value ("Class A Common Stock") and up to 1,550,000 Redeemable Class B
Warrants (the "Class B Warrants") of Interactive Flight Technologies, Inc., a
Delaware corporation (the "Company"), held by 51 holders (the "Selling
Securityholders"), and up to 1,550,000 additional shares of Class A Common
Stock issuable upon exercise of such Class B Warrants. The 1,550,000 Class B
Warrants held by the Selling Securityholders are sometimes referred to herein
as the "Selling Securityholder Warrants" and, together with the 1,550,000
shares of Class A Common Stock held by the Selling Security Holders and the
1,550,000 shares of Class A Common Stock issuable upon exercise of the Selling
Securityholder Warrants, the "Selling Securityholder Securities." The Selling
Securityholder Warrants and the 1,550,000 shares of Class A Common Stock held
by the Selling Securityholders were acquired upon exercise of redeemable class
A warrants ("Class A Warrants") which were issued to the Selling
Securityholders in exchange for warrants they received in a private placement
by the Company in October and November 1994 (the "Bridge Financing"). See
"Selling Securityholders" and "Plan of Distribution." Each Class B Warrant
entitles the holder to purchase one share of Class A Common Stock, at an
exercise price of $9.75, subject to adjustment, at any time until March 6,
2006. However, concurrently herewith, the Company is offering (the "Exercise
Offer") to the holders of the Company's outstanding Class B Warrants to reduce
the exercise price of the outstanding Class B Warrants to $7.50 per share in
each case if and only if a holder exercises his or her Class B Warrants prior
to 5:00 P.M., New York City time, on December 24, 1996, unless such date is
extended by the Company. Following such date through January 16, 1997, a
holder will continue to have the right to exercise his or her Class B Warrants
(in accordance with the terms thereof) at the re-set exercise price of $9.75
per share. The Class B Warrants are subject to redemption by the Company for
$.05 per Warrant, upon 30 days' written notice, if the average closing bid
price of the Class A Common Stock exceeds $13.65 share (subject to adjustment)
for 30 consecutive business days ending within 5 days of the date of the
notice of redemption.This condition has been met, and by notice dated October
23, 1996, the Company has exercised its right pursuant to the terms of the
Warrants to redeem on January 17, 1997 each Class B Warrant not exercised by
January 16, 1997, at 5:00 P.M. New York City time.
----------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.
----------------
The Class A Common Stock and the Company's class B common stock, $.01 par
value (the "Class B Common Stock"), of the Company are essentially identical,
except that the Class B Common Stock has six votes per share and the Class A
Common Stock has one vote per share on all matters upon which stockholders may
vote. The holders of Class B Common Stock, the majority of whom are executive
officers, directors and/or principal stockholders of the Company, control
approximately 75% of the total voting power and therefore are able to elect
all of the Company's directors and control the Company.
The securities offered by the Selling Securityholders by this Prospectus may
be sold from time to time by the Selling Securityholders or by their
transferees. The distribution of the Selling Securityholder Warrants and the
Class A Common Stock offered hereby by the Selling Securityholders may be
effected in one or more transactions that may take place on the over-the-
counter market, including ordinary brokers' transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such
securities as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholders.
The Selling Securityholders, and intermediaries through whom such securities
are sold, may be deemed underwriters within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. In the event all of the Selling Securityholder
Warrants are exercised, the Company will receive gross proceeds of
$15,112,500, less payment of applicable commissions to D.H. Blair Investment
Banking Corp ("Blair"). See "Selling Securityholders," "Plan of Distribution"
and "Blair Commission."
The Class A Common Stock and the Class B Warrants are traded on the Nasdaq
SmallCap Market ("Nasdaq"). On November 15, 1996, the closing sale price of
the Class A Common Stock on Nasdaq was $11.50 per share and the closing sale
price of the Class B Warrants on Nasdaq was $3.875 per Class B Warrant.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 20, 1996.
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale by the
Selling Securityholders of the Selling Securityholder Securities offered
hereby; however, to the extent that the Selling Securityholder Warrants are
exercised, the Company will receive proceeds equal to the exercise price
thereof multiplied by the number of warrants exercised. If all of the Selling
Securityholder Warrants are exercised, the Company would receive gross
proceeds of $15,112,500, less payment of the Blair Commission and expenses of
the offering. The Company presently intends to use such proceeds for working
capital and general corporate purposes.
Alt 3-2
<PAGE>
DILUTION
The net tangible book value of the Company as of July 31, 1996 was
$27,201,088 million or $2.27 per share. Net tangible book value per share
represents the amount of total tangible assets less total liabilities of the
Company, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the 1,550,000 shares of Common Stock underlying
the Selling Securityholder Warrants (and after deduction of estimated
commissions and offering expenses), the pro forma net tangible book value of
the Company at July 31, 1996 would have been $41,477,963 million, or $3.06 per
share. This represents an immediate increase in such net tangible net book
value of $.79 per share to existing stockholders and an immediate dilution of
$6.69 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price.......................................... $9.75
Net tangible book value before this offering.................. $2.27
Increase attributable to new investors........................ .79
-----
Pro forma net tangible book value after this offering........... 3.06
-----
Dilution of net tangible book value to new investors............ $6.69
=====
</TABLE>
The foregoing excludes 1,584,200 shares that are issuable upon the exercise
of outstanding employee options under the Company's Stock Option Plan as of
November 15, 1996. To the extent that these and other options, stock awards or
warrants that may be issued or are exercised in the future, there will be
further dilution to new investors.
The following table summarizes, on a pro forma basis as of August 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Class A Common Stock purchased from the Company,
the total consideration paid to the Company, and the average consideration
paid per share (before deduction of underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 8,074,329 83.9% $44,129,000 74.5% $5.47
New investors................ 1,550,000 16.1 15,112,500 25.5 $9.75
--------- ----- ----------- -----
Total...................... 9,624,329 100.0% $59,241,500 100.0%
========= ===== =========== =====
</TABLE>
The foregoing represents potential dilution only as a result of the exercise
of Class B Warrants offered hereby and does not give effect to the purchase of
shares offered in certain concurrent offerings. See "Concurrent Offerings."
Alt 3-3
<PAGE>
SELLING SECURITYHOLDERS
The Selling Securityholders are various investors who received redeemable
Class A Warrants of the Company in exchange for warrants received in the
Company's 1994 Bridge Financing. The Selling Securityholder Securities were
acquired upon exercise of those Class A Warrants.
The following table set forth certain information with respect to each
Selling Securityholder for whom the Company is registering the Selling
Securityholder Securities for resale to the public. The Company will not
receive any of the proceeds from the sale of such securities. Except for the
relationships noted in footnotes (2) and (3) below, to the Company's knowledge
there are no material relationships between any of the Selling Securityholders
and the Company, nor have any such material relationships existed within the
past three years.
<TABLE>
<CAPTION>
NUMBER OF CLASS B
WARRANTS AND SHARES
OF CLASS A COMMON
STOCK BENEFICIALLY
OWNED AND MAXIMUM
NUMBER TO BE
SELLING SECURITYHOLDERS SOLD(1)
- ----------------------- -------------------
<S> <C>
Alan S. Abrams.............................................. 12,500
Jeffrey W. Abrams and Josette M. Abrams, JTWROS............. 12,500
Jerome Ansel................................................ 50,000
Michael A. Asch............................................. 12,500
Arthur F. Backal............................................ 6,250
James J. Binns, Esq. IRA Rollover........................... 6,250
Andrew Bressman............................................. 25,000
Michael Cantor.............................................. 18,750
Chesed Congregation......................................... 150,000
Kenneth Cohen and Sherry Cohen, JTWROS...................... 12,500
Isaac Dweck................................................. 50,000
Raymond Drapkin, M.D........................................ 12,500
Jules H. Dreyfuss........................................... 31,250
EBLW Associates............................................. 12,500
Steven M. Fieldman and Marjorie Fieldman, JTWROS(2)......... 25,000
Robert A. Foisie............................................ 50,000
Sandy Frank................................................. 25,000
William Frankel............................................. 12,500
Dr. Harvey Glicker.......................................... 25,000
Donald H. Goldman(3)........................................ 25,000
Morton Goulder.............................................. 25,000
Steven R. Hurlburt.......................................... 37,500
Boris Itkis(2).............................................. 25,000
Michail Itkis and Lauren Snopkowski, JTWROS(2).............. 25,000
Leonard Keller and Eileen Keller, JTWROS.................... 75,000
Robert E. Kirby............................................. 37,500
Harmat Capital Corp......................................... 50,000
David Hoffman and Jerri Hoffman, JTWROS..................... 75,000
Lenny Corp.................................................. 12,500
Phil Lifschitz.............................................. 25,000
Gary Lustberg............................................... 12,500
Harvey Mininberg and Susan Mininberg, JTWROS................ 12,500
Momentum Enterprises Inc. Money Purchase Trust.............. 12,500
Richard A. Nelson and Elaine M. Nelson, JTWROS.............. 50,000
Marc Roberts and Ron Cantor, JTWROS......................... 50,000
The Rubin Family Foundation, Inc............................ 18,750
</TABLE>
Alt 3-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF CLASS B
WARRANTS AND SHARES
OF CLASS A COMMON
STOCK BENEFICIALLY
OWNED AND MAXIMUM
NUMBER TO BE
SELLING SECURITYHOLDERS SOLD(1)(2)
----------------------- -------------------
<S> <C>
E. Donald Shapiro........................................... 6,250
Dr. George Spiegel.......................................... 37,500
Gary J. Strauss............................................. 12,500
Morris Talansky............................................. 50,000
Ervin Tausky................................................ 50,000
Henry G. Warner............................................. 18,750
Henry G. Warner Special No. 2............................... 12,500
Adam R. Wolfensohn.......................................... 18,750
Naomi R. Wolfensohn......................................... 18,750
Sara R. Wolfensohn.......................................... 18,750
Joel Wolff.................................................. 75,000
Aaron Wolfson............................................... 25,000
Abraham Wolfson............................................. 25,000
Morris Wolfson.............................................. 50,000
Seth Zachary................................................ 12,500
---------
Total..................................................... 1,550,000
=========
</TABLE>
- --------
(1) Represents securities underlying Class A Warrants held by the Selling
Securityholders as of April 12, 1996 (i.e., the effective date of the
Registration Statement on Form SB-2 (Reg. No. 333-02044) under which these
securities were first offered). This information assumes excercise by the
Selling Securityholders of all such Class A Warrants and retention of all
of the underlying securities. However, since that date, some or all of the
Selling Securityholders may have sold some or all of their Class A
Warrants or some or all of the underlying Class B Warrants and/or Class A
Common Stock.
(2) Does not include shares of Class A Common Stock issuable upon exercise of
the Class B Warrants. Except for the individuals set forth in footnotes
(3) and (4), none of the Selling Securityholders beneficially own in
excess of 1% of the outstanding shares of Common Stock.
(3) Each of Michail Itkis and Boris Itkis are directors and Michail Itkis is
an executive officer of the Company.
(4) Messrs. Fieldman and Goldman are former directors and executive officers
of the Company.
Alt 3-5
<PAGE>
CONCURRENT OFFERINGS
Pursuant to the registration statement of which this Prospectus forms a
part, the Company has registered (i) up to 10,609,446 shares of Class A Common
Stock of the Company, which are issuable upon exercise of the Company's
outstanding Class B Warrants pursuant to the Company's Exercise Offer in which
it has reduced the exercise price of the Class B Warrants to $7.50 through
December 24, 1996, (ii) the resale of 294,250 Class B Warrants acquired by
certain other selling securityholders in a private placement and the 294,250
shares of Class A Common Stock underlying such Class B Warrants. Sales of such
securities, or the potential of such sales, may have an adverse effect on the
market price of the securities offered hereby.
Alt 3-6
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Baer Marks & Upham LLP, New York, New York.
Alt 3-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Company in connection with the distribution
of securities being registered are estimated as follows:
<TABLE>
<S> <C>
Accounting Fees and Expenses............................... $ 25,000
Legal Fees and Expenses.................................... 35,000
Miscellaneous Expenses..................................... 20,000
Blair Commission........................................... 3,978,542(1)
----------
Total.................................................... $4,058,542
==========
</TABLE>
- --------
(1) Represents commissions on exercise of all Class B Warrants in the Exercise
Offer.
The Selling Securityholders will be responsible for all selling commissions,
transfer taxes and related charges in connection with the offer and sale of
the Selling Securityholder Securities.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify any person who was or is a party or is threatened to by made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than a suit by
or in the right of the corporation) by reason of the fact that he or she is or
was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as an officer, employee or agent of
another corporation or enterprise. Depending on the character of the
proceeding, a corporation may indemnify against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner he or she reasonably believed
to be in and not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no cause to believe his or
her conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue
or manner as to which such person has been adjudged to be liable to the
corporation unless the Court of Chancery or the court in which such action or
suit was brought determines that despite the adjudication of liability, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court deems proper. Section 145 further provides that to the extent a
director or officer of a corporation has been successful in the defense of any
action, suit or proceeding referred to above or in the defense of any claim
issue or manner therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith. Corporations may also advance expenses incurred in
defending proceedings against corporate agents upon receipt of an undertaking
that the agent will reimburse the corporation if it is ultimately determined
that the agent is not entitled to be indemnified against expenses reasonably
incurred.
The Company's Certificate of Incorporation provides, in effect, that, to the
extent and under the circumstances permitted by Section 145 of the Delaware
General Corporation Law, the Company shall indemnify any person who was or is
a party or is threatened to be made a party to any action, suit or proceeding
of the type described above by reason of the fact that he or she is or was a
director, officer, employee or agent of the Company or is or was serving at
the request of the Company as director, officer, employee or agent of another
corporation or enterprise.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the personal liability of its directors
for violations of their fiduciary duty. This eliminates each director's
liability to the corporation or its stockholders for monetary damages except
(i) for any breach of the director's duty of loyalty; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing
II-1
<PAGE>
violation of law; (iii) pursuant to Section 174 of the Delaware General
Corporation Law providing for liability of directors for unlawful payment of
dividends or unlawful stock purchases or redemptions; or (iv) for any
transaction from which a director derived an improper personal benefit. The
effect of this provision is to eliminate the personal liability of directors
for monetary damages for actions involving a breach of their fiduciary duty of
care, including any such actions involving gross negligence.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1(1) Revised Form of Underwriting Agreement
3.1(1) Certificate of Ownership and Merger
3.2(1) Amended and Restated Certificate of Incorporation of the Registrant
3.3(1) Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant
3.4(1) By-laws of the Registrant
4.1(1) Warrant Agreement, dated as of March 7, 1995, by and among the
Registrant, D. H. Blair Investment Banking Corp. and American Stock
Transfer & Trust Company
4.2 Form of Amendment to March 7, 1995 Warrant Agreement, to be entered
into by and among the Registrant, D. H. Blair Investment Banking
Corp., and American Stock Transfer & Trust Company
4.3 Warrant Agreement, dated as of October 24, 1996, by and among the
Registrant, D. H. Blair Investment Banking Corp., and American Stock
Transfer & Trust Company
4.4 Form of Amendment to October 24, 1996 Warrant Agreement, to be
entered into by and among the Registrant, D. H. Blair Investment
Banking Corp., and American Stock Transfer & Trust Company
4.5(1) Form of Underwriter's Unit Purchase Option
4.6(1) Specimen of Class A Common Stock Certificate
4.7(1) Specimen of Class B Common Stock Certificate
4.8 Specimen of Class B Warrant Certificate
4.9(3) Specimen of Class C Warrant Certificate
4.10(3) Specimen of Class D Warrant Certificate
4.11 Stock Purchase Warrant, dated as of November 7, 1996, issued to
FortuNet, Inc.
4.12 Stock Purchase Warrant, dated as of November 12, 1996, issued to
Houlihan Lokey Howard & Zukin
5.1 Legal Opinion of Irell & Manella LLP
5.2(4) Legal Opinion of Baer Marks & Upham LLP
10.1(4) Amended and Restated 1994 Stock Option Plan
10.2 Severance Agreement between the Registrant and Steven M. Fieldman
dated as of November 4, 1996
10.3(1) Employment Agreement between the Registrant and Michail Itkis dated
as of October 31, 1994
10.4 Employment Agreement between the Registrant and John Alderfer, dated
as of October 2, 1996
10.5 Severance Agreement between the Registrant and Lance Fieldman dated
as of November 4, 1996
10.6(1) Amended and Restated Shareholders' Agreement by and among Yuri Itkis,
Michael Itkis, Boris Itkis, Steven M. Fieldman, Donald H. Goldman,
Lance Fieldman and Registrant dated as of October 6, 1994
10.7 Amended and Restated Intellectual Property License and Support
Services Agreement by and between FortuNet, Inc. and Registrant dated
as of November 7, 1996
10.8(1) Amended and Restated Escrow Agreement by and between the Registrant,
American Stock Transfer & Trust Company, Yuri Itkis, Michael Itkis,
Boris Itkis, Steven M. Fieldman, Donald H. Goldman and Lance Fieldman
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 Sublease and Consent, dated July 16, 1996 between the Registrant and
AGF 4041 Limited Partnership
10.10 Office Lease, dated July 15, 1996, between the Registrant and AGF
4041 Limited Partnership
10.11 Standard Industrial/Commercial Single-Tenant Lease--Net; dated as of
June 27, 1996, between the Registrant and 44th Street and Van Buren
Limited Partnership
10.12(1) Form of Indemnification Agreement
10.13(1) Form of International Sales Representative Agreement
10.14 Strategic Alliance Agreement, dated as of November 12, 1996, between
the Registrant and Hyatt Ventures, Inc.
10.15 Registration Rights Agreement, dated as of November 12, 1996, between
the Registrant and Hyatt Ventures, Inc.
10.16 Amendment No. 2 to Amended and Restated Shareholders' Agreement,
dated as of November 12, 1996
10.17 Agreement, dated as of May 10, 1996, between the Registrant and
Donald H. Goldman
23.1 Consent of Irell & Manella LLP (included in legal opinion filed as
Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Richard A. Eisner & Company LLP
23.4(1) Consent of Baer Marks & Upham LLP (included in Exhibit 5.2)
24.1* Power of Attorney
99.1 Form of Letter of Transmittal and Related Documents
</TABLE>
- --------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 33-86928.
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended October 31, 1995, filed with the Securities
and Exchange Commission on February 13, 1996, File No. 0-25668.
(3) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal year ended July 31, 1996, filed with the Securities
and Exchange Commission on September 16, 1996, File No. 0-25668.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 333-02044.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-8, Registration No. 333-15767.
* Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON
THE 18TH DAY OF NOVEMBER, 1996.
INTERACTIVE FLIGHT TECHNOLOGIES,
INC.
By: /s/ Michail Itkis
__________________________________
Michail Itkis
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ * Chief Executive Officer and November 18, 1996
____________________________________ Director
Michail Itkis
/s/ * Director November 18, 1996
____________________________________
Yuri Itkis
/s/ * Director November 18, 1996
____________________________________
Boris Itkis
/s/ * Director November 18, 1996
____________________________________
James H. Zukin
/s/ * Director November 18, 1996
____________________________________
General Alexander M. Haig, Jr.
/s/ John Alderfer Chief Financial Officer November 18, 1996
____________________________________ (Principal Financial and
John Alderfer Accounting Officer)
* /s/ Michail Itkis November 18, 1996
____________________________________
Michail Itkis
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT 4.2
AMENDMENT TO MARCH 7, 1995 WARRANT AGREEMENT
This AMENDMENT (this "Amendment") is an amendment to that certain Warrant
Agreement, dated as of March 7, 1995 (the "Original Agreement"), by and among
Interactive Flight Technologies, Inc. (the "Company"), American Stock Transfer &
Trust Company, as Warrant Agent (the "Warrant Agent"), and D.H. Blair Investment
Banking Corp. ("Blair"). Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Original Agreement.
R E C I T A L S:
WHEREAS, the Original Agreement governs the terms of a portion of the
Company's outstanding Class B Warrants; and
WHEREAS, the Company intends to effectuate an exercise offer (the "Exercise
Offer"), pursuant to which the Company, until __________, 1996, the expiration
date of the Exercise Offer (the "Expiration Date"), will reduce the exercise
price of the Class B Warrants from $9.75 to $7.50; and
WHEREAS, the Company, the Warrant Agent and Blair desire to enter into this
Amendment in order to amend the Original Agreement as required in order for the
Company to effectuate the Exercise Offer.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto hereby amend the Original Agreement as
follows:
SECTION 1. Amendment to Exercise Price of Class A Warrants. During the
-----------------------------------------------
Exercise Offer, the Purchase Price of the Class B Warrants shall be $7.50, which
Purchase Price shall be re-set to $9.75 from and after the Expiration Date.
SECTION 2. Amendment to Securities Underlying Class A Warrants. During
---------------------------------------------------
the Exercise Offer, each Class A Warrant will entitle the Registered Holder
thereof to purchase one (1) share of Class A Common Stock.
SECTION 3. Amendment to Terms of Exercise. During the Exercise Offer,
------------------------------
Section 4(a) of the Original Agreement shall be amended in its entirety, so that
any Registered Holder desiring to exercise his Class B Warrants during the
Exercise Offer shall only be entitled to do so in accordance with the terms of
the Exercise Offer, as set forth in the Letter of Transmittal attached as
Exhibit A hereto and as set forth in the Exercise Offer/Prospectus attached as
- ---------
Exhibit B hereto.
- ---------
SECTION 4. No Other Modifications. Except as specifically provided in
----------------------
this Amendment and as otherwise necessary to make the terms of the Original
Agreement
<PAGE>
consistent with the amendments thereto effected hereby, the Original Agreement
shall not be changed in any respect and shall continue in full force and effect
in accordance with its terms (other than as modified hereby).
SECTION 5. Counterparts. This Amendment may be executed in several
------------
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of November __, 1996.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:________________________________________
Michail Itkis, Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:________________________________________
Authorized Officer
D.H. BLAIR INVESTMENT BANKING CORP.
By:_______________________________________
Authorized Officer
2
<PAGE>
EXHIBIT 4.3
WARRANT AGREEMENT
-----------------
AGREEMENT, dated as of the 24th day of October, 1996, by and among
Interactive Flight Technologies, Inc. a Delaware corporation ("Company"),
American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent"),
and D.H. BLAIR INVESTMENT BANKING CORP., a New York corporation ("Blair").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, in connection with a private placement to the holders listed on
Schedule A hereto (the "Initial Holders"), the Company has issued an aggregate
- ----------
of 294,250 warrants (in the individual amounts set forth on Schedule A) having
----------
the terms and conditions set forth herein (the "Class B Warrants" or
"Warrants"), which are intended to be identical to the terms of the Company's
redeemable class B warrants issued and issuable under a Warrant Agreement dated
as of the 7th date of March 1995, by and among the parties hereto; and
WHEREAS, the Company has filed with the Securities and Exchange Commission
a Registration Statement on Form S-3, Registration Number 333-14013 (the
"Registration Statement"), under which the Company will register (i) the public
resale, from time to time, of the Class B Warrants by the Initial Holders, (ii)
the public sale of up to 294,250 shares of Class A Common Stock upon exercise of
the Class B Warrants and (iii) the public resale by the Initial Holders of
shares of Class A Common Stock purchased by the Initial Holders upon exercise of
the Class B Warrants; and
WHEREAS, each Class B Warrant initially entitles the Registered Holder
thereof to purchase one (1) share of Class A Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
-----------
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class, whether
now or hereafter authorized, which has the right to participate in the
distribution
<PAGE>
of earnings and assets of the Company without limit as to amount or percentage,
which at the date hereof consists of 40,000,000 shares of Class A Common Stock,
$.01 par value and 6,000,000 shares of Class B Common Stock, .$.01 par value.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which the
Warrant Agent shall have received both (a) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (b) payment in
cash, or by official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean as to each Class B Warrant
October 24, 1996.
(e) "Purchase Price" shall mean the purchase price to be paid upon exercise
of each Class B Warrant in accordance with the terms hereof, which price shall
be $9.75, subject to adjustment from time to time pursuant to the provisions of
Section 9 hereof, and subject to the Company's right to reduce the Purchase
Price upon notice to all Warrantholders.
(f) "Redemption Price" shall mean the price at which the Company may, at
its option in accordance with the terms hereof, redeem the Class B Warrants,
which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust Company,
as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on March
6, 2000 or, with respect to Warrants which are outstanding as of the applicable
Redemption Date (as defined in Section 8), the Redemption Date, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon
notice to all Registered Holders the Company shall have the right to extend the
Warrant Expiration Date.
2
<PAGE>
SECTION 2. Warrants and Issuance of Warrant Certificates.
---------------------------------------------
(a) A Class B Warrant initially shall entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Class A
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(c) Immediately upon the later to occur of (i) the execution of this
Agreement and (ii) the effectiveness of the Registration Statement, Warrant
Certificates representing the number of Class B Warrants set forth on Schedule 1
hereto shall be executed by the Company and delivered to the Warrant Agent.
Upon written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent.
(d) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of 294,250 shares of Class A
Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the Warrant Agent
shall countersign and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Warrants represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6; (iv) those issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7;
and (v) at the option of the Company, in such form as may be approved by the its
Board of Directors, to reflect any adjustment or change in the Purchase Price,
the number of shares of Common Stock purchasable upon exercise of the Warrants
or the Target Price(s) therefor made pursuant to Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
------------------------------------------
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Class B Warrants may be listed, or to conform
to usage or to the requirements of Section 2(c). The Warrant Certificates shall
be dated the date of issuance thereof
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(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered form.
Warrant Certificates shall be numbered serially with the letters BW on Class B
Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Secretary or
an Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be an officer of the Company or to hold the particular office referenced in
the Warrant Certificate before the date of issuance of the Warrant Certificates
or before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4(a) hereof.
SECTION 4. Exercise.
--------
(a) Each Warrant may be exercised by the Registered Holder thereof at any
time on or after the Initial Exercise Date, but not after the Warrant Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder of those securities upon the exercise of
the Warrant as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date, the Warrant Agent shall deposit the
proceeds received from the exercise of a Warrant and shall notify the Company in
writing of the exercise of the Warrants. Promptly following, and in any event
within five days after the date of such notice from the Warrant Agent, the
Warrant Agent, on behalf of the Company, shall cause to be issued and delivered
by the Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise,
(plus a Warrant Certificate for any remaining unexercised Warrants of the
Registered Holder) unless prior to the date of issuance of such certificates the
Company shall instruct the Warrant Agent to refrain from causing such issuance
of certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of Blair or such other
investment banks and brokerage houses as the Company shall approve in writing to
the Warrant Agent, certificates shall immediately be issued without prior notice
to the Company or any delay. Upon the exercise of any Warrant and clearance of
the funds received, the Warrant Agent shall promptly remit the payment received
for the Warrant
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(the "Warrant Proceeds") to the Company or as the Company may direct in writing,
subject to the provisions of Sections 4(b) and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of any Warrant
after March 6, 1996, (i) the market price of the Company's Class A Common Stock
is greater than the then Purchase Price of the Warrant, (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. ("NASD") as designated in writing on the Warrant Certificate
Subscription Form, (iii) the Warrant was not held in a discretionary account,
(iv) disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (v) the solicitation of the
exercise of the Warrant was not in violation of Rule 10b-6 (as such rule or any
successor rule may be in effect as of such time of exercise) promulgated under
the Securities Exchange Act of 1934, then the Warrant Agent, simultaneously with
the distribution of the Warrant Proceeds to the Company shall, on behalf of the
Company, pay from the Warrant Proceeds, a fee of 5% (the "Blair Fee") of the
Purchase Price to Blair (of which a portion may be reallowed by Blair to the
dealer who solicited the exercise, which may also be Blair or D.H. Blair & Co.,
Inc.). In the event the Blair Fee is not received within five days of the date
on which the Company receives Warrant Proceeds, then the Blair Fee shall begin
accruing interest at an annual rate of prime plus four (4)%, payable by the
Company to Blair at the time Blair receives the Blair Fee. Within five days
after exercise the Warrant Agent shall send to Blair a copy of the reverse side
of each Warrant exercised. Blair shall reimburse the Warrant Agent, upon
request, for its reasonable expenses relating to compliance with this section
4(b). In addition, Blair and the Company may at any time during business hours,
examine the records of the Warrant Agent, including its ledger of original
Warrant Certificates returned to the Warrant Agent upon exercise of Warrants.
The provisions of this paragraph may not be modified, amended or deleted without
the prior written consent of Blair.
(c) In order to enforce the provisions of Section 4(b) above, in the event
there is any dispute or question as to the amount or payment of the Blair Fee,
the Warrant Agent is hereby expressly authorized to withhold payment to the
Company of the Warrant Proceeds unless and until the Company establishes an
escrow account for the purpose of depositing the entire amount of the Blair Fee,
which amount will be deducted from the net Warrant Proceeds to be paid to the
Company. The funds placed in the escrow account may not be released to the
Company without a written agreement from Blair that the required Blair Fee has
been received by Blair.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
-----------------------------------------------------
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Class A Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Class A Common Stock
as shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Class A Common Stock which shall be
issuable upon exercise of the Warrants shall, at the time of delivery, be duly
and validly issued, fully paid,
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nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange, on which the other shares of outstanding Class A Common
Stock of the Company are then listed or shall be eligible for inclusion in the
Nasdaq National Market or the Nasdaq SmallCap Market if the other shares of
outstanding Class A Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable
efforts to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Class A Common Stock issued to, any Registered
Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares upon exercise of the Class B
Warrants; provided, however, that if the shares of Class A Common Stock are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Class A Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Class A Common
Stock issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
-------------------------------------
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction
of the terms and provisions hereof, the Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
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(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his attorney-
in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any exchange
or registration of transfer of Warrant Certificates. In addition, the Company
may require payment by such holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or, with the prior written
consent of Blair, disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
------------------
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall ( in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Class B Warrants. Applicants for a substitute Warrant Certificate shall
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
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<PAGE>
SECTION 8. Redemption.
----------
(a) On not less than thirty (30) days notice given at any time after March
6, 1996 to Registered Holders of the Warrants being redeemed, the Warrants may
be redeemed, at the option of the Company, at a redemption price of $0.05 per
Warrant, provided the Market Price of the Common Stock receivable upon exercise
of such Warrants shall exceed $13.65 (the "Target Price"), subject to adjustment
as set forth in Section 8(f), below. Market Price shall mean (i) the average
closing bid price, for thirty (30) consecutive business days (or such other
period as Blair may consent to), of the Class A Common Stock as reported by
Nasdaq, if the Class A Common Stock is traded on the Nasdaq SmallCap Market, or
(ii) the last reported sale price, for thirty (30) consecutive business days (or
such other period as Blair may consent to), of the Class A Common Stock as
reported by the primary exchange on which the Class A Common Stock is traded, if
the Class A Common Stock is traded on a national securities exchange, or by
Nasdaq, if the Class A Common Stock is traded on the Nasdaq National Market,
provided that, for purposes of this Section 8 only, Market Price shall be
calculated as of a date ending within five days of the date of mailing the
notice of redemption. All Warrants of a class must be redeemed if any of that
class are redeemed. The date fixed for redemption of the Warrants is referred to
herein as the "Redemption Date".
(b) If the conditions set forth in Section 8(a) are met, and the Company
desires to exercise its right to redeem the Warrants, it shall request Blair to
mail a notice of redemption to each of the Registered Holders of the Warrants to
be redeemed, first class, postage prepaid, not later than the thirtieth day
before the date fixed for redemption, at their last address as shall appear on
the records maintained pursuant to Section 6(b). Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the Redemption Date, (iii) the place where the Warrant Certificates shall be
delivered and the redemption price paid, (iv) that Blair will assist each
Registered Holder of a Warrant in connection with the exercise thereof and (v)
that the right to exercise the Warrant shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of Blair or the Company that notice of redemption has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
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<PAGE>
(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) If the shares of the Company's Class A Common Stock are subdivided or
combined into a greater or smaller number of shares of Class A Common Stock,
the Target Prices shall be proportionally adjusted by the ratio which the total
number of shares of Class A Common Stock outstanding immediately prior to such
event bears to the total number of shares of Class A Common Stock to be
outstanding immediately after such event.
SECTION 9. Adjustment of Exercise Price and Number of Shares of
----------------------------------------------------
Class A Common Stock or Warrants.
--------------------------------
(a) Subject to the exceptions referred to in Section 9(g) below, in the
event the Company shall, at any time or from time to time after the date hereof,
sell any shares of Common Stock for a consideration per share less than the
Market Price of the Class A Common Stock (as defined in Section 8) on the date
of the sale or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Purchase Price in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent) determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Class A Common Stock which the aggregate consideration received
(determined as provided in subsection 9(f)(F) below) for the issuance of such
additional shares would purchase at the Market Price and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such adjustment shall
be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this Section 9,
the total number of shares of Class A Common Stock purchasable upon exercise of
each Class B Warrant shall (subject to the provisions contained in Section 9(b)
hereof) be such number of shares (calculated to the nearest tenth) purchasable
at the Purchase Price in effect immediately prior to such adjustment multiplied
by a fraction, the numerator of which shall be the Purchase Price in effect
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<PAGE>
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Class B Warrants outstanding, in lieu of the
adjustment in the number of shares of Class A Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Class B Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Class A Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each
adjustment of the number of Warrants pursuant to this Section 9, the Company
shall, as promptly as practicable, cause to be distributed to each Registered
Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10 hereof, the number of additional
Warrants to which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Warrants to which such Holder
shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The Company shall not effect any
such consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Warrant Agent, the obligation to deliver to the holder of
each Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to
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<PAGE>
purchase and the other obligations of the Company under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Class A Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(e) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefor were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Class A Common Stock
purchasable upon exercise of each Warrant after such adjustment and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the Registered Holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to Blair and to each Registered
Holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock outstanding at any given
time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $.10 in
the Purchase Price; provided that any adjustments which by reason of
this clause (B) are not required to be made shall be carried forward
and shall
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be made at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried forward,
shall require an increase or decrease of at least $.10 in the Purchase
Price then in effect hereunder.
(C) In case of (1) the sale by the Company for cash (or as a
component of a unit being sold for cash) of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common
Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than
cash, if any (such securities convertible, exercisable or exchangeable
into Common Stock being herein called "Convertible Securities"), or
(2) the issuance by the Company, without the receipt by the Company of
any consideration therefor, of any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights,
warrants or options shall consist of cash, whether or not such rights,
warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum
aggregate consideration payable to the Company upon the exercise of
such rights, warrants or options, plus the consideration, if any,
received by the Company for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible Securities,
the minimum aggregate amount of additional consideration, other than
such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities issuable
upon the exercise of such rights, warrants or options) is less than
the Market Price of the Class A Common Stock on the date of the
issuance or sale of such rights, warrants or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of
such Convertible Securities (as of the date of the issuance or sale of
such rights, warrants or options) shall be deemed to be outstanding
shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to
such price per share.
(D) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing (x)
the total amount of
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<PAGE>
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable
upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the Market Price
of the Class A Common Stock on the date of the sale of such
Convertible Securities, then the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to
have been sold for cash in an amount equal to such price per share.
(E) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in (C) or
(D) above or any other securities of the Company convertible,
exchangeable or exercisable for shares of Common Stock, for any reason
other than an event that would require adjustment to prevent dilution,
so that the consideration per share received by the Company after such
modification is less than the Market Price on the date prior to such
modification, the Purchase Price to be in effect after such
modification shall be determined by multiplying the Purchase Price in
effect immediately prior to such event by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding
on the date prior to the modification plus the number of shares of
Common Stock which the aggregate consideration receivable by the
Company for the securities affected by the modification would purchase
at the Market Price and of which the denominator shall be the number
of shares of Common Stock outstanding on such date plus the number of
shares of Common Stock to be issued upon conversion, exchange or
exercise of the modified securities at the modified rate. Such
adjustment shall become effective as of the date upon which such
modification shall take effect. On the expiration of any such right,
warrant or option or the termination of any such right to convert or
exchange any such Convertible Securities referred to in Paragraph (C)
or (D) above, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained
(a) had the adjustments made upon the issuance or sale of such rights,
warrants, options or Convertible Securities been made upon the basis
of the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities and (b)
had adjustments been made on the basis of the Purchase Price as
adjusted under clause (a) for all transactions (which would have
affected such adjusted Purchase Price) made after the issuance or sale
of such rights, warrants, options or Convertible Securities.
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(F) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company
therefore shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or allowed
by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Class A Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the exercise of any of the options presently
outstanding under the Company's Stock Option Plan (the "Plan") for
officers, directors and certain other key personnel of and consultants
to the Company; or
(ii) upon the issuance or exercise of any other securities which
may hereafter be granted or exercised under the Plan or under any
other employee benefit plan of the Company; or
(iii) upon the sale or exercise of the Warrants;
(iv) upon the sale of any shares of Class A Common Stock or
Convertible Securities in a firm commitment underwritten public
offering, including, without limitation, shares sold upon the exercise
of any overallotment option granted to the underwriters in connection
with such offering; or
(v) upon the issuance or sale of Class A Common Stock or
Convertible Securities upon the exercise of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Class A
Common Stock or Convertible Securities, whether or not such rights,
warrants or options were outstanding on the date of the original sale
of the Warrants or were thereafter issued or sold; or
(vi) upon the issuance or sale of Class A Common Stock upon
conversion or exchange of any Convertible Securities, whether or not
any adjustment in the Purchase Price was made or required to be made
upon the issuance or sale of such Convertible Securities and whether
or not such Convertible Securities were outstanding on the date of the
original sale of the Warrants or were thereafter issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date hereof and shall also
include any capital stock of any class of the Company thereafter authorized
which shall
14
<PAGE>
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends and in the distribution of assets
upon the voluntary liquidation, dissolution or winding up of the Company;
provided, however, that the shares issuable upon exercise of the Warrants shall
include only shares of such class designated in the Company's Certificate of
Incorporation as Class A Common Stock on the date hereof or (i), in the case of
any reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Class A Common
Stock then issuable upon exercise (assuming, for purposes of this Section 9(j),
that exercise of Warrants is permissible during periods prior to the Initial
Warrant Exercise Date) of his Warrants. Such grant by the Company to the
holders of the Warrants shall be in lieu of any adjustment which otherwise might
be called for pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
-----------------------------------------
(a) If the number of shares of Class A Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon the exercise of any Warrant, the Company shall pay to the Holder an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(1) If the Class A Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such
15
<PAGE>
exchange or is traded on the Nasdaq National Market, the current
market value shall be the last reported sale price of the Class A
Common Stock on such exchange or market on the last business day prior
to the date of exercise of this Warrant or if no such sale is made on
such day, the average of the closing bid and asked prices for such day
on such exchange or market; or
(2) If the Class A Common Stock is not listed or admitted to
unlisted trading privileges on a national securities exchange or is
not traded on the Nasdaq National Market, the current market value
shall be the mean of the last reported bid and asked prices reported
by the Nasdaq SmallCap Market or, if not traded thereon, by the
National Quotation Bureau, Inc. on the last business day prior to the
date of the exercise of this Warrant; or
(3) If the Class A Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount determined in
such reasonable manner as may be prescribed by the Board of Directors
of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
---------------------------------------
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Class A Common Stock that may at any time be issuable upon
exercise of such Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Warrants, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such holder shall have exercised such Warrants and
been issued shares of Class A Common Stock in accordance with the provisions
hereof.
SECTION 12. Rights of Action. All rights of action with respect to
----------------
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Class A Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a
----------------------------
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are
16
<PAGE>
surrendered at the office of the Warrant Agent, duly endorsed or accompanied by
a proper instrument of transfer satisfactory to the Warrant Agent and the
Company in their sole discretion, together with payment of any applicable
transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the Company
------------------------------------
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and cancelled by it and retired. The Warrant Agent shall also
cancel the Warrant Certificate or Warrant Certificates following exercise of any
or all of the Warrants represented thereby or delivered to it for transfer or
exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
----------------------------
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
17
<PAGE>
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company that is a registered
transfer agent under the Securities Exchange Act of 1934. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent
18
<PAGE>
under this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the provisions
-------------------------
of Section 4(b), the parties hereto and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; (ii) to
reflect an increase in the number of Class B Warrants which are to be governed
by this Agreement resulting from a subsequent public offering of Company
securities which includes Class B Warrants (including without limitation a
secondary public offering by an Initial Holder) having the same terms and
conditions as the Class B Warrants, respectively, originally covered by or
subsequently added to this Agreement under this Section 16; or (iii) that they
may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Warrant Certificates; provided, however, that this
-------- -------
Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders of Warrant
Certificates representing not less than 50% of the Warrants then outstanding;
and provided, further, that no change in the number or nature of the securities
-------- -------
purchasable upon the exercise of any Warrant, or the Purchase Price therefor, or
the acceleration of the Warrant Expiration Date, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.
SECTION 17. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 4041 North Central Avenue, Suite 2000, Phoenix,
Arizona 85012, attention: Michail Itkis, Chief Executive Officer, or at such
other address as may have been furnished to the Warrant Agent in writing by the
Company; if to the Warrant Agent, at its Corporate Office; if to Blair, at D.H.
Blair Investment Banking Corp., 44 Wall Street, New York, New York 10005.
19
<PAGE>
SECTION 18. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon
--------------
and inure to the benefit of the Company and, the Warrant Agent and their
respective successors and assigns, and the holders from time to time of Warrant
Certificates . Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the
-----------
close of business on the earlier of the Warrant Expiration Date or the date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in
------------
several counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
INTERACTIVE FLIGHT TECHNOLOGIES,INC.
By: ______________________________
John Alderfer
Chief Financial Officer
and Treasurer
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: ______________________________
Authorized Officer
D.H. BLAIR INVESTMENT BANKING CORP.
By: ______________________________
Authorized Officer
20
<PAGE>
EXHIBIT A
[FORM OF FACE OF CLASS B WARRANT CERTIFICATE]
No. BW _____ Class B Warrants
VOID AFTER MARCH 6, 2000
CLASS B WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
This certifies that FOR VALUE RECEIVED
--------------------------------------
or registered assigns (the "Registered Holder") is
- --------------------------
the owner of the number of Class B Warrants specified above. Each Class B
Warrant represented hereby initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Warrant Certificate and
the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Class A Common Stock, $.01 par value ("Common Stock"), of Interactive
Flight Technologies,Inc. a Delaware corporation (the "Company"), at any time
between October 24, 1996 and the Expiration Date (as hereinafter defined), upon
the presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $9.75 (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to Interactive Flight Technologies, Inc..
This Warrant Certificate and each Class B Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of either
March 7, 1995 or October 24, 1996, as the case may be, by and among the Company,
the Warrant Agent and D.H. Blair Investment Banking Corp.
In the event of certain contingencies provided for in the Warrant Agreement,
the Purchase Price or the number of shares of Common Stock subject to purchase
upon the exercise of each Class B Warrant represented hereby are subject to
modification or adjustment.
Each Class B Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Class B Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and
A-1
<PAGE>
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Class B Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on March 6,
2000 or such earlier date as the Class B Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which banks are
authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to the
exercise of the Class B Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will file
a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Class B Warrants are outstanding. The Class B Warrants represented hereby
shall not be exercisable by a Registered Holder in any state where such exercise
would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class B Warrants, each of such new Warrant Certificates to
represent such number of Class B Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with any
applicable transfer fee in addition to any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Class B Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Class B Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Class B Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of $.05 per Class B Warrant at any time after
March 6, 1996, provided the Market Price (as defined in the Warrant Agreement)
for the Common Stock shall exceed $13.65 per share. Notice of redemption shall
be given not later than the thirtieth day before the date fixed for redemption,
all as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the Class
B Warrants represented hereby except to receive the $.05 per Class B Warrant
upon surrender of this Warrant Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof, the Company and
the Warrant Agent may deem and treat the Registered Holder as the absolute owner
hereof and of each Class B Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon certain
conditions as specified in the Warrant Agreement upon the exercise of the Class
B Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile, by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Interactive Flight Technologies, Inc.
Dated: ________________ By: ______________________________
By: ______________________________
[seal]
Countersigned:
_______________________________________
_____________________, as Warrant Agent
By: __________________________________
Authorized Officer
A-3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
___________ Class B Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class B Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and if such number of Class B Warrants shall not be all the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class B Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
A-4
<PAGE>
The undersigned represents that the exercise of the Class B Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise indicated by listing the
name of another NASD member firm, it will be assumed that the exercise was
solicited by D.H. Blair Investment Banking Corp.
____________________________________
(Name of NASD Member)
Dated: _______________________ X
______________________________
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
of the Class B Warrants represented by this
- --------------------------------
Warrant Certificate, and hereby irrevocably constitutes and appoints
----------
Attorney to transfer this Warrant Certificate
- --------------------------------
on the books of the Company, with full power of substitution in the premises.
Dated:________________________ X
______________________________
Signature Guaranteed
______________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-6
<PAGE>
Schedule 1
----------
<TABLE>
<CAPTION>
Recipient: Number of Class B Warrants:
--------- --------------------------
<S> <C>
Banner Aerospace, Inc. 187,500
Leonard Toboroff 87,500
D.H. Blair Investment Banking Corp. 19,250
_______
294,250
</TABLE>
<PAGE>
EXHIBIT 4.4
AMENDMENT TO OCTOBER 24, 1996 WARRANT AGREEMENT
This AMENDMENT (this "Amendment") is an amendment to that certain Warrant
Agreement, dated as of October 24, 1996 (the "Original Agreement"), by and among
Interactive Flight Technologies, Inc. (the "Company"), American Stock Transfer &
Trust Company, as Warrant Agent (the "Warrant Agent"), and D.H. Blair Investment
Banking Corp. ("Blair"). Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Original Agreement.
R E C I T A L S:
WHEREAS, the Original Agreement governs the terms of a portion of the
Company's outstanding Class B Warrants; and
WHEREAS, the Company intends to effectuate an exercise offer (the "Exercise
Offer"), pursuant to which the Company, until __________, 1996, the expiration
date of the Exercise Offer (the "Expiration Date"), will reduce the exercise
price of the Class B Warrants from $9.75 to $7.50; and
WHEREAS, the Company, the Warrant Agent and Blair desire to enter into this
Amendment in order to amend the Original Agreement as required in order for the
Company to effectuate the Exercise Offer.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto hereby amend the Original Agreement as
follows:
SECTION 1. Amendment to Exercise Price of Class A Warrants. During the
-----------------------------------------------
Exercise Offer, the Purchase Price of the Class B Warrants shall be $7.50, which
Purchase Price shall be re-set to $9.75 from and after the Expiration Date.
SECTION 2. Amendment to Securities Underlying Class A Warrants. During
---------------------------------------------------
the Exercise Offer, each Class A Warrant will entitle the Registered Holder
thereof to purchase one (1) share of Class A Common Stock.
SECTION 3. Amendment to Terms of Exercise. During the Exercise Offer,
------------------------------
Section 4(a) of the Original Agreement shall be amended in its entirety, so that
any Registered Holder desiring to exercise his Class B Warrants during the
Exercise Offer shall only be entitled to do so in accordance with the terms of
the Exercise Offer, as set forth in the Letter of Transmittal attached as
Exhibit A hereto and as set forth in the Exercise Offer/Prospectus attached as
- ---------
Exhibit B hereto.
- ---------
SECTION 4. No Other Modifications. Except as specifically provided in
----------------------
this Amendment and as otherwise necessary to make the terms of the Original
Agreement
<PAGE>
consistent with the amendments thereto effected hereby, the Original Agreement
shall not be changed in any respect and shall continue in full force and effect
in accordance with its terms (other than as modified hereby).
SECTION 5. Counterparts. This Amendment may be executed in several
------------
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of November __, 1996.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:________________________________________
Michail Itkis, Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:________________________________________
Authorized Officer
D.H. BLAIR INVESTMENT BANKING CORP.
By:_______________________________________
Authorized Officer
2
<PAGE>
EXHIBIT 4.8
[FORM OF FACE OF CLASS B WARRANT CERTIFICATE]
No. BW _____ Class B Warrants
VOID AFTER MARCH 6, 2000
CLASS B WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
This certifies that FOR VALUE RECEIVED
----------------------
- --------------------------------------------------------------------------------
or registered assigns (the "Registered Holder") is the owner of the number of
Class B Warrants specified above. Each Class B Warrant represented hereby
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Warrant Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Class A Common
Stock, $.01 par value ("Common Stock"), of Interactive Flight Technologies,Inc.
a Delaware corporation (the "Company"), at any time between October 24, 1996
and the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of American Stock Transfer & Trust
Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $9.75 (the "Purchase Price") in lawful money of the United States
of America in cash or by official bank or certified check made payable to
Interactive Flight Technologies,Inc..
This Warrant Certificate and each Class B Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
as of either March 7, 1995 or October 24, 1996, as the case may be, by and among
the Company, the Warrant Agent and D.H. Blair Investment Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Class B Warrant represented hereby are
subject to modification or adjustment.
Each Class B Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Class B Warrants
<PAGE>
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Class B Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
March 6, 2000 or such earlier date as the Class B Warrants shall be redeemed.
If such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Class B Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will
file a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Class B Warrants are outstanding. The Class B Warrants represented hereby
shall not be exercisable by a Registered Holder in any state where such exercise
would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class B Warrants, each of such new Warrant Certificates to
represent such number of Class B Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with any
applicable transfer fee in addition to any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Class B Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Class B Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Class B Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $.05 per Class B Warrant at any time
after March 6, 1996,
2
<PAGE>
provided the Market Price (as defined in the Warrant Agreement) for the Common
Stock shall exceed $13.65 per share. Notice of redemption shall be given not
later than the thirtieth day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Class B Warrants
represented hereby except to receive the $.05 per Class B Warrant upon surrender
of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Class B Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Class B Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Interactive Flight Technologies,Inc.
Dated: ________________ By: ______________________________
By: ______________________________
[seal]
Countersigned:
____________________________________
_____________________, as Warrant Agent
By: ______________________________
Authorized Officer
3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ___________ Class B Warrants represented by this Warrant Certificate,
and to purchase the securities issuable upon the exercise of such Class B
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and if such number of Class B Warrants shall not be all the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class B Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
4
<PAGE>
The undersigned represents that the exercise of the Class B Warrants
evidenced hereby was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise indicated by listing the
name of another NASD member firm, it will be assumed that the exercise was
solicited by D.H. Blair Investment Banking Corp.
____________________________________
(Name of NASD Member)
Dated: _____________________________ X
____________________________________
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
of the Class B Warrants represented by this
- --------------------------------
Warrant Certificate, and hereby irrevocably constitutes and appoints
----------
Attorney to transfer this Warrant Certificate
- --------------------------------
on the books of the Company, with full power of substitution in the premises.
Dated:________________________ X
______________________________
Signature Guaranteed
______________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
<PAGE>
EXHIBIT 4.11
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
STOCK PURCHASE WARRANT
THE WARRANTS EVIDENCED HEREBY AND THE SHARES OF STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED OR SOLD WITHOUT REGISTRATION UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE UNDER SUCH ACT OR THE RULES OR
REGULATIONS PROMULGATED THEREUNDER
WARRANT TO PURCHASE 50,000 SHARES OF CLASS A COMMON STOCK
AS DESCRIBED HEREIN
Issue Date: November 7, 1996.
Expiration Date: November 7, 2001.
This certifies that, for value received, FortuNet, Inc. and permitted
successors and assigns ("HOLDER") is entitled to purchase from Interactive
Flight Technologies, Inc., a Delaware corporation, (the "COMPANY") up to and
including 50,000 fully paid and nonassessable shares (the "NUMBER OF SHARES") of
the Class A Common Stock of the Company, $.01 par value (the "COMMON STOCK"), on
the terms set forth herein at an exercise price of $10.75 per share (the
"PURCHASE PRICE"). The Number of Shares and the Purchase Price may be adjusted
from time to time as described in this Warrant.
1. EXERCISE.
--------
1.1 TIME FOR EXERCISE. This Warrant may be exercised in whole or in part
-----------------
at any time, and from time to time, during the period commencing on the date of
this Warrant and expiring on November 7, 2001.
1.2 MANNER OF EXERCISE. This Warrant shall be exercised by delivering it
------------------
to the Company with the exercise form duly completed and signed, specifying the
number of shares as to which the Warrant is being exercised at that time (the
"EXERCISE NUMBER"). The Holder shall simultaneously deliver to the Company cash
or a certified check in an amount equal to the Exercise Number multiplied by the
Purchase Price, and the Holder shall be entitled to receive the full Exercise
Number of shares of Common Stock.
1.3 EFFECTIVE DATE OF EXERCISE. Promptly (but in any case within 10
--------------------------
business days) after any exercise, the Company shall deliver to the Holder (i)
duly executed
<PAGE>
certificates in the name or names specified in the exercise notice representing
the aggregate number of shares issuable upon such exercise, and (ii) if this
Warrant is exercised only in part, a new Warrant of like tenor exercisable for
the balance of the Number of Shares. Such certificates shall be deemed to have
been issued, and the person receiving them shall be deemed to be a holder of
record of such shares, as of the close of business on the date the actions
required in Section 1.2 shall have been completed or, if on that date the stock
transfer books of the Company are closed, as of the next business day.
2. TRANSFER OF WARRANTS AND STOCK.
------------------------------
2.1 TRANSFER RESTRICTIONS. Neither this Warrant nor the securities
---------------------
issuable upon its exercise may be sold, transferred or pledged unless the
Company shall have been supplied with reasonably satisfactory evidence that such
transfer is not in violation of the Securities Act of 1933, as amended, and any
applicable state securities laws. The Company may place a legend to that effect
on this Warrant, any replacement Warrant and each certificate representing
shares issuable upon exercise of this Warrant. Subject to the satisfaction of
this condition only, this Warrant shall be freely transferable by the Holder.
2.2 MANNER OF TRANSFER. Upon delivery of this Warrant to the Company with
------------------
the assignment form duly completed and signed, the Company will promptly (but in
any case within 10 business days) execute and deliver to each transferee and, if
applicable, the Holder, Warrants of like tenor evidencing the rights (i) of the
transferee(s) to purchase the Number of Shares specified for each in the
assignment forms, and (ii) of the Holder to purchase any untransferred portion,
which in the aggregate shall equal the Number of Shares of the original Warrant.
The Company may decline to proceed with any partial transfer if any new Warrant
would represent the right to purchase fewer than 1,000 shares of Common Stock
(such number to be adjusted as provided in Section 4). If this Warrant is
properly assigned in compliance with this Section 2, it may be exercised by an
assignee without having a new Warrant issued.
2.3 LOSS, DESTRUCTION OF WARRANT CERTIFICATES. Upon receipt of (i)
-----------------------------------------
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Warrant and (ii) except in the case of mutilation, an
indemnity or security reasonably satisfactory to the Company, the Company will
promptly (but in any case within 10 business days) execute and deliver a
replacement Warrant of like tenor representing the right to purchase the same
Number of Shares.
3. COST OF ISSUANCES. The Company shall pay all expenses, transfer taxes and
-----------------
other charges payable in connection with the preparation, issuance and delivery
of stock certificates or replacement Warrants, except for any transfer tax or
other charge imposed as a result of (a) any issuance of certificates in any name
other than the name of the Holder, or (b) any transfer of the Warrant. The
Company shall not be required to issue or deliver any stock certificate or
Warrant until it receives reasonably satisfactory evidence that any such tax or
other charge has been paid by the Holder.
2
<PAGE>
4. ANTI-DILUTION PROVISIONS. If any of the following events occur at any time
------------------------
hereafter during the life of this Warrant, then the Purchase Price and the
Number of Shares immediately prior to such event shall be changed as described
in order to prevent dilution:
4.1 STOCK SPLITS AND DIVIDENDS. If at any time (i) the outstanding shares
--------------------------
of Common Stock are subdivided into a greater number of shares, or a stock
dividend is declared on the Common Stock, then the Purchase Price will be
reduced proportionately and the Number of Shares will be increased
proportionately, or (ii) the outstanding Common Stock is consolidated into a
small number of shares, then the Purchase Price will be increased
proportionately and the Number of Shares will be reduced proportionately.
4.2 EFFECT OF REORGANIZATION AND ASSET SALES. If any (i) reorganization
----------------------------------------
or reclassification of the Common Stock, (ii) consolidation or merger of the
Company with or into another corporation, (iii) sale of all or substantially all
of its operating assets to another corporation, or (iv) sale of the Company
substantially as a going concern followed by a liquidation of the Company (any
such occurrence shall be an "EVENT"), is effected in such a way that holders of
Common Stock are entitled to receive securities and/or assets as a result of
their Common Stock ownership, then upon exercise of this Warrant the Holder will
have the right to receive the shares of stock, securities or assets which they
would have received if such rights had been fully exercised as of the record
date for such Event. The Company will not effect any Event unless prior to or
simultaneously with its consummation the successor corporation resulting from
the consolidation or merger (if other than the Company), or the corporation
purchasing the Company's assets, assumes the performance of the Company's
obligations under this Warrant (as appropriately adjusted to reflect such
consolidation, merger or sale such that the Holder's rights under this Warrant
remain, as nearly as practicable, unchanged) by a binding written instrument.
4.3 OTHER SECURITIES ADJUSTMENTS. If as a result of this Section 4, a
----------------------------
Holder is entitled to receive any securities other than Common Stock upon
exercise of this Warrant, the number and purchase price of such securities shall
thereafter be adjusted from time to time in the same manner as provided pursuant
to this Section 4 for Common Stock. The allocation of purchase price between
various securities shall be made in writing by the Board of Directors of the
Company in good faith at the time of the event by which the Holder became
entitled to receive new securities, and a copy sent to the Holder.
4.4 NOTICES.
-------
4.4.1 NOTICE OF ADJUSTMENTS. When any adjustment is required to be
---------------------
made under this Section 4, the Company shall promptly (i) determine such
adjustments, (ii) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the adjustment; and (iii) cause
a copy of such statement, together with any
3
<PAGE>
agreement required by paragraph 4.3, to be mailed to the Holder within 10 days
after the date on which the circumstances giving rise to such adjustment
occurred.
4.4.2 NOTICE OF EVENTS. If at any time (i) the Company declares any
----------------
dividends on the Common Stock payable in securities, (ii) any Event is expected
to occur, or (iii) there is a voluntary or involuntary dissolution, liquidation
or winding up of the Company, then the Company shall give the Holder at least
thirty (30) but not more than ninety (90) days written notice of the date on
which the books of the Company will close or upon which a record will be taken
with regard to such occurrence. Such notice will also specify the date as of
which the holders of the Common Stock will participate in the dividend or will
be entitled to exchange their shares for securities or other property. The
notice may state that the record date is subject to the effectiveness of a
registration statement under the Securities Act or to a favorable vote or
determination of shareholders or of any governmental agency.
4.5 COMPUTATIONS AND ADJUSTMENTS. Upon each computation of an adjustment
----------------------------
under this Section 4, the Purchase Price shall be computed to the nearest cent
and the Number of Shares shall be calculated to the next lowest whole share.
However, the fractional amount shall be used in calculating any future
adjustments. No fractional shares of Common Stock shall be issued in connection
with the exercise of this Warrant, but the Company shall, in the case of the
final exercise under this Warrant, make a cash payment for any fractional shares
based on the Market Value of the Common Stock on the date of exercise.
Notwithstanding any changes in the Purchase Price or the Number of Shares, this
Warrant, and any Warrants issued in replacement or upon transfer thereof, may
continue to state the initial Purchase Price and the Number of Shares.
Alternatively, the Company may elect to issue a new Warrant or Warrants of like
tenor for the additional shares of Common Stock purchasable hereunder or, upon
surrender of the existing Warrant, to issue a replacement Warrant evidencing all
the Warrants to which the Holder is entitled after such adjustments.
4.6 EXERCISE BEFORE PAYMENT DATE. In the event that this Warrant is
----------------------------
exercised after the record date for any event requiring an adjustment, but prior
to the actual event, the Company may elect to defer the adjusted amount to the
Holder until the actual event occurs; provided, however, that the Company shall
deliver a Due Bill or other appropriate instrument to the Holder transferrable
to the same extent as the other Securities issuable on exercise evidencing the
Holder's right to receive such additional amount upon the occurrence of the
event requiring such adjustment.
4.7 MARKET VALUE. "MARKET VALUE" for the Common Stock on any given date
------------
means (i) the average closing price for the prior ten trading days for the
Common Stock on the principal stock exchange on which the Common Stock is traded
or (ii) if not so traded, the closing price (or, if no closing price is
available, the average of the bid and asked prices) for such period on the
NASDAQ if the Common Stock is listed on the NASDAQ or (iii) if not listed on any
exchange or quoted on the NASDAQ, such value as may be determined in good faith
by the Company's Board of Directors, which determination shall be conclusively
binding on the parties.
4
<PAGE>
5. COVENANTS. The Company agrees that:
---------
5.1 RESERVATION OF STOCK. During the period in which this Warrant may be
--------------------
exercised, the Company will reserve sufficient authorized but unissued
securities to enable it to satisfy its obligations on exercise of this Warrant.
If at any time the Company's authorized securities shall not be sufficient to
allow the exercise of this Warrant, the Company shall take such corporate action
as may be necessary to increase its authorized but unissued securities to be
sufficient for such purpose;
5.2 NO LIENS, ETC. All securities that may be issued upon exercise of
-------------
this Warrant will, upon issuance, be validly issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and shall be listed on any exchanges on which that class of securities is
listed;
5.3 FURNISH INFORMATION. The Company will promptly deliver to the Holder
-------------------
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally; and
5.4 STOCK AND WARRANT TRANSFER BOOKS. Except upon dissolution,
--------------------------------
liquidation or winding up or for ordinary holidays and weekends, the Company
will not at any time close its stock or warrant transfer books so as to result
in preventing or delaying the exercise or transfer of this Warrant.
6. STATUS OF HOLDER.
----------------
6.1 NOT A STOCKHOLDER. Unless the Holder exercises this Warrant in
-----------------
writing, the Holder shall not be entitled to any rights (i) as a stockholder of
the Company with respect to the shares as to which the Warrant is exercisable
including, without limitation, the right to vote or receive dividends or other
distributions, or (ii) to receive any notice of any proceedings of the Company
except as otherwise provided in this Warrant.
6.2 LIMITATION OF LIABILITY. Unless the Holder exercises this Warrant in
-----------------------
writing, the Holder's rights and privileges hereunder shall not give rise to any
liability for the Purchase Price or as a stockholder of the Company, whether to
the Company or its creditors.
7. GENERAL PROVISIONS.
------------------
7.1 COMPLETE AGREEMENT; MODIFICATIONS. This Warrant and any documents
---------------------------------
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the parties.
5
<PAGE>
7.2 COOPERATION. Each party hereto agrees to execute any and all further
-----------
documents and writings and to perform such other reasonable actions which may be
or become necessary or expedient to effectuate and carry out this Warrant.
7.3 NOTICES. All notices under this Warrant shall be in writing and shall
-------
be delivered by personal service or telecopy or certified mail (if such service
is not available, then by first class mail), postage prepaid, to such address as
may be designated from time to time by the relevant party, and which shall
initially be:
(i) If to the Company:
Interactive Flight Technologies, Inc.
4041 N. Central Avenue, Suite 2000
Phoenix, Arizona 85012
Attention: Michail Itkis, Chief Executive Officer
(ii) If to Holder:
FortuNet, Inc.
2620 S. Highland Drive
Las Vegas, Nevada 89109
Attention: Yuri Itkis, Director
Any notice sent by certified mail shall be deemed to have been given three
(3) days after the date on which it is mailed. All other notices shall be
deemed given when received. No objection may be made to the manner of delivery
of any notice actually received in writing by an authorized agent of a party.
7.4 NO THIRD-PARTY BENEFITS; SUCCESSORS AND ASSIGNS. None of the
-----------------------------------------------
provisions of this Warrant shall be for the benefit of, or enforceable by, any
third-party beneficiary. Except as provided herein to the contrary, this
Warrant shall be binding upon and inure to the benefit of the parties, their
respective successors and permitted assigns.
7.5 GOVERNING LAW. This Warrant concerns a Delaware corporation, and all
-------------
questions with respect to the Warrant and the rights and liabilities of the
parties will be governed by the laws of Delaware regardless of the choice of law
provisions of Delaware or any other jurisdiction. Any and all disputes between
the parties which may arise pursuant to this Warrant not covered by arbitration
will be heard and determined before an appropriate federal or state court
located in Los Angeles, California. The parties hereto acknowledge that such
courts have the jurisdiction to interpret and enforce the provisions of this
Warrant and the parties waive any and all objections that they may have as to
personal jurisdiction or venue in any of the above courts.
7.6 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or right
--------------------------
provided herein or otherwise available to any party hereunder (i) no waiver or
extension
6
<PAGE>
of time shall be effective unless expressly contained in a writing signed by the
waiving party; and (ii) no alteration, modification or impairment shall be
implied by reason of any previous waiver, extension of time, delay or omission
in exercise, or other indulgence.
7.7 SEVERABILITY. The validity, legality or enforceability of the
------------
remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any respect.
7.8 ATTORNEYS' FEES. Should any litigation or arbitration be commenced
---------------
(including any proceedings in a bankruptcy court) between the parties hereto or
their representatives concerning any provisions of this Warrant or the rights
and duties of any person or entity hereunder, the party or parties prevailing in
such proceeding shall be entitled, in addition to such other relief as may be
granted, to the attorneys' fees and court costs incurred by reason of such
litigation.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
effective as of November 7, 1996.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:_____________________________
Michail Itkis
Chief Executive Officer
Attest:
By:_______________________________
Lauren Snopkowski, Secretary
7
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers to the transferee named below the rights to purchase ___ of the
Number of Shares under this Warrant, together with all rights, title and
interest therein. The rights to purchase the remaining Number of Shares shall
remain the property of the undersigned.
Dated: _______________
[NAME OF HOLDER]
By:_____________________________
Signature
Name:__________________________
(Please Print)
Address:________________________
________________________
________________________
Employer Identification Number,
Social Security Number or other
identifying number: _______________
TRANSFEREE:
Name: _________________________
(Please Print)
Address:_______________________
_______________________
_______________________
Employer Identification Number,
Social Security Number or other
identifying number:_______________
8
<PAGE>
EXERCISE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the Warrant with regard to _____________
shares of Common Stock and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares and the Warrant for
any unexercised portion of this Warrant be issued to the Holder.
Dated: __________________
[NAME OF HOLDER]
By:_____________________________
Signature
Name:__________________________
(Please Print)
Address:________________________
________________________
________________________
Employer Identification Number,
Social Security Number or other
identifying number: _______________
9
<PAGE>
EXHIBIT 4.12
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
STOCK PURCHASE WARRANT
THE WARRANTS EVIDENCED HEREBY AND THE SHARES OF STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,AND MAY NOT BE
OFFERED OR SOLD WITHOUT REGISTRATION UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE UNDER SUCH ACT OR THE RULES OR
REGULATIONS PROMULGATED THEREUNDER
WARRANT TO PURCHASE 150,000 SHARES OF CLASS A COMMON STOCK
AS DESCRIBED HEREIN
Issue Date: November 12, 1996.
Expiration Date: November 12, 2001.
This certifies that, for value received, Houlihan Lokey Howard & Zukin and
permitted successors and assigns ("HOLDER") is entitled to purchase from
Interactive Flight Technologies, Inc., a Delaware corporation, (the "COMPANY")
up to and including 150,000 fully paid and nonassessable shares (the "NUMBER OF
SHARES") of the Class A Common Stock of the Company, $.01 par value (the "COMMON
STOCK"), on the terms set forth herein at an exercise price of $9.875 per share
(the "PURCHASE PRICE"). The Number of Shares and the Purchase Price may be
adjusted from time to time as described in this Warrant.
1. EXERCISE.
--------
1.1 TIME FOR EXERCISE. This Warrant may be exercised in whole or in part
-----------------
at any time, and from time to time, during the period commencing on the date of
this Warrant and expiring on November 11, 2001.
1.2 MANNER OF EXERCISE. This Warrant shall be exercised by delivering it
------------------
to the Company with the exercise form duly completed and signed, specifying the
number of shares as to which the Warrant is being exercised at that time (the
"EXERCISE NUMBER"). The Holder shall simultaneously deliver to the Company cash
or a certified check in an amount equal to the Exercise Number multiplied by the
Purchase Price, and the Holder shall be entitled to receive the full Exercise
Number of shares of Common Stock.
1.3 EFFECTIVE DATE OF EXERCISE. Promptly (but in any case within 10
--------------------------
business days) after any exercise, the Company shall deliver to the Holder (i)
duly executed
<PAGE>
certificates in the name or names specified in the exercise notice representing
the aggregate number of shares issuable upon such exercise, and (ii) if this
Warrant is exercised only in part, a new Warrant of like tenor exercisable for
the balance of the Number of Shares. Such certificates shall be deemed to have
been issued, and the person receiving them shall be deemed to be a holder of
record of such shares, as of the close of business on the date the actions
required in Section 1.2 shall have been completed or, if on that date the stock
transfer books of the Company are closed, as of the next business day.
2. TRANSFER OF WARRANTS AND STOCK.
------------------------------
2.1 TRANSFER RESTRICTIONS. Neither this Warrant nor the securities
---------------------
issuable upon its exercise may be sold, transferred or pledged unless the
Company shall have been supplied with reasonably satisfactory evidence that such
transfer is not in violation of the Securities Act of 1933, as amended, and any
applicable state securities laws. The Company may place a legend to that effect
on this Warrant, any replacement Warrant and each certificate representing
shares issuable upon exercise of this Warrant. Subject to the satisfaction of
this condition only, this Warrant shall be freely transferable by the Holder.
2.2 MANNER OF TRANSFER. Upon delivery of this Warrant to the Company with
------------------
the assignment form duly completed and signed, the Company will promptly (but in
any case within 10 business days) execute and deliver to each transferee and, if
applicable, the Holder, Warrants of like tenor evidencing the rights (i) of the
transferee(s) to purchase the Number of Shares specified for each in the
assignment forms, and (ii) of the Holder to purchase any untransferred portion,
which in the aggregate shall equal the Number of Shares of the original Warrant.
The Company may decline to proceed with any partial transfer if any new Warrant
would represent the right to purchase fewer than 1,000 shares of Common Stock
(such number to be adjusted as provided in Section 4). If this Warrant is
properly assigned in compliance with this Section 2, it may be exercised by an
assignee without having a new Warrant issued.
2.3 LOSS, DESTRUCTION OF WARRANT CERTIFICATES. Upon receipt of (i)
-----------------------------------------
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Warrant and (ii) except in the case of mutilation, an
indemnity or security reasonably satisfactory to the Company, the Company will
promptly (but in any case within 10 business days) execute and deliver a
replacement Warrant of like tenor representing the right to purchase the same
Number of Shares.
3. COST OF ISSUANCES. The Company shall pay all expenses, transfer taxes and
-----------------
other charges payable in connection with the preparation, issuance and delivery
of stock certificates or replacement Warrants, except for any transfer tax or
other charge imposed as a result of (a) any issuance of certificates in any name
other than the name of the Holder, or (b) any transfer of the Warrant. The
Company shall not be required to issue or deliver any stock certificate or
Warrant until it receives reasonably satisfactory evidence that any such tax or
other charge has been paid by the Holder.
2
<PAGE>
4. ANTI-DILUTION PROVISIONS. If any of the following events occur at any time
------------------------
hereafter during the life of this Warrant, then the Purchase Price and the
Number of Shares immediately prior to such event shall be changed as described
in order to prevent dilution:
4.1 STOCK SPLITS AND DIVIDENDS. If at any time (i) the outstanding shares
--------------------------
of Common Stock are subdivided into a greater number of shares, or a stock
dividend is declared on the Common Stock, then the Purchase Price will be
reduced proportionately and the Number of Shares will be increased
proportionately, or (ii) the outstanding Common Stock is consolidated into a
small number of shares, then the Purchase Price will be increased
proportionately and the Number of Shares will be reduced proportionately.
4.2 EFFECT OF REORGANIZATION AND ASSET SALES. If any (i) reorganization
----------------------------------------
or reclassification of the Common Stock, (ii) consolidation or merger of the
Company with or into another corporation, (iii) sale of all or substantially all
of its operating assets to another corporation, or (iv) sale of the Company
substantially as a going concern followed by a liquidation of the Company (any
such occurrence shall be an "EVENT"), is effected in such a way that holders of
Common Stock are entitled to receive securities and/or assets as a result of
their Common Stock ownership, then upon exercise of this Warrant the Holder will
have the right to receive the shares of stock, securities or assets which they
would have received if such rights had been fully exercised as of the record
date for such Event. The Company will not effect any Event unless prior to or
simultaneously with its consummation the successor corporation resulting from
the consolidation or merger (if other than the Company), or the corporation
purchasing the Company's assets, assumes the performance of the Company's
obligations under this Warrant (as appropriately adjusted to reflect such
consolidation, merger or sale such that the Holder's rights under this Warrant
remain, as nearly as practicable, unchanged) by a binding written instrument.
4.3 OTHER SECURITIES ADJUSTMENTS. If as a result of this Section 4, a
----------------------------
Holder is entitled to receive any securities other than Common Stock upon
exercise of this Warrant, the number and purchase price of such securities shall
thereafter be adjusted from time to time in the same manner as provided pursuant
to this Section 4 for Common Stock. The allocation of purchase price between
various securities shall be made in writing by the Board of Directors of the
Company in good faith at the time of the event by which the Holder became
entitled to receive new securities, and a copy sent to the Holder.
4.4 NOTICES.
-------
4.4.1 NOTICE OF ADJUSTMENTS. When any adjustment is required to be
---------------------
made under this Section 4, the Company shall promptly (i) determine such
adjustments, (ii) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the adjustment; and (iii) cause
a copy of such statement, together with any
3
<PAGE>
agreement required by paragraph 4.2, to be mailed to the Holder within 10 days
after the date on which the circumstances giving rise to such adjustment
occurred.
4.4.2 NOTICE OF EVENTS. If at any time (i) the Company declares any
----------------
dividends on the Common Stock payable in securities, (ii) any Event is expected
to occur, or (iii) there is a voluntary or involuntary dissolution, liquidation
or winding up of the Company, then the Company shall give the Holder at least
thirty (30) but not more than ninety (90) days written notice of the date on
which the books of the Company will close or upon which a record will be taken
with regard to such occurrence. Such notice will also specify the date as of
which the holders of the Common Stock will participate in the dividend or will
be entitled to exchange their shares for securities or other property. The
notice may state that the record date is subject to the effectiveness of a
registration statement under the Securities Act or to a favorable vote or
determination of shareholders or of any governmental agency.
4.5 COMPUTATIONS AND ADJUSTMENTS. Upon each computation of an adjustment
----------------------------
under this Section 4, the Purchase Price shall be computed to the nearest cent
and the Number of Shares shall be calculated to the next lowest whole share.
However, the fractional amount shall be used in calculating any future
adjustments. No fractional shares of Common Stock shall be issued in connection
with the exercise of this Warrant, but the Company shall, in the case of the
final exercise under this Warrant, make a cash payment for any fractional shares
based on the Market Value of the Common Stock on the date of exercise.
Notwithstanding any changes in the Purchase Price or the Number of Shares, this
Warrant, and any Warrants issued in replacement or upon transfer thereof, may
continue to state the initial Purchase Price and the Number of Shares.
Alternatively, the Company may elect to issue a new Warrant or Warrants of like
tenor for the additional shares of Common Stock purchasable hereunder or, upon
surrender of the existing Warrant, to issue a replacement Warrant evidencing all
the Warrants to which the Holder is entitled after such adjustments.
4.6 EXERCISE BEFORE PAYMENT DATE. In the event that this Warrant is
----------------------------
exercised after the record date for any event requiring an adjustment, but prior
to the actual event, the Company may elect to defer the adjusted amount to the
Holder until the actual event occurs; provided, however, that the Company shall
deliver a Due Bill or other appropriate instrument to the Holder transferrable
to the same extent as the other Securities issuable on exercise evidencing the
Holder's right to receive such additional amount upon the occurrence of the
event requiring such adjustment.
4.7 MARKET VALUE. "MARKET VALUE" for the Common Stock on any given date
------------
means (i) the average closing price for the prior ten trading days for the
Common Stock on the principal stock exchange on which the Common Stock is traded
or (ii) if not so traded, the closing price (or, if no closing price is
available, the average of the bid and asked prices) for such period on the
NASDAQ if the Common Stock is listed on the NASDAQ or (iii) if not listed on any
exchange or quoted on the NASDAQ, such value as may be determined in good faith
by the Company's Board of Directors, which determination shall be conclusively
binding on the parties.
4
<PAGE>
5. COVENANTS. The Company agrees that:
---------
5.1 RESERVATION OF STOCK. During the period in which this Warrant may be
--------------------
exercised, the Company will reserve sufficient authorized but unissued
securities to enable it to satisfy its obligations on exercise of this Warrant.
If at any time the Company's authorized securities shall not be sufficient to
allow the exercise of this Warrant, the Company shall take such corporate action
as may be necessary to increase its authorized but unissued securities to be
sufficient for such purpose;
5.2 NO LIENS, ETC. All securities that may be issued upon exercise of
-------------
this Warrant will, upon issuance, be validly issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and shall be listed on any exchanges on which that class of securities is
listed;
5.3 FURNISH INFORMATION. The Company will promptly deliver to the Holder
-------------------
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally; and
5.4 STOCK AND WARRANT TRANSFER BOOKS. Except upon dissolution,
--------------------------------
liquidation or winding up or for ordinary holidays and weekends, the Company
will not at any time close its stock or warrant transfer books so as to result
in preventing or delaying the exercise or transfer of this Warrant.
6. STATUS OF HOLDER.
----------------
6.1 NOT A STOCKHOLDER. Unless the Holder exercises this Warrant in
-----------------
writing, the Holder shall not be entitled to any rights (i) as a stockholder of
the Company with respect to the shares as to which the Warrant is exercisable
including, without limitation, the right to vote or receive dividends or other
distributions, or (ii) to receive any notice of any proceedings of the Company
except as otherwise provided in this Warrant.
6.2 LIMITATION OF LIABILITY. Unless the Holder exercises this Warrant in
-----------------------
writing, the Holder's rights and privileges hereunder shall not give rise to any
liability for the Purchase Price or as a stockholder of the Company, whether to
the Company or its creditors.
7. GENERAL PROVISIONS.
------------------
7.1 COMPLETE AGREEMENT; MODIFICATIONS. This Warrant and any documents
---------------------------------
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the parties.
5
<PAGE>
7.2 COOPERATION. Each party hereto agrees to execute any and all further
-----------
documents and writings and to perform such other reasonable actions which may be
or become necessary or expedient to effectuate and carry out this Warrant.
7.3 NOTICES. All notices under this Warrant shall be in writing and shall
-------
be delivered by personal service or telecopy or certified mail (if such service
is not available, then by first class mail), postage prepaid, to such address as
may be designated from time to time by the relevant party, and which shall
initially be:
(i) If to the Company:
Interactive Flight Technologies, Inc.
4041 N. Central Avenue, Suite 2000
Phoenix, Arizona 85012
Attention: Michail Itkis, Chief Executive Officer
(ii) If to Holder:
Houlihan Lokey Howard & Zukin
1930 Century Park West, 2nd Floor
Los Angeles, California 90067
Attention: James Zukin
Any notice sent by certified mail shall be deemed to have been given
three (3) days after the date on which it is mailed. All other notices shall be
deemed given when received. No objection may be made to the manner of delivery
of any notice actually received in writing by an authorized agent of a party.
7.4 NO THIRD-PARTY BENEFITS; SUCCESSORS AND ASSIGNS. None of the
-----------------------------------------------
provisions of this Warrant shall be for the benefit of, or enforceable by, any
third-party beneficiary. Except as provided herein to the contrary, this
Warrant shall be binding upon and inure to the benefit of the parties, their
respective successors and permitted assigns.
7.5 GOVERNING LAW. This Warrant concerns a Delaware corporation, and all
-------------
questions with respect to the Warrant and the rights and liabilities of the
parties will be governed by the laws of Delaware regardless of the choice of law
provisions of Delaware or any other jurisdiction. Any and all disputes between
the parties which may arise pursuant to this Warrant not covered by arbitration
will be heard and determined before an appropriate federal or state court
located in Los Angeles, California. The parties hereto acknowledge that such
courts have the jurisdiction to interpret and enforce the provisions of this
Warrant and the parties waive any and all objections that they may have as to
personal jurisdiction or venue in any of the above courts.
7.6 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or right
--------------------------
provided herein or otherwise available to any party hereunder (i) no waiver or
extension
6
<PAGE>
of time shall be effective unless expressly contained in a writing signed by the
waiving party; and (ii) no alteration, modification or impairment shall be
implied by reason of any previous waiver, extension of time, delay or omission
in exercise, or other indulgence.
7.7 SEVERABILITY. The validity, legality or enforceability of the
------------
remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any respect.
7.8 ATTORNEYS' FEES. Should any litigation or arbitration be commenced
---------------
(including any proceedings in a bankruptcy court) between the parties hereto or
their representatives concerning any provisions of this Warrant or the rights
and duties of any person or entity hereunder, the party or parties prevailing in
such proceeding shall be entitled, in addition to such other relief as may be
granted, to the attorneys' fees and court costs incurred by reason of such
litigation.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
effective as of November 12, 1996.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:_____________________________
John Alderfer
Treasurer and Chief
Financial Officer
Attest:
By:_______________________________
Lauren Snopkowski, Secretary
7
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers to the transferee named below the rights to purchase ___ of the
Number of Shares under this Warrant, together with all rights, title and
interest therein. The rights to purchase the remaining Number of Shares shall
remain the property of the undersigned.
Dated: _______________
[NAME OF HOLDER]
By:________________________________
Signature
Name:______________________________
(Please Print)
Address:___________________________
___________________________
___________________________
Employer Identification Number,
Social Security Number or other
identifying number: _______________
TRANSFEREE:
Name:_____________________________
(Please Print)
Address:__________________________
__________________________
__________________________
Employer Identification Number,
Social Security Number or other
identifying number:_______________
8
<PAGE>
EXERCISE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the Warrant with regard to _____________
shares of Common Stock and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares and the Warrant for
any unexercised portion of this Warrant be issued to the Holder.
Dated: __________________
[NAME OF HOLDER]
By:________________________________
Signature
Name:______________________________
(Please Print)
Address:___________________________
___________________________
___________________________
Employer Identification Number,
Social Security Number or other
identifying number: _______________
9
<PAGE>
[Letterhead of Irell & Manella LLP]
Exhibit 5.1
-----------
November 18, 1996
Interactive Flight Technologies, Inc.
4041 N. Central Avenue, Suite 2000
Phoenix, Arizona 85012
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have examined the Amendment No. 2 to Registration Statement on Form
S-3, filed by you with the Securities Exchange Commission (the "Commission") on
November 18, 1996, (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of the resale (in
Offering #1 of the Registration Statement) of 294,250 of your redeemable Class B
Warrants (the "Warrants"), and the sale and issuance (in Offerings #1 and #2 of
the Registration Statement) of 10,609,446 shares of your Class A Common Stock
underlying all of the outstanding redeemable Class B Warrants (the "Shares"). As
your counsel in connection with this transaction, we have examined the
proceedings proposed taken and proposed to be taken in connection with said sale
and issuance of the Warrants and the Shares and such other matters and documents
as we have deemed necessary or relevant as a basis for this opinion.
It is our opinion that, upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, the Warrants are (and the Shares, when issued and sold in the manner
described in the Registration Statement, will be) legally and validly issued,
fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the proxy statement/prospectus constituting a
part thereof, and any amendment thereto. This opinion is furnished to you in
connection with the registration of the Shares, is solely for your benefit and
may not be relied upon by, nor copies delivered to, any other person or entity
without our prior written consent.
Very truly yours,
IRELL & MANELLA LLP
<PAGE>
EXHIBIT 10.2
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "Agreement") is made and entered into
as of November 2, 1996, by and between Interactive Flight Technologies, Inc., a
Delaware corporation (the "Company"), and Steven M. Fieldman ("EXECUTIVE"), with
reference to the following facts:
RECITALS
A. Executive has been employed as the Company's Vice President -
Business Development and is also a director of the Company. He is resigning
from all such positions, effective as of the date hereof (the "RESIGNATION
DATE").
B. The Company and Executive are parties to that certain Employment
Agreement dated as of August 27, 1996 (the "EMPLOYMENT AGREEMENT").
C. In connection with such resignation, the Company has agreed to
provide Executive with certain benefits and consulting compensation, as more
fully set forth herein.
D. Executive desires to continue to render certain consulting
services to the Company, and the Company desires that Executive render such
services, under the terms and conditions hereinafter set forth.
E. In consideration of such benefits and consulting arrangements,
Executive and the Company have each agreed to release the other from any and all
claims, known or unknown, that they may have or could have against each other
arising prior to the execution of this Agreement, including any claims
concerning any subject matter arising out of, related to or connected with
Executive's employment with the Company, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the premises set forth above and
of the covenants, releases, representations and warranties contained herein, and
of other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
1. CERTAIN DEFINITIONS.
-------------------
"CLAIMS" means any and all claims, debts, liabilities, demands,
obligations, liens, promises, acts, agreements, costs, and expenses (including,
but not limited to, attorneys' fees), damages, actions, and causes of action, of
whatever kind or nature, including, without limitation, any statutory, civil, or
administrative claim, whether known or unknown, suspected or unsuspected, fixed
or contingent, apparent or concealed, except as provided herein.
<PAGE>
"COMPANY GROUP" means the Company and its respective successors,
assigns, officers, directors, agents, employees, representatives, attorneys,
shareholders and persons providing, or planning to provide, financing for the
Company.
"CONSULTING TERM" means the period commencing on the date hereof and
ending on October 27, 1999.
"EXECUTIVE GROUP" means Executive and his heirs, assigns, attorneys,
representatives, agents, executors and administrators.
2. RESIGNATION. Executive hereby resigns, effective as of the Resignation
-----------
Date, from his positions with the Company as a director and as Vice President -
Business Development, and all other director or officer positions held with any
member of the Company Group. The parties shall, concurrently herewith or
promptly hereafter, cancel the Amended and Restated Shareholders' Agreement
dated as of October 6, 1994 (the "SHAREHOLDERS AGREEMENT"), as to Executive,
effective upon the Resignation Date. Executive agrees that, upon execution of
the termination documents regarding the Shareholders' Agreement by the other
parties thereto, the Shareholders' Agreement shall be terminated in all respects
as to Executive without further signature by Executive.
3. CONSULTING SERVICES AND COMPENSATION PACKAGE. As consideration for
--------------------------------------------
Executive's past service and his resignation, release and promises set forth in
this Agreement, the Company agrees as follows:
3.1 On the next regular payday, the Company shall pay to Executive his
unpaid salary through the Resignation Date.
3.2 The Company hereby engages Executive to perform, and Executive
agrees to perform, consulting services for the benefit of the Company, as and to
the extent requested by the Company from time to time during the Consulting Term
(the "SERVICES"); provided, however, that the Services shall consist solely of
--------
consulting with the Company on a limited basis, not to exceed 5 hours per month,
for the purpose of answering questions on historical matters regarding the
Company.
3.3 As consideration for the Services, Executive shall receive a
consulting fee of Fifty-Five Thousand Dollars ($55,000) per year, payable in
monthly or bi-monthly installments, as the case may be, in accordance with the
Company's normal payroll practices. The foregoing payments are in settlement of
all salary, bonus, commissions and other compensation which are or may become
due under the Employment Agreement or otherwise as a result of Executive's
employment by the Company, and, in light of the foregoing, (i) Executive hereby
waives any right to receive severance payments or other additional compensation
from the Company, including without limitation any severance payments
contemplated by Section 5.2.2 of the Employment Agreement, and (ii) Executive
shall not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment, by self-employment or otherwise; and if
Executive obtains other employment or becomes self-
2
<PAGE>
employed any compensation earned by Executive during such period shall not be
applied to mitigate any payment made or to be made to Executive for such period.
3.4 Subject to the same types of contribution as made by Executive in
the past, the Company shall at its expense provide Executive with family medical
insurance benefits on the same terms and conditions as provided to the Company's
senior executives, until the end of the Consulting Term. Commencing at the end
of the Consulting Term, Executive shall be entitled to such benefits as required
under COBRA regulation.
3.5 All of the employee or director stock options currently held by
Executive (the "STOCK OPTIONS") shall continue to vest and become exercisable
under the terms and vesting schedules set forth therein and shall continue to be
exercisable through the respective scheduled terms under such options; provided,
--------
however that (i) the second 100,000 of the 300,000 options granted on August 27,
1996 will be exercisable commencing on June 1, 1997, and the third 100,000 of
such 300,000 options granted on that date will be exercisable commencing on
November 2, 1997 and (ii) such continued vesting and exercisability of the Stock
Options shall not be effected by the termination of Executive's status as an
employee, officer and director of the Company as contemplated hereby.
3.6 The Company shall continue to indemnify Executive in accordance
with the standards, terms and limitations of (i) Article IV of the Company's
Bylaws as in effect on the date hereof to the same extent as if Executive had
remained a director and an officer of the Company, (ii) the Indemnification
Agreement dated March 7, 1995 between Company and Executive (the
"INDEMNIFICATION AGREEMENT"), (iii) existing Directors and Officers liability
insurance to the same extent as if Executive had remained a director and an
officer of the Company and (iv) Articles VII and VIII of the Company's Amended
and Restated Certificate of Incorporation.
4. NO STOCK SALES. Executive shall not, without the prior written consent of
--------------
the Company, directly or indirectly, offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of, any shares of capital stock of the
Company currently held or hereafter acquired by Executive (or any securities
convertible into or exercisable or exchangeable for, or warrants, options or
rights to purchase or acquire) such capital stock, or enter into any agreement
to do any of the foregoing, until January 31, 1997. The foregoing shall not
preclude a mere exercise of Stock Options so long as there is no subsequent sale
or disposition of the underlying shares until January 31, 1997. Executive
agrees that, so long as he holds any capital stock of the Company, he will vote
all of the shares of the capital stock of the Company held by him in favor or
against any matter (including the election of directors) submitted to the
shareholders of the Company in the same proportion as the aggregate vote of the
other shareholders of the Company who actually vote on such matter. Executive
agrees to execute any additional documents, including a proxy, which the Company
reasonably believes is desirable to effectuate this provision.
3
<PAGE>
5. RETURN OF COMPANY PROPERTY. Executive shall promptly return all Company
--------------------------
property and documents in his possession, except for a laptop computer which he
may continue to use.
6. RELEASE OF CLAIMS.
-----------------
6.1 EXECUTIVE RELEASE. Except as provided herein, in consideration
-----------------
of the terms and provisions of this Agreement, Executive agrees that he shall
and does hereby forever relieve, release and discharge each person in the
Company Group from any and all Claims arising out of any act or omission
occurring before the execution of this Agreement.
6.2 COMPANY RELEASE. Except as provided herein, in consideration of
---------------
the terms and provisions of this Agreement, the Company agrees that it shall and
does hereby forever relieve, release and discharge each person in the Executive
Group from any and all Claims arising out of any act or omission occurring
before the execution of this Agreement.
6.3 SCOPE. The releases set forth in this Section 6 include, but
-----
are not limited to, any and all Claims based on, arising out of, or related to
Executive's employment relationship with the Company (or any and all facts in
any manner arising out of, related to or connected with such employment
relationship) or the termination of Executive's employment with the Company
under the terms hereof (except that such releases shall not apply to any Claim
by either party that the other has breached this Agreement). Without limiting
the generality of the foregoing, Claims released by Executive and the Company
shall encompass and include, but are not limited to, any Claims arising from
rights under federal, state, or local laws relating to the prohibition of
discrimination on the basis of race, national origin, sex, religion, age,
marital status, handicap, ancestry, sexual orientation, or any other protected
classification, and any and all Claims arising under common law, including, but
not limited to, common law Claims for breach of contract, breach of the implied
covenant of good faith and fair dealing, wrongful termination, discrimination,
tortious interference with contract or with current or prospective economic
advantage, fraud, deceit, misrepresentation, violation of public policy, breach
of privacy, defamation, infliction of emotional distress, loss of consortium,
breach of fiduciary duty, Claims arising from any alleged breach of the
Employment Agreement, or any other common law Claim of any kind whatsoever.
7. ACKNOWLEDGEMENT AND EFFECT OF WAIVER. Executive understands and
------------------------------------
acknowledges that (a) this Agreement constitutes a voluntary waiver of any and
all Claims he has against the Company and each person in the Company Group as of
the date of his execution of this Agreement, including Claims under the Age
Discrimination in Employment Act of 1967, 29 U.S.C. (S) 621 et seq.; (b) he has
-- ----
waived any and all Claims pursuant to this Agreement and in exchange for
consideration, the value of which exceeds payments or remuneration to which he
was already entitled; (c) he has been, and is hereby, advised to consult with an
attorney concerning this Agreement before executing it; (d) he has been, and is
hereby, informed that he has a period of at least
4
<PAGE>
twenty-one (21) days to consider the terms of this Agreement; and (e) he may
revoke this Agreement at any time during the seven (7) days following the date
of his execution of this Agreement, and no provision of this Agreement shall
become effective or enforceable against Executive or the Company until such
revocation period has expired.
8. REPRESENTATIONS AND WARRANTIES. Each party represents and warrants to the
------------------------------
other that (i) it has full power and authority to enter into this Agreement;
(ii) it is the owner of the Claims that it has released herein; and (iii) it has
not (nor has it purported to have) assigned, conveyed, encumbered, or in any
manner transferred any portion of the Claims released herein. Each party hereby
agrees to indemnify and hold each party released by it hereunder harmless from
any and all claims (including, but not limited to, all attorneys' fees actually
incurred) resulting from any breach of that releasing party's warranties and
representations herein.
9. PUBLIC ANNOUNCEMENTS.
--------------------
9.1 ANNOUNCEMENT OF RESIGNATION. Neither party shall make any public
---------------------------
announcement regarding Executive's resignation other than (i) pursuant to a
mutually satisfactory press release which shall attribute Executive's
resignation hereunder to the restructuring of the Company's approach to sales or
(ii) as may be required pursuant to applicable securities laws and any rules and
regulations thereunder and then only after consultation with the other party to
the maximum extent possible in order to maintain goodwill for the other party.
9.2 THIRD PARTY CONTACTS. Each of the parties hereto agrees not to
--------------------
make disparaging or derogatory comments about any of the parties released by it
hereunder (whether to the press, the investment community, shareholders,
customers or potential customers or sales representatives of IFT or otherwise)
and not to take any positions with third parties which are inconsistent with the
above-described press release, except to the extent required by applicable law
and then only after consultation with the other party to the maximum extent
possible in order to maintain goodwill for the other party.
10. CONFIDENTIALITY; NON-INTERFERENCE.
---------------------------------
10.1 The provisions of Section 6.1 of the Employment Agreement shall
continue in full force and effect for the period specified therein; provided,
--------
however, that Executive may solicit any prospective clients on behalf of any
independent interactive advertising sales agency established by Lance D.
Fieldman, which prospective clients may include airlines (including the
Company's customers) and any competitor of the Company.
10.2 In the event that Executive breaches any provisions of this
section or there is a threatened breach, then, in addition to any other rights
which the Company may have, the Company shall be entitled to seek injunctive
relief to enforce the restrictions contained herein. In the event that an
actual proceeding is brought in equity to enforce the provisions of this
paragraph, Executive shall not urge as a defense that there is an
5
<PAGE>
adequate remedy at law nor shall the Company be prevented from seeking any other
remedies which may be available.
10.3 The existence of any claim or cause of action by the Company
against Executive, whether predicated upon this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of the foregoing
restrictive covenants but shall be litigated separately.
10.4 During the Consulting Term and thereafter, Executive agrees to
hold in strictest confidence, and not to use, except for the benefit of the
Company, or to disclose to any person, firm or corporation, without the prior
written authorization of the Company, any trade secrets, confidential knowledge,
data or other proprietary information of the Company. By way of illustration
and not limitation, such shall include information relating to products,
processes, know-how, designs, formulas, methods, developmental or experimental
work, improvements, discoveries, plans for research, new products, marketing or
selling, business plans, budgets, unpublished financial statements, licenses,
prices and costs, suppliers and customers, and information regarding the skills
and compensation of other employees of the Company.
11. MISCELLANEOUS.
-------------
11.1 DISPUTED RIGHTS. This Agreement represents a settlement of
---------------
disputed rights and claims and, by entering into this Agreement, no party admits
or acknowledges the existence of any liability or wrongdoing, all such liability
being expressly denied. No provision hereof, or of any related document, shall
be construed as any admission or concession of liability or of any wrongdoing.
11.2 AGREEMENT NEGOTIATED. This Agreement was the subject of careful
--------------------
negotiation between Executive (a sophisticated businessman represented by
counsel) and the Company. As a consequence, the parties do not believe that the
presumptions of any statutory or common law doctrine relating to the
interpretation of contracts against the drafter of any particular clause should
be applied in this case and therefore waive its effects.
11.3 INDEPENDENT ADVICE. Each of the parties hereto (i) has received
------------------
independent legal advice from its attorneys with respect to the advisability of
executing this Agreement; (ii) has read this Agreement and the releases
contained herein carefully, knows and understands the contents hereof, and (iii)
has made such investigation of the facts pertaining to this Agreement and of all
matters pertaining hereto as it deems necessary or desirable. Except as
expressly set forth herein, none of the parties hereto has made any
representations or warranties in connection with this Agreement, and no party
has relied upon any oral or written representation or warranty of any other
party in entering into this Agreement.
11.4 NOTICES. Any notice required or desired to be given to the
-------
Company or to Executive shall be given in writing, and shall be addressed (i) to
the Company at its
6
<PAGE>
principal place of business, and (ii) to Executive at his most recent home
address in the records of the Company, or to such other address as that party
may hereafter designate in writing, and shall be sufficiently given by actual
delivery thereof to the Company or Executive, as the case may be, or by telecopy
or certified mail, postage prepaid, return receipt requested, addressed to the
other party as aforesaid, and the date of delivery, mailing or telecopying shall
be the date of the giving of such notice.
11.5 ENTIRE AGREEMENT. Except as set forth in Section 10.1 above,
----------------
this Agreement, together with all documents referred to herein, sets forth the
entire understanding of the parties with respect to Executive's employment
relationship with the Company and the termination thereof, and supersedes any
and all prior agreements or understandings between the parties relating to such
subject matter (including without limitation the Employment Agreement, which is
hereby terminated). No person has any authority to make any representation or
promise on behalf of any of the parties which is inconsistent with the
representations set forth in this Agreement, and this Agreement has not been
executed in reliance on any promise or representation not set forth herein.
11.6 MODIFICATION AND WAIVER. None of the terms or provisions hereof
-----------------------
shall be modified or waived, and this Agreement may not be amended or
terminated, except by a written instrument signed by the party against which any
modification, waiver, amendment or termination is to be enforced. No waiver of
any one provision shall be considered a waiver of any other provision, and the
fact that an obligation or right is waived for a period of time or in one
instance shall not be considered to be a continuing waiver.
11.7 GOVERNING LAW. All questions with respect to this Agreement and
-------------
the rights and liabilities of the parties shall be governed by the laws of
Delaware, regardless of the choice of laws provisions of Delaware or any other
jurisdiction.
11.8 ASSIGNMENT. This Agreement shall not be assignable by Executive
----------
or the Company, except that this Agreement may be assigned by the Company to any
corporation or other business entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, corporate
reorganization or by acquisition of all or substantially all of the assets of
the Company and which assumes the Company's obligations under this Agreement (a
"SUCCESSOR"). The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon any Successor that has so assumed this Agreement.
Furthermore, in the event that such an assignment to a Successor is deemed
ineffective with respect to Section 3.2 hereof by virtue of the personal
services contemplated thereby, the remaining provisions hereof shall nonetheless
inure to the benefit of such Successor; provided that the compensation payable
to Executive as set forth in Section 3.2 and the Stock Option commitments set
forth in Section 3.5 are fulfilled by the Successor.
11.9 ARBITRATION OF DISPUTES. If Executive and the Company cannot
-----------------------
resolve a dispute (whether arising in contract or tort or any other legal
theory, whether based on federal, state or local statute or common law and
regardless of the identities of any other
7
<PAGE>
defendants) that in any way relates to or arises out of this Agreement, the
termination of Executive's employment relationship with the Company, or (without
limiting the generality of any other Section herein) Executive's past employment
relationship with the Company, or termination of any of the agreements referred
to herein, then such dispute shall be settled by arbitration in New York, New
York, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
11.10 ATTORNEYS' FEES. In the event that either party should bring
---------------
any action, suit or other proceeding against the other party hereunder
concerning any matter released herein, or contesting the validity of this
Agreement or any provision hereof, or attempting to rescind, negate, modify or
reform this Agreement or any of the terms or provisions thereof, or in the event
that any action, suit, or other proceeding is instituted to remedy, prevent, or
obtain relief from a breach of this Agreement, or arising out of a breach of
this Agreement, the prevailing party shall be entitled to recover all of such
party's costs and expenses, including reasonable attorneys' fees and
disbursements, incurred in each and every such action, suit, or other
proceeding, including any and all appeals or petitions therefrom.
11.11 INDEPENDENT CONTRACTOR. The Company and Executive agree that
----------------------
Executive will act as an independent contractor in the performance of his duties
under this Agreement. Accordingly, Executive shall be responsible for payment
of all taxes including Federal, State and local taxes arising out of Executive's
activities in accordance with this Agreement, including, by way of illustration
but not limitation, Federal and State income tax, Social Security tax,
Unemployment Insurance taxes and any other taxes or business license fees as
required.
11.12 OBLIGATION TO PAY COMPENSATION. The Company's obligation to
------------------------------
pay Executive the compensation and to provide the benefits provided herein shall
be absolute and unconditional and shall not be affected by any circumstance,
including without limitation (i) the termination by the Company of Executive's
consulting obligations hereunder and (ii) any setoff, counterclaim, recoupment,
defense or other right which the Company may have against Executive (including
without limitation as a result of breaches of Section 9.2) or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
11.13 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8
<PAGE>
11.14 NO RESCISSION. Except as expressly provided herein, each party
-------------
waives all rights it may now have or may hereafter have conferred upon him or
it, by statute or otherwise, to terminate, cancel or rescind this Agreement in
whole or in part.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date and year set forth below.
"Company" "Executive"
Interactive Flight Technologies, Inc.
By:____________________________ ________________________________
Michail Itkis Steven M. Fieldman
Chief Executive Officer
Date:__________________________ Date:___________________________
9
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into as of October
2, 1996, between Interactive Flight Technologies, Inc., a Delaware corporation
(the "COMPANY"), and John Alderfer ("EXECUTIVE") with reference to the following
facts:
A. The Company has retained executive to act as its Chief Financial
Officer.
B. Executive and the Company wish to enter into an employment contract
providing for the employment of Executive on the terms and conditions set forth
herein.
NOW THEREFORE, based on the mutual covenants contained herein, the parties
agree as follows:
1. EMPLOYMENT AND DUTIES. The Company hereby agrees to employ Executive
---------------------
and Executive hereby accepts employment with the Company under the terms and
conditions set forth in this Agreement. Executive shall be employed as the
Chief Financial Officer, with the duties and responsibilities commensurate with
his position as may be assigned by the Company, including without limitation the
management of the overall financial operations of the Company. Executive shall
report directly to Michail Itkis or, if Michail Itkis shall no longer be
employed by the Company, then to his successor as Chief Executive Officer of the
Company. Executive shall devote his full time, attention and energies to
performing his duties for the Company on an exclusive basis, and shall perform
his duties faithfully and to the best of his abilities.
2. TERM OF EMPLOYMENT. Subject to earlier termination as provided in
------------------
Section 5, Executive's employment under this Agreement shall commence on the
date first stated above and continue until three (3) years thereafter (the
"EMPLOYMENT TERM"; each year during the Employment Term, a "TERM YEAR"). In the
event that Executive continues to be employed by the Company following the
Employment Term, that employment shall be governed by this Agreement except that
it will be "at-will," without a fixed term, and may be terminated by the Company
or Executive at any time, with or without notice, for any reason or no reason
(and no reason need be given).
3. COMPENSATION. As compensation for the performance by Executive of all
------------
of his obligations under this Agreement, the Company shall pay to Executive the
following:
3.1 BASE SALARY. A base salary during the Employment Term, at a rate
-----------
of Two Hundred Thousand Dollars ($200,000) per Term Year, payable in accordance
with the Company's normal practices for its senior executive officers (the "BASE
SALARY"). No additional compensation shall be payable to Executive by reason of
the number of hours worked or any hours worked on Saturdays, Sundays or
holidays, by
<PAGE>
reason of special responsibilities assumed, special projects completed or
performance goals attained, or otherwise.
3.2 BONUSES. In respect of each Term Year during which Executive is
-------
employed under this Agreement, the Board of Directors of the Company or any
designated Committee thereof (in either case, the "BOARD") shall make a
determination, on a timetable consistent with its general evaluation of the
annual performance of the Company's senior executive officers, as to whether, in
the Board's sole and absolute discretion, Executive is entitled to receive a
bonus for the Term Year and, if so, the amount of the bonus; provided, however,
that the Board shall make such determination with the intent of paying a target
bonus of 20% of annual Base Salary if it determines in its discretion that
Executive has met the Board's performance criteria. The parties anticipate that
such bonus, if any, would be in cash.
4. BENEFITS.
--------
4.1 EXPENSES. The Company shall repay or reimburse Executive for
--------
ordinary and necessary business expenses to the extent compatible with, and
subject to the verification and substantiation documentation and procedures
applicable under, the Company's general policies for its senior executive
officers. Executive shall keep accurate and complete records of all such
expenses, including, but not limited to, proof of payment and purpose.
4.2 RELOCATION COSTS. The Company shall repay or reimburse Executive
----------------
for the following costs associated with his relocation to Phoenix: (i) costs
incurred for a trip to Phoenix by Executive and his spouse, for up to five days,
to shop for a house, (ii) a reasonable temporary housing lease for six months
or, if earlier, until Executive purchases a residence and (iii) additional
actual and reasonable expenses incurred in connection with Executive's
relocation to Phoenix, in each case subject to the verification and
substantiation documentation and procedures applicable under the Company's
general policies for its senior executive officers. Executive shall keep
accurate and complete records of all such expenses, including, but not limited
to, proof of payment and purpose. If Executive voluntary resigns within twelve
months from the date hereof, Executive shall repay to the Company all amounts
paid under this Section 4.2.
4.3 INSURANCE BENEFITS. During the Employment Term, the Company
------------------
shall provide Executive with those insurance benefits generally available to its
senior executive officers, as such benefits may be modified from time to time in
the Company's sole and absolute discretion.
4.4 VACATION AND SICK LEAVE. During the Employment Term, Executive
-----------------------
shall be entitled to a paid annual vacation of four (4) weeks, as well as
holidays and sick leave without reduction in Executive's Base Salary in
accordance with the policies for its senior executive officers as modified from
time to time by the Company in its sole and absolute discretion. Without the
Company's written consent,
2
<PAGE>
vacation must be taken in the year earned and Executive's vacation will be
scheduled at those times most convenient to the Company's business.
4.5 STOCK OPTIONS. Concurrently herewith, Executive shall be granted
-------------
one hundred seventy-five thousand (175,000) stock options to purchase Class A
Common Stock of the Company, which shall vest in equal one-third portions on
each of the first three anniversaries of the date hereof so long as Executive is
then employed by the Company, and which shall have an exercise price equal to
the closing sales price of the Class A Common Stock on Nasdaq on the day prior
to the approval of the grant by the Board. Such options shall be non-qualified
stock options, shall have a term of ten (10) years following approval of the
grant by the Board, and shall be granted pursuant to the Company's current Stock
Option Plan and the Company's current standard form of Stock Option Agreement.
5. TERMINATION OF EMPLOYMENT.
-------------------------
5.1 TERMINATION. The Company may terminate Executive's employment
-----------
with the Company at any time with or without Cause by written notice to
Executive. "CAUSE" shall exist if any one or more of the following should
occur: Executive's (a) material failure to perform his duties under, or breach
of, this Agreement which remains uncured after a written warning (except in the
case of a willful failure to perform his duties or a willful breach, which shall
require no warning), (b) failure to comply with a reasonable direction of the
Board, which remains uncured after a written warning, (c) breach of his
fiduciary duty to the Company, (d) conviction by a court of competent
jurisdiction of a felony or other serious crime, (e) inability for any reason to
render full services as contemplated by this Agreement for a period of twenty-
six (26) consecutive weeks, or eight (8) months in any twelve month period, or
(f) commission of a wrongful act that would make the continuance of his
employment by the Company detrimental to the Company.
5.2 PAYMENT UPON TERMINATION.
------------------------
5.2.1 GENERALLY. Upon any termination, the Company shall pay to
---------
Executive (or, if applicable, to Executive's estate) all amounts accrued and
unpaid as of the date of termination in respect of (i) Executive's salary for
periods through such date, (ii) vacation pay to the extent consistent with the
Company's policies in effect from time to time during the Employment Term
regarding entitlement to payment in respect of accrued but unused vacation time,
and (iii) any reimbursement for expenses owing to Executive pursuant to Section
4.1.
5.2.2 TERMINATION WITHOUT CAUSE. If the Company terminates Executive
-------------------------
other than for Cause, then in addition to amounts that Executive is entitled to
receive under Section 5.2.1, Executive shall be entitled to receive as a
severance payment the Base Salary for a period of six (6) months following the
date of termination (or, if such termination occurs within sixty (60) days of
the date hereof, then such period shall extend until one year from the date
hereof), payment of which shall be accelerated
3
<PAGE>
and paid in one lump sum as soon as practically possible, with an appropriate
discount to reflect such acceleration. Executive shall be obligated to use his
best efforts to obtain other suitable employment. The Company shall be entitled
to offset any earnings (such earnings to be determined without deductions for
any Federal, state, local or other taxes paid or to be paid) that Executive
receives during the remainder of the Employment Term as a result of obtaining
employment against the severance payment payable pursuant to this Section 5.2.2.
In the event that Executive dies during the Employment Term, this Agreement
shall terminate automatically.
5.3 EXCLUSIVITY OF REMEDIES. Executive agrees that the rights and
-----------------------
entitlements set forth in this Section 5 are his exclusive rights and
entitlements from the Company and any affiliated entity upon the termination of
Executive's employment with the Company, and upon termination the Company shall
be released from other obligations hereunder.
6. COVENANTS.
---------
6.1 NONCOMPETITION AND NONSOLICITATION COVENANT. During the term of
-------------------------------------------
Executive's employment with the Company and for a period of six (6) months
following termination of such Employment for any reason, Executive shall not,
directly, indirectly or as an agent on behalf of or in conjunction with any
person, firm, partnership, corporation or other entity, (a) engage or
participate in the business of owning, operating or managing in-flight
entertainment systems, in any area, except that Executive may purchase up to
five percent of the outstanding capital stock of any publicly-traded
corporation, (b) hire, solicit or encourage the resignation of person who is
then, or within the prior six months has been, an employee of the Company in an
executive, managerial, engineering, sales, administrative or professional
capacity or who possesses Confidential Information (as defined below), to leave
the employment of the Company or (c) solicit or service any person or entity
with whom the Company has a business relationship or who is or was during the
Employment Term, a customer or client of the Company.
6.2 EMPLOYMENT EXCLUSIVE. Executive shall not, during the Employment
--------------------
Term, own any interest (other than up to 1% of the voting securities of a
publicly traded corporation) in, render financial assistance to, or offer
personal services (for payment or otherwise), to any entity or individual that
competes with the Company in Company Business (as defined below) or that is a
material supplier of the Company. In addition, Executive shall not engage in
any activity which would interfere with the performance of Executive's services
to the Company. "COMPANY BUSINESS" means the Company's business as it is
currently conducted and any other business activity in which the Company is
engaged at any time during Executive's employment with the Company.
6.3 CONFIDENTIAL INFORMATION. Executive occupies a position of
------------------------
trust and confidence with respect to the Company's affairs and business.
Executive has had and will have access to Confidential Information, which he
acknowledges is proprietary to the Company and highly sensitive in nature.
4
<PAGE>
6.3.1 DEFINITION OF CONFIDENTIAL INFORMATION. "CONFIDENTIAL
--------------------------------------
INFORMATION" means information disclosed to Executive or known to Executive as a
consequence of or through his employment by the Company, whether or not related
to his duties, and includes trade secrets or any other like information relating
to the business and/or field of interest of the Company or any business and/or
field of interest seriously considered by the Company during Executive's
employment by the Company, including, but not limited to, information relating
to Inventions (as defined below), disclosures, processes, systems, methods,
formulas, patents, patent applications, machinery, materials, research
activities and plans, costs of production, contract forms, prices, volume of
sales, marketing methods and plans, promotional methods, and lists of names or
classes of customers. Information shall for purposes of this Agreement be
considered to be confidential if not known by the trade generally, even though
such information may have been disclosed to one or more third parties pursuant
to consulting agreements, joint research agreements, or other agreements entered
into by the Company.
6.3.2 NO DISCLOSURE. During and after Executive's employment with
-------------
the Company, Executive shall not (a) use, disclose or otherwise permit any
person or entity access to any of the Confidential Information other than as
required in the good faith performance of Executive's duties with the Company,
or (b) sell, license or otherwise exploit any products or services which embody
in whole or in part any Confidential Information. During and after Executive's
engagement with the Company, Executive shall take all reasonable precautions to
prevent disclosure by Executive of the Confidential Information to unauthorized
persons or entities.
6.3.3 RETURN ALL MATERIALS. Upon termination of Executive's
--------------------
employment with the Company, Executive shall deliver to the Company all tangible
materials in any way embodying the Confidential Information, including any
documentation, records, listings, notes, data, sketches, drawings, memoranda,
models, videos, accounts, reference materials, samples, machine-readable media
and equipment, and wire frame models. Executive shall not retain any copies of
any of the above materials.
6.4 ASSIGNMENT OF INVENTIONS.
------------------------
6.4.1 DEFINITION OF INVENTIONS. "INVENTIONS" mean discoveries,
------------------------
developments, concepts, ideas, methods, designs, improvements, inventions,
formulas, processes, techniques, programs, know-how and data, whether or not
patentable or registerable under copyright or similar statutes, except any such
that (a) is not related to the business of the Company, or the Company's actual
or demonstrable research or development, (b) does not involve the use of any
equipment, supplies, facility or trade secret information of the Company, (c)
was developed entirely on Executive's own time, and (d) does not result from any
---
work performed by Executive for the Company.
5
<PAGE>
6.4.2 ASSIGNMENT. Executive agrees to and hereby does assign to the
----------
Company all his right, title and interest in any and all Inventions he may make
during the term hereof.
6.4.3 DUTY TO DISCLOSE AND ASSIST. Executive agrees to promptly
---------------------------
disclose in writing all Inventions to the Company, and to provide all assistance
reasonably requested by the Company in the preservation of the Company's
interests in the Inventions including obtaining patents in any country
throughout the world. Such services will be without additional compensation if
Executive is then employed by the Company and for reasonable compensation and
subjected to his reasonable availability if he is not. If cannot, after
reasonable effort, secure Executive's signature on any document or documents
needed to apply for or prosecute any patent, copyright, or other right or
protection relating to an Invention, whether because of his physical or mental
incapacity or for any other reason whatsoever, Executive hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as his agent and attorney-in-fact, to act for and in his behalf and in his name
and stead for the purpose of executing and filing any such application or
applications and taking all other lawfully permitted actions to further the
prosecution and issuance of patents, copyrights, or similar protections thereon,
with the same legal force and effect as if executed by him.
6.5 OWNERSHIP OF COPYRIGHTS. Executive agrees that any work prepared
-----------------------
for the Company which is eligible for United States copyright protection or
protection under the Universal Copyright Convention, the Berne Copyright
Convention and/or the Buenos Aires Copyright Convention shall be a work made for
hire and ownership of all copyrights (including all renewals and extensions)
therein shall vest in the Company. If any such work is deemed not to be a work
made for hire for any reason, Executive hereby grants, transfers and assigns all
right, title and interest in such work and all copyrights in such work and all
renewals and extensions thereof to the Company, and agrees to provide all
assistance reasonably requested by the Company in the establishment,
preservation and enforcement of the Company's copyright in such work, such
assistance to be provided at the Company's expense but without any additional
compensation to Executive. Executive hereby agrees to and does hereby waive the
enforcement of all moral rights with respect to the work developed or produced
hereunder, including without limitation any and all rights of identification of
authorship and any and all rights of approval, restriction or limitation on use
or subsequent modifications.
6.6 LITIGATION. Executive agrees to render assistance, advice and
----------
counsel to the Company at its request regarding any matter, dispute or
controversy with which the Company may become involved and of which Executive
has or may have reason to have knowledge, information or expertise. Such
services will be without additional compensation if Executive is then employed
by the Company and for reasonable compensation and subjected to his reasonable
availability if he is not.
6
<PAGE>
7. ARBITRATION AS THE EXCLUSIVE REMEDY.
-----------------------------------
7.1 ARBITRATION AS THE EXCLUSIVE REMEDY. Except for actions seeking
-----------------------------------
injunctive relief (which may be brought before any court having jurisdiction
under this Agreement), any controversy or claim (whether against the Company or
any parent, subsidiary or affiliate thereof, or any officer, director, employee
or agent of any of the foregoing) arising out of or relating to this Agreement,
including, but not limited to, any claim relating to its validity,
interpretation, enforceability or breach, and/or any other claim or controversy
arising out of the employment relationship or the commencement or termination of
that relationship, including, but not limited to, claims which are brought
against any of the Company's directors, officers, employees and agents and
claims for breach of covenant, for breach of an implied covenant, for
intentional infliction of emotional distress, or under any applicable statute
(including, without limitation, claims for age or sex discrimination) which are
not settled by agreement between the parties, shall be submitted to arbitration
in Phoenix, Arizona before an arbitrator to be mutually agreed upon by the
parties. In consideration of each party's agreement to submit to arbitration
all disputes with regard to this Agreement and/or with regard to any alleged
contract or tort or other claim arising out of the employment relationship or
the commencement or termination of that employment relationship, and in
consideration of the anticipated expedition and the minimizing of expense of
this arbitration remedy, each agrees that the arbitration provisions of this
Agreement shall provide it with its exclusive remedy against the other party
(including its officers, directors, employees and agents) and each party
expressly waives any right it might have to seek redress in any other forum
except as provided herein.
7.2 PROCEDURES. The party filing a claim must present it in writing
----------
to the other party in Phoenix within six months of the date the party filing the
claim knew or should have known of it or the date of the termination, whichever
is earlier. Any claim not brought within the required time period will be
waived forever. In the proceedings (i) all testimony of witnesses shall be
taken under oath, and (ii) upon conclusion of any proceedings hereunder, the
arbitrator shall render findings of fact and conclusions of law in a written
opinion setting forth the basis and reasons for any decision reached and deliver
such documents to each party to this Agreement along with a signed copy of the
award in accordance with the applicable sections of the Arizona code of civil
procedure. Each party hereby agrees that the prevailing party shall be entitled
to recover all costs incurred in preparation for and as a result of any such
arbitration, including, without limitation, filing fees, attorneys' fees, the
compensation to be paid to the arbitrator in any such arbitration and costs of
transcripts. The arbitrator shall not have power or competence to allocate
between the parties in their award costs incurred in preparation for and as a
result of any such arbitration, including, without limitation, filing fees,
attorneys' fees, the compensation to be paid to the arbitrator in any such
arbitration and costs of transcripts.
7
<PAGE>
8. MISCELLANEOUS.
-------------
8.1 AGREEMENT AUTHORIZED. Executive hereby represents and warrants
--------------------
that he is free to enter into this Agreement and to render his services pursuant
to this Agreement, that he holds no offices with any other entities, and that he
is not subject to any obligation or restriction that would prevent him from
discharging his duties under this Agreement, and agrees to indemnify and hold
harmless the Company from and with respect to any liability, damages or costs,
including attorneys' fees, arising out of any breach by Executive of this
representation and warranty. The Company hereby represents and warrants that
any required authorization of this Agreement by its Board of Directors has been
obtained.
8.2 NOTICES. Any notice required or desired to be given to the
-------
Company or to Executive shall be given in writing, and shall be addressed (i) to
the Company at its principal place of business, and (ii) to Executive at his
most recent home address in the records of the Company, or to such other address
as that party may hereafter designate in writing, and shall be sufficiently
given by actual delivery thereof to the Company or Executive, as the case may
be, or by telegraph or registered mail, postage prepaid, return receipt
requested, addressed to the other party as aforesaid, and the date of delivery,
mailing or telegraphing shall be the date of the giving of such notice.
8.3 PAYMENT OF TAXES. To the extent that any taxes become payable by
----------------
Executive by virtue of any payments made or benefits conferred by the Company,
the Company shall not be liable to pay or obligated to reimburse Executive for
any such taxes or to make any adjustment under this Agreement. Any payments
otherwise due under this Agreement to Executive, including, but not limited to,
the Base Salary and any bonus, shall be reduced by any required withholding for
Federal, State and/or local taxes and other appropriate payroll deductions. The
Company shall be entitled to offset any payment obligations to Executive under
this Agreement against any amounts it alleges in good faith that Executive owes
to the Company.
8.4 INSURANCE. The Company may, from time to time, apply for and
---------
take out, in its own name and at its own expense, life, health, accident,
disability or other insurance on Executive in any sum or sums that it may deem
necessary to protect its interests, and Executive shall aid and cooperate in all
reasonable respects with the Company in procuring any and all such insurance,
including, without limitation, submitting to the usual and customary medical
examinations, and by filling out, executing and delivering such applications and
other instruments in writing as may be reasonably required by an insurance
company or companies to which an application or applications for such insurance
may be made by or for the Company. In order to induce the Company to enter into
this Agreement, Executive represents and warrants to the Company that, to the
best of his knowledge, Executive is insurable at standard (non-rated) premiums.
8
<PAGE>
8.5 ASSIGNMENT. This Agreement is a personal contract, and the
----------
rights, interests and obligations of Executive under this Agreement may not be
sold, transferred, assigned, pledged or hypothecated, except that this Agreement
may be assigned by the Company to any corporation or other business entity which
succeeds to all or substantially all of the business of the Company through
merger, consolidation, corporate reorganization or by acquisition of all or
substantially all of the assets of the Company and which assumes the Company's
obligations under this Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon any successor to the business
of the Company.
8.6 ENTIRE AGREEMENT. This Agreement sets forth the entire
----------------
understanding of the parties with respect to the employment relationship,
including the commencement and termination of the employment relationship, and
supersedes any and all prior agreements or understandings between the parties
relating to such subject matter. No person has any authority to make any
representation or promise on behalf of any of the parties which is inconsistent
with the representations set forth in the Agreement and the Agreement has not
been executed in reliance on any promise or representation not set forth in the
Agreement. The employment term under the Old Agreement is hereby terminated,
effective as the date hereof.
8.7 MODIFICATION, WAIVER AND AMENDMENT. None of the terms or
----------------------------------
provisions of this Agreement shall be modified or waived, and this Agreement may
not be amended or terminated, except by a written instrument signed by the party
against which any modification, waiver, amendment or termination is to be
enforced. No waiver of any one provision shall be considered a waiver of any
other provision, and the fact that an obligation is waived for a period of time
or in one instance shall not be considered to be a continuing waiver.
8.8 COOPERATION. Each party hereto agrees to execute any and all
-----------
further documents and writings and perform such other reasonable actions which
may be or become necessary or expedient to effectuate and carry out the
provisions hereof.
8.9 GOVERNING LAW. This Agreement has been negotiated and entered
-------------
into in the State of Arizona and concerns an Arizona business and resident. All
questions with respect to this Agreement and the rights and liabilities of the
parties shall be governed by the laws of that state, regardless of the choice of
law provisions of Arizona or any other jurisdiction.
8.10 EQUITY. The parties hereto agree that the services to be
------
rendered under the terms of this Agreement, and the rights and privileges
granted to the Company by Executive under its terms, are of a special, unique,
unusual, extraordinary and intellectual character involving skill of the highest
order which gives them a peculiar value. In the event of the breach by
Executive of any of the provisions of this Agreement, the Company, in addition
and as a supplement to such other rights and remedies as may exist in its favor,
may apply to any court of law or equity having
9
<PAGE>
jurisdiction to enforce this Agreement, and/or may apply for injunctive relief
against any act which would violate any of the provisions of this Agreement.
8.10.1 INJUNCTIVE RELIEF; PROFITS. Executive understands that
--------------------------
monetary damages will not be sufficient to avoid or compensate for a breach of
any of the covenants contained in Section 6 and that injunctive relief would be
appropriate to prevent any such actual or threatened breach. Such right to
obtain injunctive relief may be exercised, at the option of the Company,
concurrently with, prior to, after, or in lieu of, the exercise of any other
rights or remedies which the Company may have as a result of any such breach or
threatened breach. Executive shall account for and pay over to the Company all
compensation, profits and other benefits, after taxes, inuring to Executive's
benefit which are derived or received by Executive or any other person or
business entity controlled by Executive resulting from any action or transaction
constituting a breach of any covenant contained in Section 6.
8.11 RULES OF CONSTRUCTION.
---------------------
8.11.1 HEADINGS. The Section headings in this Agreement are
--------
inserted only as a matter of convenience, and in no way define, limit, or extend
or interpret the scope of this Agreement or of any particular Section.
8.11.2 TENSE AND CASE. Throughout this Agreement, as the
--------------
context may require, references to any word used in one tense or case shall
include all other appropriate tenses or cases.
8.11.3 SEVERABILITY. Nothing contained in this Agreement shall
------------
be construed so as to require the commission of any act contrary to law and
whenever there is any conflict between any provision of this Agreement and any
statute, law, ordinance, order or regulation, contrary to which the parties have
no right to contract, the latter shall prevail, but in such event any provision
of this Agreement so affected shall be curtailed and limited only to the extent
necessary to bring it within legal requirements.
8.13 COUNTERPARTS. This Agreement may be executed in two
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
EXECUTIVE ACKNOWLEDGES HAVING CAREFULLY READ, UNDERSTOOD ALL OF THE
PROVISIONS IN THIS AGREEMENT AND HAVING NEGOTIATED SUCH PROVISIONS. EXECUTIVE
KNOWS THAT HE
10
<PAGE>
CANNOT RELY ON ANY STATEMENT OUTSIDE OF (i) THIS AGREEMENT OR (ii) A FORMAL
WRITTEN AMENDMENT OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
"EXECUTIVE"
_______________________________
John Alderfer
"THE COMPANY"
Interactive Flight Technologies, Inc.
By: _______________________________
Michail Itkis
Chief Executive Officer
11
<PAGE>
EXHIBIT A
---------
Stock Option Agreement
----------------------
Optionee: John Alderfer No. of Option Shares:175,000
Incentive Stock Option?: No
-------
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
1994 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of ________, 1996, by and between
Interactive Flight Technologies, Inc., a Delaware corporation (the "Company"),
and John Alderfer (the "Optionee").
The Company has adopted the 1994 Incentive and Non-Statutory Stock
Option Plan (the "Plan"), and desires to provide an incentive to the Optionee to
exercise his/her best efforts on the Company's behalf by granting to the
Optionee the options provided for herein, all subject to the terms and
conditions of the Plan. Capitalized terms used herein and not defined have the
same meanings as set forth in the Plan.
IT IS AGREED as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee on the
---------------
date hereof the right and option (the "Option") to purchase (subject to
adjustment pursuant to Section 15 of the Plan) an aggregate of One Hundred
Seventy-Five Thousand (175,000) of its shares of Class A Common Stock ("Shares")
at an exercise price per share of $_______ (the "Exercise Price"). This Option
is intended by the Company and Optionee to be a non-qualified option and not an
incentive Stock Option as defined in Section 422 of the Internal Revenue Code of
1986, as amended.
2. OPTION PERIOD. The Option granted hereby shall expire on _______,
-------------
2006 (the "Expiration Date") subject to earlier termination as provided in the
Plan.
3. EXERCISE OF OPTION.
------------------
A. The Option may be exercised at any time prior to the Expiration
Date with respect to the number of shares as to which it is then vested. One-
third of the Option shall be immediately vested on the date hereof, and the
remaining two thirds of this option shall vest in equal installments on each of
the first two anniversary dates of this Agreement, so that 100% of this Option
shall vest by August 27, 1998. The right of exercise shall be cumulative so
that if the Option is not exercised to the maximum extent permissible during any
exercise period, it shall be exercisable, in whole or in part, with respect to
all shares not so purchased at any time prior to the Expiration Date
<PAGE>
or the earlier termination of this Option. This Option may not be exercised at
any time on or after the Expiration Date.
B. The Optionee may exercise the Option (to the extent then
exercisable) by delivering to the Company a written notice duly signed by the
Optionee in the form attached hereto as Exhibit A stating the number of Shares
that the Optionee has elected to purchase, and accompanied by payment (in cash
or by certified check) of an amount equal to the full purchase price for the
Shares to be purchased. The notice must also contain a statement (if required
and in a form acceptable to the Company) that the Optionee is acquiring the
Shares for investment and not with a view toward their distribution or resale.
Following receipt by the Company of such notice and payment, the Company shall
issue, as soon as possible, the Shares in the name of the Optionee and deliver
certificate therefor to the Optionee. No Shares will be issued until full
payment therefor has been made and until the Company has complied with all
requirements of the Securities Act of 1933, the Securities Exchange Act of 1934,
and securities exchange on which the Company's stock may be listed and all
applicable state laws in connection with the issuance of the Shares or the
listing of the Shares on said securities exchange. All Shares purchased upon
exercise of the Option in accordance with this Section shall be fully paid and
non assessable.
C. In lieu of delivering the Exercise Price in cash or check, the
Optionee may elect to receive shares equal to the value of the Option or portion
thereof being exercised (the "Net Issue Exercise"). If the Optionee wished to
elect the Net Issue Exercise, the Optionee shall notify the Company of its
election in writing at the time the Optionee delivers to the Company the notice
of exercise. In the event the Optionee shall elect the Net Issue Exercise, the
Optionee shall receive the number of shares of Class A Common Stock equal to the
product of (i) the number of shares of Class A Common Stock purchasable under
the Option, or portion thereof being exercised, and (ii) the current market
value, as defined below, of one share of Class A Common Stock minus the Exercise
Price, divided by (iii) the current market value, as defined below, of one share
of Class A Common Stock. Current market value of a share shall be determined as
follows:
(i) If the Class A Common Stock is listed on a national
securities exchange or listed for trading on the NASDAQ system, the current
market value shall be the last reported sale price of the Class A Common Stock
on such exchange or system on the last business day prior to the date of
exercise of this Option or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or system; or
(ii) If the Class A Common Stock is not so listed the current
market value shall be the mean of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Option; or
2
<PAGE>
(iii) If the Class A Common Stock is not so listed and bid and asked
prices are not so reported, the current market value shall be an amount, not
less that book value thereof as at the end of the most recent fiscal year of the
Company ending prior to the date of the exercise of the Option, determined in
such reasonable manner as may be described by the Board of Director of the
Corporation.
4. EMPLOYMENT. Nothing contained in this Stock Option Agreement shall
----------
confer upon the Optionee any right to be employed by the Company nor prevent the
Company from terminating its current relationship with the Optionee at any time,
with or without cause. If the Optionee's current relationship with the Company
is terminated for any reason, the Option shall be exercisable only as to those
shares immediately purchasable by the Optionee at the date of termination and,
subject to Section 2 hereof, thereafter as provided by the Plan.
5. DEATH. If the Optionee dies while employed by the Company, that
-----
portion of this Option which was exercisable by the Optionee at the time of
death shall be exercisable by his legal representatives or beneficiaries at any
time within twelve (12) months after the Optionee's death.
6. NON-TRANSFERABILITY OF OPTION. This Option shall not be transferable
-----------------------------
other than by will or by the laws of descent and distribution, and may be
exercised during the Optionee's lifetime only by the Optionee.
7. INCORPORATION OF PLAN. The Option granted hereby is subject to, and
---------------------
governed by, all the terms and conditions of the Plan, which are hereby
incorporated by reference. This Agreement, including the Plan incorporated by
reference herein, is the entire agreement among the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings. In the case of any conflict between the terms of this agreement
and the Plan, the provisions of the Plan shall control.
8. PURCHASE FOR INVESTMENT. As a condition to the exercise in whole or
-----------------------
in part of the Option hereby granted, each written notice of election shall
include a representation by the Optionee that the shares are being purchased for
investment and not for distribution or resale.
9. NOTICES. Any notice given by the Optionee hereunder shall be sent to
-------
the Company at its principal executive offices, and any notice from the Company
to the Optionee shall be sent to the Optionee at his address set forth below;
all such notices shall be in writing and shall be delivered in person or by
registered or certified mail. Either party may change the address to which
notices are to be sent by notice in writing given to the other in accordance
with the terms hereof.
10. GOVERNING LAW. The parties hereto hereby acknowledge and agree that
-------------
the Option hereby is granted in the State of Arizona and any shares issued upon
exercise of the Option will be issued in the State of Arizona. This Agreement,
as well as the grant of such option and issuance of such Shares, is and shall be
governed by and
3
<PAGE>
construed in accordance with the laws of the State of Arizona applicable to the
agreements made and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
INTERACTIVE FLIGHT OPTIONEE
TECHNOLOGIES, INC.
By:_________________________ _________________________
Its:________________________
Address:
_________________________________
_________________________________
_________________________________
4
<PAGE>
EXHIBIT 10.5
SEVERANCE AGREEMENT
-------------------
THIS SEVERANCE AGREEMENT (this "AGREEMENT") is made and entered into as of
November 2, 1996, by and between Interactive Flight Technologies, Inc., a
Delaware corporation (the "COMPANY"), and Lance D. Fieldman ("EXECUTIVE"), with
reference to the following facts:
RECITALS
--------
A. Executive has been employed as the Company's Vice President of Sales
and is also the Secretary of the Company. He is resigning from all such
positions, effective as of the date hereof (the "RESIGNATION DATE").
B. The Company and Executive are parties to that certain Employment
Agreement dated as of May 1, 1995 (the "EMPLOYMENT AGREEMENT").
C. In connection with such resignation, the Company has agreed to provide
Executive with certain benefits and consulting compensation, as more fully set
forth herein.
D. Executive desires to continue to render certain consulting services to
the Company, and the Company desires that Executive render such services, under
the terms and conditions hereinafter set forth.
E. In consideration of such benefits and consulting arrangements,
Executive and the Company have each agreed to release the other from any and all
claims, known or unknown, that they may have or could have against each other
arising prior to the execution of this Agreement, including any claims
concerning any subject matter arising out of, related to or connected with
Executive's employment with the Company, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the premises set forth above and of the
covenants, releases, representations and warranties contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. CERTAIN DEFINITIONS.
-------------------
"CLAIMS" means any and all claims, debts, liabilities, demands,
obligations, liens, promises, acts, agreements, costs, and expenses (including,
but not limited to, attorneys' fees), damages, actions, and causes of action, of
whatever kind or nature, including, without limitation, any statutory, civil, or
administrative claim, whether known or unknown, suspected or unsuspected, fixed
or contingent, apparent or concealed, except as provided herein.
<PAGE>
"COMPANY GROUP" means the Company and its respective successors, assigns,
officers, directors, agents, employees, representatives, attorneys, shareholders
and persons providing, or planning to provide, financing for the Company.
"CONSULTING TERM" means the period commencing on the date hereof and ending
on October 31, 1997.
"EXECUTIVE GROUP" means Executive and his heirs, assigns, attorneys,
representatives, agents, executors and administrators.
2. RESIGNATION. Executive hereby resigns, effective as of the Resignation
-----------
Date, from his positions with the Company as Secretary and as Vice-President of
Sales, and all other director or officer positions held with any member of the
Company Group. The parties shall, concurrently herewith or promptly hereafter,
cancel the Amended and Restated Shareholders' Agreement dated as of October 6,
1994 (the "SHAREHOLDERS AGREEMENT"), as to Executive, effective upon the
Resignation Date. Executive agrees that, upon execution of the termination
documents regarding the Shareholders' Agreement by the other parties thereto,
the Shareholders' Agreement shall be terminated in all respects as to Executive
without further signature by Executive.
3. CONSULTING SERVICES AND COMPENSATION PACKAGE. As consideration for
--------------------------------------------
Executive's past service and his resignation, release and promises set forth in
this Agreement, the Company agrees as follows:
3.1 On the next regular payday, the Company shall pay to Executive his
unpaid salary through the Resignation Date.
3.2 The Company hereby engages Executive to perform, and Executive agrees
to perform, consulting services for the benefit of the Company, as and to the
extent requested by the Company from time to time during the Consulting Term
(the "SERVICES"); provided, however, that the Services shall consist solely of
consulting with the Company on a limited basis, not to exceed 5 hours per month,
for the purpose of answering questions on historical matters regarding the
Company.
3.3 As compensation for the Services, the Company shall pay to Executive
an aggregate of One Hundred Thousand Dollars ($100,000). In addition, Executive
shall receive a sum of Three Hundred Thousand Dollars ($300,000) as full payment
of all commissions owed to Executive under the Employment Agreement or otherwise
(including without limitation in connection with Executive's sales efforts to
Swissair). These sums will be paid fifty percent (50%) (the "FIRST PAYMENT) by
wire transfer on Monday, November 4, and the remaining fifty percent (50%) (the
"SECOND PAYMENT") on the earlier of (i) January 31, 1997 or (ii) the closing
date of the Company's contemplated Class B Warrant Exercise Offer, provided that
this offer raises at least $25,000,000. Subject to Section 6.4, the foregoing
payments are in settlement of all salary, bonus, commissions and other
compensation which are or may become due under the Employment Agreement or
otherwise as a result of Executive's employment by the
2
<PAGE>
Company, and, in light of the foregoing, (i) Executive hereby waives any right
to receive additional severance payments or other compensation from the Company,
including without limitation any sales commissions contemplated by Section 3(b)
of the Employment Agreement or any severance payments contemplated by Section 9
of the Employment Agreement, and (ii) Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment, by self-employment or otherwise; and if Executive obtains
other employment or becomes self-employed any compensation earned by Executive
during such period shall not be applied to mitigate any payment made or to be
made to Executive for such period.
3.4 Subject to the same types of contribution as made by Executive in the
past, the Company shall at its expense provide Executive with family medical
insurance benefits on the same terms and conditions as provided to the Company's
senior executives, until the end of the Consulting Term. Commencing at the end
of the Consulting Term, Executive shall be entitled to such benefits as required
under COBRA regulation.
3.5 All of the employee stock options currently held by Executive (the
"STOCK OPTIONS") shall continue to vest and become exercisable under the terms
and vesting schedules set forth therein and shall continue to be exercisable
through the respective scheduled terms under such options; provided, however,
--------
that such continued vesting and exercisability of the Stock Options shall not be
effected by the termination of Executive's status as an employee and officer of
the Company as contemplated hereby.
3.6 The Company shall continue to indemnify Executive in accordance with
the standards, terms and limitations of (i) Article IV of the Company's Bylaws
as in effect on the date hereof to the same extent as if Executive had remained
an officer of the Company, (ii) the Indemnification Agreement dated March 7,
1995 between Company and Executive (the "INDEMNIFICATION AGREEMENT"), (iii)
existing Directors and Officers liability insurance to the same extent as if
Executive had remained an officer of the Company and (iv) Articles VII and VIII
of the Company's Amended and Restated Certificate of Incorporation.
4. NO STOCK SALES. Executive shall not, without the prior written consent of
--------------
the Company, directly or indirectly, offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of, any shares of capital stock of the
Company currently held or hereafter acquired by Executive (or any securities
convertible into or exercisable or exchangeable for, or warrants, options or
rights to purchase or acquire) such capital stock, or enter into any agreement
to do any of the foregoing, until January 31, 1997. The foregoing shall not
preclude a mere exercise of Stock Options so long as there is no subsequent sale
or disposition of the underlying shares until January 31, 1997. Executive
agrees that, so long as he holds any capital stock of the Company, he will vote
all of the shares of the capital stock of the Company held by him in favor or
against any matter (including the election of directors) submitted to the
shareholders of the Company in the same proportion as the aggregate vote of the
other shareholders of the Company who actually vote on such matter. Executive
agrees to execute any additional
3
<PAGE>
documents, including a proxy, which the Company reasonably believes is desirable
to effectuate this provision.
5. RETURN OF COMPANY PROPERTY. Executive shall promptly return all Company
--------------------------
property and documents in his possession, except that Executive may retain the
telephone/fax machine and the older of two laptop computers currently in his
possession.
6. RELEASE OF CLAIMS.
-----------------
6.1 EXECUTIVE RELEASE. Except as provided herein, in consideration of the
-----------------
terms and provisions of this Agreement, Executive agrees that he shall and does
hereby forever relieve, release and discharge each person in the Company Group
from any and all Claims arising out of any act or omission occurring before the
execution of this Agreement.
6.2 COMPANY RELEASE. Except as provided herein, in consideration of the
---------------
terms and provisions of this Agreement, the Company agrees that it shall and
does hereby forever relieve, release and discharge each person in the Executive
Group from any and all Claims arising out of any act or omission occurring
before the execution of this Agreement.
6.3 SCOPE. The releases set forth in this Section 6 include, but are not
-----
limited to, any and all Claims based on, arising out of, or related to
Executive's employment relationship with the Company (or any and all facts in
any manner arising out of, related to or connected with such employment
relationship) or the termination of Executive's employment with the Company
under the terms hereof (except that such releases shall not apply to any Claim
by either party that the other has breached this Agreement). Without limiting
the generality of the foregoing, Claims released by Executive and the Company
shall encompass and include, but are not limited to, any Claims arising from
rights under federal, state, or local laws relating to the prohibition of
discrimination on the basis of race, national origin, sex, religion, age,
marital status, handicap, ancestry, sexual orientation, or any other protected
classification, and any and all Claims arising under common law, including, but
not limited to, common law Claims for breach of contract, breach of the implied
covenant of good faith and fair dealing, wrongful termination, discrimination,
tortious interference with contract or with current or prospective economic
advantage, fraud, deceit, misrepresentation, violation of public policy, breach
of privacy, defamation, infliction of emotional distress, loss of consortium,
breach of fiduciary duty, Claims arising from any alleged breach of the
Employment Agreement, or any other common law Claim of any kind whatsoever.
6.4 EXCEPTION. In the event that the Second Payment contemplated by
---------
Section 33 above is not made by the Company by the date required by such
Section, then, notwithstanding the mutual releases set forth above, Executive's
rights (if any) to receive compensation or commissions shall be reinstated in
full, except to the extent of the First Payment. In such case, the Company
shall have the right to assert any applicable defenses or counterclaims.
4
<PAGE>
7. ACKNOWLEDGEMENT AND EFFECT OF WAIVER. Executive understands and
------------------------------------
acknowledges that (a) this Agreement constitutes a voluntary waiver of any and
all Claims he has against the Company and each person in the Company Group as of
the date of his execution of this Agreement, including Claims under the Age
Discrimination in Employment Act of 1967, 29 U.S.C. (S) 621 et seq.; (b) he has
-- ----
waived any and all Claims pursuant to this Agreement and in exchange for
consideration, the value of which exceeds payments or remuneration to which he
was already entitled; (c) he has been, and is hereby, advised to consult with an
attorney concerning this Agreement before executing it; (d) he has been, and is
hereby, informed that he has a period of at least twenty-one (21) days to
consider the terms of this Agreement; and (e) he may revoke this Agreement at
any time during the seven (7) days following the date of his execution of this
Agreement, and no provision of this Agreement shall become effective or
enforceable against Executive or the Company until such revocation period has
expired.
8. REPRESENTATIONS AND WARRANTIES. Each party represents and warrants to the
------------------------------
other that (i) it has full power and authority to enter into this Agreement;
(ii) it is the owner of the Claims that it has released herein; and (iii) it has
not (nor has it purported to have) assigned, conveyed, encumbered, or in any
manner transferred any portion of the Claims released herein. Each party hereby
agrees to indemnify and hold each party released by it hereunder harmless from
any and all claims (including, but not limited to, all attorneys' fees actually
incurred) resulting from any breach of that releasing party's warranties and
representations herein.
9. PUBLIC ANNOUNCEMENTS.
--------------------
9.1 ANNOUNCEMENT OF RESIGNATION. Neither party shall make any public
---------------------------
announcement regarding Executive's resignation other than (i) pursuant to a
mutually satisfactory press release which shall attribute Executive's
resignation hereunder to the restructuring of the Company's approach to sales or
(ii) as may be required pursuant to applicable securities laws and any rules and
regulations thereunder and then only after consultation with the other party to
the maximum extent possible in order to maintain goodwill for the other party.
9.2 THIRD PARTY CONTACTS. Each of the parties hereto agrees not to make
--------------------
disparaging or derogatory comments about any of the parties released by it
hereunder (whether to the press, the investment community, shareholders,
customers or potential customers or sales representatives of IFT or otherwise)
and not to take any positions with third parties which are inconsistent with the
above-described press release, except to the extent required by applicable law
and then only after consultation with the other party to the maximum extent
possible in order to maintain goodwill for the other party.
10. CONFIDENTIALITY; NON-COMPETITION.
--------------------------------
10.1 The provisions of Section 4 of the Employment Agreement shall
continue in full force and effect for the period specified therein; provided,
--------
however, that Executive may establish an independent interactive advertising
sales agency, whose clients may
5
<PAGE>
include airlines (including the Company's customers) and any competitor of the
Company, and in connection therewith Executive may employ either or both of
Steven Fieldman or Jonathan Brust.
10.2 In the event that Executive breaches any provisions of this section or
there is a threatened breach, then, in addition to any other rights which the
Company may have, the Company shall be entitled to seek injunctive relief to
enforce the restrictions contained herein. In the event that an actual
proceeding is brought in equity to enforce the provisions of this paragraph,
Executive shall not urge as a defense that there is an adequate remedy at law
nor shall the Company be prevented from seeking any other remedies which may be
available.
10.3 The existence of any claim or cause of action by the Company against
Executive, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of the foregoing
restrictive covenants but shall be litigated separately.
10.4 During the Consulting Term and thereafter, Executive agrees to hold in
strictest confidence, and not to use, except for the benefit of the Company, or
to disclose to any person, firm or corporation, without the prior written
authorization of the Company, any trade secrets, confidential knowledge, data or
other proprietary information of the Company. By way of illustration and not
limitation, such shall include information relating to products, processes,
know-how, designs, formulas, methods, developmental or experimental work,
improvements, discoveries, plans for research, new products, marketing or
selling, business plans, budgets, unpublished financial statements, licenses,
prices and costs, suppliers and customers, and information regarding the skills
and compensation of other employees of the Company.
11. MISCELLANEOUS.
-------------
11.1 DISPUTED RIGHTS. This Agreement represents a settlement of disputed
---------------
rights and claims and, by entering into this Agreement, no party admits or
acknowledges the existence of any liability or wrongdoing, all such liability
being expressly denied. No provision hereof, or of any related document, shall
be construed as any admission or concession of liability or of any wrongdoing.
11.2 AGREEMENT NEGOTIATED. This Agreement was the subject of careful
--------------------
negotiation between Executive (a sophisticated businessman represented by
counsel) and the Company. As a consequence, the parties do not believe that the
presumptions of any statutory or common law doctrine relating to the
interpretation of contracts against the drafter of any particular clause should
be applied in this case and therefore waive its effects.
11.3 INDEPENDENT ADVICE. Each of the parties hereto (i) has received
------------------
independent legal advice from its attorneys with respect to the advisability of
executing this Agreement; (ii) has read this Agreement and the releases
contained herein carefully,
6
<PAGE>
knows and understands the contents hereof, and (iii) has made such investigation
of the facts pertaining to this Agreement and of all matters pertaining hereto
as it deems necessary or desirable. Except as expressly set forth herein, none
of the parties hereto has made any representations or warranties in connection
with this Agreement, and no party has relied upon any oral or written
representation or warranty of any other party in entering into this Agreement.
11.4 NOTICES. Any notice required or desired to be given to the Company or
-------
to Executive shall be given in writing, and shall be addressed (i) to the
Company at its principal place of business, and (ii) to Executive at his most
recent home address in the records of the Company, or to such other address as
that party may hereafter designate in writing, and shall be sufficiently given
by actual delivery thereof to the Company or Executive, as the case may be, or
by telecopy or certified mail, postage prepaid, return receipt requested,
addressed to the other party as aforesaid, and the date of delivery, mailing or
telecopying shall be the date of the giving of such notice.
11.5 ENTIRE AGREEMENT. Except as set forth in Section 10.1 above, this
----------------
Agreement, together with all documents referred to herein, sets forth the entire
understanding of the parties with respect to Executive's employment relationship
with the Company and the termination thereof, and supersedes any and all prior
agreements or understandings between the parties relating to such subject matter
(including without limitation the Employment Agreement, which is hereby
terminated). No person has any authority to make any representation or promise
on behalf of any of the parties which is inconsistent with the representations
set forth in this Agreement, and this Agreement has not been executed in
reliance on any promise or representation not set forth herein.
11.6 MODIFICATION AND WAIVER. None of the terms or provisions hereof shall
-----------------------
be modified or waived, and this Agreement may not be amended or terminated,
except by a written instrument signed by the party against which any
modification, waiver, amendment or termination is to be enforced. No waiver of
any one provision shall be considered a waiver of any other provision, and the
fact that an obligation or right is waived for a period of time or in one
instance shall not be considered to be a continuing waiver.
11.7 GOVERNING LAW. All questions with respect to this Agreement and the
-------------
rights and liabilities of the parties shall be governed by the laws of Delaware,
regardless of the choice of laws provisions of Delaware or any other
jurisdiction.
11.8 ASSIGNMENT. This Agreement shall not be assignable by Executive or
----------
the Company, except that this Agreement may be assigned by the Company to any
corporation or other business entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, corporate
reorganization or by acquisition of all or substantially all of the assets of
the Company and which assumes the Company's obligations under this Agreement (a
"SUCCESSOR"). The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon any Successor that has so assumed this Agreement.
Furthermore, in the event that such an assignment to a
7
<PAGE>
Successor is deemed ineffective with respect to Section 3.2 hereof by virtue of
the personal services contemplated thereby, the remaining provisions hereof
shall nonetheless inure to the benefit of such Successor; provided that the
compensation payable to Executive as set forth in Section 3.2 and the Stock
Option commitments set forth in Section 3.5 are fulfilled by the Successor.
11.9 ARBITRATION OF DISPUTES. If Executive and the Company cannot resolve
-----------------------
a dispute (whether arising in contract or tort or any other legal theory,
whether based on federal, state or local statute or common law and regardless of
the identities of any other defendants) that in any way relates to or arises out
of this Agreement, the termination of Executive's employment relationship with
the Company, or (without limiting the generality of any other Section herein)
Executive's past employment relationship with the Company, or termination of any
of the agreements referred to herein, then such dispute shall be settled by
arbitration in New York, New York, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association.
11.10 ATTORNEYS' FEES. In the event that either party should bring any
---------------
action, suit or other proceeding against the other party hereunder concerning
any matter released herein, or contesting the validity of this Agreement or any
provision hereof, or attempting to rescind, negate, modify or reform this
Agreement or any of the terms or provisions thereof, or in the event that any
action, suit, or other proceeding is instituted to remedy, prevent, or obtain
relief from a breach of this Agreement, or arising out of a breach of this
Agreement, the prevailing party shall be entitled to recover all of such party's
costs and expenses, including reasonable attorneys' fees and disbursements,
incurred in each and every such action, suit, or other proceeding, including any
and all appeals or petitions therefrom.
11.11 INDEPENDENT CONTRACTOR. The Company and Executive agree that
----------------------
Executive will act as an independent contractor in the performance of his duties
under this Agreement. Accordingly, Executive shall be responsible for payment
of all taxes including Federal, State and local taxes arising out of Executive's
activities in accordance with this Agreement, including, by way of illustration
but not limitation, Federal and State income tax, Social Security tax,
Unemployment Insurance taxes and any other taxes or business license fees as
required.
11.12 OBLIGATION TO PAY COMPENSATION. The Company's obligation to pay
------------------------------
Executive the compensation and to provide the benefits provided herein shall be
absolute and unconditional and shall not be affected by any circumstance,
including without limitation (i) the termination by the Company of Executive's
consulting obligations hereunder and (ii) any setoff, counterclaim, recoupment,
defense or other right which the Company may have against Executive (including
without limitation as a result of breaches of Section 9.2) or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
8
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11.13 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.14 NO RESCISSION. Except as expressly provided herein, each party
-------------
waives all rights it may now have or may hereafter have conferred upon him or
it, by statute or otherwise, to terminate, cancel or rescind this Agreement in
whole or in part.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date and year set forth below.
"Company" "Executive"
Interactive Flight Technologies, Inc.
By:____________________________ ________________________________
Michail Itkis Lance D. Fieldman
Chief Executive Officer
Date:__________________________ Date:___________________________
9
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED INTELLECTUAL PROPERTY
LICENSE AND SUPPORT SERVICES AGREEMENT
--------------------------------------
Intellectual Property License and Support Services Agreement
("AGREEMENT") amended and restated November 7, 1996 (the "EFFECTIVE DATE") by
and between FORTUNET, INC., a Nevada corporation having its principal place of
business at 2620 South Highland Drive, Las Vegas, Nevada 89109 ("LICENSOR") and
INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware corporation having its
principal place of business at 4041 N. Central, Suite 2000, Phoenix, Arizona
85102 ("LICENSE HOLDER").
W I T N E S S E T H:
WHEREAS, Licensor has developed a software package and related
hardware and documentation entitled FORTUNET 2000A Version 1.0 as set forth in
Exhibit A (the "SYSTEM");
WHEREAS, Licensor is the sole and exclusive owner of certain
intellectual property rights, including patents and trade secrets ("CURRENT
INTELLECTUAL PROPERTY RIGHTS," as defined below), that cover the System, and may
hereafter be the owner of certain other intellectual property rights ("FUTURE
INTELLECTUAL PROPERTY RIGHTS," as defined below); and
WHEREAS, Licensor and License Holder entered into that certain
Intellectual Property License and Support Services Agreement dated as of October
1994 (the "ORIGINAL AGREEMENT"), and Licensor and License Holder desire to amend
and restate the Original Agreement;
WHEREAS, License Holder desires to develop one or more products based
in whole or in part on the System; and
WHEREAS, License Holder desires to purchase from Licensor, and
Licensor desires to grant to License Holder, a perpetual, worldwide license
(exclusive in certain fields of use) (the "LICENSE") under the Current
Intellectual Property Rights and the Future Intellectual Property Rights; and
WHEREAS, as of the Effective Date, the License Holder will (i)
terminate a Consulting Agreement between the License Holder and Yuri Itkis and
(ii) enter into an Amended and Restated Shareholders' Agreement by and among the
License Holder and the shareholders of the License Holder on the Effective Date.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants set forth herein and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties do hereby agree as follows:
<PAGE>
1. DEFINITIONS.
a. "Current Intellectual Property Rights" shall mean all United
States and foreign patents now owned by Licensor (including, but not limited to,
United States Patent Numbers 4,455,025, 4,624,462 and 4,856,787 and any and all
foreign counterparts thereto), and all United States and foreign copyrights,
trade secrets, know-how and any other proprietary technology and intellectual
properties, and all divisions, renewals, continuances, reissues, restorations
and extensions of any of the foregoing, now owned by Licensor that subsist in
the System, in whole or in part.
b. "Excluded Field of Use" shall mean bingo halls.
c. "Future Intellectual Property Rights" shall mean all forms of
intellectual or industrial property protection including, without limitation,
patents, utility models, inventors' certificates and designs, that may be
hereafter obtained by Licensor or granted to Licensor in the United States or in
any foreign country, and all United States and foreign copyrights, trade
secrets, know-how, and any other proprietary technology and intellectual
properties, and all divisions, renewals, continuations, reissues, restorations
and extensions of any of the foregoing, that may be hereafter owned by Licensor
that subsist in the System, in whole or in part, and any and all revisions,
upgrades, improvements, updates, enhancements, modifications and derivative
works based upon the System delivered by Licensor pursuant to the terms of this
Agreement.
d. "IFT Product" shall mean any product or service developed by or on
behalf of License Holder.
e. "Original Field of Use" shall mean domestic and foreign airlines
and flights, excluding all other land and water uses.
2. LICENSE. Licensor hereby grants to License Holder, a perpetual,
worldwide license under any and all of the Current Intellectual Property Rights
and the Future Intellectual Property Rights directly or indirectly to reproduce,
distribute, publicly perform and display, prepare derivative works, exploit,
modify, make, have made, use, sell transfer or install any products or services,
whether in or outside of the Original Field of Use; provided, however, that such
license shall not extend to the Excluded Field of Use. This License shall not
be deemed to be a transfer or assignment of any ownership rights. This license
is exclusive (even as to Licensor) within the Original Field of Use and non-
exclusive outside of the Original Field of Use. Licensor expressly reserves all
rights not granted herein, including the right to exclude others (other than the
License Holder) from reproducing, distributing, publicly performing and
displaying, preparing derivative works, modifying, making, having made, using,
selling, transferring or installing any product in all other fields outside of
the Original Field of Use, and the right to grant others a non-exclusive license
to reproduce, distribute, publicly perform and display, prepare derivative
works, exploit, modify, make, have made, use, sell transfer or install any
products or services in all other fields outside of the Original Field
2
<PAGE>
of Use, to the extent that such products are the subject matter of the Current
Intellectual Property Rights or the Future Intellectual Property Rights.
3. LICENSE FEE. As consideration for the License granted to License
Holder herein, in addition to the fees paid prior to the Effective Date, License
Holder shall pay to Licensor an annual fee (the "LICENSE FEE") of One Hundred
Thousand Dollars ($100,000) for a period of six years commencing on the
Effective Date, which shall be paid at Licensor's principal place of business in
monthly installments of Eight Thousand Three Hundred Thirty Three Dollars and
33/100 ($8,333.33). Except as set forth in this Section 3, there shall be no
other fees, including but not limited to royalty fees, payable to Licensor as
consideration for the License granted to License Holder.
4. WARRANT. Concurrently herewith, License Holder shall deliver to
Licensor, in substantially the form of Exhibit I attached hereto, a warrant to
---------
acquire up to 50,000 shares of Class A Common Stock (the "STOCK") of License
Holder exercisable for a five-year period commencing on the Effective Date and
ending on the fifth anniversary of the Effective Date at a per share exercise
price equal to the closing price of the Stock on the day prior to the Effective
Date.
5. TERM AND TERMINATION.
a. This Agreement shall commence as of the Effective Date.
b. This Agreement may be terminated by License Holder at any time
upon the default by Licensor in any material obligation under this Agreement if
such default is not cured within ninety (90) days after the receipt of notice
thereof from License Holder.
c. This Agreement may be terminated by Licensor at any time upon
default by License Holder in any material obligation under this Agreement, if
such default is not cured within ninety (90) days after the receipt of notice
thereof from Licensor; provided, however, the termination of this Agreement
shall not affect the rights of any licensee then using an IFT Product to
continue to utilize the IFT Product in accordance with the terms of any
agreements such licensee may have with License Holder.
6. LICENSE HOLDER PERFORMANCE. License Holder agrees to use
commercially reasonable efforts to commercialize the System and shall keep
Licensor reasonably informed of its efforts in this respect.
7. LICENSOR'S REPRESENTATIONS AND WARRANTIES. Licensor hereby
represents and warrants to License Holder as follows:
a. Licensor owns all right, title and interest in and to the
Current Intellectual Property Rights and has the right to grant the License.
3
<PAGE>
b. Licensor knows of no actual or threatened suit by any third
party based on an alleged violation of such party's rights by the System, except
as follows: Bingo Cardminder Corporation has instituted suit against Licensor in
the United States District Court for the District of Nevada.
8. SOURCE CODE. Simultaneously herewith, Licensor shall deliver to
License Holder a current copy of the source code of the System.
9. COOPERATION. During the term of this Agreement, Licensor will
cooperate with and reasonably assist License Holder in complying with the
regulations of any domestic or foreign regulatory agency, including the Federal
Aviation Administration or any gaming authority.
10. LICENSE HOLDER'S MODIFICATIONS. License Holder shall have the
right, in its own discretion, to independently modify the System for its own
purposes and use, through the services of its own employees or of independent
contractors, provided that such persons agree not to disclose or distribute any
part of the System to any other person or entity or otherwise violate Licensor's
proprietary rights therein. License Holder shall be the owner of any such
modifications.
11. CONFIDENTIALITY. License Holder hereby acknowledges that the
System constitutes a valuable asset that includes trade secrets of Licensor and
further acknowledges that Licensor has exclusive proprietary rights and interest
in and to the Current Intellectual Property Rights that cover the System,
subject to this Agreement, and that any information, documents, flow charts,
logic diagrams, code, test materials or similar materials is Licensor's
confidential trade secret information. Each party agrees that it shall not
disclose to any third party, or use in any manner detrimental to the disclosing
party, any information concerning the customers, suppliers, trade secrets,
methods, processes or procedures or any other confidential, proprietary,
financial or business information of the other party which it learns during the
course of its performance of this Agreement, without the prior written consent
of such other party, other than to their respective customers, employees,
officers, directors or agents who need to know such information for purposes of
this Agreement. This obligation shall survive the cancellation or other
termination of this Agreement.
12. NON-SOLICITATION. Licensor and License Holder each agrees not to
directly or indirectly solicit or hire or otherwise employ (either on a full-
time or part-time basis) any employee, agent or independent contractor of the
other party without the prior written consent of such other party (except that
License Holder may employ either or both of Michael Itkis and Lauren Snopkowski)
during the term of this Agreement and for a period of two (2) years after the
termination of this Agreement.
13. NON-COMPETITION. Licensor agrees that it will not engage in any
gaming activities or in providing electronic entertainment devices in or for the
Original Field of Use either directly or indirectly.
4
<PAGE>
14. ASSIGNMENT. This Agreement shall not be transferred or assigned
by either party without the prior written consent of the other party other than
to a successor or assignee of the entire business interest of such party or to a
majority-owned subsidiary of such party, provided that such party shall promptly
give notice of the identity thereof to the other party. An assignee of either
party, if authorized hereunder, shall have all of the rights and obligations of
the assigning party set forth in this Agreement.
15. INDEMNITY. Each party (an "INDEMNIFYING PARTY") agrees to
indemnify and hold harmless the other party and its respective subsidiaries or
affiliates under its control, and its directors, officers, employees and agents
(collectively, an "INDEMNIFIED PARTY"), against any and all losses, liabilities,
judgments, awards and costs (including legal fees and expenses) (collectively,
"LOSSES") arising out of any breach of this Agreement by the indemnifying party.
Licensor shall not make any settlement of any suit or proceeding arising out of
this Agreement which prevents License Holder from continuing to use the System
as provided herein or which could adversely affect the License Holder or
licensees without License Holder's prior written consent. In all events, an
indemnified party shall have the right to participate in the defense of any such
suit or proceeding through counsel of its own choosing. All legal fees, costs
and disbursements incurred by License Holder in connection with any suit or
proceeding arising out of this Agreement shall be subtracted from the License
Fees. The indemnifying party and the indemnified party shall cooperate in
determining the validity of any claim brought by any third party for any Losses
for which a claim of indemnification may be made hereunder.
16. INTELLECTUAL PROPERTY INFRINGEMENT PROCEEDINGS. License Holder
shall have the right to institute intellectual property infringement proceedings
against third parties based on any rights granted hereunder. If License Holder
determines not to institute infringement proceedings against such third parties,
Licensor shall have the right to institute such proceedings, which License
Holder may join, at its sole expense. The expenses of such proceedings,
including legal fees, will be borne by the party instituting such suit. Each
party shall execute all necessary and proper documents and take all other
appropriate action to allow the other party to institute and prosecute such
proceedings. Any award paid by third parties as a result of such proceedings
(whether by settlement or otherwise) shall be paid to the party instituting
suit.
17. ATTORNEY'S FEES. License Holder agrees to pay all reasonable
attorney's fees and costs to the extent permitted by law incurred by Licensor in
connection with the collection of the License Fees due under this Agreement.
18. NOTICE. All notices required or permitted to be given by one
party to the other under this Agreement shall be effective upon receipt if sent
by certified mail, return receipt requested, to (i) the parties at the
respective addresses set forth above or to
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such other address as the party to receive the notice has designated by notice
to the other party and (ii) the parties' counsel at the following addresses:
Licensor's Counsel:
---------------------------------------------
---------------------------------------------
Telephone:
-----------------------------------
Facsimile:
-----------------------------------
Attention:
-----------------------------------
License Holder's Counsel:
Irell & Manella
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Telephone: (310) 277-1010
Facsimile: (310) 203-7199
Attention: Theodore E. Guth, Esq.
19. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Nevada except with respect to matters relating to
the patents within the meaning of Current Intellectual Property Rights or Future
Intellectual Property Rights, which matters shall be governed by the laws of the
country of issuance of such patent.
20. SEVERABILITY. If any provision of this Agreement is held invalid
or otherwise unenforceable, the enforceability of the remaining provisions shall
not be impaired thereby.
21. NO WAIVER. The failure by any party to exercise any right
provided for herein shall not be deemed a waiver of any right hereunder.
22. COMPLETE AGREEMENT. This Agreement sets forth the entire
understanding of the parties as to its subject matter and supersedes all prior
agreements and understandings between the parties with respect to the subject
matter hereof, including, but not limited to, the Original Agreement, and
neither party shall be obligated by any condition, promise or representation
other than those expressly stated herein or as subsequently may be agreed to by
the parties hereto in writing.
23. ARBITRATION. Any matter or disagreement which this Agreement
specifies is to be resolved by arbitration shall be submitted to a mutually
selected arbitrator to so decide any such matter or disagreement; provided,
however, such arbitrator shall not be authorized to take any action that would
affect the rights of any licensee then using an IFT Product in accordance with
the terms of any agreements such licensee may have with the License Holder
pursuant to Section 4c of this Agreement. The arbitrator shall
6
<PAGE>
conduct the arbitration in accordance with the Commercial Rules of the American
Arbitration Association, unless the parties mutually agree otherwise. If the
parties are unable to mutually select an arbitrator, the arbitrator shall be
selected in accordance with the procedures of the American Arbitration
Association. The decision and award rendered by the arbitrator shall be final
and binding. Judgement upon the award may be entered in any court having
jurisdiction thereof. Any arbitration pursuant to this section shall be held in
a location reasonably chosen by the party instituting such arbitration, or such
other place as may be mutually agreed upon in writing by the parties.
24. EXCLUSION OF LIABILITY. EXCEPT AS SET FORTH IN THIS AGREEMENT,
LICENSOR MAKES AND LICENSE HOLDER RECEIVES NO WARRANTY EXPRESS OR IMPLIED.
LICENSOR SHALL HAVE NO LIABILITY WITH RESPECT TO ITS OBLIGATIONS UNDER THIS
AGREEMENT FOR CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL DAMAGES EVEN IF IT HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
25. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
***[NEXT PAGE IS SIGNATURE PAGE]***
7
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SIGNATURE PAGE TO
-----------------
AMENDED AND RESTATED INTELLECTUAL PROPERTY
------------------------------------------
LICENSE AND SUPPORT SERVICES AGREEMENT
--------------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first indicated above.
"LICENSOR"
FORTUNET, INC., a Nevada corporation
By:
----------------------------------
Its:
---------------------------------
"LICENSE HOLDER"
INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware
corporation
By:
----------------------------------
Its:
---------------------------------
8
<PAGE>
EXHIBIT 10.9
SUBLEASE AND CONSENT
--------------------
THIS SUBLEASE AND CONSENT ("Sublease") is made as of July 16, 1996, by and
between ARIZONA PHYSICIANS IPA, INC., an Arizona corporation ("Tenant"), having
an address at 1314 North 3rd Avenue, Phoenix, Arizona 85012, INTERACTIVE FLIGHT
TECHNOLOGIES, INC., a Delaware corporation ("Sublessee") having a main address
at 3070 West Post Road, Las Vegas, Nevada 89118 and AGF 4041 LIMITED
PARTNERSHIP, a Texas limited partnership ("Landlord"), having an address at 4041
North Central Avenue, Suite 101, Phoenix, Arizona 85012, ATTN: Property
Management Office.
A. Landlord or its predecessor in interest, and Tenant or its predecessor
in interest, have heretofore entered into that certain Office Lease, dated
October 28, 1987 as amended by documents dated November 24, 1987, September 9,
1990, March 1, 1991, April 29, 1991, February 27, 1992 and including Lease
Extension Agreement dated July 19, 1993 (collectively the "Lease dated October
28, 1987") for the premises (the "Premises") described as Suite(s) or Room(s) A-
200, B-100 and B-200 in the property (the "Building") known as 4041 Central
Plaza, located at 4041 North Central Avenue, Phoenix, Arizona 85012
(collectively, the "Master Lease"), a copy of which is attached hereto as
Exhibit "B".
- -----------
B. Sublessee desires to obtain space in the Building, Tenant desires to
sublease space to Sublessee, and Landlord is willing to approve the same, all on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by all parties, the parties hereto
covenant and agree as follows:
1. Tenant shall and hereby does sublease to Sublessee and Sublessee shall
and hereby does sublease from Tenant all of Tenant's right and interest (except
as otherwise set forth herein) to Suite/Room B-100 and Suite/Room B-200
(containing approximately 24,781 rentable square feet) of the Premises, as more
fully described in the Master Lease (but excluding Suite A-200 described in the
Master Lease) and shown on Exhibit "A" attached hereto (the "Sublease
Premises").
2. The term of this Sublease shall commence on July 15, 1996 (the
"Commencement Date") and terminate on October 31, 1998 (the "Expiration Date"),
unless sooner terminated in accordance herewith and in accordance with the
Master Lease, subject to Section 9, below.
3. Sublessee shall pay Tenant as base rent (not including additional rent
and other charges), the sum of THIRTY THOUSAND NINE HUNDRED SEVENTY-SIX AND
25/100'S DOLLARS ($30,976.25), per month, plus tax, in advance on the first day
of each month, commencing, on July 15, 1996, and continuing each month
thereafter during the term of this Sublease. Basic Rent for the partial month
occurring at the beginning of the term of this Sublease shall be prorated based
upon a 30 day month and shall be paid in advance upon execution of this Sublease
by Sublessee. All other payments of basic rent shall be due and payable on or
before the first day of each calendar month. Sublessee shall pay all other sums
due as additional rental and other charges under the provisions of the Master
Lease on the base rental payment due date first occurring after the additional
rental payment arises. Any such additional rental obligations shall be prorated
based on the ratio of the rentable square footage of the Sublease Premises to
the rentable square footage of the Premises.
<PAGE>
4. Tenant hereby acknowledges receipt of the sum of Thirty-One Thousand
Nine Hundred Fifty-Two and 00/100's Dollars ($31,952.00) as a security deposit
for the full and faithful performance-, of each and every provision of this
Sublease to be performed by Sublessee. If Sublessee shall fully and faithfully
perform every provision of this Sublease to be performed by Sublessee, said
Security Deposit shall be reassigned to Sublessee at the expiration of the term
of this Sublease. It is understood by the parties hereto that Tenant shall not
be required to keep said Security Deposit separate from its funds and Sublessee
shall not be entitled to any interest on the Security Deposit.
5. Sublessee shall perform and observe the terms and conditions to be
performed on the part of Tenant under the provisions of the Master Lease, except
for the payment of rent, and shall indemnify Tenant and Landlord against all
claims, damages, costs and expenses arising out of Sublessee's failure to
perform or observe any such terms or conditions, subject, however, to all the
express terms and conditions of this Sublease. If Sublessee shall default
hereunder and not cure within the time permitted for cure of such default under
the Master Lease, Tenant shall have all remedies against Sublessee provided for
Landlord under the Master Lease, and if such default shall constitute a default
under the Master Lease, Landlord shall have all remedies available to Landlord
thereunder.
6. This Sublease shall be of no force or effect unless and until executed
and delivered by all parties hereto. No provision of this Sublease may be
amended except in writing signed by all parties hereto or their successors. By
execution hereof, Tenant ratifies and reaffirms the Master Lease and Sublessee
acknowledges that it has received a complete and correct copy of the Master
Lease and is familiar with the terms thereof.
7. Neither the Master Lease, nor this Sublease shall be deemed to grant
Sublessee any rights whatsoever against Landlord. Sublessee hereby acknowledges
and agrees that its sole remedy for any alleged or actual breach of its rights
in connection with the Sublease Premises (as defined in the Sublease) shall be
solely against Tenant.
8. This Sublease shall not release Tenant from any existing or future
duty, obligation, payment or liability to Landlord pursuant to the Master Lease,
nor shall this Sublease change, modify or amend the Master Lease in any manner.
In particular, and without prejudice to the generality of the foregoing, this
Sublease shall not absolve Tenant from the requirement set forth in the Master
Lease that Tenant obtain Landlord's prior written approval for any further
subleases or assignments.
9. (a) In the event of any Master Lease Termination (as hereinafter
defined) prior to the termination of this Sublease, at Landlord's option,
Sublessee agrees to attorn to Landlord and to recognize Landlord as Sublessee's
Landlord under the Sublease, upon the terms and conditions and at the rental
rate specified in this Sublease, and for the then remaining term of this
Sublease, except that Landlord shall not be bound by any provision of this
Sublease which in any way increases Landlord's duties, obligation or liabilities
to Sublessee beyond those owed to Tenant under the Master Lease. Sublessee
agrees to execute and deliver at any time and from time to time, upon the
request of Landlord, any instruments which may be necessary or appropriate to
evidence such attornment. Landlord shall not (i) be liable to Sublessee for any
act, omission or breach of this Sublease by Tenant, (ii) be subject to any
offsets or defenses which Sublessee might have against Tenant, (iii) be bound by
any rent or additional rent which Sublessee might have paid in advance to
Tenant, or (iv) be bound to honor any rights of Sublessee in any security
deposit made with Tenant except to the extent Tenant has turned over such
security deposit to Landlord. Tenant hereby agrees that in the event of Master
Lease Termination, Tenant shall immediately pay or transfer to Landlord any
security deposits, rent or other sums then held by Tenant.
2
<PAGE>
(b) "Master Lease Termination" means any event, which by voluntary or
involuntary act or by operation of law, has caused or permitted the Master Lease
to be terminated, expire, be canceled, be foreclosed against, be forfeited, or
otherwise come to an end, including but not limited to (1) a default by Tenant
under the Master Lease of any of the terms or provisions thereof; (2)
foreclosure proceedings brought by the holder of any mortgage or trust deed to
which the Master Lease is subject; or (3) the termination of Tenant's leasehold
estate by dispossession proceeding or otherwise.
(c) In the event of adornment hereunder, Landlord's liability shall be
limited to matters arising during, Landlord's actual fee title ownership of the
Building, and in the event that Landlord (or any successor owner) shall convey
or dispose of the Building to another party, such party shall thereupon be and
become landlord hereunder and shall be deemed to have fully assumed and be
liable for all obligations under this Sublease to be performed by landlord which
first arise after the date of conveyance, including the return of any security
deposit, and Tenant shall attorn to such other party, and Landlord (or such
successor owner) shall, from and after the date of conveyance, be free of all
liabilities and obligations hereunder not then incurred. The liability of
Landlord to Sublessee for any default by Landlord under this Sublease after such
attornment, or arising in connection with Landlord's operation, management,
leasing, repair, renovation, alteration, or any other matter relating to the
Building or the Sublease Premises, shall be limited to the interest of the
Landlord in the Building (and proceeds thereof). Under no circumstances shall
any present or future general partner of Landlord (if Landlord is a
partnership), or individual trustee or beneficiary (if Landlord or any partner
of Landlord is a trust) have any liability for the performance of Landlord's
obligations under this Sublease.
(d) Tenant hereby agrees that within two (2) business days after
receipt, Tenant shall furnish Sublessee with any and all notices or other
communication, including, without limitation, notices of default, received from
Landlord pertaining to the Sublease Premises.
10. In addition to Landlord's rights under Section 9 hereof, in the event
Tenant is in default under any of the terms and provisions of the Master Lease,
Landlord may elect, at its option, to receive directly from Sublessee all sums
due or payable to Tenant by Sublessee pursuant to this Sublease, and upon
receipt of Landlord's notice, Sublessee shall thereafter pay Landlord any sums
becoming due or payable under this Sublease, and Tenant shall receive from
Landlord a corresponding credit for such sums against any and all payments then
due or thereafter becoming due from Tenant. Neither the service of such written
notice nor the receipt of such direct payments shall cause Landlord to assume
any of Tenant's duties, obligations and/or liabilities under this Sublease, nor
shall such event impose upon Landlord the duty or obligation to honor this
Sublease, nor subsequently to accept Sublessee's attornment pursuant to Section
9(a) hereof.
11. Sublessee hereby acknowledges that it has read and has knowledge of
all of the terms, provisions, rules and regulations of the Master Lease and
agrees not to do or omit to do anything which would cause Tenant to be in breach
of the Master Lease. Any such act or omission shall also constitute a breach of
this Sublease entitling Landlord to recover any damage, loss, cost, or expense
which it thereby suffers, from Sublessee, whether or not Landlord proceeds
against Tenant. If the Master Lease requires the payment of percentage rent,
based on a percentage of gross sales or other sales in or from the Premises,
Sublessee shall comply with all provisions of the Master Lease respecting the
same, including, without limitation, all requirements concerning the keeping of
books, records, and other items, and reporting of gross sales to Landlord. In
such case, Sublessee's sales shall be included in Tenant's gross sales for
purposes of computing Tenant's percentage rent obligations under the Master
Lease.
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12. In the event of any litigation between the parties hereto with respect
to the subject matter hereof, the unsuccessful party agrees to pay to the
successful party or parties all costs, expenses and reasonable attorneys' fees
incurred therein by the successful party or parties, which shall be included as
a part of any judgment or order rendered therein.
13. This Sublease shall be binding upon and inure to the benefit of the
parties' respective successors and assigns, subject at all times, to all
agreements and restrictions contained in the Master Lease, and herein, with
respect to subleasing, assignment, or other transfer. The agreements contained
herein constitute the entire understanding between the parties with respect to
the subject hereof, and supersede all prior agreements, written or oral,
inconsistent herewith. This Sublease may be amended only in writing, signed by
all parties hereto.
14. Notices required or desired to be given hereunder shall be effective
either upon personal delivery or twenty-four (24) hours after deposit in the
United States mail, by certified mail, return receipt requested, addressed to
the parties at the addresses set forth above. Any party may change its address
for notice by giving notice in the manner hereinabove provided.
15. In order to help reimburse Landlord's legal and administrative
expenses in reviewing this Sublease, Tenant shall have paid before or
contemporaneously with its submission hereof for Landlord's review the non-
refundable amount of Three Hundred and no/100 Dollars ($300.00) (the "Submission
Fee"). Landlord's acceptance of such Submission Fee shall impose no duty or
obligation upon Landlord to consent to the transaction contemplated herein nor
to execute this Sublease. In the event that the foregoing Submission Fee has not
been submitted before or contemporaneously with this Sublease, it shall become
due as an additional rental obligation under the Master Lease, payable upon
demand by Landlord, and shall become the joint and several obligation of the
Tenant, and in the event this Sublease is executed by Landlord, of Sublessee.
Tenant shall also promptly pay Landlord any share of subleasing premiums or
profits, or other items, required under the Master Lease in connection with
sublease approvals.
16. Notwithstanding anything to the contrary set forth herein or
elsewhere, if the Master Lease was guaranteed at the time of execution or at any
time prior hereto by any guarantor, then Landlord may at any time hereafter
declare all of its agreements in this Sublease to be null and void and of no
force and effect unless and until Landlord receives a counterpart of this
Sublease indicating the approval thereof by any and all such guarantor(s) and
their spouses.
17. Tenant and Sublessee agree to indemnify and hold Landlord harmless
from and against any loss, cost, expense, damage or liability, including
reasonable attorneys' fees, incurred as a result of a claim by any person or
entity (i) that it is entitled to a commission, finder's fee or like payment in
connection with this Sublease or (ii) relating to or arising out of this
Sublease or any related agreement or dealings.
18. [Intentionally Left Blank.]
19. Sublessee acknowledges and agrees that Sublessee has inspected the
Sublease Premises and agrees to accept the same "as is and with all faults"
without any agreements, representations, understandings or obligations on the
part of Tenant or Landlord to perform any alterations, repairs or improvements.
Any construction, alterations or improvements made to the Sublease Premises by
Sublessee shall be subject to Tenant's and Landlord's prior written approval
including without limitation, approval of plans, specifications, contractors and
subcontractors therefor, and all applicable terms and conditions of the Lease
relating to construction, alterations or improvements of the Premises,
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and such other reasonable requirements or conditions as Tenant or Landlord may
impose. During any period that Sublessee shall be permitted to enter the
Sublease Premises prior to the Commencement Date other than to occupy the same
(e.g., to perform alterations or improvements), Sublessee shall comply with all
terms and provisions of this Sublease, except those provisions requiring payment
of rentals. If Sublessee shall be permitted to enter the Sublease Premises
prior to the Commencement Date for the purpose of occupying the same, rentals
shall commence on such date; if Sublessee shall commence occupying only a
portion of the Sublease Premises prior to the Commencement Date, rentals shall
be prorated based on the number of rental square feet occupied by Sublessee.
THE RIDER ATTACHED HERETO IS HEREBY MADE A PART HEREOF AND IS BINDING
IN WITNESS WHEREOF, the following parties have executed this Sublease as of
the date first written above:
TENANT:
SAMARITAN HEALTH SYSTEM
By: /s/ George A. Zara
------------------
Name Typed: George A. Zara
--------------
Title: Senior Vice President
---------------------
SUBLESSEE:
INTERACTIVE FLIGHT TECHNOLOGIES, a
Delaware corporation
By: /s/ Michail Itkis
-----------------
Name Typed: Michail Itkis
-------------
Title: CEO
---
LANDLORD:
AGF 4041 LIMITED PARTNERSHIP
By: Addison AGF, Inc., a Texas corporation
By: /s/ Abraham Azoulay
-------------------
Name Typed: Abraham Azoulay
---------------
Title: President
---------
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RIDER ONE TO SUBLEASE AND CONSENT
THIS RIDER ONE TO SUBLEASE AND CONSENT ("Rider") is attached to and made a
part of that certain Sublease and Consent dated as of ________________, 1996, by
and between ARIZONA PHYSICIANS IPA, INC., as Tenant, INTERACTIVE FLIGHT
TECHNOLOGIES, INC., as Sublessee, and AGF 4041 LIMITED PARTNERSHIP, as Landlord.
In the event of any conflict between the terms and conditions of this Rider and
the terms and conditions of the Sublease, then this Rider shall govern and
control. The term "Sublease" as used in the Sublease and this Rider shall
hereafter refer to and mean the Sublease as modified by this Rider. The
paragraphs below are numbered to commence after the last numbered paragraph of
the Sublease.
20. Parking. Sublessee and Tenant acknowledge and agree that all of the
-------
parking privileges granted and to be granted to Sublessee are and shall be
covered under that certain Parking Agreement attached hereto and made a part
hereof. The Parking Agreement dated October 28, 1987 and any other parking
privileges set forth in the Lease dated October 28, 1987 are not made a part of
this Sublease and Sublessee shall have no right to or interest in any parking
privileges set forth in the Lease dated October 28, 1987. Further, Tenant shall
have no right or privilege to sublet, assign, transfer, convey or use any of the
parking privileges or rights granted pursuant to the Parking Agreement dated
October 28, 1987 or any other provisions of the Lease dated October 28, 1987 for
so long as this Sublease is in force and effect.
21. Inapplicable Provisions. It is hereby agreed by and between the
-----------------------
parties that the terms and conditions under Security Deposit on page 14a of the
Lease dated October 28, 1987 and Rider Three, Rider Four and Rider Six shall
similarly not apply to this Sublease and no rights or privileges shall be
conveyed, subleased or assigned to Sublessee from any of the foregoing
provisions of the Lease dated October 28, 1987.
22. Standard Building Hours. Notwithstanding anything to the contrary set
-----------------------
forth in the Lease dated October 28, 1987, Building Standard Hours shall be
Monday through Fridays from 8:00 a.m. to 6:00 p.m. (except legal holidays) and
Saturdays from 8:00 a.m. to 1:00 p.m. (except legal holidays), provided,
however, that heating, ventilation and air conditioning services for Saturdays
must be requested by 3:00 p.m. on the preceding business day. Heating,
ventilation and air conditioning services for hours other than the Building
Standard Hours above may be made available for a charge calculated as follows:
(i) $45 per hour for the first hour and $40 per hour thereafter for the initial
Suite activated, plus (ii) $7.00 per hour per Suite for each additional Suite
activated.
23. Package Air Conditioning and Heating Unit. Should the package air
-----------------------------------------
conditioning and heating unit described in Rider Two to the Master Lease not be
operational as of the date hereof, upon request by Sublessee to Tenant, which
request shall be made no later than thirty (30) days after the date hereof,
Tenant, at Tenant's cost, shall cause such repairs and replacements to made so
that the unit is operational.
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PARKING AGREEMENT
THIS AGREEMENT made as of the ____ day of July, 1996, between AGF 4041
LIMITED PARTNERSHIP, a Texas Limited Partnership ("Landlord") and Interactive
Flight Technologies, Inc., a Delaware corporation ("Tenant").
1. The parties hereby acknowledge that they have heretofore entered, or
are contemporaneously herewith entering, a certain lease dated July __, 1996
(the "Lease") for premises known as Suite(s) B-100 and B-200 ( the "Premises")
located in the property known as 4041 North Central Avenue, Phoenix, Arizona
85012 (the "Property"). In the event of any conflict between the Lease and this
Agreement, the latter shall control.
2. Landlord hereby grants to Tenant and persons designated by Tenant a
license to use up to three (3) parking spaces in the Property Garage, and ____
parking spaces in or on the parking structure located to the east of the
building (collectively referred to herein as the "Garage"). The Term of such
license shall commence on the Commencement Date under the Lease and shall
continue until the earlier to occur of the Expiration Date under the Lease, or
termination of the Lease or Tenant's abandonment of the Premises thereunder.
During the Term of this license, Tenant shall pay Landlord the monthly charges
established from time to time by Landlord for parking in the Garage, payable in
advance, with Tenant's payment of monthly Base Rent. The initial charge for
such spaces is $ ** , per space, per month, or a total monthly charge of
------------
$ ** , for all such spaces. No deductions from the monthly charge
---------------
shall be made for days on which the Garage is not used by Tenant. However,
Tenant may reduce the number of parking spaces hereunder, at any time, by
providing at least thirty (30) days advance written notice to Landlord,
accompanied by any key-card, sticker or other identification or entrance system
provided by Landlord or its parking contractor; such cancellation shall be
irrevocable. Tenant may, from time to time, request additional parking spaces,
and if Landlord shall provide the same, such spaces shall be provided and used
an a month-to-month basis, and otherwise on the foregoing terms and provisions,
and such monthly parking charges as Landlord shall establish from time to time.
3. Tenant shall at all times comply with all applicable ordinances,
rules, regulations, codes, laws, statutes and requirements of all federal,
state, county and municipal governmental bodies or their subdivisions respecting
the use of the Garage. Landlord reserves the right to adopt, modify and enforce
reasonable Rules governing the use of the Garage from time to time, including
any key-card, sticker or other identification or entrance system, and hours of
operation. The Rules set forth hereinafter are currently in effect. Landlord may
refuse to permit any person who violates such Rules to park in the Garage, and
any violation of the Rules shall subject the car to removal from the Garage.
4. The parking spaces hereunder shall be provided on an unreserved
"first-come, first-served" basis. Tenant acknowledges that Landlord has or may
arrange for the Garage to be operated by an independent contractor, not
affiliated with Landlord. In such event, Tenant acknowledges that Landlord shall
have no liability for claims arising through acts or omissions of such
independent contractor, if such contractor is reputable. Except for intentional
acts or gross negligence, Landlord shall have no liability whatsoever for any
damage to property or any other items located in the Garage, nor for any
personal injuries or death arising out of any matter relating to the Garage, and
in all events, Tenant agrees to look first to its insurance carrier and to
require that Tenant's employees look first to their respective insurance
carriers for payment of any losses sustained in connection with any use of the
Garage. Tenant hereby waives on behalf of its insurance carriers all rights of
subrogation against Landlord or Landlord's agents. Landlord reserves the right
to assign specific spaces, and to reserve spaces for visitors, small cars,
handicapped persons and for other tenants, guests of tenants or other parties,
and Tenant and persons designated by Tenant hereunder shall not park in any such
assigned or reserved spaces. Landlord also reserves the right to close all or
any portion of the Garage in order to make repairs or perform maintenance
services, or to alter, modify, re-stripe or renovate the Garage, or if required
by casualty, strike, condemnation, act of God, governmental law or requirement
or other reason beyond Landlord's reasonable control. In such event, Landlord
shall refund any prepaid parking rent hereunder, prorated on a per diem basis.
If, for any other reason, Tenant or persons properly designated by Tenant, shall
be denied access to the Garage, and Tenant or such persons shall have complied
with this Agreement and this Agreement shall be in effect, Landlord's liability
shall be limited to such parking charges (excluding tickets for parking
violations) incurred by Tenant or such persons in utilizing
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alternative parking, which amount Landlord shall pay upon presentation of
documentation supporting Tenant's claims in connection therewith.
5. If Tenant shall default under this Agreement, Landlord shall have the
right to remove from the Garage any vehicles hereunder which shall have been
involved or shall have been owned or driven by parties involved in causing such
default, without liability therefor whatsoever. In addition, if Tenant shall
default under this Agreement, Landlord shall have the right to cancel this
Agreement on ten days' written notice, unless within such ten day period, Tenant
cures such default. It Tenant defaults with respect to the same term or
condition under this Agreement more than three times during any twelve month
period, and Landlord notifies Tenant thereof promptly after each such default,
the next default of such term or condition during the succeeding twelve month
period, shall, at Landlord's election, constitute an incurable default. Such
cancellation right shall be cumulative and in addition to any other rights or
remedies available to Landlord at law or equity, or provided under the Lease
(all of which rights and remedies under the Lease are hereby incorporated
herein. as though fully set forth). Any default by Tenant under the Lease shall
be a default under this Agreement, and any default under this Agreement shall be
a default under the Lease.
* covered reserved parking in the Property Garage (Parking Structure), plus up
to Forty-One (41) in random (first come, first served), unreserved, covered or
roof top parking spaces
** $45.00, plus tax per month per covered, reserved space, plus $35.00, plus tax
per month per random, unreserved, covered space, plus $25.00, plus tax
***, to be and as calculated by Landlord from time to time.
RULES
(i) Garage hours shall be 6 A.M. to 8 P.M. or such other hours as
Landlord shall determine from time to time.
(ii) Cars must be parked entirely within the stall lines painted on the
floor, and only small cars may be parked in areas reserved for small cars.
(iii) All directional signs and arrows must be observed.
(iv) The speed limit shall be 5 miles per hour.
(v) Spaces reserved for handicapped parking must be used only by vehicles
properly designated.
(vi) Parking is prohibited in all areas not expressly designated for
parking, including without limitation:
(a) areas not striped for parking
(b) aisles
(c) where "no parking" signs are posted
(d) ramps
(e) loading zones
(vii) Parking stickers, key cards or any other devices or forms of
identification or entry supplied by Landlord shall remain the property of
Landlord. Such devices must be displayed as requested and may not be mutilated
in any manner. The serial number of the parking identification device may not
be obliterated. Devices are not transferable and any device in the possession
of an unauthorized holder will be void.
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(viii) Monthly fees shall be payable in advance prior to the first day of
each month. Failure to do so will automatically cancel parking privileges and a
charge at the prevailing daily parking rate will be due. No deductions or
allowances from the monthly rate will be made for days on which the Garage is
not used by Tenant or its designees.
(ix) Garage managers or attendants are not authorized to make or allow
any exceptions to these Rules.
(x) Every parker is required to park and lock his own car.
(xi) Loss or theft of parking identification, key cards or other such
devices must be reported to Landlord or any garage manager immediately. Any
parking devices reported lost or stolen found on any unauthorized car will be
confiscated and the illegal holder will be subject to prosecution. Lost or
stolen devices found by Tenant or its employees must be reported to the office
of the garage immediately.
(xii) Washing, waxing, cleaning or servicing of any vehicle by the
customer and/or his agents is prohibited. Parking spaces may be used only for
parking automobiles.
(xiii) By signing this Parking Agreement, Tenant agrees to acquaint all
persons to whom Tenant assigns parking space of these Rules.
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EXHIBIT 10.10
OFFICE LEASE
THIS LEASE made as of the _____ day of July, 1996 between AGF 4041 LIMITED
PARTNERSHIP, a Texas Limited Partnership ("Landlord") and INTERACTIVE FLIGHT
TECHNOLOGIES, INC., a Delaware corporation whose address is 3070 West Post Road,
Las Vegas, Nevada 89118 (address of principal executive offices of Tenant
("Tenant").
WITNESSETH:
ARTICLE 1
PREMISES AND TERM
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
that certain space known as Suite(s) 2000 ("Premises") described or shown on
Exhibit A attached hereto. In the building known as the 4041 Central Plaza
("Building") located at 4041 North Central Avenue, Phoenix, Arizona 85012
("Property", as further described in Article 25), subject to the provisions
herein contained. The term ("Term") of this Lease shall commence on the 15th day
of July, 1996 ("Commencement Date"), and end on the 31st day of July, 1999
("Expiration Date"), unless sooner terminated as provided herein. The
Commencement Date shall be subject to adjustment as provided in Article 4.
Landlord and Tenant agree that for purposes of this Lease the rentable area of
the Premises is 15,591 square feet and the rentable area of the Property is
392,123 square feet.
ARTICLE 2
BASE RENT
Tenant shall pay Landlord monthly Base Rent of Twenty Two Thousand Seven
Hundred Thirty Six and 88/100 Dollars ($22,736.88), in advance on or before the
first day of each calendar month during the Term, except that Base Rent for the
first full calendar month for which Base Rent shall be due, shall be paid when
Tenant executes this Lease. If the Term commences on a day other than the first
day of a calendar month, or ends on a day other than the last day of a calendar
month, then the Base Rent for such month shall be prorated on the basis of
1/30th of the monthly Base Rent for each day of such month.
<PAGE>
ARTICLE 3
Additional Rent
(A) TAXES. Tenant shall pay Landlord an amount equal to Tenant's Prorata
Share of Taxes in excess of the amount of Taxes paid by Landlord during the
calendar year 1996 ("Base Tax Year"). The terms "Taxes" and "Tenant's Prorata
Share" shall have the meanings specified therefor in Article 25.
(B) OPERATING EXPENSES. Tenant shall pay Landlord an amount equal to
Tenant's Prorata Share of Operating Expenses in excess of the amount of
Operating Expenses paid by Landlord during the calendar year 1996 ("Base Expense
Year"). The terms "Operating Expenses" and "Tenant's Prorata Share" shall have
the meanings specified therefor in Article 25.
(C) [INTENTIONALLY LEFT BLANK]
(D) MANNER OF PAYMENT. Taxes and Operating Expenses shall be paid in the
following manner:
(i) Landlord may reasonably estimate in advance the amounts Tenant shall
owe for Taxes and Operating Expenses for any full or partial calendar year of
the Term. In such event, Tenant shall pay such estimated amounts on a monthly
basis, on or before the first day of each calendar month, together with Tenant's
payment of Base Rent. Such estimate may be reasonably adjusted from time to time
by Landlord.
(ii) Within 120 days after the end of each calendar year, or as soon
thereafter as practicable, Landlord shall provide a statement (the "Statement")
to Tenant showing: (a) the amount of actual Taxes and Operating Expenses for
such calendar year, with a listing of amounts for major categories of Operating
Expenses, and such amounts for the Base Years, (b) any amount paid by Tenant
towards Taxes and Operating Expenses during such calendar year on an estimated
basis, (c) any revised estimate of Tenant's obligations for Taxes and Operating
Expenses for the current calendar year, and;
(iii) If the Statement shows that Tenant's estimated payments were less
than Tenant's actual obligations for Taxes and Operating Expenses for such year,
Tenant shall pay the difference. If the Statement shows an increase in Tenant's
estimated payments for the current calendar year, Tenant shall pay the
difference between the new and former estimates for the period from January 1 of
the current calendar year through the month in which the Statement is sent.
Tenant shall make such payments within thirty (30) days after Landlord sends the
Statement.
(iv) If the Statement shows that Tenant's estimated payments exceeded
Tenant's actual obligations for Taxes and
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Operating Expenses, Tenant shall receive a credit for the difference against
payments of Rent next due. If the Term shall have expired and no further Rent
shall be due, Tenant shall receive a refund of such difference within thirty
(30) days after Landlord sends the Statement.
(v) [INTENTIONALLY LEFT BLANK]
(vi) So long as Tenant's obligations hereunder are not materially adversely
affected thereby, Landlord reserves the right to reasonably change, from time to
time, the manner or timing of the foregoing payments. In lieu of providing one
Statement covering Taxes and Operating Expenses, Landlord may provide separate
statements, at the same or different times. No delay by Landlord in providing
the Statement (or separate statements) shall be deemed a default by Landlord or
a waiver of Landlord's right to require payment of Tenant's obligations for
actual or estimated Taxes or Operating Expenses. In no event shall a decrease in
Taxes or Operating Expenses below the Base Year amounts ever decrease the
monthly Base Rent, or give rise to a credit in favor of Tenant.
(E) PRORATION. If the Term commences other than on January 1, or ends
other than on December 31, Tenant's obligations to pay estimated and actual
amounts towards Taxes and Operating Expenses for such first or final calendar
years shall be prorated to reflect the portion of such years included in the
Term. Such proration shall be made by multiplying the total estimated or actual
(as the case may be) Taxes and Operating Expenses, for such calendar years, as
well as the Base Year amounts, by a fraction, the numerator of which shall be
the number of days of the Term during such calendar year, and the denominator of
which shall be 365.
(F) LANDLORD'S RECORDS. Landlord shall maintain records respecting Taxes
and Operating Expenses and determine the same in accordance with sound
accounting and management practices, consistently applied. Although this Lease
contemplates the computation of Taxes and Operating Expenses on a cash basis,
Landlord shall make reasonable and appropriate accrual adjustments to ensure
that each calendar year, including the Base Years, includes substantially the
same recurring items. Landlord reserves the right to change to a full accrual
system of accounting so long as the same is consistently applied and Tenant's
obligations are not materially adversely affected. Tenant or its representative
shall have the right to examine such records upon reasonable prior notice
specifying such records Tenant desires to examine during normal business hours
at the place or places where such records are normally kept by sending such
notice no later than forty-five (45) days following the furnishing of the
Statement. Tenant may take exception to matters included in Taxes or Operating
Expenses, or Landlord's computation of Tenant's Prorata Share of either, by
sending notice specifying such exception and the reasons
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therefor to Landlord no later than thirty (30) days after Landlord makes such
records available for examination. Such Statement shall be considered final,
except as to matters to which exception is taken after examination of Landlord's
records in the foregoing manner and within the foregoing times. Tenant
acknowledges that Landlord's ability to budget and incur expenses depends on the
finality of such Statement and accordingly agrees that time is of the essence of
this Paragraph. If Tenant takes exception to any matter contained in the
Statement as provided herein, Landlord shall refer the matter to an independent
certified public accountant, whose certification as to the proper amount shall
be final and conclusive as between Landlord and Tenant. Tenant shall promptly
pay the cost of such certification unless such certification determines that
Tenant was overbilled by more than 2%. Pending resolution of any such
exceptions in the foregoing manner, Tenant shall continue paying Tenant's
Prorata Share of Taxes and Operating Expenses in the amounts determined by
Landlord, subject to adjustment after any such exceptions are so resolved.
(G) RENT AND OTHER CHARGES. Base Rent, Taxes, Operating Expenses, and any
other amounts which Tenant is or becomes obligated to pay Landlord under this
Lease or other agreement entered in connection herewith, are sometimes herein
referred to collectively as "Rent," and all remedies applicable to the non-
payment of Rent shall be applicable thereto. Rent shall be paid at any office
maintained by Landlord or its agent at the Property, or at such other place as
Landlord may designate.
ARTICLE 4
COMMENCEMENT OF TERM
The Commencement Date set forth in Article 1 shall be delayed and Rent
shall be abated to the extent that Landlord fails: (i) to substantially complete
any improvements to the Premises required to be performed by Landlord under any
separate agreement signed by both parties, or (ii) to deliver possession of the
Premises for any other reason, including but not limited to holding over by
prior occupants, except to the extent that Tenant, its contractors, agents or
employees in any way contribute to either such failures. If Landlord so fails
for a ninety (90) day initial grace period, or such additional time as may be
necessary due to fire or other casualty, strikes, lock-outs or other labor
troubles, shortages of equipment or materials, governmental requirements, power
shortages or outages, acts or omissions of Tenant or other Persons, or other
causes beyond Landlord's reasonable control, Tenant shall have the right to
terminate this Lease by written notice to Landlord any time thereafter up until
Landlord substantially completes any such
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improvements and delivers the Premises to Tenant. Any such delay in the
Commencement Date shall not subject Landlord to liability for loss or damage
resulting therefrom, and Tenant's sole recourse with respect thereto shall be
the abatement of Rent and right to terminate this Lease described above. Upon
any such termination, Landlord and Tenant shall be entirely relieved of their
obligations hereunder, and any Security Deposit and Rent payments shall be
returned to Tenant. If the Commencement Date is delayed, the Expiration Date
shall not be similarly extended, unless Landlord shall so elect (in which case,
the parties shall confirm the same in writing). During any period that Tenant
shall be permitted to enter the Premises prior to the Commencement Date other
than to occupy the same (e.g., to perform alterations or improvements), Tenant
shall comply with all terms and provisions of this Lease, except those
provisions requiring the payment of Rent. If Tenant shall be permitted to enter
the Premises prior to the Commencement Date for the purpose of occupying the
same, Rent shall commence on such date, and if Tenant shall commence occupying
only a portion of the Premises prior to the Commencement Date, Rent shall be
prorated based on the number of rentable square feet occupied by Tenant.
Landlord shall permit early entry, provided the Premises are legally available
and Landlord has completed any work required under this Lease or any separate
agreement entered in connection herewith.
ARTICLE 5
CONDITION OF PREMISES
Tenant has inspected the Premises, Property, Systems and Equipment (as
defined in Article 25), or has had an opportunity to do so, and agrees to accept
the same "as is" without any agreements, representations, understandings or
obligations on the part of Landlord to perform any alterations, repairs or
improvements except as expressly provided in any separate agreement that may be
signed by the parties.
ARTICLE 6
USE AND RULES
Tenant shall use the Premises for offices and no other purpose whatsoever,
in compliance with all applicable Laws, and without disturbing or interfering
with any other tenant or occupant of the Property. Tenant shall not use the
Premises in any manner so as to cause a cancellation of Landlord's insurance
policies, or an increase in the premiums thereunder. Tenant shall comply with
all rules set forth in Rider One attached hereto (the "Rules"). Landlord shall
have the right
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to reasonably amend such Rules and supplement the same with other reasonable
Rules (not expressly inconsistent with this Lease) relating to the Property, or
the promotion of safety, care, cleanliness or good order therein, and all such
amendments or new Rules shall be binding upon Tenant after five (5) days notice
thereof to Tenant. All Rules shall be applied on a non-discriminatory basis,
but nothing herein shall be construed to give Tenant or any other Person (as
defined in Article 25) any claim, demand or cause of action against Landlord
arising out of the violation of such Rules by any other tenant, occupant or
visitor of the Property, or out of the enforcement or waiver of the Rules by
Landlord in any particular instance.
ARTICLE 7
SERVICES AND UTILITIES
Landlord shall provide the following services and utilities (the cost of
which shall be included in Operating Expenses unless otherwise stated herein or
in any separate rider hereto):
(A) Electricity for standard office lighting fixtures, and equipment and
accessories customary for offices (up to 280 hours per month) where: (1) the
connected electrical load of all of the same does not exceed an average of 4
watts per square foot of the Premises (or such lesser amount as may be
available, based on the safe and lawful capacity of the existing electrical
circuit(s) and facilities serving the Premises), (2) the electricity will be at
nominal 120 volts, single phase (or 110 volts, depending on available service in
the Building), and (3) the safe and lawful capacity of the existing electrical
circuit(s) serving the Premises is not exceeded.
(B) Heat and air-conditioning to provide a temperature required, in
Landlord's reasonable opinion and in accordance with applicable Law, for
occupancy of the Premises under normal business operations, from 8:00 a.m. until
6:00 p.m. Monday through Friday and Saturdays from 8:00 a.m. until 1:00 p.m.
except on Holidays (as defined in Article 25). Landlord shall not be responsible
for inadequate air-conditioning or ventilation to the extent the same occurs
because Tenant uses any item of equipment consuming more than 500 watts at rated
capacity without providing adequate air-conditioning and ventilation therefor.
(C) Water for drinking, lavatory and toilet purposes at those points of
supply provided for nonexclusive general use of other tenants at the Property.
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(D) Customary office cleaning and trash removal service Monday through
Friday or Sunday through Thursday in and about the Premises.
(E) Operatorless passenger elevator service (if the Property has such
equipment serving the Premises) and freight elevator service (if the Property
has such equipment serving the Premises, and subject to scheduling by Landlord)
in common with Landlord and other tenants and their contractors, agents and
visitors.
(F) Landlord shall seek to provide such extra utilities or services as
Tenant may from time to time request, if the same are reasonable and feasible
for Landlord to provide and do not involve modifications or additions to the
Property or existing Systems and Equipment (as defined in Article 25), and if
Landlord shall receive Tenant's request within a reasonable period prior to the
time such extra utilities or services are required. Landlord may comply with
written or oral requests by any officer or employee of Tenant, unless Tenant
shall notify Landlord of, or Landlord shall request, the names of authorized
individuals (up to 3 for each floor on which the Premises are located) and
procedures for written requests. Tenant shall, for such extra utilities or
services, pay such charges as Landlord shall from time to time reasonably
establish. All charges for such extra utilities or services shall be due at the
same time as the installment of Base Rent with which the same are billed, or if
billed separately, shall be due within twenty (20) days after such billing.
Landlord may install and operate meters or any other reasonable system for
monitoring or estimating any services or utilities used by Tenant in excess of
those required to be provided by Landlord under this Article (including a system
for Landlord's engineer to reasonably estimate any such excess usage). If such
system indicates such excess services or utilities, Tenant shall pay Landlord's
reasonable charges for installing and operating such system and any
supplementary air-conditioning, ventilation, heat, electrical or other systems
or equipment (or adjustments or modifications to the existing Systems and
Equipment), and Landlord's reasonable charges for such amount of excess services
or utilities used by Tenant.
Landlord does not warrant that any services or utilities will be free from
shortages, failures, variations, or interruptions caused by repairs,
maintenance, replacements, improvements, alterations, changes of service,
strikes, lockouts, labor controversies, accidents, inability to obtain services,
fuel, steam, water or supplies, governmental requirements or requests, or other
causes beyond Landlord's reasonable control. None of the same shall be deemed an
eviction or disturbance of Tenant's use and possession of the Premises or any
part thereof, or render Landlord liable to
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Tenant for abatement of Rent, or relieve Tenant from performance of Tenant's
obligations under this Lease. Landlord in no event shall be liable for damages
by reason of loss of profits, business interruption or other consequential
damages.
ARTICLE 8
ALTERATIONS AND LIENS
Tenant shall make no additions, changes, alterations or improvements (the
"Work") to the Premises or the Systems and Equipment (as defined in Article 25)
pertaining to the Premises without the prior written consent of Landlord.
Landlord may impose reasonable requirements as a condition of such consent
including without limitation the submission of plans and specifications for
Landlord's prior written approval, obtaining necessary permits, posting bonds,
obtaining insurance, prior approval of contractors, subcontractors and
suppliers, prior receipt of copies of all contracts and subcontracts, contractor
and subcontractor lien waivers, affidavits listing all contractors,
subcontractors and suppliers, use of union labor (if Landlord uses union labor),
affidavits from engineers acceptable to Landlord stating that the Work will not
adversely affect the Systems and Equipment or the structure of the Property, and
requirements as to the manner and times in which such Work shall be done. All
Work shall be performed in a good and workmanlike manner and all materials used
shall be of a quality comparable to or better than those in the Premises and
Property and shall be in accordance with plans and specifications approved by
Landlord, and Landlord may require that all such Work be performed under
Landlord's supervision. In all cases, Tenant shall pay Landlord a reasonable fee
to cover Landlord's overhead in reviewing Tenant's plans and specifications and
performing any supervision of the Work. If Landlord consents or supervises, the
same shall not be deemed a warranty as to the adequacy of the design,
workmanship or quality of materials, and Landlord hereby expressly disclaims any
responsibility or liability for the same. Landlord shall under no circumstances
have any obligation to repair, maintain or replace any portion of the Work.
Tenant shall keep the Property and Premises free from any mechanic's,
materialman's or similar liens or other such encumbrances in connection with any
Work on or respecting the Premises not performed by or at the request of
Landlord, and shall indemnify and hold Landlord harmless from and against any
claims, liabilities, judgments, or costs (including attorneys' fees) arising out
of the same or in connection therewith. Tenant shall give Landlord notice at
least twenty (20) days prior to the commencement of any Work on the Premises (or
such additional time as may be necessary under
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applicable Laws), to afford Landlord the opportunity of posting and recording
appropriate notices of non-responsibility. Tenant shall remove any such lien or
encumbrance by bond or otherwise within thirty (30) days after written notice by
Landlord, and if Tenant shall fail to do so, Landlord may pay the amount
necessary to remove such lien or encumbrance, without being responsible for
investigating the validity thereof. The amount so paid shall be deemed
additional Rent under this Lease payable upon demand, without limitation as to
other remedies available to Landlord under this Lease. Nothing contained in this
Lease shall authorize Tenant to do any act which shall subject Landlord's title
to the Property or Premises to any liens or encumbrances whether claimed by
operation of law or express or implied contract. Any claim to a lien or
encumbrance upon the Property or Premises arising in connection with any Work on
or respecting the Premises not performed by or at the request of Landlord shall
be null and void, or at Landlord's option shall attach only against Tenant's
interest in the Premises and shall in all respects be subordinate to Landlord's
title to the Property and Premises.
ARTICLE 9
REPAIRS
Except for customary cleaning and trash removal provided by Landlord under
Article 7, and damage covered under Article 10, Tenant shall keep the Premises
in good and sanitary condition, working order and repair (including without
limitation, carpet, wall-covering, doors, plumbing and other fixtures,
equipment, alterations and improvements whether installed by Landlord or
Tenant). In the event that any repairs, maintenance or replacements are
required, Tenant shall promptly arrange for the same either through Landlord for
such reasonable charges as Landlord may from time to time establish, or such
contractors as Landlord generally uses at the Property or such other contractors
as Landlord shall first approve in writing, and in a first class, workmanlike
manner approved by Landlord in advance in writing. If Tenant does not promptly
make such arrangements, Landlord may, but need not, make such repairs,
maintenance and replacements, and the costs paid or incurred by Landlord
therefor shall be reimbursed by Tenant promptly after request by Landlord.
Tenant shall indemnify Landlord and pay for any repairs, maintenance and
replacements to areas of the Property outside the Premises, caused, in whole or
in part, as a result of moving any furniture, fixtures, or other property to or
from the Premises, or by Tenant or its employees, agents, contractors, or
visitors (notwithstanding anything to the contrary contained in this Lease).
Except as provided in the preceding sentence, or for damage covered under
Article 10, Landlord shall keep the common areas of the Property in good
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and sanitary condition, working order and repair (the cost of which shall be
included in Operating Expenses, as described in Article 25, except as limited
therein).
ARTICLE 10
CASUALTY DAMAGE
If the Premises or any common areas of the Property providing access
thereto shall be damaged by fire or other casualty, Landlord shall use available
insurance proceeds to restore the same. Such restoration shall be to
substantially the condition prior to the casualty, except for modifications
required by zoning and building codes and other Laws or by any Holder (as
defined in Article 25), any other modifications to the common areas deemed
desirable by Landlord (provided access to the Premises is not materially
impaired), and except that Landlord shall not be required to repair or replace
any of Tenant's furniture, furnishings, fixtures or equipment, or any
alterations or improvements in excess of any work performed or paid for by
Landlord under any separate agreement signed by the parties in connection
herewith. Landlord shall not be liable for any inconvenience or annoyance to
Tenant or its visitors, or injury to Tenant's business resulting in any way from
such damage or the repair thereof. However, Landlord shall allow Tenant a
proportionate abatement of Rent during the time and to the extent the Premises
are unfit for occupancy for the purposes permitted under this Lease and not
occupied by Tenant as a result thereof (unless Tenant or its employees or agents
caused the damage). Notwithstanding the foregoing to the contrary, Landlord may
elect to terminate this Lease by notifying Tenant in writing of such termination
within sixty (60) days after the date of damage (such termination notice to
include a termination date providing at least ninety (90) days for Tenant to
vacate the Premises), if the Property shall be materially damaged by Tenant or
its employees or agents, or if the Property shall be damaged by fire or other
casualty or cause such that: (a) repairs to the Premises and access thereto
cannot reasonably be completed within 120 days after the casualty without the
payment of overtime or other premiums, (b) more than 25% of the Premises is
affected by the damage, and fewer than 24 months remain in the Term, or any
material damage occurs to the Premises during the last 12 months of the Term,
(c) any Holder (as defined in Article 25) shall require that the insurance
proceeds or any portion thereof be used to retire the Mortgage debt (or shall
terminate the ground lease, as the case may be), or the damage is not fully
covered by Landlord's insurance policies, or (d) the cost of the repairs,
alterations, restoration or improvement work would exceed 25% of the replacement
value of the Building, or the nature of such work would make termination of this
Lease necessary or convenient. Tenant agrees that Landlord's obligation to
restore, and the abatement of Rent provided herein, shall be Tenant's sole
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recourse in the event of such damage, and waives any other rights Tenant may
have under any applicable Law to terminate the Lease by reason of damage to the
Premises or Property. Tenant acknowledges that this Article represents the
entire agreement between the parties respecting damage to the Premises or
Property.
ARTICLE 11
INSURANCE, SUBROGATION, AND WAIVER OF CLAIMS
Tenant shall maintain during the Term comprehensive (or commercial) general
liability insurance, with limits of not less than $1,000,000 combined single
limit for personal injury, bodily injury or death, or property damage or
destruction (including loss of use thereof) for any one occurrence. Tenant shall
also maintain during the Term worker compensation insurance as required by
statute, and primary, noncontributory, "all-risk" property damage insurance
covering Tenant's personal property, business records, fixtures and equipment,
for damage or other loss caused by fire or other casualty or cause including,
but not limited to, vandalism and malicious mischief, theft, water damage of any
type, including sprinkler leakage, bursting or stoppage of pipes, explosion,
business interruption, and other insurable risks in amounts not less than the
full insurable replacement value of such property and full insurable value of
such other interests of Tenant (subject to reasonable deductible amounts).
Landlord shall, as part of Operating Expenses, maintain during the Term
comprehensive (or commercial) general liability insurance, with limits of not
less than $1,000,000 combined single limit for personal injury, bodily injury or
death, or property damage or destruction (including loss of use thereof) for any
one occurrence. Landlord shall also, as part of Operating Expenses, maintain
during the Term worker compensation insurance as required by statute, and
primary, non-contributory, extended coverage or "all-risk" property damage
insurance, in an amount equal to at least ninety percent (90%) of the full
insurable replacement value of the Property (exclusive of the costs of
excavation, foundations and footings, and such risks required to be covered by
Tenant's insurance, and subject to reasonable deductible amounts), or such other
amount necessary to prevent Landlord from being a co-insured, and such other
coverage as Landlord shall deem appropriate or that may be required by any
Holder (as defined in Article 25).
Tenant shall provide Landlord with certificates evidencing such coverage
(and, with respect to liability coverage, showing Landlord and EAGLE WESTERN
MGMT. as additional insureds) prior to the Commencement Date, which shall state
that such insurance coverage may not be changed or cancelled without at least
twenty (20) days' prior written
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notice to Landlord, and shall provide renewal certificates to Landlord at least
twenty (20) days prior to expiration of such policies. Landlord may
periodically, but not more often than every five years, require that Tenant
reasonably increase the aforementioned coverage. Except as provided to the
contrary herein, any insurance carried by Landlord or Tenant shall be for the
sole benefit of the party carrying such insurance. Any insurance policies
hereunder may be "blanket policies." All insurance required hereunder shall be
provided by responsible insurers and Tenant's insurer shall be reasonably
acceptable to Landlord. By this Article, Landlord and Tenant intend that their
respective property loss risks shall be borne by responsible insurance carriers
to the extent above provided, and Landlord and Tenant hereby agree to look
solely to, and seek recovery only from, their respective insurance carriers in
the event of a property loss to the extent that such coverage is agreed to be
provided hereunder. The parties each hereby waive all rights and claims against
each other for such losses, and waive all rights of subrogation of their
respective insurers, provided such waiver of subrogation shall not affect the
right of the insured to recover thereunder. The parties agree that their
respective insurance policies are now, or shall be, endorsed such that said
waiver of subrogation shall not affect the right of the insured to recover
thereunder, so long as no material additional premium is charged therefor.
ARTICLE 12
CONDEMNATION
If the whole or any material part of the Premises or Property shall be
taken by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if any adjacent property or street
shall be so taken or condemned, or reconfigured or vacated by such authority in
such manner as to require the use, reconstruction or remodeling of any part of
the Premises or Property, or if Landlord shall grant a deed or other instrument
in lieu of such taking by eminent domain or condemnation, Landlord shall have
the option to terminate this Lease upon ninety (90) days notice, provided such
notice is given no later than 180 days after the date of such taking,
condemnation, reconfiguration, vacation, deed or other instrument. Tenant shall
have reciprocal termination rights if the whole or any material part of the
Premises is permanently taken, or if access to the Premises is permanently
materially impaired. Landlord shall be entitled to receive the entire award or
payment in connection therewith, except that Tenant shall have the right to file
any separate claim available to Tenant for any taking of Tenant's personal
property and fixtures belonging to Tenant and removable by Tenant upon
expiration of the Term, and for moving expenses
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(so long as such claim does not diminish the award available to Landlord or any
Holder, and such claim is payable separately to Tenant). All Rent shall be
apportioned as of the date of such termination, or the date of such taking,
whichever shall first occur. If any part of the Premises shall be taken, and
this Lease shall not be so terminated, the Rent shall be proportionately abated.
ARTICLE 13
RETURN OF POSSESSION
At the expiration or earlier termination of this Lease or Tenant's right of
possession, Tenant shall surrender possession of the Premises in the condition
required under Article 9, ordinary wear and tear excepted, and shall surrender
all keys, any key cards, and any parking stickers or cards, to Landlord, and
advise Landlord as to the combination of any locks or vaults then remaining in
the Premises, and shall remove all trade fixtures and personal property. All
improvements, fixtures and other items in or upon the Premises (except trade
fixtures and personal property belonging to Tenant), whether installed by Tenant
or Landlord, shall be Landlord's property and shall remain upon the Premises,
all without compensation, allowance or credit to Tenant. However, if prior to
such termination or within ten (10) days thereafter Landlord so directs by
notice, Tenant shall promptly remove such of the foregoing items as are
designated in such notice and restore the Premises to the condition prior to the
installation of such items; provided, Landlord shall not require removal of
customary office improvements installed pursuant to any separate agreement
signed by both parties in connection with entering this Lease (except as
expressly provided to the contrary therein), or installed by Tenant with
Landlord's written approval (except as expressly required by Landlord in
connection with granting such approval). If Tenant shall fail to perform any
repairs or restoration, or fail to remove any items from the Premises required
hereunder, Landlord may do so, and Tenant shall pay Landlord the cost thereof
upon demand. All property removed from the Premises by Landlord pursuant to any
provisions of this Lease or any Law may be handled or stored by Landlord at
Tenant's expense, and Landlord shall in no event be responsible for the value,
preservation or safekeeping thereof. All property not removed from the Premises
or retaken from storage by Tenant within thirty (30) days after expiration or
earlier termination of this Lease or Tenant's right to possession, shall at
Landlord's option be conclusively deemed to have been conveyed by Tenant to
Landlord as if by bill of sale without payment by Landlord. Unless prohibited by
applicable Law, Landlord shall have a lien against such property for the costs
incurred in removing and storing the same.
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ARTICLE 14
HOLDING OVER
Unless Landlord expressly agrees otherwise in writing, Tenant shall pay
Landlord 150% of the amount of Rent then applicable (or the highest amount
permitted by Law, whichever shall be less) prorated on per diem basis for each
day Tenant shall retain possession of the Premises or any part thereof after
expiration or earlier termination of this Lease, together with all damages
sustained by Landlord on account thereof. The foregoing provisions shall not
serve as permission for Tenant to hold-over, nor serve to extend the Term
(although Tenant shall remain bound to comply with all provisions of this Lease
until Tenant vacates the Premises, and shall be subject to the provisions of
Article 13). Notwithstanding the foregoing to the contrary, at any time before
or after expiration or earlier termination of the Lease, Landlord may serve
notice advising Tenant of the amount of Rent and other terms required, should
Tenant desire to enter a month-to-month tenancy (and if Tenant shall hold over
more than one full calendar month after such notice, Tenant shall thereafter be
deemed a month-to-month tenant, on the terms and provisions of this Lease then
in effect, as modified by Landlord's notice, and except that Tenant shall not be
entitled to any renewal or expansion rights contained in this Lease or any
amendments hereto).
ARTICLE 15
NO WAIVER
No provision of this Lease will be deemed waived by either party unless
expressly waived in writing signed by the waiving party. No waiver shall be
implied by delay or any other act or omission of either party. No waiver by
either party of any provision of this Lease shall be deemed a waiver of such
provision with respect to any subsequent matter relating to such provision, and
Landlord's consent or approval respecting any action by Tenant shall not
constitute a waiver of the requirement for obtaining Landlord's consent or
approval respecting any subsequent action. Acceptance of Rent by Landlord shall
not constitute a waiver of any breach by Tenant of any term or provision of this
Lease. No acceptance of a lesser amount than the Rent herein stipulated shall be
deemed a waiver of Landlord's right to receive the full amount due, nor shall
any endorsement or statement on any check or payment or any letter accompanying
such check or payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the full amount due. The acceptance of Rent or of the performance of any other
term or provision from any Person other than Tenant, including any Transferee,
shall not
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constitute a waiver of Landlord's right to approve any Transfer.
ARTICLE 16
ATTORNEYS' FEES AND JURY TRIAL
In the event of any litigation between the parties, the prevailing party
shall be entitled to obtain, as part of the judgment, all reasonable attorneys'
fees, costs and expenses incurred in connection with such litigation, except as
may be limited by applicable Law. In the interest of obtaining a speedier and
less costly hearing of any dispute, the parties hereby each irrevocably waive
the right to trial by jury.
ARTICLE 17
PERSONAL PROPERTY TAXES, RENT TAXES AND OTHER TAXES
Tenant shall pay prior to delinquency all taxes, charges or other
governmental impositions assessed against or levied upon Tenant's fixtures,
furnishings, equipment and personal property located in the Premises, and any
Work to the Premises under Article 8. Whenever possible, Tenant shall cause all
such items to be assessed and billed separately from the property of Landlord.
In the event any such items shall be assessed and billed with the property of
Landlord, Tenant shall pay Landlord its share of such taxes, charges or other
governmental impositions within thirty (30) days after Landlord delivers a
statement and a copy of the assessment or other documentation showing the amount
of such impositions applicable to Tenant's property. Tenant shall pay any rent
tax or sales tax, service tax, transfer tax or value added tax, or any other
applicable tax on the Rent or services herein or otherwise respecting this
Lease.
ARTICLE 18
REASONABLE APPROVALS
Whenever Landlord's approval or consent is expressly required under this
Lease (including Article 21) or any other agreement between the parties,
Landlord shall not unreasonably withhold or delay such approval or consent
(reasonableness shall be a condition to Landlord's enforcement of such consent
or approval requirement, and not a covenant), except for matters affecting the
structure, safety or security of the Property, or the appearance of the Property
from any common or public areas.
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ARTICLE 19
SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION
This Lease is subject and subordinate to all Mortgages (as defined in
Article 25) now or hereafter placed upon the Property, and all other
encumbrances and matters of public record applicable to the Property. If any
foreclosure proceedings are initiated by any Holder or a deed in lieu is granted
(or if any ground lease is terminated), Tenant agrees, upon written request of
any such Holder or any purchaser at foreclosure sale, to attorn and pay Rent to
such party and to execute and deliver any instruments necessary or appropriate
to evidence or effectuate such attornment (provided such Holder or purchaser
shall agree to accept this Lease and not disturb Tenant's occupancy, so long as
Tenant does not default and fail to cure within the time permitted hereunder).
However, in the event of attornment, no Holder shall be: (i) liable for any act
or omission of Landlord, or subject to any offsets or defenses which Tenant
might have against Landlord (prior to such Holder becoming Landlord under such
attornment), (ii) liable for any security deposit or bound by any prepaid Rent
not actually received by such Holder, or (iii) bound by any future modification
of this Lease not consented to by such Holder. Any Holder (as defined in Article
25) may elect to make this Lease prior to the lien of its Mortgage, by written
notice to Tenant, and if the Holder of any prior Mortgage shall require, this
Lease shall be prior to any subordinate Mortgage. Tenant agrees to give any
Holder by certified mail, return receipt requested, a copy of any notice of
default served by Tenant upon Landlord, provided that prior to such notice
Tenant has been notified in writing (by way of service on Tenant of a copy of an
assignment of leases, or otherwise) of the address of such Holder. Tenant
further agrees that if Landlord shall have failed to cure such default within
the times permitted Landlord for cure under this Lease, any such Holder whose
address has been provided to Tenant shall have an additional period of thirty
(30) days in which to cure (or such additional time as may be required due to
causes beyond such Holder's control, including time to obtain possession of the
Property by power of sale or judicial action). Tenant shall execute such
documentation as Landlord may reasonably request from time to time, in order to
confirm the matters set forth in this Article in recordable form.
ARTICLE 20
ESTOPPEL CERTIFICATE
Tenant shall from time to time, within twenty (20) days after written
request from Landlord, execute, acknowledge and deliver a statement (i)
certifying that this Lease is unmodified and in full force and effect or, if
modified,
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stating the nature of such modification and certifying that this Lease as so
modified, is in full force and effect (or if this Lease is claimed not to be in
force and effect, specifying the ground therefor) and any dates to which the
Rent has been paid in advance, and the amount of any Security Deposit, (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed,
and (iii) certifying such other matters as Landlord may reasonably request, or
as may be requested by Landlord's current or prospective Holders, insurance
carriers, auditors, and prospective purchasers. Any such statement may be
relied upon by any such parties. If Tenant shall fail to execute and return
such statement within the time required herein, Tenant shall be deemed to have
agreed with the matters set forth therein.
ARTICLE 21
ASSIGNMENT AND SUBLETTING
(A) TRANSFERS. Tenant shall not, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld, as further described
below: (i) assign, mortgage, pledge, hypothecate, encumber, or permit any lien
to attach to, or otherwise transfer, this Lease or any interest hereunder, by
operation of law or otherwise, (ii) sublet the Premises or any part thereof, or
(iii) permit the use of the Premises by any Persons (as defined in Article 25)
other than Tenant and its employees (all of the foregoing are hereinafter
sometimes referred to collectively as "Transfers" and any Person to whom any
Transfer is made or sought to be made is hereinafter sometimes referred to as a
"Transferee"). If Tenant shall desire Landlord's consent to any Transfer, Tenant
shall notify Landlord in writing, which notice shall include: (a) the proposed
effective date (which shall not be less than 30 nor more than 180 days after
Tenant's notice), (b) the portion of the Premises to be Transferred (herein
called the "Subject Space"), (c) the terms of the proposed Transfer and the
consideration therefor, the name and address of the proposed Transferee, and a
copy of all documentation pertaining to the proposed Transfer, and (d) current
financial statements of the proposed Transferee certified by an officer, partner
or owner thereof, and any other information to enable Landlord to determine the
financial responsibility, character, and reputation of the proposed Transferee,
nature of such Transferee's business and proposed use of the Subject Space, and
such other information as Landlord may reasonably require. Any Transfer made
without complying with this Article shall, at Landlord's option, be null, void
and of no effect, or shall constitute a Default under this Lease. Whether or not
Landlord shall grant consent, Tenant shall pay $300.00 towards Landlord's review
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and processing expenses, as well as any reasonable legal fees incurred by
Landlord, within thirty (30) days after written request by Landlord.
(B) APPROVAL. Landlord will not unreasonably withhold its consent (as
provided in Article 18) to any proposed Transfer of the Subject Space to the
Transferee on the terms specified in Tenant's notice. The parties hereby agree
that it shall be reasonable under this Lease and under any applicable Law for
Landlord to withhold consent to any proposed Transfer where one or more of the
following applies (without limitation as to other reasonable grounds for
withholding consent): (i) the Transferee is of a character or reputation or
engaged in a business which is not consistent with the quality of the Property,
or would be a significantly less prestigious occupant of the Property than
Tenant, (ii) the Transferee intends to use the Subject Space for purposes which
are not permitted under this Lease, (iii) the Subject Space is not regular in
shape with appropriate means of ingress and egress suitable for normal renting
purposes, (iv) the Transferee is either a government (or agency or
instrumentality thereof) or an occupant of the Property, (v) the proposed
Transferee does not have a reasonable financial condition in relation to the
obligations to be assumed in connection with the Transfer, or (vi) Tenant has
committed and failed to cure a Default at the time Tenant requests consent to
the proposed Transfer.
(C) TRANSFER PREMIUM. If Landlord consents to a Transfer, and as a
condition thereto which the parties hereby agree is reasonable, Tenant shall pay
Landlord fifty percent (50%) of any Transfer Premium derived by Tenant from such
Transfer. "Transfer Premium" shall mean all rent, additional rent or other
consideration paid by such Transferee in excess of the Rent payable by Tenant
under this Lease (on a monthly basis during the Term, and on a per rentable
square foot basis, if less than all of the Premises is transferred), after
deducting the reasonable expenses incurred by Tenant for any changes,
alterations and improvements to the Premises, any other economic concessions or
services provided to the Transferee, and any customary brokerage commissions
paid in connection with the Transfer. If part of the consideration for such
Transfer shall be payable other than in cash, Landlord's share of such non-cash
consideration shall be in such form as is reasonably satisfactory to Landlord.
The percentage of the Transfer Premium due Landlord hereunder shall be paid
within ten (10) days after Tenant receives any Transfer Premium from the
Transferee.
(D) RECAPTURE. Notwithstanding anything to the contrary contained in
this Article, Landlord shall have the option, by giving written notice to Tenant
within thirty (30) days after receipt of Tenant's notice of any proposed
Transfer, to recapture the Subject Space. Such recapture notice shall
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cancel and terminate this Lease with respect to the Subject Space as of the date
stated in Tenant's notice as the effective date of the proposed Transfer (or at
Landlord's option, shall cause the Transfer to be made to Landlord or its agent,
in which case the parties shall execute the Transfer documentation promptly
thereafter). If this Lease shall be cancelled with respect to less than the
entire Premises, the Rent reserved herein shall be prorated on the basis of the
number of rentable square feet retained by Tenant in proportion to the number of
rentable square feet contained in the Premises, this Lease as so amended shall
continue thereafter in full force and effect, and upon request of either party,
the parties shall execute written confirmation of the same.
(E) TERMS OF CONSENT. If Landlord consents to a Transfer: (a) the
terms and conditions of this Lease, including among other things, Tenant's
liability for the Subject Space, shall in no way be deemed to have been waived
or modified, (b) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (c) no Transferee shall succeed to
any rights provided in this Lease or any amendment hereto to extend the Term of
this Lease, expand the Premises, or lease additional space, any such rights
being deemed personal to Tenant, (d) Tenant shall deliver to Landlord promptly
after execution, an original executed copy of all documentation pertaining to
the Transfer in form reasonably acceptable to Landlord, and (e) Tenant shall
furnish upon Landlord's request a complete statement, certified by an
independent certified public accountant, or Tenant's chief financial officer,
setting forth in detail the computation of any Transfer Premium Tenant has
derived and shall derive from such Transfer. Landlord or its authorized
representatives shall have the right at all reasonable times to audit the books,
records and papers of Tenant relating to any Transfer, and shall have the right
to make copies thereof. If the Transfer Premium respecting any Transfer shall
be found understated, Tenant shall within thirty (30) days after demand pay the
deficiency, and if understated by more than 2%, Tenant shall pay Landlord's
costs of such audit. Any sublease hereunder shall be subordinate and subject to
the provisions of this Lease, and if this Lease shall be terminated during the
term of any sublease, Landlord shall have the right to: (i) treat such sublease
as cancelled and repossess the Subject Space by any lawful means, or (ii)
require that such subtenant attorn to and recognize Landlord as its landlord
under any such sublease. If Tenant shall Default and fail to cure within the
time permitted for cure under Article 23(A), Landlord is hereby irrevocably
authorized, as Tenant's agent and attorney-in-fact, to direct any Transferee to
make all payments under or in connection with the Transfer directly to Landlord
(which Landlord shall apply towards Tenant's obligations under this Lease) until
such Default is cured.
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(F) CERTAIN TRANSFERS. For purposes of this Lease, the term
"Transfer" shall also include (a) if Tenant is a partnership, the withdrawal or
change, voluntary, involuntary or by operation of law, of a majority of the
partners, or a transfer of a majority of partnership interests, within a twelve
month period, or the dissolution of the partnership, and (b) if Tenant is a
closely held corporation (i.e., whose stock is not publicly held and not traded
through an exchange or over the counter), the dissolution, merger, consolidation
or other reorganization of Tenant, or within a twelve month period: (i) the
sale or other transfer of more than an aggregate of 50% of the voting shares of
Tenant (other than to immediate family members by reason of gift or death).
Notwithstanding the foregoing, Landlord's consent shall not be
required should more than 50% of the voting shares of Tenant be transferred in
connection with an initial public stock offering (an "IPO"). Landlord's consent
shall also not be required should more than 50% of the voting shares of Tenant
be transferred or sold in order to obtain non-IPO financing, provided that: (i)
Michail Itkis shall continue, after such transfer or sale, to be substantially
involved in and give management and direction to Tenant with respect to its day-
to-day operations and projected operations; (ii) the use of the Premises as
required by this Lease shall not be changed; and (iii) Landlord shall determine,
in its reasonable judgment based upon information provided to Landlord by Tenant
as may be requested by Landlord, that the financial condition and status of the
Tenant after such transfer or sale shall not be worsened or jeopardized so as to
cause Tenant to be or place Tenant in jeopardy of being functionally unable to
pay the rent and the other charges payable under this Lease as and when due.
ARTICLE 22
RIGHTS RESERVED BY LANDLORD
Except to the extent expressly limited herein, Landlord reserves full
rights to control the Property (which rights may be exercised without subjecting
Landlord to claims for constructive eviction, abatement of Rent, damages or
other claims of any kind), including more particularly, but without limitation,
the following rights:
(A) To change the name or street address of the Property; install and
maintain signs on the exterior and interior of the Property; retain at all
times, and use in appropriate instances, keys to all doors within and into the
Premises; grant to any Person the right to conduct any business or render any
service at the Property, whether or not it is the same or similar to the use
permitted Tenant by this Lease; and have access for Landlord and other tenants
of the
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Property to any mail chutes located on the Premises according to the rules of
the United States Postal Service.
(B) To enter the Premises at reasonable hours for reasonable purposes,
including inspection and supplying cleaning service or other services to be
provided Tenant hereunder, to show the Premises to current and prospective
mortgage lenders, ground lessors, insurers, and prospective purchasers, tenants
and brokers, at reasonable hours, and if Tenant shall abandon the Premises at
any time, or shall vacate the same during the last 3 months of the Term, to
decorate, remodel, repair, or alter the Premises.
(C) To limit or prevent access to the Property, shut down elevator
service, activate elevator emergency controls, or otherwise take such action or
preventative measures deemed necessary by Landlord for the safety of tenants or
other occupants of the Property or the protection of the Property and other
property located thereon or therein, in case of fire, invasion, insurrection,
riot, civil disorder, public excitement or other dangerous condition, or threat
thereof.
(D) To decorate and to make alterations, additions and improvements,
structural or otherwise, in or to the Property or any part thereof, and any
adjacent building, structure, parking facility, land, street or alley (including
without limitation changes and reductions in corridors, lobbies, parking
facilities and other public areas and the installation of kiosks, planters,
sculptures, displays, escalators, mezzanines, and other structures, facilities,
amenities and features therein, and changes for the purpose of connection with
or entrance into or use of the Property in conjunction with any adjoining or
adjacent building or buildings, now existing or hereafter constructed). In
connection with such matters, or with any other repairs, maintenance,
improvements or alterations, in or about the Property, Landlord may erect
scaffolding and other structures reasonably required, and during such operations
may enter upon the Premises and take into and upon or through the Premises, all
materials required to make such repairs, maintenance, alterations or
improvements, and may close public entry ways, other public areas, restrooms,
stairways or corridors.
(E) To substitute for the Premises other premises (herein referred to
as the "new premises") at the Property, or another comparable building,
provided: (i) the new premises shall be similar to the Premises in area, (ii)
Landlord shall give Tenant at least thirty (30) days' written notice before
making such change, and the parties shall execute an amendment to the Lease
confirming the change within thirty (30) days after either party shall request
the same; and (iii) if Tenant shall already have taken possession of the
Premises: (a) Landlord shall pay the direct, out-of-pocket, reasonable expenses
of Tenant in moving from the Premises to the new
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premises and improving the new premises so that they are substantially similar
to the Premises, and, (b) such move shall be made during evenings, weekends, or
otherwise so as to incur the least inconvenience to Tenant.
In connection with entering the Premises to exercise any of the
foregoing rights, Landlord shall: (a) provide reasonable advance written or
oral notice to Tenant's on-site manager or other appropriate person (except in
emergencies, or for routine cleaning or other routine matters), and (b) take
reasonable steps to minimize any interference with Tenant's business.
ARTICLE 23
LANDLORD'S REMEDIES
(A) DEFAULT. The occurrence of any one or more of the following
events shall constitute a "Default" by Tenant, which if not cured within any
applicable time permitted for cure below, shall give rise to Landlord's remedies
set forth in Paragraph (B), below: (i) failure by Tenant to make when due any
payment of Rent, unless such failure is cured within ten (10) days after notice;
(ii) failure by Tenant to observe or perform any of the terms or conditions of
this Lease to be observed or performed by Tenant other than the payment of Rent,
or as provided below, unless such failure is cured within thirty (30) days after
notice, or such shorter period expressly provided elsewhere in this Lease
(provided, if the nature of Tenant's failure is such that more time is
reasonably required in order to cure, Tenant shall not be in Default if Tenant
commences to cure within such period and thereafter reasonably seeks to cure
such failure to completion), (iii) failure by Tenant to comply with the Rules,
unless such failure is cured within five (5) days after notice (provided, if the
nature of Tenant's failure is such that more than five (5) days time is
reasonably required in order to cure, Tenant shall not be in Default if Tenant
commences to cure within such period and thereafter reasonably seeks to cure
such failure to completion); (iv) vacation of all or a substantial portion of
the Premises for more than thirty (30) consecutive days, or the failure to take
possession of the Premises within sixty (60) days after the Commencement Date;
(v) (a) making by Tenant or any guarantor of this Lease ("Guarantor") of any
general assignment for the benefit of creditors, (b) filing by or against Tenant
or any Guarantor of a petition to have Tenant or such Guarantor adjudged a
bankrupt or a petition for reorganization or arrangement under any Law relating
to bankruptcy (unless, in the case of a petition filed against Tenant or such
Guarantor, the same is dismissed within sixty (60) days), (c) appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located on the Premises or of Tenant's
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interest in this Lease, where possession is not restored to Tenant within thirty
(30) days, (d) attachment, execution or other judicial seizure of substantially
all of Tenant's assets located on the Premises or of Tenant's interest in this
Lease, (e) Tenant's or any Guarantor's convening of a meeting of its creditors
or any class thereof for the purpose of effecting a moratorium upon or
composition of its debts, or (f) Tenant's or any Guarantor's insolvency or
admission of an inability to pay its debts as they mature; (vi) any material
misrepresentation herein, or material misrepresentation or omission in any
financial statements or other materials provided by Tenant or any Guarantor in
connection with negotiating or entering this Lease or in connection with any
Transfer under Article 21; (vii) cancellation of any guaranty of this Lease by
any Guarantor; (viii) failure by Tenant to cure within any applicable times
permitted thereunder any default under any other lease for space at the Property
or any other buildings owned or managed by Landlord or its affiliates, now or
hereafter entered by Tenant (and any Default hereunder not cured within the
times permitted for cure herein shall, at Landlord's election, constitute a
default under any such other lease or leases). Failure by Tenant to comply with
the same term or condition of this Lease on three occasions during any twelve
month period shall cause any failure to comply with such term or condition
during the succeeding twelve month period, at Landlord's option, to constitute
an incurable Default, if Landlord has given Tenant notice of each such failure
within ten (10) days after each such failure occurs. The notice and cure
periods provided herein are in lieu of, and not in addition to, any notice and
cure periods provided by Law.
(B) REMEDIES. If a Default occurs and is not cured within any
applicable time permitted under Paragraph (A), Landlord shall have the rights
and remedies hereinafter set forth, which shall be distinct, separate and
cumulative with and in addition to any other right or remedy allowed under any
Law or other provisions of this Lease:
(i) Landlord may terminate this Lease, repossess the Premises by
detainer suit, summary proceedings or other lawful means, and recover as damages
a sum of money equal to: (a) any unpaid Rent as of the termination date
including interest at the Default Rate (as defined in Article 25), (b) any
unpaid Rent which would have accrued after the termination date through the time
of award including interest at the Default Rate, less such loss of Rent that
Tenant proves could have been reasonably avoided, (c) any unpaid Rent which
would have accrued after the time of award during the balance of the Term, less
such loss of Rent that Tenant proves could be reasonably avoided, and (d) any
other amounts necessary to compensate Landlord for all damages proximately
caused by Tenant's failure to perform its obligations under this Lease,
including without limitation all Costs of Reletting (as
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defined in Paragraph F). For purposes of computing the amount of Rent herein
that would have accrued after the time of award, Tenant's Prorata Share of Taxes
and Operating Expenses, shall be projected, based upon the average rate of
increase, if any, in such items from the Commencement Date through the time of
award.
(ii) If applicable Law permits, Landlord may terminate Tenant's
right of possession and repossess the Premises by detainer suit, summary
proceedings or other lawful means, without terminating this Lease (and if such
Law permits, and Landlord shall not have expressly terminated the Lease in
writing, any termination shall be deemed a termination of Tenant's right of
possession only). In such event, Landlord may recover: (a) any unpaid Rent as of
the date possession is terminated, including interest at the Default Rate, (b)
any unpaid Rent which accrues during the Term from the date possession is
terminated through the time of award (or which may have accrued from the time of
any earlier award obtained by Landlord through the time of award), including
interest at the Default Rate, less any Net Re-Letting Proceeds (as defined in
Paragraph F) received by Landlord during such period, and less such loss of Rent
that Tenant proves could have been reasonably avoided, and (c) any other amounts
necessary to compensate Landlord for all damages proximately caused by Tenant's
failure to perform its obligations under this Lease, including without
limitation, all Costs of Reletting (as defined in Paragraph F). Landlord may
bring suits for such amounts or portions thereof, at any time or times as the
same accrue or after the same have accrued, and no suit or recovery of any
portion due hereunder shall be deemed a waiver of Landlord's right to collect
all amounts to which Landlord is entitled hereunder, nor shall the same serve as
any defense to any subsequent suit brought for any amount not theretofore
reduced to judgment.
(C) MITIGATION OF DAMAGES. As provided in Subparagraph (B), the
amounts of unpaid Rent Landlord may recover thereunder are subject to reduction
by such loss of Rent that Tenant proves could be or could have been reasonably
avoided.
(D) SPECIFIC PERFORMANCE, COLLECTION OF RENT AND ACCELERATION.
Landlord shall at all times have the rights and remedies (which shall be
cumulative with each other and cumulative and in addition to those rights and
remedies available under Paragraph (B), above or any Law or other provision of
this Lease), without prior demand or notice except as required by applicable
Law: (i) to seek any declaratory, injunctive or other equitable relief, and
specifically enforce this Lease, restrain or enjoin a violation or breach of any
provision hereof, and (ii) to sue for and collect any unpaid Rent which has
accrued. Notwithstanding anything to the contrary contained in this Lease, to
the extent not expressly prohibited by applicable
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Law, in the event of any Default by Tenant not cured within any applicable time
for cure hereunder, Landlord may terminate this Lease or Tenant's right to
possession and accelerate and declare that all Rent reserved for the remainder
of the Term shall be immediately due and payable (in which event, Tenant's
Prorata Share of Taxes and Operating Expenses, for the remainder of the Term
shall be projected based upon the average rate of increase, if any, in such
items from the Commencement Date through the date of such declaration),
provided, Landlord shall, after receiving payment of the same from Tenant, be
obligated to turn over to Tenant any actual Net Re-Letting Proceeds thereafter
received during the remainder of the Term, up to the amount so received from
Tenant pursuant to this provision.
(E) LATE CHARGES AND INTEREST. Tenant shall pay, as additional Rent,
a service charge of Two Hundred Dollars ($200.00) for bookkeeping and
administrative expenses, if Rent is not received within five (5) days after its
due date. In addition, any Rent paid more than five (5) days after due shall
accrue interest from the due date at the Default Rate (as defined in Article
25), until payment is received by Landlord. Such service charge and interest
payments shall not be deemed consent by Landlord to late payments, nor a waiver
of Landlord's right to insist upon timely payments at any time, nor a waiver of
any remedies to which Landlord is entitled as a result of the late payment of
Rent.
(F) CERTAIN DEFINITIONS. "Net Re-Letting Proceeds" shall mean the
total amount of rent and other consideration paid by any Replacement Tenants,
less all Costs of Re-Letting, during a given period of time. "Costs of Re-
Letting" shall include without limitation, all reasonable costs and expenses
incurred by Landlord for any repairs, maintenance, changes, alterations and
improvements to the Premises, brokerage commissions, advertising costs,
attorneys' fees, any customary free rent periods or credits, tenant improvement
allowances, take-over lease obligations and other customary, necessary or
appropriate economic incentives reasonably required to enter leases with
Replacement Tenants, and costs of collecting rent from Replacement Tenants.
"Replacement Tenants" shall mean any Persons (as defined in Article 25) to whom
Landlord re-lets the Premises or any portion thereof pursuant to this Article.
(G) OTHER MATTERS. No re-entry or repossession, repairs, changes,
alterations and additions, reletting, acceptance of keys from Tenant, or any
other action or omission by Landlord shall be construed as an election by
Landlord to terminate this Lease or Tenant's right to possession, or accept a
surrender of the Premises, nor shall the same operate to release the Tenant in
whole or in part from any of Tenant's obligations hereunder, unless express
written notice of such intention is sent by Landlord or its
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agent to Tenant. To the fullest extent permitted by Law, all rent and other
consideration paid by any Replacement Tenants shall be applied: first, to the
Costs of Re-Letting, second, to the payment of any Rent theretofore accrued, and
the residue, if any, shall be held by Landlord and applied to the payment of
other obligations of Tenant to Landlord as the same become due (with any
remaining residue to be retained by Landlord). Rent shall be paid without any
prior demand or notice therefor (except as expressly provided herein) and
without any deduction, set-off or counterclaim, or relief from any valuation or
appraisement laws. Landlord may apply payments received from Tenant to any
obligations of Tenant then accrued, without regard to such obligations as may be
designated by Tenant. Landlord shall be under no obligation to observe or
perform any provision of this Lease on its part to be observed or performed
which accrues after the date of any Default by Tenant hereunder not cured within
the times permitted hereunder. The times set forth herein for the curing of
Defaults by Tenant are of the essence of this Lease. Tenant hereby irrevocably
waives any right otherwise available under any Law to redeem or reinstate this
Lease.
ARTICLE 24
LANDLORD'S RIGHT TO CURE
If Landlord shall fail to perform any term or provision under this
Lease required to be performed by Landlord, Landlord shall not be deemed to be
in default hereunder nor subject to any claims for damages of any kind, unless
such failure shall have continued for a period of thirty (30) days after written
notice thereof by Tenant; provided, if the nature of Landlord's failure is such
that more than thirty (30) days are reasonably required in order to cure,
Landlord shall not be in default if Landlord commences to cure such failure
within such thirty (30) day period, and thereafter reasonably seeks to cure such
failure to completion. The aforementioned periods of time permitted for
Landlord to cure shall be extended for any period of time during which Landlord
is delayed in, or prevented from, curing due to fire or other casualty, strikes,
lock-outs or other labor troubles, shortages of equipment or materials,
governmental requirements, power shortages or outages, acts or omissions by
Tenant or other Persons, and other causes beyond Landlord's reasonable control.
If Landlord shall fail to cure within the times permitted for cure herein,
Landlord shall be subject to such remedies as may be available to Tenant
(subject to the other provisions of this Lease); provided, in recognition that
Landlord must receive timely payments of Rent and operate the Property. Tenant
shall have no right of self-help to perform repairs or any other obligation of
Landlord, and shall have no right to withhold, set-off, or abate Rent.
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ARTICLE 25
CAPTIONS, DEFINITIONS AND SEVERABILITY
The captions of the Articles and Paragraphs of this Lease are for
convenience of reference only and shall not be considered or referred to in
resolving questions of interpretation. If any term or provision of this Lease
shall be found invalid, void, illegal, or unenforceable with respect to any
particular Person by a court of competent jurisdiction, it shall not affect,
impair or invalidate any other terms or provisions hereof, or its enforceability
with respect to any other Person, the parties hereto agreeing that they would
have entered into the remaining portion of this Lease notwithstanding the
omission of the portion or portions adjudged invalid, void, illegal, or
unenforceable with respect to such Person.
(A) "Building" shall mean the structure identified in Article 1 of
this Lease.
(B) [INTENTIONALLY LEFT BLANK]
(C) "Default Rate" shall mean eighteen percent (18%) per annum, or the
highest rate permitted by applicable Law, whichever shall be less.
(D) "Holder" shall mean the holder of any Mortgage at the time in
question, and where such Mortgage is a ground lease, such term shall refer to
the ground lessor.
(E) "Holidays" shall mean all federally observed holidays, including
New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day,
Veterans' Day, Thanksgiving Day, Christmas Day, and to the extent of utilities
or services provided by union members engaged at the Property, such other
holidays observed by such unions.
(F) "Landlord" and "Tenant" shall be applicable to one or more Persons
as the case may be, and the singular shall include the plural, and the neuter
shall include the masculine and feminine; and if there be more than one, the
obligations thereof shall be joint and several. For purposes of any provisions
indemnifying or limiting the liability of Landlord, the term "Landlord" shall
include Landlord's present and future partners, beneficiaries, trustees,
officers, directors, employees, shareholders, principals, agents, affiliates,
successors and assigns.
(G) "Law" shall mean all federal, state, county and local governmental
and municipal laws, statutes, ordinances, rules, regulations, codes, decrees,
orders and other such requirements, applicable equitable remedies and decisions
by courts in cases where such decisions are considered binding
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precedents in the state in which the Property is located, and decisions of
federal courts applying the Laws of such State.
(H) "Mortgage" shall mean all mortgages, deeds of trust, ground leases
and other such encumbrances now or hereafter placed upon the Property or
Building, or any part thereof, and all renewals, modifications, consolidations,
replacements or extensions thereof, and all indebtedness now or hereafter
secured thereby and all interest thereon.
(I) "Operating Expenses" shall mean all expenses, costs and amounts
(other than Taxes) of every kind and nature which Landlord shall pay during any
calendar year any portion of which occurs during the Term, because of or in
connection with the ownership, management, repair, maintenance, restoration and
operation of the Property, including without limitation, any amounts paid for:
(a) utilities for the Property, including but not limited to electricity, power,
gas, steam, oil or other fuel, water, sewer, lighting, heating, air conditioning
and ventilating, (b) permits, licenses and certificates necessary to operate,
manage and lease the Property, (c) insurance applicable to the Property, not
limited to the amount of coverage Landlord is required to provide under this
Lease, (d) supplies, tools, equipment and materials used in the operation,
repair and maintenance of the Property, (e) accounting, legal, inspection,
consulting, concierge and other services, (f) any equipment rental (or
installment equipment purchase or equipment financing agreements), or management
agreements (including the cost of any management fee actually paid thereunder
and the fair rental value of any office space provided thereunder, up to
customary and reasonable amounts), (g) wages, salaries and other compensation
and benefits (including the fair value of any parking privileges provided) for
all persons engaged in the operation, maintenance or security of the Property,
and employer's Social Security taxes, unemployment taxes or insurance, and any
other taxes which may be levied on such wages, salaries, compensation and
benefits, (h) payments under any easement, operating agreement, declaration,
restrictive covenant, or instrument pertaining to the sharing of costs in any
planned development, and (i) operation, repair, and maintenance of all Systems
and Equipment and components thereof (including replacement of components),
janitorial service, alarm and security service, window cleaning, trash removal,
elevator maintenance, cleaning of walks, parking facilities and building walls,
removal of ice and snow, replacement of wall and floor coverings, ceiling tiles
and fixtures in lobbies, corridors, restrooms and other common or public areas
or facilities, maintenance and replacement of shrubs, trees, grass, sod and
other landscaped items, irrigation systems, drainage facilities, fences, curbs,
and walkways, re-paving and re-striping parking facilities, and roof repairs.
If the Property is not fully occupied during all or a portion of any calendar
year, Landlord may, in
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accordance with sound accounting and management practices, determine the amount
of variable Operating Expenses (i.e. those items which vary according to
occupancy levels) that would have been paid had the Property been fully
occupied, and the amount so determined shall be deemed to have been the amount
of variable Operating Expenses for such year. If Landlord makes such an
adjustment, Landlord shall make a comparable adjustment for the Base Expense
Year. Notwithstanding the foregoing, Operating Expenses shall not, however,
include:
(i) depreciation, interest and amortization on Mortgages, and other debt
costs or ground lease payments, if any; legal fees in connection with
leasing, tenant disputes or enforcement of leases; real estate brokers'
leasing commissions, improvements or alterations to tenant spaces; the cost
of providing any service directly to and paid directly by, any tenant; any
costs expressly excluded from Operating Expenses elsewhere in this Lease;
costs of any items to the extent Landlord receives reimbursement from
insurance proceeds or from a third party (such proceeds to be deducted from
Operating Expenses in the year in which received); and
(ii) capital expenditures, except those: (a) made primarily to reduce
Operating Expenses, or to comply with any Laws or other governmental
requirements, or (b) for replacements (as opposed to additions or new
improvements) of non-structural items located in the common areas of the
Property required to keep such areas in good condition; provided, all such
permitted capital expenditures (together with reasonable financing charges)
shall be amortized for purposes of this Lease over the shorter of: (i)
their useful lives, (ii) the period during which the reasonably estimated
savings in Operating Expenses equals the expenditures, or (iii) three (3)
years.
(J) "Person" shall mean an individual, trust, partnership, joint venture,
association, corporation, and any other entity.
(K) "Property" shall mean the Building, and any common or public areas or
facilities, easements, corridors, lobbies, sidewalks, loading areas, driveways,
landscaped areas, skywalks, parking garages and lots, and any and all other
structures or facilities operated or maintained in connection with or for the
benefit of the Building, and all parcels or tracts of land on which all or any
portion of the Building or any of the other foregoing items are located, and any
fixtures, machinery, equipment, apparatus, Systems and Equipment, furniture and
other personal property located thereon or therein and used in connection
therewith, whether title is held by Landlord or its affiliates. Possession of
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areas necessary for utilities, services, safety and operation of the Property,
including the Systems and Equipment (as defined in Article 25), fire stairways,
perimeter walls, space between the finished ceiling of the Premises and the slab
of the floor or roof of the Property thereabove, and the use thereof together
with the right to install, maintain, operate, repair and replace the Systems and
Equipment, including any of the same in, through, under or above the Premises in
locations that will not materially interfere with Tenant's use of the Premises,
are hereby excepted and reserved by Landlord, and not demised to Tenant. If the
Building shall be part of a complex, development or group of buildings or
structures collectively owned or managed by Landlord or its affiliates or
collectively managed by Landlord's managing agent, the Property shall, at
Landlord's option also be deemed to include such other of those buildings or
structures as Landlord shall from time to time designate, and shall initially
include such buildings and structures (and related facilities and parcels on
which the same are located) as Landlord shall have incorporated by reference to
the total square footage of the Property in Article 1.
(L) "Rent" shall have the meaning specified therefor in Article 3(G).
(M) "Systems and Equipment" shall mean any plant, machinery, transformers,
duct work, cable, wires, and other equipment, facilities, and systems designed
to supply heat, ventilation, air conditioning and humidity or any other services
or utilities, or comprising or serving as any component or portion of the
electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or
fire/life/safety systems or equipment, or any other mechanical, electrical,
electronic, computer or other systems or equipment for the Property.
(N) "Taxes" shall mean all federal, state, county, or local governmental or
municipal taxes, fees, charges or other impositions of every kind and nature,
whether general, special, ordinary or extraordinary, including without
limitation, real estate taxes, general and special assessments, transit taxes,
water and sewer rents, taxes based upon the receipt of rent including gross
receipts or sales taxes applicable to the receipt of rent or service or value
added taxes (unless required to be paid by Tenant under Article 17), personal
property taxes imposed upon the fixtures, machinery, equipment, apparatus,
Systems and Equipment, appurtenances, furniture and other personal property used
in connection with the Property which Landlord shall pay during any calendar
year, any portion of which occurs during the Term (without regard to any
different fiscal year used by such government or municipal authority) because of
or in connection with the ownership, leasing and operation of the Property.
Notwithstanding the foregoing, there shall
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be excluded from Taxes all excess profits taxes, franchise taxes, gift taxes,
capital stock taxes, inheritance and succession taxes, estate taxes, federal and
state income taxes, and other taxes to the extent applicable to Landlord's
general or net income (as opposed to rents, receipts or income attributable to
operations at the Property). If the method of taxation of real estate
prevailing at the time of execution hereof shall be, or has been altered, so as
to cause the whole or any part of the taxes now, hereafter, or heretofore
levied, assessed or imposed on real estate to be levied, assessed or imposed on
Landlord, wholly or partially, as a capital levy or otherwise, or on or measured
by the rents received therefrom, then such new or altered taxes attributable to
the Property shall be included within the term "Taxes," except that the same
shall not include any enhancement of said tax attributable to other income of
Landlord. Any expenses incurred by Landlord in attempting to protest, reduce or
minimize Taxes shall be included in Taxes in the calendar year such expenses are
paid. Tax refunds shall be deducted from Taxes in the year they are received by
Landlord, but if such refund shall relate to taxes paid in a prior year of the
Term, and the Lease shall have expired, Landlord shall mail Tenant's Prorata
Share of such net refund (after deducting expenses and attorneys' fees), up to
the amount Tenant paid towards Taxes during such year, to Tenant's last known
address. If Taxes for the Base Tax Year are reduced as the result of protest,
or by means of agreement, or as the result of legal proceedings or otherwise,
Landlord may adjust Tenant's obligations for Taxes in all years following the
Tax Base Year, and Tenant shall pay Landlord within 30 days after notice any
additional amount required by such adjustment for any such years or portions
thereof that have theretofore occurred. If Taxes for any period during the Term
or any extension thereof, shall be increased after payment thereof by Landlord,
for any reason including without limitation error or reassessment by applicable
governmental or municipal authorities, Tenant shall pay Landlord upon demand
Tenant's Prorata Share of such increased Taxes. Tenant shall pay increased
Taxes whether Taxes are increased as a result of increases in the assessments or
valuation of the Property (whether based on a sale, change in ownership or
refinancing of the Property or otherwise), increases in the tax rates, reduction
or elimination of any rollbacks or other deductions available under current law,
scheduled reductions of any tax abatement, as a result of the elimination,
invalidity or withdrawal of any tax abatement, or for any other cause
whatsoever. Notwithstanding the foregoing, if any Taxes shall be paid based on
assessments or bills by a governmental or municipal authority using a fiscal
year other than a calendar year, Landlord may elect to average the assessments
or bills for the subject calendar year, based on the number of months of such
calendar year included in each such assessment or bill.
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(O) "Tenant's Prorata Share" of Taxes and Operating Expenses shall be the
rentable area of the Premises divided by the rentable area of the Property on
the last day of the calendar year for which Taxes or Operating Expenses are
being determined, excluding any parking facilities. Tenant acknowledges that
the "rentable area of the Premises" under this Lease includes the usable area,
without deduction for columns or projections, multiplied by a load or conversion
factor, to reflect a share of certain areas, which may include lobbies,
corridors, mechanical, utility, janitorial, boiler and service rooms and
closets, restrooms, and other public, common and service areas. Except as
provided expressly to the contrary herein, the "rentable area of the Property"
shall include all rentable area of all space leased or available for lease at
the Property, which Landlord may reasonably re-determine from time to time, to
reflect re-configurations, additions or modifications to the Property. If the
Property or any development of which it is a part, shall contain non-office
uses, Landlord shall have the right to determine in accordance with sound
accounting and management principles, Tenant's Prorata Share of Taxes and
Operating Expenses for only the office portion of the Property or of such
development, in which event, Tenant's Prorata Share shall be based on the ratio
of the rentable area of the Premises to the rentable area of such office
portion. Similarly, if the Property shall contain tenants who do not
participate in all or certain categories of Taxes or Operating Expenses on a
prorata basis, Landlord may exclude the amount of Taxes or Operating Expenses,
or such categories of the same, as the case may be, attributable to such
tenants, and exclude the rentable area of their premises, in computing Tenant's
Prorata Share. If the Property shall be part of or shall include a complex,
development or group of buildings or structures collectively owned or managed by
Landlord or its affiliates or collectively managed by Landlord's managing agent,
Landlord may allocate Taxes and Operating Expenses within such complex,
development or group, and between such buildings and structures and the parcels
on which they are located, in accordance with sound accounting and management
principles. In the alternative, Landlord shall have the right to determine, in
accordance with sound accounting and management principles, Tenant's Prorata
Share of Taxes and Operating Expenses based upon the totals of each of the same
for all such buildings and structures, the land constituting parcels on which
the same are located, and all related facilities, including common areas and
easements, corridors, lobbies, sidewalks, elevators, loading areas, parking
facilities and driveways and other appurtenances and public areas, in which
event Tenant's Prorata Share shall be based on the ratio of the rentable area of
the Premises to the rentable area of all such buildings.
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ARTICLE 26
CONVEYANCE BY LANDLORD AND LIABILITY
In case Landlord or any successor owner of the Property or the
Building shall convey or otherwise dispose of any portion thereof in which the
Premises are located to another Person (and nothing herein shall be construed to
restrict or prevent such conveyance or disposition), such other Person shall
thereupon be and become landlord hereunder and shall be deemed to have fully
assumed and be liable for all obligations of this Lease to be performed by
Landlord which first arise after the date of conveyance, including the return of
any Security Deposit, and Tenant shall attorn to such other Person, and Landlord
or such successor owner shall, from and after the date of conveyance, be free of
all liabilities and obligations hereunder not then incurred. The liability of
Landlord to Tenant for any default by Landlord under this Lease or arising in
connection herewith or with Landlord's operation, management, leasing, repair,
renovation, alteration, or any other matter relating to the Property or the
Premises, shall be limited to the interest of Landlord in the Property (and the
rental proceeds thereof). Tenant agrees to look solely to Landlord's interest
in the Property (and the rental proceeds thereof) for the recovery of any
judgment against Landlord, and Landlord shall not be personally liable for any
such judgment or deficiency after execution thereon. The limitations of
liability contained in this Article shall apply equally and inure to the benefit
of Landlord's present and future partners, beneficiaries, officers, directors,
trustees, shareholders, agents and employees, and their respective partners,
heirs, successors and assigns. Under no circumstances shall any present or
future general or limited partner of Landlord (if Landlord is a partnership), or
trustee or beneficiary (if Landlord or any partner of Landlord is a trust) have
any liability for the performance of Landlord's obligations under this Lease.
Notwithstanding the foregoing to the contrary, Landlord shall have personal
liability for insured claims, beyond Landlord's interest in the Property (and
rental proceeds thereof), to the extent of Landlord's liability insurance
coverage available for such claims.
ARTICLE 27
INDEMNIFICATION
Except to the extent arising from the intentional or grossly negligent
acts of Landlord or Landlord's agents or employees, Tenant shall defend,
indemnify and hold harmless Landlord from and against any and all claims,
demands, liabilities, damages, judgments, orders, decrees, actions, proceedings,
fines, penalties, costs and expenses, including without limitation, court costs
and attorneys' fees arising
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from or relating to any loss of life, damage or injury to person, property or
business occurring in or from the Premises, or caused by or in connection with
any violation of this Lease or use of the Premises or Property by, or any other
act or omission of, Tenant, any other occupant of the Premises, or any of their
respective agents, employees, contractors or guests. Without limiting the
generality of the foregoing, Tenant specifically acknowledges that the indemnity
undertaking herein shall apply to claims in connection with or arising out of
any "Work" as described in Article 8, the installation, maintenance, use or
removal of any "Lines" located in or serving the Premises as described in
Article 29, and the transportation, use, storage, maintenance, generation,
manufacturing, handling, disposal, release or discharge of any "Hazardous
Material" as described in Article 30 (whether or not any of such matters shall
have been theretofor approved by Landlord), except to the extent that any of the
same arises from the intentional or grossly negligent acts of Landlord or
Landlord's agents or employees.
ARTICLE 28
SAFETY AND SECURITY DEVICES, SERVICES AND PROGRAMS
The parties acknowledge that safety and security devices, services and
programs provided by Landlord, if any, while intended to deter crime and ensure
safety, may not in given instances prevent theft or other criminal acts, or
ensure safety of persons or property. The risk that any safety or security
device, service or program may not be effective, or may malfunction, or be
circumvented by a criminal, is assumed by Tenant with respect to Tenant's
property and Tenant shall obtain insurance coverage to the extent Tenant desires
protection against such criminal acts and other losses, as further described in
Article 11. Tenant agrees to cooperate in any reasonable safety or security
program developed by Landlord or required by Law.
ARTICLE 29
COMMUNICATIONS AND COMPUTER LINES
Tenant may install, maintain, replace, remove or use any
communications or computer wires, cables and related devices (collectively the
"Lines") at the Property in or serving the Premises, provided: (a) Tenant shall
obtain Landlord's prior written consent, use an experienced and qualified
contractor approved in writing by Landlord, and comply with all of the other
provisions of Article 8, (b) any such installation, maintenance, replacement,
removal or use shall comply with all Laws applicable thereto and good work
practices, and shall not interfere with the use of any then existing Lines at
the
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Property, (c) an acceptable number of spare Lines and space for additional Lines
shall be maintained for existing and future occupants of the Property, as
determined in Landlord's reasonable opinion, (d) if Tenant at any time uses any
equipment that may create an electromagnetic field exceeding the normal
insulation ratings of ordinary twisted pair riser cable or cause radiation
higher than normal background radiation, the Lines therefor (including riser
cables) shall be appropriately insulated to prevent such excessive
electromagnetic fields or radiation, (e) as a condition to permitting the
installation of new Lines, Landlord may require that Tenant remove existing
Lines located in or serving the Premises, (f) Tenant's rights shall be subject
to the rights of any regulated telephone company, and (g) Tenant shall pay all
costs in connection therewith. Landlord reserves the right to require that
Tenant remove any Lines located in or serving the Premises which are installed
in violation of these provisions, or which are at any time in violation of any
Laws or represent a dangerous or potentially dangerous condition (whether such
Lines were installed by Tenant or any other party), within three (3) days after
written notice.
Landlord may (but shall not have the obligation to): (i) install new
Lines at the Property, (ii) create additional space for Lines at the Property,
and (iii) reasonably direct, monitor and/or supervise the installation,
maintenance, replacement and removal of, the allocation and periodic re-
allocation of available space (if any) for, and the allocation of excess
capacity (if any) on, any Lines now or hereafter installed at the Property by
Landlord, Tenant or any other party (but Landlord shall have no right to monitor
or control the information transmitted through such Lines). Such rights shall
not be in limitation of other rights that may be available to Landlord by Law or
otherwise. If Landlord exercises any such rights, Landlord may charge Tenant
for the costs attributable to Tenant, or may include those costs and all other
costs in Operating Expenses under Article 25 (including without limitation,
costs for acquiring and installing Lines and risers to accommodate new Lines and
spare Lines, any associated computerized system and software for maintaining
records of Line connections, and the fees of any consulting engineers and other
experts); provided, any capital expenditures included in Operating Expenses
hereunder shall be amortized (together with reasonable finance charges) over the
period of time prescribed by Article 25.
Notwithstanding anything to the contrary contained in Article 13,
Landlord reserves the right to require that Tenant remove any or all Lines
installed by or for Tenant within or serving the Premises upon termination of
this Lease, provided Landlord notifies Tenant prior to or within thirty (30)
days following such termination. Any Lines not required to be removed pursuant
to this Article shall, at Landlord's option, become the property of Landlord
(without payment by Landlord).
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<PAGE>
If Tenant fails to remove such Lines as required by Landlord, or violates any
other provision of this Article, Landlord may, after twenty (20) days written
notice to Tenant, remove such Lines or remedy such other violation, at Tenant's
expense (without limiting Landlord's other remedies available under this Lease
or applicable Law). Tenant shall not, without the prior written consent of
Landlord in each instance, grant to any third party a security interest or lien
in or on the Lines, and any such security interest or lien granted without
Landlord's written consent shall be null and void. Except to the extent arising
from the intentional or negligent acts of Landlord or Landlord's agents or
employees, Landlord shall have no liability for damages arising from, and
Landlord does not warrant that the Tenant's use of any Lines will be free from
the following (collectively called "Line Problems"): (x) any eavesdropping or
wire-tapping by unauthorized parties, (y) any failure of any Lines to satisfy
Tenant's requirements, or (z) any shortages, failures, variations,
interruptions, disconnections, loss or damage caused by the installation,
maintenance, replacement, use or removal of Lines by or for other tenants or
occupants at the Property, by any failure of the environmental conditions or the
power supply for the Property to conform to any requirements for the Lines or
any associated equipment, or any other problems associated with any Lines by any
other cause. Under no circumstances shall any Line Problems be deemed an actual
or constructive eviction of Tenant, render Landlord liable to Tenant for
abatement of Rent, or relieve Tenant from performance of Tenant's obligations
under this Lease. Landlord in no event shall be liable for damages by reason of
loss of profits, business interruption or other consequential damage arising
from any Line Problems.
ARTICLE 30
HAZARDOUS MATERIALS
Tenant shall not transport, use, store, maintain, generate,
manufacture, handle, dispose, release or discharge any "Hazardous Material" (as
defined below) upon or about the Property, or permit Tenant's employees, agents,
contractors, and other occupants of the Premises to engage in such activities
upon or about the Property. However, the foregoing provisions shall not
prohibit the transportation to and from, and use, storage, maintenance and
handling within, the Premises of substances customarily used in offices (or such
other business or activity expressly permitted to be undertaken in the Premises
under Article 6), provided: (a) such substances shall be used and maintained
only in such quantities as are reasonably necessary for such permitted use of
the Premises, strictly in accordance with applicable Law and the manufacturers'
instructions therefor, (b) such substances shall not be disposed of, released or
discharged on
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the Property, and shall be transported to and from the Premises in compliance
with all applicable Laws, and as Landlord shall reasonably require, (c) if any
applicable Law or Landlord's trash removal contractor requires that any such
substances be disposed of separately from ordinary trash, Tenant shall make
arrangements at Tenant's expense for such disposal directly with a qualified and
licensed disposal company at a lawful disposal site (subject to scheduling and
approval by Landlord), and shall ensure that disposal occurs frequently enough
to prevent unnecessary storage of such substances in the Premises, and (d) any
remaining such substances shall be completely, properly and lawfully removed
from the Property upon expiration or earlier termination of this Lease.
Tenant shall promptly notify Landlord of: (1) any enforcement,
cleanup or other regulatory action taken or threatened by any governmental or
regulatory authority with respect to the presence of any Hazardous Material on
the Premises or the migration thereof from or to other property, (ii) any
demands or claims made or threatened by any party against Tenant or the Premises
relating to any loss or injury resulting from any Hazardous Material, (iii) any
release, discharge or nonroutine, improper or unlawful disposal or
transportation of any Hazardous Material on or from the Premises, and (iv) any
matters where Tenant is required by Law to give a notice to any governmental or
regulatory authority respecting any Hazardous Material on the Premises.
Landlord shall have the right (but not the obligation) to join and participate
as a party in any legal proceedings or actions affecting the Premises initiated
in connection with any environmental, health or safety Law. At such times as
Landlord may reasonably request, Tenant shall provide Landlord with a written
list identifying any Hazardous Material then used, stored, or maintained upon
the Premises, the use and approximate quantity of each such material, a copy of
any material safety data sheet ("MSDS") issued by the manufacturer therefor,
written information concerning the removal, transportation and disposal of the
same, and such other information as Landlord may reasonably require or as may be
required by Law. The term "Hazardous Material" for purposes hereof shall mean
any chemical, substance, material or waste or component thereof which is now or
hereafter listed, defined or regulated as a hazardous or toxic chemical,
substance, material or waste or component thereof by any federal, state or local
governing or regulatory body having jurisdiction, or which would trigger any
employee or community "right-to-know" requirements adopted by any such body, or
for which any such body has adopted any requirements for the preparation or
distribution of an MSDS.
If any Hazardous Material is released, discharged or disposed of by
Tenant or any other occupant of the Premises, or their employees, agents or
contractors, on or about the
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Property in violation of the foregoing provisions, Tenant shall immediately,
properly and in compliance with applicable Laws clean up and remove the
Hazardous Material from the Property and any other affected property and clean
or replace any affected personal property (whether or not owned by Landlord), at
Tenant's expense. Such clean up and removal work shall be subject to Landlord's
prior written approval (except in emergencies), and shall include, without
limitation, any testing, investigation, and the preparation and implementation
of any remedial action plan required by any governmental body having
jurisdiction or reasonably required by Landlord. If Tenant shall fail to comply
with the provisions of this Article within five (5) days after written notice by
Landlord, or such shorter time as may be required by Law or in order to minimize
any hazard to Persons or property, Landlord may (but shall not be obligated to)
arrange for such compliance directly or as Tenant's agent through contractors or
other parties selected by Landlord, at Tenant's expense (without limiting
Landlord's other remedies under this Lease or applicable Law). If any Hazardous
Material is released, discharged or disposed of on or about the Property and
such release, discharge or disposal is not caused by Tenant or other occupants
of the Premises, or their employees, agents or contractors, such release,
discharge or disposal shall be deemed casualty damage under Article 10 to the
extent that the Premises or common areas serving the Premises are affected
thereby; in such case, Landlord and Tenant shall have the obligations and rights
respecting such casualty damage provided under Article 10.
ARTICLE 31
MISCELLANEOUS
(A) Each of the terms and provisions of this Lease shall be binding
upon and inure to the benefit of the parties hereto, their respective heirs,
executors, administrators, guardians, custodians, successors and assigns,
subject to the provisions of Article 21 respecting Transfers.
(B) Neither this Lease nor any memorandum of lease or short form lease
shall be recorded by Tenant.
(C) This Lease shall be construed in accordance with the Laws of the
state in which the Property is located.
(D) All obligations or rights of either party arising during or
attributable to the period ending upon expiration or earlier termination of this
Lease shall survive such expiration or earlier termination.
(E) Landlord agrees that, if Tenant timely pays the Rent and performs
the terms and provisions hereunder, and subject
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to all other terms and provisions of this Lease, Tenant shall hold and enjoy the
Premises during the Term, free of lawful claims by any Person acting by or
through Landlord.
(F) This Lease does not grant any legal rights to "light and air"
outside the Premises nor any particular view of cityscape visible from the
Premises.
(G) If the Commencement Date is delayed in accordance with Article 4
for more than one year, Landlord may declare this Lease null and void, and if
the Commencement Date is so delayed for more than seven years, this Lease shall
thereupon become null and void without further action by either party.
ARTICLE 32
OFFER
The submission and negotiation of this Lease shall not be deemed an
offer to enter the same by Landlord, but the solicitation of such an offer by
Tenant. Tenant agrees that its execution of this Lease constitutes a firm offer
to enter the same which may not be withdrawn for a period of 30 days after
delivery to Landlord (or such other period as may be expressly provided in any
other agreement signed by the parties). During such period and in reliance on
the foregoing, Landlord may, at Landlord's option (and shall, if required by
applicable Law), deposit any security deposit and Rent, and proceed with any
plans, specifications, alterations or improvements, and permit Tenant to enter
the Premises, but such acts shall not be deemed an acceptance of Tenant's offer
to enter this Lease, and such acceptance shall be evidenced only by Landlord
signing and delivering this Lease to Tenant.
ARTICLE 33
NOTICES
Except as expressly provided to the contrary in this Lease, every
notice or other communication to be given by either party to the other with
respect hereto or to the Premises or Property, shall be in writing and shall not
be effective for any purpose unless the same shall be served personally or by
national air courier service, or United States certified mail, return receipt
requested, postage prepaid, addressed, if to Tenant, at the address first set
forth in the Lease, until the Commencement Date, and thereafter to the Tenant at
the Premises, and if to Landlord, at the address at which the last payment of
Rent was required to be made and to AGF 4041 Limited Partnership, 4041 North
Central Avenue, Suite 101, Phoenix, Arizona 85012 or such other address or
addresses as Tenant or Landlord may from time
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to time designate by notice given as above provided. Every notice or other
communication hereunder shall be deemed to have been given as of the third
business day following the date of such mailing (or as of any earlier date
evidenced by a receipt from such national air courier service or the United
States Postal Service) or immediately if personally delivered. Notices not sent
in accordance with the foregoing shall be of no force or effect until received
by the foregoing parties at such addresses required herein.
ARTICLE 34
REAL ESTATE BROKERS
Tenant represents that Tenant has dealt only with PM Realty
----------------
Group, and Marcus & Millichap (whose commission, if any, shall be
- --------------------------------------------
paid by Landlord pursuant to separate agreement) as broker, agent or finder in
connection with this Lease and agrees to indemnify and hold Landlord harmless
from all damage, judgments, liabilities and expenses (including reasonable
attorneys' fees) arising from any claims or demands of any other broker, agent
or finder with whom Tenant has dealt for any commission or fee alleged to be due
in connection with its participation in the procurement of Tenant or the
negotiation with Tenant of this Lease.
ARTICLE 35
Security Deposit
Tenant shall deposit with Landlord the amount of $ 22,736.88
----------
("Security Deposit"), upon Tenant's execution and submission of this Lease. The
Security Deposit shall serve as security for the prompt, full and faithful
performance by Tenant of the terms and provisions of this Lease. In the event
that Tenant is in Default hereunder and fails to cure within any applicable time
permitted under this Lease, or in the event that Tenant owes any amounts to
Landlord upon the expiration of this Lease, Landlord may use or apply the whole
or any part of the Security Deposit for the payment of Tenant's obligations
hereunder. The use or application of the Security Deposit or any portion
thereof shall not prevent Landlord from exercising any other right or remedy
provided hereunder or under any Law and shall not be construed as liquidated
damages. In the event the Security Deposit is reduced by such use or
application. Tenant shall deposit with Landlord within ten (10) days after
written notice, an amount sufficient to restore the full amount of the Security
Deposit. Landlord shall not be required to keep the Security Deposit separate
from Landlord's general funds or pay interest on the Security Deposit. Any
remaining portion of
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the Security Deposit shall be returned to Tenant within sixty (60) days after
Tenant has vacated the Premises in accordance with Article 13. If the Premises
shall be expanded at any time, or if the Term shall be extended at an increased
rate of Rent, the Security Deposit shall thereupon be proportionately increased.
ARTICLE 36
ENTIRE AGREEMENT
This Lease, together with Riders One through Four and Exhibit A and
------
the documents captioned Parking Agreement
-------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------ (WHICH COLLECTIVELY
ARE HEREBY INCORPORATED WHERE REFERRED TO HEREIN AND MADE A PART HEREOF AS
THOUGH FULLY SET FORTH), contains all the terms and provisions between Landlord
and Tenant relating to the matters set forth herein and no prior or
contemporaneous agreement or understanding pertaining to the same shall be of
any force or effect, except any such contemporaneous agreement specifically
referring to and modifying this Lease, signed by both parties. Without
limitation as to the generality of the foregoing, Tenant hereby acknowledges and
agrees that Landlord's leasing agents and field personnel are only authorized to
show the Premises and negotiate terms and conditions for leases subject to
Landlord's final approval, and are not authorized to make any agreements,
representations, understandings or obligations, binding upon Landlord,
respecting the condition of the Premises or Property, suitability of the same
for Tenant's business, or any other matter, and no such agreements,
representations, understandings or obligations not expressly contained herein or
in such contemporaneous agreement shall be of any force or effect. Neither this
Lease, nor any Riders or
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Exhibits referred to above may be modified, except in writing signed by both
parties.
WITNESSES: ATTESTATION
(Two for each signatory
required if Property is
in Florida or Ohio):
________________________ LANDLORD: AGF 4041 LIMITED
PARTNERSHIP, a Texas
limited partnership
________________________ BY: Addison AGF, Inc.,
a Texas corporation,
General Partner
BY:
--------------------------------
Abraham Azoulay
President
________________________ TENANT: Interactive Flight
Technologies, Inc., a
Delaware corporation
________________________ BY:
---------------------------------
NAME TYPED: Michail Itkis
---------------------------
TITLE: C.E.O.
---------------------------
CERTIFICATE
(If Tenant is a Corporation)
I, , Secretary of Interactive
------------------------------- ----------------------
Flight Technologies, Inc. , Tenant, hereby certify that the
- ---------------------------------------
officer(s) executing the foregoing Lease on behalf of Tenant was/were duly
authorized to act in his/their capacities as _________________ and
______________, and his/their action(s) are the action of Tenant.
(Corporate Seal) --------------------------------
Secretary
IF TENANT PAYS FOR ALL ELECTRICITY IN PREMISES, OR FOR
---
SEPARATE HVAC, E.G. BASED ON SUB-METERS, USE RIDER 112,
112A OR 112B.
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RIDER ONE
RULES
(1) On Saturdays, Sundays and Holidays, and on other days between the hours
of 6:00 P.M. and 8:00 A.M the following day, or such other hours as Landlord
shall determine from time to time, access to the Property and/or to the
passageways, entrances, exits, shipping areas, halls, corridors, elevators or
stairways and other areas in the Property may be restricted and access gained by
use of a key to the outside doors of the Property, or pursuant to such security
procedures Landlord may from time to time impose. All such areas, and all
roofs, are not for use of the general public and Landlord shall in all cases
retain the right to control and prevent access thereto by all persons whose
presence in the judgment of Landlord shall be prejudicial to the safety,
character, reputation and interests of the Property and its tenants provided,
however, that nothing herein contained shall be construed to prevent such access
to persons with whom Tenant deals in the normal course of Tenant's business
unless such persons are engaged in activities which are illegal or violate these
Rules. No Tenant and no employee or invitee of Tenant shall enter into areas
reserved for the exclusive use of Landlord, its employees or invitees. Tenant
shall keep doors to corridors and lobbies closed except when persons are
entering or leaving.
(2) Tenant shall not paint, display, inscribe, maintain or affix any sign,
placard, picture, advertisement, name, notice, lettering or direction on any
part of the outside or inside of the Property, or on any part of the inside of
the Premises which can be seen from the outside of the Premises, without the
prior consent of Landlord, and then only such name or names or matter and in
such color, size, style, character and material as may be first approved by
Landlord in writing. Landlord shall prescribe the suite number and
identification sign for the Premises (which shall be prepared and installed by
Landlord at Tenant's expense). Landlord reserves the right to remove at
Tenant's expense all matter not so installed or approved without notice to
Tenant.
(3) Tenant shall not in any manner use the name of the Property for any
purpose other than that of the business address of the Tenant, or use any
picture or likeness of the Property, in any letterheads, envelopes, circulars,
notices, advertisements, containers or wrapping material without Landlord's
express consent in writing.
(4) Tenant shall not place anything or allow anything to be placed in the
Premises near the glass of any door, partition, wall or window which may be
unsightly from outside the Premises, and Tenant shall not place or permit to be
placed any article of any kind on any window ledge or on the
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exterior walls. Blinds, shades, awnings or other forms of inside or outside
window ventilators or similar devices, shall not be placed in or about the
outside windows in the Premises except to the extent, if any, that the
character, shape, color, material and make thereof is first approved by the
Landlord.
(5) Furniture, freight and other large or heavy articles, and all other
deliveries may be brought into the Property only at times and in the manner
designated by Landlord, and always at the Tenant's sole responsibility and risk.
Landlord may impose reasonable charges for use of freight elevators after or
before normal business hours. All damage done to the Property by moving or
maintaining such furniture, freight or articles shall be repaired by Landlord at
Tenant's expense. Landlord may inspect items brought into the Property or
Premises with respect to weight or dangerous nature. Landlord may require that
all furniture, equipment, cartons and similar articles removed from the Premises
or the Property be listed and a removal permit therefor first be obtained from
Landlord. Tenant shall not take or permit to be taken in or out of other
entrances or elevators of the Property, any item normally taken, or which
Landlord otherwise reasonably requires to be taken, in or out through service
doors or on freight elevators. Tenant shall not allow anything to remain in or
obstruct in any way, any lobby, corridor, sidewalk, passageway, entrance, exit,
hall, stairway, shipping area, or other such area. Tenant shall move all
supplies, furniture and equipment as soon as received directly to the Premises,
and shall move all such items and waste (other than waste customarily removed by
Property employees) that are at any time being taken from the Premises directly
to the areas designated for disposal. Any hand-carts used at the Property shall
have rubber wheels.
(6) Tenant shall not overload any floor or part thereof in the Premises, or
Property, including any public corridors or elevators therein bringing in or
removing any large or heavy articles, and Landlord may direct and control the
location of safes and all other heavy articles and require supplementary
supports at Tenant's expense of such material and dimensions as Landlord may
deem necessary to properly distribute the weight.
(7) Tenant shall not attach or permit to be attached additional locks or
similar devices to any door or window, change existing locks or the mechanism
thereof, or make or permit to be made any keys for any door other than those
provided by Landlord. If more than two keys for one lock are desired, Landlord
will provide them upon payment therefor by Tenant. Tenant, upon termination of
its tenancy, shall deliver to the Landlord all keys of offices, rooms and toilet
rooms which have been furnished Tenant or which the Tenant
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shall have had made, and in the event of loss of any keys so furnished shall pay
Landlord therefor.
(8) If Tenant desires signal, communication, alarm or other utility or
similar service connections installed or changed, Tenant shall not install or
change the same without the prior approval of Landlord, and then only under
Landlord's direction at Tenant's expense. Tenant shall not install in the
Premises any equipment which requires more electric current than Landlord is
required to provide under this Lease, without Landlord's prior approval, and
Tenant shall ascertain from Landlord the maximum amount of load or demand for or
use of electrical current which can safely be permitted in the Premises, taking
into account the capacity of electric wiring in the Property and the Premises
and the needs of tenants of the Property, and shall not in any event connect a
greater load than such safe capacity.
(9) Tenant shall not obtain for use upon the Premises ice, drinking water,
towel, janitor and other similar services, except from Persons approved by the
Landlord. Any Person engaged by Tenant to provide janitor or other services
shall be subject to direction by the manager or security personnel of the
Property.
(10) The toilet rooms, urinals, wash bowls and other such apparatus shall
not be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of this
Rule shall be borne by the Tenant who, or whose employees or invitees shall have
caused it.
(11) The janitorial closets, utility closets, telephone closets, broom
closets, electrical closets, storage closets, and other such closets, rooms and
areas shall be used only for the purposes and in the manner designated by
Landlord, and may not be used by tenants, or their contractors, agents,
employees, or other parties without Landlord's prior written consent.
(12) Landlord reserves the right to exclude or expel from the Property any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules. Tenant shall not at any time manufacture, sell, use or give away,
any spirituous, fermented, intoxicating or alcoholic liquors on the Premises,
nor permit any of the same to occur (except in connection with occasional social
or business events conducted in the Premises which do not violate any Laws nor
bother or annoy any other tenants). Tenant shall not at any time sell, purchase
or give away, food in any form by or to any of Tenant's agents or employees or
any other parties on the Premises nor permit any of the same to occur
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(other than in lunch rooms or kitchens for employees as may be permitted or
installed by Landlord, which does not violate any Laws or bother or annoy any
other tenant).
(13) Tenant shall not make any room-to-room canvass to solicit business or
information or to distribute any article or material to or from other tenants or
occupants of the Property and shall not exhibit, sell or offer to sell, use,
rent or exchange any products or services in or from the Premises unless
ordinarily embraced within the Tenant's use of the Premises specified in the
Lease.
(14) Tenant shall not waste electricity, water, heat or air conditioning or
other utilities or services, and agrees to cooperate fully with Landlord to
assure the most effective and energy efficient operation of the Property and
shall not allow the adjustment (except by Landlord's authorized Property
personnel) of any controls. Tenant shall keep corridor doors closed and shall
not open any windows, except that if the air circulation shall not be in
operation, windows which are operable may be opened with Landlord's consent. As
a condition to claiming any deficiency in the air-conditioning or ventilation
services provided by Landlord, Tenant shall close any blinds or drapes in the
Premises to prevent or minimize direct sunlight.
(15) Tenant shall conduct no auction, fire or "going out of business sale"
or bankruptcy sale in or from the Premises, and such prohibition shall apply to
Tenant's creditors.
(16) Tenant shall cooperate and comply with any reasonable safety or
security programs, including fire drills and air raid drills, and the
appointment of "fire wardens" developed by Landlord for the Property, or
required by Law. Before leaving the Premises unattended, Tenant shall close and
securely lock all doors or other means of entry to the Premises and shut off all
lights and water faucets in the Premises (except heat to the extent necessary to
prevent the freezing or bursting of pipes).
(17) Tenant will comply with all municipal, county, state, federal or other
government laws, statutes, codes, regulations and other requirements, including
without limitation, environmental, health, safety and police requirements and
regulations respecting the Premises, now or hereinafter in force, at its sole
cost, and will not use the Premises for any immoral purposes.
(18) Tenant shall not (i) carry on any business, activity or service except
those ordinarily embraced within the permitted use of the Premises specified in
the Lease and more particularly, but without limiting the generality of the
foregoing, shall not (ii) install or operate any internal combustion engine,
boiler, machinery, refrigerating, heating
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or air conditioning equipment in or about the Premises, (iii) use the Premises
for housing, lodging or sleeping purposes or for the washing of clothes, (iv)
place any radio or television antennae other than inside of the Premises, (v)
operate or permit to be operated any musical or sound producing instrument or
device which may be heard outside the Premises, (vi) use any source of power
other than electricity, (vii) operate any electrical or other device from which
may emanate electrical or other waves which may interfere with or impair radio,
television, microwave, or other broadcasting or reception from or in the
Property or elsewhere, (viii) bring or permit any bicycle or other vehicle, or
dog (except in the company of a blind person or except where specifically
permitted) or other animal or bird in the Property, (ix) make or permit
objectionable noise or odor to emanate from the Premises, (x) do anything in or
about the Premises tending to create or maintain a nuisance or do any act
tending to injure the reputation of the Property, (xi) throw or permit to be
thrown or dropped any article from any window or other opening in the Property,
(xii) use or permit upon the Premises anything that will invalidate or increase
the rate of insurance on any policies of insurance now or hereafter carried on
the Property or violate the certificates of occupancy issued for the premises or
the Property, (xiii) use the Premises for any purpose, or permit upon the
Premises anything, that may be dangerous to persons or property (including but
not limited to flammable oils, fluids, paints, chemicals, firearms or any
explosive articles or materials) nor (xiv) do or permit anything to be done upon
the Premises in any way tending to disturb any other tenant at the Property or
the occupants of neighboring property.
(19) If the Property shall now or hereafter contain a building garage,
parking structure or other parking area or facility, the following Rules shall
apply in such areas or facilities:
(i) Parking shall be available in areas designated generally for
tenant parking, for such daily or monthly charges as Landlord may establish from
time to time, or as may be provided in any Parking Agreement attached hereto
(which, when signed by both parties as provided therein, shall thereupon become
effective). In all cases, parking for Tenant and its employees and visitors
shall be on a "first come, first served," unassigned basis, with Landlord and
other tenants at the Property, and their employees and visitors, and other
Persons (as defined in Article 25 of the Lease) to whom Landlord shall grant the
right or who shall otherwise have the right to use the same, all subject to
these Rules, as the same may be amended or supplemented, and applied on a non-
discriminatory basis, all as further described in Article 6 of the Lease.
Notwithstanding the foregoing to the contrary, Landlord reserves the right to
assign specific spaces, and to reserve spaces for visitors, small cars,
handicapped
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individuals, and other tenants, visitors of tenants or other Persons, and Tenant
and its employees and visitors shall not park in any such assigned or reserved
spaces. Landlord may restrict or prohibit full size vans and other large
vehicles.
(ii) In case of any violation of these provisions, Landlord may
refuse to permit the violator to park, and may remove the vehicle owned or
driven by the violator from the Property without liability whatsoever, at such
violator's risk and expense. Landlord reserves the right to close all or a
portion of the parking areas or facilities in order to make repairs or perform
maintenance services, or to alter, modify, re-stripe or renovate the same, or if
required by casualty, strike, condemnation, act of God, Law or governmental
requirement, or any other reason beyond Landlord's reasonable control. In the
event access is denied for any reason, any monthly parking charges shall be
abated to the extent access is denied, as Tenant's sole recourse. Tenant
acknowledges that such parking areas or facilities may be operated by an
independent contractor not affiliated with Landlord, and Tenant acknowledges
that in such event, Landlord shall have no liability for claims arising through
acts or omissions of such independent contractor, if such contractor is
reputable.
(iii) Hours shall be 6 A.M. to 8 P.M., Monday through Friday, and
10:00 A.M. to 1:00 P.M. on Saturdays, or such other hours as may be reasonably
established by Landlord or its parking operator from time to time; cars must be
parked entirely within the stall lines, and only small cars may be parked in
areas reserved for small cars; all directional signs and arrows must be
observed; the speed limit shall be 5 miles per hour; spaces reserved for
handicapped parking must be used only by vehicles properly designated; every
parker is required to park and lock his own car; washing, waxing, cleaning or
servicing of any vehicle is prohibited; parking spaces may be used only for
parking automobiles; parking is prohibited in areas: (a) not striped or
designated for parking, (b) aisles, (c) where "no parking" signs are posted, (d)
on ramps, and (e) loading areas and other specially designated areas. Delivery
trucks and vehicles shall use only those areas designated therefor.
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RIDER TWO
Notwithstanding anything to the contrary contained in the Lease, the
parties agree that Operating Expenses for the Base Expense Year (herein called
"Base Year Expenses") and for any subsequent year (herein called "Subsequent
Year Expenses") shall be subject to further adjustment by Landlord as follows:
(i) Landlord may exclude from Base Year Expenses capital
expenditures otherwise permitted under Article 25 of the Lease (provided,
Landlord shall also exclude any amortization of such expenditures from
Subsequent Year Expenses).
(ii) If Landlord eliminates from any Subsequent Year Expenses a
recurring category of expenses previously included in Base Year Expenses,
Landlord may subtract such category from Base Year Expenses commencing with such
subsequent year.
(iii) If Landlord includes a new recurring category of Subsequent
Year Expenses not previously included in Base Year Expenses, Landlord shall also
include an amount (the "Assumed Base Amount") for such category in Base Year
Expenses commencing in such subsequent year.
(iv) The "Assumed Base Amount" under clause (iii), above, shall be
the annualized amount of expenses for such new category in the first year it is
included reduced by an amount determined in Landlord's sole, good faith, opinion
but in no event less than five percent (5%) for each full or partial calendar
year that has elapsed during the Term of the Lease before such year.
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RIDER THREE
EXPANSION OF PREMISES
Reference is hereby made to the Sublease and Consent of even date herewith
executed by and among Arizona Physicians IPA, Inc., an Arizona corporation
("IPA"), Tenant, and Landlord (the "Sublease") pertaining to the Expansion Space
as defined and described in the Sublease (the "Expansion Space"). Effective as
of November 1, 1998 (the "Expansion Date"), the Expansion Space shall be added
to the Premises and be covered by this Lease throughout the remainder of the
Term of this Lease; provided, however, that the Base Rent payable for the
Expansion Space in the amount of THIRTY-SIX THOUSAND ONE HUNDRED THIRTY-EIGHT
and 96/100 ($36,138.96) shall be paid in addition to the Base Rent payable for
the Premises (as it existed immediately prior to the addition of the Expansion
Space). The Tenant's Prorata Share of Taxes and Operating Expenses shall be
appropriately escalated to reflect the increase in rentable area by the addition
of the Expansion Space and the appropriate increases in Base Rent and percent of
Tenant's Prorata Share shall apply as of the Expansion Date and thereafter
throughout the remainder of the Term. As of the Expansion Date, Landlord hereby
agrees to provide Tenant up to but not exceeding 20 non-building standard hours
of heating, ventilation and air conditioning services per week for the Expansion
Space only. Notwithstanding the forgoing, under no circumstances shall Landlord
be required to pay any amounts for such services exceeding Thirty Thousand Three
Hundred and 00/100 Dollars ($30,300.00) (the "HVAC Cap") for the remainder of
the Term. No unused portion of the HVAC Cap existing at the end of the Term
shall be applied to or setoff against Base Rent, additional rent or other
amounts due to Landlord under this Lease. All amounts above the HVAC Cap or
usage of heating, ventilation or air conditioning services of more than 20 non-
building standard hours per week shall be the responsibility of and shall be
paid by Tenant to Landlord together with amounts of base rent and other amounts
due under this Lease and Tenant's failure to pay such amounts shall constitute a
default under this Lease as in the event of the failure to pay Base Rent.
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RIDER FOUR
NON-BUILDING STANDARD HOURS HVAC SERVICES
All heating, ventilation and air conditioning services for non-Building
Standard Hours on Saturdays must be requested by 3:00 p.m. on the preceding
business day. Subject to the terms of Rider Three hereof regarding the HVAC
Cap, heating, ventilation and air conditioning services for hours other than the
Building Standard Hours may be made available for a charge calculated as
follows:
Initial Suite activated: $45 per hour for the first hour and $40
per hour thereafter.
Each additional Suite activated: $7.00 per hour per Suite.
All charges for non-Building Standard Hours HVAC services shall be payable by
Tenant upon receipt of the invoice from Landlord for such services.
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PARKING AGREEMENT
THIS AGREEMENT made as of the ____ day of July , 1996 , between
-------------- ---
AGF 4041 LIMITED PARTNERSHIP, a Texas Limited Partnership ("Landlord") and
- ----------------------------------------------------------
Interactive Flight Technologies, Inc., a Delaware corporation ("Tenant").
- -------------------------------------------------------------
1. The parties hereby acknowledge that they have heretofore entered, or
are contemporaneously herewith entering, a certain lease dated July
----------------
, 1996 (the "Lease") for premises known as Suite(s) 2000 (the
--- --------------
"Premises") located in the property known as 4041 North Central
----------------------------
Avenue, Phoenix, Arizona 85012 (the "Property"). In the event
- ----------------------------------------------
of any conflict between the Lease and this Agreement, the latter shall control.
2. Landlord hereby grants to Tenant and persons designated by Tenant a
License to use up to seven (7) parking spaces in/*/ the Property Garage,
-----------------------
and ________ parking spaces in or on the parking structure located to the east
--------------------------------------
of the Building (collectively referred to herein as the
- -------------------------------------
"Garage"). The Term of such license shall commence on the Commencement Date
under the Lease and shall continue until the earlier to occur of the Expiration
Date under the Lease, or termination of the Lease or Tenant's abandonment of the
Premises thereunder. During the Term of this license, Tenant shall pay Landlord
the monthly charges established from time to time by Landlord for parking in the
Garage, payable in advance, with Tenant's payment of monthly Base Rent. The
initial charge for such spaces is $ /**/ , per space, per month, or a
--------------
total monthly charge of $ /***/ , for all such spaces. No deductions from
-------------
the monthly charge shall be made for days on which the Garage is not used by
Tenant. However, Tenant may reduce the number of parking spaces hereunder, at
any time, by providing at least thirty (30) days advance written notice to
Landlord, accompanied by any key-card, sticker or other identification or
entrance system provided by Landlord or its parking contractor; such
cancellation shall be irrevocable. Tenant may, from time to time, request
additional parking spaces, and
- -------------------
/*/ covered reserved parking in the Property Garage (Parking Structure), plus
up to Sixty-Four (64) in random (first come, first served), unreserved,
covered or roof top parking spaces
/**/ $45.00, plus tax per month per covered, reserved space, plus $35.00, plus
tax per month per random, unreserved, covered space, plus $25.00, plus tax
/***/ , to be and as calculated by Landlord from time to time
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if Landlord shall provide the same, such spaces shall be provided and used on a
month-to-month basis, and otherwise on the foregoing terms and provisions, and
such monthly parking charges as Landlord shall establish from time to time.
3. Tenant shall at all times comply with all applicable ordinances,
rules, regulations, codes, laws, statutes and requirements of all federal,
state, county and municipal governmental bodies or their subdivisions respecting
the use of the Garage. Landlord reserves the right to adopt, modify and enforce
reasonable Rules governing the use of the Garage from time to time, including
any key-card, sticker or other identification or entrance system, and hours of
operation. The Rules set forth hereinafter are currently in effect. Landlord
may refuse to permit any person who violates such Rules to park in the Garage,
and any violation of the Rules shall subject the car to removal from the Garage.
4. The parking spaces hereunder shall be provided on an unreserved
"first-come, first-served" basis. Tenant acknowledges that Landlord has or may
arrange for the Garage to be operated by an independent contractor, not
affiliated with Landlord. In such event, Tenant acknowledges that Landlord
shall have no liability for claims arising through acts or omissions of such
independent contractor, if such contractor is reputable. Except for intentional
acts or gross negligence, Landlord shall have no liability whatsoever for any
damage to property or any other items located in the Garage, nor for any
personal injuries or death arising out of any matter relating to the Garage, and
in all events, Tenant agrees to look first to its insurance carrier and to
require that Tenant's employees look first to their respective insurance
carriers for payment of any losses sustained in connection with any use of the
Garage. Tenant hereby waives on behalf of its insurance carriers all rights of
subrogation against Landlord or Landlord's agents. Landlord reserves the right
to assign specific spaces, and to reserve spaces for visitors, small cars,
handicapped persons and for other tenants, guests of tenants or other parties,
and Tenant and persons designated by Tenant hereunder shall not park in any such
assigned or reserved spaces. Landlord also reserves the right to close all or
any portion of the Garage in order to make repairs or perform maintenance
services, or to alter, modify, re-stripe or renovate the Garage, or if required
by casualty, strike, condemnation, act of God, governmental law or requirement
or other reason beyond Landlord's reasonable control. In such event, Landlord
shall refund any prepaid parking rent hereunder, prorated on a per diem basis.
If, for any other reason, Tenant or persons properly designated by Tenant, shall
be denied access to the Garage, and Tenant or such persons shall have complied
with this Agreement and this Agreement shall be in effect, Landlord's liability
shall be limited to such parking charges (excluding tickets for parking
violations) incurred by Tenant or such persons in utilizing
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alternative parking, which amount Landlord shall pay upon presentation of
documentation supporting Tenant's claims in connection therewith.
5. If Tenant shall default under this Agreement, Landlord shall have the
right to remove from the Garage any vehicles hereunder which shall have been
involved or shall have been owned or driven by parties involved in causing such
default, without liability therefor whatsoever. In addition, if Tenant shall
default under this Agreement, Landlord shall have the right to cancel this
Agreement on ten days' written notice, unless within such ten day period, Tenant
cures such default. If Tenant defaults with respect to the same term or
condition under this Agreement more than three times during any twelve month
period, and Landlord notifies Tenant thereof promptly after each such default,
the next default of such term or condition during the succeeding twelve month
period, shall, at Landlord's election, constitute an incurable default. Such
cancellation right shall be cumulative and in addition to any other rights or
remedies available to Landlord at law or equity, or provided under the Lease
(all of which rights and remedies under the Lease are hereby incorporated
herein, as though fully set forth). Any default by Tenant under the Lease shall
be a default under this Agreement, and any default under this Agreement shall be
a default under the Lease.
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RULES
(i) Garage hours shall be 6 A.M. to 8 P.M. or such other hours as
Landlord shall determine from time to time.
(ii) Cars must be parked entirely within the stall lines painted on
the floor, and only small cars may be parked in areas reserved for small cars.
(iii) All directional signs and arrows must be observed.
(iv) The speed limit shall be 5 miles per hour.
(v) Spaces reserved for handicapped parking must be used only by
vehicles properly designated.
(vi) Parking is prohibited in all areas not expressly designated for
parking, including without limitation:
(a) areas not striped for parking
(b) aisles
(c) where "no parking" signs are posted
(d) ramps
(e) loading zones
(vii) Parking stickers, key cards or any other devices or forms of
identification or entry supplied by Landlord shall remain the property of
Landlord. Such devices must be displayed as requested and may not be mutilated
in any manner. The serial number of the parking identification device may not
be obliterated. Devices are not transferable and any device in the possession
of an unauthorized holder will be void.
(viii) Monthly fees shall be payable in advance prior to the first day
of each month. Failure to do so will automatically cancel parking privileges
and a charge at the prevailing daily parking rate will be due. No deductions or
allowances from the monthly rate will be made for days on which the Garage is
not used by Tenant or its designees.
(ix) Garage managers or attendants are not authorized to make or allow
any exceptions to these Rules.
(x) Every parker is required to park and lock his own car.
(xi) Loss or theft of parking identification, key cards or other such
devices must be reported to Landlord or any garage manager immediately. Any
parking devices reported lost
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or stolen found on any unauthorized car will be confiscated and the illegal
holder will be subject to prosecution. Lost or stolen devices found by Tenant
or its employees must be reported to the office of the garage immediately.
(xii) Washing, waxing, cleaning or servicing of any vehicle by the
customer and/or his agents is prohibited. Parking spaces may be used only for
parking automobiles.
(xiii) By signing this Parking Agreement, Tenant agrees to acquaint all
persons to whom Tenant assigns parking space of these Rules.
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EXHIBIT 10.11
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
June 27, 1996, is made by and between 44th Street and Van Buren Limited
Partnership ("LESSOR") and Interactive Flight Technologies, Inc. a Delaware
Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 222 North 44th Street, Phoenix, located in the
County of Maricopa, State of Arizona, and generally described as (describe
briefly the nature of the property) an approximately 17,524 sq. ft. building
situated on approximately 1.3 acres of land ("PREMISES"). (See Paragraph 2 for
further provisions.)
1.3 TERM: three (3) years and 0 months ("ORIGINAL TERM") commencing
July 10, 1996 ("COMMENCEMENT DATE") and ending July 9, 1999 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: _________________________ ("EARLY POSSESSION
DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $8,411.52 + rental tax per month ("BASE RENT"), payable
on the first (1st) day of each month commencing July 1, 1996. (See Paragraph 4
for further provisions.)
[ ] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $5,877.62 as Base Rent for the
period July 1996, including current rental tax which is 3.15% and subject to
change from time to time.
1.7 SECURITY DEPOSIT: $8,676.48 ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: Office, assembly and shipping of computer devices
and related legal uses. (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
<PAGE>
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes): DAUM
Commercial Real Estate Services represents [X] Lessor exclusively ("LESSOR'S
BROKER"); [_] both Lessor and Lessee, and Grubb & Ellis Company represents [X]
Lessee exclusively ("LESSEE'S BROKER"); [_] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by Interactive Flight Technologies Inc. ("GUARANTOR"). (See
Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs _____ through _____ and Exhibits _______________ all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not
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comply with said warranty, Lessor shall, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify the same at
Lessor's expense. If Lessee does not give Lessor written notice of a non-
compliance with this warranty within six (6) months following the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as
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otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the
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Base Rent as those amounts are specified in the Basic Provisions. Lessor shall
not be required to keep all or any part of the Security Deposit separate from
its general accounts. Lessor shall, at the expiration or earlier termination of
the term hereof and after Lessee has vacated the Premises, return to Lessee (or,
at Lessor's option, to the last assignee, if any, of Lessee's interest herein),
that portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security Deposit
shall be considered to be held in trust, to bear interest or other increment for
its use, or to be prepayment for any moneys to be paid by Lessee under this
Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of
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Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessee's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its consent
to the use or presence of any Hazardous Substance, activity or storage tank by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the installation
(and removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities,
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judgments, costs, claims, liens, expenses, penalties, permits and attorney's and
consultant's fees arising out of or involving any Hazardous Substance or storage
tank brought onto the Premises by or for Lessee or under Lessee's control.
Lessee's obligations under this Paragraph 6 shall include, but not be limited
to, the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultant's and attorney's fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances or storage tanks, unless specifically so agreed by Lessor
in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in
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connection therewith and/or to advise Lessor with respect to Lessee's
activities, including but not limited to the installation, operation, use,
monitoring, maintenance, or removal of any Hazardous Substance or storage tank
on or from the Premises. The costs and expenses of any such inspections shall
be paid by the party requesting same, unless a Default or Breach of this Lease,
violation of Applicable Law, or a contamination, caused or materially
contributed to by Lessee is found to exist or be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may
be, for the costs and expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty
as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control.
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Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non-structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms
of this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of
any statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall
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mean any modification of the improvements on the Premises from that which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessor may (but without
obligations to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the
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same and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory
to Lessor in an amount equal to one and one-half times the amount of such
contested lien claim or demand, indemnifying Lessor against liability for the
same, as required by law for the holding of the Premises free from the effect of
such lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorney's fees and costs in participating in such action if Lessor shall decide
it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and alterations and/or utility
installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be
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removed by Lessee subject to its obligation to repair and restore the Premises
per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee
is the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES"
Endorsement and contain the "AMENDMENT OF THE POLLUTION EXCLUSION" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or
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damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the event
of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises,
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the Lessee shall pay for any increase in the premiums for the property insurance
of such building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide Lessor
with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+.V., or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancelable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If
the Insuring Party shall fail to procure and maintain the insurance required to
be carried by the Insuring Party under this Paragraph 8, the other Party may,
but shall not be required to, procure and maintain the same, but at Lessee's
expense.
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8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, construction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
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9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is
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Lessee's responsibility) as and when required to complete said repairs. In the
event, however, the shortage in proceeds was due to the fact that, by reason of
the unique nature of the improvements, full replacement cost insurance coverage
was not commercially reasonable and available, Lessor shall have no obligation
to pay for the shortage in insurance proceeds or to fully restore the unique
aspects of the Premises unless Lessee provides Lessor with the funds to cover
same, or adequate assurance thereof, within ten (10) days following receipt of
written notice of such shortage and request therefor. If Lessor receives said
funds or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect. If in such case Lessor does not so elect, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that
is not an insured loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13). Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof
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within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-- Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for
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abatement of Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder shall
be performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease.
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full
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force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible and the required funds are available.
If Lessee does not give such notice and provide the required funds or assurance
thereof within the times specified above, this Lease shall terminate as of the
date specified in Lessor's notice of termination. If a Hazardous Substance
Condition occurs for which Lessee is not legally responsible, there shall be
abatement of Lessee's obligations under this Lease to the same extent as
provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premiss during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquent date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereto, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If
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Lessor elects to require payment monthly in advance, the monthly payment shall
be that equal monthly amount which, over the number of months remaining before
the month in which the applicable tax installment would become delinquent (and
without interest thereon), would provide a fund large enough to fully discharge
before delinquency the estimated installment of taxes to be paid. When the
actual amount of the applicable bill is known, the amount of such equal advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF
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LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental of
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) after the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
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(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the
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obligation) to require that the Security Deposit be increased to an amount equal
to six (6) times the then monthly Base Rent, and Lessor may make the actual
receipt by Lessor of the amount required to establish such Security Deposit a
condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, or any such
rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable
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for any prepaid rents or security deposit paid by such sublessee to such
sublessor or for any other prior Defaults or Breaches of such sublessor under
such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, shall entitle Lessor to pursue the remedies set forth
in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable
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written evidence (in duly executed original form, if applicable) of (i)
compliance with Applicable Law per Paragraph 6.3, (ii) the inspection,
maintenance and service contracts required under Paragraph 7.1(b), (iii) the
rescission of an unauthorized assignment or subletting per Paragraph 12.1(b),
(iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-
subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this Lease, where any
such failure continues for a period of ten (10) days following written notice by
or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such
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guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy
filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's
breach of its guaranty obligation on an anticipatory breach basis, and Lessee's
failure, within sixty (60) days following written notice by or on behalf of
Lessor to Lessee of any such event, to provide Lessor with written alternative
assurance or security, which, when coupled with the then existing resources of
Lessee, equals or exceeds the combined financial resources of Lessee and the
guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided, and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior
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sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or
Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the
provisional remedy of unlawful detainer, Lessor shall have the right to recover
in such proceeding the unpaid rent and damages as are recoverable therein, or
Lessor may reserve therein the right to recover all or any part thereof in a
separate suit for such rent and/or damages. If a notice and grace period
required under subparagraphs 13.1(b), (c) or (d) was not previously given, a
notice to pay rent or quit, or to perform or quit, as the case may be, given to
Lessee under any statute authorizing the forfeiture of leases for unlawful
detainer shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable
grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be
deemed conditioned upon Lessee's full and
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faithful performance of all of the terms, covenants and conditions of this Lease
to be performed or observed by Lessee during the term hereof as the same may be
extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined
in Paragraph 13.1, any such Inducement Provision shall automatically be deemed
deleted from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid by
Lessor under such an Inducement Provision shall be immediately due and payable
by Lessee to Lessor, and recoverable by Lessor as additional rent due under this
Lease, notwithstanding any subsequent cure of said Breach by Lessee. The
acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this Paragraph shall not be deemed a waiver by Lessor of the
provisions of this Paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such
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notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages, provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible
for the payment of any amount in excess of such net severance damages required
to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or
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in the event there is no separate written agreement between Lessor and said
Brokers, the sum of $ Per separate agreement) for brokerage services rendered by
----------------------
said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers in effect
at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
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16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
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20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a
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Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease,
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<PAGE>
mortgage, deed of trust, or other hypothecation or security device
(collectively, "SECURITY DEVICE"), now or hereafter placed by Lessor upon the
real property of which the Premises are a part, to any and all advances made on
the security thereof, and to all renewals, modifications, consolidations,
replacements and extensions thereof Lessee agrees that the Lenders holding any
such Security Device shall have no duty, liability or obligation to perform any
of the obligations of Lessor under this Lease, but that in the event of Lessor's
default with respect to any such obligation, Lessee will give any Lender whose
name and address have been furnished Lessee in writing for such purpose notice
of Lessor's default and allow such Lender thirty (30) days following receipt of
such notice for the cure of said default before invoking any remedies Lessee may
have by reason thereof. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker
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<PAGE>
in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorney's fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term, "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorney's fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorney's fees reasonably
incurred. Lessor shall be entitled to attorney's fees, costs and expenses
incurred in the preparation and service of notices of Default and consultations
in connection therewith whether or not a legal action is subsequently commenced
in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "FOR SALE" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "FOR LEASE" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
-37-
<PAGE>
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting). Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgement that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
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<PAGE>
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options,
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<PAGE>
if any, herein granted to Lessee are not assignable, either as a part of an
assignment of this Lease or separately or apart therefrom, and no Option may be
separated from this Lease in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of
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<PAGE>
guard service or other security measures, and that Lessor shall have no
obligation whatsoever to provide same. Lessee assumes all responsibility for
the protection of the Premises. Lessee, its agents and invitees and their
property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease
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<PAGE>
as may be reasonably required by an institutional, insurance company, or pension
plan Lender in connection with the obtaining of normal financing or refinancing
of the property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than on person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL, FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at _________________ Executed at __________________
on___________________________ on____________________________
by LESSOR: by LESSEE:
44th Street and Van Buren Interactive Flight
Limited Partnership Technologies, Inc.
By /s/ Michail Itkis
AMDEL, INC., General Partner Name Printed: Michail Itkis
By /s/ Mc Blasdell Title: Chairman and Chief
-------------------------- -----------------------
Name Printed: Mc Blasdell Executive Officer
---------------- ------------------------------
Title: Secretary
----------------
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<PAGE>
By___________________________ By____________________________
Name Printed:________________ Name Printed:_________________
Title:_______________________ Title:________________________
Address: 4698 Foothill Drive, Address: 3070 W. Post Road,
Paradise Valley, AZ 85253 Las Vegas, NV 89118
- --------------------------------- ------------------------------
Tel. No. (609) 991-0322 Tel. No. (702) 896-8900
Fax No.______________________ Fax No. (702) 896-4234
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<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL LEASE
------------------------------------------------
between
INTERACTIVE FLIGHT TECHNOLOGIES, INC. ("Lessee")
and
44th STREET AND VAN BUREN LIMITED PARTNERSHIP ("Lessor")
This Addendum is attached to, and is hereby made a part of, that certain
Standard Industrial/Commercial Single-Tenant Lease - Net, as of even date
herewith (the "Lease").
The parties hereby agree that the Lease is hereby amended as follows:
1. The following provision is added as a new Section 3.4 of the Lease:
3.4 Renewal Option. (a) As long as no default hereunder then
--------------
exists, Lessee may extend the term of this Lease for an additional
three (3) years by giving Lessor written notice of Lessee's exercise
of the option to extend no later than 180 days prior to the
expiration of the original term of this Lease.
(b) If Lessee exercises its option to extend the term of this Lease,
the Base Rent for the first two years of the renewal period (the
"First Renewal Period Base Rent") will be adjusted by increasing the
Base Rent that is in effect during the original term of the Lease by
the percentage, if any, by which the Consumer Price Index -- Cities
(19__ = 100) for the City of Phoenix (all items)(the "Index")
published by the Bureau of Labor Statistics of the U.S. Department
of Labor increases from July 1, 1996, to July 1, 1999.
(c) The Base Rent applicable to the third year of the renewal term
(the "Second Renewal Period Base Rent") will be calculated by
increasing the First Renewal Period Base Rent by the percentage, if
any, by which the Index increases from July 1, 1999, to July 1,
2001.
(d) Except with respect to the adjustments of the Base Rent during
the extended term of the Lease, as described in clauses (b) and (c),
all terms and conditions of the Lease will continue to be in effect
during the extended term.
2. Clauses (b) and (c) of Subsection 12.1 of the Lease are hereby amended
by deleting the phrase "twenty-five percent (25%)" wherever it occurs
therein and replacing it with "sixty-five percent (65%)."
<PAGE>
3. Clause (g) of Subsection 12.2 of the Lease is hereby amended by
deleting the phrase "six (6) times" from the second line thereof, and
replacing it with "two (2) times."
4. Except as modified hereby, the Lease remains unchanged and in full
force and effect.
In witness whereof, the parties execute this Addendum on the ___ day
of July, 1996.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: /s/ Michail Itkis
---------------------------------
Its:___________________________
[Lessee]
44TH STREET AND VAN BUREN LIMITED
PARTNERSHIP
AMDEL INC., General Partner
By: /s/ Mc Blasdell
-----------------------------
Its: Secretary
-----------------------
[Lessor]
<PAGE>
DAUM
HAZARDOUS SUBSTANCES
&
AMERICANS WITH DISABILITIES ACT
(Arizona Property)
Property Address/Location: 222 North 44th Street
---------------------
Notice to Owners, Buyers and Tenants Regarding
----------------------------------------------
Hazardous Substances and Underground Storage Tanks
--------------------------------------------------
Comprehensive federal, state and local regulations have recently been enacted to
control the use, storage, handling, clean-up, removal and disposal of hazardous
and toxic wastes and substances. Extensive legislation has also been adopted
with regard to underground storage tanks. As real estate licensees, we are not
experts in the area of hazardous substances and we encourage you to consult with
your legal counsel with respect to your rights and liabilities with regard to
hazardous substances laws and regulations and to obtain technical advice with
regard to the use, storage, handling, clean-up, removal or disposal of hazardous
substances from professions, such as a civil engineer, geologist or other
persons with experience in these matters to advise you concerning the property.
We also encourage you to review the past uses of the property (as to which we
make no representation) which may provide information as to the likelihood of
the existence of hazardous substances or underground storage tanks on the
property.
DAUM Commercial Real Estate Services will disclose any knowledge it actually
possesses with respect to the existence of hazardous substances or underground
storage tanks on the property. DAUM Commercial Real Estate Services has not
made any investigations or obtained reports regarding the property, unless so
indicated in a separate document signed by DAUM Commercial Real Estate Services.
DAUM Commercial Real Estate Services makes no representation or warranty
regarding the existence or non-existence of hazardous substances or underground
storage tanks on the property.
As used in this notice, the term "hazardous substances" is used in the broadest
sense and includes all hazardous and toxic materials, substances, or waste as
defined by applicable federal, state, and local laws and regulations and
includes, but is not limited to petroleum products, paints and solvents, PCBs,
asbestos, pesticides and other substances. Hazardous substances may be found on
any type of real property, improved or unimproved, occupied or vacant.
<PAGE>
Notice to Owners, Buyers and Tenants Regarding
----------------------------------------------
the "Americans with Disabilities Act"
-------------------------------------
Legislation known as the "Americans with Disabilities Act" ("ADA") was recently
adopted and may affect the property and/or it's intended use. As real estate
licensees, we are not experts in the legal or technical aspects of ADA as it may
pertain to you. We encourage you to consult your legal counsel, architect
and/or other professionals with appropriate experience with regard to your
rights or obligations for compliance with ADA. DAUM Commercial Real Estate
Services makes no representation or warranty regarding the compliance or
noncompliance of the property under ADA.
DAUM COMMERCIAL REAL ESTATE SERVICES
BY: /s/ Authorized Signatory Dated:_______________
---------------------------------
The foregoing Notice received
LESSOR LESSEE
44th Street and Van Buren, L.P.
BY: /s/ Michail Itkis
-------------------
AMDEL, INC., General Partner Its:
------------------
BY: /s/ Mc Blasdell
-----------------
Its: Secretary
-------------
Dated:_____________________ Dated:____________________
<PAGE>
EXHIBIT 10.14
================================================================================
STRATEGIC ALLIANCE AGREEMENT
between
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
AND
HYATT VENTURES, INC.
Dated as of November 12, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I........................ 1
STRATEGIC ASSISTANCE; INVESTMENT OBLIGATION; WARRANTS. 1
1.1 Hyatt Commitment................................... 1
1.2 IFT Cooperation.................................... 2
1.3 Investment in IFT.................................. 2
1.4 Warrants........................................... 2
ARTICLE II......................... 3
JOINT INVESTMENT OPPORTUNITIES................ 3
2.1 Hyatt Investment Option............................ 3
2.2 General Procedures................................. 4
2.3 Specific Procedures................................ 4
2.4 Formation of Joint Ventures........................ 5
2.5 Economic Benefits.................................. 5
2.6 Local Partners..................................... 6
2.7 Conversion of Hyatt Interests...................... 6
2.8 Mechanics of Conversion............................ 7
2.9 Limitation on Conversion Rights.................... 9
ARTICLE III.......................... 9
TERMS OF SALE TO JOINT VENTURES.................. 9
3.1 Sales by IFT....................................... 9
3.2 Timing of Payments to IFT.......................... 10
3.3 Further Actions.................................... 10
3.4 Representations and Warranties to JV Customers 10
ARTICLE IV.......................... 11
OTHER AGREEMENTS....................... 11
4.1 Board of Directors................................. 11
4.2 Executive Committee................................ 11
4.3 Election and Removal............................... 11
4.4 Consultation Right................................. 11
4.5 Registration Rights................................ 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.6 Confidentiality.................................... 12
4.7 Standstill......................................... 12
4.8 Audit.............................................. 13
ARTICLE V........................... 14
REPRESENTATIONS AND WARRANTIES OF IFT............ 14
5.1 Corporate Existence and Power...................... 14
5.2 Corporate Authorization............................ 15
5.3 Consents; Approvals................................ 15
5.4 Non-Contravention.................................. 15
5.5 Capitalization..................................... 16
5.6 SEC Filings........................................ 16
5.7 Financial Statements............................... 17
5.8 Disclosure Documents............................... 17
5.9 Intellectual Property.............................. 17
5.10 Absence of Certain Changes......................... 18
5.11 Litigation......................................... 18
5.12 Compliance with Laws and Agreements................ 18
5.13 Finders' Fees...................................... 19
5.14 Full Disclosure; No Misrepresentations............. 19
ARTICLE VI......................... 19
REPRESENTATIONS AND WARRANTIES OF HYATT........... 19
6.1 Corporate Existence and Power...................... 19
6.2 Corporate Authorization............................ 19
6.3 Consents; Approvals................................ 19
6.4 Non-Contravention.................................. 20
6.5 Disclosure Documents............................... 20
6.6 Litigation......................................... 20
6.7 Finders' Fees...................................... 20
6.8 Full Disclosure; No Misrepresentations............. 20
ARTICLE VII........................ 21
INDEMNIFICATION...................... 21
7.1 Indemnification of Hyatt........................... 21
7.2 Procedure for Claims............................... 21
7.3 Indemnification of IFT............................. 23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII.................... 24
GENERAL PROVISIONS.................. 24
8.1 Expenses........................................... 24
8.2 Notices............................................ 24
8.3 Public Announcements............................... 25
8.4 Headings........................................... 25
8.5 Severability....................................... 25
8.6 Entire Agreement................................... 25
8.7 Assignment......................................... 25
8.8 Amendment; Waiver.................................. 26
8.9 Governing Law; Forum............................... 26
8.10 Counterparts....................................... 26
8.11 Attorneys' Fees.................................... 26
8.12 Further Action..................................... 26
</TABLE>
iii
<PAGE>
STRATEGIC ALLIANCE AGREEMENT
THIS STRATEGIC ALLIANCE AGREEMENT (this "AGREEMENT"), dated as of November
12, 1996 by and between Interactive Flight Technologies, Inc., a Delaware
corporation ("IFT") and Hyatt Ventures, Inc., a Delaware corporation ("HYATT").
W I T N E S S E T H:
-------------------
WHEREAS, IFT is engaged in the development, manufacture, marketing, sale
and distribution of computer-based in-flight entertainment networks (the
"ENTERTAINMENT NETWORK") currently for use primarily by airline passengers,
including a new generation of the Entertainment Network ("IFEN-2") which IFT
desires to market, sell and distribute to airlines and other potential IFT
customers (collectively, "IFT CUSTOMERS");
WHEREAS, Hyatt and certain of its affiliates and designees (the "HYATT
GROUP") have experience, relationships and resources which may be helpful to IFT
in marketing, selling and distributing the IFEN-2 system, together with all of
its updates, upgrades, modifications, enhancements and derivatives (the
"SYSTEM"); and
WHEREAS, IFT and Hyatt have agreed to form a strategic alliance with
respect to the System on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements of the
parties contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I
STRATEGIC ASSISTANCE; INVESTMENT OBLIGATION; WARRANTS
Section 1.1 Hyatt Commitment. During the Alliance Period (as defined
----------------
below), Hyatt, through the Hyatt Group, shall, at the request of IFT, use its
best commercial efforts to assist IFT in advancing IFT's current and future
business with respect to the System, including, without limitation, consulting
with and assisting IFT in (a) development of relationships with international
and U.S. domestic air carriers, (b) negotiation of contractual relationships
with international and U.S. air carriers, (c) development of relationships and
contractual arrangements with non-air carrier potential users of the System, (d)
development of relationships and contractual arrangement with entrepreneurial
and institutional financing sources, (e) development of relationships and
contractual arrangements with service providers and vendors, such as credit card
companies and telecommunications companies and (f) development and
implementation of
<PAGE>
marketing programs. Hyatt shall assign at least one person to discharge its
responsibilities under this Section 1.1, which person shall devote that portion
of his time as is reasonably necessary to fulfill Hyatt's obligations under this
Section. IFT agrees that it shall reimburse Hyatt for all reasonable and
documented out-of-pocket costs and expenses incurred by or on behalf of Hyatt in
connection with the performance of Hyatt's obligations under this Section 1.1;
provided, however, that to the extent any such expenses can be properly
- -------- -------
identified as having been incurred in connection with a specific Joint Venture,
such Joint Venture shall reimburse IFT for 100% any amounts previously
reimbursed to Hyatt pursuant to this Section 1.1. Anything to the contrary
herein notwithstanding, in the event of a Change of Control (as defined in
Section 4.7 below), Hyatt may, at its option, terminate its obligations under
this Section 1.1. For the purposes of this Agreement, "ALLIANCE PERIOD" shall
mean the period beginning on the date hereof and ending on the date either party
delivers written notice (a "TERMINATION NOTICE") terminating the Alliance
Period; provided, however, that a Termination Notice may not be delivered until
-------- -------
the later to occur of (i) the date two years from the date hereof and (ii) the
date on which the Hyatt Group (A) no longer owns equity interests in any of the
Joint Ventures formed pursuant to Sections 2.3 below and (B) owns shares, and
warrants or options to acquire shares, comprising in the aggregate less than 5%
of the issued and outstanding shares of IFT's Class A Common Stock, par value
$0.01 per share (the "CLASS A COMMON STOCK").
Section 1.2 IFT Cooperation. IFT shall use its best commercial efforts to
---------------
cooperate with Hyatt in Hyatt's performance of its obligations pursuant to
Section 1.1 above.
Section 1.3 Investment in IFT. During the period beginning on the date
-----------------
hereof and ending 90 days therefrom, Hyatt (itself or through the Hyatt Group),
shall invest or cause to be invested an aggregate of $1,000,000 in the
acquisition of shares of Class A Common Stock through open market purchases;
provided, however, that Hyatt shall not be obligated to make any such purchase
- -------- -------
at a price per share in excess of $14.15.
Section 1.4 Warrants.
--------
(a) Reservation of Warrants. In consideration of Hyatt's willingness
-----------------------
to enter into and perform its obligations under this Agreement, IFT agrees,
subject to the terms of Section 1.4(b) and (c) below, to issue to Hyatt (or
its designees) warrants substantially in the form attached hereto as
Exhibit 1.4 (the "WARRANTS") to acquire up to 1,340,222 shares of Class A
-----------
Common Stock at an exercise price of $9.875 per share, subject to
adjustment in accordance with the antidilution provisions of the Warrants.
IFT agrees to reserve shares of Class A Common Stock to meet its
obligations under the Warrants, and all shares of Class A Common Stock
issued upon exercise of the Warrants shall be duly and validly issued,
fully paid and nonassessable, free of any Liens (as defined in Section 5.4
below), not subject to any preemptive rights and shall be listed on any
exchanges on which the Class A Common Stock is then listed.
2
<PAGE>
(b) Issuance of Warrants. During the period beginning on the date
--------------------
hereof and ending on the second anniversary of the date hereof (the
"WARRANT VESTING PERIOD"), IFT shall issue one-ninetieth of the Warrants to
Hyatt (or its designees) for each airplane with respect to which IFT or a
Joint Venture (as defined in Section 2.4 below) obtains a binding
commitment from an IFT Customer, other than an Excluded Customer, for the
installation of the System; provided, however, that during the Warrant
-------- -------
Vesting Period, upon the occurrence of any of the events described in
clauses (i) and (ii) of Section 4.3 (Merger; Consolidation; Sale of Assets)
of the Warrants or any distribution described in Section 4.4 (Other
Distributions) of the Warrants, which distribution exceeds 5% of the book
value of IFT, 100% of the Warrants to which Hyatt is entitled under this
Agreement shall become fully vested. For the purposes of this Agreement,
"EXCLUDED CUSTOMER" means (i) Swissair, (ii) Debonair, (iii) Alitalia, (iv)
Petrol Air, (v) Futura Airlines, (vi) Air Europa and (vii) Oasis Airlines.
(c) Term. All Warrants issued in accordance with Section 1.4(b)
----
above, shall expire and shall become void at 5:00 p.m. (Pacific time) on
the fifth anniversary of the date hereof.
ARTICLE II
JOINT INVESTMENT OPPORTUNITIES
Section 2.1 Hyatt Investment Option. During the Alliance Period, Hyatt
-----------------------
shall, at its option, have the right (each such right being hereinafter referred
to as an "INVESTMENT OPTION") to invest up to one-third of the financing
required by IFT to effect the installation of the System (a) on the aircraft
fleets of any five IFT Customers in the airline industry, excluding Qantas
Airlines ("QANTAS"), or, if a Joint Venture is not formed with respect to Qantas
on or prior to February 28, 1997, any six IFT Customers in the airline industry
and (b) for two other IFT Customers or opportunities outside of the airline
industry. The Investment Option shall terminate upon termination of the Alliance
Period, except with respect to potential IFT Customers with which IFT is then in
negotiation and in which Hyatt had previously indicated a significant interest
under Section 2.3 below. IFT and Hyatt will use their reasonable best efforts to
agree upon the terms of and to form a Joint Venture with respect to Qantas. The
Investment Option shall not apply to IFT Customers (other than Qantas) which are
contractually obligated to make full payment to IFT within 60 days of completion
of the installation of the System of at least the fully burdened cost of goods
of such System less, the lesser of (x) $20,000,000 and (y) 20% of the fully
----
burdened cost of goods of such System. For purposes of determining "FULLY
BURDENED COST" of goods and/or services, IFT will establish, in consultation
with and subject to the reasonable approval of Hyatt, a method of project
management accounting under which IFT will allocate all costs incurred with
regard to the sales and other activities relating to a JV Customer (whether
incurred before or after the formation of the relevant Joint Venture for such JV
Customer), including, without limitation, out-of-pocket costs, costs of
consultants, subcontractors and advisors, direct labor, material and other costs
(including
3
<PAGE>
the cost of warranty service performance), and an allocation of indirect costs,
but excluding (i) R&D costs relating to the design of the System generally (as
opposed to R&D costs relating to design modifications or enhancements undertaken
for a specific project) and (ii) costs of warranty service performance arising
out of or related to System design defects (as opposed to routine part failures
or defects in any JV Customer specific design modifications or enhancements).
Section 2.2 General Procedures. The parties acknowledge that the
------------------
Investment Options are intended to be afforded and exercised in a manner such
that Hyatt shall have as reasonable an opportunity as is practicable (in light
of the circumstances and timing of the specific IFT Customer opportunity) to
participate in negotiations and discussions with potential IFT Customers, to
perform due diligence regarding and evaluations in connection with any proposed
transaction(s) with potential IFT Customers and to exercise the Investment
Option. However, the parties also acknowledge that such opportunities and
rights of Hyatt must be afforded and exercised in such a manner as to permit IFT
to reasonably solicit potential IFT Customers and to conduct negotiations
regarding (and consummate) sales of the System in connection with which Hyatt
does not elect to exercise its Investment Option.
IFT shall use its commercial best efforts to assist Hyatt in Hyatt's due
diligence review and evaluation with respect to the Investment Options. IFT
further agrees to grant Hyatt and its representatives reasonable access to IFT's
personnel and advisors in connection with Hyatt's evaluation of each such
Investment Option.
Section 2.3 Specific Procedures. IFT shall keep Hyatt apprised of all
-------------------
material contacts and discussions with potential IFT Customers to which an
Investment Option may apply. Hyatt agrees to notify IFT in writing as promptly
as is practical of the names of any of the potential IFT Customers with respect
to which Hyatt does not have a significant interest in exercising the Investment
Option. IFT will be free to pursue such potential IFT Customers without being
subject to the Investment Option; provided, however, that if Hyatt determines
-------- -------
thereafter that it has a significant interest in such potential IFT Customer, it
may rescind its earlier indication of lack of interest unless there would be any
material adverse impact on alternative arrangements IFT has made or is then
making in good faith with respect to such potential IFT Customers.
In connection with any potential IFT Customers with respect to which Hyatt
has a significant interest in exercising the Investment Option, IFT and Hyatt
shall use reasonable efforts to share any relevant information which either may
have, with respect to, and with the goal of assisting each other in evaluating
transactions with, potential IFT Customers. At such time as it becomes critical
for IFT (in IFT's reasonable judgment) to establish the financing approach for
any particular IFT Customer to which an Investment Option applies, IFT will
provide Hyatt with a written notice (the "NOTICE") of the amount of financing
which IFT will require in respect of such IFT Customer and the material terms of
the transaction with respect to which such financing is sought. Hyatt may
exercise an Investment Option by written notice to IFT within a reasonable time
(taking into account the needs of IFT and Hyatt) but in any case within 30
business days following receipt of the Notice by Hyatt. If Hyatt exercises an
4
<PAGE>
Investment Option with respect to any IFT Customer, it may at the same time
indicate an interest in providing any additional financing that IFT would
otherwise seek from outside parties at arms length terms to be mutually agreed
by the parties in good faith. If Hyatt is not interested in providing such
additional financing or if the parties are unable to reach agreement with
respect to such additional financing after 30 days of good faith negotiation,
then Hyatt shall provide capital only as required by the relevant Investment
Option and IFT will be free to raise any additional financing needed from third
parties. By written notice promptly delivered to IFT, Hyatt may change its
position with respect to the exercise or non-exercise of an Investment Option,
but only (a) in the case of any opportunity with respect to which it has
exercised an Investment Option, if that transaction fails to close in a timely
manner for any reason other than a material breach by Hyatt of its obligation to
fund the applicable Joint Venture (as defined in Section 2.4 below) and to
otherwise use its reasonable efforts to cooperate with IFT in negotiations with
the relevant potential IFT Customer (as contemplated hereby) or if there is a
material adverse change in the opportunity from that understood by the parties
at the time of the exercise by Hyatt of an Investment Option and Hyatt promptly
notifies IFT after learning of such change, or (b) in the case of any
opportunity with respect to which Hyatt failed or elected not to exercise an
Investment Option, to the extent that there would not be a material adverse
impact on alternative arrangements IFT has made or is then making in good faith.
Section 2.4 Formation of Joint Ventures. In the event Hyatt timely
---------------------------
exercises an Investment Option with respect to any IFT Customer (a "JV
CUSTOMER"), IFT and Hyatt (together with any local partners, to the extent
approved in accordance with Section 2.6 below) shall form an entity (each, a
"JOINT VENTURE") relative to (a) the installation of the System in the
applicable JV Customer's fleet with respect to airline customers or (b) other
similar installations and/or deliveries of the System with respect to any non-
airline JV Customers. Each Joint Venture (which the parties currently
anticipate will be organized as a limited liability company, limited partnership
or equivalent entity) will be governed by an agreement (a "JOINT VENTURE
AGREEMENT") acceptable to IFT and Hyatt with terms and provisions substantially
similar to the form of operating agreement attached hereto as Exhibit 2.4. Each
-----------
Joint Venture Agreement shall include, without limitation, provisions regarding
(i) board (or similar governing body) representation in accordance with equity
interests, (ii) tax efficient allocations of profits and losses; (iii) major
decisions which require approval of all IFT and Hyatt (A) board (or similar
governing body) members or (B) equity holders, (iv) procedures for resolution of
deadlocks (v) transfer restrictions, including a right of first refusal, (vi)
drag-along and tag-along rights and (vii) dilution procedures in the event a
participant fails to contribute committed capital.
Section 2.5 Economic Benefits. The parties acknowledge and agree that
-----------------
under certain circumstances approved in advance and in writing by IFT and Hyatt,
it may be necessary or advantageous for IFT (or an IFT affiliate) to enter into
contractual arrangements with one or more JV Customers in lieu or on behalf of a
Joint Venture. Under such circumstances IFT shall accept all of the economic
benefits derived from any such contractual arrangements between IFT (or an IFT
affiliate) and any such JV Customer in trust for the benefit of, and as agent
for, the
5
<PAGE>
applicable Joint Venture, and shall take all actions reasonably necessary to
assure that such economic benefits are transferred to and obtained by the Joint
Venture.
Section 2.6 Local Partners. In the event that IFT and Hyatt reasonably
--------------
agree that it is necessary or otherwise desirable in order to operate in a non-
U.S. IFT Customer's principal geographic area or otherwise to facilitate sales
of the System to such IFT Customer to seek the participation of a local partner
(a "LOCAL PARTNER") in a Joint Venture that is formed to do business with a non-
U.S. JV Customer, IFT and Hyatt agree that the interests in the Joint Venture,
after giving effect to the participation of the Local Partner, shall be two-
thirds IFT and one-third Hyatt, respectively.
Section 2.7 Conversion of Hyatt Interests.
-----------------------------
(a) Conversion Right. Subject to the provisions of Section 2.9 below,
----------------
with respect to any Joint Venture, at any time and from time to time
following (i) with respect to airline customers, completion of installation
of the System on all aircraft initially contemplated (either specifically
identified by tail number or otherwise limited by a specified number of
aircraft) at the time of formation of such Joint Venture and (ii) with
respect to non-airline customers, a mutually agreed upon milestone of
similar import to that described in the immediately preceding clause (i),
Hyatt or the relevant member of the Hyatt Group (the "JV HOLDER") shall
have the option to convert (each a "CONVERSION OPTION") an amount not less
than 50% (or such lesser portion as is necessary to comply with Section
2.9) of its initial equity interest in such Joint Venture (each an "EQUITY
INTEREST") into that number of shares of Class A Common Stock determined by
dividing (A) the aggregate value of the Equity Interest in the applicable
Joint Venture (as determined in accordance with the terms of Section 2.7(b)
below), by (B) the Current Market Price (as defined in Section 2.7(c)
below) of a share of Class A Common Stock as of the Conversion Date (as
defined in Section 2.8(a) below).
(b) Determination of Joint Venture Value. The aggregate value of the
------------------------------------
Equity Interest in the applicable Joint Venture as of the Conversion Date
shall be determined either (i) by mutual agreement of IFT and the JV Holder
or (ii) absent such agreement within five business days of IFT's receipt of
a Conversion Notice, by a nationally recognized investment banking firm or
nationally recognized valuation firm (in either case, the "APPRAISER"),
based upon the discounted cash flow of the relevant Joint Venture, without
consideration of a minority discount. In the event that IFT and the JV
Holder cannot mutually agree on an Appraiser within 10 business days of
IFT's receipt of a Conversion Notice from the JV Holder, each of IFT and
the JV Holder shall submit the names of three proposed Appraisers. Promptly
following submission of the names of the proposed Appraisers, the Appraiser
shall be selected from such names by lottery. Each of IFT and the JV Holder
shall cooperate with the Appraiser. The Appraiser shall submit its
determination within 30 days of its engagement by the parties, which
determination shall be conclusive and binding on IFT and the JV Holder. The
expenses of the Appraiser shall be borne equally by IFT and the JV Holder.
6
<PAGE>
(c) For the purposes of this Agreement, "CURRENT MARKET PRICE" of a
share of Class A Common Stock at any date shall be (i) in the event that
the Class A Common Stock is not then being publicly traded in the over-the-
counter market or on a nationally recognized exchange, the fair market
value (which shall not be less than book value) on the date for which such
determination is to be made as determined in good faith by the Board of
Directors of IFT after consultation with IFT's investment bankers or (ii)
in the event that the Class A Common Stock is then being publicly traded in
the over-the-counter market or on a nationally recognized exchange, the
average of the last reported sale prices per share for the 45 consecutive
Trading Days (as defined below) preceding the date of such computation.
The last reported sale price for each day shall be (A) the last sale price,
or the closing bid price if no sale occurred, of the Class A Common Stock
on the principal securities exchange on which the Class A Common Stock is
listed, (B) if not listed as described in clause (A), the last reported
sale price of the Class A Common Stock on any national stock exchange, if
traded thereon, or on the Automated Quotation System of the National
Association of Securities Dealers, Inc. (the "NASDAQ SYSTEM"), or any
similar system of automated dissemination of quotations of securities
prices then in common use, if so quoted, or (C) if not quoted as described
in clauses (i) or (ii), the mean of the high and low bid quotations for the
Class A Common Stock as reported by the National Quotation Bureau
Incorporated if at least two securities dealers have inserted bid
quotations for the Class A Common Stock on at least five of the ten
preceding days. If the Class A Common Stock is quoted on a national
securities or central market system, in lieu of a market or quotation
system described above, the last reported sale price shall be determined in
the manner set forth in clause (C) of the preceding sentence if bid and
asked quotations are reported but actual transactions are not, and in the
manner set forth in clause (A) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above is
met, the last reported sale price of the Class A Common Stock on any day or
the average of such last reported sale prices for any period shall be the
fair market value of such class of stock as determined by a member firm of
the New York Stock Exchange, Inc. selected by the IFT. As used herein the
term "TRADING DAYS" means (x) if the Class A Common Stock is quoted on the
NASDAQ System or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such
system, or (y) if not quoted as described in clause (x), days on which
quotations are reported by the National Quotation Bureau Incorporated, or
(z) if the Class A Common Stock is listed or admitted for trading on any
national securities exchange, days on which such national securities
exchange is open for business.
Section 2.8 Mechanics of Conversion.
-----------------------
(a) Notice of Conversion. In order to exercise a Conversion Option
--------------------
described in Section 2.7(a) above, the JV Holder shall deliver to IFT a
written notice (a "CONVERSION NOTICE") including the following information
(i) the name of the relevant Joint Venture, (ii) the percentage of its
Equity Interest that the JV Holder wishes to convert, (ii) the conversion
date, which date shall be a day following the date on which
7
<PAGE>
IFT receives the Conversion Notice (the "CONVERSION DATE"), (iv) the JV
Holder's proposed valuation of the Joint Venture (the "PROPOSED VALUATION")
and (v) if calculable based on the chosen Conversion Date, a calculation of
the number of shares of Class A Common Stock that the JV Holder believes it
is entitled to receive upon conversion. Within five business days of IFT's
receipt of a Conversion Notice, IFT will notify the JV Holder in writing as
to whether IFT agrees or disagrees with the Proposed Valuation. In the
event IFT disagrees with the Proposed Valuation, the JV Holder and IFT
shall within 10 business days of IFT's receipt of the Conversion Notice
agree upon an Appraiser, or if they are unable to agree on an Appraiser,
the Appraiser shall be selected in accordance with Section 2.7(a) above.
(b) Issuance of Shares. Upon the earlier to occur of (i) the
------------------
agreement of IFT with the Proposed Valuation or (ii) the determination of
the aggregate value of the JV Holder's Equity Interest by the Appraiser,
but subject to delivery by the JV Holder of customary representations and
warranties concerning investment intent and compliance with federal and
state securities laws, IFT shall promptly take all actions necessary to
effect the conversion described in the applicable Conversion Notice and
issue and deliver to the JV Holder the applicable number of whole shares of
Class A Common Stock, together with cash in the amount required to pay for
any fractional shares of Class A Common Stock otherwise issuable upon
conversion.
(c) Effective Time of Conversion. Each conversion of Equity Interests
----------------------------
by a JV Holder shall be deemed to have been effected, and such JV Holder
shall be deemed to be a shareholder of IFT for all purposes, immediately
prior to the close of business on the date on which all conditions set
forth in Section 2.8(b) are satisfied, and the Persons in whose name(s) any
certificate for shares of Class A Common Stock are issued shall be deemed
to have become the holder(s) of record of the shares of Class A Common
Stock at such time. All shares of Class A Common Stock delivered upon
conversion pursuant to a Conversion Notice, shall be duly and validly
issued, fully paid and non-assessable, free of any Liens (as defined in
Section 6.4 below) and not subject to any preemptive rights.
(d) Company to Reserve Stock. IFT shall at all times following the
------------------------
date hereof use its reasonable best efforts (including, without limitation,
promptly taking such corporate action as may be necessary to increase its
authorized but unissued securities), based on its good faith determination
of the values of the applicable Joint Ventures, to reserve and keep
available for issue upon exercise of Conversion Options such number of its
authorized but unissued shares of Class A Common Stock as will be
sufficient to permit the conversion in full of all outstanding Equity
Interests subject to the Conversion Option, and shall use its reasonable
best efforts to cause all shares of Class A Common Stock issued upon
exercise of Conversion Options to be listed on any exchanges on which the
Class A Common Stock is then listed.
8
<PAGE>
(e) Taxes on Conversion. IFT will pay any and all documentary stamp
-------------------
or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Class A Common Stock on a JV Holder's exercise of its
Conversion Option (but excluding taxes arising out of the transfer of
shares by the JV Holder).
(f) Reclassification, Consolidation, Merger or Sale. In case of any
-----------------------------------------------
reclassification or change of outstanding shares of Class A Common Stock
(other than a change in par value, or as a result of a subdivision or
combination), or in case of any consolidation of IFT with, or merger of IFT
with or into, any other entity that results in a reclassification, change,
conversion, exchange or cancellation of outstanding shares of Class A
Common Stock or any sale or transfer of all or substantially all of the
assets of IFT, each JV Holder shall have the right thereafter to convert
its Equity Interests into the kind and amount of securities, cash and other
property which such JV Holder would have been entitled to receive upon such
reclassification, change, consolidation, merger, sale or transfer such JV
Holder had held the Class A Common Stock issuable upon the conversion of
the Equity Interests immediately prior to the reclassification, change,
consolidation, merger, sale or transfer.
Section 2.9 Limitation on Conversion Rights. A JV Holder may not
-------------------------------
exercise its rights of conversion under Section 2.7 above if, after giving
effect to a proposed conversion, the aggregate ownership of Class A Common Stock
by Hyatt or the Hyatt Group (exclusive of shares of Class A Common Stock
acquired (a) pursuant to Section 1.3 above, (b) as a result of the exercise of
the Warrants described in Section 1.4 above or (c) acquired in connection with
financing provided by Hyatt pursuant to Section 2.3 hereof) would exceed 20% of
the aggregate number of shares of voting securities of IFT then outstanding,
calculated on a fully diluted basis.
ARTICLE III
TERMS OF SALE TO JOINT VENTURES
Section 3.1 Sales by IFT. IFT shall sell to each Joint Venture and each
------------
Joint Venture shall purchase from IFT such Joint Venture's requirements related
to the System and all goods and services ancillary thereto to be sold,
transferred or provided by each Joint Venture to such Joint Venture's JV
Customer. All such goods and services (including, without limitation, the
System, spare parts, software, hardware, installation, programming and
maintenance) shall be provided to the relevant Joint Venture by IFT at a price
equal to 115% of IFT's fully burdened cost of such goods and services; provided,
--------
however, that such fully burdened cost of goods and services may include, with
- -------
respect to a particular JV Customer, costs of research and development required
specifically to address the unique needs of such JV Customer, but shall under no
circumstances include any allocation of or for IFT's costs of general research
and development, regardless of when such costs were incurred. The foregoing
notwithstanding, in the event that a Joint Venture is able to acquire goods
and/or services not comprising the System but related to the operation thereof
on more favorable terms to the Joint Venture than those
9
<PAGE>
offered by IFT, the Joint Venture shall so inform IFT. In the event that IFT
promptly is willing to sell such goods and/or services to the Joint Venture on
terms (including delivery schedule) which are equal or are more favorable to the
Joint Venture than the third-party's terms, the Joint Venture will purchase such
goods and services from IFT. Otherwise the Joint Venture will be free to
purchase such goods and/or services from the third party.
Section 3.2 Timing of Payments to IFT. Absent other arrangements made
-------------------------
between IFT and the relevant Joint Venture, each Joint Venture shall remit to
IFT, on a shipset-by-shipset basis, 50% of the cost of initial System
installation 60 days prior to scheduled delivery and installation of the System
to the JV Customer and the remaining 50% upon completion of the delivery and
installation of the System. All payments shall be made against IFT invoices in
immediately available U.S. funds by electronic wire transfer to an account
designated by IFT to each Joint Venture in writing at least three business days
prior to the due date of any amounts due hereunder. All other amounts due from a
Joint Venture to IFT hereunder shall be invoiced by IFT upon delivery of the
goods to the JV Customer or performance of services for the JV Customer, and
paid by the Joint Venture "net 30."
Section 3.3 Further Actions. IFT shall use best commercial efforts to
---------------
assist each Joint Venture to market, sell and distribute the System to its JV
Customer and to provide all services ancillary thereto, including, without
limitation, (a) granting limited licenses with respect to the System to the
Joint Ventures, (b) providing access to IFT marketing, sales, maintenance and
technical support personnel and (c) providing legal, accounting and finance
support, in each case subject to reimbursement by such Joint Venture for 115%
the fully burdened costs of providing such assistance and services as provided
in Section 2.1.
Section 3.4 Representations and Warranties to JV Customers. IFT hereby
----------------------------------------------
agrees that Hyatt and each JV Holder shall be third-party beneficiaries of, and
shall have no responsibility or liability for any representations, warranties,
covenants and agreements that each Joint Venture (or IFT) is required to make to
each JV Customer in connection with the sale of the System (and performance of
ancillary services with respect thereto) to each JV Customer, other than with
respect to the costs of providing warranty service to JV Customers on account of
routine parts failures or defects or general system maintenance, which costs
shall be borne by the relevant Joint Venture. Further IFT agrees that it shall
indemnify and hold the Hyatt Indemnified Parties (as defined in Section 7.1(b)
below) harmless against any claims made by or through any such JV Customer in
respect of such representations, warranties, covenants and agreements as though
such claims were Third Party Claims (as defined in Section 7.2(b) below). The
foregoing notwithstanding, Hyatt agrees that IFT shall not be required to
indemnify the Hyatt Indemnified Parties on account of Third Party Claims made by
JV Customers for the costs of warranty service associated with routine parts
failures or defects or general System maintenance.
Section 3.5 Invoice Disputes. In the event that there is a dispute
----------------
between IFT and a Joint Venture regarding amounts owed by a Joint Venture to
IFT, the Joint Venture shall pay any undisputed amounts owed by such Joint
Venture to IFT, and with respect to disputed amounts, a representative of IFT
and one of the Hyatt Designees (or a person designated by such
10
<PAGE>
Hyatt Designee) on behalf of the Joint Venture shall use their reasonable best
efforts to resolve the dispute promptly. In the event such persons cannot
resolve the dispute with 60 days of the date on which the disputed amount became
past due, the IFT representative and the Hyatt Designee (or his designee) on
behalf of the Joint Venture shall select an arbitrator (the "ARBITRATOR")
pursuant to the Appraiser selection method described in Section 2.7(b) above.
The Arbitrator shall submit its determination within 30 days of its engagement
to resolve the dispute, which determination shall be conclusive and binding on
IFT and the Joint Venture. The expenses of the Arbitrator shall be borne by the
non-prevailing party.
ARTICLE IV
OTHER AGREEMENTS
Section 4.1 Board of Directors. During the Alliance Period, Hyatt shall
------------------
have the right to designate and IFT agrees to cause the nomination of, no less
than two individuals (the "HYATT DESIGNEES") as members of the Board of
Directors of IFT (the "BOARD"). In the event that the number of directors
constituting the whole Board is increased above nine members, Hyatt shall be
entitled to nominate, and IFT agrees to cause the election of no less than two-
ninths of members of the Board rounded up, in the case of a fractional number,
to the next whole number.
Section 4.2 Executive Committee. During the Alliance Period, if an
-------------------
Executive Committee of the Board exists or is created, IFT agrees to cause the
appointment of at least one Hyatt Designee to the Executive Committee (or
equivalent committee) of the Board.
Section 4.3 Election and Removal. If any Hyatt Designee shall be unable
--------------------
or unwilling to serve as a director of IFT or on the Executive Committee of the
Board, Hyatt shall be entitled to promptly designate a replacement designee to
be elected or appointed. Hyatt may cause any Hyatt Designee to be removed with
or without cause, with any vacancy on the Board or on the Executive Committee of
the Board so created to be filled as provided in the immediately preceding
sentence.
Section 4.4 Consultation Right. During the Alliance Period, IFT shall
------------------
timely consult with Hyatt regarding the selection, engagement, retention and
proposed discharge of any member of IFT's senior management.
Section 4.5 Registration Rights. All shares of Class A Common Stock
-------------------
received by Hyatt and/or the Hyatt Group in connection with the transactions
contemplated by this Agreement including, without limitation, by virtue of
Sections 1.4, 2.3 and 2.7 hereof, shall have the benefit of, and be subject to
the terms of that certain Registration Rights Agreement dated as of the date
hereof (the "REGISTRATION RIGHTS AGREEMENT") among IFT, Hyatt and the other
Persons who become parties hereto. The Registration Rights Agreement shall
provide, among other things, for the Hyatt (or members of the Hyatt Group) to
have four demand and
11
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unlimited piggyback registration rights, and shall otherwise be substantially in
the form of Exhibit 4.5 attached hereto.
-----------
Section 4.6 Confidentiality. In the course of the transactions
---------------
contemplated by this Agreement, Hyatt may from time to time have access to
Proprietary Information (as defined below) of IFT. Hyatt agrees that all
Proprietary Information which it has received or may receive shall be considered
the property of IFT and proprietary of IFT, whether or not so marked. Hyatt
agrees that it shall use its reasonable best efforts to (a) protect and preserve
all Proprietary Information, (b) not disclose or otherwise transfer any
Proprietary Information to any third party without the written consent of IFT,
(c) not use any Proprietary Information, except in connection with the
transactions contemplated by this Agreement, (d) limit the dissemination of any
Proprietary Information only to those persons whose duties require a knowledge
of such Proprietary Information for the purposes permitted hereunder, and (e)
return or destroy all Proprietary Information and any copies thereof immediately
upon request therefor. "PROPRIETARY INFORMATION" means all oral, written or
recorded information about or related to IFT or its technology or business which
is hereafter furnished by its officers, directors, employees or agents,
regardless of the manner in which it is furnished, together with any summaries,
extracts, analyses or other documents prepared by Hyatt which contain, reflect
or are generated from such information, regardless of whether explicitly
identified as, or known to Hyatt to be, confidential. However, "Proprietary
Information" does not include information which (w) is or becomes generally
available to the public other than as a result of a disclosure directly or
indirectly by Hyatt or any of Hyatt's employees, officers, directors or agents,
(x) was independently acquired or developed by Hyatt without breach of this
Agreement, (y) becomes available to Hyatt on a non-confidential basis from a
person or entity other than IFT or its advisors who to Hyatt's knowledge is not
and was not bound by a confidentiality agreement with IFT, or, to Hyatt's
knowledge, is not and was not otherwise prohibited from transmitting the
information to Hyatt or (z) is required to be disclosed by law or legal process.
The provisions of this Section 4.6 shall survive for a period of two years
following the earlier to occur of the termination of this Agreement and the
termination of the Alliance Period (except with respect to trade secrets and
technical data that constitute Proprietary Information, which shall survive
indefinitely).
Section 4.7 Standstill. For a period of four years from the date hereof,
----------
except (a) pursuant to the transactions expressly contemplated by this
Agreement, (b) in the case of insolvency, bankruptcy, reorganization or similar
proceeding involving IFT or any of its subsidiaries or affiliates, (c) in the
event of a Change of Control (as defined below), or (d) with the approval of a
majority of directors of IFT other than the Hyatt Designees, Hyatt and its
controlled affiliates will not (and will not assist or encourage its affiliates
to), directly or indirectly acquire or agree, offer, seek or propose to acquire,
or cause to be acquired, ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")) of any voting securities issued by IFT, or any
rights or options to acquire such ownership, including from a third party. As
used above, "CHANGE OF CONTROL" means the actual or publically announced
proposed acquisition (including without limitation beneficial ownership as
defined in Rule 13d-3 under the Exchange
12
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Act) by any person or group (as defined in Rule 13d-3 under the Exchange Act) of
voting securities representing at least 30% of the votes entitled to be cast at
any meeting of IFT stockholders, provided such person is not a holder of Class B
Common Stock, par value $0.01 per share (the "CLASS B COMMON STOCK") as of the
date hereof, Hyatt or an affiliate of Hyatt (or, in the case of a group, such
group is dominated or led by a Person (as defined in Section 5.1 below) or
Persons who are not currently in control of IFT or Hyatt).
Section 4.8 Audit.
-----
(a) Audit Mechanics. No more frequently than once during each six
---------------
month period during the Alliance Period, Hyatt may cause its
representatives to perform an audit of the books and records of IFT to
ensure compliance by IFT with the provisions of Sections 2.1 and 3.1
hereof. IFT shall cooperate with Hyatt and its representatives in respect
of any such audit and shall further grant reasonable access to Hyatt and
its representatives to IFT books, records and personnel in connection
therewith. Hyatt agrees to cause its representatives to be bound by the
provisions of Section 4.6 prior to the audit.
(b) Violation of Section 2.1. In the event that the results of an
------------------------
audit demonstrate that with respect to the last sentence of Section 2.1
above, IFT has failed to offer Hyatt an Investment Option, then IFT shall
grant Hyatt the option to acquire from IFT that portion of the improperly
excluded transaction which Hyatt would otherwise have been eligible to
acquire at IFT's original cost, less 25%. In the event Hyatt exercises such
option, IFT and Hyatt shall form a Joint Venture as though IFT had properly
offered the IFT Customer to Hyatt as an Investment Option. Under no
circumstances shall a Joint Venture formed pursuant to this Section 4.8(b)
constitute the exercise by Hyatt of an Investment Option for the purposes
of Section 2.1 above.
(c) Violation of Section 3.1. In the event that the results of an
------------------------
audit demonstrate that with respect to the prices set forth in Section 3.1
below, IFT has overcharged or undercharged a Joint Venture for goods or
services, IFT shall promptly remit to the relevant Joint Venture (or such
Joint Venture shall promptly remit to IFT, as applicable) the full amount
of such overcharge or undercharge, together with interest on such amount at
the rate of 10% per annum from the date that the overcharged or
undercharged amount was paid by the Joint Venture to IFT.
(d) Cost of Audits. All costs and expenses of each audit shall be
--------------
borne (i) by Hyatt in the event no remedy is available under Section 4.8(b)
or Section 4.8(c) as a result of the audit or the audit reveals an
overpayment of less than 5% of the amount due during the period and (ii) by
IFT in the event that Hyatt is entitled to a remedy under Section 4.8(b) or
the audit reveals discrepancies of more than 5% of the total during the
period which give rise to a remedy under Section 4.8(c).
13
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Section 4.9 Directors Options. Promptly following the execution of this
-----------------
Agreement, IFT shall grant an aggregate of 250,000 options (the "OPTIONS") to
the Hyatt Designees as a group (to be allocated in Hyatt's sole discretion) at
an exercise price not to exceed $9.785 per share, which Options shall otherwise
be in form and substance identical to options granted to other members of the
Board. The shares of Class A Common Stock underlying the Option shall at all
times following the date hereof be covered by an effective registration
statement on Form S-8 (or any successor form). IFT agrees to reserve shares of
Class A Common Stock to meet its obligations under the Options, and all shares
of Class A Common Stock issued upon exercise of the Options shall be duly and
validly issued, fully paid and nonassessable, free of any Liens (as defined in
Section 5.4 below), not subject to any preemptive rights and shall be listed on
any exchanges on which the Class A Common Stock is then listed.
Section 4.10 D&O Insurance. IFT will maintain policies of Directors and
-------------
Officers liability insurance in amounts not less than $10,000,000 in the
aggregate with reputable carriers, such policies and carriers to be reasonably
satisfactory to Hyatt.
Section 4.11 Pre-Closing Activities. IFT hereby acknowledges and agrees
----------------------
that any assistance rendered by Hyatt and/or members of the Hyatt Group to IFT
prior to the date hereof has been rendered the request of IFT, and that any and
all actions taken, or omitted to be taken by IFT arising out of or related to
such assistance were the independent actions of IFT. IFT hereby agrees to
indemnify and hold the Hyatt Indemnified Parties (as defined in Section 7.1(b))
harmless with respect to any Claims (as defined in Section 7.1(b)) which may be
asserted against or sustained or incurred by the Hyatt Indemnified Parties in
connection with, or arising out of, or relating to such assistance and any
actions taken, or omitted to be taken by IFT in respect of such assistance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IFT
IFT hereby represents and warrants to Hyatt and members of the Hyatt Group
that become JV Holders, except as set forth on Schedule V attached hereto as
----------
follows:
Section 5.1 Corporate Existence and Power. IFT is duly incorporated,
-----------------------------
validly existing and in good standing under the laws of the State of Delaware,
and has all corporate powers and authority and all governmental licenses,
authorizations, consents and approvals (collectively, the "PERMITS") required to
carry on its business as now conducted, except where the failure to obtain such
Permits, individually or in the aggregate, would not have a Material Adverse
Effect (as defined below) on IFT. IFT is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect. IFT has heretofore delivered to Hyatt true and
complete copies of IFT's
14
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certificate of incorporation and bylaws as currently in effect. IFT has no
subsidiaries and, other than in the ordinary course of business, has made no
investment in any Person. For purposes of this Agreement, a "MATERIAL ADVERSE
EFFECT" means, with respect to any Person, a material adverse effect, on the
condition (financial or otherwise), business, assets or properties of such
Person and its subsidiaries taken as a whole or on the ability of such Person to
perform its obligations hereunder. For purposes of this Agreement, any reference
to any event, change or effect being "MATERIAL" with respect to any Person means
an event, change or effect, whether existing or prospective, which is material
in relation to the condition (financial or otherwise), business, assets or
properties of such Person and its subsidiaries taken as a whole or on the
ability of such Person to perform its obligations hereunder. For the purposes of
this Agreement "PERSON" means any individual, partnership, firm, corporation,
limited liability company or partnership, association, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Exchange Act.
Section 5.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by IFT of this Agreement, the Warrants and the Registration Rights
Agreement and the consummation by IFT of the transactions contemplated hereby
and thereby are within IFT's corporate powers and, except for any required
approval by IFT's stockholders in connection with the election of the Hyatt
Designees to the Board, have been duly authorized by all necessary corporate
action. Each of this Agreement, the Warrants and the Registration Rights
Agreement constitutes a valid and binding agreement of IFT, enforceable against
IFT in accordance with its terms except as such enforcement may be subject to
(a) bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (b) general
principles of equity (whether considered in a proceeding in equity or at law).
Section 5.3 Consents; Approvals. The execution, delivery and
-------------------
performance by IFT of this Agreement, the Warrants and the Registration Rights
Agreement and consummation of the transactions contemplated hereby and thereby
by IFT require no action by or in respect of, notices to, or filing with, any
governmental body, agency, official or authority or any third party.
Section 5.4 Non-Contravention. The execution, delivery and performance
-----------------
by IFT of this Agreement, the Warrants and the Registration Rights Agreement and
the consummation by IFT of the transactions contemplated hereby and thereby do
not and will not (except in the case of clauses (b), (c) and (d) of this Section
5.4, for any such matters that, individually or in the aggregate, have not had,
and will not have, a Material Adverse Effect on IFT) (a) contravene or conflict
with the certificate of incorporation or bylaws of IFT, (b) assuming compliance
with the matters referred to in Section 5.3, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to IFT or any of its
properties or assets, (c) constitute a default under or give rise to a right of
termination, cancellation, restriction or acceleration of any right or
obligation of IFT or to a loss of any benefit to which IFT is entitled under any
provision of any agreement, contract or other instrument binding upon or
applicable to IFT or any of its properties or assets
15
<PAGE>
or any license, franchise, permit or other similar authorization held by or
applicable to IFT, or (d) result in the creation or imposition of any Lien on
any asset of IFT. For purposes of this Agreement, "LIEN" means, with respect to
any asset, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset.
Section 5.5 Capitalization. The authorized capital stock of IFT
--------------
consists of 40,000,000 shares of Class A Common Stock, 3,960,000 shares of Class
B Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock"). As of the date hereof (i) 8,102,060 shares of
Class A Common Stock are issued and outstanding, (ii) 3,960,000 shares of Class
B Common Stock are issued and outstanding and no shares of the Preferred Stock
are issued and outstanding. As of the date hereof 12,282,546 shares of Class A
Common Stock are reserved for issuance pursuant to the exercise of outstanding
warrants (and warrants which IFT is currently obligated to issue) and Unit
Purchase Options (including warrants underlying the Unit Purchase Options). An
additional 2,274,200 shares of Class A Common Stock are reserved for issuance
under IFT's 1994 Stock Option Plan of which 1,584,200 shares are subject to
currently outstanding options. All outstanding shares of capital stock of IFT
have been duly authorized and validly issued, are fully paid and nonassessable
and are free from preemptive rights. Except as set forth in this Section, there
are outstanding (a) no other shares of capital stock or other voting securities
of IFT, (b) no securities of IFT convertible into or exchangeable for shares of
capital stock or voting securities of IFT, and (c) no other options or other
rights to acquire from IFT, and no obligation of IFT to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of IFT (the items in clauses (a), (b) and (c)
being referred to collectively as the "COMPANY SECURITIES"). There are no
outstanding obligations of IFT to repurchase, redeem or otherwise acquire any
Company Securities.
Section 5.6 SEC Filings.
-----------
(a) IFT has delivered to Hyatt (i) the annual reports on Form 10-K for
its fiscal year ended October 31, 1995 (ii) its quarterly report on Form
10-Q for its fiscal quarter ended July 31, 1996, (iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of IFT held since January 1, 1996, and (iv)
all of its other reports, statements, schedules and registration statements
filed by IFT with the Securities and Exchange Commission (the "SEC") since
January 1, 1993 (collectively, "SEC REPORTS").
(b) As of its filing date, each SEC Report filed pursuant to the
Exchange Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading, it being understood that in making the representation in
this Section 5.6(b), IFT reserves the right to assert defenses, if any, it
could have asserted if a violation of Section 10(b) of the Exchange Act had
been alleged.
16
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(c) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act of 1933, as amended (THE
"SECURITIES ACT"), as of the date such statement or amendment became
effective did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, it being understood that in
making the representation in this Section 5.6(c), IFT reserves the right to
assert defenses, if any, it could have asserted if a violation of Sections
11 or 12 of the Securities Act had been alleged.
Section 5.7 Financial Statements. The audited financial statements and
--------------------
unaudited interim financial statements of IFT included in its annual reports on
Form 10-K and the quarterly reports on Form 10-Q referred to in Section 5.6 are
true and correct and fairly present, in conformity with generally accepted
accounting principles, applied on a consistent basis (except as may be indicated
in the notes thereto), the financial position of IFT as of the dates thereof and
results of operations and changes in financial position for the periods then
ended (subject to non-material normal year-end adjustments in the case of any
unaudited interim financial statements). For purposes of this Agreement,
"BALANCE SHEET" means IFT's balance sheet as of July 31, 1996, including the
notes thereto, as set forth in IFT's 10-Q referred to in Section 5.6 and
"BALANCE SHEET DATE" means the date of the Balance Sheet.
Section 5.8 Disclosure Documents.
--------------------
(a) Each document required to be filed by IFT with the SEC in
connection with the transactions contemplated by this Agreement (the "IFT
DISCLOSURE DOCUMENTS"), will, when filed, comply as to form in all material
respects with the applicable requirements of the Exchange Act.
(b) The IFT Disclosure Documents will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in the light of the circumstances under
which they were made, not misleading. The representations and warranties
contained in this Section 6.8 will not apply to statements or omissions
included in IFT Disclosure Documents based upon information furnished to
IFT in writing by Hyatt specifically for use therein.
Section 5.9 Intellectual Property. IFT owns or has the right to use
---------------------
(without material payment) the Intellectual Property (as defined below) as is
necessary or appropriate for the conduct of its business as it is now being
conducted and for the conduct of the business of the Joint Ventures
(collectively, the "IFT INTELLECTUAL PROPERTY"). To IFT's knowledge after due
inquiry, no infringement or unauthorized use by IFT of any Intellectual Property
of any third party exists, has occurred or is threatened. Other than as
disclosed in IFT's reports or statements previously filed pursuant to the
Exchange Act, no current or former shareholder, officer, director, consultant,
employee or affiliate of IFT has any right, title or interest in any material
IFT Intellectual Property. For the purposes of this Agreement, "Intellectual
Property" means any and all of a Person's right, title and interest in and to
United States and foreign
17
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patents, copyrights, mask works, trade and service names and marks, whether or
not registered, pending, issued or applied for; technical knowledge; works,
processes and designs; hardware; software (in source code and object code form,
including all related annotations and listings); inventions; trade secrets and
other intellectual property rights; all things authored, made for hire,
discovered, developed, designed or acquired by a Person or, to the extent that a
Person has any right, title or interest thereto, any of their respective agents,
contractors and employees in any stage of development, regardless of whether any
or all of the foregoing constitutes copyrightable or patentable subject matter
or is in tangible or intangible form; and all embodiments, expressions,
representations, fruits and products of any of the foregoing.
Section 5.10 Absence of Certain Changes. Since the Balance Sheet Date
--------------------------
and prior to the Effective Time, IFT has conducted its business in the ordinary
course consistent with past practice and there has not been:
(a) any event, occurrence or development which has had or would
reasonably be expected to have a Material Adverse Effect on IFT; or
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of IFT or any
repurchase, redemption or other acquisition by IFT of any outstanding
shares of capital stock or other securities of, or other ownership
interests in, IFT.
Section 5.11 Litigation. There is no action, suit, investigation or
----------
proceeding (or any basis therefor) pending against or, to the knowledge of IFT,
threatened against or affecting, IFT or any of its properties before any court
or arbitrator or any governmental body, agency or official which, if determined
or resolved adversely to IFT, could reasonably be expected to have a Material
Adverse Effect on IFT, nor is there any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency, instrumentality
or arbitrator outstanding against IFT having, or which, insofar as can
reasonably be foreseen, may have, any such effect.
Section 5.12 Compliance with Laws and Agreements. Except as disclosed in
-----------------------------------
the SEC Reports and except in the case of clauses (a) and (b) (ii), (b) (iii)
and (b) (iv) of this Section 5.12 for breaches, violations and defaults which in
the aggregate do not, and insofar as reasonably can be foreseen could not, have
a Material Adverse Effect on IFT, (a) IFT is not in violation of, nor has it
violated, nor to its best knowledge is it under investigation with respect to,
nor has it received notice or been charged with any violation of, any applicable
provisions of any laws, statutes, ordinances or regulations including, without
limitation, applicable gaming law and (b) IFT is not in breach or violation of
or in default in the performance or observance of any term or provision of, and
no event has occurred which, with lapse of time or action by a third party,
could result in a default under, (i) the certificate of incorporation, bylaws or
similar governing documents of IFT, (ii) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which IFT is a party or by which it is bound or to which any
of its property is subject, (iii) any order, writ, injunction,
18
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decree, statute, rule or regulation applicable to IFT or any of its properties
or assets, or (iv) any certificate, license, Permit, registration, accreditation
or other consent or approval of governmental agencies or accreditation
organizations.
Section 5.13 Finders' Fees. Except for Houlihan, Lokey, Howard & Zukin a
-------------
copy of whose engagement agreement has been heretofore provided to Hyatt, there
is no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf, of IFT who might be entitled to
any fee or commission upon consummation of the transactions contemplated by this
Agreement.
Section 5.14 Full Disclosure; No Misrepresentations. No information
--------------------------------------
contained in the representations and warranties of IFT set forth in this
Agreement or in any of the certificates, schedules, exhibits or other documents
and instruments to be delivered to Hyatt hereunder contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading. To the knowledge of IFT, there is no fact or
condition which has not been heretofore disclosed to Hyatt in writing which has
a Material Adverse Effect on IFT, or would reasonably be expected to have a
Material Adverse Effect on IFT.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HYATT
Hyatt hereby represents and warrants to IFT as follows:
Section 6.1 Corporate Existence and Power. Hyatt is a corporation
-----------------------------
duly incorporated, validly existing and in good standing under the laws of
Delaware and has all corporate powers and authority and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted, except where the failure to obtain such items,
individually or in the aggregate, would not have a Material Adverse Effect on
Hyatt.
Section 6.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by Hyatt of this Agreement and the Registration Rights Agreement and
the consummation by Hyatt of the transactions contemplated hereby and thereby
are within the corporate powers of Hyatt and have been duly authorized by all
necessary corporate action. Each of this Agreement and the Registration Rights
Agreement constitutes a valid and binding agreement of each of Hyatt enforceable
against Hyatt in accordance with its terms, except as such enforcement may be
subject to (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (b) general principles of equity (whether considered in a proceeding in
equity or at law).
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Section 6.3 Consents; Approvals. The execution, delivery and
-------------------
performance by Hyatt of this Agreement and the Registration Rights Agreement and
the consummation by Hyatt of the transactions contemplated hereby and thereby
require no action by or in respect of, notices to or filing with, any
governmental body, agency, official or authority or any third party provided,
--------
however, under certain circumstances Hyatt or members of the Hyatt Group may be
- -------
required to comply with the notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Section 6.4 Non-Contravention. The execution, delivery and
-----------------
performance by Hyatt of this Agreement and the Registration Rights Agreement and
the consummation by Hyatt of the transactions contemplated hereby and thereby do
not and will not (except in the case of clauses (b), (c) and (d) of this Section
6.4, for any such matters that, individually or in the aggregate, have not had,
and will not have, a Material Adverse Effect on Hyatt) (a) contravene or
conflict with the certificate of incorporation or bylaws of Hyatt, (b) assuming
compliance with the matters referred to in Section 6.3, contravene or conflict
with any provision of law, regulation, judgment, order or decree binding upon or
applicable to Hyatt or any of its respective properties, (c) constitute a
default under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of Hyatt or to a loss of any benefit to
which Hyatt is entitled under any agreement, contract or other instrument
binding upon or applicable to Hyatt or (d) result in the creation or imposition
of any Lien on any asset of Hyatt.
Section 6.5 Disclosure Documents. The information with respect to
--------------------
Hyatt and its subsidiaries, the Hyatt Group and the Hyatt Designees that Hyatt
furnishes to IFT in writing specifically for use in any IFT Disclosure Document
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
Section 6.6 Litigation. There is no action, suit, investigation or
----------
proceeding (or any basis therefor) pending against or, to the knowledge of
Hyatt, threatened against, or affecting, Hyatt which, if resolved adversely to
Hyatt, would reasonably be expected to prohibit or prevent Hyatt's ability to
consummate the transactions contemplated hereby.
Section 6.7 Finders' Fees. There is no investment banker, broker,
-------------
finder or other intermediary engaged by or on behalf of Hyatt who might be
entitled to any fee or commission upon consummation of the transactions
contemplated by this Agreement.
Section 6.8 Full Disclosure; No Misrepresentations. No information
--------------------------------------
contained in the representations and warranties of Hyatt set forth in this
Agreement or in any of the certificates, schedules, exhibits or other documents
and instruments to be delivered to IFT hereunder contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading. To the knowledge of Hyatt, there is no fact or
condition which has not been heretofore disclosed to IFT in writing which has a
Material Adverse Effect on Hyatt, or would reasonably be expected to have a
Material Adverse Effect on Hyatt.
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ARTICLE VII
INDEMNIFICATION
Section 7.1 Indemnification of Hyatt.
------------------------
(a) Survival. All agreements, covenants, representations and
--------
warranties contained herein and made in writing by or on behalf of the
parties hereto in connection with the transactions contemplated hereby
shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(b) Hyatt's Right to Indemnification. Subject to the provisions of
--------------------------------
this Article VIII, IFT hereby agrees to indemnify and hold harmless Hyatt,
the Hyatt Group, the Hyatt Designees and their respective officers,
directors, shareholders, partners, employees, agents, attorneys,
affiliates, successors, predecessors and assigns (collectively, the "HYATT
INDEMNIFIED PARTIES") from and against (i) any and all losses, obligations,
liabilities, damages, claims, deficiencies, costs and expenses (including,
but not limited to, the amount of any settlement entered into pursuant
hereto and all reasonable legal and other expenses incurred in connection
with the investigation, prosecution or defense of the matter but excluding
consequential damages) (collectively "CLAIMS"), which may be asserted
against or sustained or incurred by the Hyatt Indemnified Parties in
connection with, arising out of, or relating to (A) any breach or alleged
breach of any of the representations, warranties, agreements and covenants
made by IFT herein or in any certificate or other document delivered to any
Hyatt Indemnified Party by or on behalf of IFT in connection with this
Agreement; or (B) any false, incorrect or misleading representation or
warranty made by or on behalf of IFT herein or in any certificate or other
document delivered to any Hyatt Indemnified Party by or on behalf of IFT in
connection with this Agreement; and (ii) any and all costs and expenses
(including, but not limited to, reasonable legal expenses) incurred by any
Hyatt Indemnified Party in connection with the enforcement of its rights
under this Agreement.
Section 7.2 Procedure for Claims.
--------------------
(a) Notice of Claim. Promptly, but in any event within 10 days after
---------------
obtaining knowledge of any claim or demand which may give rise to, or could
reasonably give rise to, a claim for indemnification hereunder (referred to
herein as an "INDEMNIFICATION CLAIM"), Hyatt shall give written notice to
IFT of such Indemnification Claim ("NOTICE OF CLAIM"). A Notice of Claim
shall be given with respect to all Indemnification Claims; provided,
--------
however, that the failure to give a timely Notice of Claim to IFT shall not
-------
relieve IFT from any liability that it may have to the Hyatt Indemnified
Parties hereunder to the extent that IFT is not prejudiced by such failure.
The Notice of Claim shall set forth the amount (or a reasonable estimate)
of the loss, damage or expense suffered, or which may be suffered, by the
Hyatt Indemnified Party
21
<PAGE>
as a result of such Indemnification Claim and the aggregate amount of all
Indemnification Claims to date and a brief description of the facts giving
rise to such Indemnification Claim. Hyatt shall furnish to IFT such
information (in reasonable detail) as Hyatt may have with respect to such
Indemnification Claim (including copies of any summons, complaint or other
pleading which may have been served on it and any written claim, demand,
invoice, billing or other document evidencing or asserting the same).
(b) Third Party Claims.
------------------
(i) If the claim or demand set forth in the Notice of Claim
is a claim or demand asserted by a third party (a "THIRD PARTY
CLAIM"), IFT shall have fifteen days (or such shorter period (but not
less than ten days) if an answer or other response or filing with
respect to the pleadings served by the third party is required prior
to the fifteenth day) after the date of receipt by IFT of the Notice
of Claim (the "NOTICE DATE") to notify Hyatt in writing of the
election by IFT to defend the Third Party Claim on behalf of the Hyatt
Indemnified Parties.
(ii) If IFT elects to defend a Third Party Claim on behalf
of the Hyatt Indemnified Parties, Hyatt shall make available to IFT
and its agents and representatives all records and other materials in
Hyatt's possession which are reasonably required in the defense of the
Third Party Claim and IFT shall pay any expenses payable in connection
with the defense of the Third Party Claim as they are incurred
(whether incurred by Hyatt or IFT).
(iii) If IFT has assumed control of the defense, IFT may
contest or settle the Third Party Claim on such terms as IFT may
choose, provided that IFT will not have the right, without Hyatt's
-------------
prior written consent, to settle any such claim if such settlement (i)
arises from or is part of any criminal action, suit or proceeding,
(ii) contains a stipulation to, confession of judgment with respect
to, or admission or acknowledgement of, any liability or wrongdoing on
the part of any Hyatt Indemnified Party, (iii) relates to any foreign
federal, state or local tax matters, (iv) provides for injunctive
relief, or other relief other than damages, which is binding on any
Hyatt Indemnified Party, (v) does not fully release all Hyatt
Indemnified Parties with respect to the relevant Third Party Claim or
(vi) has any res judicata or collateral estoppel effect that could be
adverse to any Hyatt Indemnified Party.
(iv) If IFT elects to defend a Third Party Claim, the Hyatt
Indemnified Parties shall have the right to participate in the defense
of the Third Party Claim, at the Hyatt Indemnified Parties' expense
(and without the right to indemnification for such expense under this
Agreement); provided, however, that the reasonable fees and expenses
-------- -------
of counsel retained by the Hyatt Indemnified
22
<PAGE>
Parties shall be at the expense of IFT if (A) the use of the counsel
chosen by IFT to represent the Hyatt Indemnified Parties would present
such counsel with a conflict of interest; (B) the parties to such
proceeding include both Hyatt Indemnified Parties and IFT and there
may be legal defenses available to Hyatt Indemnified Parties which are
different from or additional to those available to IFT; (C) within ten
days after being advised by IFT of the identity of counsel to be
retained to represent Hyatt Indemnified Parties, Hyatt shall have
objected to the retention of such counsel for valid reasons (which
shall be stated in a written notice to IFT), and IFT shall not have
retained different counsel reasonably satisfactory to Hyatt; or (iv)
IFT shall authorize the Hyatt Indemnified Parties to retain separate
counsel at the expense of IFT.
(v) If IFT elects to defend a Third Party Claim, and does
not defend a Third Party Claim in good faith, the Hyatt Indemnified
Parties shall have the right, in addition to any other right or remedy
it may have hereunder, at the sole and exclusive expense of IFT, to
defend such Third Party Claim; provided, however, that such expenses
-------- -------
shall be payable by IFT only if and when such Third Party Claim
becomes payable.
(c) Cooperation in Defense. Hyatt shall cooperate with IFT in the
----------------------
defense of Third Party Claims. Subject to the foregoing, (i) the
Hyatt Indemnified Parties shall not have any obligation to participate
in the defense of or to defend any Third Party Claim and (ii) the
Hyatt Indemnified Parties' defense of or its participation in the
defense of any Third Party Claim shall not in any way diminish or
lessen its right to indemnification as provided in this Agreement.
Section 7.3 Indemnification of IFT. Subject to the provisions of this
----------------------
Article VIII, Hyatt agrees to indemnify and hold harmless IFT, its officers,
directors, shareholders, employees, agents, attorneys, affiliates, successors,
predecessors and assigns (collectively, the "IFT INDEMNIFIED PARTIES") from and
against (a) Claims which may be asserted against or sustained or incurred by the
IFT Indemnified Parties in connection with, arising out of, or relating to (i)
any breach or alleged breach of any of the representations, warranties,
agreements and covenants made by Hyatt herein or in any certificate or other
document delivered to IFT by or on behalf of Hyatt in connection with this
Agreement; or (ii) any false, incorrect or misleading representation or warranty
made by or on behalf of Hyatt herein or in any certificate delivered to IFT by
or on behalf of Hyatt in connection with this Agreement and (b) any and all
costs and expenses (including, but, not limited to, reasonable legal expenses)
incurred by the IFT Indemnified Parties in connection with the enforcement of
its rights under this Agreement. The procedures for indemnification of the IFT
Indemnified Parties by Hyatt shall be the same as those set forth in Section
7.2, including the restriction on settling Third Party Claims set forth in
Section 7.2(b)(iii).
23
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 8.1 Expenses. Except as otherwise specified in this Agreement,
--------
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
Section 8.2 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by reputable overnight courier service, by cable, by telecopy, by
telegram, by telex or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section 9.2):
(a) if to Hyatt:
Hyatt Ventures, Inc.
200 West Madison, Suite 3800
Chicago, Illinois 60606
Telecopy: 312/750-8545
Attention: Harold S. Handelsman
with a copy to:
Neal, Gerber & Eisenberg
Two North LaSalle Street
Chicago, Illinois 60602
Telecopy: 312/269-1747
Attention: Michael A. Pucker
(b) if to IFT:
Interactive Flight Technologies, Inc.
4041 N. Central Avenue, Suite 2000
Phoenix, Arizona 85012
Telecopy: 602/274-8372
Attention: President
24
<PAGE>
with a copy to:
Irell & Manella, LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Telecopy: 310/203-7199
Attention: Theodore E. Guth
Section 8.3 Public Announcements. Neither party shall issue or cause
--------------------
(or permit any of its respective affiliates to issue or cause) the publication
of any press release or other public announcement with respect to, or otherwise
make any public statement concerning, the transactions contemplated by this
Agreement without the prior consent of the other party, which consent shall not
be unreasonably withheld, except as may be required by law or regulation or by
obligations pursuant to any listing agreement with any national securities
exchange or the NASDAQ National Market System; provided, however, that in the
-------- -------
event such disclosure is so required the disclosing party shall give notice of
such disclosure to the non-disclosing party.
Section 8.4 Headings. The descriptive headings contained in this
--------
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 8.5 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
Section 8.6 Entire Agreement. This Agreement and all of the other
----------------
documents to be entered into between the parties referred to herein, which are
incorporated herein by this reference, constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersedes all prior agreements and undertakings, both written and oral, between
IFT and Hyatt with respect to the subject matter hereof and thereof.
Section 8.7 Assignment. This Agreement and the rights and duties
----------
hereunder may not be assigned or delegated by operation of law or otherwise
without the express written consent of IFT and Hyatt (which consent may be
granted or withheld in the sole discretion of IFT or Hyatt, as applicable);
provided, however, that Hyatt may without the prior written consent of IFT
- -------- -------
assign any or all of its rights and delegate its duties hereunder to any member
of the Hyatt Group.
25
<PAGE>
Section 8.8 Amendment; Waiver. This Agreement may not be amended or
-----------------
modified except by an instrument in writing signed by, or on behalf of, IFT and
Hyatt. Either party to this Agreement may (a) extend the time for the
performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document delivered by the other party pursuant hereto
or (c) waive compliance with any of the agreements or conditions of the other
party contained herein. Any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by the party to be bound thereby. Any
waiver of any term or condition shall not be construed as a waiver of any
subsequent breach or a subsequent waiver of the same term or condition, or a
waiver of any other term or condition, of this Agreement. The failure of any
party to assert any of its rights hereunder shall not constitute a waiver of any
of such rights.
Section 8.9 Governing Law; Forum. This Agreement shall be governed by,
--------------------
and construed in accordance with, the laws of the State of Delaware, applicable
to contracts executed in and to be performed entirely within that state. The
parties irrevocably agree that all actions arising directly or indirectly as a
result or in consequence of this Agreement and the transactions contemplated
hereby, shall be instituted and litigated only in federal, state or local courts
sitting in the City of Wilmington, Delaware and each of the parties hereby
consents to the exclusive jurisdiction and venue of any such court, and waives
any objection based on forum nonconveniens.
-------------
Section 8.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 8.11 Attorneys' Fees. If any legal action or other proceeding is
---------------
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.
Section 8.12 Further Action. Each of the parties hereto shall use all
--------------
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and consummate and
make effective the transactions contemplated by this Agreement.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
26
<PAGE>
IN WITNESS WHEREOF, Each of IFT and Hyatt has caused this Agreement to be
executed by its duly authorized officer, in each case as of the date first
written above.
HYATT VENTURES, INC.
By: __________________________________________
Title:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: __________________________________________
Title:
SIGNATURE PAGE TO STRATEGIC ALLIANCE AGREEMENT
<PAGE>
EXHIBIT 1.4
-----------
TO
--
STRATEGIC ALLIANCE AGREEMENT
----------------------------
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
STOCK PURCHASE WARRANT
THE WARRANTS EVIDENCED HEREBY AND THE SHARES OF STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
OFFERED OR SOLD WITHOUT REGISTRATION UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE UNDER SUCH ACT OR THE RULES OR
REGULATIONS PROMULGATED THEREUNDER
WARRANT TO PURCHASE ____ SHARES OF CLASS A COMMON STOCK
AS DESCRIBED HEREIN
Issue Date: ___________, 199_.
Expiration Date: ___________, 2001.
This certifies that, for value received, _________________, a ________
corporation, and permitted successors and assigns ("HOLDER") is entitled to
purchase from Interactive Flight Technologies, Inc., a Delaware corporation,
(the "COMPANY") up to and including _______________ fully paid and nonassessable
shares (the "NUMBER OF SHARES") of the Class A Common Stock of the Company, $.01
par value (the "CLASS A COMMON STOCK"), on the terms set forth herein at an
exercise price of $9.875 per share (the "PURCHASE PRICE"). The Number of Shares
and the Purchase Price may be adjusted from time to time as described in this
Warrant.
1. EXERCISE.
--------
1.1 TIME FOR EXERCISE. This Warrant may be exercised in whole or in part
-----------------
at any time, and from time to time, during the period commencing on the date of
this Warrant and expiring on ______, 2001.
1.2 MANNER OF EXERCISE. This Warrant shall be exercised by delivering it
------------------
to the Company with the exercise form duly completed and signed, specifying the
number of shares as to which the Warrant is being exercised at that time (the
"EXERCISE NUMBER"). The Holder shall simultaneously deliver to the Company
cash, shares of Common Stock then held by Holder, or a certified check or wire
transfer in an amount equal to the Exercise Number multiplied by the Purchase
Price, and the Holder shall be entitled to receive the full Exercise Number of
shares of Class A Common Stock.
<PAGE>
1.3 EFFECTIVE DATE OF EXERCISE. Promptly (but in any case within five (5)
--------------------------
business days) after any exercise, the Company shall deliver to the Holder (i)
duly executed certificates in the name or names specified in the exercise notice
representing the aggregate number of shares issuable upon such exercise, and
(ii) if this Warrant is exercised only in part, a new Warrant of like tenor
exercisable for the balance of the Number of Shares. Such certificates shall be
deemed to have been issued, and the person receiving them shall be deemed to be
a holder of record of such shares, as of the close of business on the date the
actions required in Section 1.2 shall have been completed or, if on that date
the stock transfer books of the Company are closed, as of the next business day.
2. TRANSFER OF WARRANTS AND STOCK.
------------------------------
2.1 TRANSFER RESTRICTIONS. Neither this Warrant nor the securities
---------------------
issuable upon its exercise may be sold, transferred or pledged unless the
Company shall have been supplied with reasonably satisfactory evidence that such
transfer is not in violation of the Securities Act of 1933, as amended, and any
applicable state securities laws. The Company may place a legend to that effect
on this Warrant, any replacement Warrant and each certificate representing
shares issuable upon exercise of this Warrant. Subject to the satisfaction of
this condition only, this Warrant shall be freely transferable by the Holder.
2.2 MANNER OF TRANSFER. Upon delivery of this Warrant to the Company with
------------------
the assignment form duly completed and signed, the Company will promptly (but in
any case within five (5) business days) execute and deliver to each transferee
and, if applicable, the Holder, Warrants of like tenor evidencing the rights (i)
of the transferee(s) to purchase the Number of Shares specified for each in the
assignment forms, and (ii) of the Holder to purchase any untransferred portion,
which in the aggregate shall equal the Number of Shares of the original Warrant.
The Company may decline to proceed with any partial transfer if any new Warrant
would represent the right to purchase fewer than 1,000 shares of Class A Common
Stock (such number to be adjusted as provided in Section 4). If this Warrant
is properly assigned in compliance with this Section 2, it may be exercised by
an assignee without having a new Warrant issued.
2.3 LOSS, DESTRUCTION OF WARRANT CERTIFICATES. Upon receipt of (i)
-----------------------------------------
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Warrant and (ii) except in the case of mutilation, an
indemnity or security reasonably satisfactory to the Company, the Company will
promptly (but in any case within five (5) business days) execute and deliver a
replacement Warrant of like tenor representing the right to purchase the same
Number of Shares.
3. COST OF ISSUANCES. The Company shall pay all expenses, transfer taxes and
-----------------
other charges payable in connection with the preparation, issuance and delivery
of stock certificates or replacement Warrants, except for any transfer tax or
other charge imposed as a result of (a) any issuance of certificates in any name
other than the name of
2
<PAGE>
the Holder, or (b) any transfer of the Warrant. The Company shall not be
required to issue or deliver any stock certificate or Warrant until it receives
reasonably satisfactory evidence that any such tax or other charge has been paid
by the Holder.
4. ANTI-DILUTION PROVISIONS. If any of the following events occur at any time
------------------------
hereafter during the life of this Warrant, then the Purchase Price and the
Number of Shares immediately prior to such event shall be changed as described
in order to prevent dilution:
4.1 DIVIDENDS: STOCK SPLITS ETC.. In case the Company shall (a) pay a
----------------------------
dividend in shares of Common Stock or make a distribution in shares of Common
Stock, (b) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, (c) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, the Number of Shares purchasable
upon the exercise of this Warrant immediately prior thereto shall be adjusted so
that the Number of Shares purchasable upon exercise of this Warrant shall be
determined by multiplying the Number of Shares theretofore purchasable upon the
exercise of this Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately following such action
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately prior thereto. Such adjustment shall be made whenever
any event listed above shall occur and shall become effective immediately after
the record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. If the Company declares a dividend in money on its Common
Stock and at substantially the same time offers its stockholders a right to
purchase new shares of Common Stock from the proceeds of such dividend, or for
an amount substantially equal to such dividend, all shares of Common Stock so
issued shall for purposes hereof be deemed issued as a stock dividend.
4.2 ISSUANCE OF RIGHTS OR WARRANTS TO HOLDERS. In case the Company shall
-----------------------------------------
issue rights, options or warrants to all holders of its shares of Common Stock
entitling them (for a period expiring within 45 days after the record date
therefor) to subscribe for or purchase shares of Common Stock at a price per
share which is lower at the record date mentioned below than the then Current
Market Price per share of Common Stock (as hereinafter defined), the Number of
Shares thereafter purchasable upon the exercise of this Warrant shall be
determined by multiplying the Number of Shares theretofore purchasable upon
exercise of this Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares which the aggregate
offering price of the total number of shares of Common Stock so offered would
purchase at the then Current Market Price per share of Common Stock.
4.3 MERGER; CONSOLIDATION; SALE OF ASSETS. In case of (i) the
-------------------------------------
consolidation or the merger of the Company or (ii) the sale of all or
substantially all of the properties
3
<PAGE>
and assets of the Company to any Person, this Warrant shall, after such
consolidation, merger or sale, entitle the Holder to receive upon exercise the
number of shares of stock or other securities or property (including cash) of
the Person resulting from such consolidation or surviving such merger or to
which such sale shall be made, or of the parent of such Person, as the case may
be, which the holder of securities deliverable upon exercise of this Warrant (at
the time of such consolidation, merger or sale) would have been entitled to
receive upon such consolidation, merger or sale; and in any such case the
provisions of Section 4 with respect to the rights and interests thereafter of
the holders of Warrants shall be appropriately adjusted so as to be applicable,
as nearly as practicable, to any shares of stock or other securities or any
property (including cash) thereafter deliverable upon exercise of this Warrant.
The Person resulting from such sale or consolidation or surviving such merger or
to which such sale shall be made shall execute and deliver to the Holder a
supplemental agreement as provided in Section 5.5 below. Any adjustment
pursuant to this Section 4.3 which shall be approved in good faith by the Board
of Directors of the Company pursuant to a resolution delivered to the Holder
shall be conclusive for all purposes hereof. For the purposes of this Agreement
"Person" means any individual, partnership, firm, corporation, limited liability
company or partnership, association, trust, unincorporated organization or other
entity, as well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
4.4 OTHER DISTRIBUTIONS. In case the Company shall distribute to all
-------------------
holders of its shares of Common Stock shares of stock other than Common Stock or
evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or retained earnings and
dividends or distributions referred to in Section 4.1 above) or rights, options
or warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred to in
Section 4.2 above), then in each case the Number of Shares thereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the Number of Shares theretofore purchasable upon the exercise of this Warrant,
by a fraction of which the numerator shall be the Current Market Price per share
of Common Stock on the record date mentioned below in this Section 4.4, and of
which the denominator shall be the Current Market Price per share of Common
Stock on such record date, less the then fair value (as reasonably determined by
the Board of Directors of the Company in good faith, whose determination shall
be conclusive absent manifest error, irrespective of the accounting treatment
thereof) of the portion of the shares of stock other than Common Stock or assets
or evidences of indebtedness so distributed or of such subscription rights,
options or warrants, or of such convertible or exchangeable securities
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
distribution.
4.5 BELOW MARKET ISSUANCES OF COMMON STOCK. Other than pursuant to (a) a
--------------------------------------
public offering of Common Stock in connection with which the Company has engaged
underwriters on a firm commitment or best efforts basis or (b) a sale of Common
Stock
4
<PAGE>
to one or more qualified institutional buyers pursuant to Rule 144A of the
Securities Act of 1933, as amended (the "Securities Act"), in the event that the
Company shall issue shares of Common Stock (excluding shares issued as a
consequence of any transaction described in Sections 4.1, 4.2, 4.4 or 4.6) or
issued upon exercise or conversion of, or in exchange for, any securities issued
pursuant to said Sections, for a consideration per share of Common Stock less
than the Current Market Price per share of Class A Common Stock on the date the
Company fixes the offering price of such additional shares, the Purchase Price
shall be adjusted immediately after the issuance of such additional shares so
that it shall equal the price determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction the numerator of which shall be
the total number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares plus the number of shares of Common Stock
which the aggregate consideration received (determined as provided in Section
4.8) for the issuance of such additional shares would purchase at such Current
Market Price per share of Class A Common Stock, and the denominator of which
shall be the number of shares outstanding immediately after the issuance of such
additional shares.
4.6 BELOW MARKET ISSUANCE OF OTHER SECURITIES. Other than pursuant to (a)
-----------------------------------------
a public offering of securities convertible into or exchangeable for Common
Stock in connection with which the Company has engaged underwriters on a firm
commitment or best efforts basis or (b) a sale of Common Stock to one or more
qualified institutional buyers pursuant to Rule 144A of the Securities Act, in
the event that the Company shall issue any securities convertible into or
exchangeable for shares of Common Stock (excluding securities issued in
transaction described in Sections 4.2 and 4.3 above) for an aggregate
consideration (determined as provided in Section 4.8 which, when divided by the
number of shares of Common Stock initially deliverable upon conversion or
exchange of such securities, is less than the Current Market Price per share of
Class A Common Stock in effect immediately prior to the issuance of such
securities, the Purchase Price shall be adjusted immediately thereafter so that
it shall equal the price determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such securities plus the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Section 4.8 from the issuance
of such securities would purchase at the Current Market Price per share of Class
A Common Stock and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the maximum
number of shares of Common Stock deliverable upon conversion of or in exchange
for such securities at the initial conversion or exchange price or rate.
4.7 ADDITIONAL ADJUSTMENT OF PURCHASE PRICE. Whenever the Number of
---------------------------------------
Shares purchasable upon the exercise of this Warrant is adjusted, as provided
herein, the Purchase Price payable upon exercise of this Warrant shall be
adjusted by multiplying such Purchase Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the Number of Shares purchasable
upon the exercise of this Warrant
5
<PAGE>
immediately prior to such adjustment, and of which the denominator shall be the
Number of Shares so purchasable immediately thereafter.
4.8 GUIDELINES FOR COMPUTATIONS. For purposes of any computation
---------------------------
respecting consideration received pursuant to Sections 4.5 and 4.6, the
following shall apply:
(a) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(b) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined
in good faith by the Board of Directors of the Company (irrespective of the
accounting treatment thereof) and described in a Board resolution; and
(c) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration
received from the issuance of such securities shall be deemed to be the
consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the consideration in each
case to be determined in the same manner as provided in clauses (a) and (b)
above).
4.9 NO DE MINIMIS ADJUSTMENTS. No adjustment in the Purchase Price shall
-------------------------
be required unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which by reason
of this Section 4.9 are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 4.9 shall be made to the nearest one-twentieth of a cent or to the
nearest one-hundredth of a share, as the case may be.
4.10 TREASURY SHARES. For the purpose of Section 4, shares of Common
---------------
Stock or other securities held in the treasury of the Company shall not be
deemed to be outstanding, and the sale or other disposition of any shares of
Common Stock or other securities held in the treasury of the Company shall be
deemed an issuance thereof.
4.11 CORPORATE ACTION. Before taking any action which would cause an
----------------
adjustment reducing the Purchase Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of this Warrant, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Purchase Price.
6
<PAGE>
4.12 INDEPENDENT PUBLIC ACCOUNTANTS. The certificate of a "Big Six" firm
------------------------------
of independent public accountants selected by the Board of Directors of the
Company shall be conclusive evidence of the correctness of any computation made
under this Section 4.
4.13 NOTICE OF CERTAIN EVENTS. In case at any time prior to the expiration
------------------------
date of this Warrant:
(i) the Company shall authorize the granting to all the holders
of Common Stock of rights to subscribe for or purchase any shares of stock
of any class or of any other rights; or
(ii) there shall be any reclassification of the Common Stock of
the Company (other than a subdivision or combination of its outstanding
Common Stock); or
(iii) there shall be any capital reorganization by the Company;
or
(iv) there shall be a consolidation or merger involving the
Company or sale of all or substantially all of the Company's property and
assets (except a merger or other reorganization in which the Company shall
be the surviving corporation or a consolidation, merger or sale with a
wholly-owned subsidiary); or
(v) there shall be voluntary or involuntary dissolution,
liquidation and winding up by the Company or dividend or distribution to
holders of Common Stock (other than the Company's customary cash and stock
dividends);
then in any one or more of said cases, the Company shall cause to be delivered
to the Holder, at the earliest practicable time (and, in any event, not less
than 25 days before any record date or other date set for definitive action),
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution or subscription rights or such
reorganization, sale, consolidation, merger, dissolution, liquidation or winding
up shall take place, as the case may be. Such notice shall also set forth such
facts as shall indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Purchase Price and the kind and
amount of the shares of stock and other securities and property deliverable upon
exercise of the Warrants. Such notice shall also specify the date, if known, as
of which the holders of record of the Common Stock shall participate in said
dividend, distribution or subscription rights or shall be entitled to exchange
their shares of the Common Stock for securities or other property (including
cash) deliverable upon such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up, as the case may be (on which date, in
the event of voluntary or involuntary dissolution, liquidation, or winding up of
the Company, other than dissolution, liquidation or winding up following a
7
<PAGE>
consolidation or merger of the Company with or into, or sale of substantially
all of its assets to, another corporation, the rights to exercise this Warrant
shall terminate).
4.14 EXERCISE OF EXISTING RIGHTS. The Number of Shares shall be increased
---------------------------
from time to time by 11.111% of the number of shares issued upon exercise of the
Company's presently outstanding warrants, Unit Purchase Options, or stock
options. The Number of Shares shall be reduced from time to time by 11.111% of
the number of shares of Class B Common Stock which are returned to Company and
placed in its treasury under Section 4(f) of the Restated Escrow Agreement,
dated as of November 30, 1994 (as amended by the Amended Escrow Agreement dated
as of February 29, 1996), among the Company and certain holders of Class B
Common Stock; provided, however, that any such reduction arising with respect to
--------
Class B Common Stock beneficially held by any particular holder shall be offset
by 11.111% of the number shares issued upon exercise of any stock options,
warrants or other similar rights hereafter granted by the Company to such
holder. The Purchase Price shall not be affected by this Section 4.14.
4.15 OTHER SECURITIES ADJUSTMENTS. If as a result of this Section 4, a
----------------------------
Holder is entitled to receive any securities other than Class A Common Stock
upon exercise of this Warrant, the number and purchase price of such securities
shall thereafter be adjusted from time to time in the same manner as provided
pursuant to this Section 4 for Class A Common Stock. The allocation of
purchase price between various securities shall be made in writing by the Board
of Directors of the Company in good faith at the time of the event by which the
Holder became entitled to receive new securities, and a copy sent to the Holder.
4.16 NOTICES OF ADJUSTMENTS. When any adjustment is required to be made
----------------------
under this Section 4, the Company shall promptly (i) determine such
adjustments, (ii) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the adjustment; and (iii) cause
a copy of such statement, together with any agreement required by Section 5.5,
to be mailed to the Holder within 10 days after the date on which the
circumstances giving rise to such adjustment occurred.
4.17 COMPUTATIONS AND ADJUSTMENTS. Upon each computation of an adjustment
----------------------------
under this Section 4, the Purchase Price shall be computed to the nearest cent
and the Number of Shares shall be calculated to the next highest whole share.
However, the fractional amount shall be used in calculating any future
adjustments. No fractional shares of Class A Common Stock shall be issued in
connection with the exercise of this Warrant, but the Company shall, in the case
of the final exercise under this Warrant, make a cash payment for any fractional
shares based on the Current Market Price of the Class A Common Stock on the date
of exercise. Notwithstanding any changes in the Purchase Price or the Number of
Shares, this Warrant, and any Warrants issued in replacement or upon transfer
thereof, may continue to state the initial Purchase Price and the Number of
Shares. Alternatively, the Company may elect to issue a new Warrant or Warrants
of like tenor for the additional shares of Class A Common Stock purchasable
8
<PAGE>
hereunder or, upon surrender of the existing Warrant, to issue a replacement
Warrant evidencing all the Warrants to which the Holder is entitled after such
adjustments.
4.18 EXERCISE BEFORE PAYMENT DATE. In the event that this Warrant is
----------------------------
exercised after the record date for any event requiring an adjustment, but prior
to the actual event, the Company may elect to defer the adjusted amount to the
Holder until the actual event occurs; provided, however, that the Company shall
deliver a Due Bill or other appropriate instrument to the Holder transferrable
to the same extent as the other Securities issuable on exercise evidencing the
Holder's right to receive such additional amount upon the occurrence of the
event requiring such adjustment.
4.19 CURRENT MARKET PRICE. "CURRENT MARKET PRICE" for the Class A Common
--------------------
Stock on any given date means (i) the average closing price for the prior ten
trading days for the Class A Common Stock on the principal stock exchange on
which the Class A Common Stock is traded or (ii) if not so traded, the closing
price (or, if no closing price is available, the average of the bid and asked
prices) for such period on the NASDAQ if the Class A Common Stock is listed on
the NASDAQ or (iii) if not listed on any exchange or quoted on the NASDAQ, such
value as may be determined in good faith by the Company's Board of Directors,
which determination shall be conclusively binding on the parties.
5. COVENANTS. The Company agrees that:
---------
5.1 RESERVATION OF STOCK. During the period in which this Warrant may be
--------------------
exercised, the Company will reserve sufficient authorized but unissued
securities to enable it to satisfy its obligations on exercise of this Warrant
and shall use its reasonable best efforts to cause all shares of Class A Common
Stock issued upon the exercise of this Warrant to be listed on any exchanges on
which the Class A Common Stock is then listed. If at any time the Company's
authorized securities shall not be sufficient to allow the exercise of this
Warrant, the Company shall take such corporate action as may be necessary to
increase its authorized but unissued securities to be sufficient for such
purpose;
5.2 NO LIENS, ETC. All securities that may be issued upon exercise of
-------------
this Warrant will, upon issuance, be validly issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and shall be listed on any exchanges on which that class of securities is
listed;
5.3 FURNISH INFORMATION. The Company will promptly deliver to the Holder
-------------------
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally; and
5.4 STOCK AND WARRANT TRANSFER BOOKS. Except upon dissolution,
--------------------------------
liquidation or winding up or for ordinary holidays and weekends, the Company
will not at any time close its stock or warrant transfer books so as to result
in preventing or delaying the exercise or transfer of this Warrant.
9
<PAGE>
5.5 MERGER; CONSOLIDATION OR SALE OF ASSETS OF THE COMPANY. Except in the
------------------------------------------------------
case of a merger or consolidation where the consideration is payable entirely in
cash or obligations, the Company will not merge or consolidate with or into any
Person, or sell or otherwise transfer its property, assets and business
substantially as an entirety to a successor Person, unless the Person resulting
from such merger or consolidation (if not the Company), or such successor
Person, shall expressly assume, by supplemental agreement reasonably
satisfactory in form to the then Majority Holders and executed and delivered to
the Holders, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company. "MAJORITY HOLDERS", as of any date, shall mean holders of warrants
issued pursuant to the Strategic Alliance Agreement dated as of November 12,
1996, between the Company and Hyatt Ventures, Inc. (pursuant to which this
Warrant was issued) which are exercisable for a majority of the shares then
purchasable under all warrants issued pursuant to the Strategic Alliance
Agreement.
6. STATUS OF HOLDER.
----------------
6.1 NOT A STOCKHOLDER. Unless the Holder exercises this Warrant in
-----------------
writing, the Holder shall not be entitled to any rights (i) as a stockholder of
the Company with respect to the shares as to which the Warrant is exercisable
including, without limitation, the right to vote or receive dividends or other
distributions, or (ii) to receive any notice of any proceedings of the Company
except as otherwise provided in this Warrant.
6.2 LIMITATION OF LIABILITY. Unless the Holder exercises this Warrant in
-----------------------
writing, the Holder's rights and privileges hereunder shall not give rise to any
liability for the Purchase Price or as a stockholder of the Company, whether to
the Company or its creditors.
7. REGISTRATION RIGHTS. The shares purchasable upon exercisable of this
-------------------
Warrant shall be Registrable Securities as defined in that certain Registration
Rights Agreement between the Company and Hyatt Ventures, Inc., dated as of even
date herewith (the "REGISTRATION RIGHTS AGREEMENT").
8. GENERAL PROVISIONS.
------------------
8.1 COMPLETE AGREEMENT; MODIFICATIONS. This Warrant and any documents
---------------------------------
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the parties.
8.2 COOPERATION. Each party hereto agrees to execute any and all further
-----------
documents and writings and to perform such other reasonable actions which may be
or become necessary or expedient to effectuate and carry out this Warrant.
10
<PAGE>
8.3 NOTICES. All notices under this Warrant shall be in writing and shall
-------
be delivered by personal service or telecopy or certified mail return receipt
requested (if such service is not available, then by first class mail), postage
prepaid, to such address as may be designated from time to time by the relevant
party, and which shall initially be:
(i) If to the Company:
Interactive Flight Technologies, Inc.
4041 N. Central Avenue, Suite 2000
Phoenix, Arizona 85012
Attention: Michail Itkis, Chief Executive Officer
Telecopy: 602/274-8372
With a copy to:
Irell & Manella
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Theodore E. Guth
Telecopy: 310/203-7199
(ii) If to ___________:
200 West Madison, 38th Floor
Chicago, Illinois 60606
Attention: Harold S. Handelsman
Telecopy: 312/750-8545
With a copy to:
Neal, Gerber & Eisenberg
2 North La Salle, Suite 2200
Chicago, Illinois 60602
Attention: Michael A. Pucker
Telecopy: 312/269-1747
Any notice sent by certified mail shall be deemed to have been given three
(3) days after the date on which it is mailed. All other notices shall be
deemed given when received. No objection may be made to the manner of delivery
of any notice actually received in writing by an authorized agent of a party.
8.4 NO THIRD-PARTY BENEFITS; SUCCESSORS AND ASSIGNS. None of the
-----------------------------------------------
provisions of this Warrant shall be for the benefit of, or enforceable by, any
third-party beneficiary. Except as provided herein to the contrary, this
Warrant shall be binding
11
<PAGE>
upon and inure to the benefit of the parties, their respective successors and
permitted assigns.
8.5 GOVERNING LAW. This Warrant concerns a Delaware corporation, and all
-------------
questions with respect to the Warrant and the rights and liabilities of the
parties will be governed by the laws of Delaware regardless of the choice of law
provisions of Delaware or any other jurisdiction. Any and all disputes between
the parties which may arise pursuant to this Warrant not covered by arbitration
will be heard and determined before an appropriate federal or state court
located in Wilmington, Delaware. The parties hereto acknowledge that such
courts have the jurisdiction to interpret and enforce the provisions of this
Warrant and the parties waive any and all objections that they may have as to
personal jurisdiction or venue in any of the above courts.
8.6 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or right
--------------------------
provided herein or otherwise available to any party hereunder (i) no waiver or
extension of time shall be effective unless expressly contained in a writing
signed by the waiving party; and (ii) no alteration, modification or impairment
shall be implied by reason of any previous waiver, extension of time, delay or
omission in exercise, or other indulgence.
8.7 SEVERABILITY. The validity, legality or enforceability of the
------------
remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any respect.
8.8 ATTORNEYS' FEES. Should any litigation or arbitration be commenced
---------------
(including any proceedings in a bankruptcy court) between the parties hereto or
their representatives concerning any provisions of this Warrant or the rights
and duties of any person or entity hereunder, the party or parties prevailing in
such proceeding shall be
12
<PAGE>
entitled, in addition to such other relief as may be granted, to the attorneys'
fees and court costs incurred by reason of such litigation.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
effective as of ___________________.
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
BY ____________________________
Michail Itkis
Chief Executive Officer
Attest:
_______________________________
[name]
Secretary
13
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns and transfers to the transferee named below the rights to purchase ___
of the Number of Shares under this Warrant, together with all rights, title and
interest therein. The rights to purchase the remaining Number of Shares shall
remain the property of the undersigned.
Dated: _______________
[NAME OF HOLDER]
By: ____________________________
Signature
Name:__________________________
(Please Print)
Address:_______________________
_______________________
_______________________
Employer Identification Number,
Social Security Number or other
identifying number: ____________
TRANSFEREE:
Name: __________________________
(Please Print)
Address: _______________________
_______________________
_______________________
Employer Identification Number,
Social Security Number or other
identifying number:_____________
14
<PAGE>
EXERCISE FORM
-------------
To Be Executed
Upon Exercise of Warrant
The undersigned hereby exercises the Warrant with regard to _____________
shares of Class A Common Stock and herewith makes payment of the purchase price
in full. The undersigned requests that certificate(s) for such shares and the
Warrant for any unexercised portion of this Warrant be issued to the Holder.
Dated: __________________
[NAME OF HOLDER]
By: ____________________________
Signature
Name:__________________________
(Please Print)
Address:_______________________
_______________________
_______________________
Employer Identification Number,
Social Security Number or other
identifying number: ___________
15
<PAGE>
EXHIBIT 2.4 TO STRATEGIC ALLIANCE AGREEMENT
================================================================================
LIMITED LIABILITY COMPANY AGREEMENT
OF
IFT VENTURES I, LLC
[DATE]
================================================================================
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
IFT VENTURES, LLC
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINED TERMS; EXHIBITS, SCHEDULES, ETC................... 1
1.1 Definitions............................................... 1
1.2 Other Defined Terms....................................... 4
1.3 References................................................ 4
ARTICLE II ORGANIZATION.............................................. 5
2.1 Organization of Company................................... 5
2.2 Name...................................................... 5
2.3 Purpose; Character of the Business........................ 5
2.4 Principal Office.......................................... 5
2.5 Registered Agent and Registered Office.................... 5
ARTICLE III CAPITAL CONTRIBUTIONS; ETC................................ 5
3.1 Mandatory Capital Contributions........................... 5
3.2 Voluntary Capital Contributions from Members.............. 5
3.3 Withdrawal; Return of Capital; Interest................... 6
ARTICLE IV ALLOCATION OF NET INCOME AND NET LOSS; ETC................ 6
4.1 Net Income and Net Loss................................... 6
4.2 Tax Withholding........................................... 7
4.3 Capital Accounts.......................................... 7
ARTICLE V DISTRIBUTIONS............................................. 7
ARTICLE VI ACCOUNTING AND ADMINISTRATIVE MATTERS..................... 7
6.1 Books and Records......................................... 7
6.2 Reports................................................... 8
6.3 Tax Matters Partner....................................... 8
6.4 Tax Elections and Returns................................. 8
6.5 Reimbursement............................................. 8
ARTICLE VII MANAGEMENT OF COMPANY..................................... 9
7.1 Management................................................ 9
7.2 Actions Requiring Member Approval......................... 9
7.3 Member Meetings........................................... 10
7.4 Notice.................................................... 10
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.5 Quorum and Voting......................................... 10
7.6 Telephonic Meetings....................................... 10
7.7 Compensation.............................................. 11
7.8 Removal of Manager........................................ 11
ARTICLE VIII LIMITATION ON LIABILITY AND INDEMNIFICATION............... 11
8.1 Indemnification and Contribution.......................... 11
8.2 Payment of Expenses in Advance............................ 11
8.3 Provisions Not Exclusive.................................. 11
ARTICLE IX TRANSFER OF MEMBERSHIP INTERESTS; DEADLOCK; NO
RESIGNATION............................................... 11
9.1 Restriction on Transfer................................... 11
9.2 Permitted Transfers....................................... 12
9.3 New Members............................................... 13
9.4 Deadlock.................................................. 14
9.5 No Resignation or Retirement.............................. 14
ARTICLE X DISSOLUTION AND TERMINATION............................... 14
10.1 Dissolution............................................... 14
10.2 Accounting................................................ 15
10.3 Liquidating Trustee....................................... 15
10.4 Liquidating Distribution.................................. 16
10.5 Distributions in Kind..................................... 16
ARTICLE XI MISCELLANEOUS............................................. 17
11.1 Amendments................................................ 17
11.2 Further Assurances........................................ 17
11.3 Notices................................................... 17
11.4 Governing Law............................................. 17
11.5 Captions.................................................. 17
11.6 Pronouns.................................................. 17
11.7 Successors and Assigns.................................... 17
11.8 Extension not a Waiver.................................... 18
11.9 Severability.............................................. 18
11.10 Entire Agreement.......................................... 18
11.11 Counterparts.............................................. 18
11.12 No Third Party Beneficiary................................ 18
</TABLE>
-ii-
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
IFT VENTURES I, LLC
-------------------
OPERATING AGREEMENT dated as of ________________, between Interactive
Flight Technologies, Inc. ("IFT") and _____________ ("INVESTOR").
W I T N E S S E T H:
-------------------
WHEREAS, the parties hereto desire to organize a limited liability
company (the "COMPANY") under the Act governed by the terms set forth herein;
and
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound hereby, agree as follows:
ARTICLE I
---------
DEFINED TERMS; EXHIBITS, SCHEDULES, ETC.
----------------------------------------
1.1 DEFINITIONS. As used in this Agreement, the
-----------
following terms shall have the respective meanings indicated below:
"ACT" means the Delaware Limited Liability Company
---
Act, as the same may be amended from time to time.
"AFFILIATE" means,
---------
(i) with respect to an individual, the Relatives of
such individual;
(ii) with respect to a trust or trustee, the Relatives of the
individual who is the grantor of the trust and/or another trust for
the benefit of such individual and/or such individual's Relatives;
(iii) with respect to an entity, any Person who or which,
directly or indirectly, through one or more intermediaries, controls
or is controlled by, or is under common control with, such entity (the
term "CONTROL" for these purposes meaning the ability, whether by
ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to
select the managing or general partner of a partnership, or otherwise
to select, or have the power to remove and then
<PAGE>
select, a majority of those Persons exercising governing authority
over an entity).
"AGREEMENT" means this Operating Agreement, as originally executed and
---------
as amended, modified, supplemented or restated from time to time, as the context
requires.
"BANKRUPTCY" means an event that causes a Person
----------
to cease to be a Member as provided in Section 18-304 of the Act.
"BONA FIDE PURCHASER" means any Person (other than a Seller's
-------------------
Affiliates) who or which has delivered a good faith written offer to purchase
all, but not less than all, of such Seller's Membership Interest; provided,
--------
however, that such Person has the requisite financial resources necessary to
- -------
purchase such Seller's Membership Interest.
"BUDGET" means the Company's budget to be prepared annually by IFT and
------
submitted to the Members for approval at least 30 days prior to the beginning of
a fiscal year.
"BUSINESS" means the business of entering into and performing under
--------
contracts for acquiring, installing and maintaining the System in the
______________ Airlines fleet of aircraft.
"BUSINESS DAY" means any day on which banks are
------------
open for business in Phoenix, Arizona and Chicago, Illinois.
"CAPITAL ACCOUNT" means, with respect to any Member, the separate
---------------
"book" account which the Company shall establish and maintain for such Member in
accordance with Section 704(b) of the Code and Section 1.704-1(b)(2)(iv) of the
Regulation and such other provisions of Section 1.704-1(b) of the Regulation
that must be complied with in order for the Capital Accounts to be determined in
accordance with the provisions of the Regulation. In furtherance of the
foregoing, the Capital Accounts shall be maintained in compliance with Section
1.704-1(b)(2)(iv) of the Regulation, and the provisions hereof shall be
interpreted and applied in a manner consistent therewith.
"CAPITAL CALL" means a notice from the Company to the Members
------------
requesting additional capital contributions pursuant to Section 3.2 of this
Agreement setting forth (i) the amount of funds required by the Company; (ii)
the funding date, not sooner than 30 days from date of delivery of the Capital
Call; and (iii) each Member's share of the required amount of funds.
"CAPITAL CONTRIBUTION" means, with respect to each Member, the amount
--------------------
of money contributed to the Company by such Member from time to time.
"CERTIFICATE" means the Certificate of Organization of the Company as
-----------
filed by the Secretary of State of Delaware, as the same may be amended or
restated from time to time.
<PAGE>
"CODE" means the Internal Revenue Code of 1986, as amended, or any
----
replacement or successor law thereto.
"DISTRIBUTABLE CASH" means, with respect to any Fiscal Year or other
------------------
applicable fiscal period, the excess, if any, of (a) all cash receipts of the
Company from all sources for such period, including without limitation receipts
from operations, contributions of capital by the Members, proceeds of borrowing
or from the issuance of securities by the Company, deposits and all other
Company cash sources and all Company cash reserves on hand at the beginning of
such period over (b) all cash expenses and capital expenditures of the Company
for such period, all payments of principal and interest on account of Company
indebtedness and such reasonable cash reserves as the Members deem necessary for
any Company needs.
"ENTITY" means any corporation, general partnership, limited
------
partnership, limited liability company, joint venture, trust, business trust,
cooperative or association.
"FINANCIAL STATEMENTS" means, for any Fiscal Year, the [AUDITED]
--------------------
financial statements (consisting of a balance sheet, statement of operations,
statement of Members' equity and statement of cash flows) of the Company. The
Financial Statements shall be prepared in accordance with generally accepted
accounting principles and shall be consistent with the books and records of the
Company.
"FISCAL YEAR" means the calendar year or such other fiscal year as the
-----------
Members may select in its discretion from time to time in accordance with the
Code and the Regulations.
"LIQUIDATING TRUSTEE" means such Person as is selected at the time of
-------------------
dissolution by the Members, which Person may include an Affiliate of any Member.
The Liquidating Trustee shall be empowered to give and receive notices, reports
and payments in connection with the dissolution, liquidation and/or winding-up
of the Company and shall hold and exercise such other rights and powers as are
necessary or required to permit all parties to deal with the Liquidating Trustee
in connection with the dissolution, liquidation, and/or winding-up of the
Company.
"MANAGER" shall mean IFT unless IFT's Membership Percentage falls
-------
below fifty percent (50%), in which case "MANAGER" shall mean any Member owning
at least twenty percent of the Membership Percentages selected by Members owning
a majority of the Membership Percentages.
"MEMBERS" means Persons who have been admitted to the Company as
-------
provided in Section 18-301 of the Act and whose names are set forth on Schedule
--------
A attached hereto.
- -
"MEMBERSHIP INTEREST" means a Member's interest in the Company which
-------------------
shall entitle the Member to (i) an interest in the Net Income, Net Loss,
Distributable Cash, and net proceeds of liquidation of the Company, as set forth
herein; (ii) any right to vote
<PAGE>
as set forth herein or as required under the Act; and (iii) any right to
participate in the management of the Company as set forth herein or as required
under the Act. A Membership Interest is personal property and a Member shall
have no interest in the specific assets or property of the Company.
"MEMBERSHIP PERCENTAGE" means, with respect to each Member, such
---------------------
Member's percentage ownership interest in the Company set forth on Schedule A
----------
attached hereto, adjusted as provided in Section 3.2 hereof.
"NET INCOME" or "NET LOSS" means, for each Fiscal Year or other
---------- --------
applicable period, an amount equal to the Company's net taxable income or loss
for such year or period determined in accordance with Section 703(a) of the Code
(for this purpose, all items of income, gain, loss or deduction required to be
stated separately pursuant to Section 703(a) of the Code shall be included in
taxable income or loss), with the following adjustments: (a) by including as an
item of gross income any tax-exempt income received by the Company and (b) by
treating as a deductible expense any expenditure of the Company described in
Section 705(a)(2)(B) of the Code (including amounts paid or incurred to organize
the Company (unless an election is made pursuant to Code Section 709(b)) or to
promote the sale of Membership Interests and by treating deductions for any
losses incurred in connection with the sale or exchange of Company property
disallowed pursuant to Section 267(a)(1) or Section 707(b) of the Code as
expenditures described in Section 705(a)(2)(B) of the Code.
"PERSON" means any natural person or Entity.
------
"PRIME RATE" means the prime rate or reference
----------
rate announced by Bank of America, N.A. from time to time.
"REGULATIONS" means the proposed, temporary and final regulations
-----------
promulgated by the Treasury Department pursuant to the Code, as amended from
time to time.
"RELATIVES" means, with respect to any specified individual, the
---------
spouse, children (both natural and adopted), and grandchildren of such
individual.
"SYSTEM" means the IFEN-2 system, and all of its
------
updates, upgrades, modifications, enhancements and derivatives.
"TRANSFER" means assign, sell, pledge, encumber, give or otherwise
--------
transfer, dispose of or alienate, or grant an option or contractual agreement to
do any of the foregoing, but shall not include any transfer to a legal
representative or successor trustee.
1.2 OTHER DEFINED TERMS. Capitalized terms not defined in Section 1.1
-------------------
shall have the meanings set forth in the other sections of this Agreement.
<PAGE>
1.3 REFERENCES. References to an "Exhibit" or to a "Schedule" are, unless
----------
otherwise specified, to one of the exhibits or schedules attached to this
Agreement, and references to an "Article" or a "Section" are, unless otherwise
specified, to one of the articles or sections of this Agreement. Each Exhibit
and Schedule attached hereto and referred to herein is hereby incorporated
herein by such reference.
ARTICLE II
----------
ORGANIZATION
------------
2.1 ORGANIZATION OF COMPANY. The Members hereby agree to organize the
-----------------------
Company as a limited liability company under the Act effective upon the filing
of the Certificate by IFT with the Secretary of State of the State of Delaware
immediately after execution hereof. Except as provided herein or in the
Certificate the rights and obligations of the Members are as provided under the
Act.
2.2 NAME. The name of the Company is "IFT Ventures I,
----
LLC" or such other name as may be selected by the Members.
2.3 PURPOSE; CHARACTER OF THE BUSINESS. The purpose and business of the
----------------------------------
Company is to engage in the Business and to engage in any lawful transaction
permitted by the Act in connection therewith.
2.4 PRINCIPAL OFFICE. The location of the Company's principal office is
----------------
4041 N. Central Avenue, Suite 2000, Phoenix, Arizona 85012, or such other place
as may be selected by the Members.
2.5 REGISTERED AGENT AND REGISTERED OFFICE. The statutory agent for
--------------------------------------
service of process and the registered office of the Company shall be The
Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington, New Castle
County, Delaware, 19805-1297 or such other statutory agent and registered office
as the Members may determine from time to time.
ARTICLE III
-----------
CAPITAL CONTRIBUTIONS; ETC.
---------------------------
3.1 MANDATORY CAPITAL CONTRIBUTIONS.
-------------------------------
(a) Concurrently with the execution hereof, IFT shall contribute
$_______ and Investor shall contribute $_______ in immediately available
funds as their initial Capital Contributions;
(b) On _____________, IFT shall contribute $________ and Investor
shall contribute $_________ in immediately available funds.
<PAGE>
3.2 VOLUNTARY CAPITAL CONTRIBUTIONS FROM MEMBERS.
--------------------------------------------
(a) Upon receipt of a Capital Call approved by the Members, the
Members shall be obligated to contribute to the Company the amount required
by the Capital Call in cash, pro rata in accordance with their respective
Membership Percentages, no later than the funding date set forth therein.
(b) If any Member shall fail to timely make a Capital Contribution
required pursuant to Sections 3.1(b) and 3.2(a) (the "Defaulting Member"),
the Company shall give notice of such failure to the non-defaulting Member,
and the non-defaulting Member shall have the right to convert its Capital
Contribution into a loan to the Company and to lend to the Company the
amount of the Capital Call the Defaulting Member failed to contribute (the
"Member Loan"). The Member Loan shall bear interest at the greater of (i)
20% or (ii) the Prime Rate plus 6%, shall compound monthly and shall be
repaid in full (together with accrued interest thereon) prior to any
distributions to the Members.
(c) The non-defaulting Member shall thereafter have the right at any
time to convert the Member Loan into an equity interest in the Company. In
the event, the conversion right is exercised, the non-Defaulting Member's
Membership Percentage shall be increased to equal a fraction, expressed as
a percentage, (i) the numerator of which is the sum of (A) the product of
(1) the outstanding balance of the Member Loan and interest thereon and (2)
125%; and (B) the non-Defaulting Member's aggregate Capital Contributions
and (ii) the denominator of which is the sum of (A) all Capital
Contributions of the Members and (B) the outstanding balance of the Member
Loan and interest thereon. The non-Defaulting Member's Membership
Percentage shall be decreased by the amount the non-Defaulting Member's
Membership Percentage is increased.
(d) If a Member's Membership Percentage has been reduced to zero, it
shall be deemed to have withdrawn from the Company.
(e) Nothing contained herein shall limit the other remedies of the
Company and the non-defaulting Member at law or in equity on account of any
failure to make a Capital Contribution.
3.3 WITHDRAWAL; RETURN OF CAPITAL; INTEREST. Except as specifically
---------------------------------------
provided herein, no Member shall be entitled to any distributions from the
Company or to withdraw any part of such Member's Capital Contribution prior to
the Company's dissolution and liquidation, or when such withdrawal of capital is
permitted, to demand distribution of property other than money. No Member shall
be entitled to interest on its Capital Contribution.
ARTICLE IV
----------
ALLOCATION OF NET INCOME AND NET LOSS; ETC.
-------------------------------------------
<PAGE>
4.1 NET INCOME AND NET LOSS
-----------------------
(a) Subject to Section 4.1(b), Net Income and Net Loss for any Fiscal
Year or other applicable period shall be allocated among the Members pro
rata in accordance with their respective Membership Percentages.
(b) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be
specifically allocated to the Member in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, any deficit in its
Capital Account as quickly as possible, provided that an allocation
pursuant to this Section 4.1(b) shall be made only if and to the extent
that the Member would have a Capital Account deficit after all other
allocations provided for in this Article IV have been tentatively made as
if this Section 4.1(b) were not in the Agreement.
4.2 TAX WITHHOLDING. The Company shall be authorized to pay, on behalf of
---------------
any Member, any amounts to any federal, state, local or foreign taxing
authority, as may be necessary for the Company to comply with tax withholding
provisions of the Code or other applicable income tax or revenue laws of any
taxing authority. To the extent the Company pays any such amounts that it may
be required to pay on behalf of a Member, such amounts shall be treated as a
distribution to such Member and shall reduce the amount otherwise distributable
to such Member.
4.3 CAPITAL ACCOUNTS. The Company shall maintain a Capital Account for
----------------
each Member.
ARTICLE V
---------
DISTRIBUTIONS
-------------
Any distributions to the Members shall be made solely to the extent of
Distributable Cash and shall be made pro rata among the Members in accordance
with their Membership Percentages. The timing and amount of distributions shall
be determined by the Manager. Notwithstanding anything to the contrary
contained herein, no distribution may be made while any Member Loan is
outstanding or if, after giving effect to the distribution, (i) the Company
would not be able to pay its debts as they become due in the ordinary course of
business or (ii) the Company's total assets would be less than the sum of its
total liabilities.
ARTICLE VI
----------
ACCOUNTING AND ADMINISTRATIVE MATTERS
-------------------------------------
6.1 BOOKS AND RECORDS. The Manager shall cause the Company to maintain,
-----------------
or cause to be maintained, full, true, complete and correct books of account of
the
<PAGE>
Company, in accordance with generally accepted accounting principles applied
on a consistent basis. The books of account shall contain particulars of all
monies, goods or effects belonging to or owing to or by the Company, or paid,
received, sold or purchased in the course of the Company's business, and all of
such other transactions, matters and things relating to the business of the
Company as are usually entered in books of accounts kept by persons engaged in a
business of a like kind and character. In addition, the Manager shall cause the
Company to keep all records required to be kept pursuant to the Act. Each
Member shall, upon prior written notice and during normal business hours, have
access thereto for the purpose of inspecting or, at the expense of such Member,
copying the same. Any Member reviewing the books and records of the Company
pursuant to the preceding sentence shall do so in a manner which does not unduly
interfere with the conduct of the Company's business.
6.2 REPORTS. The Manager shall cause the Company to prepare, or cause to
-------
be prepared, and furnish to each Person who was a Member during a Fiscal Year,
within ninety (90) days after the close of such Fiscal Year, (i) Financial
Statements for such Fiscal Year and (ii) a Schedule K1 or such other form as
shall be necessary to advise all Members relative to their investment in the
Company for federal, state, local and foreign income tax reporting purposes.
6.3 TAX MATTERS PARTNER. The Manager shall be the "Tax Matters Partner,"
--------------------
as such term is defined in Section 6231(a)(7) of the Code. In the event of an
income tax audit of any tax return of the Company, the filing of any amended
return or claim for refund in connection with any item of income, gain, loss,
deduction or credit reflected on any tax return of the Company, or any
administrative or judicial proceedings arising out of or in connection with any
such audit, amended return, claim for refund or denial of such claim, any
decision which could materially affect a Member's tax liability shall require
the affirmative approval of all the Members.
6.4 TAX ELECTIONS AND RETURNS. All elections required or permitted to be
-------------------------
made by the Company under any applicable tax laws shall be made by the Members;
provided, however, the Company shall, if requested by the transferee of a
Company Interest, file an election on behalf of the Company pursuant to Section
754 of the Code to adjust the basis of the Company property in the case of a
transfer of a Membership Interest made in accordance with the provisions of this
Agreement. The Manager shall be responsible for preparing all federal and state
tax returns for the Company and furnishing required schedules showing
allocations of tax items to all other Members within the period of time
prescribed by law (including any extensions permitted by applicable law).
6.5 REIMBURSEMENT. The Company shall, on a [quarterly] basis, pay to the
-------------
Manager a management fee equal to 100% of its reasonable out-of-pocket costs
incurred in connection with, or allocable to, performance of its duties as
Manager under this Agreement.
<PAGE>
ARTICLE VII
-----------
MANAGEMENT OF COMPANY
---------------------
7.1 MANAGEMENT.
----------
(a) Except as otherwise provided herein, the Company shall be managed
by the Manager or, in the absence of a Manager, by Members owning a
majority of the Membership Percentages.
(b) The Manager shall be obligated to use its reasonable good faith
efforts to cause the Company to obtain all necessary licenses and permits
for the operation of the Business, including, without limitation, all
gaming related licenses and permits and to comply with all laws, rules and
regulations relating to the Business.
7.2 ACTIONS REQUIRING MEMBER APPROVAL. The following actions shall
---------------------------------
require the affirmative approval of all of the Members:
(a) the sale, exchange, lease or other disposition of all or
substantial portion of the property of the Company;
(b) acting as a surety, guarantor, endorser or accommodation endorser
for any Person or lend any money;
(c) incurring any debt or obligation in excess of $__________;
(d) placing any liens or encumbrances on the assets of the Company;
(e) admitting any Person as an additional Member;
(f) taking any action for the (i) commencement of a voluntary case
under any applicable bankruptcy, insolvency or similar law now or hereafter
in effect, (ii) consent to the entry of any order for relief in an
involuntary case under any such law, (iii) consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee
or sequestrator (or similar official) of the relevant company or of any
substantial part of the property thereof, (iv) making by the relevant
company of a general assignment for the benefit of creditors, or (v) making
of any other arrangement or composition with creditors generally to modify
the terms of payment of, or otherwise restructure their obligations;
(g) amending or modifying this Agreement;
(h) entering into any contract with a Member or Affiliate of a
Member;
<PAGE>
(i) entering into any material contract for the installation or
maintenance of the System;
(j) entering into any contract for the sale of the System;
(k) acquiring other entities or businesses;
(l) making any voluntary Capital Calls;
(m) approving the Budget;
(n) selecting the Company's auditor;
(o) selecting the Liquidating Trustee; and
(p) except as set forth under Section 6.5, reimbursing any Member for
out-of-pocket expenses incurred by such Member on behalf of the company in
excess of $_________ in any fiscal year (to the extent that such costs are
not being reimbursed, the Member shall be relieved from its obligations to
incur costs); and
(q) materially modifying, changing or amending any agreement or
arrangement which is the subject of the matters referred to in subclauses
(a) through (p) above.
7.3 MEMBER MEETINGS. An annual meeting of the Members shall be held,
---------------
without any notice other than this provision, on the first Monday of April of
each year. Special meetings of the Members may be called by any Member.
7.4 NOTICE. Notice of a special meeting shall be given to each Member at
------
least five Business Days prior to the date designated therein for such meeting.
A Member may waive notice of any meeting. The attendance of a Member at any
meeting shall constitute a waiver of notice of such meeting, except where the
Member attends a meeting for the express purpose of objecting to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any meeting of the Members
need be specified in the notice or waiver of notice of such meeting.
7.5 QUORUM AND VOTING. Members owing a majority of the Membership
-----------------
Percentages shall constitute a quorum for the transaction of business at any
meeting of the Members provided that (i) each Member received notice of such
meeting in accordance with Section 7.4 or (ii) at least one representative of
each of the Members not receiving such notice is present, and, except as
provided in Section 7.2 hereof, the vote of a majority of the Membership
Percentages shall be the act of the Company.
<PAGE>
7.6 TELEPHONIC MEETINGS. Any meetings of the Members may be held, or any
-------------------
Member may participate in any meeting of the Members, by use of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
7.7 COMPENSATION. The Members shall not receive compensation for their
------------
services to the Company in such capacity but, by resolution of the Members, may
be paid their reasonable expenses, if any, for attending any meeting of the
Members.
7.8 REMOVAL OF MANAGER. IFT may be removed as Manager by Investor if
------------------
Manager (a) commits a felony; (b) exposes the Company to criminal liability; (c)
engages in conduct constituting bad faith, gross negligence or willful
misconduct, which conduct is likely to result in a material detriment to the
Company or (d) becomes a Defaulting Member. In any such event, Investor shall
become the Manager.
ARTICLE VIII
------------
LIMITATION ON LIABILITY AND INDEMNIFICATION
-------------------------------------------
8.1 INDEMNIFICATION AND CONTRIBUTION. The Company shall indemnify, defend
--------------------------------
and hold harmless the Members from and against any claims, causes of action,
costs or expenses, including but not limited to reasonable attorneys fees
("Losses"), asserted against him or incurred by him in such capacity arising out
of his status as such other than Losses arising from his gross negligence,
willful misconduct or breach of this Agreement or the Alliance Agreement dated
as of November 12, 1996 between IFT and Hyatt Ventures, Inc. (the "Alliance
Agreement").
8.2 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a
------------------------------
civil or criminal action, suit or proceeding may be paid out of Company funds in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by the Member, to repay such amount unless it shall ultimately
be determined that it is entitled to be indemnified by the Company.
8.3 PROVISIONS NOT EXCLUSIVE. The indemnification provided by this
------------------------
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any statute, agreement, vote of Members or
otherwise.
ARTICLE IX
----------
TRANSFER OF MEMBERSHIP INTERESTS;
---------------------------------
DEADLOCK; NO RESIGNATION
------------------------
9.1 RESTRICTION ON TRANSFER. Except for (i) Transfers to Affiliates of
-----------------------
Investor and (ii) the transfer by Investor of its Membership Interest to IFT in
exchange for stock of IFT, as contemplated by the Alliance Agreement between IFT
and Investor's Affiliate and (iii) sales pursuant to Section 9.2 hereof, for
which no approval is required, no
<PAGE>
Member shall, directly or indirectly, voluntarily or involuntarily, Transfer to
any Person by whatever means all or any portion of its Membership Interest
unless approved in writing by all the Members. To the extent permitted by law,
any Transfer in violation of this Agreement shall be null and void. In the event
that a Member Transfers any of its Membership Interests to an Affiliate, the
transferring Member and each of its Affiliate transferees shall be deemed to be
a single Person for purposes of Section 9.2 hereof.
9.2 PERMITTED TRANSFERS.
-------------------
(a) Offer from Bona Fide Purchaser. After the first anniversary of
------------------------------
this Agreement, if a Member (for purposes of this Section 9.2, "Seller")
desires to effect the sale of all (but not less than all) of its Membership
Interest for cash and receives a written offer (the "OFFER") from a Bona
Fide Purchaser, Seller shall, at least 90 days prior to the proposed sale,
(i) notify the other Member(s) (the "OTHER MEMBER(S)") of its intention to
sell, (ii) notify the Other Member if the Seller desires to exercise its
Bring-Along Right described in Section 9.2(d) (below the "Bring-Along
Notice"), and (iii) provide the Other Member with a copy of the contract
for the sale of such interest (collectively, the "TRANSFER NOTICE").
(b) Right of First Refusal. The Other Member(s), or its designee,
----------------------
shall have the right to purchase Seller's entire Membership Interest at the
same price and on the same terms as contained in the Transfer Notice (the
"RIGHT OF FIRST REFUSAL"). The Other Member must exercise its Right of
First Refusal, if at all, by giving notice of exercise (the "PURCHASE
NOTICE") to the Seller within 30 days after delivery of the Transfer
Notice, and such sale shall be consummated on the date on which the sale
would otherwise have been consummated pursuant to the offer subject to the
making of any filings with, and receipt of, all governmental consents and
approvals.
(c) Tag-Along Right. The Other Member(s), in lieu of delivering the
---------------
Purchase Notice, may exercise the option to sell its entire Membership
Interest to the Bona Fide Purchaser (the "TAG-ALONG RIGHT") on the same
terms, conditions and price (mathematically adjusted to reflect differing
Membership Percentages) as set forth in the Transfer Notice by giving
Seller notice (the "TAG-ALONG NOTICE") within 30 days after the transmittal
of a copy of the Transfer Notice. Delivery of the Tag-Along Notice shall
constitute a binding agreement by the Other Member(s) to sell its entire
Membership Interest to the Bona Fide Purchaser, on the same terms and
conditions specified in the Transfer Notice.
(d) Bring-Along Right. In the event the Seller has delivered the
-----------------
Bring-Along Notice as part of the Transfer Notice and the Other Member(s)
has not exercised its Right of First Refusal or Tag-Along Right, the Other
Member(s) shall be required to sell its entire Membership Interest to the
Bona Fide Purchaser on the same terms and conditions and at the same price
(mathematically adjusted
<PAGE>
to reflect differing Membership Percentages) as set forth in the Transfer
Notice simultaneously with the sale of the Seller's interest to the Bona
Fide Purchaser.
(e) Consummation of Purchase.
------------------------
(i) If the Other Member(s) fails to exercise its Right of First
Refusal, then the Seller may sell its Membership Interest on the terms
specified in the Transfer Notice, provided (A) if the Other Member has
exercised its Tag-Along Right or Seller has exercised its Drag Along Right,
the Other Member shall participate in such sale as provided in Section
9.2(c) or (d), as the case may be; and (B) such sale is consummated no
later than the later to occur of (x) the date set forth for closing in the
Transfer Notice; or (y) 90 days after delivery of the Transfer Notice. If
the sale is not consummated within the period of time specified in the
preceding sentence, then no sale may be consummated with respect to any
portion of the Seller's Membership Interest except upon compliance again
with the provisions of this Section 9.2 to the extent this Section 9.2
would otherwise be applicable.
(ii) If the Other Member(s) exercises its Right of First Refusal,
Seller shall sell and the Other Member(s) shall purchase the Seller's
entire Membership Interest pursuant to the terms set forth in the Transfer
Notice on the date on which the sale would otherwise have been consummated
pursuant to the offer.
(iii) Any closing hereunder shall take place at the principal offices
of the Company or such other place as is specified in the Transfer Notice
if the purchaser is the Bona Fide Purchaser.
(iv) The parties hereto shall deliver such instruments and other
documentation as may be reasonably required to effect the transfers
required hereby.
(v) The consideration for any Transfers under this Section 9.2 shall
be solely cash.
9.3 NEW MEMBERS. Any Person, not then a Member, to whom a Membership
-----------
Interest shall be Transferred in accordance with the provisions of this Article
IX shall agree in writing to be subject to the terms hereof and shall become a
substituted Member hereunder. All reasonable costs and expenses incurred by the
Company in connection with any Transfer, and, if applicable, the admission of a
Person as a substituted Member, shall be paid by the Transferring Member. If
any Membership Interest is Transferred other than in accordance with the
provisions hereof and the transferee is not admitted as a substituted Member,
such transferee shall be deemed a mere assignee of profits only without any
right, power or authority of a Member hereunder and shall bear
<PAGE>
losses in the same manner as its predecessor in interest; the transferor of such
interest shall thereafter be considered to have no further rights or interest in
the Company with respect to the interest Transferred, but shall nonetheless be
subject to its obligations under this Agreement with respect to such interest.
Upon admission of a transferee as a substituted Member, the transferor shall
withdraw from the Company, and be relieved of any corresponding obligations, to
the extent of its Transferred Membership Interest.
9.4 DEADLOCK. If, after making a good faith effort, the Members have
--------
failed to agree on any of the matters which, in the reasonable opinion of
Investor, could have a material adverse impact on the Company (a "DEADLOCK"),
IFT shall, after receipt of a written notice from Investor that it desires to
have its Membership Interest purchased, purchase Investor's entire Membership
Interest at a price equal to the appraised value thereof, such value to be
determined pursuant to Section 2.6(b) of the Alliance Agreement; provided,
however, that Investor may withdraw its notice within five days after the
determination of appraised value, and in such event, the issue or issues which
were the subject of the Deadlock shall be decided in favor of EFT. The purchase
price shall be payable by IFT, at its election, either entirely in cash or one-
third in cash and two-thirds in a promissory note in the form of Exhibit 9.4
-----------
attached hereto. The unpaid principal amount of said note shall bear interest
at the Prime Rate plus 2% per annum with the principal and accrued interest
being due eighteen months after delivery of the note. Any portion of such
principal amount and accrued interest shall be prepayable without penalty at any
time at the election of IFT. The note shall be secured by the assets of the
Company, and if the Company is dissolved as a result of the purchase of the
Investor's Membership's Interest or otherwise, such assets may be distributed to
IFT, but shall continue to be subject to the security interest. The closing of
the sale of Investor's Membership Interest and this Section 9.4 shall take place
forty-five Business Days after the determination of the value of the Membership
Interest.
9.5 NO RESIGNATION OR RETIREMENT. Each Member agrees that it will not
----------------------------
voluntarily resign or retire from the Company, except in connection with a
permitted Transfer as provided in Article IX. Any Member who resigns or retires
from the Company in contravention of this Agreement will be liable to the
Company for any damages occasioned by such resignation or retirement and, in
addition to any remedies the Company may have at law or in equity, the Company
may offset against any amounts it may owe to such resigning or retiring Member
(in connection with a distribution or otherwise) any such damages occasioned by
such resignation or retirement. Any Member who attempts to resign or retire
from the Company in contravention of this Section shall no longer be entitled to
vote his or its Membership Interest.
ARTICLE X
---------
DISSOLUTION AND TERMINATION
---------------------------
10.1 DISSOLUTION. The Company shall continue in effect until dissolved upon
-----------
the first to occur of the following:
<PAGE>
(a) the death, expulsion, Bankruptcy, court declaration of
incompetence with respect to, or dissolution of any Member, unless the
Company is continued by the consent of at least a "MAJORITY-IN-INTEREST"
(within the meaning of Rev. Proc. 94-46, 1994-2 C.B. 688) of the remaining
Members within ninety (90) days following, or notice thereof, the
occurrence of any such event;
(b) the unanimous written consent of the Members to dissolve the
Company;
(c) the entry of a decree of judicial dissolution of the Company
under Section 18-802 of the Act;
(d) sale or other disposition of all or substantially all of the
Company's assets; or
(e) [THIRTY YEARS FROM DATE OF THIS AGREEMENT]
10.2 ACCOUNTING. Upon the dissolution of the Company, a proper accounting
----------
(which shall be certified) shall be made of the assets and liabilities of the
Company and the Capital Account of each Member as of the date of dissolution and
of the items of Net Income and Net Loss of the Company from the date of the last
previous accounting to the date of dissolution. Financial Statements presenting
such accounting shall be prepared.
10.3 LIQUIDATING TRUSTEE.
-------------------
(a) Upon the dissolution of the Company, the affairs of the Company
shall be wound up and terminated and the Members shall continue to share
Net Income, Net Loss, Distributable Cash and other items of the Company
during the winding-up period in accordance with the provisions of Articles
IV and V hereof. The winding-up of the affairs of the Company and the
distribution of its assets shall be conducted exclusively by the
Liquidating Trustee, who is hereby authorized to do all acts authorized by
law for these purposes. The Liquidating Trustee, in carrying out such
winding up and distribution, shall have full power and authority to sell,
assign, transfer and encumber all or any of the Company assets; provided,
--------
however, the Liquidating Trustee shall not sell any assets unless:
-------
(i) the Liquidating Trustee shall have in good faith
solicited bids from unrelated third parties; and
(ii) such transactions shall be made by the Liquidating Trustee
solely on an "arm's length" basis and at the best price and on the
best terms and conditions that are available.
<PAGE>
(b) Upon the completion of the winding up of the Company and the
distribution of all Company assets, the Company shall terminate and the
Liquidating Trustee shall have the authority to execute and record any and
all other documents required to effectuate the termination of the Company.
(c) The Liquidating Trustee shall be indemnified and held harmless by
the Company from and against any and all claims, liabilities, costs,
damages and causes of action of any nature whatsoever arising out of or
incidental to the Liquidating Trustee's taking of or failure to take any
action authorized under, or within the scope of, this Agreement; provided,
--------
however, that the Liquidating Trustee shall not be entitled to
-------
indemnification for:
(i) matters entirely unrelated to the Liquidating Trustee's
actions under the provisions of this Agreement; or
(ii) fraud, willful misconduct or criminal activity.
10.4 LIQUIDATING DISTRIBUTION. In the event of the dissolution of the
------------------------
Company for any reason, the Company assets shall be liquidated for distribution
in the following rank and order:
(a) first, to the payment and discharge of all the Company's debts
and liabilities in the order of priority as provided by the Act;
(b) second, to the establishment of any necessary reserves to provide
for contingent liabilities, if any; and
(c) third, to the Members in proportion to their Capital Accounts
after giving effect to the allocations set forth in Article IV hereof,
treating any distribution of property as a sale thereof at fair market
value.
Such distributions shall be made on or before a date (the "FINAL LIQUIDATION
DATE") no later than the later to occur of (i) the last day of the taxable year
of the Company in which the liquidation of the Company occurs and (ii) ninety
(90) days after such liquidation. If the Liquidating Trustee, in its
discretion, determines that the distributions will not be timely made, it may
distribute all of the assets and liabilities of the Company in trust, with the
Liquidating Trustee, or such other Person as may be selected by the Liquidating
Trustee as trustee; the purpose of the trust is to allow the Company to comply
with the timing requirements. The trustee of said trust shall distribute the
former Company assets (however constituted, enhanced or otherwise) as promptly
as he deems proper and in the same manner as directed in this Section (without
regard to this sentence or the preceding two sentences) and otherwise as
required hereunder. The trust shall be terminated as soon as possible after the
trust property is distributed to the beneficiaries thereof.
<PAGE>
10.5 DISTRIBUTIONS IN KIND. Company property distributed in kind shall be
---------------------
transferred and conveyed to the distributees as tenants in common subject to any
liabilities attached thereto so as to vest in them undivided interests in the
whole of such property in proportion to their respective rights to share in the
proceeds of the sale of such property in accordance with this Article.
ARTICLE XI
----------
MISCELLANEOUS
-------------
11.1 AMENDMENTS. This Agreement may be amended, modified or changed only in
----------
accordance with Section 7.2(g).
11.2 FURTHER ASSURANCES. Each Member agrees to execute, acknowledge,
------------------
deliver, file, record and publish such further certificates, amendments to
certificates, instruments and documents, and do such other acts and things as
may be required by law, or as may be required to carry out the intent and
purposes of this Agreement.
11.3 NOTICES. All notices, demands, consents, approvals, requests, offers
-------
or other communications which any of the parties to this Agreement may desire or
shall be required to be given hereunder shall be in writing and shall be given
(a) by registered or certified mail, return receipt requested, (b) by personal
delivery, (c) delivery via reputable private air freight service, the cost and
expense of such delivery to be borne by the sending party, or (d) by electronic
communication (telex or facsimile transmission). All notices shall be addressed
to the recipient at the address contained on the books of the Company. Any
Member may designate another address (or change its address) for notices
hereunder by delivery of a written notice to all other Members in accordance
with the provisions of this section. Any notice sent in compliance with the
above provisions shall be deemed delivered and received, except for electronic
communications, on the third business day next succeeding the day on which it
was sent, or, if sooner, on the actual date received, and, in the case of
electronic communications, only on the date the sending party receives
acknowledgement of receipt of such notice.
11.4 GOVERNING LAW. This Agreement is made pursuant to and shall be
-------------
governed by and construed in accordance with the laws of the State of Delaware,
without regard to the conflict of laws principles thereof.
11.5 CAPTIONS. All articles and section headings or captions contained in
--------
this Agreement are inserted only as a matter of convenience and for reference
and in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provision hereof.
11.6 PRONOUNS. As used herein, all pronouns shall include the masculine,
--------
feminine, neuter, singular and plural thereof wherever the context and facts
require such construction.
<PAGE>
11.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
parties hereto and their respective executors, administrators, legal
representatives, heirs, successors and assigns, and shall inure to the benefit
of the parties hereto, and, except as otherwise herein expressly provided, their
respective executors, administrators, legal representatives, successors and
assigns.
11.8 EXTENSION NOT A WAIVER. No delay or omission in the exercise of any
----------------------
power, remedy or right herein provided or otherwise available to a party or to
the Company shall impair or affect the right of such Member or the Company
thereafter to exercise the same. Any extension of time or other indulgences
granted to a Member hereunder shall not otherwise alter or affect any power,
remedy or right of any other Member or of the Company or of the obligations of
the Member to whom such extension or indulgence is granted.
11.9 SEVERABILITY. If any provision of this Agreement or application to
------------
any party or circumstances shall be determined by any court of competent
jurisdiction to be invalid or unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such Person or circumstances,
other than as to which it is so determined invalid or unenforceable, shall not
be affected thereby, and each provision shall be valid and shall be enforced to
the fullest extent permitted by law.
11.10 ENTIRE AGREEMENT. This Agreement, and the schedules and exhibits
----------------
hereto, contain the entire understanding and agreement of the parties hereto
relating to the subject matter hereof and all prior agreements relative hereto
which are not contained herein.
11.11 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which, when
taken together, shall be deemed one agreement, but no counterpart shall be
binding unless an identical counterpart shall have been executed and delivered
by each of the other parties hereto.
11.12 NO THIRD PARTY BENEFICIARY. The provisions of this Agreement shall
--------------------------
be solely for the benefit of the parties hereto and their respective successors
and assigns.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
THE MEMBERS:
-----------
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
--------------------------------
Name:
Title:
-------------------------------------
By:
--------------------------------
<PAGE>
SCHEDULE A
TO OPERATING AGREEMENT
OF IFT VENTURES I, LLC
MEMBER MEMBERSHIP
- ------ ----------
PERCENTAGE
- ----------
Interactive Flight 2/3
Technologies, Inc.
4041 N. Central Ave.
Suite 2000
Phoenix, Arizona 85012
- ------------------------- 1/3
- -------------------------
- -------------------------
- -------------------------
- -------------------------
<PAGE>
EXHIBIT 10.15
REGISTRATION RIGHTS AGREEMENT
-----------------------------
Registration Rights Agreement (the "AGREEMENT"), dated as of November 12,
1996, by and between Interactive Flight Technologies, Inc., a Delaware
corporation (the "COMPANY"), and the Persons whose signatures appear on the
signature pages hereto as of the date hereof or hereafter.
R E C I T A L S:
---------------
A. This Agreement is made pursuant to the Strategic Alliance Agreement
dated as of November 12, 1996 (the "ALLIANCE AGREEMENT") between the Company and
Hyatt Ventures, Inc. ("HYATT"). Capitalized terms not otherwise defined herein
shall have the meanings set forth in the Alliance Agreement.
B. The Alliance Agreement provides, among other things, for (i) the
issuance to Hyatt or members of the Hyatt Group of the Warrants exercisable for
shares of Class A Common Stock and (ii) the conversion or exchange of Equity
Interests by the JV Holders into Shares of Class A Common Stock. The shares of
Class A Common Stock (x) in respect of which the Warrants are exercisable, (y)
into which the Equity Interests are convertible or exchangeable and (z) which
are otherwise acquired by Hyatt or members of the Hyatt Group pursuant to the
Alliance Agreement (other than through open market purchases), are referred to
herein as the "Shares". The execution of this Agreement is a condition to the
closing of the transactions contemplated by the Alliance Agreement.
C. In order to induce the Hyatt to enter into and perform its obligations
under the Alliance Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized terms shall have
the following meanings:
"Common Stock" means the Class A Common Stock.
------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any similar or successor federal statute and the rules and regulations of the
SEC promulgated thereunder, all as the same shall be in effect at the time.
"Holder" means any Person who executes a counterpart of this Agreement
------
on or after the date hereof and any Person who becomes a Holder after the date
of this Agreement pursuant to Paragraph 13(a).
<PAGE>
"Indemnified Party" has the meaning set forth in Paragraph 7(c).
-----------------
"Indemnifying Party" has the meaning set forth in Paragraph 7(c).
------------------
"Initiating Group" means one or more holders of Registerable
----------------
Securities which represent in the aggregate 10% or more Registrable Securities
then issued and outstanding.
"Market Value" for any security on any given date means (i) the
------------
average closing price for the prior ten trading days for such security on the
principal stock exchange on which such security is traded or (ii) if not so
traded, the closing price (or, if no closing price is available, the average of
the bid and asked prices) for such period on the NASDAQ if such security is
listed on the NASDAQ or (iii) if not listed on any exchange or quoted on the
NASDAQ, such value as may be determined in good faith by the Company's Board of
Directors, which determination shall be conclusively binding on the parties.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Person" means an individual, partnership, corporation, limited
------
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof, or any other entity of any kind.
"Registered Securities" means Registrable Securities which have been
---------------------
registered under the Securities Act pursuant to a registration statement filed
with and declared effective by the SEC.
"Registrable Securities" means (i) the Shares; (ii) the shares of
----------------------
Common Stock issued or issuable as dividends on, or other distributions with
respect to the Shares; and (iii) any other security issued or issuable in
exchange for, or in replacement of, any of the Shares, in each case until any
such security ceases to be a Registrable Security in accordance with Paragraph 2
hereof.
"Registration Expenses" means all expenses (excluding Selling
---------------------
Expenses) incident to the Company's performance of or compliance with Paragraphs
3 and 4 of this Agreement, including without limitation all registration and
filing fees, including fees with respect to filings required to be made with any
stock exchange or the NASD, fees and expenses of compliance with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), messenger, telephone and delivery expenses, and the fees and
expenses of counsel for the underwriter, costs of printing prospectuses, and
fees and disbursements of counsel for the Company and of all independent
certified public accountants of the Company (including the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance).
"Registration Statement" means any registration statement of the
----------------------
Company which includes any of the Registrable Securities pursuant to the
provisions of this Agreement, including the prospectus included or deemed
included in the Registration Statement and all amendments
2
<PAGE>
and supplements to the Registration Statement or the prospectus, including post-
effective amendments, and all exhibits to, and all materials incorporated by
reference in, the Registration Statement.
"SEC" means the United States Securities and Exchange Commission or
---
any similar agency then having the authority to enforce the Exchange Act or the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar or successor statute, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect at the time.
"Selling Expenses" means (i) all fees and expenses of counsel for the
----------------
Holder(s), (ii) all discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the distribution of the Registrable Securities and (iii) any other costs that
the Selling Holders elect to pay in order to comply with state securities laws
and regulations; provided, however, that in the event that the Selling Holders
-------- -------
elect not to make payment of such costs with respect to any state, the Company
shall not be required to register the relevant Registrable Securities for sale
in such state.
"Selling Holders" has the meaning set forth in Paragraph 5(b).
---------------
"Shares" has the meaning set forth in the Recitals.
------
2. Securities Subject to this Agreement. The securities entitled to the
------------------------------------
benefits of this Agreement are the Registrable Securities, but such benefits
shall continue with respect to each such security only so long as such security
continues to be a Registrable Security. A security ceases to be a Registrable
Security when (a) a Registration Statement covering the sale of such Registrable
Security has been declared effective under the Securities Act and the
Registrable Security has been sold in accordance with the Registration
Statement; (b) it is distributed to the public pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act; (c) a new certificate
representing such security has been delivered (to the original Holder or any
subsequent transferee) by the Company free from any restrictive legend and
without issuance of stop transfer or other instructions to the Company's
transfer agent and the Holder of such security has been advised by counsel
reasonably acceptable to it that subsequent disposition of such security will
not require registration or qualification under the Securities Act then in
effect; or (d) the security has ceased to be outstanding.
3. Registration under Securities Act; Demand Registration.
------------------------------------------------------
(a) Demand for Registration. At any time following the date hereof
-----------------------
any Initiating Group may by written notice request that the Company effect the
registration under the Securities Act of all or any portion of the Registrable
Securities having an aggregate Market Value greater than $1,000,000, in which
case the Company will (i) within 45 days of such request, file with the SEC all
documentation necessary to effect such registration and (ii) thereafter use its
best efforts to effect such registration. Each notice given pursuant to the
3
<PAGE>
immediately preceding sentence shall set forth (x) the aggregate number of
Shares to be included, (y) the names of the Selling Holders and the number of
Shares to be sold by each such Selling Holder and (z) the proposed manner of
sale.
(b) Limitations on Company's Obligation. The Company is obligated to
-----------------------------------
effect four registrations pursuant to this Paragraph 3; and thereafter the
Company shall have no obligation to include any Registrable Securities in any
registration pursuant to this Paragraph 3. In the event that a registration
requested pursuant to this Paragraph 3 fails to become effective or if a stop
order shall have been issued or the registration shall have been terminated
prior to the sale of the Registrable Securities (other than as a result of
actions or inactions by the Initiating Group), a request for registration shall
be deemed not to have been made for the purposes of this Paragraph 3.
(c) Underwritten Offer. If an Initiating Group desires to distribute
------------------
Registrable Securities covered by its request by means of an underwriting, it
shall so advise the Company as a part of its request made pursuant to this
Paragraph 3. The Initiating Group shall select an underwriter (which shall be
reasonably acceptable to the Company) for such underwriting and shall together
with the Company enter into an underwriting agreement in customary form with the
underwriter.
(d) Holdback. In the event that a registration is demanded pursuant
--------
to this Section 3 and the Company is advised in writing by its investment
banking firm that the shares for which registration is requested cannot be sold
without serious injury to the Company or its existing stockholders (the grounds
for which decision shall be confidentially disclosed to any requesting Holder),
the Company shall have the option to require the Initiating Group to withdraw
such registration demand and not make any other demand so long as such facts
continue to exist; provided, however, that the Company shall ensure that there
-------- -------
exists at least one contiguous six month period during the ensuing 15 months
during which such registration may be effected.
4. Registration under the Securities Act: Piggy-Back Registration.
--------------------------------------------------------------
(a) Piggy-Back Registration. If at any time the Company proposes to
-----------------------
register for itself or any of its stockholders any of its capital stock (except
to the extent prohibited by such stockholders' demand registration rights) under
the Securities Act in connection with the public offering of such securities on
a form and in a manner that would permit registration of Registrable Securities
for sale to the public under the Securities Act, then:
(i) the Company in each case will notify in writing each Holder of its
intention to effect such a registration at least 45 days prior to the proposed
effective date of a Registration Statement in connection therewith;
(ii) the Company will offer each Holder the opportunity to include in
such registration all or such lesser amount of Registrable Securities as each
Holder may request. Upon the request of one or more Holders given in writing
within 20 days after receipt of the
4
<PAGE>
notice described under clause (i) above, the Company, subject to the provisions
of Paragraph 4(b), shall cause any of the Registrable Securities specified by
such Holder to be included in the Registration Statement; and
(iii) if the registration of which the Company gives written notice
under clause (i) above involves an underwriting, the Company shall use its best
commercially reasonable efforts to cause the managing underwriter(s) of the
proposed underwritten offering to permit Holders to include their Registrable
Securities in the underwriting on the same terms and conditions as similar terms
of the Company included therein.
(b) Limitations on Company's Obligations to Effect Piggy-Back
---------------------------------------------------------
Registration. Notwithstanding the provisions of Paragraph 4(a) above:
- ------------
(i) if and to the extent that the managing underwriter(s) advise the
Company in writing that, in its good faith determination, inclusion of the
number of Registrable Securities held by Holders requesting inclusion in the
Registration Statement would materially interfere with the underwriter's ability
to effectuate the registration and sale of securities proposed to be offered and
sold pursuant to the Registration Statement, the managing underwriter(s) shall
select the permissible quantity of Registrable Securities to be sold by the
Holders (which may be none) by reducing the total number of securities to be
sold by the holders of securities other than Registrable Securities and the
Holders (but not the number of securities to be sold by the Company or by any
other selling stockholder who has exercised demand registration rights in
connection with such registration) on a pro rata basis. For purposes of
--- ----
apportionment pursuant to this Paragraph 4(b), for any selling holder that is a
partnership or a corporation, the affiliates of such partnership or corporation
shall collectively, with such holder be deemed to be one "selling holder," and
any pro rata reduction with respect to such "selling holder" shall be based upon
the aggregate amount of shares carrying registration rights owned by entities
and individuals included in such "selling holder;" and
(ii) if, at any time after giving such written notice of its
intention to register any of its securities and prior to the effective date of
the applicable Registration Statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and thereupon shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration.
(c) Underwritten Offer. If the registration of which the Company
------------------
gives written notice under Paragraph 4(a)(i) above involves an underwriting, the
Company shall so advise in such written notice. In such event the right of any
Holder to registration pursuant to Paragraph 4(a) shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in such underwriting. All Holders proposing to
distribute their Registrable Securities through such underwriting shall
(together with the Company and the other holders distributing their Registrable
Securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. If any Holder disapproves of the
5
<PAGE>
terms of any such underwriting, such Holder may elect to withdraw from the
underwriting by prompt written notice to the Company and the underwriter.
5. Registration Obligations of the Company. In connection with the
---------------------------------------
filing of a Registration Statement pursuant to Paragraphs 3 or 4, the Company
shall:
(a) Use its best efforts to cause such Registration Statement to
remain in effect until the earlier of (i) the completion of the distribution of
the Registrable Securities included in the Registration Statement, and (ii) six
months after the date on which the Registration Statement is declared effective;
provided, however, that the Company may suspend such effectiveness at any time
- -------- -------
under the circumstances, and subject to the constraints, described in Paragraph
3(d) hereof (except that the determination of potential injury to the Company or
its stockholders shall be made in good faith by the Company's Board of Directors
if no investment banking firm is then involved).
(b) Notify the Holders whose Registrable Securities are included in
such Registration Statement (the "SELLING HOLDERS") as to the filing of the
Registration Statement and of all amendments or supplements thereto filed prior
to the effective date of such Registration Statement;
(c) Notify the Selling Holders, promptly after the Company shall
receive notice thereof, of the time when such Registration Statement became
effective or when any amendment or supplement to any prospectus forming a part
of said Registration Statement has been filed;
(d) Notify the Selling Holders promptly of any request by the SEC for
the amending or supplementing of such Registration Statement or prospectus or
for additional information;
(e) During the period in which the Company is obligated to use its
reasonable best efforts to keep a Registration Statement effective pursuant to
this Paragraph 5, prepare and promptly file with the SEC and promptly notify the
Selling Holders of the filing of any amendments or supplements to such
Registration Statement or prospectus as may be necessary to correct any
statements or omissions if, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the Securities Act, any
event with respect to the Company shall have occurred as a result of which any
such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading; and, in addition, during such
period, prepare and file with the SEC, promptly upon the Selling Holders'
written request, any amendments or supplements to such Registration Statement or
prospectus which may be reasonably necessary or advisable in connection with the
distribution of the Registrable Securities;
6
<PAGE>
(f) Prepare, promptly upon request of the Selling Holders or any
underwriters for the Selling Holders made during the period in which the Company
is obligated to use its best efforts to keep a Registration Statement effective,
such amendment or amendments to such Registration Statement and such prospectus
or prospectuses as may be reasonably necessary to permit compliance with the
requirements of Section 10(a)(3) of the Securities Act;
(g) Advise the Selling Holders promptly after the Company shall
receive notice or obtain knowledge of the issuance of any stop order by the SEC
suspending the effectiveness of any such Registration Statement or amendment
thereto or of the initiation or threatening of any proceeding for that purpose,
and promptly use its reasonable best efforts to prevent the issue of any stop
order or obtain its withdrawal promptly if such stop order should be issued;
(h) Use its best efforts to qualify as soon as reasonably practicable
the Registrable Securities for sale under the securities or blue sky laws of
such states and jurisdictions within the United States as shall be reasonably
requested by the Selling Holders; provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business, to become subject to taxation or to file a consent to service of
process generally in any of the aforesaid states or jurisdictions;
(i) Furnish the Selling Holders, as soon as available, copies of any
Registration Statement and each preliminary or final prospectus, or supplement
or amendment required to be prepared pursuant hereto, all in such quantities as
the Selling Holders may from time to time reasonably request;
(j) Furnish each Selling Holder with copies of such opinions of
counsel and accountants' "comfort" letters as it reasonably may request with
respect to the registration of its Registrable Securities, the Registration
Statement covering such Registrable Securities and the financial statements
included therein;
(k) Apply for listing and use its best efforts to list the Registrable
Securities, if any, being registered on any national securities exchange on
which a class of the Company's equity securities is listed (and to maintain such
listing during the pendency of the relevant registration period) or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its reasonable best efforts
to qualify the Registrable Securities, if any, being registered for inclusion on
the automated quotation system of the NASD (and to maintain such qualification
during the pendency of the relevant registration period);
(l) In connection with the preparation and filing of each Registration
Statement registering Registrable Securities under the Securities Act, give the
holders of Registrable Securities on whose behalf such Registrable Securities
are to be so registered and their underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such Registration Statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give each of
them such
7
<PAGE>
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
holders and such underwriters, or their respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act; and
(m) Make senior executives of the Company reasonably available to
assist the underwriters with respect to, and accompanying the underwriters on
so-called the "road show", in connection with marketing efforts for, and the
distribution and sale of Registrable Securities pursuant to a Registration
Statement.
6. Expenses. The Company will pay all Registration Expenses in
--------
connection with registrations of Registrable Securities effected pursuant to
Paragraphs 3 and 4. All Selling Expenses in connection with any registration
effected pursuant to this Agreement shall be borne by the Company, the holders
of securities included in such registration other than Registrable Securities
and the holders of the Registrable Securities so registered, pro rata on the
--- ----
basis of the number of shares of common stock included in the registration for
the account of the Company and each such holder.
7. Indemnification.
---------------
(a) To the extent permitted by applicable law, the Company will
indemnify each Holder of the Registrable Securities requesting or joining in a
registration, each Person who controls such Holder within the meaning of Section
15 of the Securities Act, and each underwriter of the securities so registered
and each Person who controls such underwriter, and their respective officers,
directors, partners, agents, employees and successors (each a "SECTION 7(a)
INDEMNITEE"), against all costs, expenses, demands, claims, losses, damages,
liabilities, fines and penalties (or actions in respect thereof), to which such
Section 7(a) Indemnitee may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such claims, losses, damages, liabilities,
fines and penalties arise out of or are based on any untrue statement (or
alleged untrue statement) of a material fact contained in any Registration
Statement or prospectus, or arise out of or are based upon any omission (or
alleged omission) to state therein a fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law and will reimburse each such
Section 7(a) Indemnitee for (and will make periodic advances to cover) any legal
and any other expenses reasonably incurred in connection with investigating or
defending any such demand, claim, loss, damage, liability or action promptly
after submission of supporting materials with respect to such expenses;
provided, however, that the Company shall not be required to indemnify any
- -------- -------
Section 7(a) Indemnitee for any cost, expense, demand, claim, loss, damage,
liability, fine or penalty which arises out of or is based upon (i) any written
information provided by any such Section 7(a) Indemnitee, respectively,
expressly for inclusion in the Registration Statement or (ii) the circumstances
set forth in clause (y) of paragraph (b) below.
8
<PAGE>
(b) To the extent permitted by applicable law, each Holder requesting
or joining in a registration, severally and not jointly, will indemnify the
Company, each of its officers, directors, employees, agents, successors and
controlling persons (within the meaning of Section 15 of the Exchange Act)
(each, a "SECTION 7(b) INDEMNITEE"), against all costs, expenses, demands,
claims, losses, damages, liabilities, fines and penalties (or actions in respect
thereof) to which such Section 7(b) Indemnitee may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon an untrue statement (or
alleged untrue statement) of a material fact contained in any Registration
Statement or prospectus, or arise out of or are based upon (x) the omission (or
alleged omission) to state therein a fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) was made in any Registration
Statement or prospectus in reliance upon and in conformity with information
furnished to the Company by such Holder requesting or joining in a
registration specifically for use in the preparation thereof, or (y) any untrue
statement or alleged untrue statement of a material fact contained in, or any
omission or alleged omission of a material fact from, a prospectus if (i) a
later prospectus corrected the untrue statement or alleged untrue statement, or
omission or alleged omission, (ii) at such time the Company had advised the
Holder of the availability of the revised prospectus, and (iii) there would have
been no such liability had such later prospectus actually been delivered to the
purchaser at or prior to confirmation of sale; provided, however, that the
-------- -------
obligations of such Holders hereunder shall be limited to an amount equal to the
proceeds to each Holder of the Registrable Securities sold in connection with
such registration.
(c) Each party entitled to indemnification under this Paragraph 7 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has received written notice of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided such counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld or delayed). The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the Indemnifying
Party shall bear the expense of such defense of the Indemnified Party if (i) the
Indemnifying Party has agreed in writing to pay such expenses, (ii) the
Indemnifying Party shall have failed to assume the defense of such claim or
employ counsel reasonably satisfactory to the Indemnified Party, or (iii) in the
reasonable judgment of the Indemnified Party, based upon the written advice of
such Indemnified Party's counsel, representation of both parties by the same
counsel would be inappropriate due to actual or potential conflicts of interest.
In the event that the Indemnifying Party properly does not assume such defense,
the Indemnifying Party shall not be subject to any liability for any settlement
made without its prior written consent, which consent shall not be unreasonably
withheld or delayed. The failure of any Indemnified Party to give notice as
provided herein shall relieve the Indemnifying Party of its obligations under
this Paragraph 7 only to the extent that such failure to give notice shall
materially adversely prejudice the Indemnifying Party in the defense of any such
claim or any such litigation. No Indemnifying Party, in the defense of any
9
<PAGE>
such claim or litigation, shall, except with the prior written consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation in form and substance reasonably
satisfactory to such Indemnified Party.
8. Contribution.
------------
(a) If the indemnification provided for in Paragraph 7 from the
Indemnifying Party is unavailable to or unenforceable by the Indemnified Party
in respect to any losses, claims, damages, liabilities or expenses referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Paragraph 7, any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
(b) The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Paragraph 8 were determined by pro
---
rata allocation or by any other method of allocation which does not take into
- ----
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(c) If indemnification is available under Paragraph 7, the
Indemnifying Parties shall indemnify each Indemnified Party to the full extent
provided in Paragraph 7 without regard to the relative fault of the Indemnifying
Party or Indemnified Party or any other equitable consideration provided for in
this Paragraph 8.
9. Delay of Registration. No Holder shall have any right to take any
---------------------
action to restrain, enjoin or otherwise delay the filing or effectiveness of any
Registration Statement on the basis of any controversy which might arise with
respect to the interpretation or implementation of this Agreement.
10
<PAGE>
10. Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Holder of Registrable Securities.
---------------------------------------------------------------
To the extent requested by the Company and the managing underwriter with respect
to the applicable Registration Statement, each Holder whose Registrable
Securities are included in a Registration Statement filed pursuant to Paragraphs
3 and 4 hereof agrees not to effect any public sale or distribution of the issue
being registered or any similar security of the Company, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act, during the seven
(7)-day period prior to, and during the 90-day period beginning on, the
effective date of such Registration Statement, to the extent such sales may
prevent the Company from being in compliance with the Exchange Act;
provided, however, that all Holders holding not less than the number of shares
- -------- -------
of common stock held by such Holder (including, shares of common stock issuable
upon exercise of the Warrants and the Conversion Options, or other convertible
securities, or upon the exercise of options, warrants or rights) and all
officers and directors of the Company enter into similar agreements. Such
agreement shall be in writing reasonably satisfactory to the Company and such
managing underwriter.
(b) Restrictions on Public Sale by the Company and Others. The
-----------------------------------------------------
Company shall not make any public or nonpublic sale or distribution of any
securities of the same class as those being registered, or any securities
convertible into or exchangeable or exercisable for any such securities, during
the seven day period prior to, and during the 90-day period beginning on, the
effective date of any Registration Statement in which holders of Registrable
Securities are participating or the commencement of a public distribution of
Registrable Securities pursuant to any such Registration Statement (except (i)
as part of such registration or pursuant to registrations on SEC Forms S-4 or S-
8 or any similar or successor form, or on any form filed in connection with an
exchange offer or an offering of securities solely to the existing stockholders
or employees of the Company or (ii) for sales or other issuances of securities
pursuant to outstanding options, warrants, rights or similar obligations).
11. Rule 144 and Stock Exchange Listings.
------------------------------------
To the extent that the Company is subject to the filing and reporting
requirements of the Securities Act and the Exchange Act, and so long as there
are Registrable Securities outstanding:
(a) The Company will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder, to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 or Rule
144A under the Securities Act, as such Rule may be amended from time to time, or
(ii) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
information and requirements.
11
<PAGE>
(b) The Company will use its best efforts to avoid taking any action
which would cause the Common Stock to cease to be eligible for inclusion on
either of the NASD Automated Quotation System or for listing on any securities
exchange on which it may become listed.
12. Obligations of Holder.
---------------------
(a) Each Holder of Registrable Securities included in any registration
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder, and shall otherwise use reasonable best
efforts to cooperate with the Company and any underwriter(s), as the Company may
reasonably request and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
Failure to comply with the Company's reasonable requests for information
pursuant to this Paragraph 12(a) shall excuse the Company from any further
obligation to a Selling Holder to include his or her shares in that Registration
Statement.
(b) Each Holder of the Registrable Securities agrees by acquisition of
such Registered Securities that upon receipt of any notice from the Company
pursuant to Paragraph 5(g), such Holder will forthwith discontinue such Holder's
disposition of Registered Securities pursuant to the Registration Statement
relating to such Registered Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Paragraph 5(g) and if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Registered Securities at the time
of receipt of such notice.
13. Mergers, etc..
-------------
The Company shall not, directly or indirectly, enter into any merger,
consolidation or reorganization in which the Company shall not be the surviving
corporation unless the surviving corporation shall, prior to such merger,
consolidation or reorganization, agree in writing to assume the obligations of
the Company under this Agreement, and for that purpose references hereunder to
"Registrable Securities" shall be deemed to include the securities which the
Holders would be entitled to receive in exchange for Common Stock under any such
merger, consolidation or reorganization, provided that to the extent such
securities to be received are convertible into shares of common stock of the
issuer thereof, then any such shares of common stock or other securities as are
issued or issuable upon conversion of said convertible securities shall also be
included within the definition of "Registrable Securities."
14. Miscellaneous.
-------------
(a) Transfer of Certain Rights. The rights granted to the Holders
--------------------------
under this Agreement may be transferred only to a transferee who delivers to the
Company, within a reasonable time after such transfer, a written instrument by
which such transferee agrees to be bound by the applicable terms of this
Agreement. Notwithstanding the foregoing, nothing herein
12
<PAGE>
shall prohibit: (i) any Holder from transferring any of its rights under this
Agreement to any wholly-owned subsidiary of such Holder or to any entity which
merges or consolidates with or acquires all or substantially all of the equity
securities or assets of such Holder, (ii) any Holder which is a partnership from
transferring any of its rights under this Agreement to a partner of such
partnership where such partner receives Registrable Securities in a distribution
from such partnership, (iii) any Holder who is an individual from transferring
any of its rights under this Agreement to such Holder's spouse or to other
relatives, or to a trust for the benefit of the Holder, or his or her spouse or
other relatives; or (iv) any trustee of a trust which holds Registerable
Securities from distributing such Registrable Securities to the beneficiaries of
such trusts; provided that any such transferee under subparagraphs (i), (ii),
--------
(iii) or (iv) above will hold the Registrable Securities subject to the terms
and conditions of this Agreement. Upon any transfer of the rights of a Holder
permitted by and completed in compliance with the terms of this Agreement, the
transferee shall become a "Holder" for purposes of this Agreement.
(b) Remedies. In the event of a breach by the Company of its
--------
obligations under this Agreement, each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given without the written consent of the
Company and Holders of at least a majority of the Registrable Securities
affected by such amendment, modification, supplementation, waiver or consent.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and which does not directly or indirectly
affect the rights of other Holders of Registrable Securities may be given by the
Holders of a majority of the Registrable Securities being sold by such Holders,
provided that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing and shall be delivered by hand,
overnight courier service, registered or certified first-class mail, return
receipt requested, or telecopier; if to a Holder, at the address set forth
opposite such Holder's name on the signature pages attached hereto or such other
address as may have been furnished to the Company in writing; if to the Company,
at 4041 N. Central Avenue, Suite 2000, Phoenix, Arizona 85012, Attention:
President and thereafter at such other address, notice of which is given in
accordance with the provisions of this Paragraph 13(d).
13
<PAGE>
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; one business day
after sent if sent by courier service.
(e) No Inconsistent Agreements. The Company shall not on or after the
--------------------------
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
To the extent the Company on or after the date of this Agreement grants any
superior or more favorable rights or terms to any Person with respect to its
securities, any such superior or more favorable rights or terms shall also be
deemed to have been granted simultaneously to the holders of Registrable
Securities. The Company has delivered to representatives of the initial Holders
hereunder copies of all agreements which it has previously entered into or
become a party to, or by which it is bound, with respect to its securities
granting any registration rights to any Person which is inconsistent with the
rights granted hereunder. The rights granted to the holders of Registrable
Securities hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the securities of the Company under
any other agreements.
(f) Governing Law; Forum. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of Delaware without regard to
the conflict of laws provisions thereof. The parties irrevocably agree that all
actions arising directly or indirectly as a result or in consequence of this
Agreement and the transactions contemplated hereby, shall be instituted and
litigated only in federal, state or local courts sitting in the City of
Wilmington, Delaware and each of the parties hereby consents to the exclusive
jurisdiction and venue of any such court, and waives any objection based on
forum nonconveniens.
- ----- -------------
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement and the Alliance Agreement (and
----------------
all exhibits and/or schedules attached hereto and thereto) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set
14
<PAGE>
forth or referred to herein with respect to the registration rights granted by
the Company with respect to the securities now or hereafter owned by the
Holders.
(k) Attorneys' Fees. If any legal action or other proceeding is
---------------
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
15
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the date first above written.
THE COMPANY:
-----------
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
_________________________________
Title:
THE HOLDER(S):
-------------
HYATT VENTURES, INC.
By:
_________________________________
Title:
200 West Madison, Suite 3800
Chicago, Illinois 60606
Attention: Harold S. Handelsman
Telecopy: 312/750-8545
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
16
<PAGE>
EXHIBIT 10.16
AMENDMENT NO. 2. TO
--------------------
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
--------------------------------------------
THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (this
"AMENDMENT"), entered into as of the 12th day of November, 1996, by and among
YURI ITKIS, an individual ("YURI"), MICHAIL ITKIS, an individual ("MICHAIL"),
BORIS ITKIS, an individual ("BORIS") (Yuri, Michail and Boris are sometimes
referred to collectively herein as the "ITKIS SHAREHOLDERS" and each
individually as an "ITKIS SHAREHOLDER") (the Itkis Shareholders are sometimes
referred to collectively herein as the "ORIGINAL SHAREHOLDERS" and each
individually as an "ORIGINAL SHAREHOLDER"), HYATT VENTURES, INC. a Delaware
corporation ("HYATT") and INTERACTIVE FLIGHT TECHNOLOGIES, INC., a Delaware
corporation (hereinafter the "COMPANY").
WHEREAS, the Original Shareholders are parties to that certain Amended and
Restated Shareholders' Agreement, dated as of October 6, 1994, as amended by
that certain Amendment No. 1 to Shareholders' Agreement dated as of October 14,
1994, and that certain Termination of Amended and Restated Shareholders'
Agreement as to Donald H. Goldman dated as of May 10, 1996 (as amended, the
"SHAREHOLDERS' AGREEMENT"); and
WHEREAS, the Original Shareholders and Hyatt desire that, from and after
the Closing Date (as hereinbelow defined), Hyatt become a "Shareholder" for
purposes of the Shareholders' Agreement; and
WHEREAS, pursuant to the Severance Agreements, dated as of November 2,
1996, between the Company and Steven M. Fieldman ("STEVEN") and Lance D.
Fieldman ("LANCE"), respectively, Steven and Lance have agreed that the
Shareholders' Agreement shall be terminated in all respects as to them, and the
Original Shareholders and Hyatt desire that, from and after the date hereof,
Steven and Lance cease to be "Shareholders" for purposes of the Shareholders'
Agreement; and
WHEREAS, the Original Shareholders' and Hyatt desire to amend the
Shareholders' Agreement further as hereinafter set forth, effective as of the
Closing Date;
NOW, THEREFORE, in consideration of the mutual promises and undertakings
set forth below and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. The term "Shareholder" as used in the Shareholders' Agreement shall
include Hyatt; provided, however, that Hyatt shall not be bound by Article IX
thereof in light of its anticipated obligations under the Strategic Alliance
Agreement described in Section 9 below.
2. The Shareholders' Agreement is hereby terminated and of no further
force or effect as to Lance and Steven, and all references to Lance and Steven
in the Shareholders' Agreement are hereby deleted. Accordingly, Steven and
Lance shall cease to have any further rights or obligations under the
Shareholders' Agreement, including without limitation
<PAGE>
any right to nominate directors of the Company. As to all parties to the
Shareholders' Agreement other than Steven and Lance, the Shareholders' Agreement
shall continue in full force and effect in accordance with its terms except as
otherwise amended hereby.
3. Articles I and II of the Shareholders' Agreement are hereby deleted in
their entirety and shall have no further force or effect.
4. Sections 3.01(b) and (c) of the Shareholders' Agreement are hereby
amended in their entirety to read as follows:
"(b) Nomination of Directors at Annual Meeting. The following
-----------------------------------------
procedures shall govern the nomination of Directors of the Company: (1)
Michail Itkis shall be entitled to nominate one Director and Yuri Itkis
shall be entitled to nominate one Director (collectively, the "ITKIS
DIRECTORS"); and (2) Hyatt shall be entitled to nominate two Directors (the
"HYATT DIRECTORS"). The remaining Directors shall each be nominated by
vote of the Itkis Directors and the Hyatt Directors (subject to the
existing right of D.H. Blair Investment Banking Corp. to nominate one of
such remaining directors, if it so elects).
"(c) No nominee for Director will be presented to the
shareholders of the Company at any meeting of shareholders of the Company
called for the purpose of voting on the election of directors or by
consensual action of shareholders with respect to the election of directors
unless such nominee shall have completed a questionnaire substantially
similar to that completed by the other Directors and such nominee is
reasonably acceptable to the Company."
5. Section 3.01(e) of the Shareholders' Agreement is hereby amended in
its entirety to read as follows:
"(e) Removal of Directors. Except as otherwise provided in this
--------------------
Section, each Shareholder agrees not to take any action to remove, without
cause, any Director of the Company. Notwithstanding the foregoing, each of
the Shareholders shall at all times have the right to recommend the
removal, with or without cause, of the Director or Directors which such
Shareholder has nominated pursuant to the terms of Section 3.01(b)"
6. Sections 3.02, 3.03 and 3.04 of the Shareholders' Agreement are hereby
deleted in their entirety and shall have no further force or effect. Matters
previously governed thereby shall be governed by the Company's Bylaws and the
laws of the State of Delaware, as applicable.
7. Articles IV, V, VI, VII and VIII of the Shareholders' Agreement are
hereby deleted in their entirety and shall have no further force or effect.
Concurrently with the execution of this Amendment, the Company and Fortunet,
Inc., are entering into an Amended and Restated Intellectual Property License
and Support Services Agreement. In
<PAGE>
addition, upon request by any Original Shareholder, the Company agrees to cause
its transfer agent, without cost or expense to such Original Shareholder, to
remove, from any stock certificates evidencing ownership of Shares by such
Original Shareholder, the legend previously required by prior Section 8.05 of
the Shareholders' Agreement.
8. The lead-in clause to the first sentence of Section 10.02 (prior to
the first proviso) shall be amended to read as follows:
"This Agreement shall be effective and binding upon the parties hereto
and their respective successors and permitted assigns as of the date of
this Agreement, shall continue in force for a period of two (2) years
thereafter, unless sooner terminated by written agreement of a majority of
the Shareholders or otherwise by force of law;"
9. The provisions of Sections 1 and Sections 3 through 8 above shall be
effective only from and after the date (the "CLOSING DATE") of execution and
delivery by the Company and Hyatt of a Strategic Alliance Agreement
substantially in the form of the draft Strategic Alliance Agreement provided by
to the Company by counsel to Hyatt on October 17, 1996 (with such revisions
thereto as may subsequently be agreed upon by the Company and Hyatt). The
provisions of Section 2 above shall be effective as of the date hereof,
regardless of whether the Closing Date occurs.
10. Sections 10.04 through 10.11 of the Shareholders' Agreement are hereby
incorporated herein by reference.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the date first above written.
_______________________ ______________
Yuri Itkis Spouse
_______________________ ______________
Michail Itkis Spouse
_______________________ ______________
Boris Itkis Spouse
"Hyatt"
HYATT VENTURES, INC.
By:_______________________________
Its:______________________________
<PAGE>
"Company"
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:_______________________________
Its:______________________________
<PAGE>
EXHIBIT 10.17
AGREEMENT
---------
THIS AGREEMENT (this "AGREEMENT") is made and entered into as of May 10,
1996, by and between Interactive Flight Technologies, Inc., a Delaware
corporation (the "COMPANY"), and Donald H. Goldman ("EXECUTIVE"), with reference
to the following facts:
RECITALS
--------
A. Executive has been employed as President, and is a director, of the
Company. He is resigning from all such positions, effective as of the date
hereof (the "RESIGNATION DATE").
B. The Company and Executive are parties to an employment agreement dated
as of October 31, 1994 (the "EMPLOYMENT AGREEMENT").
C. In connection with such resignation, the Company has agreed to provide
Executive with certain benefits and consulting compensation, as more fully set
forth herein.
D. Executive desires to continue to render certain consulting and legal
services to the Company, and the Company desires that Executive render such
services, under the terms and conditions hereinafter set forth.
E. In consideration of such benefits and consulting arrangements,
Executive and the Company have each agreed to release the other from any and all
claims, known or unknown, that they may have or could have against each other
arising prior to the execution of this Agreement, including any claims
concerning any subject matter arising out of, related to or connected with
Executive's employment with the Company, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the premises set forth above and of the
covenants, releases, representations and warranties contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. CERTAIN DEFINITIONS.
-------------------
"CLAIMS" means any and all claims, debts, liabilities, demands,
obligations, liens, promises, acts, agreements, costs, and expenses (including,
but not limited to, attorneys' fees), damages, actions, and causes of action, of
whatever kind or nature, including, without limitation, any statutory, civil, or
administrative claim, whether known or unknown, suspected or unsuspected, fixed
or contingent, apparent or concealed, except as provided herein.
<PAGE>
"COMPANY GROUP" means the Company and its respective successors, assigns,
officers, directors, agents, employees, representatives, attorneys and
shareholders.
"EXECUTIVE GROUP" means Executive and his heirs, assigns, attorneys,
representatives, agents, executors and administrators.
2. RESIGNATION. Executive hereby resigns, effective as of the Resignation
-----------
Date, from his positions with the Company as a director and President, and all
other director or officer positions held with any member of the Company Group.
The parties shall cancel the Amended and Restated Stockholders Agreement dated
as of October 6, 1994, only as to Executive and effective upon the Resignation
Date.
3. COMPENSATION PACKAGE. As consideration for Executive's past service and
--------------------
his resignation, release and promises set forth in this Agreement, the Company
agrees as follows:
3.1 On the next regular payday, the Company shall pay to Executive his
unpaid salary through the Resignation Date.
3.2 Commencing on the day after the Resignation Date the Company shall pay
Executive, at the rate of $150,000 per year, payable on a biweekly basis through
and including the date which is fifteen (15) months after the Resignation Date
(the "Consulting Term"). Any amount due for the period between the day after
the Resignation Date and the Company's next regular biweekly payment date shall
be paid with the first biweekly payment after the Resignation Date. Executive
shall not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment, by self-employment or otherwise; and if
Executive obtains other employment or becomes self-employed any compensation
earned by Executive during such period shall not be applied to mitigate any
payment made or to be made to Executive for such period.
3.3 Subject to the same types of contribution as made by Executive in the
past, the Company shall at its expense provide Executive with family medical
insurance benefits on the same terms and conditions as provided to the Company's
senior executives, until the end of the Consulting Term. Commencing at the end
of the Consulting Term, Executive shall be entitled to such benefits as required
under COBRA regulation. The participation in any benefits during the Consulting
Term shall not be deemed benefits received under COBRA regulation.
3.4 Executive currently holds the following options to purchase Common
Stock of the Company (collectively, the "STOCK OPTIONS"):
-2-
<PAGE>
<TABLE>
<CAPTION>
Exercisable
through the
Date No. of Exercise date specified
Granted Shares Price Type Vesting below
- ---------- ------ -------- ---- --------------- ------------------------------
<S> <C> <C> <C> <C> <C>
11/1/94 10,000 $ 4.40 ISO Vested 90 days after Resignation Date
2/20/96 15,910 $11.00 NQSO Vesting 2/20/97 2/19/06
2/20/96 9,090 $11.00 ISO Vesting 2/20/97 2/19/06
</TABLE>
3.5 Executive may continue to exercise the option granted on November 1, 1994
within 90 days after the Resignation Date. The ISO granted on February 20, 1996
is hereby amended to be non-qualified in its entirety. The options granted on
February 20, 1996 shall continue to vest and be exercisable through February 19,
2006.
3.6 Executive and Michael Itkis and Steven Fieldman have in the past received
options pursuant to Section 3(a)(ii) of their Employment Agreements at the rate
of 10,000, 15,000 and 30,000 shares respectively. In the event that either or
both of Messrs. Itkis and Fieldman receive compensatory options during the
remainder of the period expiring on or before the last day of the Consulting
Term, then an option for 10,000 shares shall be granted to Executive. The
option given to Executive will have the same terms and conditions except as may
be necessary to reflect his consulting rather than employee status (i.e., he may
----
not receive any ISO's but shall receive NQSO's and the fact that Executive is a
consultant shall not affect vesting, excercisability or otherwise so that such
option shall vest at the same date that the Itkis or Fieldman options vest and
shall be exercisable through the end of the term of the option). Nothing herein
shall be deemed to provide Executive with any right to receive options if
Messrs. Itkis or Fieldman receive special bonus options.
3.7 The Company shall continue to indemnify Executive in accordance with the
standards, terms and limitations of (i) Article IV of the Company's Bylaws as in
effect on the date hereof to the same extent as if Executive had remained a
director and officer of the Company, (ii) the Indemnification Agreement dated
March 7, 1995 between Company and Executive (the "INDEMNIFICATION AGREEMENT"),
(iii) existing Directors and Officers liability insurance to the same extent as
if Executive had remained a director and officer of the Company and (iv)
Articles VII and VIII of the Company's Amended and Restated Certificate of
Incorporation.
4. RETURN OF COMPANY PROPERTY. Executive shall promptly return all Company
--------------------------
property and documents in his possession other than a fax machine which the
Company hereby transfers and assigns to Executive.
5. RELEASE OF CLAIMS.
-----------------
5.1 EXECUTIVE RELEASE. Except as provided herein, in consideration of the
-----------------
terms and provisions of this Agreement, Executive agrees that he shall and does
hereby
-3-
<PAGE>
forever relieve, release and discharge each person in the Company Group from any
and all Claims arising out of any act or omission occurring before the execution
of this Agreement.
5.2 COMPANY RELEASE. Except as provided herein, in consideration of the
---------------
terms and provisions of this Agreement, the Company agrees that it shall and
does hereby forever relieve, release and discharge each person in the Executive
Group from any and all Claims arising out of any act or omission occurring
before the execution of this Agreement.
5.3 SCOPE. The releases set forth in this Section 5 include, but are not
-----
limited to, any and all Claims based on, arising out of, or related to
Executive's employment relationship with the Company (or any and all facts in
any manner arising out of, related to or connected with such employment
relationship) or the termination of Executive's employment with the Company
under the terms hereof. Without limiting the generality of the foregoing,
Claims released by Executive and the Company shall encompass and include, but
are not limited to, any Claims arising from rights under federal, state, or
local laws relating to the prohibition of discrimination on the basis of race,
national origin, sex, religion, age, marital status, handicap, ancestry, sexual
orientation, or any other protected classification, and any and all Claims
arising under common law, including, but not limited to, common law Claims for
breach of contract, breach of the implied covenant of good faith and fair
dealing, wrongful termination, discrimination, tortious interference with
contract or with current or prospective economic advantage, fraud, deceit,
misrepresentation, violation of public policy, breach of privacy, defamation,
infliction of emotional distress, loss of consortium, breach of fiduciary duty,
Claims arising from any alleged breach of the Employment Agreement, or any other
common law Claim of any kind whatsoever.
6. ACKNOWLEDGEMENT AND EFFECT OF WAIVER. Executive understands and
------------------------------------
acknowledges that (a) this Agreement constitutes a voluntary waiver of any and
all Claims he has against the Company and each person in the Company Group as of
the date of his execution of this Agreement, including Claims under the Age
Discrimination in Employment Act of 1967, 29 U.S.C. (S) 621 et seq.; (b) he has
-- ----
waived any and all Claims pursuant to this Agreement and in exchange for
consideration, the value of which exceeds payments or remuneration to which he
was already entitled; (c) he has been, and is hereby, advised to consult with an
attorney concerning this Agreement before executing it; (d) he has been, and is
hereby, informed that he has a period of at least twenty-one (21) days to
consider the terms of this Agreement; and (e) he may revoke this Agreement at
any time during the seven (7) days following the date of his execution of this
Agreement, and no provision of this Agreement shall become effective or
enforceable against Executive or the Company until such revocation period has
expired.
7. REPRESENTATIONS AND WARRANTIES. Each party represents and warrants to the
------------------------------
other that (i) it has full power and authority to enter into this Agreement;
(ii) it is the owner of the Claims that it has released herein; and (iii) it has
not (nor has it purported to have) assigned, conveyed, encumbered, or in any
manner transferred any portion of
-4-
<PAGE>
the Claims released herein. Each party hereby agrees to indemnify and hold each
party released by it hereunder harmless from any and all claims (including, but
not limited to, all attorneys' fees actually incurred) resulting from any breach
of that releasing party's warranties and representations herein.
8. PUBLIC ANNOUNCEMENTS.
--------------------
8.1 ANNOUNCEMENT OF RESIGNATION. Neither party shall make any public
---------------------------
announcement regarding Executive's resignation other than that made heretofore
and set forth in Exhibit A hereto and except as may be required pursuant to
applicable securities laws and any rules and regulations thereunder and then
only after consultation with the other party to the maximum extent possible in
order to maintain goodwill for the other party.
8.2 THIRD PARTY CONTACTS. Each of the parties hereto agrees not to make
--------------------
disparaging or derogatory comments about any of the parties released by it
hereunder, (whether to the press, the investment community, Shareholders or
otherwise and not to take any positions with third parties which are
inconsistent with the press release attached as Exhibit A hereto, except to the
---------
extent required by applicable law and then only after consultation with the
other party to the maximum extent possible in order to maintain goodwill for the
other party.
9. CONFIDENTIALITY; NON-COMPETITION.
--------------------------------
9.1 For a period of three (3) years from the Resignation Date, Executive
agrees that he will not, without the prior written consent of the Company,
directly or indirectly, for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor (except that Executive
may purchase up to five percent of the outstanding capital stock of any
publicly-traded corporation) or otherwise (i) engage or participate in the
business of owning, operating or managing in-flight entertainment systems, in
any area; (ii) interfere with, disrupt, or attempt to disrupt, any past, present
or prospective relationship, contractual or otherwise, between the Company and
any customer, vendor, supplier or employee of the Company; or (iii) employ or
solicit the employment or engagement by others of any employee of the Company
who was an employee as of the Resignation Date or within six months prior
thereto.
9.2 Executive will not disclose or use or enable anyone else to use any
information or data which was obtained by him or available to him during the
term of employment whether or not such information or data will be considered
proprietary or secret.
9.3 In the event that Executive breaches any provisions of this section or
there is a threatened breach, then, in addition to any other rights which the
Company may have, the Company shall be entitled to seek injunctive relief to
enforce the restrictions contained herein. In the event that an actual
proceeding is brought in equity to enforce the provisions of this paragraph,
Executive shall not urge as a defense that there is an
-5-
<PAGE>
adequate remedy at law nor shall the Company be prevented from seeking any other
remedies which may be available.
9.4 The existence of any claim or cause of action by the Company against
Executive, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of the foregoing
restrictive covenants but shall be litigated separately.
9.5 During the Consulting Term and thereafter, Executive agrees to hold in
strictest confidence, and not to use, except for the benefit of the Company, or
to disclose to any person, firm or corporation, without the prior written
authorization of the Company, any trade secrets, confidential knowledge, data or
other proprietary information of the Company. By way of illustration and not
limitation, such shall include information relating to products, processes,
know-how, designs, formulas, methods, developmental or experimental work,
improvements, discoveries, plans for research, new products, marketing or
selling, business plans, budgets, unpublished financial statements, licenses,
prices and costs, suppliers and customers, and information regarding the skills
and compensation of other employees of the Company.
10. CONSULTING SERVICES. Executive hereby agrees to cooperate with and
-------------------
render such consulting, legal and other services to the Company, consistent with
his experience and background and subject to his other business commitments, as
may be reasonably requested from time to time by the Company's then President or
Chief Executive Officer during the Consulting Term. Executive shall devote a
maximum of 5 hours per month (if requested) to the performance of his services
for the Company without additional compensation. Executive shall not be
required to perform more than 5 hours of services for the Company in any month
unless prior thereto Executive and the Company mutually agree on the services to
be performed and the compensation to be paid to Executive therefor.
11. MISCELLANEOUS.
-------------
11.1 DISPUTED RIGHTS. This Agreement represents a settlement of disputed
---------------
rights and claims and, by entering into this Agreement, no party admits or
acknowledges the existence of any liability or wrongdoing, all such liability
being expressly denied. No provision hereof, or of any related document, shall
be construed as any admission or concession of liability or of any wrongdoing.
11.2 AGREEMENT NEGOTIATED. This Agreement was the subject of careful
--------------------
negotiation between Executive (a sophisticated businessman and lawyer) and the
Company. As a consequence, the parties do not believe that the presumptions of
any statutory or common law doctrine relating to the interpretation of contracts
against the drafter of any particular clause should be applied in this case and
therefore waive its effects.
-6-
<PAGE>
11.3 INDEPENDENT ADVICE. Each of the parties hereto (i) has received
------------------
independent legal advice from its attorneys with respect to the advisability of
executing this Agreement; (ii) has read this Agreement and the releases
contained herein carefully, knows and understands the contents hereof, and (iii)
has made such investigation of the facts pertaining to this Agreement and of all
matters pertaining hereto as it deems necessary or desirable. Except as
expressly set forth herein, none of the parties hereto has made any
representations or warranties in connection with this Agreement, and no party
has relied upon any oral or written representation or warranty of any other
party in entering into this Agreement.
11.4 NOTICES. Any notice required or desired to be given to the Company or to
-------
Executive shall be given in writing, and shall be addressed (i) to the Company
at its principal place of business, and (ii) to Executive at his most recent
home address in the records of the Company, or to such other address as that
party may hereafter designate in writing, and shall be sufficiently given by
actual delivery thereof to the Company or Executive, as the case may be, or by
telecopy or certified mail, postage prepaid, return receipt requested, addressed
to the other party as aforesaid, and the date of delivery, mailing or
telecopying shall be the date of the giving of such notice.
11.5 ENTIRE AGREEMENT. This Agreement, together with all documents referred
----------------
to herein, sets forth the entire understanding of the parties with respect to
Executive's employment relationship with the Company and the termination
thereof, and supersedes any and all prior agreements or understandings between
the parties relating to such subject matter (including without limitation the
Employment Agreement, which is hereby terminated). No person has any authority
to make any representation or promise on behalf of any of the parties which is
inconsistent with the representations set forth in this Agreement, and this
Agreement has not been executed in reliance on any promise or representation not
set forth herein.
11.6 MODIFICATION AND WAIVER. None of the terms or provisions hereof shall be
-----------------------
modified or waived, and this Agreement may not be amended or terminated, except
by a written instrument signed by the party against which any modification,
waiver, amendment or termination is to be enforced. No waiver of any one
provision shall be considered a waiver of any other provision, and the fact that
an obligation or right is waived for a period of time or in one instance shall
not be considered to be a continuing waiver.
11.7 GOVERNING LAW. All questions with respect to this Agreement and the
-------------
rights and liabilities of the parties shall be governed by the laws of Delaware,
regardless of the choice of laws provisions of Delaware or any other
jurisdiction.
11.8 ASSIGNMENT. This Agreement shall not be assignable by Executive or the
----------
Company, except that this Agreement may be assigned by the Company to any
corporation or other business entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, corporate
reorganization or by acquisition of all or substantially all of the assets of
the Company and which assumes the
-7-
<PAGE>
Company's obligations under this Agreement (a "SUCCESSOR"). The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
any Successor that has so assumed this Agreement. Furthermore, in the event
that such an assignment to a Successor is deemed ineffective with respect to
Section 10 hereof by virtue of the personal services contemplated thereby, the
remaining provisions hereof shall nonetheless inure to the benefit of such
Successor; provided that the compensation payable to Executive as set forth in
Section 3.2 and the Stock Option commitments set forth in Section 3.4 are
fulfilled by the Successor.
11.9 ARBITRATION OF DISPUTES. If Executive and the Company cannot resolve a
-----------------------
dispute (whether arising in contract or tort or any other legal theory, whether
based on federal, state or local statute or common law and regardless of the
identities of any other defendants) that in any way relates to or arises out of
this Agreement, the termination of Executive's employment relationship with the
Company, or (without limiting the generality of any other Section herein)
Executive's past employment relationship with the Company, or termination of any
of the agreements referred to herein, then such dispute shall be settled by
arbitration in New York, New York, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association.
11.10 ATTORNEYS' FEES. In the event that either party should bring any
---------------
action, suit or other proceeding against the other party hereunder concerning
any matter released herein, or contesting the validity of this Agreement or any
provision hereof, or attempting to rescind, negate, modify or reform this
Agreement or any of the terms or provisions thereof, or in the event that any
action, suit, or other proceeding is instituted to remedy, prevent, or obtain
relief from a breach of this Agreement, or arising out of a breach of this
Agreement, the prevailing party shall be entitled to recover all of such party's
costs and expenses, including reasonable attorneys' fees and disbursements,
incurred in each and every such action, suit, or other proceeding, including any
and all appeals or petitions therefrom.
11.11 INDEPENDENT CONTRACTOR. The Company and Executive agree that Executive
----------------------
will act as an independent contractor in the performance of his duties under
this Agreement. Accordingly, Executive shall be responsible for payment of all
taxes including Federal, State and local taxes arising out of Executive's
activities in accordance with this Agreement, including, by way of illustration
but not limitation, Federal and State income tax, Social Security tax,
Unemployment Insurance taxes and any other taxes or business license fees as
required.
11.12 OBLIGATION TO PAY COMPENSATION. The Company's obligation to pay
------------------------------
Executive the compensation and to provide the benefits provided herein shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, any setoff, counterclaim, recoupment, defense or
other right which the Company may have against Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
-8-
<PAGE>
11.13 NO RESCISSION. Except as expressly provided herein, each party waives
-------------
all rights it may now have or may hereafter have conferred upon him or it, by
statute or otherwise, to terminate, cancel or rescind this Agreement in whole or
in part.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date and year set forth below.
"Company" "Executive"
Interactive Flight Technologies, Inc.
By:____________________________ ________________________________
Donald H. Goldman
Its:____________________________
Date:__________________________ Date:___________________________
-9-
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Interactive Flight Technologies, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectuses.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Las Vegas, Nevada
November 18, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of our report dated November 28, 1994 on our audit of the financial
statements of Interactive Flight Technologies, Inc. as at October 31, 1994, and
for the period February 1, 1994 (commencement of operations) to October 31,
1994. Such report is modified for an uncertainty relating to the ability of the
Company to continue as a going concern. We also consent to the reference to our
firm under the caption "Experts".
/s/ Richard A. Eisner & Company, LLP
New York, New York
November 18, 1996
<PAGE>
Exhibit 23.5
------------
CONSENT OF PERSON TO BECOME A DIRECTOR
The undersigned hereby consents to the reference to the undersigned in the
Registration Statement on Form S-3, Registration No. 333-14013, of Interactive
Flight Technologies, Inc., as a person named therein to become a Director of
Interactive Flight Technologies, Inc.
Dated: November 18, 1996
/s/ John Pritzker
----------------------------
John Pritzker
<PAGE>
Exhibit 23.6
------------
CONSENT OF PERSON TO BECOME A DIRECTOR
The undersigned hereby consents to the reference to the undersigned in the
Registration Statement on Form S-3, Registration No. 333-14013, of Interactive
Flight Technologies, Inc., as a person named therein to become a Director of
Interactive Flight Technologies, Inc.
Dated: November 18, 1996
/s/ Adam Aron
----------------------------
Adam Aron
<PAGE>
EXHIBIT 99.1
------------
LETTER OF TRANSMITTAL
TO EXERCISE CLASS B WARRANTS
OF
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
PURSUANT TO THE EXERCISE OFFER/PROSPECTUS DATED NOVEMBER __, 1996
_________________
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
OFFER TO REDUCE THE EXERCISE PRICE
OF CLASS B WARRANTS TO $7.50
TO HOLDERS OF
THE COMPANY'S CLASS B WARRANTS
FOR EXERCISES BEFORE
DECEMBER __,1996
- --------------------------------------------------------------------------------
THE OFFER WILL EXPIRE ON _______, DECEMBER __,1996, AT 5:00 P.M., NEW YORK CITY
TIME, UNLESS EXTENDED. WITHDRAWAL RIGHTS WILL ALSO EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON _______, DECEMBER __, 1996. IN ADDITION, THE CLASS B WARRANTS WILL
CEASE TO BE EXERCISABLE ON JANUARY 16, 1997, AT 5:00 P.M., NEW YORK CITY TIME,
AND ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO THAT TIME WILL BE REDEEMED ON
JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
- --------------------------------------------------------------------------------
The Warrant Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
1-(800) 937-5449 (toll free)
By Facsimile By Mail or Hand Delivery:
(718) 236-2976 Reorganization Department
40 Wall Street
Confirm Facsimile 46th Floor
by Telephone: New York, NY 10005
1-(800) 937-5449 (toll free)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED
This Letter of Transmittal is to be completed by holders (the "Holders") of
Class B Warrants (defined below) either if certificates for Class B Warrants are
to be forwarded herewith or, unless an Agent's Message (as defined in the
Prospectus/Exercise Offer) is utilized, if exercises are to be made by book-
entry transfer to an account maintained by American Stock Transfer & Trust
Company (the "Warrant Agent") at the Depository Trust Company ("DTC"), Pacific
Securities Trust Company ("PSDTC") or Philadelphia Depository Trust Company
("PDTC") (each a "Book-Entry Transfer Facility" and collectively referred to as
the "Book-Entry Transfer Facilities"), pursuant to the procedures set forth
under the caption "The Exercise Offer and Warrant Redemption-Procedure for
Exercising Class B Warrants-Book-Entry Transfer" in the Exercise
Offer/Prospectus, dated November __, 1996 (the "Prospectus /Exercise Offer").
Holders who exercise Class B Warrants by book-entry transfer are referred to
herein as "Book-Entry Holders."
Holders of Class B Warrants whose certificates for such Class B Warrants
(the "Warrant Certificates") are not immediately available or who cannot deliver
their Warrant Certificates, together with a certified or bank check payable to
"Interactive Flight Technologies, Inc." in the amount of $7.50 per share
exercised in the Exercise Offer and all other required documents to the Warrant
Agent on or prior to the Expiration Date or who cannot complete the procedures
for book-entry transfer on a timely basis, must exercise their Class B Warrants
according to the guaranteed delivery procedures set forth under the caption "The
Exercise Offer and Warrant Redemption-Procedures for Exercising Class B
Warrants-Guaranteed Delivery" in the Exercise Offer/Prospectus. See Instruction
2. Delivery of documents to a Book-Entry Transfer Facility does not constitute
delivery to the Warrant Agent.
NOTE: SIGNATURES MUST BE PROVIDED ON PAGE 8. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY.
-2-
<PAGE>
[_] CHECK HERE IF CLASS B WARRANTS ARE BEING EXERCISED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE WARRANT AGENT WITH A BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Exercising Institution: ________________________________________________
Check Box of Book-Entry Transfer Facility:
[_] The Depository Trust Company
[_] Pacific Securities Trust Company
[_] Philadelphia Depository Trust Company
Account Number:______________________ Transaction Code Number: _______________
[_] CHECK HERE IF CLASS B WARRANTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE WARRANT AGENT AND COMPLETE THE
FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED
DELIVERY.
Name(s) of Registered Holder(s):________________________________________________
Window Ticket Number (if any):__________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Institution which Guaranteed Delivery:__________________________________
-3-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DESCRIPTION OF CLASS B WARRANTS EXERCISED
- ----------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) WARRANT CERTIFICATE(S) AND
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) WARRANT(S) EXERCISED
ON WARRANT CERTIFICATE(S)) (ATTACHED ADDITIONAL LIST, IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF WARRANTS
REPRESENTED NUMBER OF
CERTIFICATE BY WARRANT WARRANTS
NUMBER(S) CERTIFICATES EXERCISED*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Total Warrants
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Unless otherwise indicated, it will be assumed that all Warrants described
above are being exercised. See Instruction 4.
- -------------------------------------------------------------------------------
-4-
<PAGE>
Ladies and Gentlemen:
The undersigned hereby exercises the Class B redeemable stock purchase
warrants (the "Class B Warrants") of Interactive Flight Technologies, Inc. a
Delaware corporation (the "Company"), as described on page 4 of this Letter of
Transmittal, at an exercise price of $7.50 per Class B Warrant, upon the terms
and subject to the conditions set forth in the Exercise Offer/Prospectus, dated
November __, 1996 (the "Exercise Offer/Prospectus"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, together with the
Exercise Offer/Prospectus, constitutes the "Offer"). The undersigned
understands that upon exercise of each such Class B Warrant the undersigned
shall receive one (1) share (the "Underlying Stock") of the Company's Class A
common stock, par value $0.01 per share (the "Class A Common Stock").
Subject to, and effective upon, acceptance for exercise of the Class B
Warrants included herewith in accordance with the terms and subject to the
conditions of the Offer, the undersigned hereby (i) exercises and transfers to,
or upon the order of, the Company all right, title and interest in and to all
the Class B Warrants that are being exercised hereby, and (ii) constitutes and
irrevocably appoints the Warrant Agent the true and lawful agent, attorney-in-
fact and proxy of the undersigned to the full extent of the undersigned's rights
with respect to such Class B Warrants with full power of substitution and re-
substitution (such power of attorney and proxy being deemed to be an irrevocable
power coupled with an interest), to (a) deliver Warrant Certificates and
transfer ownership of such Class B Warrants on the account books maintained by
the Book-Entry Transfer Facilities, together with all accompanying evidences of
transfer and authenticity, to or upon the order of the Company, upon issuance by
the Warrant Agent, as the undersigned's agent, of the applicable Underlying
Stock, (b) present such Class B Warrants for transfer, and effect such transfer,
on the books of the Company, and (c) receive all benefits and otherwise exercise
all rights of beneficial ownership of such Class B Warrants, all in accordance
with the terms of the Offer.
The undersigned hereby represents and warrants that the undesigned has full
power and authority to exercise, assign and transfer the Class B Warrants
exercised hereby and that, when the same are accepted for exercise by the
Company, the Company will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
the same will not be subject to any adverse claim. The undersigned, upon
request, will execute and deliver any additional documents deemed by the Warrant
Agent or the Company to be necessary or desirable to complete the exercise,
assignment and transfer of the Class B Warrants exercised hereby. In addition,
if there shall occur any anti-dilution adjustment pursuant to the terms of the
Class B Warrants, or other adjustment affecting the exercise price or the number
of shares of Class A Common Stock obtainable upon exercise of the Class B
Warrants, the Company, in its sole discretion, may make such adjustments in the
exercise price of the Class B Warrants or the securities issuable upon exercise
thereof as it deems appropriate.
All authority herein conferred or herein agreed to be conferred shall not
be affected by, and shall survive, the death or incapacity of the undersigned
and any obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned. Except as stated in the Exercise Offer/Prospectus, this exercise
is irrevocable.
The undersigned understands that exercises of Class B Warrants pursuant to
any one of the procedures described under the caption "The Exercise Offer and
Warrant
-5-
<PAGE>
Redemption-Procedures for Exercising Class B Warrants" in the Exercise
Offer/Prospectus and in the Instructions hereto will constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Offer.
Unless otherwise indicated herein under "Special Issuance Instructions,"
please issue the applicable Underlying Stock and/or return any Warrant
Certificates not exercised or accepted for exercise in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the applicable Underlying Stock and/or return any
Warrant Certificates not exercised or accepted for exercise (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature. In the event that both the "Special Issuance
Instructions" and the "Special Delivery Instructions" are completed, please
issue and the applicable Underlying Stock and/or return any Warrant Certificates
not exercised or accepted for exercise in the name(s) of, and deliver said
applicable Underlying Stock and/or return certificates to, the person or persons
so indicated. Holders exercising Class B Warrants by book-entry transfer may
request that any Class B Warrants not accepted for exercise be returned by
crediting such account maintained at such Book-Entry Transfer Facility as such
Holder may designate by making an appropriate entry under "Special Issuance
Instructions." The undersigned recognizes that the Company has no obligation
pursuant to the "Special Issuance Instructions" to issue any applicable
Underlying Stock in the name of a different registered Holder if the Company
does not accept for exercise any of the such Class B Warrants.
-6-
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------- -------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Warrant To be completed ONLY if Warrant
Certificates not exercised or not accepted for Certificates not exercised or not accepted for
exercise and/or the applicable Underlying exercise and/or the applicable Underlying Stock
Stock are to be issued in the name of someone are to be sent to someone other than the
other than the undersigned, or if Class B undersigned, or to the undersigned at an address
Warrants exercised by book-entry transfer other than that shown on the front cover.
which are not accepted for exercise are to be
returned by credit to an account maintained at
a Book-Entry Transfer Facility other than that
designated on the front cover.
Issue Underlying Stock and/or certificates to: Mail Underlying Stock and/or certificates to:
Name: Name:
---------------------------------------- -------------------------------------------
(PLEASE PRINT) (PLEASE PRINT)
Address: Address:
------------------------------------- ----------------------------------------
- ---------------------------------------------- -------------------------------------------------
- ---------------------------------------------- -------------------------------------------------
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
- ---------------------------------------------- -------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.) (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
- ---------------------------------------------- -------------------------------------------------
</TABLE>
NOTE: SIGNATURE MUST BE PROVIDED ON FOLLOWING PAGE.
-7-
<PAGE>
- --------------------------------------------------------------------------------
SIGN HERE
- --------------------------------------------------------------------------------
Signature(s) of Owner(s)
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on the
Warrant Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the necessary information.
See Instruction 5.)
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (Full Title):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
-------------------------------------------------
Tax Identification or Social Security No.:
--------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED-SEE INSTRUCTIONS 1 AND 5)
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number:
-------------------------------------------------
Dated:
----------------------------
- --------------------------------------------------------------------------------
-8-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required (i) if this Letter of Transmittal is signed by the
registered holder (which term, for purposes of this document, shall include any
participant in a Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of Class B Warrants) of the Class B Warrants
exercised hereby, unless such holder has completed the box entitled "Special
Issuance Instructions" on page 7 hereof, or (ii) if such Class B Warrants are
exercised for the account of a firm that is a bank, broker, dealer, credit
union, savings association or other entity which is a member in good standing of
the Securities Transfer Agent's Medallion Program (an "Eligible Institution").
In all other cases, all signatures on this Letter of Transmittal must be
guaranteed by an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used either if Warrant Certificates are to be forwarded
herewith or, unless an Agent's Message (as defined in the Exercise
Offer/Prospectus) is utilized, if exercises of Class B Warrants are to be made
pursuant to the procedures for exercise by book-entry set forth under the
caption "The Exercise Offer and Warrant Redemption-Procedures for Exercising
Class B Warrants-Book-Entry Exercise" in the Exercise Offer/Prospectus. Warrant
Certificates or timely confirmation (a "Book-Entry Confirmation") of a book-
entry exercise of such Class B Warrants in the Warrant Agent's account at a
Book-Entry Transfer Facility, as well as a Letter of Transmittal (or a facsimile
hereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in the case of a book-entry delivery, together
with a certified or bank check payable to "Interactive Flight Technologies,
Inc." in the amount of $7.50 per share exercised in the Offer and any other
documents required by the Letter of Transmittal, must be received by the Warrant
Agent at its address set forth herein prior to the Expiration Date. Holders
whose Warrant Certificates are not immediately available or who cannot deliver
their Warrant Certificates, together with a certified or bank check payable to
"Interactive Flight Technologies, Inc." in the amount of $7.50 per share
exercised in the Offer and all other required documents to the Warrant Agent
prior to the Expiration Date or who cannot complete the procedures for delivery
by book-entry exercise on a timely basis may exercise their Class B Warrants by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedures set forth under the caption "The Exercise
Offer and Warrant Redemption-Procedures for Exercising Class B Warrants-
Guaranteed Delivery" in the Exercise Offer/Prospectus. Pursuant to such
procedure: (i) such exercise must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Warrant Agent on or prior to the Expiration Date; and (iii) the
Warrant Certificates (or a Book-Entry Confirmation) representing all exercised
Class B Warrants with a Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees (or, in the
case of a book-entry delivery, an Agent's Message), together with a certified or
bank check payable to "Interactive Flight Technologies, Inc." in the amount of
$7.50 per share exercised in the Offer and any other documents required by the
Letter of Transmittal, must be received by the Warrant Agent within five New
York Stock Exchange, Inc. ("NYSE") trading days after the date of execution of
such Notice of Guaranteed Delivery, as provided under the caption "The Exercise
Offer and Warrant Redemption-Procedures for Exercising Class B Warrants-
Guaranteed Delivery" in the Exercise Offer/Prospectus. If Warrant Certificates
are forwarded separately to the Warrant Agent, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) must accompany each such
delivery.
-9-
<PAGE>
The method of delivery of Warrant Certificates, the Letter of Transmittal
and all other required documents is at the option and sole risk of the
exercising Holder and the delivery will be deemed made only when actually
received by the Warrant Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed to ensure timely delivery.
No alternative, conditional or contingent exercise will be accepted. All
exercising Holders, by execution of this Letter of Transmittal or facsimile
hereof, waive any right to receive any notice of the acceptance of their Class B
Warrants for exercise.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
Warrant Certificate numbers and/or the number of Class B Warrants and any other
required information should be listed on a separate schedule attached hereto and
separately signed on each page thereof in the same manner as this Letter of
Transmittal is signed.
4. PARTIAL EXERCISES. (Not applicable to Holders who exercise by book-
entry transfer.) If fewer than all Class B Warrants evidenced by any
certificate submitted are to be exercised, fill in the number of Class B
Warrants which are to be exercised in the box entitled "Number of Class B
Warrants Exercised." In such case, new certificate(s) for the remainder of the
Class B Warrants that were evidenced by your old certificate(s) will be sent to
you, unless otherwise provided in the appropriate box marked "Special Issuance
Instructions" and/or "Special Delivery Instructions" on this Letter of
Transmittal, as soon as practicable after the Expiration Date. All Class B
Warrants represented by Warrant Certificates delivered to the Warrant Agent will
be deemed to have been exercised unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL. If this Letter of Transmittal is
signed by the registered holder(s) of the Class B Warrants exercised hereby, the
signatures must correspond exactly with the name(s) as written on the face of
the Warrant Certificate(s), without alteration, enlargement or any change
whatsoever.
If any of Class B Warrants exercised hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any exercised Class B Warrants are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of Warrant
Certificates.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and proper evidence satisfactory to the Company of their
authority so to act must be submitted.
When this Letter of Transmittal is signed by the registered owner(s) of the
Class B Warrants listed and transmitted hereby, no endorsements of Warrant
Certificates are required unless payment is to be made to, or certificates for
Class B Warrants not exercised or accepted for exercise are to be issued in the
name of, a person other than the registered owner(s). Signatures on such
Warrant Certificates must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Class B Warrants listed, the Warrant Certificates
must be endorsed or accompanied by appropriate
-10-
<PAGE>
transfer powers, in either case signed exactly as the name or names of the
registered owner(s) appear(s) on the Warrant Certificates. Signatures on such
Warrant Certificates must be guaranteed by an Eligible Institution.
6. TRANSFER TAXES. Except as set forth in this Instruction 6, the
Company will pay or cause to be paid any transfer taxes with respect to the
transfer and exercise of exercised Class B Warrants pursuant to the Offer. If,
however, issuance of the applicable Underlying Stock is to be made to, or if
certificates for Class B Warrants not accepted for exercise are to be registered
in the name of, any person other than the registered holder, or if exercised
Warrant Certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any transfer taxes
(whether imposed on the registered holder or such person) payable on account of
the transfer to such person will be the obligation of the Holder, unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE WARRANT CERTIFICATES LISTED IN THIS
LETTER OF TRANSMITTAL.
7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the applicable
Underlying Stock is to be issued in the name of and/or certificates for
unexercised Class B Warrants are to be returned to a person other than the
signer of this Letter of Transmittal or if the applicable Underlying Stock are
to be sent and/or such certificates are to be returned to someone other than the
signer of this Letter of Transmittal or to an address other than that shown on
the front cover hereof, the appropriate boxes on this Letter of Transmittal
should be completed. Holders exercising Class B Warrants by book-entry transfer
may request that Class B Warrants not accepted for exercise be credited to such
account maintained at such Book-Entry Transfer Facility as such Holder may
designate hereon. If no such instructions are given, such Class B Warrants not
accepted for exercise will be returned by crediting the account at the Book-
Entry Transfer Facility designated above. See Instruction 1.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to the Warrant Agent at its address set forth below. Requests
for additional copies of the Offer to Purchase and this Letter of Transmittal
may be directed to the Warrant Agent or to brokers, dealers, commercial banks or
trust companies.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Class B Warrants has been lost, destroyed or stolen, the Holder
should promptly notify the Warrant Agent. The Holder will then be instructed as
to the steps that must be taken in order to replace the certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost or destroyed certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY HEREOF) OR AN
AGENT'S MESSAGE TOGETHER WITH (i) WARRANT CERTIFICATES OR CONFIRMATION OF BOOK-
ENTRY TRANSFER, (ii) A CERTIFIED OR BANK CHECK PAYABLE TO "INTERACTIVE FLIGHT
TECHNOLOGIES, INC." IN THE AMOUNT OF $7.50 PER SHARE EXERCISED IN THE OFFER, AND
(iii) ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE WARRANT AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
Facsimile copies of the Letter of Transmittal, properly completed and duly
exercised, will be accepted. The Letter of Transmittal, Warrant Certificates, a
certified or bank check payable to "Interactive Flight Technologies, Inc." in
the amount of $7.50 per share exercised in the Offer and
-11-
<PAGE>
any other required documents should be sent or delivered by each Holder or his
broker, dealer, commercial bank, trust company or other nominee to the Warrant
Agent as follows:
The Warrant Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
1-(800) 937-5449 (toll free)
By Facsimile: By Mail or Hand Delivery:
(718) 236-2976 Reorganization Department
40 Wall Street
Confirm Facsimile by Telephone: 46th Floor
1-(800) 937-5449 (toll free) New York, NY 10005
Questions and requests for assistance may be directed to the Warrant Agent
at its address and telephone number listed above. Additional copies of the
Exercise Offer/Prospectus, this Letter of Transmittal and other Offer materials
may be obtained from the Warrant Agent as set forth above, and will be furnished
promptly at the Company's expense. You may also contact your broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Offer.
-12-
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
EXERCISE OF CLASS B WARRANTS
OF
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer (as defined below) if certificates representing
Class B Warrants are not immediately available or time will not permit all
required documents to reach American Stock Transfer & Trust Company (the
"Warrant Agent") on or prior to the Expiration Date (as defined in the Exercise
Offer/Prospectus (as defined below)), or the procedures for delivery by book-
entry exercise cannot be completed on a timely basis. This Notice of Guaranteed
Delivery may be delivered by hand or sent by facsimile transmission or mail to
the Warrant Agent. See the caption "The Exercise Offer and Warrant Redemption-
Procedures for Exercising Class B Warrants-Guaranteed Delivery" in the Exercise
Offer/Prospectus.
The Warrant Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
1-(800) 937-5449 (toll free)
By Facsimile: By Mail or Hand Delivery:
(718) 236-2976 Reorganization Department
40 Wall Street
Confirm Facsimile 46th Floor
by Telephone: New York, NY 10005
1-(800) 937-5449 (toll free)
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
- --------------------------------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby exercises, upon the terms and subject to the
conditions set forth in the Exercise Offer/Prospectus, dated November __, 1996
(the "Exercise Offer/Prospectus"), and in the Letter of Transmittal, receipt of
each of which is hereby acknowledged (which together constitute the "Offer"),
the number of Class B Warrants indicated below pursuant to the guaranteed
delivery procedures set forth under the caption "The Exercise Offer and Warrant
Redemption-Procedures for Exercising Class B Warrants-Guaranteed Delivery" in
the Exercise Offer/Prospectus.
Number of Class B Warrants: Name(s) of Record Holder(s):
-------------- --------
------------------------------------
Address(es):
------------------------
Certificate No(s). (if available):
------- ------------------------------------
- ----------------------------------------- ------------------------------------
If Class B Warrants will be exercised by Area Code and Telephone Number(s):
book-entry exercise, check one box.
[_] The Depository Trust Company ------------------------------------
[_] Pacific Securities Trust Company
[_] Philadelphia Warrant Agent Trust Company
Account Number: Signature(s):
-------------------------- -----------------------
Date:
------------------------------------ ------------------------------------
- ----------------------------------------- ------------------------------------
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Securities
Transfer Agent's Medallion Program, hereby (a) represents that the exercise of
Class B Warrants effected hereby complies with Rule 14e-4 under the Securities
Exchange Act of 1934, as amended, and (b) guarantees to deliver to the Warrant
Agent, at its address set forth above, the certificate representing all
exercised Class B Warrants, in proper form for transfer, or a Book-Entry
Confirmation (as defined in the Exercise Offer/Prospectus), together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message (as
defined in the Exercise Offer/Prospectus) in the case of a book-entry delivery,
a certified or bank check payable to "Interactive Flight Technologies, Inc." in
the amount of $7.50 per share exercised in the Offer, and any other documents
required by the Letter of Transmittal within five New York Stock Exchange, Inc.
("NYSE") trading days after the date of execution of this Notice of Guaranteed
Delivery.
Name of Firm:
-------------------------- -----------------------------------
Address: (Authorized Signature)
-------------------------------
- --------------------------------------- Title:
(Zip Code) -----------------------------
Name:
------------------------------
(Please type or print)
Area Code and
Telephone Number: Date:
---------------------- -------------------------------
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR CLASS B WARRANTS WITH THIS NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES FOR CLASS B WARRANTS SHOULD BE
SENT WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE>
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
OFFER TO REDUCE THE EXERCISE PRICE OF CLASS B WARRANTS TO $7.50
TO HOLDERS OF
THE COMPANY'S CLASS B WARRANTS
FOR EXERCISES BEFORE
DECEMBER __, 1996
- --------------------------------------------------------------------------------
THE OFFER WILL EXPIRE ON _______, DECEMBER __, 1996, AT 5:00 P.M., NEW YORK CITY
TIME, UNLESS EXTENDED. WITHDRAWAL RIGHTS WILL ALSO EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON _______, DECEMBER __, 1996. IN ADDITION, THE CLASS B WARRANTS WILL
CEASE TO BE EXERCISABLE ON JANUARY 16, 1997, AT 5:00 P.M., NEW YORK CITY TIME,
AND ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO THAT TIME WILL BE REDEEMED ON
JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
- --------------------------------------------------------------------------------
November __, 1996
To Our Clients:
Enclosed for your consideration are the Exercise Offer/Prospectus and the
blue Letter of Transmittal (which together constitute the "Offer") relating to
the offer by Interactive Flight Technologies, Inc., a Delaware corporation (the
"Company"), to the holders (the "Holders") of the Company's Class B Redeemable
Stock Purchase Warrants (the "Class B Warrants") who exercise their Class B
Warrants pursuant to the Exercise Offer, to reduce the exercise price of Class B
Warrants to $7.50 per share (from $9.75 per share) for each Class B Warrant so
exercised, in each case if and only if a Holder exercises his or her Class B
Warrants prior to 5:00 P.M., New York City Time, on December __, 1996, unless
such date is extended by the Company as described in the Exercise
Offer/Prospectus (such date, or such date as so extended, being referred to as
the "Expiration Date"), upon the terms and subject to the conditions set forth
in the Exercise Offer/Prospectus, dated November __, 1996 (the "Exercise
Offer/Prospectus") and the related blue Letter of Transmittal. Holders whose
certificates for such Class B Warrants (the "Warrant Certificates") are not
immediately available or who cannot deliver their Warrant Certificates and all
other required documents to the Warrant Agent on or prior to the Expiration
Date, or who cannot complete the procedures for book-entry exercise on a timely
basis, must exercise their Class B Warrants according to the guaranteed delivery
procedures set forth under the caption "The Exercise Offer and Warrant
Redemption-Procedures for Exercising Class B Warrants-Guaranteed Delivery" in
the Exercise Offer/Prospectus.
WE ARE THE HOLDER OF RECORD OF CLASS B WARRANTS HELD BY US FOR YOUR
ACCOUNT. AN EXERCISE OF SUCH CLASS B WARRANTS CAN BE MADE ONLY BY US AS THE
HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO EXERCISE
CLASS B WARRANTS HELD BY US FOR YOUR ACCOUNT.
<PAGE>
Accordingly, we request instructions as to whether you wish to have us
exercise on your behalf any or all Class B Warrants held by us for your account
pursuant to the terms and conditions set forth in the Offer.
Please note the following:
1. The exercise price is $7.50 per share upon the terms and subject
to the conditions set forth in the Offer.
2. The Offer is being made for the exercise of any and all
outstanding Class B Warrants.
3. The Offer is subject to certain conditions. See "The Exercise
Offer and Warrant Redemption-Certain Conditions of the Exercise Offer" in
the Exercise Offer/Prospectus.
4. Exercising Holders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter
of Transmittal, transfer taxes on the exercise of Class B Warrants pursuant
to the Offer.
5. The Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on _______, December __, 1996, unless the Offer is extended.
6. Exercise of Class B Warrants pursuant to the Offer will in all
cases be accepted only after timely receipt by American Stock Transfer &
Trust Company (the "Warrant Agent") of (a) Warrant Certificates or timely
confirmation of the book-entry exercise of such Class B Warrants into the
account maintained by the Warrant Agent at The Depository Trust Company,
Pacific Securities Trust Company or Philadelphia Depository Trust Company
(collectively, the "Book-Entry Transfer Facilities"), pursuant to the
procedures set forth under the caption "The Exercise Offer and Warrant
Redemption-Procedures for Exercising Class B Warrants-Book-Entry Exercise"
in the Exercise Offer/Prospectus, (b) a Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined in the Exercise
Offer/Prospectus) in connection with a book-entry delivery, (c) a certified
or bank check payable to "Interactive Flight Technologies, Inc." in the
amount of $7.50 per share exercised in the Offer, and (d) any other
documents required by the Letter of Transmittal. Accordingly, issuances of
the securities issuable upon exercise of the Class B Warrants may not be
made to all exercising Holders at the same time depending upon when Warrant
Certificates or confirmations of book-entry transfer of such Class B
Warrants into the Warrant Agent's account at the Book-Entry Transfer
Facility are actually received by the Warrant Agent.
7. Pursuant to the Company's Notice of Redemption dated October 23,
1996, enclosed herewith, ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO 5:00
P.M.
2
<PAGE>
NEW YORK CITY TIME ON JANUARY 16, 1997, WILL BE REDEEMED ON JANUARY 17,
1997 FOR $.05 PER CLASS B WARRANT.
If you wish to have us exercise any or all of the Class B Warrants held by
us for your account, please so instruct us by completing, executing, detaching
and returning to us the instruction form set forth on the back page of this
letter. If you authorize the exercise of your Class B Warrants, all such Class
B Warrants will be exercised unless otherwise specified on the next page of this
letter. An envelope to return your instructions to us is enclosed. Your
instructions should be forwarded to us in ample time to permit us to submit an
exercise on your behalf prior to the expiration of the Offer.
THE OFFER IS NOT BEING MADE TO (NOR WILL EXERCISES BE ACCEPTED FROM OR ON
BEHALF OF) HOLDERS OF CLASS B WARRANTS RESIDING IN ANY JURISDICTION IN WHICH THE
MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES, BLUE SKY OR OTHER LAWS OF SUCH JURISDICTION. HOWEVER, THE
COMPANY MAY, IN ITS DISCRETION, TAKE SUCH ACTION AS IT MAY DEEM NECESSARY TO
MAKE THE OFFER IN ANY JURISDICTION AND EXTEND THE OFFER TO HOLDERS OF CLASS B
WARRANTS IN SUCH JURISDICTION.
3
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER
BY INTERACTIVE FLIGHT TECHNOLOGIES, INC. TO REDUCE THE EXERCISE PRICE
OF CLASS B WARRANTS TO $7.50
The undersigned acknowledge(s) receipt of the Exercise Offer/Prospectus,
dated November __, 1996 (the "Exercise Offer/Prospectus") and the blue Letter of
Transmittal (which document, together with the Exercise Offer/Prospectus,
constitutes the "Offer") in connection with the offer by Interactive Flight
Technologies, Inc., a Delaware corporation (the "Company"), to the holders (the
"Holders") of the Company's Class B Redeemable Stock Purchase Warrants (the
"Class B Warrants") who exercise their Class B Warrants pursuant to the Exercise
Offer, to reduce the exercise price of Class B Warrants to $7.50 per share (from
$9.75 per share) for each Class B Warrant so exercised, in each case if and only
if a Holder exercises his or her Class B Warrants prior to 5:00 P.M., New York
City Time, on December __, 1996, unless such date is extended by the Company.
This will instruct you to exercise any or all Class B Warrants which are
held by you for the account of the undersigned, upon the terms and subject to
the conditions set forth in the Offer.
- -------------------------------------------------------------------------------
Number of Class B Warrants to Be
Exercised: ___________ Class B Warrants
Date:_______________________________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SIGN HERE
Signature(s)
------------------------------------------------------------------
(Print Name(s))
----------------------------------------------------------------
(Print Address(es))
------------------------------------------------------------
(Area Code and Telephone Number(s))
--------------------------------------------
(Taxpayer Identification or
Social Security Number(s))
-----------------------------------------------------
4
<PAGE>
Interactive Flight Technologies, Inc.
4041 N. Central, Suite 2000
Phoenix, Arizona 85012
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
OFFER TO REDUCE THE EXERCISE PRICE OF
CLASS B WARRANTS TO $7.50
TO HOLDERS OF
THE COMPANY'S CLASS B WARRANTS
FOR EXERCISES BEFORE
DECEMBER __, 1996
- --------------------------------------------------------------------------------
THE OFFER WILL EXPIRE ON _______, DECEMBER __, 1996, AT 5:00 P.M., NEW YORK CITY
TIME, UNLESS EXTENDED. WITHDRAWAL RIGHTS WILL ALSO EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON _______, DECEMBER __, 1996. IN ADDITION, THE CLASS B WARRANTS WILL
CEASE TO BE EXERCISABLE ON JANUARY 16, 1997, AT 5:00 P.M., NEW YORK CITY TIME,
AND ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO THAT TIME WILL BE REDEEMED ON
JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
- --------------------------------------------------------------------------------
November __, 1996
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Interactive Flight Technologies, Inc., a Delaware corporation (the
"Company"), is offering, to the holders (the "Holders") of the Company's Class B
Redeemable Stock Purchase Warrants (the "Class B Warrants") who exercise their
Class B Warrants pursuant to the Exercise Offer, to reduce the exercise price of
Class B Warrants to $7.50 per share (from $9.75 per share) for each Class B
Warrant so exercised, in each case if and only if a Holder exercises his or her
Class B Warrants prior to 5:00 P.M., New York City Time, on December __, 1996,
unless such date is extended by the Company (such date, or such date as so
extended, being referred to as the "Expiration Date"), upon the terms and
subject to the conditions set forth in the Exercise Offer/Prospectus to
Purchase, dated November __, 1996 (the "Exercise Offer/Prospectus") and the
related blue Letter of Transmittal. Holders whose certificates for such Class B
Warrants (the "Warrant Certificates") are not immediately available or who
cannot deliver their Warrant Certificates and all other required documents to
the Warrant Agent on or prior to the Expiration Date, or who cannot complete the
procedures for book-entry exercise on a timely basis, must exercise their Class
B Warrants according to the guaranteed delivery procedures set forth under the
caption "The Exercise Offer and Warrant Redemption-Procedures for Exercising
Class B Warrants-Guaranteed Delivery" in the Exercise Offer/Prospectus.
<PAGE>
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Class B Warrants registered in your name or in the
name of your nominee.
The Offer is subject to certain conditions. See "The Exercise Offer and
Warrant Redemption-Certain Conditions of the Exercise Offer" in the Exercise
Offer/Prospectus.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Exercise Offer/Prospectus, dated November __, 1996.
2. A letter from D.H. Blair Investment Banking Corp., and a related
Notice of Redemption from the Company, pursuant to which ALL CLASS B
WARRANTS NOT EXERCISED PRIOR TO 5:00 P.M. NEW YORK CITY TIME ON JANUARY 16,
1997, WILL BE REDEEMED ON JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
3. The blue Letter of Transmittal to exercise Class B Warrants for
your use and for the information of your clients. Facsimile copies of the
blue Letter of Transmittal may be used to exercise Class B Warrants.
4. The yellow Notice of Guaranteed Delivery to be used to accept the
Offer if certificates for Class B Warrants are not immediately available or
if such certificates, a certified or bank check payable to "Interactive
Flight Technologies, Inc." in the amount of $7.50 per share exercised in
the Offer and all other required documents cannot be delivered to American
Stock Transfer & Trust Company (the "Warrant Agent") by the Expiration Date
or if the procedure for book-entry exercise cannot be completed by the
Expiration Date.
5. A printed form of the letter which may be sent to your clients for
whose accounts you hold Class B Warrants registered in your name or in the
name of your nominee, with space provided for obtaining such clients'
instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to the Warrant Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _______, DECEMBER __, 1996, UNLESS
THE OFFER IS EXTENDED. PLEASE ALSO NOTE THAT THE CLASS B WARRANTS WILL CEASE TO
BE EXERCISABLE ON JANUARY 16, 1997, AT 5:00 P.M., NEW YORK CITY TIME, AND ALL
CLASS B WARRANTS NOT EXERCISED PRIOR TO THAT
2
<PAGE>
TIME WILL BE REDEEMED ON JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
In order to accept the Offer, a duly executed and properly completed Letter
of Transmittal and any required signature guarantees, or an Agent's Message (as
defined in the Exercise Offer/Prospectus) in connection with a book-entry
exercise of Class B Warrants, a certified or bank check payable to "Interactive
Flight Technologies, Inc." in the amount of $7.50 per share exercised in the
Offer and any other required documents should be sent to the Warrant Agent, and
Warrant Certificates representing the exercised Class B Warrants should be
delivered to the Warrant Agent, or such Class B Warrants should be exercised by
book-entry in the Warrant Agent's account maintained at one of the Book-Entry
Transfer Facilities (as described in the Exercise Offer/Prospectus), all in
accordance with the instructions set forth in the Letter of Transmittal and the
Exercise Offer/Prospectus.
If Holders wish to exercise, but it is impracticable for them to forward
their Warrant Certificates or other required documents on or prior to the
Expiration Date or to comply with the book-entry exercise procedures on a timely
basis, an exercise may be effected by following the guaranteed delivery
procedures specified under the caption "The Exercise Offer-Procedures for
Exercising Warrants-Guaranteed Delivery" in the Exercise Offer/Prospectus.
The Company has agreed to pay D.H. Blair Investment Banking Corp. a warrant
solicitation fee of 5% per Class B Warrant exercised in the Offer (subject to
certain limitations). Further, the Company will, upon request, reimburse you
for customary clerical mailing expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Company will pay or cause to be paid
any transfer taxes payable on the exercise of Class B Warrants, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed
to, and additional copies of the enclosed material may be obtained from, the
Warrant Agent, at its address and telephone number set forth on the back cover
of the Exercise Offer/Prospectus.
Very truly yours,
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE WARRANT AGENT, OR ANY
AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY
STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE
OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
