INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT (this "Agreement"), dated as of July 22,
2002, by and between AVIATION GENERAL INCORPORATED, a Delaware Corporation (the
"Company"), and the undersigned (together with its respective affiliates and any
assignee or transferee of all of its respective rights hereunder, the
"Investor").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Investor (i) a 6% Secured Convertible Note
(the "Note") that is, under certain circumstances, convertible into shares (the
"Conversion Shares") of the Company's common stock (the "Common Stock"), upon
the terms and subject to the limitations and conditions set forth in the Note;
and
B. To induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agree as follows:
1. DEFINITIONS.
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a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Investor and any transferee or assignee who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Registrable Securities" means the Conversion Shares (including
shares issued in respect of interest under the Note) and any shares of capital
stock issued or issuable as a dividend on or in exchange for or otherwise with
respect to any of the foregoing.
(iv) "Registration Statement" means a registration statement of the
Company under the ▇▇▇▇ ▇▇▇.
b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
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a. Mandatory Registration. The Company shall prepare, and, on
or prior to 30 days from the date of this Agreement (the "Filing Date"), file
with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available) to
effect a registration of the Registrable Securities covering the resale of the
Registrable Securities underlying the Note issued or issuable pursuant to the
Securities Purchase Agreement. The Company shall use reasonable efforts to
obtain effectiveness of the Registration Statement as soon as practicable.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investor shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.
c. Piggy-Back Registration. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to the Investor written notice of such determination and, if within fifteen
(15) days after the effective date of such notice, the Investor shall so request
in writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities the Investor requests to be registered,
except that if, in connection with any underwritten public offering for the
account of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which the Investor has requested inclusion hereunder as the
underwriter shall permit. The Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities. No right to registration of Registrable Securities under
this Section 2(c) shall be construed to limit any registration required under
Section 2(a) hereof. If an offering in connection with which the Investor is
entitled to registration under this Section 2(c) is an underwritten offering,
then the Investor shall, unless otherwise agreed by the Company, offer and sell
such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering.
d. Eligibility for Form S-3. The Company represents and
warrants that it will use its reasonable efforts to meet the registrant
eligibility and transaction requirements for the use of Form S-3 for
registration of the sale by the Investor and the Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
not later than the Filing Date, a Registration Statement with respect to the
number of Registrable Securities provided in Section 2(a), and thereafter use
its best efforts to cause such Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing, and keep
the Registration Statement effective pursuant to Rule 415 at all times until
such date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the Registrable Securities
(in the opinion of counsel to the Investor) may be immediately sold without
restriction (including without limitation as to volume by each holder thereof)
without registration under the 1933 Act (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement.
c. The Company shall furnish to the Investor and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, and each preliminary prospectus and prospectus and
each amendment or supplement thereto, and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as the Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Investor. The Company will immediately notify the Investor by
facsimile of the effectiveness of the Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly file an acceleration request as soon as
practicable following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that the Registration Statement or
any amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investor reasonably requests, (ii) prepare and file in
those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event the Investor selects underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify the Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to the Investor as the Investor may
reasonably request: provided that, for not more than thirty (30) consecutive
trading days (or a total of not more than sixty (60) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investor in writing of the existence of (but in no event, without the prior
written consent of the Investor, shall the Company disclose to the Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investor in writing to cease all
sales under the Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. The Company shall permit a single firm of counsel
designated by the Investor to review the Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) for a reasonable period of time prior to their filing
with the SEC, and not file any document in a form to which such counsel
reasonably objects and will not request acceleration of the Registration
Statement without prior notice to such counsel. The sections of the Registration
Statement covering information with respect to the Investor, the Investor's
beneficial ownership of securities of the Company and the Investor's intended
method of disposition of Registrable Securities shall conform to the information
provided to the Company by the Investor.
i. At the request of the Investor, the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investor and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investor.
j. The Company shall make available for inspection by (i) the
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investor, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto. Each Investor agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
k. The Company shall hold in confidence and not make any
disclosure of information concerning the Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning the
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Investor prior to
making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
l. The Company shall use its best efforts to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on
each national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on the Nasdaq National Market, or if not
eligible for the Nasdaq National Market on the Nasdaq SmallCap Market and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. ("NASD)" as such with respect to such Registrable Securities.
m. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
n. The Company shall cooperate with the Investor and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the managing underwriter or underwriters, if any, or the
Investor may reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investor may request.
o. At the request of the Investor, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
p. From and after the date of this Agreement, the Company
shall not, and shall not agree to, allow the holders of any securities or the
Company to include any of their securities in any Registration Statement under
Section 2(a) hereof or any amendment or supplement thereto under Section 3(b)
hereof without the consent of the Investor.
q. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investor of Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTOR.
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In connection with the registration of the Registrable Securities, the
Investor shall have the following obligations:
a. It shall be a condition precedent to the obligation of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of the Investor that the Investor shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it and the intended method of disposition of the Registrable Securities held
by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify the Investor of the information the Company requires
from the Investor.
b. The Investor, by its acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
the Investor's election to exclude all of the Investor's Registrable Securities
from the Registration Statement.
c. In the event the Investor determines to engage the services
of an underwriter, the Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities.
d. The Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Sections 3(f)
or 3(g), the Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until the Investor's receipt of the copies or the supplemented or
amended prospectus contemplated by Sections 3(f) or 3(g) and, if so directed by
the Company, the Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in the Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. The Investor may not participate in any underwritten
registration hereunder unless the Investor (i) agrees to sell the Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
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All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Investor pursuant to Sections 2(b)
and 3(h) hereof shall be borne by the Company.
6. INDEMNIFICATION.
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In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) the Investor, (ii) the directors, officers,
partners, employees, agents and each person who controls the Investor within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), if any, (iii) any underwriter (as defined in the ▇▇▇▇ ▇▇▇) for the
Investor, and (iv) the directors, officers, partners, employees and each person
who controls any such underwriter within the meaning of the 1933 Act or the 1934
Act, if any (each, an "Indemnified Person"), against any joint or several
losses, claims, damages, liabilities or expenses (collectively, together with
actions, proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect thereof, "Claims") to
which any of them may become subject insofar as such Claims arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees and other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed; and (iii) with respect to
any preliminary prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investor pursuant to Section 9.
b. In connection with any Registration Statement in which the
Investor is participating, the Investor agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the 1933 Act or the 1934 Act, any underwriter and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder or underwriter within the
meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Party"), against
any Claim to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation by the Investor, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by the Investor expressly for use in
connection with such Registration Statement; and subject to Section 6(c) the
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim or delayed; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Investor, which consent shall not be
unreasonably withheld; provided further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to the Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investor pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by the Investor if the
Investor is entitled to indemnification hereunder, or the Company, if the
Company is entitled to indemnification hereunder, as applicable. Notwithstanding
anything in this Section 6(c) to the contrary, if the indemnifying party does
not assume control of the defense of a Claim as provided in this Section 6(c),
the Indemnified Person or Indemnified Party shall have the right to defend such
Claim in such manner as it may deem appropriate. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
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To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to contribute to the
amount paid or payable by the Indemnified Person or the Indemnified Party as a
result of such Claim in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the Indemnified
Person or Indemnified Party on the other in connection with the statements or
omissions that resulted in such Claim as well as any other relevant equitable
considerations; provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (ii) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent misrepresentation,
and (iii) contribution (together with any indemnification or other obligations
under this Agreement) by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities. The relative fault of the indemnifying party and of
the Indemnified Person or Indemnified Party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the Indemnified Person or Indemnified Party and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission.
8. REPORTS UNDER THE 1934 ACT.
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With a view to making available to the Investor the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the Investor to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as
those terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company with the SEC, and (iii) such other information as may be reasonably
requested to permit the Investor to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
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The rights under this Agreement shall be automatically assignable by
the Investor to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
the Investor. Any amendment or waiver effected in accordance with this Section
10 shall be binding upon the Investor and the Company.
11. ADDITIONAL COVENANTS OF THE COMPANY.
-----------------------------------
a. Delivery of Documents. The Company shall deliver to Investor:
(i) as soon as practicable, but in any event no later than ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by an independent public
accountants selected by the Company.
(ii) as soon as practicable, but in any event no later than forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and a statement showing
the number of shares of each class and series of capital stock convertible into
or exercisable for shares of capital stock outstanding at the end of the period,
the number of common shares issuable upon conversion or exercise of any
outstanding securities or convertible thereto, all in sufficient detail as to
permit the Investor to calculate its percentage equity ownership in the Company.
(iii) within thirty (30) days of the end of each month, an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet for and as of the end of each month, in reasonable detail.
b. Board Representation. So long as any amount remains
outstanding under the Note or the Investor beneficially owns any Conversion
Shares, the Company shall invite the Investor or a representative of the
Investor to attend all meetings of its Board of Directors or Committees of the
Board of Directors in a nonvoting observer capacity and, in this respect, shall
give the Investor or the Investor's representative copies of all notices,
minutes, consents and other materials it provides to its directors; provided
that the Investor or such representative shall agree to hold in confidence and
trust all information so provided.
c. Inspection. The Company shall permit the Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all such reasonable times as may be requested by
the Investor.
12. MISCELLANEOUS.
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a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms hereof
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Aviation General Incorporated
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇ PC
▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇
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Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor:
Nyltiak Investments, LLC
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▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With copy to:
Miles & Stockbridge P.C.
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▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇
Facsimilie: ▇▇▇-▇▇▇-▇▇▇▇
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof. In addition to its right to
damages and any other right it may have, each party hereto shall have the right
to obtain injunctive relief or other equitable relief to restrain any breach or
threatened breach of or otherwise to specifically enforce this Agreement, it
being agreed that money damages alone would be inadequate to compensate such
party and would be an inadequate remedy for such breach.
d. This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in New York with
respect to any dispute arising under this Agreement or the transactions
contemplated hereby.
e. This Agreement, the Securities Purchase Agreement and the
agreements referenced herein and therein (including all schedules and exhibits
thereto) constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Securities Purchase Agreement and the agreements
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties hereto. Notwithstanding the foregoing
sentence, the Company shall not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the Investor.
g. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
IN WITNESS WHEREOF, the Company and the undersigned Investor
have caused this Agreement to be duly executed as of the date first above
written.
AVIATION GENERAL INCORPORATED
By:
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Name:
Title:
NYLTIAK INVESTMENTS, LLC
By:
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Name:
Title: