UNIT PURCHASE AGREEMENT
This Unit Purchase Agreement (the "Agreement") is made
and entered into as of March 20, 1998 by and among Vanguard
Airlines, Inc., a Delaware corporation (the "Company"), and those
parties listed on the signature page hereof as "Investors" (who
are referred to individually as an "Investor" and collectively as
the "Investors").
In consideration of the mutual promises and covenants
made herein, the parties hereby agree as follows:
1. Sale of Units; Closing; Delivery.
a. Purchase and Sale of Units. Subject to the terms and
conditions hereof, the Company will issue and sell to
each Investor, and each Investor will purchase from the
Company, at the Closing (as defined below) the number
of Units set forth opposite each Investor's name on
Exhibit_A at a purchase price per Unit (the "Unit
Purchase Price") equal to $10.00 up to an aggregate of
450,000 Units. A "Unit" shall be composed of one share
(a "Share") of Series A Preferred Stock, $0.001 par
value, of the Company (the "Preferred Stock"), and a
warrant in the form attached hereto as Exhibit B (a
"Warrant") to purchase forty (40) shares of Common
Stock, $0.001 par value (the "Warrant Shares"). The
exercise price of the Warrant shall be $0.55 per
Warrant Share. The Preferred Stock shall have the
rights, preferences, privileges and restrictions set
forth in the Certificate of Designation attached hereto
as Exhibit C (the "Certificate of Designation").
b. Closing. The closing of the purchase and sale of the
Units shall take place at 2:00 p.m. on March_20, 1998,
or at such other date and time as the Investors and the
Company shall mutually agree upon (which date and time
are designated as the "First Closing"). The date of
the First Closing is hereinafter referred to as the
"First Closing Date."
c. Subsequent Sale of Units. Subject to the terms and
conditions of this Agreement, the Company may sell any
Units not purchased at the First Closing in one or more
subsequent closings (the "Subsequent Closings") at a
price not less than $10.00 per Unit, provided the
agreement for sale is executed not later than ninety
(90) days from the date hereof. If the Company intends
to sell any Units in Subsequent Closings it shall first
offer the Investors the right to purchase their
pro-rata share of any such Units to be offered. An
Investor's pro-rata share shall be equal to the number
of Units being offered multiplied by a fraction the
numerator of which is the number of Units held by the
Investor and the denominator of which is the number of
Units held by all Investors. If the Investors elect to
purchase less than all of the additional Units being
offered, the Company shall have the right to offer such
remaining Units to any other purchasers it selects.
Any such purchaser shall become a party this Agreement
and that certain Registration Rights Agreement dated
the date hereof, by and among the Company, the
Investors and the other parties named therein. The
First Closing and the Subsequent Closings are each
referred to individually as a Closing and collectively
as the Closings.
d. Delivery. Subject to the terms and conditions of this
Agreement, at a Closing, the Company shall deliver to
each Investor (i) a stock certificate representing the
Shares included in the Units to be purchased by such
Investor and (ii) a Warrant reflecting the number of
Units to be purchased against payment of the purchase
price therefor by cancellation of indebtedness, a check
payable to the order of the Company, or by wire
transfer of immediately available funds to the bank
account of the Company. In the event that payment by
an Investor is made, in whole or in part, by
cancellation of indebtedness, then such Investor shall
surrender to the Company for cancellation at the
Closing any evidence of such indebtedness or shall
execute an instrument of cancellation in form and
substance acceptable to the Company.
2. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Investor, that,
except as set forth on the Schedule of Exceptions attached
hereto as Exhibit_D (the "Schedule of Exceptions"), with any
disclosure thereon being deemed disclosure for all purposes
and all relevant subsections hereof, which exceptions will
be deemed to be representations and warranties as if made
hereunder:
a. Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
The Company has all necessary corporate power and
authority to own its assets and to carry on its
business as now being conducted and presently proposed
to be conducted. The Company is duly qualified to do
business as a foreign corporation and is in good
standing in each jurisdiction in which its ownership or
leasing of assets, or the conduct of its business,
makes such qualification necessary, except where
failure to do so would not have a material adverse
effect on the operations or financial condition of the
Company.
b. Requisite Power and Authorization. Subject to receipt
of stockholder approval to increase the Company's share
capital as provided in Section 5(a)(i) below (the
"Stockholder Approval") and the filing of an amendment
(the "Amendment") to the Company's Restated Certificate
of Incorporation, as amended (the "Restated
Certificate") to effect such increase, the Company will
have all necessary corporate power and authority under
the laws of the State of Delaware and all other
applicable provisions of law to execute and deliver
this Agreement, to issue the Shares, the shares of
Common Stock issuable upon conversion of the Shares
(the "Conversion Shares"), the Warrants and the Warrant
Shares and to carry out the provisions of this
Agreement and the Warrants. All corporate action on
the part of the Company required for the lawful
execution and delivery of this Agreement, and issuance
and delivery of the Shares, the Conversion Shares, the
Warrants and the Warrant Shares has been duly and
effectively taken, subject to receipt of the
Stockholder Approval and the filing of the Amendment.
Upon execution and delivery, this Agreement and the
Warrants constitute valid and binding obligations of
the Company enforceable in accordance with their
respective terms, except as enforcement may be limited
by insolvency and similar laws affecting the
enforcement of creditors' rights generally and
equitable remedies. The Shares and the Warrants (and
the Warrant Shares issuable upon exercise of the
Warrants) when issued in compliance with the provisions
of this Agreement or the Warrants, as the case may be,
and the Conversion Shares when issued in accordance
with the Restated Certificate, will, upon receipt of
the Stockholder Approval and the filing of the
Amendment, be duly authorized and validly issued, fully
paid, non-assessable, and issued in compliance with
federal securities laws and the securities laws of the
State of California. No stockholder of the Company or
other person has any preemptive right of subscription
or purchase or contractual right of first refusal or
similar right with respect to the Shares, the
Conversion Shares, the Warrants or the Warrant Shares.
The Company has reserved, subject to receipt of the
Stockholder Approval and the filing of the Amendment,
such number of shares of its Common Stock necessary for
issuance of the Warrant Shares and the Conversion
Shares.
c. Consents. No consent, approval, authorization or order
of any court, governmental agency or third party is
required for the execution and delivery by the Company
of this Agreement or the performance by the Company of
any of its obligations hereunder (including issuance of
the Shares and the Warrant Shares) and under the
Restated Certificate other than the Stockholder
Approval.
d. SEC Documents. The Company has timely filed all
documents that the Company was required to file with
the Securities and Exchange Commission (the "SEC")
under Sections_13 or 14(a) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), since
December 31_, 1996 (collectively, the "SEC Documents").
As of their respective filing dates, or such later date
on which such reports were amended, the SEC Documents
complied in all material respects with the requirements
of the Exchange Act or the Securities Act of 1933, as
amended (the "1933 Act"), as applicable. No SEC
Documents as of their respective dates, or such later
date on which such reports were amended, or press
release, containing information material to the
business as a whole, contained any untrue statement of
a material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements made therein, in light of the circumstances
under which they were made, not misleading. The
financial statements included in the SEC Documents (the
"Financial Statements") comply as to form in all
material respects with applicable accounting
requirements and with the published rules and
regulations of the SEC with respect thereto. Except as
may be indicated in the notes to the Financial
Statements or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC, the Financial
Statements have been prepared in accordance with
generally accepted accounting principles consistently
applied and fairly present the consolidated financial
position of the Company and any subsidiaries at the
dates thereof and the consolidated results of their
operations and consolidated cash flows for the periods
then ended (subject, in the case of unaudited
statements, to normal, recurring adjustments).
e. Capital Stock. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock,
$.001 par value, and 1,000,000 shares of Preferred
Stock, $.001 par value, 600,000 of which have been
designated Series A Preferred Stock. As of January 31,
1998, there were 45,683,045 shares of Common Stock
issued and outstanding and no shares of Preferred Stock
issued and outstanding. All outstanding shares of
Common Stock and Preferred Stock have been duly
authorized and validly issued and are fully paid and
non-assessable. Except for (A) the conversion
privileges of the Preferred Stock to be issued under
this Agreement, (B) 20,430,044 shares of Common Stock
issuable upon exercise of the Warrants and exercise of
the Company's outstanding warrants, (C) 8,239,227
shares of Common Stock issuable upon exercise of stock
options granted to employees, consultants, officers or
directors of the Company and (D) ___________ shares
issuable upon conversion of the convertible promissory
notes (the "New Notes") being issued pursuant to the
Note Exchange Agreement of even date herewith (the
"Note Exchange Agreement"), the Company has no
outstanding securities convertible into or exchangeable
for Common Stock and no contracts, rights, options or
warrants to purchase or otherwise acquire Common Stock
or securities convertible into or exchangeable for
Common Stock. Since January 31, 1998 the Company has
not issued any shares of capital stock or any options,
warrants or other rights with respect thereto except
for shares issued upon exercise of options, warrants or
rights, all as set forth on the Schedule of Exceptions.
f. Compliance with Other Agreements. Subject to receipt
of the Stockholder Approval and the filing of the
Amendment, neither the execution and delivery of, nor
the consummation of any transaction or execution of any
instrument contemplated by, this Agreement, nor the
issuance of the Shares, the Warrants and the Warrant
Shares, has constituted or resulted in, or will
constitute or result in, a default under or breach or
violation of any term or provision of the Company's
Bylaws, Restated Certificate, or contracts with third
parties, state or federal laws, rules or regulations,
writs, orders or judgments or decrees which are
applicable to the Company or its properties.
g. No Material Adverse Change. Since the date of the
Company's most recent quarterly report on Form 10-Q or
most recent periodic report on Form 8-K filed with the
SEC, there has not been:
i. any changes in the assets, liabilities, financial
condition or operations of the Company from that
reflected in the Financial Statements except
changes resulting from ongoing operating losses
during such period;
ii. any material change, except in the ordinary course
of business, in the contingent obligations of the
Company whether by way of guarantee, endorsement,
indemnity, warranty or otherwise;
iii. any damage, destruction or loss, whether or not
covered by insurance, materially and adversely
affecting the properties or business of the
Company; or
iv. any declaration or payment of any dividend or
other distribution of the assets of the Company.
h. Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit,
proceeding or investigation before any court,
governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its affiliates
that would materially adversely affect the execution by
the Company of, or the performance by the Company of
its obligations under, this Agreement.
i. Registration Rights. Except as set forth in the
Registration Rights Agreement (the "Registration Rights
Agreement") attached hereto as Exhibit E, the Company
has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or
entity. None of the registration rights contained in
the Registration Rights Agreement are senior to the
registration rights provided for in this Agreement.
j. No Misrepresentation. No representation or warranty by
the Company in this Agreement and no statements in the
SEC Documents, as amended, nor any other document,
statement, certificate or schedule furnished or to be
furnished by or on behalf of the Company pursuant to
this Agreement, when taken together with the foregoing,
contains or shall contain any untrue statement of a
material fact or omits or shall omit to state a
material fact necessary in order to make such
statements, in light of the circumstances under which
they were made, not misleading. The Company has
delivered true and complete copies of all documents
requested by the Investors.
k. Non-Exercise of Options and/or Warrants. The Company
has received, or by the Closing Date will have
received, fully executed and enforceable Agreements Not
to Exercise Options and/or Warrants (in the form
attached hereto as Exhibit_F) from each director and
officer of the Company.
3. Representations and Warranties of Investors. Each Investor
represents and warrants, severally and not jointly, to the
Company that:
a. Authorization. Such Investor has full power and
authority to enter into this Agreement, and this
Agreement constitutes the valid and legally binding
obligation of such Investor, enforceable in accordance
with its terms, except as such enforcement may be
limited by bankruptcy, insolvency and similar laws
affecting the enforcement of creditors' rights
generally and equitable remedies, and except as
indemnity provisions in the enforcement of Section_4 of
this Agreement (relating to registration rights) may be
limited by law.
b. Purchase for Investment. Such Investor is purchasing
the Units for investment purposes only and not with a
view to, or for sale in connection with, a distribution
of the Units within the meaning of the 1933 Act. Such
Investor has no present intention of selling or
otherwise disposing of all or any portion of the Units.
c. Access to Information. Such Investor has had an
opportunity to ask questions of the Company's
representatives concerning the Company, its present and
prospective business, assets, liabilities and financial
condition that such Investor has deemed necessary and
appropriate as a prudent and knowledgeable investor in
evaluating the risks of purchasing the Units. The
foregoing, however, does not limit or modify the
representations and warranties of the Company in
Section_3 of this Agreement or the rights of the
Investors to rely thereon.
d. Understanding of Risks. Such Investor is fully aware
of: (i)_the highly speculative nature of the
investment in the Units; (ii)_the financial hazards
involved; (iii) the risk of loss of the investment if
the Company is unable to finance its continuing
operations; (iv)_the lack of liquidity of the Shares,
the shares of Common Stock issuable upon conversion of
the Shares, the Warrants and the Warrant Shares
(collectively, the "Securities") and the restrictions
on the transferability of the Securities (e.g., that
such Investor may not be able to sell or dispose of the
Securities or use them as collateral for loans); and
(v)_the tax consequences of investment in the Units.
The foregoing, however, does not limit or modify the
representations and warranties of the Company in
Section 3 of this Agreement and the rights of the
Investors to rely thereon.
e. Investor's Qualifications. Such Investor is an
"accredited" investor as defined under Regulation_D
under the 1933 Act. Such Investor is aware of the
general business and financial circumstances of the
Company and, by reason of such Investor's business or
financial experience, such Investor is capable of
evaluating the merits and risks of this investment and
is financially capable of bearing a total loss of this
investment.
f. Compliance with Securities Laws. Such Investor
understands and acknowledges that, in reliance upon the
representations and warranties made by such Investor
herein, the Securities are not being registered with
the SEC under the 1933 Act or being qualified under the
California Corporate Securities Law of 1968, as amended
(the "Law"), but instead are being issued under an
exemption or exemptions from the registration and
qualification requirements of the 1933 Act or the Law
or other applicable state securities laws which impose
certain restrictions on such Investor's ability to
transfer the Shares and the Warrant Shares.
g. Restrictions on Transfer. Such Investor understands
that such Investor may not transfer any of the
Securities unless such Securities are registered under
the 1933 Act or pursuant to an exemption from such
registration and qualification requirements. Such
Investor understands that only the Company may file a
registration statement with the SEC. Such Investor has
also been advised that exemptions from registration and
qualification may not be available or may not permit
such Investor to transfer all or any of the Securities
in the amounts or at the times proposed by such
Investor.
h. Rule 144. In addition, such Investor has been advised
that SEC Rule 144 ("Rule 144") promulgated under the
1933 Act, which permits certain limited sales of
unregistered securities, is not presently available
with respect to the Securities solely due to the
holding periods required thereunder and, in any event,
requires that the Securities be held for a minimum of
one year, and in certain cases two years, after they
have been purchased and paid for (within the meaning of
Rule 144), before they may be resold under Rule 144.
Such Investor understands that Rule_144 may
indefinitely restrict transfer of the Securities if
such Investor is an "affiliate" of the Company and
"current public information" about the Company (as
defined in Rule 144) is not publicly available.
i. Legends and Stop-Transfer Orders. Such Investor
understands that certificates or other instruments
representing any of the Securities acquired by such
Investor may bear legends substantially similar to the
following, in addition to any other legends required by
federal or state laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE LAWS OF ANY STATE. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SUCH ACT.
In order to ensure and enforce compliance with the
restrictions imposed by applicable law and those referred to in
the foregoing legend, or elsewhere herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent,
if any, with respect to any certificate or other instrument
representing the Securities, or if the Company transfers its own
securities, it may make appropriate notations to the same effect
in the Company's records. Any legend endorsed on a certificate
pursuant to this Subsection (i) and the related stop transfer
instructions with respect to such Securities shall be removed,
and the Company shall issue a certificate or warrant without such
legend to the holder thereof, if such Securities are registered
under the 1933 Act and a prospectus meeting the requirements of
Section 10 of the 1933 Act is available, if such legend may be
properly removed under the terms of Rule 144 promulgated under
the 1933 Act or if such holder provides the Company with an
opinion of counsel for such holder, reasonably satisfactory to
legal counsel for the Company, to the effect that a sale,
transfer or assignment of such securities may be made without
registration.
4. Registration Rights.
a. Definitions. For purposes of this Section 4:
i. "Register," "registered" and "registration" refer to
a registration effected by preparing and filing a
registration statement in compliance with the 1933
Act, and the declaration or ordering of
effectiveness of such registration statement.
ii. "Registrable Securities" means (A) all shares of
Common Stock issued or issuable upon conversion of
the Preferred Stock (B) all shares of Common Stock
issued or issuable pursuant to the exercise of the
Warrants, (C) all shares of Common Stock issued to
the Investors and their affiliates in January 1998
pursuant to the Company's rights offering, (D) all
shares of Common Stock issued to the Investors
upon the conversion of the New Notes and (E) any
Common Stock of the Company issued (or issuable
upon the conversion or exercise of any warrant,
right or other security that is issued) as a
dividend or other distribution with respect to, or
in exchange for, or in replacement of, the shares
referenced in (A), (B), (C) or (D) above.
iii. "Holder" means any person owning of record
Registrable Securities that have not been sold to
the public or any assignee of record of such
Registrable Securities to whom rights under this
Section 4 (and/or, with respect to the rights of
the Investors set forth in Section 5, under such
Section 5) have been assigned in accordance with
this Agreement.
b. Shelf Registration. If the Company shall receive at
any time during the period commencing on the date
hereof and ending at 5:00 p.m. on March 18, 2001 from
the Holders of at least twenty percent (20%) of the
Registrable Securities a written request that the
Company effect a registration with respect to the
Registrable Securities owned by such Holder or Holders,
the Company shall:
i. within thirty (30) days of receipt of such written
request, file a registration statement under the
1933 Act for and all such qualifications and
registrations as may be so required and as would
permit the sale and distribution of all of the
Holders' Registrable Securities and thereafter
shall use its best efforts to secure the
effectiveness of such registration statement
within sixty (60) days of such filing;
ii. pay all expenses incurred in connection with any
registration qualification and compliance
requested hereunder, (excluding underwriters' or
brokers' discounts and commissions), including
without limitation all filing, registration and
qualification, printers' and accounting fees and
the reasonable fees and disbursements of one
counsel for the selling Holder or Holders and
counsel for the Company; and
iii. use its best efforts to cause the registration
statement to remain effective until the earlier of
(A) the date ending three (3) years after the
effective date of the registration statement filed
pursuant to this Section 4(b), or (B) the date on
which each Holder of Registrable Securities is
able to sell all of such Holder's Registrable
Securities in any single three (3) month period
without registration under the 1933 Act pursuant
to Rule 144, provided that if the Company elects
to terminate the effectiveness of the registration
statement under (B), the Company shall prior to
such termination provide each Holder an opinion of
counsel, based on factual representations of the
Holders, that such Holder is able to sell all of
the Registrable Securities held by such Holder and
its affiliates in any single three (3) month
period without registration under the 1933 Act
pursuant to Rule 144.
c. Obligations of the Company. Whenever required to
effect the registration of Registrable Securities under
this Agreement, the Company will, as expeditiously as
reasonably possible:
i. prepare and file with the SEC a registration
statement with respect to such Registrable
Securities and use its best efforts to cause such
registration statement to become effective;
ii. prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such
registration statement as may be necessary to
comply with the provisions of the 1933 Act with
respect to the disposition of all securities
covered by such registration statement;
iii. furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in
conformity with the requirements of the 1933 Act,
and such other documents as they may reasonably
request in order to facilitate the disposition of
the Registrable Securities owned by them that are
included in such registration;
iv. use its best efforts to register and qualify the
securities covered by such registration statement
under such other securities or "blue sky" laws of
such jurisdictions as shall be reasonably
requested by the Holders, provided that the
Company will not be required in connection
therewith or as a condition thereto to qualify to
do business or to file a general consent to
service of process in any such states or
jurisdictions;
v. in the event of any underwritten public offering,
enter into and perform its obligations under an
underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such
offering;
vi. cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities
exchange on which similar securities issued by the
Company are then listed;
vii. provide a transfer agent and registrar for all
Registrable Securities registered pursuant
hereunder and a CUSIP number for all such
Registrable Securities, in each case not later
than the effective date of such registration; and
viii. notwithstanding anything else in this Section_4,
if, at any time during which a prospectus is
required to be delivered in connection with the
sale of any Registrable Securities, the Company
determines in good faith and in its reasonable
judgment that such sale would require public
disclosure by the Company of material non-public
information that the Company deems it advisable
not to disclose, or that a development has
occurred or a condition exists as a result of
which the registration statement or the prospectus
filed as a part thereof contains a material
misstatement or omission, the Company will
immediately notify each Holder thereof by
telephone and in writing. Upon receipt of such
notification, Holder and its affiliates will
immediately suspend all offers and sales of any
Registrable Securities pursuant to the
registration statement. In such event, the
Company will amend or supplement the registration
statement as promptly as practicable and will take
such other steps as may be required to permit
sales of the Registrable Securities thereunder by
Holder and its affiliates in accordance with
applicable federal and state securities laws. The
Company will promptly notify Holder after it has
determined in good faith that such sales have
become permissible in such manner and will
promptly deliver copies of the registration
statement and the prospectus (as so amended or
supplemented). Notwithstanding the foregoing,
(A)_under no circumstances shall the Company be
entitled to exercise its right to suspend sales of
any Registrable Securities pursuant to the
registration statement more than two (2) times in
any twelve-month period, (B)_the period during
which such sales may be suspended (each a
"Blackout Period") shall not exceed thirty (30)
calendar days and (C)_no Blackout Period may
commence less than sixty (60) calendar days after
the end of the preceding Blackout Period.
Upon the commencement of a Blackout Period pursuant to
this Section_4, Holder will immediately notify the Company of any
contracts to sell any Registrable Securities (each a "Sales
Contract") that Holder or any of its affiliates has entered into
prior to notification of the commencement of such Blackout Period
and that would require delivery of such Registrable Securities
during such Blackout Period, which notice will contain the
aggregate sale price and volume of Registrable Securities
pursuant to such Sales Contract. Upon receipt of such notice,
the Company will immediately notify Holder of its election either
(i)_to terminate the Blackout Period and, as promptly as
practicable, amend or supplement the registration statement or
the prospectus filed as a part thereof in order to correct the
material misstatement or omission and deliver to Holder copies of
such amended or supplemented registration statement and
prospectus or (ii)_to continue the Blackout Period in accordance
with this paragraph. If the Company elects to continue the
Blackout Period, and Holder or any of its affiliates is therefore
unable to consummate the sale of Registrable Securities pursuant
to the Sales Contract (such unsold Registrable Securities being
hereinafter referred to herein as the "Unsold Securities"), the
Company will promptly indemnify each Holder against any loss,
claim or damage that each Holder may incur arising out of or in
connection with Holder's breach or alleged breach of any such
Sales Contract, and the Company shall reimburse each Holder for
any reasonable costs or expenses (including reasonable legal
fees) incurred by such party in investigating or defending any
such proceeding (collectively, the "Indemnification Amount");
provided, however, that each Holder shall take all actions
reasonably necessary or appropriate to mitigate such
Indemnification Amount; and provided further, however, that the
Indemnification Amount shall be reduced by an amount equal to the
number of Unsold Securities multiplied by the difference between
(x)_the actual per share price received by Holder or any of its
affiliates upon the sale of the Unsold Securities (if such sale
occurs within three (3) trading days of the end of the Blackout
Period) or the closing sale price of the Common Stock on the
NASDAQ or other national securities exchange on which the Common
Stock is then listed on the third trading day after the end of
the Blackout Period (if the Unsold Securities are not sold by
Investor or any of its affiliates within three (3) trading days
of the end of the Blackout Period), and (y)_the per share sale
price for the Unsold Securities provided in the Sales Contract.
d. Furnish Information. It will be a condition precedent
to the obligations of the Company to take any action
pursuant to Section 4 hereof that the selling Holders
will furnish to the Company such information regarding
themselves, the Registrable Securities held by them,
and the intended method of disposition of such
securities as will be required to effect the
registration of their Registrable Securities.
▇. ▇▇▇▇▇ of Registration. No Holder will have any right
to obtain or seek an injunction restraining or
otherwise delaying any registration as the result of
any controversy that might arise with respect to the
interpretation or implementation of this Section_4.
f. Indemnification. In the event any Registrable
Securities are included in a registration statement
under Section 4 hereof:
i. To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the
partners, shareholders, officers, directors,
employees and agents of each Holder, any
underwriter (as defined in the ▇▇▇▇ ▇▇▇) for such
Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the
1933 Act or the Exchange Act against any losses,
claims, damages, or liabilities (joint or several)
to which they may become subject under the 1933
Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise
out of or are based upon any of the following
statements, omissions or violations (collectively,
a "Violation"):
(1) any untrue statement or alleged untrue
statement of a material fact contained in
such registration statement, including any
preliminary prospectus or final prospectus
contained therein or any amendments or
supplements thereto;
(2) the omission or alleged omission to state
therein a material fact required to be stated
therein, or necessary to make the statements
therein not misleading; or
(3) any violation or alleged violation by the
Company of the 1933 Act, the Exchange Act,
any federal or state securities law or any
rule or regulation promulgated under the 1933
Act, the Exchange Act or any federal or state
securities law in connection with the
offering covered by such registration
statement;
and the Company will reimburse each such Holder, partner,
shareholder, officer, director, employee, agent, underwriter or
controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this
Section_4(f)(i) will not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which
consent will not be unreasonably withheld), nor will the Company
be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use
in connection with such registration by such Holder, partner,
shareholder, officer, director, underwriter or controlling person
of such Holder.
ii. To the extent permitted by law, each selling
Holder will indemnify and hold harmless the
Company, each of its directors, each of its
officers who have signed the registration
statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any
underwriter and any other Holder selling
securities under such registration statement or
any of such other Holder's partners, directors or
officers or shareholders or any person who
controls such Holder within the meaning of the
1933 Act or the Exchange Act, against any losses,
claims, damages or liabilities (joint or several)
to which the Company or any such director,
officer, controlling person, underwriter or other
such Holder, partner or director, officer,
shareholder or controlling person of such other
Holder may become subject under the 1933 Act, the
Exchange Act or other federal or state law,
insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise
out of or are based upon any Violation that arises
solely as a result of written information
furnished by such Holder expressly for use in
connection with such registration; and each such
Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such
director, officer, controlling person, underwriter
or other Holder, partner, officer, director,
shareholder or controlling person of such other
Holder in connection with investigating or
defending any such loss, claim, damage, liability
or action: provided, however, that the indemnity
agreement contained in this Section_4(f)(ii) will
not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if
such settlement is effected without the consent of
the Holder, which consent will not be unreasonably
withheld; and provided further, that the total
amounts payable in indemnity by a Holder under
this Section_4(f)(ii) in respect of any Violation
will not exceed the lesser of (A)_the aggregate
proceeds (net of discounts) received by such
Holder upon the sale of the Shares or Warrant
Shares and (B)_that proportion of aggregate
losses, claims, damages, liabilities or expenses
indemnified against which equals the proportion
which the number of Registrable Securities being
sold by such Holder bears to the total number of
Securities being sold by the Company and all
Holders.
iii. Promptly after receipt by an indemnified party
under this Section_4(f) of notice of the
commencement of any action (including any
governmental action), such indemnified party will,
if a claim in respect thereof is to be made
against any indemnifying party under this
Section_4(f), deliver to the indemnifying party a
written notice of the commencement thereof and the
indemnifying party will have the right to
participate in, and, to the extent the
indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however,
that an indemnified party will have the right to
retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if
representation of such indemnified party by the
counsel retained by the indemnifying party would
be inappropriate due to actual or potential
differing interests between such indemnified party
and any other party represented by such counsel in
such proceeding. The failure to deliver written
notice to the indemnifying party within a
reasonable time of the commencement of any such
action, if the indemnifying party is materially
prejudiced thereby, will relieve such indemnifying
party of liability, but only to the extent that
such indemnifying party is prejudiced with respect
to a specific claim.
iv. The foregoing indemnity agreement with respect to
any preliminary prospectus shall not inure to the
benefit of any Holder or underwriter, or any
person controlling such Holder or underwriter,
from whom the person asserting any losses, claims,
damages or liabilities purchased shares, if a copy
of the prospectus (as then amended or supplemented
if the Company shall have furnished any amendments
or supplements thereto) provided by the Company
was not sent or given by or on behalf of such
Holder or underwriter to such person, if required
by law so to have been delivered, at or prior to
the written confirmation of the sale of the
purchased shares to such person, and if the
prospectus (as so amended or supplemented) would
have cured the defect giving rise to such loss,
claim, damage or liability.
v. If the indemnification provided for in
Sections_4(f)(i) or 4(f)(ii) hereof shall be
unavailable to hold harmless an indemnified party
in respect of any liability under the 1933 Act,
then, and in each such case, the indemnifying
party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party
on the other in connection with the statement or
omissions that resulted in such loss, liability,
claim, damage or expense as well as any other
relevant equitable considerations. The relative
fault of the indemnifying party and of the
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 party and the parties' relative
intent, knowledge, access to information and
opportunity to correct or prevent such statement
or omission; provided that in no event shall any
contribution under this subsection (v) by any
Holder exceed the gross proceeds from the offering
received by such indemnifying party. No person or
entity guilty of fraudulent misrepresentation
(within the meaning of Section_II(f) of the ▇▇▇▇
▇▇▇) will be entitled to contribution from any
person or entity who was not guilty of such
fraudulent misrepresentation.
vi. The obligations of the Company and Holders under
this Section_4(f) will survive the completion of
any offering of Registrable Securities in a
registration statement, and otherwise.
g. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the
SEC which may at any time permit the sale of the
Registrable Securities to the public without
registration, while a public market exists for the
Common Stock of the Company, the Company will:
i. make and keep public information available, as
those terms are understood and defined in Rule 144
under the 1933 Act, at all times while the Company
is reporting under the Exchange Act;
ii. use its best efforts to file with the SEC in a
timely manner all reports and other documents
required of the Company under the 1933 Act and the
Exchange Act (at any time it is subject to such
reporting requirements); and
iii. so long as a Holder owns any Registrable
Securities, furnish to the Holder forthwith upon
request a written statement by the Company as to
its compliance with the reporting requirements of
Rule_144, and of the 1933 Act and the Exchange Act
(at any time it is subject to the reporting
requirements of the Exchange Act), a copy of the
most recent annual or quarterly report of the
Company, and such other reports and documents of
the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the
SEC allowing a Holder to sell any such securities
without registration (at any time the Company is
subject to the reporting requirements of the
Exchange Act).
5. Covenants.
a. Affirmative Covenants. The Company covenants and
agrees that unless the Holders of a majority of
Registrable Securities shall otherwise give their prior
consent in writing (which consent any such Holder may
at its sole discretion withhold):
i. Authorized Shares. The Company's Board of
Directors shall use its best efforts to obtain
stockholder approval to increase the Company's
authorized shares of Common Stock in a sufficient
number at its next annual stockholder meeting to
cover the issuance of the Warrant Shares and the
Conversion Shares, the issuance of the Common
Stock issuable upon the conversion of the New
Notes, any issuances of shares of Common Stock
upon the exercise, conversion or exchange of any
options, warrants, securities or rights
convertible or exchangeable for shares of Common
Stock, any issuances of shares of Common Stock
pursuant to any other rights, commitments or
agreements of the Company and any shares reserved
for issuance under the Company's stock plans as
set forth on the Schedule of Exceptions. The
Company shall, from and at all times after the
Closing maintain a reserve of authorized shares
sufficient to cover the conversion of the
Preferred Stock and the exercise in full of the
outstanding Warrants until the conversion of the
Preferred Stock and the expiration or earlier
exercise of the Warrants, respectively.
ii. Exchange Act Filings. The Company shall continue
to file with the SEC all reports and other filings
required under the rules of the SEC and such
documents shall comply in all material respects
with the requirements of the Exchange Act or the
1933 Act, as applicable, as long as the Company
continues to be subject to reporting requirements
under Sections 13 or 15(d) of the Exchange Act.
iii. Negative Covenants. The Company covenants and
agrees that unless the Holders of a majority of
the Registrable Securities shall otherwise give
their prior consent in writing (which consent any
such Holder may at its sole discretion withhold),
the Company will not issue shares of Common Stock
pursuant to the exercise of an option and/or
warrant subject to an Agreement Not to Exercise
Options and/or Warrants so long as such agreement
is in effect.
6. Conditions to Obligations of the Investors. The obligation
of each Investor to purchase the Units at the Closing is
subject to the fulfillment on or prior to the Closing Date
of the following conditions, any of which may be waived by
such Investor:
a. Representations and Warranties Correct; Performance of
Obligations. The representations and warranties made
by the Company in Section 2 hereof shall be true and
correct when made, and shall be true and correct on the
Closing Date with the same force and effect as if they
had been made on and as of said date, except for
representations and warranties made as of a specific
date which shall be true and correct as of such date;
and the Company shall have performed all obligations
and conditions herein required to be performed or
observed by it under this Agreement on or prior to the
Closing Date.
b. Consents and Waivers. The Company shall have obtained
any and all consents (including all governmental or
regulatory consents, approvals or authorizations
required in connection with the valid execution and
delivery of this Agreement), permits and waivers, other
then the Stockholder Approval, necessary or appropriate
for consummation of the transactions contemplated by
this Agreement.
c. Compliance Certificate. The Company shall have
delivered to the Investors a certificate, executed by
the Chairman of the Board and Chief Executive Officer
of the Company, dated the Closing Date, certifying to
the fulfillment of the conditions specified in
subsections (a), (b), (g) and (h) of this Section 6.
d. Opinion of Company's Counsel. Investors shall have
received from ▇▇▇▇▇ ▇▇▇▇▇▇▇, General Counsel to the
Company, an opinion addressed to the Investors, dated
the Closing Date in substantially the form attached
hereto as Exhibit G.
e. Agreement Not to Exercise Options and/or Warrants.
Each director and officer of the Company shall have
executed the Agreement Not to Exercise Options and/or
Warrants, in the form attached hereto as Exhibit_F.
f. Registration Rights Agreement. The Company and each
Investor shall have entered into the Registration
Rights Agreement in the form attached hereto as Exhibit
E.
g. Fairness Opinion. The Company shall have received from
an independent third party satisfactory to the
Investors an opinion stating that the transactions
contemplated by this Agreement are fair to the
stockholders of the Company.
h. Amendment of Restated Certificate. The Board of
Directors of the Company shall have approved an
increase in the authorized Common Stock of the Company
to 200,000,000 shares of Common Stock.
i. Certificate of Designation. The Company shall have
filed with the Secretary of State of the State of
Delaware the Certificate of Designation in the form
attached hereto as Exhibit C.
j. Note Exchange Agreement. The Company and the Investors
shall have entered into the Note Exchange Agreement in
substantially the form attached hereto as Exhibit H.
7. Conditions to Obligations of the Company. The obligation of
the Company to sell and issue the Shares to each Investor at
the Closing is subject to the fulfillment on or prior to the
Closing Date of the following conditions, any of which may
be waived by the Company:
a. Representations and Warranties. The representations
and warranties made by such Investor in Section 3
hereof shall be true and correct when made, and shall
be true and correct on the Closing Date with the same
force and effect as if they had been made on and as of
said date.
b. Consents and Waivers. The conditions set forth in
subsections (b) and (g) of Section_6 hereof shall have
been fulfilled.
c. Note Exchange Agreement. The Company and the Investors
shall have entered into the Note Exchange Agreement in
substantially the form attached hereto as Exhibit H.
8. Miscellaneous.
a. Governing Law. This Agreement will be governed by and
construed in accordance with the internal laws of the
State of California applicable to contracts made among
residents of, and wholly to be performed within, the
State of California, without regard to principles of
conflict of laws or choice of laws.
b. Further Instruments. From time to time, each party
hereto will execute and deliver such instruments and
documents as may be reasonably necessary to carry out
the purposes and intent of this Agreement.
c. Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties
(including transferees of any shares of Registrable
Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other
than the parties hereto or their respective successors
and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
d. Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an
original, but all of which together will constitute one
and the same instrument. This Agreement will be
effective following the parties signatory hereto upon
such counterpart signature by all initial parties
hereto.
e. Entire Agreement. This Agreement, including and
incorporating the Schedule of Exceptions and all
Exhibits attached hereto and referred to herein,
constitutes and contains the entire agreement and
understanding of the parties regarding the subject
matter of this Agreement and supersedes in its entirety
any and all prior negotiations, correspondence,
understandings and agreements among the parties
respecting the subject matter hereof.
f. Notices. All notices required to be given or delivered
to the Company under the terms of this Agreement shall
be deemed to have been given or made for all purposes
(i) upon personal delivery, or (ii) upon confirmation
receipt that the communication was successfully sent to
the applicable number if sent by facsimile, or (iii)
one day after being sent, when sent by professional
overnight courier service, or (iv) five (5) days after
posting when sent by registered or certified mail.
Notices to the Company shall be sent to the principal
office of the Company (or at such other place as the
Company shall notify the Investor of in writing).
Notices to the Investor shall be sent to the address of
the Investor on the books of the Company (or at such
other place as the Investor shall notify the Company of
in writing).
g. Finders' Fee. Each party represents that it neither is
nor will be obligated for any finders' fee or
commission in connection with this transaction other
than described in this section. Each party agrees to
indemnify and to hold the other parties hereto harmless
from any liability for any commission or compensation
in the nature of a finders' fee (and the costs and
expenses of defending against such liability or
asserted liability) for which such party or any of its
officers, partners, employees or representatives is
responsible.
h. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of the
Agreement may be waived (either generally or in a
particular instance and either retroactively or
prospectively), only with the written consent of the
Company and by Investors holding at least a majority of
the Registrable Securities. Any amendment or waiver
effected in accordance with this Section_8(h) will be
binding upon the Company, each Investor, and their
permitted transferees and assignees.
i. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable
law, such provisions will be excluded from this
Agreement to the extent unenforceable and the balance
of such provisions, and of this Agreement, will be
interpreted as if such provision or part hereof were so
excluded and will be enforceable in accordance with its
terms.
j. Aggregation of Stock. All Securities held or acquired
by affiliated entities or persons will be aggregated
together for the purpose of determining the
availability of any rights under this Agreement.
k. Expenses. The Company shall pay all of the costs and
expenses that it incurs, and will pay the reasonable fees and
expenses of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, LLP, counsel to the Investors, with respect to the
negotiation, execution, delivery and performance of this
Agreement, not to exceed $15,000.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
COMPANY
VANGUARD AIRLINES, INC.
By:
Title:
Address:
INVESTOR:
▇.▇. ▇▇▇▇ CO., INC., as nominee 1998-19
By:
Title:
Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
THE ▇▇▇▇▇▇▇▇▇ 1980 REVOCABLE TRUST
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
EXHIBIT A
SCHEDULE OF INVESTORS
Investor Number of Units Purchase Price
▇.▇. ▇▇▇▇ Co., Inc., 151,200 $1,512,000.00
as nominee 1998-19
The ▇▇▇▇▇▇▇▇▇ 1980 151,162 $1,511,620.00
Revocable Trust
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
CERTIFICATE OF DESIGNATION
EXHIBIT D
SCHEDULE OF EXCEPTIONS
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
EXHIBIT F
AGREEMENT NOT TO EXERCISE OPTIONS AND/OR WARRANTS
EXHIBIT G
FORM OF OPINION
EXHIBIT H
NOTE EXCHANGE AGREEMENT