-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WddRsYJ24g9Px/WLVH//bPOW8gpohlNf1lCMZOjVaah/2zzDfr9p5M46kbeOzv8Q uVKDdzJQve7pxEmQkZH/Vg== 0000950168-01-501509.txt : 20020413 0000950168-01-501509.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950168-01-501509 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20011228 GROUP MEMBERS: CARLYLE HIGH YIELD PARTNERS, L.P. GROUP MEMBERS: CARLYLE PARTNERS III L.P. GROUP MEMBERS: CARLYLE-AVIALL PARTNERS II, L.P. GROUP MEMBERS: CP III COINVESTMENT, L.P. GROUP MEMBERS: TC GROUP III, L.L.C. GROUP MEMBERS: TC GROUP III, L.P. GROUP MEMBERS: TCG HIGH YIELD HOLDINGS, L.L.C. GROUP MEMBERS: TCG HIGH YIELD, L.L.C. GROUP MEMBERS: TCG HOLDINGS, L.L.C. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: AVIALL INC CENTRAL INDEX KEY: 0000701650 STANDARD INDUSTRIAL CLASSIFICATION: AIRPORTS, FLYING FIELDS & AIRPORT TERMINAL SERVICES [4581] IRS NUMBER: 650433083 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-43471 FILM NUMBER: 1825851 BUSINESS ADDRESS: STREET 1: 2055 DIPLOMAT DR CITY: DALLAS STATE: TX ZIP: 75234-8989 BUSINESS PHONE: 2149565000 MAIL ADDRESS: STREET 1: 2055 DIPLOMAT DR CITY: DALLAS STATE: TX ZIP: 75234-8989 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TC GROUP LLC CENTRAL INDEX KEY: 0000933790 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 527656007 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: C/O THE CARLYLE GROUP STREET 2: 1001 PENNSYLVANIA AVENUE NW SUITE 220 S CITY: WASHINGTON STATE: DC ZIP: 20004-2505 BUSINESS PHONE: 2023472626 MAIL ADDRESS: STREET 1: C/O CARLYLE GROUP STREET 2: 1001 PENNSYLVANIA AVENUE NW SUITE 220 S CITY: WASHINGTON STATE: DC ZIP: 20004 SC 13D 1 dsc13d.txt SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 Aviall, Inc. ------------- (Name of Issuer) Common Stock, Par Value $.01 Per Share -------------------------------------- (Title of Class of Securities) CUSIP NUMBER 05366B102 --------- (CUSIP Number) Peter J. Clare The Carlyle Group 1001 Pennsylvania Avenue, N.W. Suite 220 South Washington, D.C. 20004 (202) 347-2626 -------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copies to: Daniel T. Lennon, Esq. Latham & Watkins 555 Eleventh Street, N.W. Suite 1000 Washington, D.C. 20004 (202) 637-2200 December 21, 2001 ----------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is subject of this Schedule 13D, and is filing this statement because of Rule 13d-1(b)(3) or (4), check the following box: [_] Page 1 of 19 Pages SCHEDULE 13D CUSIP NO. 05366B102 Page 2 of 19 Pages ----------- - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSONS: Carlyle Partners III, L.P. IRS IDENTIFICATION NUMBER OF ABOVE PERSON: entities only). 52-2229944 - ----------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [X] - ----------------------------------------------------------------------------- 3. SEC USE ONLY 4. SOURCE OF FUNDS OO - ----------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) [_] - ----------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE - ----------------------------------------------------------------------------- SOLE VOTING POWER: 7. NUMBER OF 6,732,241 SHARES --------------------------------------------- SHARED VOTING POWER: BENEFICIALLY 8. OWNED BY 0 ---------------------------------------------- EACH SOLE DISPOSITIVE POWER: 9. REPORTING 6,732,241 PERSON ---------------------------------------------- SHARED DISPOSITIVE POWER: WITH: 10. 0 ---------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 6,732,241 - --------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] - ----------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 25.6% - ----------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON: PN - ----------------------------------------------------------------------------- SCHEDULE 13D CUSIP NO. 05366B102 ----------------- - ------------------------------------------------------------------------------ NAMES OF REPORTING PERSONS CP III Coinvestment, L.P. 1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS: 54-1970037 - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 OO - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 466,034 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 0 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 466,034 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 466,034 - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] 12 - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 1.8% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON (See Instructions) 14 PN - ------------------------------------------------------------------------------ SCHEDULE 13D CUSIP NO. 05366B102 Page 4 OF 19 Pages ----------- - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSONS: CARLYLE HIGH YIELD PARTNERS, L.P. IRS IDENTIFICATION NUMBER OF ABOVE PERSON: (entities only). 52-2175223 - ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [X] - ------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS OO - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------- SOLE VOTING POWER 7. NUMBER OF 387,931 SHARES ------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8. OWNED BY 0 ------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9. REPORTING 387,931 PERSON -------------------------------------------------------- SHARED DISPOSITIVE POWER WITH: 10. 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 387,931 - ------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] 12 - ------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.5% - ------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: PN - ------------------------------------------------------------------------------- SCHEDULE 13D CUSIP NO. 05366B102 ----------------- - ------------------------------------------------------------------------------ NAMES OF REPORTING PERSONS CP III Coinvestment, L.P. 1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS N/A - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS (See Instructions) 4 OO - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 172,413 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 0 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 172,413 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 172,413 - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] 12 - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 .7% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON (See Instructions) 14 PN - ------------------------------------------------------------------------------ SCHEDULE 13D CUSIP No. 05366B102 Page 6 of 19 Pages ----------------- - ------------------------------------------------------------------------------ NAMES OF REPORTING PERSONS TC Group III, L.P. 1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (entities only). 52-2287893 - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS (See Instructions) 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 7,370,688 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 0 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 7,370,688 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 7,370,688 - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] 12 - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 28.1% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON (See Instructions) 14 PN - ------------------------------------------------------------------------------ SCHEDULE 13D CUSIP No. 05366B102 Page 7 of 19 Pages ----------------- - ------------------------------------------------------------------------------ NAMES OF REPORTING PERSONS TC Group III, L.L.C. 1 I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS N/A - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 7,370,688 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 0 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 7,370,688 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 7,370,688 - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] 12 - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 28.1% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON (See Instructions) 14 OO (Limited Liability Company) - ------------------------------------------------------------------------------ SCHEDULE 13D CUSIP No. 05366B102 Page 8 of 19 Pages --------------- - -------------------------------------------------------------------------------- NAME OF REPORTING PERSONS TCG High Yield, L.L.C. 1 I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON: 52-2175223 - -------------------------------------------------------------------------------- CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [_] (b) [X] - -------------------------------------------------------------------------------- SEC USE ONLY 3 - -------------------------------------------------------------------------------- SOURCE OF FUNDS 4 OO - -------------------------------------------------------------------------------- CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] 5 - -------------------------------------------------------------------------------- CITIZENSHIP OR PLACE OF ORGANIZATION 6 DELAWARE - -------------------------------------------------------------------------------- SOLE VOTING POWER 7 NUMBER OF 387,931 SHARES --------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 0 --------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 387,931 PERSON --------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - -------------------------------------------------------------------------------- AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 11 387,931 - -------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES[_] 12 - -------------------------------------------------------------------------------- PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 13 1.5% - -------------------------------------------------------------------------------- TYPE OF REPORTING PERSON: 14 OO (LIMITED LIABILITY COMPANY) - -------------------------------------------------------------------------------- SCHEDULE 13D CUSIP No. 05366B102 Page 9 of 19 Pages ----------------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSONS TCG High Yield Holdings, L.L.C. 1 I.R.S. IDENTIFICATION NUMBER. OF ABOVE PERSON: N/A - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 387,931 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 0 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 387,931 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 387,931 - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] 12 - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 1.5% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON (See Instructions) 14 OO (Limited Liability Company) - ------------------------------------------------------------------------------ SCHEDULE 13D CUSIP No. 05366B102 Page 10 of 19 Pages ----------------- - ------------------------------------------------------------------------------ NAMES OF REPORTING PERSONS TC Group, L.L.C. 1 I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON: 54-1686957 - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 7,758,619 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 0 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 7,758,619 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 7,758,619 - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] 12 - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 29.6% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON (See Instructions) 14 OO (Limited Liability Company) - ------------------------------------------------------------------------------ SCHEDULE 13D CUSIP No. 05366B102 Page 11 of 19 Pages ----------------- - ------------------------------------------------------------------------------ NAMES OF REPORTING PERSONS TCG Holdings, L.L.C. 1 I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON: 54-1686011 - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS 4 00 - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 7,758,619 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 OWNED BY 0 ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 7,758,619 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 7,758,619 - ------------------------------------------------------------------------------ CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [_] 12 - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 29.6% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON (See Instructions) 14 OO (Limited Liability Company) - ------------------------------------------------------------------------------ SCHEDULE 13D CUSIP No. 05366B102 Page 12 of 19 Pages Item 1. Security and Issuer. This statement on Schedule 13D relates to the Common Stock, par value $.01 per share ("Common Stock"), of Aviall, Inc., a Delaware corporation ("Aviall" or the "Issuer"). The principal executive offices of Aviall are located at 2750 Regent Blvd., DFW Airport, Texas 75261. Item 2. Identity and Background. (a) - (c), (f). The names of the persons filing this Schedule are: (i) Carlyle Partners III, L.P., a Delaware limited partnership ("CPIII"); (ii) CP III Coinvestment, L.P., a Delaware limited partnership ("Coinvestment"); (iii) Carlyle High Yield Partners, L.P., a Delaware limited partnership ("CHYP"); (iv) Carlyle-Aviall Partners II, L.P., a Delaware limited partnership ("CAP" and, together with CPIII, Coinvestment and CHYP, the "Purchasers"); (v) TC Group III, L.P., a Delaware limited partnership ("TCLP"); (vi) TC Group III, L.L.C., a Delaware limited liability company ("TCLLC"); (vii) TCG High Yield, L.L.C., a Delaware limited liability company ("TCG High Yield"); (viii) TCG High Yield Holdings, L.L.C., a Delaware limited liability company ("TCG High Yield Holdings"); (ix) TC Group, L.L.C., a Delaware limited liability company ("TC Group"); and (x) TCG Holdings, L.L.C., a Delaware limited liability company ("TCG Holdings" and together with the Purchasers, TCLP, TCLLC, TCG High Yield, TCG High Yield Holdings and TC Group, the "Reporting Persons"). TCLP is the sole general partner of CPIII, Coinvestment and CAP. TCLLC is the sole general partner of TCLP. TCG High Yield is the sole general partner of CHYP. TCG High Yield Holdings is the sole managing member of TCG High Yield. TC Group is the sole managing member of TCLLC and TCG High Yield Holdings. TCG Holdings is the sole managing member of TC Group. Accordingly, (i) TCLP and TCLLC each may be deemed to be a beneficial owner of shares of Common Stock owned of record by each of CPIII, Coinvestment and CAP; (ii) TCG High Yield and TCG High Yield Holdings each may be deemed to be a beneficial owner of shares of Common Stock owned of record by CHYP and (iii) TC Group and TCG Holdings each may be deemed to be a beneficial owner of the shares of Common Stock owned of record by each of the Purchasers. William E. Conway, Jr., Daniel A D'Aniello and David M. Rubenstein are managing members (the "TCG Holdings Managing Members") of TCG Holdings and, in such capacity, may be deemed to share beneficial ownership of shares of Common Stock beneficially owned by TCG Holdings. Such individuals expressly disclaim any such beneficial ownership. Each of the TCG Holdings Managing Members is a citizen and resident of the United States. Leslie L. Armitage, James A. Attwood, James A. Baker, III, Frank C. Carlucci, Peter J. Clare, William E. Conway, Jr., Robert W. Dahl, Daniel A. D'Aniello, Richard G. Darman, Robert E. Grady, John F. Harris, Allan M. Holt, Tony Jansz, Michael B. Kim, Jack S. Mann, Jean-Pierre Millet, Jerome H. Powell, Bruce E. Rosenblum, David M. Rubenstein, Robert G. Stuckey, Glenn A. Youngkin, Michael J. Zupon, and Afsaneh Beshloss are executive officers of each of TC Group and TCG Holdings and members of TCG Holdings (the "Carlyle Officers"). Each of the Carlyle Officers is a citizen and resident of the United States, except Tony Jansz, who is citizen of Australia, Jean-Pierre Millet, who is a citizen of France, and Afsaneh Beshloss, who is a citizen of Iran. The principal business and principal office address of CPIII, Coinvestment, CAP, TCLP, TCLLC, TC Group, TCG Holdings, the TCG Managing Members and the Carlyle Officers is c/o The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Suite 220 South, Washington, D.C. 20004-2505. The principal business and principal office address of CHYP, TCG High Yield and TCG High Yield Holdings is c/o The Carlyle Group, 520 Madison Avenue, 41st Floor, New York, New York 10022. (d) and (e). To the best knowledge of the Reporting Persons, none of the entitles or persons identified in this Item 2 has, during the last five years, been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors), nor been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws on finding any violation with respect to such laws. SCHEDULE 13D CUSIP No. 05366B102 Page 13 of 19 Pages Item 3. Source and Amount of Funds or Other Consideration. On December 21, 2001, (i) CP III paid $39,047,000 in consideration for 39,047 shares of Series B Senior Convertible Participating Preferred Stock, par value $.01 per share, of the Issuer ("Series B Preferred Stock"), (ii) Coinvestment paid $2,703,000 in consideration for 2,703 shares of Series B Preferred Stock, (iii) CHYP paid $2,250,000 in consideration for 2,250 shares of Series B Preferred Stock and (iv) CAP paid $1,000,000 in consideration for 1,000 shares of Series B Preferred Stock. The source of consideration paid by the Purchasers was contributions from the partners of each individual Purchaser. Item 4. Purpose of the Transaction. On December 21, 2001, the Purchasers acquired an aggregate 45,000 shares of Series B Preferred Stock pursuant to a Securities Purchase Agreement dated as of December 17, 2001 among the Issuer, CP III and Coinvestment (the "Securities Purchase Agreement"). The Securities Purchase Agreement is attached hereto as Exhibit A, and any description thereof is qualified in its entirety by reference thereto. The purchase price for the Series B Preferred Stock was $1,000 per share. The aggregate purchase price paid for the Series B Preferred Stock was $45,000,000. Each share of Series B Preferred Stock is automatically convertible into one fully-paid and non-assessable share of Series D Senior Convertible Participating Preferred Stock, par value $.01 per share, of the Issuer ("Series D Preferred Stock"), if the stockholders of the Issuer approve such conversion before December 21, 2002. The Certificate of Designations of Series B Preferred Stock is attached hereto as Exhibit B, and any description of the terms of the Series B Preferred Stock is qualified in its entirety by reference thereto. If the stockholders of the Issuer do not approve such conversion before March 31, 2002, the Purchasers have the option to convert the shares of Series B Preferred Stock into (i) shares of Common Stock comprising up to a maximum of 19.9% of the Common Stock of the Issuer then outstanding and (ii) one share of Series C Senior Participating Preferred Stock, par value $.01 per share, of the Issuer ("Series C Preferred Stock") per share of Series B Preferred Stock held. The Certificate of Designations of Series C Preferred Stock is attached hereto as Exhibit C, and any description of the terms of the Series C Preferred Stock is qualified in its entirety by reference thereto. Assuming the conversion of the Series B Preferred Stock into Series D Preferred Stock, each share of Series D Preferred Stock will be convertible at any time at the option of the holder into shares Common Stock at a conversion price of $5.80, subject to adjustment upon the occurrence of certain circumstances. The Certificate of Designations of Series D Preferred Stock is attached hereto as Exhibit D, and any description of the terms of the Series D Preferred Stock is qualified in its entirety by reference thereto. In connection with the consummation of the transactions contemplated by the Securities Purchase Agreement, on December 21, 2001, the Issuer, CP III, Coinvestment and CHYP (collectively, the "Carlyle Funds") also entered into a Standstill Agreement. The Standstill Agreement is attached hereto as Exhibit E, and any description thereof is qualified in its entirety by reference thereto. In accordance with the terms of the Standstill Agreement, the Carlyle Funds agreed, among other things, until such time that the Carlyle Funds and their affiliates no longer own voting securities of the Issuer representing at least 15% of the outstanding voting securities of the Issuer, (i) that the Purchasers would not acquire or agree to become the beneficial owner of, without the prior approval of the Issuer's Board of Directors, more than 5% of the outstanding voting securities of the Issuer, except for the securities acquired pursuant to the Securities Purchase Agreement or issuable upon conversion of the securities acquired pursuant to the Securities Purchase Agreement; (ii) that, except under certain limited circumstances, the Purchasers would not solicit proxies or written consents of stockholders with respect to voting securities of the Issuer; (iii) that the Purchasers would not seek to call a special meeting of the stockholders; (iv) that the Purchasers would not commence, or announce any intention to commence, any tender offer for voting securities of the Issuer; or (v) that the Purchasers would not make any proposal or bid with respect to the acquisition of any substantial portion of the assets of the Issuer or any merger, consolidation, recapitalization, restructuring, or liquidation of the Issuer. In connection with the consummation of the transactions contemplated by the Securities Purchase Agreement, on December 21, 2001, the Issuer, CP III and Coinvestment also entered into a Registration Rights Agreement. The Registration Rights Agreement is attached hereto as Exhibit F, and any description thereof is qualified in its entirety by reference thereto. Among other things, the Registration Rights Agreement (i) requires the Issuer to, under certain circumstances, file a shelf registration statement covering shares of Series B Preferred Stock and shares of Common Stock and shares of Series C Preferred Stock issuable upon conversion Series B Preferred Stock; (ii) provides the right of holders of Series B Preferred Stock, Common Stock and Series C Preferred Stock issuable upon conversion of Series B Preferred Stock, Series D Preferred Stock and Common Stock issuable upon conversion of Series D Preferred Stock to demand registration of their shares of such stock and to select the underwriter therefore and (iii) provides the right of holders of Series B Preferred Stock, Common Stock and Series C Preferred Stock issuable upon conversion Series B Preferred Stock, Series D Preferred Stock and Common Stock issuable upon conversion of Series D Preferred Stock to have their shares of such stock included in a registration statement filed by the Issuer. SCHEDULE 13D CUSIP No. 05366B102 Page 14 of 19 Pages The following is a description of certain terms of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock: Liquation Preference. Holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have a liquidation preference of $1,000 per share, plus all accrued and unpaid dividends. No distributions may be made to holders of Common Stock of the Issuer until the holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have received the liquidation preference. Dividends. Holders of Series B Preferred Stock and Series D Preferred Stock are entitled to receive quarterly dividends at the annual rate of 9% per share of Series B Preferred Stock or Series D Preferred Stock, as applicable, subject to adjustment in the event of certain circumstances. Holders of Series C Preferred Stock are entitled to receive quarterly dividends at the annual rate of 30% per share of Series C Preferred Stock. With respect to Series B Preferred Stock and Series C Preferred Stock, dividends are payable to such holders, at such holder's option, in cash or in additional shares of Series B Preferred Stock or Series C Preferred Stock, as applicable. With respect to Series D Preferred Stock only, for the first four years dividends are payable to holders of Series D Preferred Stock in additional shares of Series D Preferred Stock; thereafter, dividends on such Series D Preferred Stock are payable in cash. Redemption. Holders of Series B Preferred Stock and Series C Preferred Stock have the right to require the Issuer to redeem such shares of Series B Preferred Stock and Series C Preferred Stock, as applicable, on or after June 21, 2008, at a redemption price equal to the liquidation preference plus all cumulative accrued and unpaid dividends. The Issuer is required to redeem the Series D Preferred Stock on June 21, 2008 or such later date that a majority of the holders of Series D Preferred Stock determine, at a redemption price equal to the liquidation preference plus all cumulative accrued and unpaid dividends. Voting Rights. Holders of Series B Preferred Stock and Series D Preferred Stock are entitled to vote on all matters presented to the holders of the Issuer's Common Stock. The number of votes per share of Series B Preferred Stock or Series D Preferred Stock is equal to the number of votes associated with the underlying Common Stock into which such Series B Preferred Stock or Series D Preferred Stock is convertible. Board Representation. Holders of Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock are entitled to two seats on the Issuer's Board of Directors. The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to the Certificate of Designations for Series B Preferred Stock, Certificate of Designations for Series C Preferred Stock and Certificate of Designations for Series D Preferred Stock, a copy of each of which has been filed as an Exhibit to this Schedule 13D and is incorporated herein by reference. In accordance with the terms of the Certificate of Designation of Series B Preferred Stock, Allan M. Holt and Peter J. Clare, managing directors of TCG Holdings, joined the Issuer's Board of Directors on December 21, 2001 as the nominees of the Purchasers. All securities held by the Reporting Persons are held by the Reporting Persons for investment purposes. Subject to the terms of the Standstill Agreement, each Reporting Person may acquire from time to time additional securities (including shares of Common Stock) of the Issuer in the open market or in privately negotiated transactions, by exchange offer or otherwise. Subject to the terms of the Standstill Agreement and the Securities Purchase Agreement, each Reporting Person may, from time to time, retain or sell all or a portion of his holdings of the securities of the Issuer in the open market, pursuant to a registered public offering or in privately negotiated transactions, including, by way of distribution or some or all of the securities to their partners or members, as applicable, the conversion of Series B Preferred Stock into Common Stock, Series C Preferred Stock or Series D Preferred Stock, as applicable, and the conversion of Series D Preferred Stock into Common Stock. Each Reporting Person may also have discussions with management regarding methods of increasing sales, cash flow and profitability. Any actions that any Reporting Person might undertake will be dependent upon such person's review of numerous factors, including, among other things, the availability of securities of the Issuer (including Common Stock) for purchase and the price levels of such shares; trading prices of the Issuer's Common Stock; general market and economic conditions; ongoing evaluation of the Issuer's business operations and prospects; the relative attractiveness of alternative business and investment opportunities; the actions of the management and the Board of Directors of the Issuer; and other future developments. SCHEDULE 13D CUSIP No. 05366B102 Page 15 of 19 Pages Item 5. Interest in Securities of the Issuer. (a) The Reporting Persons beneficially own 45,000 shares of Series B Preferred Stock. Assuming the Issuer's stockholders approve the conversion of Series B Preferred Stock into Series D Preferred Stock prior to March 31, 2002, each share of Series B Preferred Stock would be automatically converted into one share of Series D Preferred Stock. Assuming conversion of all of the shares of Series D Preferred Stock issuable upon conversion of the shares of Series B Preferred Stock held by the Purchasers into shares of Common Stock, the Reporting Persons would beneficially own in the aggregate 7,758,619 shares of Common Stock of the Issuer, representing approximately 29.6% of the outstanding Common Stock of the Issuer. The number of shares of Common Stock into which shares of Series D Preferred Stock are convertible may be increased upon the occurrence of certain events as described in Item 4. Beneficial ownership of such shares of Series B Preferred Stock was acquired as described in Item 3 and Item 4. See also the information contained on the cover pages to this Schedule 13D which is incorporated by reference. (b) See the information contained on the cover pages to this Schedule 13D which is incorporated herein by reference. (c) There have been no reportable transactions with respect to the Common Stock of the Issuer within the last 60 days by the Reporting Persons. (d) Not applicable. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to the Securities of the Issuer. The response to Item 3 and Item 4 are incorporated herein by reference. Pursuant to the Securities Purchase Agreement, the Purchasers have agreed (i) to vote the shares of Series B Preferred Stock owned by them in favor of the conversion of Series B Preferred Stock into Series D Preferred Stock and (ii) not to sell, assign, convey or otherwise transfer, except to an affiliate of such Purchasers, the Series B Preferred Stock, Common Stock and Series C Preferred Stock issuable upon conversion of Series B Preferred Stock, Series D Preferred Stock issuable upon conversion of Series B Preferred Stock and Common Stock issuable upon conversion of Series D Preferred Stock held by such Purchasers prior to the earlier of March 31, 2002 or the date on which the Issuer's stockholders approve the conversion of Series B Preferred Stock into Series D Preferred Stock. The foregoing response to this Item 6 is qualified in its entirety by reference to the Securities Purchase Agreement. Item 7. Material to be Filed as Exhibits. Exhibit A Securities Purchase Agreement dated as of December 17, 2001 among Aviall, CP III and Coinvestment. Exhibit B Certificate of Designations of Series B Senior Convertible Participating Preferred Stock of Aviall. Exhibit C Certificate of Designations of Series C Senior Participating Preferred Stock of Aviall. Exhibit D Certificate of Designations of Series D Senior Convertible Participating Preferred Stock of Aviall. Exhibit E Standstill Agreement dated as of December 21, 2001 among Aviall, CPIII, Coinvestment and CHYP. Exhibit F Registration Rights Agreement dated as of December 21, 2001 among Aviall, CP III and Coinvestment. SCHEDULE 13D CUSIP No. 05366B102 Page 16 of 19 Pages After reasonable inquiry and to the best of the knowledge and belief of the undersigned, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: December __, 2001 CARLYLE PARTNERS III, L.P. By: TC Group III, L.P., its General Partner By: TC Group III, L.L.C., its General Partner By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ---------------------- Name: Peter J. Clare Title: Managing Director CP III COINVESTMENT, L.P. By: TC Group III, L.P., its General Partner By: TC Group III, L.L.C., its General Partner By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ------------------- Name: Peter J. Clare Title: Managing Director CARLYLE HIGH YIELD PARTNERS, L.P. By: TCG High Yield, L.L.C., its General Partner By: TCG High Yield Holdings, L.L.C., its Managing Member By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ------------------ Name: Peter J. Clare Title: Managing Director SCHEDULE 13D CUSIP No. 05366B102 Page 17 of 19 Pages CARLYLE-AVIALL PARTNERS II, L.P. By: TC Group III, L.P., its General Partner By: TC Group III, L.L.C., its General Partner By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ------------------- Name: Peter J. Clare Title: Managing Director TC GROUP III, L.P. By: TC Group III, L.L.C., its General Partner By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ------------------ Name: Peter J. Clare Title: Managing Director TC GROUP III, L.L.C. By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ------------------- Name: Peter J. Clare Title: Managing Director TCG HIGH YIELD, L.L.C. By: TCG High Yield Holdings, L.L.C., its Managing Member By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ------------------ Name: Peter J. Clare Title: Managing Director SCHEDULE 13D CUSIP No. 05366B102 Page 18 of 19 Pages TCG HIGH YIELD HOLDINGS, L.L.C. By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare -------------------- Name: Peter J. Clare Title: Managing Director TC GROUP, L.L.C. By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare -------------------- Name: Peter J. Clare Title: Managing Director TCG HOLDINGS, L.L.C. By: /s/ Peter J. Clare ---------------------- Name: Peter J. Clare Title: Managing Director SCHEDULE 13D CUSIP No. 05366B102 Page 19 of 19 Pages INDEX OF EXHIBITS Exhibit A Securities Purchase Agreement dated as of December 17, 2001 among Aviall, Inc., Carlyle Partners III, L.P. and CPIII Coinvestment, L.P. Exhibit B Certificate of Designations of Series B Senior Convertible Participating Preferred Stock of Aviall, Inc. Exhibit C Certificate of Designations of Series C Senior Participating Preferred Stock of Aviall, Inc. Exhibit D Certificate of Designations of Series D Senior Convertible Participating Preferred Stock of Aviall, Inc. Exhibit E Standstill Agreement dated as of December 21, 2001 among Aviall, Inc., Carlyle Partners III, L.P., CPIII Coinvestment, L.P. and Carlyle High Yield Partners, L.P. Exhibit F Registration Rights Agreement dated as of December 21, 2001 among Aviall, Inc., Carlyle Partners III, L.P. and CPIII Coinvestment, L.P. EX-99 3 dex99.txt EXHIBIT A Exhibit A SECURITIES PURCHASE AGREEMENT by and among AVIALL, INC. and CERTAIN PURCHASERS IDENTIFIED HEREIN Dated as of December 17, 2001 TABLE OF CONTENTS ----------------- Page ---- ARTICLE I. DEFINITIONS.........................................................1 1.1 Defined Terms.......................................................1 ARTICLE II. PURCHASE AND SALE OF SECURITIES....................................9 2.1 Purchase and Sale of Securities.....................................9 ------------------------------- 2.2 Consideration for Securities.......................................10 ---------------------------- ARTICLE III. CLOSING..........................................................10 3.1 Closing............................................................10 ------- 3.2 Deliveries by the Company at Closing...............................10 ------------------------------------ 3.3 Deliveries by the Purchasers at Closing............................10 --------------------------------------- 3.4 Certificates; Opinions.............................................10 ---------------------- 3.5 Registration Rights Agreement......................................10 ----------------------------- 3.6 Standstill Agreement...............................................10 -------------------- 3.7 Management Agreements..............................................10 --------------------- 3.8 Form of Documents and Instruments..................................10 --------------------------------- ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................11 4.1 Organization of the Company........................................11 --------------------------- 4.2 Capitalization of the Company......................................11 ----------------------------- 4.3 Authorization of Issuance..........................................12 ------------------------- 4.4 Due Authorization..................................................12 ----------------- 4.5 No Conflict........................................................13 ----------- 4.6 Consents and Approvals.............................................13 ---------------------- 4.7 Subsidiaries.......................................................13 ------------ 4.8 SEC Filings; Interim Financial Statements..........................14 ----------------------------------------- 4.9 Absence of Undisclosed Liabilities.................................15 ---------------------------------- 4.10 Absence of Certain Changes.........................................15 -------------------------- 4.11 Compliance With Laws...............................................16 -------------------- 4.12 Litigation.........................................................16 ---------- 4.13 Employee Benefit Plans and Other Agreements........................16 ------------------------------------------- 4.14 Taxes..............................................................20 ----- 4.15 Environmental Matters..............................................22 --------------------- 4.16 Insurance..........................................................23 --------- 4.17 Title to Assets, Etc...............................................23 -------------------- 4.18 Condition of Tangible Assets.......................................23 ---------------------------- 4.19 Labor Matters......................................................23 ------------- 4.20 Intellectual Property..............................................24 --------------------- 4.21 Government Contracts...............................................24 -------------------- i 4.22 Board Recommendations..............................................25 --------------------- 4.23 No Brokers.........................................................25 ---------- 4.24 Contracts; No Defaults.............................................26 ---------------------- 4.25 Customers..........................................................27 --------- 4.26 Suppliers..........................................................28 --------- 4.27 Affiliated Transactions............................................28 ----------------------- 4.28 Real Property......................................................28 ------------- 4.29 State Takeover Statutes............................................29 ----------------------- 4.30 Minimum Inventory Purchases........................................29 --------------------------- 4.31 Rolls Royce T-56 Engine Parts Contract.............................29 -------------------------------------- 4.32 Inventory..........................................................29 --------- 4.33 Information Technology.............................................29 ---------------------- 4.34 Projections........................................................30 ----------- ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.......................30 5.1 Organization of Purchaser..........................................30 ------------------------- 5.2 Due Authorization..................................................30 ----------------- 5.3 No Conflict........................................................30 ----------- 5.4 Consents and Approvals.............................................31 ---------------------- 5.5 Purchase for Investment............................................31 ----------------------- 5.6 No Brokers.........................................................32 ---------- ARTICLE VI. COVENANTS.........................................................32 6.1 Meeting of Stockholders; Proxy Statement...........................32 ---------------------------------------- 6.2 Continuing Operations..............................................33 --------------------- 6.3 Press Releases.....................................................34 -------------- 6.4 Investigations and Access..........................................35 ------------------------- 6.5 Notification of Certain Matters....................................35 ------------------------------- 6.6 No Solicitation....................................................35 --------------- 6.7 [Reserved].........................................................36 ---------- 6.8 Certain Undertakings...............................................36 -------------------- 6.9 Director And Officer Indemnification...............................36 ------------------------------------ 6.10 Listing............................................................36 ------- 6.11 Legend.............................................................36 ------ 6.12 Payment of Fees....................................................37 --------------- 6.13 Use of Proceeds....................................................37 --------------- 6.14 Confidentiality....................................................38 --------------- 6.15 Issuance of Rights.................................................38 ------------------ 6.16 Transfer of Bridge Preferred Stock.................................39 ---------------------------------- ARTICLE VII. CONDITIONS TO CLOSING............................................39 7.1 Condition to Each Party's Obligations..............................39 ------------------------------------- 7.2 Conditions to the Company's Obligations............................39 --------------------------------------- ii 7.3 Conditions to the Purchasers' Obligations..........................40 ----------------------------------------- ARTICLE VIII. INDEMNIFICATION.................................................42 8.1 Survival of Representations, Etc...................................42 -------------------------------- 8.2 Indemnification by the Company.....................................42 ------------------------------ 8.3 Indemnification by the Purchasers..................................43 --------------------------------- 8.4 Limitation on Indemnities..........................................43 ------------------------- 8.5 Losses.............................................................43 ------ 8.6 Defense of Claims..................................................43 ----------------- 8.7 Tax Treatment of Indemnity.........................................44 -------------------------- ARTICLE IX. MISCELLANEOUS.....................................................44 9.1 Termination........................................................44 ----------- 9.2 In the Event of Termination........................................45 --------------------------- 9.3 Expenses...........................................................45 -------- 9.4 Injunctive Relief..................................................45 ----------------- 9.5 Assignment.........................................................45 ---------- 9.6 Notices............................................................46 ------- 9.7 Choice of Law......................................................47 ------------- 9.8 Entire Agreement; Amendments and Waivers...........................47 ---------------------------------------- 9.9 Counterparts.......................................................48 ------------ 9.10 Invalidity.........................................................48 ---------- 9.11 Headings...........................................................48 -------- 9.12 Limitation of Liability............................................48 ----------------------- iii Exhibit A SECURITIES PURCHASE AGREEMENT ----------------------------- This Securities Purchase Agreement (this "Agreement"), dated --------- as of December 17, 2001, is by and among (i) Aviall, Inc., a Delaware corporation (the "Company"), and (ii) Carlyle Partners III, L.P., a Delaware ------- limited partnership ("CPIII"), and CP III Coinvestment, L.P., a Delaware limited ----- partnership (together with CPIII, the "Purchasers"). ---------- RECITAL ------- WHEREAS, the Company desires to sell to the Purchasers, and the Purchasers desire to purchase from the Company, an aggregate of 45,000 shares (the "Bridge Preferred Shares") of the Series B Senior Convertible ----------------------- Participating Preferred Stock, $.01 par value per share, of the Company (the "Bridge Preferred Stock"), having the rights, designations and preferences set ---------------------- forth in the Bridge Preferred Stock Certificate of Designations (as define herein), for the consideration as set forth in Section 2.2. WHEREAS, under certain circumstances set forth in the Bridge Preferred Stock Certificate of Designations, the Bridge Preferred Stock shall be (i) convertible, at the option of the holders, into shares of Common Stock (as defined herein) and shares (the "Mezzanine Preferred Shares") of the Series C -------------------------- Senior Participating Preferred Stock, $.01 par value per share, of the Company (the "Mezzanine Preferred Stock"), having the rights, designations and ------------------------- preferences set forth in the Mezzanine Preferred Stock Certificate of Designations (as defined herein), or (ii) automatically convertible, under certain circumstances, into shares (the "Permanent Preferred Shares") of Series -------------------------- D Senior Convertible Participating Preferred Stock, $.01 par value per share, of the Company (the "Permanent Preferred Stock"), having the rights, designations ------------------------- and preferences set forth in the Permanent Preferred Stock Certificate of Designations (as defined herein). AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS ----------- 1.1 Defined Terms. As used herein, the terms below shall have the following meanings: "Affiliate" shall mean any entity controlling, controlled by --------- or under common control with the Company. For the purposes of this definition, "control" shall have the meaning presently specified for that word in Rule 405 promulgated by the Commission under the Securities Act. "Agreement" shall mean this Securities Purchase Agreement, --------- together with all schedules and exhibits referenced herein. "Alternative Transaction" has the meaning set forth in ----------------------- Section 6.6 of the Agreement. "Applicable Law" means any statute, law, rule, regulation or -------------- published policy or any judgment, order, writ, injunction or decree of any Governmental Entity to which a specified Person or property is subject. "As-Adjusted Balance Sheet" has the meaning set forth in ------------------------- Section 7.3(s) of the Agreement. "Australian Credit Facility" means the credit facility to be -------------------------- entered into between Aviall Pty Ltd and a lender selected by Aviall Services, Inc. in an aggregate amount not exceeding 9,637,597.24 Australian dollars. "Benefit Arrangement" shall mean with respect to the Company ------------------- and any of its Subsidiaries, any employment, consulting, severance, change in control or other similar contract, arrangement or policy and each plan, arrangement (written or oral), program, agreement or commitment providing for insurance coverage (including without limitation any self-insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, life, health, disability or accident benefits (including without limitation any "voluntary employees' beneficiary association" as defined in Section 501(c)(9) of the Code providing for the same or other benefits), fringe benefits or for deferred compensation, profit-sharing bonuses, stock options, stock appreciation rights, stock purchases, annual or long-term cash incentive, base pay or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (A) is not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into, maintained, contributed to or required to be contributed to, as the case may be, by the Company and any of its Subsidiaries or any ERISA Affiliate of the Company and any of its Subsidiaries, and (C) covers any employee or former employee, director or consultant of the Company and any of its Subsidiaries (with respect to their relationship with any such entity). "Board of Directors" means the Board of Directors of the ------------------ Company. "Bridge Preferred Shares" has the meaning specified in the ----------------------- Recitals hereto. "Bridge Preferred Stock" has the meaning specified in the ---------------------- Recitals hereto. 2 "Bridge Preferred Stock Certificate of Designations" means the -------------------------------------------------- Certificate of Designations of the Series B Senior Convertible Participating Preferred Stock, $.01 par value per share, of the Company, in the form attached hereto as Exhibit A. "Bylaws" means the Amended and Restated Bylaws of the Company ------ as in effect on the date hereof. "Business" means the business of the Company as described more -------- fully in the "Business" section of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. "Business Days" means a day other than a Saturday or Sunday or ------------- any federal or New York holiday. "Canadian Credit Facility" means that certain credit facility ------------------------ of Aviall (Canada) Ltd. for an aggregate amount of up to 6,000,000 Canadian dollars. "Carlyle" means TC Group, L.L.C. or (to the extent appropriate ------- from the context) one or more of its Affiliates. "Carlyle Transaction Expenses" means the reasonable ---------------------------- out-of-pocket fees and expenses incurred by the Purchasers and/or by Carlyle on behalf of the Purchasers in connection with the transactions contemplated hereby, including, but not limited to, fees and expenses of legal counsel, accountants and consultants and travel and other expenses incurred in connection with the preparation of the Agreement, Carlyle's due diligence examination relating to the Agreement and the other out-of-pocket expenses incurred by the Purchasers or Carlyle in connection with the transaction contemplated hereby. "Certificate of Incorporation" means the Certificate of ---------------------------- Incorporation of the Company as amended or restated and as in effect on the date hereof. "Claim" has the meaning set forth in Section 8.6 of this ----- Agreement. "Claim Notice" has the meaning set forth in Section 8.6 of ------------ this Agreement. "Closing" has the meaning set forth in Section 3.1 of the ------- Agreement. "Closing Date" means December 21, 2001 or such other date ------------ agreed to by the parties. "Code" means the Internal Revenue Code of 1986, as it may be ---- amended from time to time. "Commission" means the United States Securities and Exchange ---------- Commission. "Common Stock" means the common stock, $.01 par value per ------------ share, of the Company. 3 "Company Indemnified Parties" has the meaning set forth in --------------------------- Section 8.3 of this Agreement. "Contract" has the meaning set forth in Section 4.24(a) of the -------- Agreement. "Conversion Shares" means (i) the Mezzanine Preferred Shares ----------------- and Permanent Preferred Shares issuable upon the conversion of the Bridge Preferred Shares and (ii) the shares of Common Stock issuable upon the conversion of the Bridge Preferred Shares and the Permanent Preferred Shares. "Credit Facility" means, collectively, the Revolving Credit --------------- and Term Loan Agreement, dated as of December 23, 1999, among Aviall, Inc., the lending institutions from time to time parties thereto, BankBoston, N.A., as administrative agent, and Bank of America, N.A., as documentation agent, as amended, together will all schedules and exhibits references therein and all notes executed on account thereof. "Employee Plans" means all Benefit Arrangements, Multiemployer -------------- Plans, Pension Plans and Welfare Plans. "Encumbrance" means any claim, lien, pledge, option, charge, ----------- easement, security interest, right-of-way, encumbrance or other rights of third parties, and, with respect to any securities, any agreements, understandings or restrictions affecting the voting rights or other incidents of record or beneficial ownership pertaining to such securities. "Environmental Conditions" means the Release or threatened ------------------------ Release of any Hazardous Material (whether or not upon a Facility or any former facility or other property and whether or not such Release constituted at the time thereof a violation of any Environmental Law) as a result of which the Company has or may become liable to any Person or by reason of which any Facility, any former facility or any of the assets of the Company may suffer or be subjected to any Encumbrances. "Environmental Laws" means any and all foreign, federal, ------------------ state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, legally binding decrees, or other requirement of any Governmental Entity (including, without limitation, common law) regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health relating to exposure of any kind of Hazardous Materials, as has been, is now, or may at any time hereafter be, in effect. "Environmental Permits" means any and all permits, licenses, --------------------- registrations, notifications, exemptions and any other authorization required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of ----- 1974, as amended. "ERISA Affiliate" means any entity which is (or at any --------------- relevant time was) a member of a "controlled group of corporations" with, under "common control" with, a member 4 of an "affiliated service group" with, or otherwise required to be aggregated with the Company, as set forth in Section 414(b), (c), (m) or (o) of the Code. "Exchange Act" shall mean the Securities Exchange Act of 1934, ------------ as amended. "Facilities" means the offices and buildings and all other ---------- real property which are owned, leased or operated by the Company or any Subsidiary. "Financing Fee" has the meaning set forth in Section 6.12 of ------------- this Agreement. "Fixtures and Equipment" shall mean all of the furniture, ---------------------- fixtures, furnishings, machinery and equipment owned by the Company or any Subsidiary. "GAAP" has the meaning set forth in Section 4.8 of the ---- Agreement. "Government Contracts" shall mean all contracts, options, -------------------- agreements, commitments of sales or purchase orders of the Company with the United States Government or any department or agency thereof, including, any contract, option, agreement, commitment or sales order of the Company with any other party in connection with a contract between a third party and the United States Government or a department or agency thereof. Such term also includes all bids, quotations and proposals, which if accepted, would result in a Government Contract. "Governmental Entity" means any court or tribunal in any ------------------- jurisdiction (domestic or foreign) or any governmental or regulatory body, agency, department, commission, board, bureau, or other authority or instrumentality (domestic or foreign). "Hazardous Materials" means any hazardous substance, gasoline ------------------- or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or asbestos-containing materials, pollutants, contaminants, radioactivity, and any other materials or substances of any kind, whether solid, liquid or gas, and whether or not any such substance is defined as hazardous under any Environmental Law, that is regulated pursuant to any Environmental Law or that could give rise to liability under any Environmental Law. "Indemnified Parties" has the meaning set forth in Section 8.3 ------------------- of this Agreement. "Initial Increase Date" means the date which is one hundred --------------------- (100) days after the Closing Date. "Interim Period" has the meaning set forth in Section 6.2 of -------------- the Agreement. "Investor Nominee" has the meaning set forth in Section 6.9 of ---------------- this Agreement. "IRS" has the meaning set forth in Section 4.13 of the --- Agreement. "Knowledge of the Company" (or similar language to that ------------------------ effect) means to the actual knowledge of the Persons listed on Schedule 1 ---------- hereto. 5 "Losses" has the meaning set forth in Section 8.2 of this Agreement. ------ "Material Adverse Effect" or "Material Adverse Change" shall mean an ----------------------- ----------------------- event, occurrence or condition that has had, or could reasonably be expected to have, a material adverse change or effect on the business, condition (financial or otherwise), assets, liabilities, working capital or results of operations of the Company or its Subsidiaries, taken as a whole. "Mezzanine Preferred Shares" has the meaning specified in the Recitals -------------------------- hereto. "Mezzanine Preferred Stock" has the meaning specified in the Recitals ------------------------- hereto. "Mezzanine Preferred Stock Certificate of Designations" means the ----------------------------------------------------- Certificate of Designations of the Series C Senior Participating Preferred Stock, $.01 par value per share, of the Company, in the form attached hereto as Exhibit B. "Multiemployer Plan" means with respect to the Company and any of its ------------------ Subsidiaries any "multiemployer plan," as defined in Section 4001(a)(3) of ERISA, (A) to which the Company and any of its Subsidiaries or any ERISA Affiliate of the Company and any of its Subsidiaries maintains, administers, contributes or is required to contribute and (B) which covers any employee or former employee of the Company and any of its Subsidiaries or any ERISA Affiliate of the Company and any of its Subsidiaries (with respect to their relationship with such entities). "New Credit Facility" means that certain Credit Agreement to be entered ------------------- into among Aviall Services, Inc., as borrower, Aviall, Inc., and the lenders and issuers party thereto and Citicorp USA, Inc., as administrative agent, attached as Exhibit F. "NOLs" has the meaning set forth in Section 4.14(l) of the Agreement. ---- "Note Purchase Agreement" means that certain Securities Purchase ----------------------- Agreement to be entered into by and among the Company, Aviall Services, Inc., J.H. Whitney Mezzanine Fund, L.P., Whitney Private Debt Fund, L.P. and other purchasers defined therein, attached as Exhibit G. "Option" means outstanding options to purchase Common Stock of the ------ Company or any of its Subsidiaries. "Owned Real Property" means all real property owned by the Company or ------------------- any of its Subsidiaries. "PBGC" means the Pension Benefit Guaranty Corporation. ---- "Pension Plan" means with respect to the Company and any of its ------------ Subsidiaries any "employee pension benefit plan" as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) (A) which the Company and any of its Subsidiaries or any ERISA Affiliate of the Company and any of its Subsidiaries maintains, administers, contributes to or is required to contribute to and (B) which covers any current employee or former employee, director or 6 consultant of the Company and any of its Subsidiaries or any ERISA Affiliate of the Company and any of its Subsidiaries (with respect to their relationship with such entities). "Permanent Preferred Shares" has the meaning specified in the Recitals -------------------------- hereto. "Permanent Preferred Stock" has the meaning specified in the Recitals ------------------------- hereto. "Permanent Preferred Stock Certificate of Designations" means the ----------------------------------------------------- Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions thereof of the Series D Senior Convertible Participating Preferred Stock, $.01 par value per share, of the Company, substantially in the form attached hereto as Exhibit C. "Permits" shall mean all material licenses, permits, orders, consents, ------- approvals, registrations, authorizations, qualifications and filings required by any federal, state, local or foreign laws or governmental or regulatory bodies and all industry or other non-governmental self-regulatory organizations. "Permitted Encumbrances" means (i) any mechanic's or materialmen's lien ---------------------- or similar Encumbrances with respect to amounts not yet due and payable or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established, (ii) Encumbrances for Taxes not yet due and payable or which are being contested in good faith by appropriate proceeding and for which appropriate reserves have been established, or (iii) Encumbrances arising under the Credit Facility, the New Credit Facility, the Canadian Credit Facility and the Australian Credit Facility. "Person" means any individual, corporation, association, partnership, ------ joint venture, limited liability company, trust, estate or other entity or organization. "Pre-Closing Environmental Conditions" means any Environmental ------------------------------------ Condition occurring or in existence on or prior to the Closing Date. "Private Placement Legend" has the meaning set forth in Section 6.11 of ------------------------ the Agreement. "Proceeding" means any action, suit or proceeding by or before any ---------- Governmental Entity, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding, and any investigation that could reasonably be expected to lead to such an action, suit or proceeding. "Proprietary Rights" has the meaning set forth in Section 4.20 of the ------------------ Agreement. "Proxy Materials" means the proxy statement and other proxy materials --------------- (as amended and supplemented) to be used to solicit proxies on behalf of the Board of Directors in connection with the Stockholders Meeting. 7 "Purchaser Indemnified Parties" has the meaning set forth in ----------------------------- Section 8.2 of this Agreement. "Registration Rights Agreement" means the Registration Rights Agreement ----------------------------- by and among the Company and the Purchasers in the form attached hereto as Exhibit E. "Release" means and includes any spilling, leaking, pumping, pouring, ------- emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment or the workplace of any Hazardous Materials. "Required Stockholder Approval" means the affirmative vote of a ----------------------------- majority of the shares of the Common Stock and Bridge Preferred Stock represented in person or by proxy at the Stockholders Meeting in favor of approval of the Stockholder Proposal. "Rights Plan" means the Aviall, Inc. Preferred Stock Purchase Rights ----------- Plan between Aviall, Inc. and The First National Bank of Boston, dated as of December 7, 1993, as amended. "Rollover Fee" means an amount in cash equal to 5.00% of the aggregate ------------ Liquidation Preference (as defined in the Bridge Preferred Stock Certificate of Designations) of the outstanding Bridge Preferred Stock on the date the Rollover Fee is paid pursuant to Section 6.12. "Rolls Royce T-56 Engine Parts Contract" means the Distribution -------------------------------------- Services Agreement to be entered into by and between Aviall Services, Inc. and Rolls-Royce Corporation, in the form of Exhibit D. "Schedule" has the meaning set forth in Section 9.8 of the Agreement. -------- "SEC Filings" has the meaning set forth in Section 4.8 of the ----------- Agreement. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Series A Junior Participating Preferred Stock" means the Series A --------------------------------------------- Junior Participating Preferred Stock, $.01 par value per share, of the Company. "Standstill Agreement" means the Standstill Agreement by and among the -------------------- Company and the Purchasers in the form attached hereto as Exhibit H. "Stockholders Meeting" has the meaning set forth in Section 6.1 of the -------------------- Agreement. "Stockholder Proposal" has the meaning set forth in Section 6.1 of the -------------------- Agreement. "Subsidiary" means, with respect to any Person, (a) any corporation of ---------- which at least a majority in interest of the outstanding voting stock (having by the terms thereof voting 8 power under ordinary circumstances to elect a majority of the directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned or controlled by such Person, by one or more Subsidiaries of such Person, or by such Person and one or more of its Subsidiaries, or (b) any corporate or non-corporate entity in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has an ownership interest and 100% of the revenue of which is included in the consolidated financial reports of such Person consistent with generally accepted accounting principles. "Tax" or "Taxes" means any federal, state, local or foreign net or --- ----- gross income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax, governmental fee or like assessment or charge of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not, imposed by any Governmental Authority or arising under any Tax law or agreement, including, without limitation, any joint venture or partnership agreement. "Taxpayer" has the meaning set forth in Section 4.14 of this Agreement. -------- "Tax Return" means any return, report, information return or other ---------- document (including any related or supporting information) relating to Taxes, including without limitation all information returns, any claims for refunds of Taxes and any amendments or supplements to any of the foregoing. "Third Party Notice" has the meaning set forth in Section 8.6 of this ------------------ Agreement. "Transaction" means, taken together, the transactions contemplated ----------- under this Agreement. "Welfare Plan" means with respect to the Company and any of its ------------ Subsidiaries any "employee welfare benefit plan" as defined in Section 3(1) of ERISA, (A) which the Company and any of its Subsidiaries or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, and (B) which covers any employee or former employee of the Company and any of its Subsidiaries (with respect to their relationship with such entities). ARTICLE II. PURCHASE AND SALE OF SECURITIES ------------------------------- 2.1 Purchase and Sale of Securities. Upon the terms and subject to the ------------------------------- conditions contained herein, on the Closing Date, the Company will sell to each Purchaser, and each Purchaser will purchase from the Company, that number of the Bridge Preferred Shares set forth opposite such Purchaser's name on Schedule 2 ---------- hereto. 9 2.2 Consideration for Securities. Upon the terms and subject to the ---------------------------- conditions contained herein, as consideration for the purchase of the Bridge Preferred Shares, on the Closing Date, each Purchaser shall pay to the Company by wire transfer of same day funds, the cash purchase price set forth opposite such Purchaser's name on Schedule 2 hereto. ---------- ARTICLE III. CLOSING ------- 3.1 Closing. The closing of the transactions contemplated herein (the ------- "Closing") shall be held at 10:00 a.m. Eastern Time on the Closing Date at the offices of Weil, Gotshal & Manges, 767 Fifth Avenue, New York, N.Y. 10153, unless the parties hereto otherwise agree. 3.2 Deliveries by the Company at Closing. At Closing, the Company shall ------------------------------------ issue and deliver to the Purchasers: (a) certificates evidencing the Bridge Preferred Shares in the name of the Purchasers (or their permitted assignees) in the respective amounts set forth on Schedule 2 hereto; and ---------- (b) all such other documents and instruments as the Purchasers or their counsel shall reasonably request to consummate or evidence the Transaction. 3.3 Deliveries by the Purchasers at Closing. At Closing, the Purchasers --------------------------------------- shall deliver to the Company: (a) same day funds as provided in Section 2.2; (b) all such other documents and instruments as the Company or its counsel shall reasonably request to consummate or evidence the Transaction. 3.4 Certificates; Opinions. At Closing, the Purchasers and the Company ---------------------- shall deliver the certificates, opinion of counsel, and other documents described in Article 7. 3.5 Registration Rights Agreement. At Closing, the Company and the ----------------------------- Purchasers shall enter into the Registration Rights Agreement. 3.6 Standstill Agreement. At Closing, the Company and the Purchasers -------------------- shall enter into the Standstill Agreement. 3.7 Management Agreements. At Closing, the Company and the Purchasers --------------------- shall enter into the agreements attached as Exhibit J hereto. 3.8 Form of Documents and Instruments. All of the documents and --------------------------------- instruments delivered at Closing shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to the parties' respective counsel. 10 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- The Company represents and warrants to the Purchasers as follows: 4.1 Organization of the Company. The Company is a corporation duly --------------------------- incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as presently being conducted. No actions or proceedings to dissolve the Company are pending or, to the Knowledge of the Company, threatened. The copies of the Certificate of Incorporation and Bylaws heretofore delivered by the Company to the Purchasers are accurate and complete as of the date of this Agreement. The Company is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the property owned, leased, or operated by it or the conduct of its business requires such qualification or licensing, except where the failure to do so taken in the aggregate would not have a Material Adverse Effect. 4.2 Capitalization of the Company. ----------------------------- (a) The authorized capital stock of the Company as of the date hereof, consists solely of 80,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, of which 800,000 shares of preferred stock have been designated Series A Junior Participating Preferred Stock. As of November 30, 2001, (i) 18,495,990 shares of Common Stock are issued and outstanding and (ii) 2,912,434 shares of Common Stock are reserved for issuance upon exercise of Options (whether vested or unvested as of the date hereof). Since November 30, 2001, the Company has not issued any capital stock except pursuant to the exercise of Options other than pursuant to this Agreement. Schedule 4.2 contains ------------ the aggregate number of outstanding Options to purchase shares of Common Stock, the weighted average exercise price with respect to such Options and the plan or other arrangements pursuant to which such options were issued. All outstanding shares of Common Stock have been validly issued and are fully paid and nonassessable and issued in compliance with the Securities Act and all applicable state securities laws, and no shares of capital stock of the Company are subject to, nor have any been issued in violation of, any preemptive or similar rights. (b) Except as set forth above in paragraph (a) of this Section 4.2, as contemplated by this Agreement and as set forth on Schedule 4.2 hereof, there ------------ are outstanding (i) no shares of capital stock or other voting securities of the Company; (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or other voting securities of the Company; (iii) no subscriptions, options, warrants, calls, commitments, preemptive rights or other rights of any kind to acquire from the Company, and no obligation of the Company to issue or sell, any shares of capital stock or other voting securities of the Company or any securities of the Company convertible into or exchangeable for such capital stock or voting securities; and (iv) other than employee compensation plans based on the Company's earnings and executive officer employment agreements, no equity equivalents, interests in the ownership or earnings or other similar rights of or with respect to the Company. Except as set forth on Schedule 4.2 and as set forth in this Agreement, there are no outstanding contractual obligations 11 of the Company to repurchase, redeem or otherwise acquire any shares of Common Stock or any other securities of the type described in clauses (i)-(iv) of the preceding sentence. Except as provided in this Agreement, there are no restrictions upon the voting or transfer of any share of the capital stock or other voting securities of the Company pursuant to the Certificate of Incorporation, the Bylaws or other governing documents or any agreement or other instrument to which the Company is a party or by which the Company is bound other than restricted stock held by certain employees. Consummation of the transactions contemplated by this Agreement will not result in the acceleration of vesting of more than 326,500 Options in the aggregate. (c) The Company has amended the Rights Plan and taken such other action so as to ensure that the Purchasers shall not become Acquiring Persons (as defined in the Rights Plan) as a result of the execution and delivery of this Agreement or the acquisition of beneficial or record ownership of the Bridge Preferred Shares or the Conversion Shares. The Company has provided to the Purchasers a true and correct copy of the Rights Plan, as amended to date. (d) The Company has taken any and all action necessary to amend the Rights Plan and the Rights Plan has been amended in accordance with Exhibit I hereto. 4.3 Authorization of Issuance. At the Closing, (i) the Bridge Preferred ------------------------- Shares to be acquired by the Purchasers from the Company will be duly authorized and validly issued, fully paid and nonassessable and not subject to, or issued in violation of, any preemptive or similar rights and (ii) the Conversion Shares will be duly authorized and reserved for issuance, and upon issuance thereof upon conversion of the Bridge Preferred Shares and the Permanent Preferred Shares in accordance with the terms of the Bridge Preferred Stock Certificate of Designations and the Permanent Preferred Stock Certificate of Designations, as applicable, will be validly issued, fully paid and nonassessable and not subject to, or issued in violation of, any preemptive or similar rights. Assuming the accuracy of the representations and warranties of the Purchasers set forth in Section 5.5 hereof, the issuance of the Bridge Preferred Shares to the Purchasers at the Closing and the issuance of the Conversion Shares upon conversion of the Bridge Preferred Shares and Permanent Preferred Shares will be exempt from the registration requirements of the Securities Act and applicable state securities laws. 4.4 Due Authorization. The Company has all required corporate power and ----------------- authority to execute and deliver this Agreement and the Registration Rights Agreement, perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Company of this Agreement and the Registration Rights Agreement, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action of the Company. This Agreement has been duly executed and delivered by the Company and constitutes, and the Registration Rights Agreement when executed by the Company at the closing as provided herein will constitute, a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws relating to or affecting creditors' rights generally, (ii) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), and (iii) laws and judicial decisions regarding indemnification for violations of federal securities laws. The Required 12 Stockholders Vote is the only vote or approval of the holders of any class or series of the capital stock of the Company necessary to approve the issuance of the Permanent Preferred Shares to the Purchasers. 4.5 No Conflict. The execution and delivery by the Company of this ----------- Agreement and the Registration Rights Agreement and the performance by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or the Bylaws, or the charter, bylaws, or other governing instruments of any Subsidiary, (ii) except as set forth on Schedule 4.5, ------------ conflict with or result in a material violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default or event of default under, give rise (with or without the giving of notice or the passage of time or both) to any loss of material benefit, or of any right of termination, cancellation, or acceleration under, or require any consent under any Contract, (iii) result in the creation or imposition of any material Encumbrance upon the properties of the Company or any Subsidiary, or (iv) violate in any material respect any Applicable Law binding upon the Company or any Subsidiary or any rules, regulations or published policies of the New York Stock Exchange. 4.6 Consents and Approvals. No material consent, approval, order, ---------------------- authorization of, or declaration, filing, or registration with, any Governmental Entity, or any consent of or notice to any party to a Contract is required to be obtained or made by the Company or any Subsidiary in connection with the execution and delivery by the Company of this Agreement and the Registration Rights Agreement or the consummation of the Transaction, other than as otherwise disclosed on Schedule 4.6. ------------ 4.7 Subsidiaries. ------------ (a) Set forth on Schedule 4.7 is a complete and accurate list of all ------------ Subsidiaries of the Company. Each Subsidiary of the Company has been duly formed and is validly existing under the laws of the jurisdiction of its formation and has the requisite power and authority to own or lease and operate its properties and assets and to conduct its business as it is now being conducted. The Company has previously made available to the Purchasers, or shall make available to the Purchasers prior to the Closing Date in a form reasonably acceptable to the Purchasers, copies of the organizational documents, each as amended to date, of each Subsidiary of the Company. Such copies are true, correct and complete and in full force and effect. Each such Subsidiary is duly licensed or qualified and in good standing in each jurisdiction in which its ownership or leasing and operation of its properties and assets and the conduct of its business as it is now being conducted requires such Subsidiary to be so licensed or qualified, except where the failure to be so licensed or qualified would not have a Material Adverse Effect. Set forth on Schedule 4.7 is a list of the jurisdiction ------------ of incorporation, organization or formation of each such Subsidiary. Except as set forth on Schedule 4.7 and as listed above, none of the Company and the ------------ Subsidiaries of the Company own, or have the right to acquire, any shares of stock or any equity interest in any other corporation, partnership, joint venture or any other Person. 13 (b) The outstanding shares of capital stock of each Subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable and were not issued in violation of any preemptive rights or rights of first refusal or first offer. Except as set forth on Schedule 4.7, (i) ------------ each Subsidiary of the Company is wholly-owned of record and beneficially by the Company or another wholly-owned Subsidiary and (ii) the ownership interests of the Company in each such Subsidiary are owned of record and beneficially by the Company (or another wholly-owned Subsidiary of the Company), free and clear of any Encumbrances other than Permitted Encumbrances. Set forth on Schedule 4.7 is ------------ the name of the record and, to the Knowledge of the Company, the beneficial holder of each ownership interest in any Subsidiary that is not held of record and beneficially by the Company or its wholly-owned Subsidiaries. Except as set forth on Schedule 4.7, there are (i) no securities of any Subsidiary of the ------------ Company convertible into or exchangeable for shares of capital stock or other voting securities of any Subsidiary of the Company or the Company; (ii) no subscriptions, options, warrants, calls, commitments, preemptive rights or other rights of any kind to acquire from any Subsidiary of the Company, and no obligation of any Subsidiary of the Company to issue or sell, any shares of capital stock or other voting securities of any Subsidiary of the Company or the Company or any securities of any Subsidiary of the Company convertible into or exchangeable for such capital stock or voting securities; (iii) other than employee compensation plans based on the Company's earnings and executive officer employment arrangements, no equity equivalents, interests in the ownership or earnings or other similar rights of with respect to any Subsidiary of the Company. There are no outstanding contractual obligations of any Subsidiary of the Company to repurchase, redeem or otherwise acquire any shares of capital stock or any other securities of the type describe in clauses (i) - (iii) of the preceding sentence. 4.8 SEC Filings; Interim Financial Statements. The Company and its ----------------------------------------- Subsidiaries have filed with the Commission all forms, reports, schedules, statements, and other documents required to be filed by it under the Securities Act, the Exchange Act, and all other federal securities laws and the rules and regulations promulgated thereunder, since January 1, 1997 (the "SEC Filings"). ----------- Each SEC Filing was prepared in accordance with, and at the time of filing complied in all material respects with, the requirements of the Securities Act, the Exchange Act or other applicable federal securities law and the rules and regulations promulgated thereunder, as applicable to such SEC Filing. None of the SEC Filings, including, without limitation, any financial statements or schedules included therein, at the time filed, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they were made, and at the time they were made, not misleading. The consolidated financial statements (including, in each case, any related notes thereto) contained in the SEC Filings (i) have been prepared in conformity with United States generally accepted accounting principles ("GAAP") applied on a consistent basis (except as described therein), (ii) ---- comply in all material respects as to form with applicable requirements and rules and regulations of the SEC with respect thereto and (iii) and present fairly the consolidated financial position of the Company and its consolidated Subsidiaries at the respective dates thereof and the consolidated results of its operations and changes in cash flows for the period indicated (subject to normal year-end audit adjustments in the case of any unaudited interim financial statements). Set forth on Schedule 4.8 hereof are the unaudited consolidated ------------ balance sheet and the related unaudited consolidated statement of income of the Company and its Subsidiaries as of, and for the nine 14 month period ended, September 30, 2001, each of which (i) has been prepared in conformity with GAAP applied on a consistent basis, and (ii) presents fairly, in all material respects, the consolidated financial position and results of operation of the Company and its consolidated Subsidiaries as of the date and for the period indicated (subject to normal year-end audit adjustments). The As-Adjusted Balance Sheet delivered to the Purchasers fairly presents in all material respects the assets and liabilities of the Company and its Subsidiaries taken as a whole on a consolidated basis as of November 30, 2001, and on an as adjusted basis after taking into account the consummation of the transactions contemplated by this Agreement, the New Credit Facility and the Note Purchase Agreement based on the assumptions set forth therein. The historical information included in the As-Adjusted Balance Sheet has been prepared in accordance with GAAP, consistently applied. 4.9 Absence of Undisclosed Liabilities. Except as set forth on ---------------------------------- Schedule 4.9, any liabilities incurred pursuant to the New Credit Agreement, the - ------------ Note Purchase Agreement, or this Agreement, or to the extent disclosed in the SEC Filings filed with the Commission after December 31, 2000, and prior to the date hereof, neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature (whether absolute, contingent, liquidated or unliquidated, or due or to become due), except for obligations and liabilities that have arisen in the ordinary course of business consistent with past practice since September 30, 2001 (all of which are current liabilities similar in type to those reflected on the consolidated balance sheet of the Company included in the Company's most recent quarterly report filed with the Commission on Form 10-Q). 4.10 Absence of Certain Changes. Except as set forth on Schedule 4.10 or -------------------------- ------------- to the extent disclosed in the SEC Filings filed since December 31, 2000, since December 31, 2000, there has not occurred (i) any Material Adverse Change, (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's currently outstanding capital stock, (iii) any split, combination or reclassification of any of its outstanding capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of the Company's outstanding capital stock, (iv) (x) any granting by the Company or any of its Subsidiaries to any director or executive officer of the Company or any of its Subsidiaries of any material increase in compensation or material acceleration of benefits, except in the ordinary course of business consistent with prior practice or as was required under employment agreements in effect as of the date of the most recent audited financial statements included in the SEC Filings, (y) granting by the Company or any of its Subsidiaries to any director, executive officer of the Company or any of its Subsidiaries of any material increase in, or material acceleration of benefits in respect of, severance or termination pay, or pay in connection with a change of control of the Company, except in the ordinary course of business consistent with prior past practice or as was required under any employment, severance or termination agreements in effect as of the date of the most recent audited financial statements included in the SEC Filings or (z) any entry by the Company or any of its Subsidiaries into any employment, severance, change of control, or termination or similar agreement with any director, executive officer or other employee or independent contractor other than in the ordinary course of business, or (v) any change in accounting methods, principles or practices by the Company or any of its 15 Subsidiaries materially affecting its assets, liability or business, except insofar as may have been required by GAAP. 4.11 Compliance With Laws. Except for matters covered by Sections 4.13, -------------------- 4.14, 4.15 or 4.21 or as set forth on Schedule 4.11, (i) the Company and its ------------- Subsidiaries are, and at all times during the past three (3) years have been, in material compliance with all Applicable Laws; (ii) each of the Company and its Subsidiaries has obtained and holds all Permits necessary for the lawful conduct of its business or the lawful ownership, use and operation of its assets; (iii) neither the Company nor any of its Subsidiaries has received any written notice of any material violation of any Applicable Law, which has not been dismissed or otherwise disposed of, that the Company or any Subsidiary has not so materially complied other than with respect to violations of Applicable Law; (iv) neither the Company nor any of its Subsidiaries is charged or, to the Knowledge of the Company, threatened with, or, to the Knowledge of the Company, under investigation with respect to, any material violation of any Applicable Law relating to any material aspect of the business of the Company or any Subsidiary; and (v) neither the Company nor any of its Subsidiaries has, during the past three (3) years, conducted any material internal investigation concerning any actual or alleged material violation of any Applicable Law on the part of the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents. 4.12 Litigation. Except as set forth on Schedule 4.12, there are no ---------- Proceedings pending or, to the Knowledge of the Company, threatened against or involving the Company or any Subsidiary (or any of their respective directors or officers in connection with the business or affairs of the Company or any Subsidiary). As of the date hereof, there are no Proceedings pending or, to the Knowledge of the Company, threatened seeking to restrain, prohibit, or obtain damages or other relief in connection with this Agreement, the Registration Rights Agreement or the transactions contemplated hereby or thereby. 4.13 Employee Benefit Plans and Other Agreements. ------------------------------------------- (a) Disclosure; Delivery of Copies of Relevant Documents and Other -------------------------------------------------------------- Information. Schedule 4.13 contains a complete list of (i) Employee Plans which - ----------- ------------- cover present or former employees, directors or consultants of the Company or any of its Subsidiaries (with respect to their relationship with such entities); (ii) Employee Plans which cover or have covered present or former employees, directors or consultants of the Company or any of its Subsidiaries (with respect to their relationship with such entities) with respect to which any unsatisfied liability exists; and (iii) Pension Plans covered by Title IV of ERISA or Multiemployer Plans which cover or have covered within the past five (5) years present or former employees, directors or consultants of the Company or any of its Subsidiaries (with respect to their relationship with such entities). (b) Employee Plans. Except as set forth in Schedule 4.13, the -------------- ------------- Company represents and warrants with respect to the Employee Plans listed on Schedule 4.13 as follows: - ------------- (i) Pension Plans. 16 (A) To the Knowledge of the Company in reliance on its enrolled actuary, the funding method used in connection with each Pension Plan which is subject to the minimum funding requirements of ERISA is acceptable and the actuarial assumptions used in connection with funding each such plan are reasonable. No "accumulated funding deficiency" (for which an excise tax is due or would be due in the absence of a waiver) as defined in Section 412 of the Code or as defined in Section 302(a)(2) of ERISA, whichever may apply, has been incurred with respect to any Pension Plan with respect to any plan year, whether or not waived. Neither the Company nor any ERISA Affiliate has failed to pay when due any "required installment", within the meaning of Section 412(m) of the Code and Section 302(e) of ERISA, whichever may apply, with respect to any Pension Plan. Neither the Company nor any ERISA Affiliate is subject to any lien imposed under Section 412(n) of the Code or Section 302(f) of ERISA, whichever may apply, with respect to any Pension Plan. Neither the Company nor any ERISA Affiliate has any liability for unpaid contributions with respect to any Pension Plan. (B) Neither the Company nor any ERISA Affiliate is required to provide security to any Company Pension Plan under Section 401(a)(29) of the Code. (C) Each Pension Plan and each related trust agreement, annuity contract, or other funding instrument that is intended to be qualified is qualified and tax-exempt under the provisions of Code Sections 401(a) (or 403(a), as appropriate) and 501(a) and has been determined by the Internal Revenue Service (the "IRS") to be so qualified from its adoption date. --- (D) Each Company Pension Plan and each related trust agreement, annuity contract or other funding instrument presently complies and has been maintained in compliance, in all material respects, with its terms and, both as to form and in operation, with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such plans, including without limitation ERISA and the Code, except where such noncompliance has been corrected in accordance with the IRS Employee Plans Compliance Resolution System, or is not reasonably likely to have a Material Adverse Effect. (E) The Company has paid all premiums (and interest charges and penalties for late payment, if applicable) due the PBGC with respect to each Pension Plan for each plan year thereof for which such premiums are required. Neither the Company nor any ERISA Affiliate has engaged in, or is a successor or parent corporation to an entity that has engaged in, a transaction described in Section 4069 of ERISA. There has been no "reportable event" (as defined in Section 4043(b) of ERISA and the PBGC regulations under such Section) with respect to any Pension Plan for which the Company or any ERISA Affiliate has any unsatisfied liability. No filing has been made by the Company or any ERISA 17 Affiliate with the PBGC, and no proceeding has been commenced by the PBGC, to terminate any Pension Plan. To the Knowledge of the Company, no condition exists and no event has occurred that could constitute grounds for the termination of any Pension Plan by the PBGC. Neither the Company nor any ERISA Affiliate has any unsatisfied liability because the Company or any ERISA Affiliate, at any time, (1) ceased operations at a facility so as to become subject to the provisions of Section 4062(e) of ERISA, (2) withdrawn as a substantial employer so as to become subject to the provisions of Section 4063 of ERISA, or (3) ceased making contributions on or before the Closing Date to any Pension Plan subject to Section 4064(a) of ERISA to which the Company or any ERISA Affiliate made contributions during the six years prior to the Closing Date. (ii) Multiemployer Plans. (A) Neither the Company nor any ERISA Affiliate has, at any time within the last 72 months, maintained, contributed to or been obligated to maintain or contribute to, or withdrawn from, a Multiemployer Plan. (iii) Welfare Plans. (A) Each Welfare Plan presently complies and has been maintained in compliance, in all material respects, with its terms and, both as to form and operation, with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such Welfare Plan, including without limitation ERISA and the Code. (B) Except as disclosed on Schedule 4.13, none of the Company, ------------- any ERISA Affiliate or any Welfare Plan has any present or future obligation to make any payment to, or with respect to any present or former employee of the Company or any ERISA Affiliate pursuant to, any retiree medical benefit plan, or other retiree Welfare Plan, and no condition exists which would prevent the Company from amending or terminating any such benefit plan or Welfare Plan. (iv) Benefit Arrangements. Each Benefit Arrangement has been -------------------- maintained in compliance, in all material respects, with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such Benefit Arrangement, including without limitation, the Code. Except as set forth in Schedule 4.13 and except as provided by law, the employment of all persons presently employed or retained by the Company is terminable at will. (v) Unrelated Business Taxable Income. No Employee Plan (or trust --------------------------------- or other funding vehicle pursuant thereto) is subject to any tax under Code Section 511. (vi) Deductibility of Payments. Except as disclosed in ------------------------- Schedule 4.13, there is no contract, agreement, plan or arrangement covering any - ------------- present or former employee, director or consultant of the Company or any of its Subsidiaries (with respect to his or her 18 relationship with such entities) that, individually or collectively, provides for the payment by the Company of any amount (i) that is not deductible under Section 162(a)(1) or 404 of the Code or (ii) that is an "excess parachute payment" pursuant to Section 280G of the Code. (vii) Fiduciary Duties and Prohibited Transactions. Neither the -------------------------------------------- Company, or to the Knowledge of the Company, any plan fiduciary of any Welfare Plan or Pension Plan, has engaged in any transaction in violation of Sections 404 or 406 of ERISA or any "prohibited transaction," as defined in Section 4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of Part 4 of Title I, Subtitle B of ERISA. The Company has not Knowingly participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of any Welfare Plan or Pension Plan and has not been assessed any civil penalty under Section 502(l) of ERISA. (viii) Validity and Enforceability. Each Employee Welfare Plan --------------------------- related trust agreement, annuity contract or other funding instrument is legally valid and binding and in full force and effect. (ix) Litigation. To the Knowledge of the Company, there is no ---------- action, order, writ, injunction, judgment or decree outstanding or claim, suit, litigation, proceeding, arbitral action, governmental audit or investigation relating to or seeking benefits under any Employee Plan that is pending, threatened or anticipated against the Company, any ERISA Affiliate or any Employee Plan other than routine claims for benefits. (x) No Amendments. Except as disclosed in Schedule 4.13, ------------- ------------- neither the Company nor any ERISA Affiliate has any announced plan or legally binding commitment to create any additional Employee Plans which are intended to cover present or former employees, directors or consultants of the Company or any of its Subsidiaries (with respect to their relationship with such entities) or to amend or modify any existing Employee Plan. (xi) No Other Material Liability. To the Knowledge of the --------------------------- Company, no event has occurred in connection with which the Company or any ERISA Affiliate or any Employee Plan, directly or indirectly, could be subject to any material liability (A) under any statute, regulation or governmental order relating to any Employee Plan or (B) pursuant to any obligation of the Company to indemnify any Person against liability incurred under any such statute, regulation or order as they relate to the Employee Plans. (xii) Unpaid Contributions. Neither the Company nor any ERISA -------------------- Affiliate has any liability for unpaid contributions under Section 515 of ERISA with respect to any Multiemployer Plan. (xiii) Insurance Contracts. Neither the Company nor any Employee ------------------- Plan (other than a Multiemployer Plan) holds as an asset of any Employee Plan any interest in any annuity contract, guaranteed investment contract or any other investment or insurance contract issued by an insurance company that is the subject of bankruptcy, conservatorship or rehabilitation proceedings. 19 (xiv) No Acceleration or Creation of Rights. Except as ------------------------------------- disclosed on Schedule 4.13, neither the execution and delivery of this Agreement ------------- by the Company nor the consummation of the transactions contemplated hereby will result in the acceleration or creation of any rights of any person to benefits under any Employee Plan (including, without limitation, the acceleration of the vesting or exercisability of any stock options, the acceleration of the vesting of any restricted stock, the acceleration of the accrual or vesting of any benefits under any Pension Plan or the acceleration or creation of any rights under any severance, parachute or change in control agreement). 4.14 Taxes. ----- (a) The Company and each of its Subsidiaries (hereinafter sometimes referred to collectively as the "Taxpayers" or individually as a --------- "Taxpayer") have timely filed with the appropriate Tax authorities all Tax -------- Returns required to be filed by each of them, and such Tax Returns are true, complete, and correct in all material respects. (b) The Taxpayers have duly paid in full all Taxes that are payable by each such Taxpayer on or prior to the Closing Date, or have accrued such Taxes in the Taxpayers' financial records and in the financial statements contained in the SEC Filings. (c) There is no audit or other matter in controversy with respect to any Taxes due and owing by any Taxpayer, and there is no Tax deficiency or claim assessed or, to the Knowledge of any Taxpayer, proposed or threatened in writing against any Taxpayer, other than in respect of any such audits, controversies, deficiencies, assessments, or proposed assessments that are being contested in good faith. (d) The Taxpayers each have withheld all material Taxes required to have been withheld and paid by them on their behalf in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party, and such withheld Taxes have either been duly paid to the proper Governmental Authority or set aside in accounts for such purpose. (e) None of the Taxpayers (i) has waived any statutory period of limitations for the assessment of any Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency other than in the case of any such waivers or extensions in respect of an assessment or deficiency of Tax the liability of which has been satisfied or settled or has expired, (ii) has filed a consent under Internal Revenue Code Section 341(f) concerning collapsible corporations, or (iii) except as set forth in Schedule 4.14, has any liability ------------- for the Taxes of any other person as defined in Section 7701(a)(1) of the Internal Revenue Code under Treasury Regulation (S) 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee, successor or by contract other than with respect to the other Taxpayers. (f) No claim has been made in any taxable year which remains open by an authority in a jurisdiction where a Taxpayer does not file Tax Returns that such Taxpayer is or may be subject to taxation by that jurisdiction. 20 (g) None of the Taxpayers has agreed to or is required to make any adjustment pursuant to Internal Revenue Code Section 481(a) by reason of a change in accounting method initiated by such Taxpayer and none of the Taxpayers have Knowledge that the IRS has proposed any such adjustment or change in accounting method. (h) Except as set forth in Schedule 4.14, none of the Taxpayers has ------------- any obligation under any Tax allocation or sharing agreement, and after the Closing Date, no Taxpayer shall be a party to, bound by or have any obligation under any Tax allocation or sharing agreement or have any liability thereunder for amounts due in respect of periods prior to and including the Closing Date. (i) None of the Taxpayers (i) has made any payments, (ii) is obligated to make any payments (whether as a result of the transactions contemplated hereby or otherwise), and (iii) except as set forth on Schedule 4.14, is a party ------------- to any agreement as of the Closing Date that could obligate it to make any payments, in each case, that will not be deductible under Internal Revenue Code Section 280G. (j) Since January 1, 1995, none of the Taxpayers has been a United States real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(2) during the applicable period specified in Internal Revenue Code Section 897(c)(1)(A)(ii). (k) To the Knowledge of the Taxpayers based on written confirmation from Ryder Systems, Inc., the statute of limitations on the assessment of federal income Taxes for the taxable year of Ryder System, Inc., ending December 31, 1993, has expired. (l) As of December 31, 2000, for federal income tax purposes, the Company had net operating loss carryforwards ("NOLs") arising in the taxable ---- years, and for each such taxable year, in the amounts disclosed on Schedule 4.14 ------------- hereto. (m) There has been no ownership change (within the meaning of Section 382(g)(1) of the Code) of the Company from the time any of the NOLs set forth on Schedule 4.14 have arisen, and as of the date hereof, the percentage of stock of the Company owned by one or more 5-percent shareholders has increased by no more than ten and one-half percentage points over the lowest percentage of stock owned by such shareholders at any time during the three-year period immediately prior to the date hereof. The foregoing determination of the extent of the ownership change of the Company has been made in accordance with Section 382 of the Code, the regulations thereunder, and the law applicable thereto. (n) The NOLs of the Taxpayers are not separate return limitation year ("SRLY") losses within the meaning of Code section 1502 and the Treasury Regulations promulgated thereunder. (o) The Purchasers and the accounting firm representing the Purchasers have been made aware by the Company of all transfers and issuances of the Company's shares which have occurred during the three-year testing period ending on the date hereof of which the Company has knowledge and that (i) involved more than 5% of the Company's outstanding 21 shares or (ii) were issued to, or acquired by, an owner of more than 5% of the Company's outstanding shares. 4.15 Environmental Matters. --------------------- (a) For purposes of this Section, the term "Company" shall include ------- the Company and the Business. (b) Except as disclosed in Schedule 4.15 and to the extent disclosed ----------------------------------------- in the SEC Filings, the Company and its Subsidiaries: (i) are in material - ------------------ compliance with all applicable Environmental Laws; (ii) hold all material Environmental Permits (each of which is in full force and effect) required for any of their current operations or for any property owned, leased or otherwise operated by any of them; (iii) are in material compliance with all of their Environmental Permits; and (iv) reasonably believe that each of their Environmental Permits will be renewed effective prior to the expiration of such Environmental Permit currently in effect. (c) Except as set forth on Schedule 4.15 and to the extent disclosed ----------------------------------------- in the SEC Filings, the Company and its Subsidiaries have not received any - ------------------ written notice of alleged, actual or potential responsibility for, or any inquiry or investigation regarding, any material Environmental Condition. Except as set forth on Schedule 4.15 and to the extent disclosed in the SEC Filings, ------------------------------------------------------------ the Company has not received any notice of any other claim, demand or action by any individual or entity alleging any actual or threatened material injury or damage to any Person, property, natural resource or the environment arising from or relating to any Release or threatened Release at, on, under, in, to or from any Facility or any former Facilities, or in connection with any operations or activities of the Company or any of its Subsidiaries. (d) Except as disclosed in Schedule 4.15 or with respect to such ------------- matters as have been fully and finally resolved and as to which there are no remaining material obligations known by the Company or its Subsidiaries, neither the Company nor any of its Subsidiaries has entered into or agreed to any consent decree, order, or settlement or other agreement, nor is subject to any judgment, decree, or order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law which would result in a Material Adverse Effect. (e) Except as disclosed in Schedule 4.15 and to the extent disclosed ----------------------------------------- in the SEC Filings, Hazardous Materials have not been transported, disposed of - ------------------- or otherwise Released, to or at any real property presently owned or leased by the Company or any of its Subsidiaries, or, to the Knowledge of the Company, any other location, which Hazardous Materials are reasonably expected to (i) give rise to any material liability of the Company or any Subsidiary under any applicable Environmental Law, or (ii) interfere in any material respect with the Company's or any Subsidiary's continued operations, or (iii) impair, in any material respect, the fair saleable value of any real property owned or leased by the Company or any Subsidiary. (f) Except as disclosed in Schedule 4.15, neither the Company nor any ------------- of its Subsidiaries has assumed or retained, by contract or operation of law in connection with the sale or transfer of any assets or business, any material liabilities arising from or associated with or 22 otherwise in connection with such assets or business of any kind, fixed or contingent, known or not known, under any applicable Environmental Law. (g) True, complete and correct copies of all material written reports, and all parts thereof, of all material environmental audits or assessments which have been conducted in respect of any Facility or any former Facility within the past five years, either by the Company or any attorney, environmental consultant or engineer engaged for such purpose by the Company, have been made available to the Purchasers. 4.16 Insurance. Schedule 4.16 sets forth a list of the insurance policies --------- ------------- held by, or for the benefit of, the Company and its Subsidiaries as of the date hereof. Each of the Company and its Subsidiaries carry insurance with reputable insurers (except as to self-insurance) with respect to each of their respective properties and business, in such amounts and against such risks as is customarily maintained by other entities of similar size engaged in similar businesses (which may include self-insurance in amounts customarily maintained by companies similarly situated or has been maintained in the past by the Company and its Subsidiaries). Neither the Company nor any of its Subsidiaries has received any notice of cancellation or non-renewal of any insurance policies or binders set forth on Schedule 4.16. ------------- 4.17 Title to Assets, Etc. Except for Permitted Encumbrances and except as -------------------- set forth on Schedule 4.17, the Company and its Subsidiaries have good and ------------- marketable title to, or valid and subsisting leasehold interests in, all tangible assets and valid ownership or licensing rights to all intangible assets material to their businesses as currently conducted. Except for Permitted Encumbrances and as set forth on Schedule 4.17, none of the material assets is ------------- subject to any Encumbrance, except for Encumbrances which, individually or in the aggregate, are not substantial in amount and do not materially detract from the value of the property or assets of the Company and its Subsidiaries, taken as a whole, or materially interfere with the present use of such property or assets (taken as a whole) and have not arisen other than in the ordinary course of business. The Company and each Subsidiary has in all material respects performed all the obligations required to be performed by it with respect to all material assets leased by it through the date hereof. All such material leases are valid, binding and enforceable with respect to the Company and its Subsidiaries, to the extent each is a party thereto, in accordance with their terms (except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws relating to or affecting creditors' rights generally, and (ii) general equitable principles) and are in full force and effect; no event of default has occurred which constitutes a default thereunder on the part of the Company or any Subsidiary and the Company has no Knowledge of the occurrence of any event of default which constitutes a default thereunder by any other party. 4.18 Condition of Tangible Assets. The Facilities of the Company and its ---------------------------- Subsidiaries and the Fixtures and Equipment taken as a whole are in good operating condition and repair in all material respects (except for ordinary wear and tear) are reasonably sufficient for the operation of the business of the Company and its Subsidiaries as presently conducted. 4.19 Labor Matters. Neither the Company nor any of its Subsidiaries is a ------------- party to any collective bargaining or similar agreement with any labor union, collective bargaining unit or 23 similar organization. Since December 31, 1998, neither the Company nor any of its Subsidiaries has experienced any attempt by organized labor or its representatives to make the Company or such Subsidiary conform to demands of organized labor relating to its employees or to enter into a binding agreement with organized labor that would cover the employees of the Company or any Subsidiary. There is no material unfair labor practice charge or complaint against the Company or any Subsidiary pending before the National Labor Relations Board or any other governmental agency arising out of the activities of the Company or any of its Subsidiaries. There is no labor strike or labor disturbance pending or, to the Company's Knowledge, threatened against the Company or any of its Subsidiaries. To the Knowledge of the Company, there is no material grievance currently being asserted against the Company or its Subsidiaries and neither the Company nor any Subsidiary has experienced since December 31, 1998, the assertion of a material grievance, a work stoppage or other labor difficulty. 4.20 Intellectual Property. --------------------- (a) The Company and its Subsidiaries either own or have valid licenses or other rights to use all patents, copyrights, trademarks, tradenames, software, databases, data, technical information, know-how and other intellectual property used in their businesses as presently conducted ("Proprietary Rights"), subject to the limitations contained in the agreements ------------------ governing the use of the same. There are no limitations contained in the agreements of the type described in the immediately preceding sentence which, upon consummation of the transactions contemplated hereunder, will alter or impair any such rights, breach any such agreement with any third party vendor, or require payments of additional sums thereunder. The Company and its Subsidiaries are in compliance in all material respects with the material licenses and agreements with respect to their Proprietary Rights and, except as set forth on Schedule 4.20, there are no pending or, to the Knowledge of the ------------- Company or any Subsidiary, threatened Proceedings challenging the validity or effectiveness of any license or agreement relating to such property or the right of the Company or any Subsidiary to use, copy, modify or distribute the same. (b) The Proprietary Rights constitute all material intellectual property rights necessary to conduct the business as presently conducted. No Person has a right, other than those set forth on Schedule 4.20 to receive a ------------- royalty or similar payment in respect of any material Proprietary Rights whether or not pursuant to any contractual arrangements entered into by the Company or its Subsidiaries. (c) To the Knowledge of the Company, the use by the Company and its Subsidiaries of the Proprietary Rights does not infringe in any material respect on the intellectual property or other Proprietary Rights of any other Person, and, to the Knowledge of the Company, no other Person is infringing, in any material respects, on the Proprietary Rights. 4.21 Government Contracts. -------------------- (a) Except for the Rolls Royce T-56 Engine Parts Contract, the Company has no material Government Contracts. (b) Except as set forth in Schedule 4.21, (i) each of the Company and ------------- its Subsidiaries is in compliance, and has complied, in all material respects during the past three 24 years with all requirements of any statute, law, rule or regulation pertaining to its Government Contracts; (ii) all representations and certifications made by each of the Company and its Subsidiaries during the past three years with respect to such Government Contracts were accurate in all material respects as of their effective date, and each of the Company and its Subsidiaries has fully complied in all material respects with such representations and certifications, and (iii) as of the date hereof, to the Knowledge of the Company, no termination or default, cure notice or show cause notice has been issued and remains unresolved. (c) Except as set forth in Schedule 4.21, (i) to the Knowledge of the ------------- Company, as of the date of this Agreement, none of the employees, consultants or agents of the Company or any of its Subsidiaries is under any administrative, civil or criminal investigation or indictment by any Governmental Entity with respect to the conduct of the business of each of the Company and its Subsidiaries, (ii) to the Knowledge of the Company, there is no pending material U.S. governmental investigation of the Company or any of its Subsidiaries, or any of their respective officers, employees, consultants or agents, nor has there been any material U.S. governmental investigation of the Company or any of its Subsidiaries, or any of their respective officers, employees, consultants or agents resulting in any material adverse finding with respect to any material alleged irregularity, misstatement or omission arising under or relating to any Government Contract, and (iii) during the last three years, neither the Company nor any of its Subsidiaries has made any voluntary disclosure in writing to any Governmental Entity with respect to any material alleged irregularity, misstatement or omission arising under or relating to any Government Contract. (d) Except as set forth in Schedule 4.21, as of the date of this ------------- Agreement, there are no outstanding written material claims that have been asserted against the Company, or any of its Subsidiaries, by any Governmental Entity or by any prime contractor, subcontractor, vendor or other third party arising under or relating to any Government Contract to which the Company or any of its Subsidiaries is a party. (e) The Company and its Subsidiaries are not subject to the United States Government cost accounting rules. (f) Each of the Company and its Subsidiaries is in material compliance with all national security obligations, including, without limitation, those specified in the National Industrial Security Program Operating Manual, DOD 5220.22-M (January 1995). 4.22 Board Recommendations. The Board of Directors has duly (i) --------------------- approved and adopted (A) this Agreement, including the issuance of the Bridge Preferred Shares and the issuance of the Conversion Shares upon conversion of the Bridge Preferred Shares and the Permanent Preferred Shares, and (B) the Company's entering into the Registration Rights Agreement, and (ii) resolved to recommend to the Company's stockholders approval of the Stockholder Proposal. 4.23 No Brokers. Except for the Advisory Fee and the Rollover Fee and ---------- the fees described on Schedule 4.23 hereof, the Company has not employed, and is ------------- not subject to the valid claim of, any broker, finder, consultant or other intermediary in connection with the 25 transactions contemplated hereby who might be entitled to a fee or commission from the Company in connection with such transactions. 4.24 Contracts; No Defaults. ---------------------- (a) Schedule 4.24(a) contains a complete and accurate list of all ---------------- contracts and arrangements described below in clauses (i) through (xi) below to which the Company or any Subsidiary of the Company is a party ("Contracts"): --------- (i) each contract or arrangement currently in effect involving performance of services or delivery of goods or materials by the Company or any of its Subsidiaries of an amount or value in any fiscal year in excess of $5,000,000; (ii) each note, debenture, other evidence of indebtedness, guarantee, loan, letter of credit, surety bond or financing agreement or instrument or other contract for money borrowed, including any agreement or commitment for future loans, credit or financing entered into by the Company or any of its Subsidiaries evidencing Indebtedness in excess of $500,000, individually or in the aggregate; (iii) each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other contract or arrangement affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real or personal property and involving payments in any fiscal year in excess of $500,000; (iv) each licensing agreement or other agreement with respect to any material Propriety Right; (v) each collective bargaining agreement or other agreement to or with any labor union or other employee representative of a group of employees relating to wages, hours and other conditions of employment; (vi) each joint venture agreement, partnership agreement, or limited liability company agreement or other agreement (however named) involving a sharing of profits, losses, costs or liabilities by the Company or any of its Subsidiaries with any other Person; (vii) each agreement that commits capital expenditures after the date hereof in an amount in excess of $500,000; (viii) each written warranty, guaranty or other similar undertaking with respect to contractual performance of a third person extended by the Company or any of its Subsidiaries other than in the ordinary course of business; (ix) each contract containing covenants which in any way purport to limit the freedom of the Company or any of its Subsidiaries or any Affiliate of the Company or any Subsidiary to engage in any line of business, other than the Business (other than leases that limit the operations or activities of the Company, any of its Subsidiaries or any Affiliate of the Company or any Subsidiary at specific facilities), or to compete with any Person; and 26 (x) each material contract entered into other than in the ordinary course of business that contains or provides for an express undertaking by the Company or any of its Subsidiaries to be responsible for consequential damages. (b) Schedule 4.24(a) sets forth the parties to the Contracts, the name of ---------------- the Contract and the date thereof. True and correct copies of each written Contract have been made available to the Purchasers. (c) Except as set forth on Schedule 4.24(c), each of the Contracts listed ---------------- on Schedule 4.24(a): (i) is in full force and effect, (ii) represents the ---------------- legally, valid and binding obligations of the Company or the Subsidiary of the Company party thereto and is enforceable against the Company or such Subsidiary in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally and general equitable principles), and (iii) to the Knowledge of the Company, represent the legally, valid and binding obligations of the other parties thereto and are enforceable against such parties in accordance with their terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally and general equitable principles). Except as set forth on Schedule 4.24(c), and to the ---------------- Knowledge of the Company, no condition exists or event has occurred which, with notice or lapse of time or both, would constitute a material default or a basis for force majeure or the claim of excusable delay or nonperformance under such Contracts. (d) Except as set forth on Schedule 4.24(d), there are no renegotiations ---------------- of, or, to the Knowledge of the Company, threats to renegotiate any material amounts paid or payable to the Company or any of its Subsidiaries under the Contracts, with any Person having the contractual or statutory right to demand or require such renegotiation. To the Knowledge of the Company, neither the Company nor any of its Subsidiaries has received any written demand for such renegotiation in respect of any such Contract. Except as set forth on Schedule -------- 4.24(d), no customer has delivered written notice to the Company asserting that - ------- any material adjustments are required to the terms of any Contracts. (e) Except as specifically noted on Schedule 4.6, no notice, consent or ------------ approval of any party to any Contract is required in connection with the transactions contemplated hereby. (f) Except as set forth on Schedule 4.24(f), neither the Company nor any of ---------------- its Subsidiaries has committed any act or omission which would result in, and there has been, to the Knowledge of the Company, no occurrence which would give rise to, any material product liability or liability for breach of warranty on the part of the Company or any of its Subsidiaries not fully covered by the Company's insurance or assumed by a third party who the Company reasonably believes has adequate resources to pay such claims (excluding costs of administering supplier warranty programs incurred in the ordinary course of business) other than liabilities the claims relating to which have been barred by the applicable statute of limitations. 4.25 Customers. Listed in Schedule 4.25 are the names and addresses of all --------- ------------- the customers of the Company or any of its Subsidiaries that ordered goods, merchandise or services 27 from the Company or such Subsidiary with an aggregate value in excess of (i) $5,000,000 during the fiscal year ended December 31, 1999, (ii) $5,000,000 during the Company's fiscal year ended December 31, 2000, and (iii) $5,000,000 during the nine (9) month period ended September 30, 2001, and the amount during such period for which each such customer was invoiced. Except as disclosed in Schedule 4.25, (a) neither the Company nor any Subsidiary has received any - ------------- actual notice or has any valid reason to believe that any of its customers listed in Schedule 4.25 has ceased, or intends to cease, to use its products, ------------- equipment, goods or services, or has substantially reduced, or intends to substantially reduce, the use of such products, equipment, goods or services at any time, and (b) the Company and each of its Subsidiaries enjoys good relations with each of the customers listed on Schedule 4.25. ------------- 4.26 Suppliers. Listed in Schedule 4.26 are the names and addresses of all --------- ------------- the suppliers of the Company or of any of its Subsidiaries that sold goods, merchandise or services to the Company or such Subsidiary with an aggregate value in excess of (i) $5,000,000 during the fiscal year ended December 31, 1999, (ii) $5,000,000 during the Company's fiscal year ended December 31, 2000, and (iii) $5,000,000 during the nine (9) month period ended September 30, 2001 and the amount during such period for which the Company or such Subsidiary was invoiced by each such supplier. Except as disclosed in Schedule 4.26 (a) neither ------------- the Company nor any of its Subsidiaries has received any actual notice or has any valid reason to believe that any such supplier will not sell raw materials, supplies, merchandise and other goods or services to the Company or its Subsidiaries at any time after the Closing Date on terms and conditions substantially similar to those currently in effect, subject only to general and customary price increases, and (b) the Company and each of its Subsidiaries enjoys good relations with each of the suppliers listed on Schedule 4.26. ------------- 4.27 Affiliated Transactions. Other than this Agreement, except as set ----------------------- forth in Schedule 4.27, or to the extent disclosed in the SEC Filings filed ------------- since December 31, 2000 and except for payments under an individual's compensation or other benefit arrangements with the Company or any of its Subsidiaries and reimbursement of expenses in the ordinary course of employment, none of the officers, directors or other Affiliates of the Company or any of its Subsidiaries or members of their families is, or at any time in the last three (3) years has been, a party to any agreement, understanding, indebtedness or transaction with the Company or any of its Subsidiaries or is directly or indirectly interested in any Contract with, or received payments from, the Company or any of its Subsidiaries other than (i) ordinary course employment arrangements between the Company and its Subsidiaries and their respective employees, (ii) payment of customary directors fees to directors of the Company (and reimbursement of related expenses) and (iii) transactions between or among the Company and its Subsidiaries. Except as set forth on Schedule 4.27 or as set ------------- forth in the SEC Filings, neither the Company nor any of its Subsidiaries has guaranteed or assumed any obligations of their respective officers, directors or other Affiliates or members of any of their families. 4.28 Real Property. The Company and its Subsidiaries have no Owned Real ------------- Property. Schedule 4.28 lists the address of all real property now used or ------------- occupied by the Company or any of its Subsidiaries. 28 4.29 State Takeover Statutes. The Board of Directors of the Company has ----------------------- approved the terms of this Agreement, the consummation of the transactions contemplated by this Agreement, the issuance of the Bridge Preferred Shares contemplated hereby and the issuance of the Conversion Shares upon the conversion of the Bridge Preferred Shares and the Permanent Preferred Shares, and such approval is sufficient to render inapplicable to the transactions contemplated by this Agreement (including, without limitation, the issuance of the Bridge Preferred Shares contemplated hereby and the issuance of the Conversion Shares upon the conversion of the Bridge Preferred Shares and the Permanent Preferred Shares) the provisions of Section 203 of the Delaware Code. No other state takeover statute or similar statute or regulation applies or purports to apply to this Agreement or any of the transactions contemplated by this Agreement (including, without limitation, the issuance of the Bridge Preferred Shares contemplated hereby and the issuance of the Conversion Shares upon the conversion of the Bridge Preferred Shares and the Permanent Preferred Shares) and no provision of the Certificate of Incorporation, Bylaws or other governing instrument of the Company or any of its Subsidiaries would, directly or indirectly restrict or impair the ability of the Company to consummate the transactions contemplated by the Agreement. 4.30 Minimum Inventory Purchases. Schedule 4.30 contains a complete and --------------------------- ------------- accurate list of all contracts currently in effect to which the Company or any Subsidiary of the Company is a party that obligates the Company or any Subsidiary of the Company to purchase a minimum amount of inventory in an amount of $5,000,000 or more in any fiscal year. Schedule 4.30 sets forth the parties ------------- to the contract and such minimum annual purchase requirements. 4.31 Rolls Royce T-56 Engine Parts Contract. Schedule 4.31 contains the -------------------------------------- ------------- actual revenues received by Rolls-Royce Corporation as prepared by the Rolls-Royce Corporation and delivered to Aviall Services, Inc. for the type and quantity of engine parts that will be sold by the Company and its Subsidiaries pursuant to the terms of the Rolls Royce T-56 Engine Parts Contract for calendars year 1997, 1998, 1999, 2000 and, for the first nine (9) months of 2001, through and including September 30, 2001. Schedule 4.31 set forth such ------------- revenue data for the following categories: U.S. Military and Other. The Company has no reason to believe that such information is not correct in all material respects. 4.32 Inventory. Other than excess and obsolete inventory reserved in the --------- financial statements of the Company in accordance with GAAP, all of the inventory of the Company and its Subsidiaries is saleable in the ordinary course of business and reflected on the financial statements of the Company at fair market value. The Company expects all of such inventory to be saleable in the ordinary course of business over the next twenty four (24) months, except to the extent such inventory has been reserved on the Company's financial statements. 4.33 Information Technology. The Company and its Subsidiaries have ---------------------- sufficient information technology capabilities, including, without limitation, sufficient computer hardware and software, and adequately trained operators, facilitators and management, to fulfill the Company's or its Subsidiaries' obligations pursuant to the terms of the Rolls Royce T-56 Engine Parts Contract. 29 4.34 Projections. The projections of the Company and its Subsidiaries ----------- heretofore delivered to the Purchasers (i) were prepared by the Company, (ii) are the most current projections prepared by the Company relating to the periods covered thereby, and (iii) are based on assumptions which were reasonable when made and such assumptions and projections are reasonable on the date of this Agreement. Neither the Company nor any of its Subsidiaries has delivered to any Person any later dated projections. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASERS -------------------------------------------- Each Purchaser hereby represents and warrants to the Company as follows: 5.1 Organization of Purchaser. Such Purchaser is a limited partnership ------------------------- duly formed and validly existing and in good standing as a limited partnership under the laws of its jurisdiction of formation and has full partnership power and authority to carry on its business as currently being conducted. 5.2 Due Authorization. Such Purchaser has full partnership power and ----------------- authority to execute and deliver this Agreement, the Registration Rights Agreement, and the Standstill Agreement perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Purchaser of this Agreement, the Registration Rights Agreement and the Standstill Agreement, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary partnership action of such Purchaser. This Agreement has been duly executed and delivered by such Purchaser and constitutes, the Registration Rights Agreement has been duly executed and delivered by such Purchaser and constitutes, and the Standstill Agreement has been duly executed and delivered by such Purchaser and constitutes, a valid and legally binding obligation of such Purchaser, enforceable against Purchaser in accordance with its terms, except that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (ii) general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law and (iii) laws and judicial decisions regarding indemnification for violations of federal securities laws). 5.3 No Conflict. The execution and delivery by such Purchaser of this ----------- Agreement and the Registration Rights Agreement and the performance by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or result in a violation of any provision of the agreement of limited partnership or other governing agreement of such Purchaser, (ii) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, or acceleration under, any material bond, debenture, note, mortgage, indenture, lease, agreement, or other instrument or obligation to which such Purchaser is a party or by which such Purchaser or any of its properties may be bound, (iii) result in the creation or imposition of any Encumbrance upon the properties of such Purchaser, or (iv) violate in any 30 material respect any Applicable Law binding upon such Purchaser, except, in the case of clauses (ii), (iii), and (iv) above, for any such conflicts, violations, defaults, terminations, cancellations, accelerations, or Encumbrances which would not, individually or in the aggregate, materially and adversely affect the ability of such Purchaser to consummate the transactions contemplated hereby. 5.4 Consents and Approvals. No consent, approval, order or ---------------------- authorization of, or declaration, filing or registration with, any Government Entity or third party is required to be obtained or made by Purchaser in connection with the execution and delivery by Purchaser of this Agreement and the Registration Rights Agreement or the consummation of the transaction contemplated hereby and thereby other than (i) any filings required under Section 13 of the Exchange Act and Rule 13d-1 under the Exchange Act and (ii) such consents, approvals, orders or authorization which, if not made, would not, individually or in the aggregate, materially and adversely affect the ability of the Purchaser to consummate the transactions contemplated hereby. 5.5 Purchase for Investment. ----------------------- (a) Such Purchaser has been furnished with all information that it has requested for the purpose of evaluating the proposed acquisition of the Bridge Preferred Shares pursuant hereto, and such Purchaser has had an opportunity to ask questions of and receive answers from the Company regarding the Company and its business, assets, results of operations, financial condition and prospects and the terms and conditions of the issuance of the Bridge Preferred Shares. (b) Such Purchaser is acquiring the Bridge Preferred Shares solely by and for its own account, for investment purposes only and not for the purpose of resale or distribution; and such Purchaser has no contract, undertaking, agreement or arrangement with any Person to sell, transfer of pledge to such Person or anyone else any Bridge Preferred Shares; and such Purchaser has no present plans or intentions to enter into any such contract, undertaking or arrangement. (c) Such Purchaser acknowledges and understands that (i) no registration statement relating to the Bridge Preferred Shares or the Conversion Shares has been filed with the Commission under the Securities Act or pursuant to the securities laws of any state; (ii) the Bridge Preferred Shares and the Conversion Shares cannot be sold or transferred without compliance with the registration provisions of the Securities Act or compliance with exemptions, if any, available thereunder; (iii) the certificates representing the respective Bridge Preferred Shares will include a legend thereon that refers to the foregoing; and (iv) the Company has no obligation or intention to register the Bridge Preferred Shares or the Conversion Shares under any federal or state securities act or law, except as provided in the Registration Rights Agreement. (d) Such Purchaser (i) is an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act; (ii) has such knowledge and experience in financial and business matters in general that it has the capacity to evaluate the merits and risks 31 of an investment in the Bridge Preferred Shares and to protect its own interest in connection with an investment in the Bridge Preferred Shares; (iii) has such a financial condition that it has no need for liquidity with respect to its investment in the Bridge Preferred Shares to satisfy any existing or contemplated undertaking, obligation or indebtedness; and (iv) is able to bear the economic risk of its investment in the Bridge Preferred Shares for an indefinite period of time. 5.6 No Brokers. Purchaser has not employed, and is not subject to the ---------- valid claim of, any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who might be entitled to a fee or commission in connection with such transactions. ARTICLE VI. COVENANTS --------- 6.1 Meeting of Stockholders; Proxy Statement. ---------------------------------------- (a) The Company shall take all action necessary in accordance with Applicable Law and the Certificate of Incorporation and Bylaws to duly call, give notice of, convene and hold a meeting of its stockholders (the "Stockholders Meeting") as promptly as practicable after the date hereof, but in -------------------- no event later than the Initial Increase Date, to obtain the Required Stockholder Approval. The Board of Directors shall (i) recommend to the Company's stockholders that they vote in favor of the adoption and approval of a proposal that the stockholders of the Company approve the issuance of the Permanent Preferred Shares issuable upon conversion of the Bridge Preferred Shares and the issuance of the shares of Common Stock issuable upon conversion of the Permanent Preferred Shares (the "Stockholder Proposal"), (ii) use its -------------------- best efforts to solicit from the Company's stockholders proxies in favor of the Stockholder Proposal, and (iii) take all other action reasonably necessary to secure the Required Stockholder Approval. If the Required Stockholder Approval is not obtained as set forth above prior to the Initial Increase Date, the Company shall submit a proposal for the Required Stockholder Approval at the next two annual meetings of the stockholders of the Company and at two special meetings of the stockholders of the Company convened at the request of the holders of the Bridge Preferred Shares. The Purchasers agree to attend in person or by proxy, and to vote all shares of Bridge Preferred Stock or Common Stock owned by the Purchasers in favor of the Stockholder Proposal at any special or annual meeting of the Company's stockholders at which the Stockholder Proposal is presented for approval. (b) As promptly as practicable after the date hereof, the Company shall take or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable to (i) prepare and file with the Commission, no later than January 15, 2002, any documents or materials, including, but not limited to, the preliminary Proxy Materials, pertaining to the Stockholders Meeting and the Stockholder Proposal and (ii) have the Proxy Materials cleared by the Commission (including with respect to clauses (i) and (ii) by consulting with the Purchasers and responding promptly to any comments from the Commission). The Proxy Materials shall contain the recommendation of the Board of Directors that stockholders of the Company vote in favor of the adoption and approval of the Stockholder Proposal and all 32 other matters necessary to effectuate the transactions contemplated hereunder. The Company shall notify the Purchasers promptly of the receipt of any comments on, or any requests for amendments or supplements to, the Proxy Materials by the Commission, and the Company shall supply the Purchasers with copies of all written correspondence between the Company and its representatives, on the one hand, and the Commission or members of its staff, on the other, with respect to the Proxy Materials. The Company, after consultation with the Purchasers, shall use its reasonable best efforts to respond promptly to any comments made by the Commission with respect to the Proxy Materials. The Company and the Purchasers shall cooperate with each other in preparing the Proxy Materials, and the Company and the Purchasers shall each use its reasonable best efforts to obtain and furnish the information required to be included in the Proxy Materials. The Company and the Purchasers each agrees promptly to correct any information provided by it for use in the Proxy Materials if and to the extent that such information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to cause the Proxy Materials, as so corrected, to be filed with the Commission and to be disseminated promptly to holders of shares of the Common Stock, in each case as and to the extent required by Applicable Law. (c) The information contained in the Proxy Materials (other than information with respect to (i) the Purchasers or any of their Affiliates and (ii) the holders of notes pursuant to the Note Purchase Agreement which, in either case, shall have been supplied in writing by them or any of their authorized representatives expressly for use in or in preparing the Proxy Materials) will not, at the date of mailing to the Company's stockholders or at the date of the Stockholders Meeting, contain any statement which, at the time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact required to be stated therein or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders Meeting. The Proxy Materials will comply as to form in all material respects with the Exchange Act and the rules and regulations of the SEC thereunder. The Company shall deliver or cause to be delivered to the Purchasers a draft of the Proxy Materials no later than January 10, 2002. 6.2 Continuing Operations. From the date of this Agreement to the --------------------- earlier of (i) the Closing Date and (ii) the termination of this Agreement in accordance with Section 9.1 (the "Interim Period"), the Company and its -------------- Subsidiaries shall conduct their businesses in the ordinary and usual course consistent with past practices, and, except as set forth on Schedule 6.2 or as ------------ contemplated by this Agreement, the Note Purchase Agreement or the New Credit Facility, neither the Company nor any Subsidiary shall, without the prior consent of Purchasers: (a) except in the ordinary course of business consistent with past practice, (i) incur any material liability or obligation, (ii) become liable or responsible for the material obligations of any other Person (other than wholly owned Subsidiaries) or (iii) pay, discharge, or satisfy any material claims, liabilities, or obligations (whether accrued, absolute, contingent, unliquidated, or otherwise, and whether asserted or unasserted), other than the payment, discharge, or satisfaction, in the ordinary course of business consistent with past practice, of liabilities reflected or reserved against in the financial statements; provided that, in no event shall any of the Companies enter into any settlement or compromise of any litigation or claims involving liability in excess of $1,000,000, without the prior written approval of the Purchasers; 33 (b) make any loans or advances to any Person, other than (i) advances to employees in the ordinary and usual course of business and (ii) transactions among or between the Company and its Subsidiaries conducted in the ordinary and usual course of business; (c) sell, lease, transfer or otherwise dispose of, all or any substantial portion of the assets of the Company or its Subsidiaries, taken as a whole (other than the sale of inventory in the ordinary course), or any equity securities of the Company or its Subsidiaries (other than the issuance of shares of Common Stock upon exercise of Options currently outstanding); (d) enter into, adopt, or (except as may be required by law) amend or terminate any collective bargaining agreement or any material Benefit Arrangement; approve or implement any employment severance arrangements (other than payments made under the Company's existing severance policy in accordance with past practice) or hire or discharge any executive officers; authorize or enter into any employment, severance, consulting services or other agreement with any directors, officers and executive management personnel or any of their Affiliates; or change the compensation or benefits provided to any director, officer, or employee as of December 31, 2000, other than arrangements previously disclosed to Purchaser (other than ordinary course changes in base compensation for foreign employees which in the aggregate is not material); (e) enter into any speculative or commodity swaps, hedges or other derivatives transactions or purchase any securities for investment purposes, other than in connection with cash management of the Company; (f) grant any option or preferential right to purchase or enter into any other agreements that could adversely affect the marketability of any material asset of the Company or any Subsidiary; (g) issue any shares of capital stock (other than shares of Common Stock issuable upon exercise of currently outstanding Options); (h) declare or pay dividends on, or make any other distribution in respect of, any outstanding shares of the Company's capital stock or repurchase, redeem or otherwise retire for value any shares of its capital stock; (i) take any action that would require the consent of the holders of the Bridge Preferred Stock (if outstanding) under the Bridge Preferred Stock Certificate of Designations; or (j) agree to do any of the foregoing. 6.3 Press Releases. Except as may be required by Applicable Law or by -------------- the rules of any national securities exchange, neither Purchasers nor the Company shall issue any press release with respect to this Agreement or the transactions contemplated hereby without the prior consent of the Company in the case of the Purchasers and the Purchasers in the case of the Company (which consent shall not be unreasonably withheld under the circumstances). Any such press release required by Applicable Law or by the rules of any national securities exchange 34 shall only be made after reasonable notice to the other party, except as required by Applicable Law. 6.4 Investigations and Access. The Company agrees to permit the ------------------------- Purchasers and their agents and representatives, until such time that the Purchasers no longer own ten percent (10%) of the Bridge Preferred Stock or the Conversion Shares, reasonable access during normal business hours to (i) the premises of the Company and its Subsidiaries and (ii) all the books, computer software application systems, files and records of the Company and its Subsidiaries, including, but not limited to, lease, loan, real estate, financial, tax and personnel files and records, and to furnish the Purchasers such financial and operating data and other information with respect to the business, assets and properties of the Company as the Purchasers shall reasonably request. The Company will authorize its accountants to provide the Purchasers, in accordance with such accountant's internal policies, with their working papers for the Company's financial statements. The Company shall deliver true, correct and complete copies of all resolutions, and minutes of all meetings, reflecting any action taken by the Company's stockholders, board of directors or committees of the board of directors and by each Subsidiary during the period from the date hereof through the Closing Date. 6.5 Notification of Certain Matters. During the Interim Period, the ------------------------------- Company shall give prompt notice to the Purchasers, and the Purchasers shall give prompt notice to the Company, of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect any time from the date hereof to the Closing Date and (ii) any material failure of the Company or the Purchasers, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, and each party shall use all commercially reasonable efforts to remedy such failure. In addition, the Company shall give prompt notice to the Purchasers of any material developments involving the operations or activities of the Company or its Subsidiaries. 6.6 No Solicitation. Prior to the Closing (or the earlier termination --------------- of this Agreement by the Purchasers), neither the Company nor any of its Affiliates nor any of their respective directors, officers, employees, representatives or agents, shall directly or indirectly, solicit or initiate any discussions, submissions of proposals or offers or negotiations with, participate in any negotiations or discussions with, or provide any information or data of any nature whatsoever to, or otherwise cooperate in any other way with, or assist or participate in, facilitate or encourage any effort or attempt by any Person, other than Purchasers and their respective partners, employees, representatives, agents and Affiliates, concerning any Alternative Transaction. For purposes of this Agreement, "Alternative Transaction" means any merger, ----------------------- consolidation, sale of all or substantially all of the assets, sale of shares of capital stock or other equity securities, recapitalization, debt restructuring or similar transaction involving the Company or any Subsidiary, or any division of the Company or any Subsidiary. The Company shall not release any third party from, or waive any provision of, any confidentiality or standstill agreement to which the Company is a party. The foregoing restrictions shall not restrict the ability of the Company and its Subsidiaries to consummate the transactions contemplated by the New Credit Facility and the Note Purchase Agreement or to issue shares of Common Stock upon exercise of currently outstanding Options to purchase shares of Common Stock. 35 6.7 [Reserved]. ---------- 6.8 Certain Undertakings. The Company shall use reasonable best efforts to -------------------- enter into the Rolls Royce T-56 Engine Parts Contract on or before the Closing Date and use reasonable best efforts to consummate the transactions contemplated by the New Credit Facility and the Note Purchase Agreement on or before the Closing Date. The Company agrees not to enter into any agreement to provide for anti-dilution protection with respect to any equity securities issued pursuant to the Note Purchase Agreement unless the terms of such anti-dilution protection are acceptable to the Purchasers. 6.9 Director And Officer Indemnification. ------------------------------------ (a) The Company shall provide to each individual elected to the Board of Directors by the holders of the Bridge Preferred Stock, the Mezzanine Preferred Stock or the Permanent Preferred Stock (an "Investor Nominee") ---------------- indemnification and directors' and officers' insurance having terms and provisions no less favorable to such individuals than the indemnification and directors' and officers' insurance provided to other directors and officers of the Company (including, without limitation, coverage for matters based in whole or in part on, or arising in whole or in part out of, any matter existing or occurring while such Investor Nominee was a director, even though such Investor Nominee may no longer be a director at the time any claim for indemnification or coverage under insurance is made). (b) So long as any Investor Nominee serves as a member of the Board of Directors, the Company shall not amend the Certificate of Incorporation or Bylaws so as to adversely affect the rights of any such person with respect to indemnification by the Company for any losses incurred by such person in such person's capacity as an officer of the Company. 6.10 Listing. So long as any Bridge Preferred Shares or Conversion ------- Shares remain outstanding, the Company shall use its best efforts to ensure that the Common Stock continues to be listed for trading on the NYSE. The Company will take all action necessary to ensure that, at Closing, all shares of Common Stock issuable upon conversion of the Bridge Preferred Shares and Permanent Preferred Shares will be listed for trading on the New York Stock Exchange. 6.11 Legend. ------ (a) The Purchaser agrees to the placement on certificates representing Bridge Preferred Shares and the Conversion Shares a legend (the "Private Placement Legend") substantially as set forth below: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION 36 NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF DECEMBER 17, 2001, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY. (b) The Private Placement Legend shall be removed from any such certificate if (i) the securities represented thereby are sold pursuant to an effective registration statement under the Securities Act, (ii) there is delivered to the Company such satisfactory evidence, which may include an opinion of counsel, as reasonably may be requested by the Company, to confirm that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such securities will not violate the registration and prospectus delivery requirements of the Securities Act, or (iii) the securities represented thereby may be resold pursuant to Rule 144(k) promulgated under the Securities Act. Other than as required by Section 151(f) of the Delaware General Corporation Law, no other legends shall be placed on such certificates, without the consent of the Purchasers (other than an appropriate legend pursuant to the Rights Plan, as amended pursuant to Section 6.15). Notwithstanding the foregoing, the second paragraph of the Private Placement Legend shall be removed from any such certificate after the Initial Increase Date and shall not be placed on any such certificate for shares of Bridge Preferred Shares or Conversion Shares issued after the Initial Increase Date. 6.12 Payment of Fees. On the Closing Date (immediately prior to the --------------- Closing) the Company shall pay to Carlyle $1,125,000 in cash (the "Financing --------- Fee"), by wire transfer of immediately available funds to an account designated - --- by Carlyle. In the event that the Required Stockholder Approval is not obtained on or prior to the Initial Increase Date, the Company shall pay to Carlyle the Rollover Fee by wire transfer of immediately available funds to an account designated by Carlyle, on the first Business Day following the Initial Increase Date. The payment of the Financing Fee and the Rollover Fee pursuant to this Section 6.12 shall be in addition to, and not in substitution of, any other payment obligation of the Company under this Agreement or pursuant to the terms of the Bridge Preferred Shares, the Mezzanine Preferred Shares and the Permanent Preferred Shares. 6.13 Use of Proceeds. --------------- The Company shall use the gross proceeds of the sale of the Bridge Preferred Stock and the securities sold pursuant to the Note Purchase Agreement and the initial borrowing under the New Credit Facility solely (i) for the payment of fees and expenses in connection with the transactions contemplated hereunder, the Note Purchase Agreement and the New Credit Facility, including the Carlyle Fee and the Carlyle Transaction Expenses; (ii) to purchase inventory from and to pay a fee to be an exclusive service provider to Rolls-Royce Corporation in accordance with the Rolls-Royce T-56 Engine Part Contract; and (iii) to repay in full all amounts outstanding under the Credit Facility. 37 6.14 Confidentiality. (a) Without limiting the Purchasers' obligations --------------- under the Confidentiality Agreement with the Company dated as of October 26, 2001, each of the Purchasers agrees, on behalf of itself and each of its Affiliates, directors, officers, employees and representatives, to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling confidential information of the same nature and in accordance with safe and sound commercial practices, any confidential non-public information supplied to it by the Company or any of its Subsidiaries pursuant to this Agreement that is identified by such Person as being confidential at the time the same is delivered to such Purchaser; provided that nothing herein shall limit the disclosure of such information (a) after such information shall have become public other than through a violation of this Section 6.14, (b) to the extent required pursuant to a subpoena, civil investigative demand (or similar process), order, statute, rule or other legal requirement promulgated or imposed by a court or by a judicial, regulatory, self-regulatory or legislative body, organization, agency or committee or otherwise in connection with any judicial or administrative proceeding (including, without limitation, in response to oral questions, interrogatories or requests for information or documents), (c) to counsel, auditors, accountants or other Representative (as defined in the Confidentiality Agreement) for any of the Purchasers, (d) to any other Purchaser, (e) in connection with any litigation to which any one or more of the Purchasers is a party, or in connection with the enforcement of rights or remedies hereunder, (f) to a Subsidiary, Affiliate, partner, director, officer or employee of such Purchaser provided that such parties agree to be bound by provisions substantially similar to this Section 6.14 or (g) such information has been independently developed by such Purchasers or its Representative (as defined in the Confidentiality Agreement). (b) Unless specifically prohibited by applicable law or court order, each of the Purchasers shall, to the extent practical, prior to disclosure thereof, notify the Company of any request for disclosure of any such non-public information by any governmental agency or representative thereof or pursuant to legal process, and shall consult with the Company on the advisability of the Company (at the Company's request) taking legally available steps to resist or narrow any such request. Such Purchaser shall be entitled to reimbursement from the Company for expenses incurred by it, including the fees and expense of counsel, in connection with any action taken pursuant to this Section 6.14. 6.15 Issuance of Rights. ------------------ At the Closing, the Company shall issue to each Purchaser a number of Rights (as defined in the Rights Plan), which shall be attached to the Bridge Preferred Stock and Permanent Preferred Stock upon conversion of the Bridge Preferred Stock, equal to the number of shares of Common Stock issuable upon conversion of the shares of Permanent Preferred Stock that will be issuable to such Purchaser upon conversion of the shares of Bridge Preferred Stock into shares of Permanent Preferred Stock upon receipt of the Required Stockholder Approval. Upon any subsequent issuance of any shares of Permanent Preferred Stock or Bridge Preferred Stock to any holder of the Permanent Preferred Stock or Bridge Preferred Stock as dividends on the Permanent Preferred Stock or Bridge Preferred Stock, as applicable, the Company will issue to the Person to whom such shares are issued (i) in the case of such issuance of shares of Permanent Preferred Stock, a number of Rights equal to the number of shares of Common Stock issuable 38 upon conversion of the shares of Permanent Preferred Stock so issued, and (ii) in the case of such issuance of shares of Bridge Preferred Stock, a number of Rights equal to the number of shares of Common Stock issuable upon conversion of the shares of Permanent Preferred Stock that would be issued upon conversion of such shares of Bridge Preferred Stock into Permanent Preferred Stock following receipt of the Required Stockholder Approval. Prior to the Closing, the Company shall amend the Rights Plan, to the Purchasers' reasonable satisfaction, to provide for such issuance of Rights pursuant to this Section 6.15. Except as set forth in this Section 6.15, before the date hereof and the Closing, the Company will not amend the Rights Plans without the consent of the Purchasers. 6.16 Transfer of Bridge Preferred Stock. Unless the Company sells all or ---------------------------------- substantially all of its assets, mergers, consolidates with or into another Person, enters into, effects or announces any similar transaction, enters into any agreement to effect such transaction, effects any liquidation, dissolution or winding-up of the Company, reclassifies any shares of Common Stock, or enters into any agreement or consummates any transaction that would constitute a Change of Control (as defined in the Bridge Preferred Stock Certificate of Designations), the Purchasers shall not sell, assign, convey or otherwise transfer, except to an Affiliate of such Purchaser, the Bridge Preferred Stock or Conversion Shares prior to the earlier of (i) the Initial Increase Date and (ii) the date on which the Required Stockholder Approval has been obtained. ARTICLE VII. CONDITIONS TO CLOSING --------------------- 7.1 Condition to Each Party's Obligations. Neither party shall be ------------------------------------- obligated to consummate the transactions contemplated hereby, if on or prior to the Closing Date, there shall (i) be any injunction or court order restraining consummation of the transactions contemplated hereunder; (ii) be any pending or threatened action or proceeding by or before a court or governmental body brought by or on behalf of any Governmental Entity seeking to restrain or invalidate all or any portion of the transactions contemplated hereunder, or (iii) have been adopted any law or regulation making all or any portion of the transactions contemplated hereunder illegal. 7.2 Conditions to the Company's Obligations. The obligations of the --------------------------------------- Company to consummate the transactions contemplated hereby on the Closing Date is subject to the satisfaction or waiver on the Closing Date, of each of the following conditions: (a) Representations, Warranties and Covenants. All representations and warranties of the Purchasers contained in this Agreement shall be true and correct in all material respects (i) on the date hereof and (ii) at and as of the Closing Date, as if such representations and warranties were made at and as of the Closing Date, and the Purchasers shall have performed in all material respects all agreements and covenants required hereby to be performed by it prior to or at the Closing Date. There shall be delivered to the Company a certificate (signed by a general partner of each Purchaser) to the foregoing effect. 39 (b) Consents. All consents, approvals, Permits and waivers from -------- Governmental Entities and other parties required to be obtained in connection with the consummation of the transactions contemplated hereby shall have been obtained, unless the failure to obtain any such consent, approval, Permit or waiver would not have a Material Adverse Effect. (c) Certificates. Each Purchaser will furnish the Company with such ------------ certificates of its general partner and others to evidence compliance with the conditions set forth in this Article VII as may be reasonably requested by the Company. (d) Rolls Royce Contract. The Company shall have entered into the -------------------- Rolls Royce T-56 Engine Parts Contract and such contract shall be in the form of Exhibit D attached hereto. (e) Refinancing of Senior Credit Facility. The Company shall have ------------------------------------- entered into a new senior credit facility providing for $200,000,000 in aggregate principal amount of senior debt financing in the form of Exhibit F attached hereto. (f) Mezzanine Financing. The Company shall issue $80,000,000 ------------------- principal amount of senior notes of the Company for aggregate consideration of $80,000,000 substantially in the form of Exhibit G attached hereto. (g) Standstill Agreement. The Purchasers and Carlyle High Yield -------------------- Partners, L.P., a Delaware limited partnership, shall have executed and delivered to the Company the Standstill Agreement. 7.3 Conditions to the Purchasers' Obligations. The obligation of the ----------------------------------------- Purchasers to consummate the transactions contemplated hereby on the Closing Date is subject to the satisfaction or waiver on the Closing Date of each of the following conditions: (a) Representations, Warranties and Covenants. All representations and ----------------------------------------- warranties of the Company contained in this Agreement shall be true and correct in all material respects (i) on the date hereof and (ii) at and as of the Closing Date, as if such representations and warranties were made at and as of the Closing Date, and the Company shall have performed in all material respects all agreements and covenants required hereby to be performed prior to or at the Closing Date. There shall be delivered to the Purchasers a certificate (signed by the President and Chief Executive Officer of the Company) to the foregoing effect. (b) Consents. All consents, approvals, Permits and waivers from -------- Governmental Entities and other parties required to be obtained in connection with the consummation of the transactions contemplated hereby shall have been obtained. (c) Opinions of Counsel. The Company shall have delivered to the ------------------- Purchasers the opinions of Haynes and Boone, LLP, counsel for the Company, with respect to the matters set forth in a form reasonably acceptable to the Purchasers. 40 (d) Certificates. The Company shall furnish the Purchasers with such ------------ certificates of the Chief Executive Officer and the Secretary of the Company and others to evidence compliance with the conditions set forth in this Article VII as may be reasonably requested by the Purchasers. (e) No Adverse Changes. Since the date of this Agreement, there shall ------------------ not have occurred any Material Adverse Change. (f) Elections of Directors. All actions shall have been taken by the ---------------------- Company and its Board of Directors so that, immediately upon the Purchasers' purchase of the Bridge Preferred Shares, the Board of Directors shall consist of no more than eight directors (including the directors elected as provided below) and the Purchasers may, by execution and delivery of a written consent, elect two (2) members of the Board of Directors effective as of the Closing Date. (g) Certificate of Designations. The Company shall have filed with the --------------------------- Secretary of State of Delaware the Bridge Preferred Stock Certificate of Designations, the Mezzanine Preferred Stock Certificate of Designations and the Permanent Preferred Stock Certificate of Designations and such instruments shall have become effective. (h) Rights Plan. The Company shall have complied with Section 6.15. ----------- (i) Liability Insurance. The Company shall have provided to the ------------------- Purchasers a copy of the insurance policies, together with the riders and schedules thereto, which evidence compliance with the provisions set forth in Section 6.9 effective as of the Closing Date. (j) Rolls Royce Contract. The Company shall have entered into the Rolls -------------------- Royce T-56 Engine Parts Contract and such contract shall be in the form of Exhibit D attached hereto and shall be in full force and effect. (k) Refinancing of Senior Credit Facility. The New Credit Facility ------------------------------------- shall be in effect, the conditions set forth in Article III thereof shall have been satisfied or waived and not less than $32 million shall be available for borrowing thereunder. (l) Mezzanine Financing. The Company shall issue $80,000,000 principal ------------------- amount of senior notes of the Company for aggregate consideration of $80,000,000 on the terms set forth in the Note Purchase Agreement. (m) Registration Rights Agreement. The Company shall have executed and ----------------------------- delivered to the Purchasers the Registration Rights Agreement. (n) NYSE Listing. The shares of Common Stock issuable upon conversion ------------ of the Bridge Preferred Shares and the Permanent Preferred Shares shall have been approved (to the extent permitted by the rules of the New York Stock Exchange) for listing on the New York Stock Exchange (subject to official notice of listing and subject, in the case of the shares of Common Stock issuable upon conversion of the Permanent Preferred Shares, to receipt of the Required Stockholder Approval). 41 (o) Financing Fee and Carlyle Transaction Expenses. The Company shall ---------------------------------------------- have paid to Carlyle the Financing Fee as provided in Section 6.12 hereof and shall have reimbursed the Purchasers for the Carlyle Transaction Expenses as provided in Section 9.3. (p) Benefit Arrangements. The Company shall have obtained such consents -------------------- and waivers and taken all such other necessary action such that the consummation of the transactions contemplated hereby (including the issuance of the Bridge Preferred Stock contemplated hereby and the Conversion Shares upon conversion thereof) shall not cause or constitute a "change of control" under, or otherwise result in the acceleration, creation or increase of any benefits of rights or payments under any Benefit Arrangement or contract or agreement listed on Schedule 4.5 or Schedule 4.13 (other than the acceleration or vesting of options - ------------ ------------- to purchase not more than 326,500 shares of Common Stock issued pursuant to (i) the Aviall, Inc. Stock Incentive Plan, (ii) the Aviall, Inc. 1998 Stock Incentive Plan and (iii) the Aviall, Inc. Amended and Restated 1998 Directors Stock Plan). (q) Rolls Royce 250 Engine Parts Contract. The Company shall have ------------------------------------- obtained a waiver from Rolls-Royce Allison of the termination option of Rolls-Royce for a change of control of the Company pursuant to the terms and conditions of that certain Distribution Services Agreement, dated as of November 3, 1999, by and between Allison Engine Company, Inc. d/b/a Rolls-Royce Allison and Aviall Services, Inc., as amended. (r) Management Rights Agreement. The Company shall have executed and --------------------------- delivered to the Purchasers the agreements attached as Exhibit J hereto. (s) As-Adjusted Balance Sheet. The Purchasers shall have received an as ------------------------- adjusted consolidated balance sheet (the "As-Adjusted Balance Sheet") of the ------------------------- Company and its Subsidiaries and certified by the principal accounting officer and principal finance officer of the Company, that it fairly presents the consolidated preliminary balance sheet of the Company and its Subsidiaries as of November 30, 2001 and has been adjusted to reflect the consummation of the transactions contemplated by this Agreement, the New Credit Facility and the Note Purchase Agreement, including all material fees and expenses in connection therewith. ARTICLE VIII. INDEMNIFICATION --------------- 8.1 Survival of Representations, Etc. The representations, warranties, -------------------------------- covenants and agreements of the parties hereto contained herein shall survive the Closing for a period of eighteen (18) months after the Closing Date; provided, however, that (i) the representations and warranties set forth in - -------- ------- Sections 4.13 and 4.14 shall survive until six months after expiration of the applicable statute of limitations and (ii) termination of the survival period of any representation or warranty shall not relieve any party of liability for any breach of any representation or warranty as to which a claim has been asserted prior to such date of termination. 8.2 Indemnification by the Company. The Company shall indemnify and hold ------------------------------ harmless each of the Purchasers and their respective Affiliates, directors, officers, advisors, 42 agents and employees (the "Purchaser Indemnified Parties") from and against any ----------------------------- and all demands, losses, damages, penalties, claims, liabilities, obligations, actions, causes of action, and expenses (including without limitation, costs of investigating, preparing or defending any such claim or action and reasonable legal fees and expenses) (collectively, "Losses"), (i) arising out of, relating ------ to, or in connection with this Agreement, the transactions contemplated hereby, and/or the delivery, enforcement and performance of this Agreement or the Registration Rights Agreement other than matters covered in clause (ii) of this Section 8.2, and (ii) arising by reason of or resulting from any material breach of any warranty, representation, covenant or agreement of the Company contained in this Agreement, the Registration Rights Agreement, or in any certificate delivered pursuant hereto or thereto. 8.3 Indemnification by the Purchasers. Each Purchaser shall indemnify and --------------------------------- hold harmless the Company and its Affiliates, directors, officers, advisors, agents and employees (the "Company Indemnified Parties" and, together with the --------------------------- Purchasers Indemnified Parties, the "Indemnified Parties") from and against any ------------------- and all Losses arising by reason of or resulting from any material breach of any warranty, representation, covenant or agreement of such Purchaser contained in this Agreement or in any certificate delivered pursuant thereto. 8.4 Limitation on Indemnities. No claim may be made against an indemnifying ------------------------- party for indemnification pursuant to either clause (ii) of Section 8.2 or Section 8.3 until the aggregate dollar amount of all Losses indemnifiable pursuant to such section exceeds $1,000,000. The aggregate amount of all Losses for which any indemnifying party shall be required to indemnify any indemnifying parties pursuant to this Article 8 (other than pursuant to clause (i) of Section 8.2) shall not exceed $45,000,000. 8.5 Losses. The term "Losses" as used in this Article 8 is not limited to ------ matters asserted by third parties, but includes Losses incurred or sustained by an Indemnified Party in the absence of third party claims. Payments by an Indemnified Party of amounts for which such Indemnified Party is indemnified hereunder shall not necessarily be a condition precedent to recovery. 8.6 Defense of Claims. If a claim for Losses (a "Claim") is to be made by ----------------- ----- an Indemnified Party, such Indemnified Party shall give written notice (a "Claim ----- Notice") to the indemnifying party as soon as practicable after such Indemnified - ------ Party becomes aware of any fact, condition or event which may give rise to Losses for which indemnification may be sought under this Article 8. If any lawsuit or enforcement action is filed against any Indemnified Party hereunder, notice thereof (a "Third Party Notice") shall be given to the indemnifying party ------------------ as promptly as practicable (and in any event within fifteen (15) calendar days after the service of the citation or summons). The failure of any indemnified party to give timely notice hereunder shall not affect rights to indemnification hereunder, except to the extent that the indemnifying party demonstrates actual damage caused by such failure. After receipt of a Third Party Notice, if the indemnifying party shall acknowledge in writing to the indemnified party that the indemnifying party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then the indemnifying party shall be entitled, if it so elects, (i) to take control of the defense and investigation of such lawsuit or action, (ii) to employ and engage attorneys of its own choice to handle and defend the same, at the indemnifying party's cost, risk 43 and expense unless the named parties to such action or proceeding include both the indemnifying party and the indemnified party and the indemnified party has been advised in writing by counsel that there may be one or more legal defenses available to such indemnified party that are different from or additional to those available to the indemnifying party, and (iii) to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the Indemnified Party. The Indemnified Party shall cooperate in all reasonable respects with the indemnifying party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; and the Indemnified Party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom and appoint its own counsel therefor, at its own cost. The parties shall also cooperate with each other in any notifications to insurers. If the indemnifying party fails to assume the defense of such claim within fifteen (15) calendar days after receipt of the Third Party Notice, the Indemnified Party against which such claim has been asserted will (upon delivering notice to such effect to the indemnifying party) have the right to undertake the defense, compromise or settlement of such claim and the indemnifying party shall have the right to participate therein at its own cost. In the event the Indemnified Party assumes the defense of the claim, the Indemnified Party will keep the indemnifying party reasonably informed of the progress of any such defense, compromise or settlement. 8.7 Tax Treatment of Indemnity. The parties agree that any indemnification -------------------------- payments made pursuant to this Agreement shall be treated for Tax purposes as an adjustment to the consideration for the purchase of the Bridge Preferred Shares, unless otherwise required by Applicable Law, in which event indemnification payments shall be made in an amount sufficient to indemnify the party on a net after-Tax basis. ARTICLE IX. MISCELLANEOUS ------------- 9.1 Termination. Prior to the Closing, this Agreement may be terminated: ----------- (a) by mutual written consent of the Company and the Purchasers; (b) by the Purchasers or the Company if the Closing shall not have occurred on or before December 31, 2001; provided however, that this provision -------- ------- shall not be available to the Purchaser if the Company has the right to terminate this Agreement under Section 9.1(d), and this provision shall not be available to the Company if Purchaser has the right to terminate this Agreement under Section 9.1(c); (c) by the Purchasers, if there is a material breach of any representation or warranty set forth in Article 4 hereof or any covenant or agreement to be complied with or performed by the Company pursuant to the terms of this Agreement; or (d) by the Company, if there is a material breach of any representation or warranty set forth in Article 5 hereof or of any covenant or agreement to be complied with or performed by the Purchasers pursuant to the terms of this Agreement. 44 9.2 In the Event of Termination. In the event of termination of this --------------------------- Agreement, no party hereto shall have any liability or further obligation to any other party under this Agreement (other than the obligations of the parties pursuant to Section 9.3), provided that no such termination shall relieve any party from liability relating to breach of this Agreement occurring prior to such termination. 9.3 Expenses. The Company shall be responsible for the payment of all -------- expenses incurred by the Company in connection with the transactions contemplated hereby, regardless of whether such transactions close, including, without limitation, all fees and expenses incurred in connection with the Proxy Materials and the fees and expenses of the Company's legal counsel and all third party consultants engaged by the Company to assist in the transactions. On the Closing Date, the Company shall reimburse the Purchasers for the Carlyle Transaction Expenses by wire transfer of immediately available funds to an account designated by the Purchasers in the amount of the Carlyle Transaction Expenses. In the event that the Agreement is terminated, the Company shall reimburse the Purchasers for the Carlyle Transaction Expenses by wire transfer of immediately available funds to an account designated by the Purchasers in the amount of the Carlyle Transaction Expenses. In the event that the Agreement is terminated pursuant to Section 9.1(c) or Section 9.1(b) as a result of any material breach of the Agreement by the Company, (i) the Company shall pay to Carlyle on the date of such termination the Financing Fee and the Carlyle Transaction Expenses and (ii) the Purchasers shall be entitled to recover from the Company all Losses incurred by the Purchasers arising out of or relating to or incurred as a result of any pre-termination breach of this Agreement by the Company; provided that the aggregate liability of the Company pursuant to this Section 9.3 shall not exceed $45,000,000. In the event that the Agreement is terminated pursuant to Section 9.1(d) or Section 9.1(b) as a result of any material breach of the Agreement by the Purchasers, (i) the Purchasers shall pay to the Company on the date of such termination, the fees and expenses of the Company's legal counsel and all third party consultants and advisors engaged by the Company to assist in the transactions and (ii) the Company shall be entitled to recover from the Purchasers all Losses incurred by the Company arising out of or relating to or incurred as a result of any pre-termination breach of this Agreement by the Purchasers; provided that the aggregate liability of the Purchasers pursuant to this Section 9.3 shall not exceed $45,000,000. Following Closing, promptly upon a written request therefore, the Company shall reimburse each Purchaser for the reasonable out-of-pocket expenses incurred following the Closing in connection with the transactions contemplated hereby and in connection with such Purchaser's ongoing monitoring of its investment in the Company. 9.4 Injunctive Relief. The parties hereto acknowledge and agree that ----------------- irreparable damage would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement, and shall be entitled to enforce specifically the provisions of this Agreement, in any court of the United States or any state thereof having jurisdiction, in addition to any other remedy to which the parties may be entitled under the Agreement or at law or in equity. 9.5 Assignment. Neither this Agreement nor any of the rights or obligations ---------- hereunder may be assigned by the Company without the prior written consent of the Purchasers. Each Purchaser may, without the consent of the Company, assign, in whole or in part, such 45 Purchaser's rights under this Agreement to an Affiliate of such Purchaser. After the Closing Date, each Purchaser may, without the consent of the Company, assign this Agreement, in whole or in part, to a third party; provided, however, no Purchaser shall assign its rights pursuant to Section 6.4 hereunder unless such third party purchases ten percent (10%) or more of the Bridge Preferred Stock and/or Conversion Shares issued to the Purchasers, in the aggregate, pursuant to the terms of this Agreement. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and no other Person shall have any right, benefit or obligation hereunder. 9.6 Notices. Unless otherwise provided herein, any notice, request, ------- instruction or other document to be given hereunder by any party to the other shall be in writing and delivered by hand-delivery, registered first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery, as follows: If to the Company: Aviall, Inc. 2750 Regent Blvd DFW Airport, Texas 75261 Telephone: (972) 586-1800 Facsimile: (972) 586-1010 Attn: Jeffrey J. Murphy With a copies to: Aviall, Inc. 2750 Regent Blvd DFW Airport, Texas 75261 Telephone: (972) 586-1001 Facsimile: (972) 586-1006 Attn: Paul E. Fulchino and Haynes and Boone, LLP 901 Main Street Dallas, Texas 75214 Telephone: (214) 651-5000 Facsimile: (214) 200-0676 Attn: Janice V. Sharry 46 If to any Purchaser: c/o The Carlyle Group 1001 Pennsylvania Avenue, N.W. Suite 220 South Washington, D.C. 20004 Telephone: (202) 347-2626 Facsimile: (202) 347-1818 Attn: Allan M. Holt Peter J. Clare With a copy to: Latham & Watkins 555 Eleventh Street, N.W. Suite 1000 Washington, D.C. 20004 Telephone: (202) 637-2200 Facsimile: (202) 637-2201 Attn: Daniel T. Lennon or to such other place and with such other copies as either party may designate as to itself by written notice to the other. All such notices, requests, instructions or other documents shall be deemed to have been duly given; at the time delivered by hand, if personally delivered; four Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged by addressee, if by telecopier transmission; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. 9.7 Choice of Law. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the internal laws of the State of New York, without regard to the conflict of law principles thereof, except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or the subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. 9.8 Entire Agreement; Amendments and Waivers. This Agreement, including ---------------------------------------- all schedules attached hereto (each, a "Schedule" and, collectively, the -------- "Schedules"), the exhibits attached hereto, the Confidentiality Agreement dated --------- as of October 26, 2001 between the parties hereto, the Registration Rights Agreement, the Standstill Agreement, the Bridge Preferred Stock Certificate of Designations, the Mezzanine Preferred Stock Certificate of Designations, the Permanent Preferred Stock Certificate of Designations constitute the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties, including the written summary of proposed terms between the Company and the Purchasers. Capitalized terms used in the Schedules but not defined therein shall have the respective meanings ascribed to such terms in this Agreement. Any item disclosed in one Schedule shall be deemed to have been disclosed in all other Schedules. 9.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.10 Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. 9.11 Headings. The headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.12 Limitation of Liability. In no event shall any partner or representative of any Purchaser (except for any Purchaser which is a general partnership) or of any partnership which is a partner of any Purchaser or any partner of any such partnership, or any direct or indirect stockholder, officer, director, partner, employee or any other such person, be personally liable for any obligation of the Purchasers under this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. AVIALL, INC. By: /s/ Paul E. Fulchino Name: Paul E. Fulchino CARLYLE PARTNERS III L.P. By: TC Group III, L.P., its General Partner By: TC Group III, L.L.C., its General Partner By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare Name: Peter J. Clare CP III COINVESTMENT, L.P. By: TC Group III, L.P., its General Partner By: TC Group III, L.L.C., its General Partner By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare Name: Peter J. Clare EX-99 4 dex991.txt EXHIBIT B Exhibit B CERTIFICATE OF DESIGNATIONS OF SERIES B SENIOR CONVERTIBLE PARTICIPATING PREFERRED STOCK OF AVIALL, INC. ------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- THE UNDERSIGNED, being the President of Aviall, Inc., a Delaware corporation (the "Corporation"), does hereby certify that pursuant to the ----------- authority contained in Article Fourth of its Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and in accordance with the ---------------------------- provisions of Section 151(g) of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has adopted the following resolution, which resolution remains in full force and effect on the date hereof: RESOLVED, that there is hereby established a series of authorized preferred stock, having a par value of $0.01 per share, which series shall be designated as "Series B Senior Convertible Participating Preferred Stock" (the "Bridge Preferred Stock"), consisting of 500,000 shares and having the following ---------------------- voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof: 1. Certain Definitions. ------------------- Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Affiliate" means (i) with respect to any Person, any other Person that --------- directly or indirectly controls or manages, is controlled or managed by, or is under common control or management with such Person, whether through the ownership of equity interests, by contract or otherwise; and (ii) with respect to an individual, in addition to any Person specified in clause (i), the spouse, any parent or any child of such individual and any trust for the benefit of such individual's spouse, parent or child. "Annual Operating Plan" means the annual operating plan of the --------------------- Corporation established by the Corporation for each fiscal year, which shall include, without limitation, the annual capital expenditure and other budgets of the Corporation for such fiscal year. "Automatic Conversion Date" has the meaning set forth in paragraph 5 ------------------------- below. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 ---------------- and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning. "Board of Directors" means the Board of Directors of the Corporation. ------------------ "Bridge Preferred Stock" has the meaning set forth in paragraph 2 ---------------------- below. "Business Day" means a day other than a Saturday or Sunday or a day on ------------ which commercial banks in the City of New York are authorized or obligated by law or executive order to close. "Cash Dividends" has the meaning set forth in paragraph 3(b) below. -------------- "Cash Election Notice" has the meaning set forth in paragraph 3(f) -------------------- below. "Change of Control" means the occurrence of any of the following: ----------------- (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger, consolidation or transfer of the Corporation Voting Stock), in one or a series of related transactions, of all or substantially all of the properties or assets of the Corporation and its Subsidiaries, taken as a whole, to any "person" (as that terms is used in Section 13(d)(3) of the Exchange Act) other than the Corporation or a wholly-owned Subsidiary of the Corporation; (2) the consummation of any transaction or series of related transactions (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the holders of the Bridge Preferred Stock, becomes the Beneficial Owner, directly or indirectly, of more than 30% of the Voting Stock of the Corporation, measured by voting power rather than number of shares; (3) a "change of control" or other similar event shall occur under any issue of Indebtedness with an aggregate principal amount in excess of $10,000,000 of the Corporation or its Subsidiaries; or 2 (4) during any period of twelve (12) consecutive months after the Initial Issue Date, the individuals who at the beginning of any such 12-month period constituted the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that (i) any individual becoming a director whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of the stockholders having the right to designate such director (including, without limitation, the exercise by the holders of Bridge Preferred Stock of their right to elect directors) and (ii) any director whose election to the Board of Directors or whose nomination for election by the stockholders of the Corporation was approved by majority vote of the Board of Directors, shall, in each such case, be considered as though such individual were a member of the Incumbent Board, but excluding, as a member of the Incumbent Board, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) and further excluding any person who is an affiliate or associate (as those terms are defined in the General Rules and Regulations under the Exchange Act) of any Person having or proposing to acquire beneficial ownership of twenty-five percent (25%) or more of the Voting Stock of the Corporation; or (5) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the respective Beneficial Owners of the Voting Stock immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, Beneficially Own, directly or indirectly, more than fifty percent (50%) of the Voting Stock resulting from such reorganization, merger or consolidation; provided that the occurrence of any event identified in subparagraphs (1) through (5) above that would otherwise be treated as a Change of Control shall not constitute a Change of Control hereunder if (i) the Board of Directors, by vote duly taken, and (ii) the holders of a majority of the outstanding shares of Bridge Preferred Stock, by written consent, shall so determine. "Change of Control Offer" has the meaning set forth in paragraph 8 ----------------------- below. "Change of Control Payment" has the meaning set forth in paragraph 8 ------------------------- below. "Change of Control Payment Date" has the meaning set forth in paragraph ------------------------------ 8 below. "Commission" means the United States Securities and Exchange ---------- Commission. "Common Equity" means all shares now or hereafter authorized of any ------------- class of common stock of the Corporation, including the Common Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right 3 (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. "Common Stock" means the common stock, par value $0.01 per share, of ------------ the Corporation. "Conversion Date" shall have the meaning set forth in subparagraph 5(b) --------------- below. "Conversion Price" shall initially mean $12.17 per share of Bridge ---------------- Preferred Stock; provided, however, that, to the extent any shares of Bridge -------- ------- Preferred Stock are hereafter issued as PIK Dividends, the Conversion Price (computed before giving effect to any adjustments to the Conversion Price pursuant to paragraph 5 hereof) shall be adjusted such that the quotient derived by dividing the Liquidation Preference of all outstanding shares of Bridge Preferred Stock by the Conversion Price (before giving effect to any adjustments to the Conversion Price pursuant to paragraph 5) does not exceed 3,697,348 and thereafter shall be subject to adjustment from time to time pursuant to the terms of paragraph 5 below. "Corporation" has the meaning set forth in the recitals above. ----------- "Current Market Price" means, for a share of Common Stock on any date, -------------------- the average of Quoted Prices for ten (10) consecutive Trading Days commencing fifteen (15) Trading Days before the date in question. "Default Event" means the occurrence of any of the following events: ------------- (i) the failure of the Corporation to declare and pay any PIK Dividends for any Dividend Period for which the Corporation is required to pay PIK Dividends on the respective Dividend Payment Date; (ii) the failure of the Corporation to redeem, on the Redemption Date, all shares of Bridge Preferred Stock, (iii) the failure of the Corporation to purchase any shares of Bridge Preferred Stock that it is required to purchase pursuant to paragraph 8 hereof on the Change of Control Payment Date or the failure of the Corporation to purchase any shares of Mezzanine Preferred Stock required to be repurchased on any Repurchase Sale Payment Date pursuant to paragraph 8 or (iv) the material breach of the provisions of paragraph 7 hereof; provided, that any Default Event referred to in clause (iv) shall be deemed to have been cured in the event that the Corporation rescinds the transaction or other occurrence giving rise to such Default Event such that the economic, legal and/or other effect of such transaction on the holders of the Bridge Preferred Stock or on the rights of, privileges and preferences of the Bridge Preferred Stock has been removed or rescinded. "Delivery Date" has the meaning set forth in paragraph 5 below. ------------- "Director" means a member of the Corporation's Board of Directors. -------- "Dividend Payment Date" has the meaning set forth in subparagraph 3(c) --------------------- below. "Dividend Period" means the period from, and including, the Initial --------------- Issue Date to, but not including, the first Dividend Payment Date and thereafter, each quarterly period from, 4 and including, each Dividend Payment Date to, but not including, the next Dividend Payment Date. "Dividend Rate" means nine percent (9%) per annum of the Liquidation ------------- Preference; provided, however, that, until the Required Stockholder Approval is -------- ------- obtained (i) effective as of Initial Increase Date, the Dividend Rate shall increase by four percent (4%) per annum of the Liquidation Preference and (ii) the Dividend Rate shall increase thereafter by four percent (4%) per annum of the Liquidation Preference upon the expiration of each subsequent 30-day period following the Initial Increase Date (up to a maximum Dividend Rate of 30% per annum); provided, however, that any such increase shall be retroactive to the -------- ------- Initial Issue Date and shall be given effect to as if the Dividend Rate from and after the Initial Issue Date was such increased rate and; provided, further, -------- ------- that, in the event that a Default Event shall have occurred and shall be continuing, the applicable Dividend Rate then in effect shall increase by 2% of the Liquidation Preference per annum for each full 30-day period during which such Default Event is continuing until such Default Event shall have been cured; provided, further, that the aggregate increase to the Dividend Rate as the result of the occurrence of any Default Event shall not result in the Dividend Rate exceeding the applicable Dividend Rate that would otherwise be in effect if such Default Event had not occurred by more then 10% per annum of the Liquidation Preference. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Indebtedness" of any Person means (a) all liabilities and obligations ------------ of such Person, contingent or otherwise (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services, except those incurred in the ordinary course of business that would constitute ordinarily a trade payable to trade creditors, (iv) evidenced by bankers' acceptances, (v) for payment of money relating to leases that are required to be capitalized for financial reporting purposes under generally accepted accounting principles or (vi) evidenced by a letter of credit or reimbursement obligation of such Person with respect to any letter of credit, (b) all liabilities and obligations of others of the kind described in the preceding clause (a) that such Person has guaranteed or that is otherwise its legal liability or which are secured by the assets or property of such Person and (c) all obligations of such Person to purchase, redeem or acquire any capital stock (other than the Bridge Preferred Stock) arising any time prior to the date that is 180 days after the Initial Redemption Date. "Initial Conversion Date" means the earlier of (i) the Initial Increase ----------------------- Date and (ii) the date on which the Corporation effects, or announces its intention to effect, or enters an agreement to effect, any merger, consolidation, reorganization, sale of all or substantially all of the assets of the Corporation and its Subsidiaries, taken as a whole, any liquidation, dissolution or winding up of the Corporation or any similar transaction. "Initial Increase Date" means the date which is 100 calendar days after --------------------- the Initial Issue Date. "Initial Issue Date" means the date that shares of Bridge Preferred ------------------ Stock are first issued by the Corporation. 5 "Initial Redemption Date" means the earlier of (i) June 21, 2008 and ----------------------- (ii) the date immediately following the date on which the Senior Debt and the Mezzanine Debt (and any Indebtedness incurred to refinance such Senior Debt and Mezzanine Debt) has been paid in full. "Junior Stock" means, for the purposes of paragraph 3 below, Common ------------ Equity, and any class or series of stock of the Corporation which is not entitled to receive any dividends in any Dividend Period unless all dividends required to have been paid or declared and set apart for payment on the Bridge Preferred Stock and any other Parity Stock shall have been so paid or declared and set apart for payment, and for purposes of paragraph 4 below, shall mean Common Equity and any class or series of stock of the Corporation which is not entitled to receive any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Bridge Preferred Stock and any other Parity Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. "Liquidation Preference" shall mean $1,000 per share of Bridge ---------------------- Preferred Stock. "Mezzanine Debt" means the obligations of the Corporation and its -------------- Subsidiaries in respect of those certain senior notes issued pursuant to the Senior Note Purchase Agreement. "Mezzanine Preferred Stock" means of the Series C Senior Participating ------------------------- Preferred Stock, $.01 par value per share, of the Corporation. "Mezzanine Preferred Stock Certificate of Designations" means the ----------------------------------------------------- Certificate of Designations of the Series C Senior Participating Preferred Stock, $.01 par value per share, of the Corporation. "Optional Conversion Date" has the meaning set forth in paragraph 5(c) ------------------------ below. "Parity Stock" means, for purposes of paragraph 3 below, and any class ------------ or series of stock of the Corporation authorized after the Initial Issue Date which is entitled to receive payment of dividends on a parity with the Bridge Preferred Stock without preference or priority of one over the other and, for purposes of paragraph 4 below, shall mean any class or series of stock of the Corporation authorized after the Initial Issue Date which is entitled to receive assets upon liquidation, dissolution or winding up of the affairs of the Corporation on a parity with the Bridge Preferred Stock without preference or priority of one over the other. "Permanent Preferred Stock" means the Series D Senior Convertible ------------------------- Participating Preferred Stock, $.01 par value per share, of the Corporation. "Permanent Preferred Stock Certificate of Designations" means the ----------------------------------------------------- Certificate of Designations of the Series D Senior Convertible Participating Preferred Stock, $.01 par value per share, of the Corporation. "Person" means any individual, corporation, association, partnership, ------ joint venture, limited liability Corporation, trust, estate or other entity. "PIK Dividends" has the meaning set forth in subparagraph 3(b) below. ------------- 6 "Preferred Stock Director" has the meaning set forth in paragraph 7(d) ------------------------ below. "Pre-existing Debt" has the meaning set forth in paragraph 7(c) below. ----------------- "Quoted Price" means, with respect to Common Stock, (i) the last ------------ reported sales price of the Common Stock on the New York Stock Exchange or (ii) if not listed on the New York Stock Exchange, the last reported sales price of the Common Stock on such other principal exchange on which the Common Stock is listed or admitted for trading or (iii) if not listed or admitted for trading on a securities exchange, the last reported sales price for Common Stock as reported by the National Association of Securities Dealers, Inc. Automatic Quotations Systems - National Market System, or (iv) if not so reported or listed or admitted for trading, the last reported bid price of the applicable security in the over-the-counter market. In the event that the Quoted Price cannot be determined as aforesaid, the Board of Directors of the Corporation shall determine the Quoted Price on the basis of such quotations as it in good faith considers appropriate. Such determination may be challenged in good faith by holders of a majority of the shares of Bridge Preferred Stock then outstanding, and any dispute shall be resolved at the prevailing party's cost, by the determination of an investment banking firm of recognized national standing selected by the Corporation and acceptable to such holders of a majority of the shares of Bridge Preferred Stock, which determination shall be made in good faith and be conclusive absent manifest error. "Record Date" means the date designated by the Board of Directors of ----------- the Corporation at the time a dividend is declared; provided, however, that such Record Date shall not be more than sixty (60) days nor less than ten (10) days prior to the respective Dividend Payment Date or such other date designated by the Board of Directors for the payment of dividends. "Redemption Date" with respect to any share of Bridge Preferred Stock --------------- means the date on which such share of Bridge Preferred Stock is required to be redeemed pursuant to paragraph 6 hereof. "Redemption Demand" has the meaning set forth in paragraph 6(b) below. ----------------- "Redemption Price" means a price per share equal to the Liquidation ---------------- Preference per share, plus an amount equal to all cumulative dividends accrued and unpaid on such share to the Redemption Date. "Repurchase Event" means the consummation of any transaction involving ---------------- (i) the issuance or sale of any capital stock, equity securities, Convertible Securities or Rights or Options of the Corporation or any of its Subsidiaries (other than the issuance of securities pursuant to the Senior Note Purchase Agreement, the issuance of shares of capital stock upon the exercise of currently outstanding Convertible Securities or Rights or Options and the issuance of Rights or Options (or capital stock issuable upon the exercise of such Rights or Options) issued to directors, officers, employees or consultants of the Corporation or its Subsidiaries pursuant to a bona fide employee stock ---- ---- ownership or stock option plans adopted by the Corporation's Board of Directors or the Compensation Committee thereof), (ii) any sale, transfer assignment, lease or 7 other disposition of any assets of the Corporation or any of its Subsidiaries other than the sale of inventory in the ordinary course of business resulting in the Corporation and/or its Subsidiaries receiving net cash proceeds in excess of $500,000 and (iii) any issuance or sale of any debt securities or other evidence of Indebtedness by the Corporation or any of its Subsidiaries (excluding any drawing under a revolving credit facility in the ordinary course of business and the issuance of securities pursuant to the Senior Note Purchase Agreement). "Repurchase Event Proceeds" has the meaning set forth in paragraph 9 ------------------------- below. "Repurchase Event Offer" has the meaning set forth in paragraph 9 ---------------------- below. "Repurchase Event Payment" has the meaning set forth in paragraph 9 ------------------------ below. "Repurchase Event Payment Date" has the meaning set forth in paragraph ----------------------------- 9 below. "Required Stockholder Approval" means the affirmative vote of a ----------------------------- majority of shares of the Common Stock and Bridge Preferred Stock represented in person or by proxy at a meeting of the stockholders of the Corporation in favor of approval of the Stockholder Proposal. "Revocation Notice" has the meaning set forth in paragraph 3(f) below. ----------------- "Rights Plan" means the Aviall, Inc. Preferred Stock Purchase Rights ----------- Plan between Aviall, Inc. and The First National Bank of Boston, dated as of December 7, 1993, as amended. "Securities Purchase Agreement" means that Securities Purchase ----------------------------- Agreement, dated as of December 17, 2001, by and among Aviall, Inc., Carlyle Partners III, L.P. and CP III Coinvestment, L.P. "Senior Debt" means the obligations of the Corporation and its ----------- Subsidiaries in respect of all Indebtedness incurred under the Credit Agreement, dated as of December 17, 2001, Aviall Services, Inc., Aviall, Inc., the lenders and issuers party thereto, and Citicorp USA, Inc., as amended, amended and restated, extended, supplemental, refinanced or otherwise modified from time to time, including any agreement extending the maturity of, refinancing or replacing or otherwise restructuring all or any portion of the Indebtedness incurred under such agreement. "Senior Note Purchase Agreement" means that certain Securities Purchase ------------------------------- Agreement dated as of December 17, 2001 by and among the Corporation, Aviall Services, Inc., J. H. Whitney Mezzanine Fund, L.P. and the other purchasers named therein. "Series A Preferred Stock" means the Series A Junior Participating ------------------------ Preferred Stock, $.01 par value per share, of the Corporation. "Significant Subsidiary" means any Subsidiary of the Corporation that ---------------------- would be a "significant subsidiary" as defined in Regulation S-X promulgated by the Securities and Exchange Commission. 8 "Stockholder Proposal" means a proposal that the stockholders of the -------------------- Corporation approve the issuance of the Permanent Preferred Shares issuable upon conversion of the Bridge Preferred Shares and the issuance of the shares of Common Stock issuable upon conversion of the Permanent Preferred Shares. "Subsidiary" means, with respect to any specified Person: ---------- (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Trading Day" means, with respect to any security, any day on which any ----------- market in which the applicable security is then traded and in which a Quoted Price may be ascertained is open for business. "Voting Stock" as of any date means the capital stock of the ------------ Corporation that is at the time entitled to vote in the election of the Board of Directors of the Corporation. 2. Number of Shares and Designations. Five Hundred Thousand (500,000) --------------------------------- shares of the preferred stock, $0.01 par value per share, of the Corporation are hereby constituted as a series of the preferred stock designated as Series B Convertible Participating Preferred Stock (the "Bridge Preferred Stock"). ---------------------- 3. Dividends. --------- (a) The record holders of Bridge Preferred Stock shall be entitled to receive dividends payable by the Corporation at the Dividend Rate. Such dividends shall be cumulative from the Initial Issue Date and shall be payable quarterly in arrears as provided in subparagraphs 3(b) and 3(c) below. (b) Dividends on the Bridge Preferred Stock shall be paid on each share of Bridge Preferred Stock, at the option of the holder thereof (which option shall be exercised as provided in subparagraph 3(f)) either (i) in cash, to the extent permitted under the terms of the Senior Debt and the Mezzanine Debt (such dividends being referred to as the "Cash Dividends"), or (ii) in fully paid and -------------- nonassessable shares of Bridge Preferred Stock valued at $1,000 per share (such dividends paid in kind (including any dividends payable in kind pursuant to the proviso to this sentence) being herein called "PIK Dividends"); provided, ------------- --------- however, that, to the extent that the Corporation fails to pay Cash Dividends - ------- required to be paid by the Corporation for any Dividend Period, the Corporation shall be required to pay dividends for such Dividend Period in additional 9 fully paid and nonassessable shares of Bridge Preferred Stock valued at $1,000 per share. PIK Dividends shall be paid by delivering to the record holders of Bridge Preferred Stock of a number of shares of Bridge Preferred Stock determined by dividing the total amount of the aggregate dollar amount of dividends accrued and unpaid with respect to such record holder of shares of Bridge Preferred Stock during the applicable Dividend Payment Period (rounded to the nearest whole cent) by the Liquidation Preference. The Corporation shall not issue fractional shares of Bridge Preferred Stock to which holders may become entitled pursuant to this subparagraph, but in lieu thereof, the Corporation shall deliver its check in an amount equal to the applicable fraction of the Liquidation Preference. Any additional shares of Bridge Preferred Stock issued pursuant to this paragraph shall be governed by this resolution and shall be subject in all respects, except as to the date of issuance and date from which dividends accrue and cumulate as set forth below, to the same terms as the shares of Bridge Preferred Stock originally issued hereunder. (c) Dividends on shares of Bridge Preferred Stock shall accrue and be cumulative from and including the Initial Issue Date to and including the date on which such shares shall have been converted into Common Stock or redeemed pursuant to paragraph 6 hereof or repurchased pursuant to paragraph 8 or paragraph 9 hereof. Such dividends shall accrue whether or not there shall be (at the time such dividend becomes payable or at any other time) profits, surplus or other funds of the Corporation legally available for the payment of dividends. The PIK Dividends shall be paid whether or not declared and whether or not there are profits, surplus or other funds of the Corporation legally available for payment of dividends. The Cash Dividends shall be payable when, as and if declared by the Board of Directors of the Corporation out of funds legally available for the payment of dividends. Dividends shall be payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year (a "Dividend Payment Date"), commencing on the first Dividend Payment Date --------------------- following the Initial Issue Date, and for dividends paid on PIK Dividends, commencing on the first Dividend Payment Date after such shares are issued. If any Dividend Payment Date occurs on a day that is not a Business Day, any accrued dividends otherwise payable on such Dividend Payment Date shall be paid on the next succeeding Business Day. The amount of dividends payable on Bridge Preferred Stock for each full Dividend Period shall be computed by dividing by four (4) the annual dividend at the Dividend Rate set forth in subparagraph 3(a) above. Dividends shall be paid to the holders of record of the Bridge Preferred Stock as their names shall appear on the share register of the Corporation on the Record Date for such dividend. Dividends payable in any Dividend Period which is less than a full Dividend Period in length will be computed on the basis of a ninety (90) day quarterly period and actual days elapsed in such Dividend Period. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time to holders of record on the Record Date therefore. For any Dividend Period in which dividends are not paid in full on the Dividend Payment Date first succeeding the end of such Dividend Period, then on such Dividend Payment Date such accrued and unpaid dividends shall be added to the Liquidation Preference of the Bridge Preferred Stock effective at the beginning of the Dividend Period succeeding the Dividend Period as to which such dividends were not paid and shall thereafter accrue additional dividends in respect thereof at the rate set forth in subparagraph 3(a) above until such accrued and unpaid dividends have been paid in full. (d) So long as ten percent (10%) of the shares of Bridge Preferred Stock issued pursuant to the Securities Purchase Agreement shall be outstanding, the Corporation shall not declare, pay or set apart for payment on any Junior Stock any dividends whatsoever, whether in 10 cash, property or otherwise (other than dividends payable in shares of the class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Junior Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall the Corporation make any distribution on any Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Junior Stock, unless all dividends to which the holders of Bridge Preferred Stock shall have been entitled for all previous Dividend Periods shall have been paid or declared and a sum of money or PIK Dividends, as applicable (as provided in subparagraph 3(b)), sufficient for the payment thereof has been set apart. In addition, in the event that the Corporation declares and/or pays any dividend or other distribution on the Common Stock (other than a dividend payable solely in shares of Common Stock), the Corporation shall, at the time of such declaration and payment, declare and pay a dividend or other distribution on the Bridge Preferred Stock consisting of the dividend or distribution that would have been payable on the shares of Common Stock issuable upon conversion of the Bridge Preferred Stock if the Bridge Preferred Stock had been converted into Common Stock immediately prior to the record date for such dividend or distribution, or, if no such record was taken, the date as of which the record holders of Common Stock entitled to such dividend or distribution were determined. Any such dividend or distribution declared, or required to be declared or to be paid, on the Bridge Preferred Stock shall be deemed to have "accrued" on the Bridge Preferred Stock for all purposes of this Paragraph 3 and shall remain an "accrued dividend" on the Bridge Preferred Stock for all purposes of this Section until paid. (e) In the event that full Cash Dividends are not paid or made available to the holders of all outstanding shares of Bridge Preferred Stock and of any Parity Stock on the applicable Dividend Payment Date and funds available for payment of Cash Dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of Cash Dividends shall be distributed ratably among all such holders of Bridge Preferred Stock and of any Parity Stock in proportion to the full amount to which they would otherwise be respectively entitled. (f) Each holder of shares of Bridge Preferred Stock that has not delivered to the Corporation a Cash Election Notice (as defined below) shall be deemed for the purposes of subparagraph 3(a) to have elected to receive dividends on such holder's shares of Bridge Preferred Stock in additional fully paid and nonassessable shares of Bridge Preferred Stock unless such holder subsequently delivers to the Corporation a Cash Election Notice. At any time and from time to time after the Initial Issue Date, to the extent permitted by the terms of the Senior Debt and the Mezzanine Debt, any holder of shares of Bridge Preferred Stock may provide to the Corporation a notice (a "Cash Election ------------- Notice") indicating such holder's election (as contemplated by subparagraph - ------ 3(a)) to receive dividends on such holder's shares of Bridge Preferred Stock in cash in lieu of fully paid and nonassessable shares of Bridge Preferred Stock. For each Dividend Period occurring after the receipt of such a Cash Election Notice from a holder of Bridge Preferred Stock, to the extent permitted by the terms of the Senior Debt and the Mezzanine Debt, such holder shall be deemed to have elected in accordance with subparagraph 3(a) to receive dividends in respect of the shares of Bridge Preferred Stock held by such holder in cash, unless such holder subsequently delivers to the Corporation a Revocation Notice. Any holder of shares of Bridge Preferred Stock 11 that has delivered to the Corporation a Cash Election Notice may subsequently deliver to the Corporation a notice (a "Revocation Notice") revoking such Cash ----------------- Election Notice. For each Dividend Period occurring after receipt of a Revocation Notice from a holder of Bridge Preferred Stock that has delivered to the Corporation a Revocation Notice, such holder shall be deemed to have elected in accordance with subparagraph 3(a) to receive dividends in respect of the shares of Bridge Preferred Stock held by such holder in additional fullypaid and nonassessable shares of Bridge Preferred Stock unless such holder subsequently delivers to the Corporation another Cash Election Notice. 4. Distributions Upon Liquidation, Dissolution or Winding Up. --------------------------------------------------------- (a) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation (in connection with the bankruptcy or insolvency of the Corporation or otherwise), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Stock, the holders of Bridge Preferred Stock shall be entitled to be paid out of the assets of the Corporation in cash or property at its fair market value as determined by the Board of Directors of the Corporation an amount per share equal to the Liquidation Preference plus an amount equal to all dividends accrued and unpaid thereon to the date of such liquidation or dissolution or such other winding up. (b) If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment in full of the Liquidation Preference per share plus an amount equal to all dividends accrued and unpaid on the Bridge Preferred Stock and the full liquidating payments on all Parity Stock, then the assets of the Corporation or the proceeds thereof shall be ratably distributed among the holders of Bridge Preferred Stock and of any Parity Stock in proportion to the full amounts to which they would otherwise be entitled if all amounts payable thereon were paid in full. (c) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation upon completion of the distributions and payments required by subparagraph 4(a) and any other distributions and payments that may be required with respect to any other series of preferred stock that may be authorized after the Initial Issue Date, the remaining assets of the Corporation shall be distributed among the holders of the then outstanding shares of Common Stock and Bridge Preferred Stock, pro rata based on the number of shares of Common Stock held by each such --- ---- holder (where, for this purpose, the holders of the Bridge Preferred Stock shall be deemed to hold the number of shares of Common Stock then issuable upon conversion in full of such shares of Bridge Preferred Stock). (d) Written notice of any liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when and the place where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than 30 days prior to any payment date stated therein, to the holders of record of the shares of Bridge Preferred stock at their address as the same shall appear in the records of the Corporation. 5. Conversion Rights. ----------------- 12 (a) Following the Initial Conversion Date, each of share of Bridge Preferred Stock shall be convertible at the option of the holder, at any time before the close of business on the Business Day preceding the Redemption Date (unless the Corporation shall default in payment of the Redemption Price, in which case, the right of conversion shall be reinstated), into (i) a number of fully paid and non-assessable shares of Common Stock equal to (x) the Liquidation Preference of such share of Bridge Preferred Stock, plus all accrued and unpaid dividends thereon, divided by (y) the Conversion Price and (ii) one (1) share of Mezzanine Preferred Stock. Immediately following such conversion, the rights of the holders of converted Bridge Preferred Stock shall cease and the persons entitled to receive the Common Stock and Mezzanine Preferred Stock upon the conversion of Bridge Preferred Stock shall be treated for all purposes as having become the owners of such Common Stock and Mezzanine Preferred Stock. (b) If the Required Stockholder Approval is obtained on or prior to the first anniversary of the Initial Issue Date, each share of Bridge Preferred Stock shall be automatically converted into one (1) share of Permanent Preferred Stock, without any further action on the part of the Corporation or any holder of Bridge Preferred Stock. If the Required Stockholder Approval is not obtained prior to the first anniversary of the Initial Issue Date, (i) the Bridge Preferred Stock will not automatically convert into shares of Permanent Preferred Stock upon receipt of the Required Stockholder Approval and (ii) each share of Bridge Preferred Stock shall be convertible at the option of the holder, at any time after the date on which the Required Stockholder Approval has been obtained and prior to the close of business on the Business Day preceding the Redemption Date (unless the Corporation shall default in payment of the Redemption Price, in which case, the right of conversion shall be reinstated), into one (1) share of Permanent Preferred Stock. (c) If the Bridge Preferred Stock is converted at the option of the holder, the holder must (i) surrender the certificate or certificates evidencing the shares of Bridge Preferred Stock to be converted, duly endorsed at the principal office of the Corporation or transfer agent for the Bridge Preferred Stock, if any, (ii) notify the Corporation at such office that such holder elects to convert Bridge Preferred Stock, and the number of shares such holder wishes to convert, (iii) state in writing the name or names in which such holder wishes the certificate or certificates for the shares of Common Stock and Mezzanine Preferred Stock or the Permanent Preferred Stock, as the case may be, to be issued, and (iv) pay any transfer or similar tax if required (provided, -------- however, that no such payment shall be required if the Common Stock and - ------- Mezzanine Preferred Stock or the Permanent Preferred Stock, as the case may be, issuable upon conversion is to be issued in the name of the converting holder of Bridge Preferred Stock). In the case of lost or destroyed certificates evidencing ownership of shares of Bridge Preferred Stock to be surrendered for conversion, the holder shall submit such proof of loss or destruction and, if requested by the Corporation, an appropriate indemnity, reasonably required by the Corporation. In the event that a holder fails to notify the Corporation of the number of shares of Bridge Preferred Stock which he wishes to convert, he shall be deemed to have elected to convert all shares represented by the certificate or certificates surrendered for conversion. The date on which the holder satisfies all those requirements is the "Optional Conversion Date." As ------------------------ soon as practicable after the Optional Conversion Date, the Corporation shall deliver or shall deliver through its transfer agent a certificate for the number of full shares of Common Stock and Mezzanine Preferred Stock or Permanent Preferred Stock, as the case may be, issuable upon the conversion, a check for any fractional share and a new certificate representing the unconverted portion, if any, of the shares of Bridge Preferred 13 Stock represented by the certificate or certificates surrendered for conversion. The person in whose name the Common Stock and Mezzanine Preferred Stock certificates or the Permanent Preferred Stock certificate, as the case may be, are registered shall be treated as the stockholder of record on and after the Optional Conversion Date until such time as the record ownership is transferred. All shares of Common Stock, Mezzanine Preferred Stock or Permanent Preferred Stock, as the case may be, issuable upon conversion of the Bridge Preferred Stock shall be fully paid and nonassessable. In the case of Bridge Preferred Stock that has been converted after any Record Date but before the next succeeding Dividend Payment Date, dividends that are payable on such Dividend Payment Date in an amount equal to the pro rata portion of the dividend for the portion of the Dividend Period that Bridge Preferred Stock was outstanding shall be payable on such Dividend Payment Date notwithstanding such conversion, and such dividends shall be paid to the Person who was the holder of such Bridge Preferred Stock on such Record Date (and shall not constitute "accrued and unpaid dividends" for purposes of paragraph 5(a)). No other payment or adjustment for dividends, or for any dividends in respect of shares of Common Stock shall be made upon conversion. Holders of Common Stock issued upon conversion shall not be entitled to receive any dividend payable to holders of Common Stock as of any record time before the close of business on the Conversion Date. If a holder of Bridge Preferred Stock converts more than one share at a time the number of full shares of Common Stock and Mezzanine Preferred Stock or Permanent Preferred Stock, as the case may be, issuable upon conversion shall be based on the total number of all shares of Bridge Preferred Stock converted. (b) If the Bridge Preferred Stock is converted automatically pursuant to subparagraph 5(b), such conversion shall be effective for all purposes on the date that the Required Stockholder Approval has been obtained (the "Automatic --------- Conversion Date"). Following the Automatic Conversion Date, the holder of - --------------- certificates formerly evidencing shares of Bridge Preferred Stock shall (i) surrender the certificate or certificates evidencing the shares of Bridge Preferred Stock to be converted, duly endorsed at the principal office of the Corporation or transfer agent for the Bridge Preferred Stock, if any, and (ii) notify the Corporation in writing of the name or names in which such holder wishes the certificate or certificates for shares of Permanent Preferred Stock to be issued. In the case of lost or destroyed certificates formerly evidencing ownership of shares of Bridge Preferred Stock to be surrendered, the holder shall submit such proof of loss or destruction and, if requested by the Corporation, an appropriate indemnity, reasonably required by the Corporation. The date on which the holder satisfies the foregoing requirements is referred to as the "Delivery Date." As soon as practicable after the Delivery Date, the ------------- Corporation shall deliver or shall deliver through its transfer agent a certificate for the number of full shares of Permanent Preferred Stock issuable upon such conversion. Notwithstanding the foregoing, regardless of whether a holder shall have surrendered such holder's certificates evidencing shares of Bridge Preferred Stock and/or received in respect thereof certificates evidencing shares of Permanent Preferred Stock, such holder shall from and after the Automatic Conversion Date be treated for all purposes as a record holder of the number of shares of Permanent Preferred Stock into which such holder's shares of Bridge Preferred Stock shall have been converted and the certificate held by such holder formerly representing ownership of shares of Bridge Preferred Stock shall, until surrendered in exchange for new certificates evidencing shares of Permanent Preferred Stock as contemplated above, be deemed for all purposes to evidence the shares of Permanent Preferred Stock issuable upon conversion of the shares of Bridge Preferred Stock formerly held by such holder until such time as record ownership is transferred. All shares of Permanent Preferred Stock issuable upon 14 conversion of the Bridge Preferred Stock shall be fully paid and nonassessable. In the event that the Automatic Conversion Date occurs after any Record Date but before the next succeeding Dividend Payment Date, dividends that are payable on such Dividend Payment Date in an amount equal to the pro rata portion of the dividend for the portion of the Dividend Period that such Bridge Preferred Stock was outstanding shall be payable on such Dividend Payment Date notwithstanding such conversion, and such dividends shall be paid to the Person who was the holder of such Bridge Preferred Stock on such Record Date (and shall not constitute "accrued and unpaid dividends" for purposes of paragraph 5(a)). (e) The Corporation shall not issue a fractional share of Common Stock upon conversion of Bridge Preferred Stock. Instead, the Corporation shall deliver a check for an amount equal to the value of the fractional share. The value of a fraction of a share is determined by multiplying the Current Market Price of the Common Stock as of the Optional Conversion Date by the fraction, rounded to the nearest cent. (f) A holder delivering Bridge Preferred Stock for conversion will not be required to pay any taxes or duties in respect of the issue or delivery of Common Stock and Mezzanine Preferred Stock or Permanent Preferred Stock, as the case may be, on conversion but will be required to pay any tax or duty that may be payable in respect of any transfer involved in the issue or delivery of the shares of Common Stock and Mezzanine Preferred Stock or Permanent Preferred Stock, as the case may be. Certificates representing shares of Common Stock and Mezzanine Preferred Stock or Permanent Preferred Stock, as the case may be, will not be issued or delivered unless all taxes and duties, if any, payable by the holder have been paid. (g) The Corporation has reserved and shall continue to reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury and its Permanent Preferred Stock and Mezzanine Preferred Stock enough shares of Common Stock and Permanent Preferred Stock and Mezzanine Preferred Stock to permit the conversion of the Bridge Preferred Stock in full. All shares of Common Stock and Permanent Preferred Stock and Mezzanine Preferred Stock which may be issued upon conversion of Bridge Preferred Stock shall be fully paid and nonassessable. The Corporation will comply with all securities laws regulating the offer and delivery of shares of Common Stock and Permanent Preferred Stock and Mezzanine Preferred Stock upon conversion of Bridge Preferred Stock and will list the shares of Common Stock on each national securities exchange on which the Common Stock is listed. (h) If the Corporation after the Closing Date: 15 (i) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (ii) subdivides its outstanding shares of Common Stock into a greater number of shares; (iii) combines its outstanding shares of Common Stock into a smaller number of shares; or (iv) issues by reclassification of its Common Stock any shares of its capital stock; then the Conversion Price (as in effect immediately prior to such action) shall be proportionately adjusted so that the holder of Bridge Preferred Stock thereafter converted pursuant to subparagraph 5(a) may receive for the same aggregate Conversion Price the aggregate number and kind of shares of capital stock of the Corporation that he would have owned immediately following such action if he had converted Bridge Preferred Stock immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of dividend or distribution and immediately after the effective date of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. If, after an adjustment referred to in clauses (i) through (iv) above, a holder of Bridge Preferred Stock upon conversion of it may receive shares of two or more classes of capital stock of the Corporation, the Corporation shall determine the allocation of the Conversion Price between the classes of capital stock. After such allocation, the conversion rights and the Conversion Price with respect to each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this subparagraph 5(h). (i) If at any time or from time to time after the Initial Issue Date, the Corporation issues or sells, or is deemed by the provisions of this subparagraph 5(i) to have issued or sold, Additional Shares of Common Stock, otherwise than in connection with a transaction described in subparagraph 5(h), for an Effective Price (as hereinafter defined) that is less than the Conversion Price in effect immediately prior to such issue or sale, then, and in each such case, the Conversion Price shall be reduced, as of the close of business on the date of such issue or sale, to the Effective Price at which such Additional Shares of Common Stock are so issued or sold. Notwithstanding the foregoing, no adjustment shall be made pursuant to this subparagraph 5(i) to the extent that such adjustment would constitute a material violation of the rules of the New York Stock Exchange. For the purpose of making any adjustment required under this subparagraph 5(i): "Additional Shares of Common Stock" shall mean all shares of Common --------------------------------- Stock issued by the Corporation, whether or not subsequently reacquired or retired by the Corporation, other than (i) shares of Common Stock and shares of Permanent Preferred Stock issued or issuable upon conversion of Bridge Preferred Stock (including without limitation the issuance of any securities as part of any anti-dilution adjustment made with respect to any securities issued pursuant to the Senior Note Purchase Agreement), (ii) shares of Common Stock issuable upon 16 conversion of Convertible Securities outstanding as of the Closing Date or upon exercise of Rights or Options outstanding on the Closing Date, the issuance of warrants in lieu of the issuance of Common Stock pursuant to the Senior Note Purchase Agreement or the issuance of shares of Common Stock upon exercise of such warrants and (iii) shares of Common Stock issuable pursuant to the Senior Note Purchase Agreement (other than shares of Common Stock issued as part of any anti-dilution adjustment with respect to securities issued pursuant to the Senior Note Purchase Agreement). The "Aggregate Consideration Received" by the Corporation for any -------------------------------- issue or sale (or deemed issue or sale) of securities shall (A) to the extent it consists of cash, be computed at the amount of cash received by the Corporation in connection with such issuance or sale; (B) to the extent it consists of property other than cash, be computed at the fair value of that property; (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options; and (D) if Additional Shares of Common Stock are issued or sold in a public offering or private placement, the consideration shall be deemed to be the amount of cash paid therefor before deducting therefrom any discounts, commissions or placement fees payable by the Corporation to any underwriter or placement agent in connection with the issuance and sale thereof. "Convertible Securities" shall mean stock or other securities ---------------------- convertible into or exchangeable for shares of Common Stock; The "Effective Price" of Additional Shares of Common Stock shall mean --------------- the quotient determined by dividing the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this subparagraph 5(i), for the issue of such Additional Shares of Common Stock by the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this subparagraph 5(i); and "Rights or Options" shall mean warrants, options or other rights to ----------------- purchase or acquire shares of Common Stock or Convertible Securities. For the purpose of making any adjustment to the Conversion Price required under this subparagraph 5(i), if after the Initial Issue Date the Corporation issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Conversion Price, then the Corporation shall be deemed to have issued, at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Shares of Common Stock that is equal to the maximum number of shares of Common Stock issuable upon exercise or conversion of such Rights, Options or Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, 17 received by the Corporation for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of consideration, if any, payable to the Corporation upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that (i) if the -------- ---- minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Corporation shall be deemed to have received the minimum amounts of consideration without reference to such clauses, and (ii) if the minimum amount of consideration payable to the Corporation upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced. On any change ("Pricing Change") in the number of shares of Common Stock -------------- deliverable upon exercise of any Rights or Options or the conversion or exchange of any Convertible Securities or any change in the consideration to be received by the Corporation upon such exercise, conversion or exchange, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had the unexercised portion of such Rights or Options or Convertible Securities been originally issued with the exercise or conversion price in effect following such Pricing Change. On the expiration or cancellation of any Rights or Options that are unexercised, or the termination of the right to convert or exchange any such Convertible Securities, if the Conversion Price shall have been adjusted upon the issuance thereof, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made upon the issuance of such Rights or Options or such Convertible Securities on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such Rights or Options or upon the conversion or exchange of such Convertible Securities. No further adjustment of the Conversion Price shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. (j) In case of any consolidation, amalgamation, arrangement or merger of the Corporation with or into another Person or any merger of another Person with or into the Corporation (other than a transaction to which paragraph 5(h) applies), or in case of any sale or transfer of all or substantially all of the assets of the Corporation, each share of Bridge Preferred Stock then outstanding shall, without the consent of the holder of any Bridge Preferred Stock, become convertible only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock (and other securities, if applicable) into which such Bridge Preferred Stock was convertible immediately prior thereto (assuming such holder of Common Stock (and other securities, if applicable) failed to exercise any rights of election and that such Bridge Preferred Stock was then convertible). Concurrently with the consummation of such transaction, the corporation formed by or surviving any such consolidation or merger if other than the Corporation, or the person to which such sale or conveyance shall have been made, shall enter into a supplemental agreement so 18 providing and further providing for adjustments which shall be as equivalent as may be practicable to the adjustments provided for in this Section. (k) For purposes of any computation respecting consideration received pursuant to a transaction described or contemplated by this paragraph 5, whenever this Certificate of Designation calls for the determination of "fair market value," such fair market value shall be determined in good faith by the Board of Directors as evidenced by a written resolution thereof, subject to the provisions of subparagraph 5(q) below; and: (l) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price. Any adjustments which by reason of this subparagraph (l) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 5 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (m) The Corporation shall take no action that would cause any adjustment under this paragraph 5 that would reduce the Conversion Price below the par value of the Common Stock. (n) Whenever the Conversion Price is adjusted, the Corporation shall promptly mail to holders of Bridge Preferred Stock, first class, postage prepaid, a notice of the adjustment and a certificate from the Corporation's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. Subject to subparagraph 5(q) below, the certificate shall be conclusive evidence that the adjustment is correct. (o) After the Required Stockholder Approval is obtained, the Corporation from time to time may, by a vote of two-thirds of the Board of Directors reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) Business Days and if the reduction is irrevocable during the period, but in no event may the Conversion Price be less than the par value of a share of Common Stock. Whenever the Conversion Price is so reduced, the Corporation shall mail to holders of Bridge Preferred Stock a notice of the reduction. The Corporation shall mail the notice first class, postage prepaid, at least 20 days before the date the reduction in the Conversion Price is to take effect. The notice shall state the reduced Conversion Price and the period it will be in effect. A reduction of the Conversion Price pursuant to this subparagraph 5(o) does not change or adjust the Conversion Price otherwise in effect for purposes of subparagraph 5(h) above. (p) If: (i) the Corporation takes any action that would require an adjustment in the Conversion Price pursuant to clause (iv) of subparagraph 5(h) above; (ii) the Corporation consolidates or merges with, or transfers all or substantially all of its assets to, another corporation, and stockholders of the Corporation must approve the transaction; or (iii) there is a dissolution or liquidation of the Corporation; 19 a holder of Bridge Preferred Stock may want to convert such stock into shares of Common Stock and Mezzanine Preferred Stock or Permanent Preferred Stock, as the case may be, prior to the record date for or the effective date of such transaction. Therefore, the Corporation shall mail to such holders a notice, first class, postage prepaid, stating the proposed record or effective date, as the case may be. The Corporation shall mail such notice at least twenty (20) days before such date. (q) Except as provided in the immediately following sentence, any determination that the Corporation or its Board of Directors must make pursuant to this paragraph 5 shall be conclusive. Whenever the Corporation or its Board of Directors shall be required to make a determination under this paragraph 5, such determination shall be made in good faith and may be challenged in good faith by the holders of a majority of the shares of Bridge Preferred Stock then outstanding (with any shares held by the Corporation or any of its Affiliates not being considered to be outstanding for purposes of this Certificate of Designation), and any dispute shall be resolved, at the prevailing party's expense, by an investment banking firm of recognized national standing selected by the Corporation and acceptable to such holders of a majority of the shares of Bridge Preferred Stock. (r) All shares of Bridge Preferred Stock converted pursuant to this paragraph 5 shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock, without designation as to series and may thereafter be reissued as shares of any series of preferred stock other than Bridge Preferred Stock. (s) The Corporation shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Bridge Preferred Stock against impairment. 6. Redemption by the Corporation. ----------------------------- (a) The Corporation shall (subject to the legal availability of funds therefore) be required to redeem, at the option of the holders of the Bridge Preferred Stock (exercised as provided in subparagraph 6(b)) all outstanding shares of the Bridge Preferred Stock requested to be redeemed by such holders (as provided in subparagraph 6(b)), at the Redemption Price, on or at any time following the Initial Redemption Date. (b) Notice shall be sent by or on behalf of the Corporation not more than sixty (60) days nor less than thirty (30) days prior to the Initial Redemption Date, by first class mail, postage prepaid, to all holders of record of the Bridge Preferred Stock at their respective last addresses as they shall appear on the books of the Corporation notifying each such holder that all shares of Bridge Preferred Stock are eligible for redemption by the Corporation; provided, however, that no failure to give such notice or any defect therein or in the mailing thereof shall (i) relieve the Corporation from its obligation to redeem the Bridge Preferred Stock pursuant to this paragraph 6 or (ii) affect the validity of the proceedings for the redemption of any shares of Bridge Preferred Stock; provided that the Corporation shall be obligated in accordance with this paragraph 6 to redeem shares of Bridge Preferred Stock held by any holder to whom the Corporation has failed to give 20 notice or as to whom notice was defective. In addition to any information required by law or by the applicable rules of any exchange upon which Bridge Preferred Stock may be listed or admitted to trading, such notice shall state: (i) the Initial Redemption Date; (ii) the Redemption Price; (iii) the place or places in the United States where certificates for such shares are to be surrendered for payment of the Redemption Price; (iv) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date; (v) the Conversion Price; (vi) that Bridge Preferred Stock called for redemption may be converted at any time before the close of business on the Redemption Date; and (vii) that holders of Bridge Preferred Stock must satisfy the requirements of paragraph 5 above if such holders desire to convert such shares. In order for the Bridge Preferred Stock to be redeemed at the option of the holder, the holder must (i) notify the Corporation at such office that such holder elects to have the Corporation redeem it shares of Bridge Preferred Stock and the number of shares such holder wishes to have redeemed (any such notice being referred to as a "Redemption Demand") and (ii) surrender the certificate or certificates ----------------- evidencing the shares of Bridge Preferred Stock to be redeemed, duly endorsed at the office of the Corporation or transfer agent for the Bridge Preferred Stock. In the case of lost or destroyed certificates evidencing ownership of shares of Bridge Preferred Stock to be surrendered for redemption, the holder shall submit such proof of loss or destruction and, if requested by the Corporation, an appropriate indemnity, reasonably required by the Corporation. In the event that a holder fails to notify the Corporation of the number of shares of Bridge Preferred Stock which he wishes to redeem, he shall be deemed to have elected to redeem all shares represented by the certificate or certificates surrendered for conversion. Upon satisfaction of the foregoing requirements the Corporation shall on the later of (i) the Initial Redemption Date and (ii) the date on which such requirements are satisfied, redeem for the Redemption Price the shares of Bridge Preferred Stock for which such requirements have been satisfied. As soon as practicable after the Redemption Date and in any event within five (5) Business Days of the Redemption Date, the Corporation shall deliver or cause to be delivered to the holder of shares of Bridge Preferred Stock, the Redemption Price for such shares of Bridge Preferred Stock for which such holder is seeking redemption. (c) On or prior to each Redemption Date, the Corporation shall deposit the Redemption Price for all shares of Bridge Preferred Stock required to be redeemed pursuant to this paragraph 6 with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the Bridge Preferred Stock, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date, upon receipt of notification from the Corporation that such holder has surrendered his, her or its share certificate to the Corporation pursuant to subparagraph 6(b) above. (d) If a Redemption Demand has been received by the Corporation in accordance with subparagraph 6(b) above with respect to any shares of Bridge Preferred Stock and provided that, on or before the Redemption Date with respect to any shares of Bridge Preferred Stock, all funds necessary for redemption of such shares shall have been set aside by the Corporation, separate and apart from its other funds in trust for the pro rata benefit of the holders of such shares of Bridge Preferred Stock, so as to be, and to continue to be available therefor, then, from and after the Redemption Date, dividends on such shares of Bridge Preferred Stock shall cease to accrue, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Bridge Preferred Stock, and all rights of the holders thereof as shareholders of the 21 Corporation (except the right to receive from the Corporation the Redemption Price) shall cease. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the Redemption Price. (e) Any funds deposited with a bank or trust Corporation for the purpose of redeeming Bridge Preferred Stock shall be irrevocable except that: (i) the Corporation shall be entitled to receive from such bank or trust Corporation the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and (ii) any balance of monies so deposited by the Corporation and unclaimed by the holders of the Bridge Preferred Stock entitled thereto at the expiration of two (2) years from the applicable Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Corporation, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings. (f) No Bridge Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price. If, upon any Redemption Date, the assets of the Corporation legally available to redeem the Bridge Preferred Stock shall be insufficient to redeem all outstanding shares of Bridge Preferred Stock, (i) the Corporation shall redeem that number of shares of Bridge Preferred Stock required to redeem on such Redemption Date that may be redeemed with the assets of the Corporation legally available to redeem the Bridge Preferred Stock (pro rata among the holders of Bridge Preferred Stock --- ---- requesting redemption on such Redemption Date based on the relative number of shares of Bridge Preferred Stock held by such holders) and (ii) any unredeemed shares shall be carried forward and shall be redeemed at such time as funds are legally available to so redeem such shares. All shares of Bridge Preferred Stock which are subject to redemption hereunder but which have not been redeemed due to insufficient legally available funds and assets shall continue to be outstanding and entitled to all dividends, liquidation, conversion and other rights, preferences and privileges of the Bridge Preferred Stock until such shares are converted or redeemed. (g) All shares of Bridge Preferred Stock redeemed pursuant to this paragraph 6 shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock, without designation as to series and may thereafter be reissued as shares of any series of preferred stock other than shares of Bridge Preferred Stock. (h) Except as specifically provided in this paragraph 6, the Bridge Preferred Stock shall not be redeemable. 7. Voting Rights. ------------- 22 In addition to any voting rights provided by law, the holders of shares of Bridge Preferred Stock shall have the following voting rights: (a) So long as any shares of the Bridge Preferred Stock remain outstanding, each share of Bridge Preferred Stock shall entitle the holder thereof to vote on all matters voted on by holders of Common Stock, voting together with the Common Stock as a single class (together with all other classes and series of stock of the Corporation that are entitled to vote as a single class with the Common Stock) at all meetings of the stockholders of the Corporation, or by written consent of the minimum number of shares required to take such action pursuant to Section 228 of the Delaware General Corporation Law. In any vote with respect to which the Bridge Preferred Stock shall vote with the holders of Common Stock as a single class together with all other classes and series of stock of the Corporation that are entitled to vote as a single class with the Common Stock, each share of Bridge Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the number of votes which could be cast in such vote by a holder of the number of shares of Common Stock into which such share of Bridge Preferred Stock is convertible on the record date of such vote or, if no such record date is established, on the date any written consent of stockholders is solicited. Such voting right of the holders of the Bridge Preferred Stock may be exercised at any annual meeting of stockholders, any special meeting of stockholders, or by written consent of the minimum number of shares required to take such action pursuant to Section 228 of the Delaware General Corporation Law. (b) On any matter on which the holders of Bridge Preferred Stock are entitled by law or under the Certificate of Incorporation to vote separately as a class, each such holder shall be entitled to one vote for each share held, and such matter shall be determined by a majority of the votes cast unless the Delaware General Corporation Law or this Certificate of Designations requires approval by a higher percentage. (c) During such time as ten percent (10%) of the shares of Bridge Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Bridge Preferred Stock issued on the Initial Issue Date) are outstanding, the Corporation will not, without the affirmative vote or consent of the holders of at least a majority of the issued and outstanding shares of Bridge Preferred Stock voting together as a separate class: (i) amend, modify, alter, repeal or waive the application of (including by way of merger, consolidation, combination or otherwise) any provision of the Certificate of Incorporation or by-laws of the Corporation or any of its Subsidiaries in any manner that adversely effects the powers, rights, preferences or privileges of the holders of the Bridge Preferred Stock, the Permanent Preferred Stock or the Mezzanine Preferred Stock or enter into any agreement or take any other corporate action (or permit any of its Subsidiaries to enter into any agreement or take any corporate action) which would in any way amend, modify alter, repeal or waive the powers, rights, preferences or privileges of the Bridge Preferred Stock, the Permanent Preferred Stock or the Mezzanine Preferred Stock; 23 (ii) amend (including by way or merger, consolidation, combination or otherwise) in any respect the Permanent Preferred Stock Certificate of Designations or the Mezzanine Preferred Stock Certificate of Designations or subdivide, combine or reclassify the Bridge Preferred Stock, the Permanent Preferred Stock, the Series A Preferred Stock or the Mezzanine Preferred Stock; (iii) create, authorize or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) shares of any class or series of capital stock of the Corporation other than (i) the issuance of shares of Bridge Preferred Stock as PIK Dividends pursuant to subparagraph 3(b) hereof, (ii) the issuance of shares of Common Stock, Mezzanine Preferred Stock or Permanent Preferred Stock upon conversion of the Bridge Preferred Stock, (iii) the issuance of shares of Mezzanine Preferred Stock as dividends on outstanding shares of Mezzanine Preferred Stock as provided in the Mezzanine Preferred Stock Certificate of Designations, (iv) the issuance of shares of Permanent Preferred Stock as dividends on outstanding shares of Permanent Preferred Stock as provided in the Permanent Preferred Stock Certificate of Designations, (v) the issuance of shares of Common Stock upon exercise of Rights and Options or conversion of Convertible Securities outstanding on the Initial Issue Date, (vi) the issuance of securities pursuant to the Senior Note Purchase Agreement, and (vii) the issuance of Options to employees (and the issuance of Common Stock upon exercise thereof) under the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, and the Corporation's Stock Incentive Plan; provided, however, that (A) following the Initial -------- ------- Increase Date, the Corporation shall not issue in any calendar year Options to purchase more than 200,000 shares of Common Stock (adjusted appropriately for any stock split with respect to the Common Stock or any subdivision or combination of the Common Stock) and (B) the per share exercise price of any such Options shall not be less than the conversion price of the Permanent Preferred Stock; (iv) permit any Subsidiary of the Corporation to create, authorize or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any class or series of capital stock of such Subsidiary; (v) consolidate or merger with or into any entity (or permit any Subsidiary to consolidate or merge with or into any entity) or sell assign, transfer, lease convey or otherwise dispose (or permit any Significant Subsidiary of the Corporation to sell, assign, transfer, lease, convey or otherwise dispose) of all or substantially all of the assets of the Corporation or any Significant Subsidiary of the Corporation; 24 (vi) enter into (or permit any Subsidiary of the Corporation to enter into) any transaction involving (a) any payment to, or any sale, lease, transfer or other disposition of any properties or assets to, any Affiliate of the Corporation, (b) any purchase, acquisition or lease of property or assets from any Affiliate of the Corporation, or (c) any loan, guarantee or advance to or from or for the benefit of, or any contract, agreement or lease with, any Affiliate of the Corporation, other than (I) any employment agreement entered into by the Corporation or any of its Subsidiaries in the Corporation or any of its Subsidiaries in the ordinary course of business with any employee of the Corporation or any of its Subsidiaries; (II) any transaction between or among the Corporation and/or its Subsidiaries; (III) payment of directors' fees to Persons who are not otherwise Affiliates of the Corporation other than by reason of their position as an officer or director; (IV) compensation payable to or other benefits provided to, or any agreement to pay such compensation or benefits with, officers and employees of the Corporation; (V) transactions with holders of the Bridge Preferred Stock and (VI) transactions contemplated by the Senior Note Purchase Agreement; (vii) redeem, acquire, purchase, defease or otherwise retire for value or make any other payment or distribution in respect of any shares of capital stock of the Corporation or any Subsidiaries of the Corporation or pay any dividends or make any other distributions on or in respect of any shares of capital stock of the Corporation other than (i) any such redemption, acquisition, purchase, retirement or other payment or distribution in respect of the Bridge Preferred Stock, (ii) any redemption, acquisition, purchase, retirement or other payment or distribution by any Subsidiary of the Corporation in respect of shares of capital stock of such Subsidiary held by the Corporation or another wholly-owned Subsidiary of the Corporation, (iii) the repurchase of shares of Common Stock or options to purchase Common Stock, in each case, issued under the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, and the Corporation's Stock Incentive Plan from terminated or retired employees, to the extent permitted under the terms of the then outstanding Indebtedness of the Corporation and its Subsidiaries, (iv) the acquisition by the Corporation or Aviall Services, Inc. of two (2) outstanding shares of capital stock of Aviall S.A.R.L. from Ryder System, Inc., (v) the cashless exercise of Rights or Options, the cashless exercise of warrants, if any, issued in lieu of the issuance of Common Stock pursuant to the Note Purchase Agreement and the surrender by holders of restricted shares of capital stock of the Corporation in payment of any tax liabilities by such holders pursuant to the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, and the Corporation's Stock Incentive Plan, and (vi) the redemption of rights pursuant to the Rights Plan as in effect on the Closing Date at a redemption price of no greater than $.01; (viii) effect any voluntary liquidation, dissolution or winding-up of the Corporation; 25 (ix) purchase, acquire or lease (or permit any Subsidiary of the Corporation to purchase, acquire or lease), in one transaction or series of related transactions, assets, properties, capital stock or other securities of any Person for consideration having a fair market value in excess of $30,000,000 (other than any (i) inventory purchases in the ordinary course of business pursuant to any contract in effect or executed on or before the Closing Date and (ii) inventory purchases in the ordinary course of business pursuant to any contract to be executed by the Corporation after the Closing Date, but not including initial payments or consideration for inventory, license fees, distribution rights or other similar payments which in the aggregate exceed $30,000,000); (x) engage in, or permit any Subsidiary of the Corporation to engage in, any business other than the businesses in which the Corporation and any of its Subsidiaries are engaged in as of the date hereof and any business reasonably related, incidental or ancillary to such business. (xi) take any action (or permit any Subsidiary of the Corporation to take any action) that would cause a dividend or other distribution to be received by the holders of Bridge Preferred Stock for federal income tax purposes unless such dividend or other distributions is actually received by such holders in cash; or (xii) amend in any respect the Rights Plan or the terms of the Series A Preferred Stock or adopt any rights plan, "poison pill" or other plan or arrangements (other that the Rights Plan as currently in effect), or issue any Rights or other securities to the holders of its Common Stock (other than pursuant to the Rights Plan as currently in effect), intended to result in the dilution of any Person's ownership of Common Stock as a result of such Person becoming the Beneficial Owner of a specified percentage of the Common Stock or other Voting Stock of the Corporation; (xiii) incur or guarantee or permit any Subsidiary of the Corporation to incur or guarantee any Indebtedness if, after giving effect to such incurrence or guarantee, the aggregate principal amount of Indebtedness incurred or guaranteed by the Corporation and/or its Subsidiaries on a consolidated basis during the preceding twelve calendar month period ending on the date of such guarantee or incurrence would exceed $30,000,000, other than Indebtedness incurred (A) pursuant to the Corporation's revolving credit facility in place as of the Initial Issue Date and (B) pursuant to any future refinancings of the Corporation's outstanding Indebtedness on the Closing Date or any Indebtedness of the type in clause (A) above incurred after the Closing Date (such Indebtedness being refinanced being referred to as the "Pre-existing Debt"), not to exceed the ----------------- principal amount of the Pre-existing Debt of the Corporation and its Subsidiaries on the date of such refinancing; 26 (xiv) declare or pay any dividends or make any other distributions in respect of Common Stock or Junior Stock (other than dividends on Common Stock payable solely in additional shares of Common Stock) on outstanding shares of Common Stock or any other class of Junior Stock; or (xv) adopt and/or implement an Annual Operating Plan for any fiscal year unless such Annual Operating Plan has been adopted and approved by a majority of the members of the Board of Directors and a majority of the Preferred Stock Directors; provided, however, that nothing herein shall prohibit the Corporation from distributing rights pursuant to the terms of the certain Rights Agreement, dated as of December 7, 1993, as amended, between the Corporation and BankBoston, N.A. (as successor to the First National Bank of Boston), as Rights Agent, as such Rights Agreement is in effect on the Closing Date. (d) So long as ten percent (10%) of the shares of Bridge Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Bridge Preferred Stock issued on the Initial Issue Date) remain outstanding, (i) except as provided in subparagraph 7(f) or in clause (ii) of this sentence, the number of Directors comprising the Board of Directors shall not exceed eight (8) and (ii) the holders of Bridge Preferred Stock, voting separately as a class, shall have the exclusive right to elect two (2) Directors (each such Director, a "Preferred Stock Director") at any special meeting of ------------------------ stockholders called for such purpose, at each annual meeting of stockholders and in any written consent of stockholders pursuant to Section 228 of the Delaware General Corporation Law; provided, however, that the number of Preferred Stock -------- ------- Directors shall be increased to four (4) Directors (and the total number of Directors shall be increased to ten (10)) in the event that the Required Stockholder Approval has not been obtained on or prior to the Initial Increase Date. So long as ten percent (10%) of the shares of Bridge Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Bridge Preferred Stock issued on the Initial Issue Date) remain outstanding, (i) the Board of Directors shall maintain an Executive Committee and Compensation Committee of the Board of Directors and (ii) at least one of the Preferred Stock Directors shall serve as a member of such Executive Committee and such Compensation Committee. (e) The Preferred Stock Directors elected as provided herein shall serve until the next annual meeting or until their respective successors shall be elected and shall qualify. Any Preferred Stock Director may be removed with or without cause by, and shall not be removed other than by, the vote of the holders of a majority of the outstanding shares of Bridge Preferred Stock, voting separately as a class, at a meeting called for such purpose or by written consent in accordance with Section 228 of the Delaware General Corporate Law. If the office of any Preferred Stock Director becomes vacant by reason of death, resignation, retirement, disqualification or removal from office or otherwise, the remaining Preferred Stock Directors may elect a successor, or, alternatively, the holders of a majority of the outstanding shares of Bridge Preferred Stock, voting separately as a class, at a meeting called for such purpose or by written consent in accordance with Section 228 of the Delaware General Corporation Law may elect a successor. Any such successor shall hold office for the unexpired term in respect of which such vacancy occurred. Upon any termination of the right of the holders of Bridge Preferred Stock to vote for and elect Preferred Stock Directors as herein provided, the Preferred 27 Stock Directors then serving on the Board of Directors may continue to hold their office for the remainder of their term. (f) (i) Upon the occurrence and during the continuation of any Default Event, the holders of Bridge Preferred Stock shall have the exclusive right, voting separately as a class, to elect, in addition to the Preferred Stock Directors, two Directors at the Corporation's next annual meeting of stockholders and at each subsequent annual meeting of stockholders; provided, -------- however, that if such voting rights shall become vested more than 90 days or - ------- less than 20 days before the date prescribed for the annual meeting of stockholders, thereupon the holders of the shares of Bridge Preferred Stock shall be entitled to exercise their voting rights at a special meeting of the holders of shares of Bridge Preferred Stock as set forth in clauses (ii) and (iii) of this subparagraph 7(f). At elections for such Directors, each holder of Bridge Preferred Stock shall be entitled to one vote for each share held. Upon the vesting of such right of the holders of Bridge Preferred Stock, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of outstanding Bridge Preferred Stock as hereinafter set forth. The right of holders of Bridge Preferred Stock, voting separately as a class without regard to series, to elect members of the Board of Directors as aforesaid shall continue until such time as such Default Event has been cured, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent Default Event. (ii) Whenever such voting right shall have vested, such right may be exercised initially either at a special meeting of the holders of shares of Bridge Preferred Stock called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing Directors, and thereafter at such meetings or by the written consent of such holders pursuant to Section 228 of the General Corporation Law of the State of Delaware. (iii) At any time when such voting right shall have vested in the holders of shares of Bridge Preferred Stock entitled to vote thereon, and if such right shall not already have been initially exercised, an officer of the Corporation shall, upon the written request of holders of record of ten percent (10%) of the voting power represented by the shares of such Bridge Preferred Stock then outstanding, addressed to the Treasurer of the Corporation, call a special meeting of holders of shares of such Bridge Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Treasurer of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within 30 days after the personal service of such written request upon the Treasurer of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Treasurer of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the holders of record of ten percent (10%) of the voting power represented by the shares of Bridge Preferred Stock then outstanding may designate in writing any person to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this paragraph. Any holder of shares of Bridge Preferred Stock then 28 outstanding that would be entitled to vote at such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this paragraph. Notwithstanding the provisions of this paragraph, however, no such special meeting shall be called or held during a period within 45 days immediately preceding the date fixed for the next annual meeting of stockholders. (iv) The directors elected pursuant to this subparagraph 7(f) shall serve until the earlier of (i) the next annual meeting or until their respective successors shall be elected and shall qualify or (ii) until the right of the holders of Bridge Preferred Stock to elect such additional Directors pursuant to this subparagraph 7(f) shall terminate; any Director elected by the holders of Bridge Preferred Stock pursuant to this subparagraph 7(f) may be removed by, and shall not be removed otherwise than by, the vote of the holders of a majority of the voting power of the outstanding shares of the Bridge Preferred Stock who were entitled to participate in such election of directors, voting as a separate class, at a meeting called for such purpose or by written consent as permitted by law and the Certificate of Incorporation and Bylaws of the Corporation. If the office of any Director elected by the holders of Bridge Preferred Stock pursuant to this subparagraph 7(f), voting as a class, becomes vacant by reason of death, resignation, retirement, disqualification or removal from office or otherwise, the remaining Director elected by the holders of Bridge Preferred Stock, voting as a class, may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Upon any termination of the right of the holders of Bridge Preferred Stock to vote for directors as provided in this subparagraph 7(f), the term of office of all Directors then in office elected by the holders of Bridge Preferred Stock, voting as a class, shall terminate immediately. Whenever the terms of office of the Directors elected by the holders of Bridge Preferred Stock, voting as a class, shall so terminate and the special voting powers vested in the holders of Bridge Preferred Stock shall have expired, the number of Directors shall be such number as may be provided for in the Bylaws or Certificate of Incorporation irrespective of any increase made pursuant to the provisions of this subparagraph 7(f). 8. Repurchase Upon Change of Control. To the extent permitted by the terms of --------------------------------- the Senior Debt and the Senior Note Purchase Agreement, if a Change of Control occurs, each holder of the Bridge Preferred Stock shall have the right to require the Corporation to repurchase all or any part of that holder's Bridge Preferred Stock pursuant to the offer described below (the "Change of Control ----------------- Offer"). In the Change of Control Offer, the Corporation shall offer a payment - ----- in cash for each outstanding share of Bridge Preferred Stock equal to the greater of (i) 120% of the Liquidation Preference per share of Bridge Preferred Stock repurchased plus accrued and unpaid dividends, if any, thereon, to the date of repurchase and (ii) the aggregate Current Market Price of all shares of Common Stock issuable upon conversion of Bridge Preferred Stock so repurchased, determined as of the date of such Change of Control (the "Change of Control ----------------- Payment"). Within 30 days following any Change of Control, the Corporation shall - ------- mail a notice to each holder of shares of Bridge Preferred Stock describing the transaction or transactions that constitute the Change of Control and offering to repurchase the Bridge Preferred Stock on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to ------------------------------ the procedures required by this Certificate of Designation and described in such notice. 29 The Corporation shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Bridge Preferred Stock as a result of a Change of Control. On the Change of Control Payment Date, the Corporation shall, to the extent lawful: (1) accept for payment all shares of Bridge Preferred Stock or portions thereof properly tendered pursuant to the Change of Control Offer; (2) promptly mail to each holder of Bridge Preferred Stock so tendered the Change of Control Payment for each share of Bridge Preferred Stock so tendered and promptly authenticate and mail to each such holder a new certificate representing the shares of Bridge Preferred Stock equal in Liquidation Preference to any unpurchased portion of the Bridge Preferred Stock surrendered, if any. This paragraph shall be applicable regardless of whether any other provisions of this Certificate of Designation are applicable. 9. Repurchase Upon the Occurrence of any Repurchase Event. Upon the occurrence ------------------------------------------------------ of any Repurchase Event, to the extent permitted under the terms of the Senior Debt and the Mezzanine Debt, the Corporation shall offer to repurchase all or any part of the Bridge Preferred Stock then outstanding pursuant to the offer described below (the "Repurchase Event Offer"). In the Repurchase Event Offer, ---------------------- the Corporation shall use the net cash proceeds received by the Corporation and/or its Subsidiaries in connection with such Repurchase Event (the "Repurchase Event Proceeds") to repurchase the outstanding shares of Bridge ------------------------- Preferred Stock at a repurchase price equal to the Liquidation Preference, plus all accrued and unpaid dividends thereon through the date of redemption (the "Repurchase Event Payment"). Within 30 days following the occurrence of any ------------------------ Repurchase Event, the Corporation shall mail a notice to each holder of shares of Bridge Preferred Stock describing the transaction or transactions that constitute the Repurchase Event and offering to repurchase the number of shares of Bridge Preferred Stock equal to (x) the Repurchase Event Proceeds, divided by ---------- (y) the Liquidation Preference, on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Repurchase Event Payment Date"), pursuant to the ----------------------------- procedures required by this Certificate of Designations and described in such notice. If the aggregate number of shares of Bridge Preferred Stock shares tendered into such Repurchase Event Offer exceeds the number of shares of Bridge Preferred Stock equal to (x) the Repurchase Event Proceeds, divided by (y) the ---------- Liquidation Preference, the Corporation will select the shares of Bridge Preferred Stock to be repurchased on a pro rata basis, based on the number of shares of Bridge Preferred Stock held by each holder requesting repurchase of such shares. The Corporation shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Bridge Preferred Stock as pursuant to a Repurchase Event Offer. 30 On the Repurchase Event Payment Date, the Corporation shall, to the extent lawful: (1) accept for payment all shares of Bridge Preferred Stock or portions thereof properly tendered pursuant to Repurchase Event Offer; (2) promptly mail to each holder of Bridge Preferred Stock so tendered the Repurchase Event Payment for the shares of Bridge Preferred Stock so tendered and promptly authenticate and mail to each such holder a new certificate representing the shares of Bridge Preferred Stock equal in Liquidation Preference to any unpurchased portion of the Preferred Stock surrendered, if any.This paragraph shall be applicable regardless of whether any other provisions of this Certificate of Designations are applicable. 10. Financial Statements; Information Right. --------------------------------------- (a) Unless such financial statements or reports have been filed with the Commission, whether or not required by the rules and regulations of the Commission, so long as ten percent (10%) of the shares of Bridge Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuances of all shares of Bridge Preferred Stock issued on the Initial Issue Date) is outstanding, the Corporation shall furnish to the holders of Bridge Preferred Stock (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Corporation were required to file such Forms, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Corporation's certified independent accountants, (ii) all monthly financial statements required to be prepared and submitted pursuant to the terms and conditions of the Senior Note Purchase Agreement and (iii) all current reports that would be required to be filed with the Commission on Form 8-K if the Corporation were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Corporation shall file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, for so long as ten percent (10%) of the shares of Bridge Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Bridge Preferred Stock issued on the Initial Issue Date) remains outstanding, the Corporation shall furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (b) The Corporation shall, so long as ten percent (10%) of the shares of Bridge Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuances of all shares of Bridge Preferred Stock issued on the Initial Issue Date) are outstanding, deliver to the holders of Bridge Preferred Stock, forthwith upon any Executive Officer of the Corporation becoming aware of any default under this Certificate of Designations, an Officers' Certificate specifying such default and what action the Corporation is taking or proposes to take with respect thereto. 31 (c) The Corporation shall provide to any holder of Bridge Preferred Stock, upon written request of such holder to the Corporation, such financial and other information concerning the Corporation and its Subsidiaries as may from time to time be reasonably requested by such holder. 11. Modification and Waiver. Except as otherwise provided above, the terms ----------------------- of this Certificate of Designations may be amended and the rights hereunder may be waived only with the consent of holders of a majority of the shares of the Bridge Preferred Stock then outstanding, provided, that if any such modification or waiver has a material adverse effect on the holders' rights with respect to dividends or conversion, then the consent of each holder of Bridge Preferred Stock shall be required. 12. Headings of Subdivisions. The headings of the various subdivisions ------------------------- hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 13. Severability of Provisions. If any voting powers, preferences and -------------------------- relative, participating, optional and other special rights of the Bridge Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of the Bridge Preferred Stock and any qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of the Bridge Preferred Stock or qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of the Bridge Preferred Stock or qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Bridge Preferred Stock or qualifications, limitations and restrictions thereof unless so expressed herein. 14. Record Holders. The Corporation and the transfer agent for the Bridge -------------- Preferred Stock may deem and treat the record holder of any shares of Bridge Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor the transfer agent shall be affected by any notice to the contrary. 15. Notice. Except as may otherwise be provided for herein, all notices ------ referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon receipt, in the case of a notice of conversion given to the Corporation as contemplated in Section 5(b) hereof, or, in all other cases, upon the earlier of receipt of such notice or three Business Days after the mailing of such notice if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Designations) with postage prepaid, addressed: if to the Corporation, to its offices at 2750 Regent Blvd., DFW Airport, Texas 75261, Attention: Secretary or to an agent of the Corporation designated as permitted by this Certificate, or, if to any holder of the Bridge Preferred Stock, to such holder at the address of such holder of the Bridge Preferred Stock as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Bridge Preferred Stock); or to such other address as the Corporation or holder, as the case may be, shall have designated by notice similarly given. 32 16. Merger or Consolidation of the Corporation. The Corporation shall not ------------------------------------------ merge or consolidate with any other Person, or enter into or effect any reorganization, unless the surviving corporation or other entity resulting from such merger, consolidation or reorganization shall make appropriate provision in connection with such merger, consolidation or reorganization such that (i) the shares of Bridge Preferred Stock outstanding immediately prior to the effective time of such merger, consolidation or reorganization remain outstanding immediately following such merger, consolidation or reorganization or (ii) the shares of Bridge Preferred Stock outstanding immediately prior to the effective time of such merger, consolidation or reorganization shall be converted into an equivalent number of shares of convertible preferred stock of such surviving corporation or other entity having terms identical to the terms of the Bridge Preferred Stock, except that such shares of convertible preferred stock of such surviving corporation or other entity shall be convertible into securities or other property as provided in subparagraph 5(j). 33 IN WITNESS WHEREOF, the Corporation has caused this certificate to be duly executed by Paul E. Fulchino, its Chairman, President and CEO, this 21/st/ day of December, 2001. AVIALL, INC. By: /s/ Paul E. Fulchino --------------------------- Name: Paul E. Fulchino Title: Chairman, President and CEO ATTEST: By: /s/ Jeffrey J. Murphy ---------------------------- Name: Jeffrey J. Murphy Title: Senior Vice President, Law & Human Resources, Secretary & General Counsel 34 EX-99 5 dex992.txt EXHIBIT C Exhibit C CERTIFICATE OF DESIGNATIONS OF SERIES C SENIOR PARTICIPATING PREFERRED STOCK OF AVIALL, INC. ------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- THE UNDERSIGNED, being the President of Aviall, Inc., a Delaware corporation (the "Corporation"), does hereby certify that pursuant to ----------- the authority contained in Article Fourth of its Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and in accordance with the ---------------------------- provisions of Section 151(g) of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has adopted the following resolution, which resolution remains in full force and effect on the date hereof: RESOLVED, that there is hereby established a series of authorized preferred stock, having a par value of $0.01 per share, which series shall be designated as "Series C Senior Participating Preferred Stock" (the --------------------------------------------- "Mezzanine Preferred Stock"), consisting of 500,000 shares and having the ------------------------- following voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof: 1. Certain Definitions. ------------------- Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Affiliate" means (i) with respect to any Person, any other --------- Person that directly or indirectly controls or manages, is controlled or managed by, or is under common control or management with such Person, whether through the ownership of equity interests, by contract or otherwise; and (ii) with respect to an individual, in addition to any Person specified in clause (i), the spouse, any parent or any child of such individual and any trust for the benefit of such individual's spouse, parent or child. "Annual Operating Plan" means the annual operating plan of the --------------------- Corporation established by the Corporation for each fiscal year, which shall include, without limitation, the annual capital expenditure and other budgets of the Corporation for such fiscal year. "Beneficial Owner" has the meaning assigned to such term in ---------------- Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning. "Board of Directors" means the Board of Directors of the ------------------ Corporation. "Bridge Preferred Stock" means of the Series B Senior ---------------------- Convertible Participating Preferred Stock, $.01 par value per share, of the Corporation. "Bridge Preferred Stock Certificate of Designations" means the -------------------------------------------------- Certificate of Designations of the Series B Senior Convertible Participating Preferred Stock, $.01 par value per share, of the Corporation. "Business Day" means a day other than a Saturday or Sunday or ------------ a day on which commercial banks in the City of New York are authorized or obligated by law or executive order to close. "Cash Dividends" has the meaning set forth in paragraph 3(b) -------------- below. "Cash Election Notice" has the meaning set forth in paragraph -------------------- 3(f) below. "Change of Control" means the occurrence of any of the ----------------- following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger, consolidation or transfer of the Corporation Voting Stock), in one or a series of related transactions, of all or substantially all of the properties or assets of the Corporation and its Subsidiaries, taken as a whole, to any "person" (as that terms is used in Section 13(d)(3) of the Exchange Act) other than the Corporation or a wholly-owned Subsidiary of the Corporation; (2) the consummation of any transaction or series of related transactions (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the holders of the Mezzanine Preferred Stock, becomes the Beneficial Owner, directly or indirectly, of more than 30% of the Voting Stock of the Corporation, measured by voting power rather than number of shares; 2 (3) a "change of control" or other similar event shall occur under any issue of Indebtedness with an aggregate principal amount in excess of $10,000,000 of the Corporation or its Subsidiaries; or (4) during any period of twelve (12) consecutive months after the Initial Issue Date, the individuals who at the beginning of any such 12-month period constituted the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that (i) any individual becoming a director whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of the stockholders having the right to designate such director (including, without limitation, the exercise by the holders of Mezzanine Preferred Stock of their right to elect directors) and (ii) any director whose election to the Board of Directors or whose nomination for election by the stockholders of the Corporation was approved by majority vote of the Board of Directors, shall, in each such case, be considered as though such individual were a member of the Incumbent Board, but excluding, as a member of the Incumbent Board, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) and further excluding any person who is an affiliate or associate (as those terms are defined in the General Rules and Regulations under the Exchange Act) of any Person having or proposing to acquire beneficial ownership of twenty-five percent (25%) or more of the Voting Stock of the Corporation; or (5) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the respective Beneficial Owners of the Voting Stock immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, Beneficially Own, directly or indirectly, more than fifty percent (50%) of the Voting Stock resulting from such reorganization, merger or consolidation; provided that the occurrence of any event identified in subparagraphs (1) through (5) above that would otherwise be treated as a Change of Control shall not constitute a Change of Control hereunder if (i) the Board of Directors, by vote duly taken, and (ii) the holders of a majority of the outstanding shares of Mezzanine Preferred Stock, by written consent, shall so determine. "Change of Control Offer" has the meaning set forth in ----------------------- paragraph 7 below. "Change of Control Payment" has the meaning set forth in ------------------------- paragraph 7 below. "Change of Control Payment Date" has the meaning set forth in ------------------------------ paragraph 7 below. "Commission" means the United States Securities and Exchange ---------- Commission. 3 "Common Equity" means all shares now or hereafter authorized ------------- of any class of common stock of the Corporation, including the Common Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. "Common Stock" means the common stock, par value $0.01 per ------------ share, of the Corporation. "Corporation" has the meaning set forth in the recitals ----------- above. "Default Event" means the occurrence of any of the following ------------- events: (i) the failure of the Corporation to declare and pay PIK Dividends for any Dividend Period for which the Corporation is required to pay PIK Dividends on the respective Dividend Payment Date; (ii) the failure of the Corporation to redeem, on the Redemption Date, all shares of Mezzanine Preferred Stock, (iii) the failure of the Corporation to purchase any shares of Mezzanine Preferred Stock that it is required to purchase pursuant to paragraph 7 hereof on the Change of Control Payment Date or the failure of the Corporation to purchase any shares of the Mezzanine Preferred Stock required to be repurchased on any Repurchase Sale Payment Date pursuant to paragraph 8 or (iv) the material breach of the provisions of paragraph 6 hereof; provided, that any Default Event referred to in clause (iv) shall be deemed to have been cured in the event that the Corporation rescinds the transaction or other occurrence giving rise to such Default Event such that the economic, legal and/or other effect of such transaction on the holders of the Mezzanine Preferred Stock or on the rights of, privileges and preferences of the Mezzanine Preferred Stock has been removed or rescinded. "Director" means a member of the Corporation's Board of -------- Directors. "Dividend Payment Date" has the meaning set forth in --------------------- subparagraph 3(c) below. "Dividend Period" means the period from, and including, the --------------- Initial Issue Date to, but not including, the first Dividend Payment Date and thereafter, each quarterly period from, and including, each Dividend Payment Date to, but not including, the next Dividend Payment Date. "Dividend Rate" means thirty percent (30%) per annum of ------------- Liquidation Preference. "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. "Indebtedness" of any Person means (a) all liabilities and ------------ obligations of such Person, contingent or otherwise (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services, except those incurred in the ordinary course of business that would constitute ordinarily a trade payable to trade creditors, (iv) evidenced by bankers' acceptances, (v) for payment of money relating to leases that are required to be capitalized for financial reporting purposes under generally accepted accounting principles or 4 (vi) evidenced by a letter of credit or reimbursement obligation of such Person with respect to any letter of credit, (b) all liabilities and obligations of others of the kind described in the preceding clause (a) that such Person has guaranteed or that is otherwise its legal liability or which are secured by the assets or property of such Person and (c) all obligations of such Person to purchase, redeem or acquire any capital stock (other than the Mezzanine Preferred Stock) arising any time prior to the date that is 180 days after the Initial Redemption Date. "Initial Increase Date" means the date which is 100 calendar --------------------- days after the Initial Issue Date. "Initial Issue Date" means the date that shares of Mezzanine ------------------ Preferred Stock are first issued by the Corporation. "Initial Redemption Date" means the earlier of (i) June 21, ----------------------- 2008 and (ii) the date immediately following the date on which the Senior Debt and the Mezzanine Debt (and any Indebtedness incurred to refinance such Senior Debt and Mezzanine Debt) has been paid in full. "Junior Stock" means, for the purposes of paragraph 3 below, ------------ Common Equity, and any class or series of stock of the Corporation which is not entitled to receive any dividends in any Dividend Period unless all dividends required to have been paid or declared and set apart for payment on the Mezzanine Preferred Stock and any other Parity Stock shall have been so paid or declared and set apart for payment, and for purposes of paragraph 4 below, shall mean Common Equity and any class or series of stock of the Corporation which is not entitled to receive any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Mezzanine Preferred Stock and any other Parity Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. "Liquidation Preference" shall mean $1,000 per share of ---------------------- Mezzanine Preferred Stock. "Mezzanine Debt" means the obligations of the Corporation and -------------- its Subsidiaries in respect of those certain senior notes issued pursuant to the Senior Note Purchase Agreement. "Mezzanine Preferred Stock" has the meaning set forth in ------------------------- paragraph 2 below. "Parity Stock" means, for purposes of paragraph 3 below, and ------------ any class or series of stock of the Corporation authorized after the Initial Issue Date which is entitled to receive payment of dividends on a parity with the Mezzanine Preferred Stock without preference or priority of one over the other and, for purposes of paragraph 4 below, shall mean any class or series of stock of the Corporation authorized after the Initial Issue Date which is entitled to receive assets upon liquidation, dissolution or winding up of the affairs of the Corporation on a parity with the Mezzanine Preferred Stock without preference or priority of one over the other. "Permanent Preferred Stock" means the Series D Senior ------------------------- Convertible Participating Preferred Stock, $.01 par value per share, of the Corporation. 5 "Permanent Preferred Stock Certificate of Designations" means ----------------------------------------------------- the Certificate of Designations of the Series D Senior Convertible Participating Preferred Stock, $.01 par value per share, of the Corporation. "Person" means any individual, corporation, association, ------ partnership, joint venture, limited liability Corporation, trust, estate or other entity. "PIK Dividends" has the meaning set forth in subparagraph 3(b) ------------- below. "Pre-existing Debt" has the meaning set forth in paragraph ----------------- 7(c) below. "Preferred Stock Director" has the meaning set forth in ------------------------ paragraph 6(d) below. "Record Date" means the date designated by the Board of ----------- Directors of the Corporation at the time a dividend is declared; provided, however, that such Record Date shall not be more than sixty (60) days nor less than ten (10) days prior to the respective Dividend Payment Date or such other date designated by the Board of Directors for the payment of dividends. "Redemption Date" with respect to any share of Mezzanine --------------- Preferred Stock means the date on which such share of Mezzanine Preferred Stock is required to be redeemed pursuant to paragraph 5 hereof. "Redemption Demand" has the meaning set forth in paragraph ----------------- 5(b) below. "Redemption Price" means a price per share equal to the ---------------- Liquidation Preference per share, plus an amount equal to all cumulative dividends accrued and unpaid on such share to the Redemption Date. "Repurchase Event" means the consummation of any transaction ---------------- involving (i) the issuance or sale of any capital stock, equity securities, Convertible Securities or Rights or Options of the Corporation on any of its Subsidiaries (other than the issuance of securities pursuant to the Senior Note Purchase Agreement, the issuance of shares of capital stock upon the exercise of currently outstanding Convertible Securities or Rights or Options and the issuance of Rights or Options (or capital stock issuable upon the exercise of such Rights or Options) issued to directors, officers, employees or consultants of the Corporation or its Subsidiaries pursuant to a bona fide employee stock ---- ---- ownership or stock option plans adopted by the Corporations' Board of Directors or the Compensation Committee thereof), (ii) any sale, transfer, assignment, lease or other disposition of any assets of the Corporation or any of its Subsidiaries other than the sale of inventory in the ordinary course of business resulting in the Corporation and/or its Subsidiaries receiving net cash proceeds in excess of $500,000 and (iii) any issuance or sale of any debt securities or other evidence of Indebtedness by the Corporation or any of its Subsidiaries (excluding any drawing under a revolving credit facility in the ordinary course of business and the issuance of securities pursuant to the Senior Note Purchase Agreement,). "Repurchase Event Proceeds" has the meaning set forth in ------------------------- paragraph 8 below. 6 "Repurchase Event Offer" has the meaning set forth in ---------------------- paragraph 8 below. "Repurchase Event Payment" has the meaning set forth in ------------------------ paragraph 8 below. "Repurchase EventPayment Date" has the meaning set forth in ---------------------------- paragraph 8 below. "Revocation Notice" has the meaning set forth in paragraph ----------------- 3(f) below. "Rights Plan" means the Aviall, Inc. Preferred Stock Purchase ----------- Rights Plan between Aviall, Inc. and The First National Bank of Boston, dated as of December 7, 1993, as amended. "Securities Purchase Agreement" means that Securities Purchase ----------------------------- Agreement, dated as of December 17, 2001, by and among Aviall, Inc., Carlyle Partners III, L.P. and CP III Coinvestment, L.P. "Senior Debt" means the obligations of the Corporation and its ----------- Subsidiaries in respect of all Indebtedness incurred under the Credit Agreement, dated as of December 17, 2001, Aviall Services, Inc., Aviall, Inc., the lenders and issuers party thereto, and Citicorp USA, Inc., as amended, amended and restated, extended, supplemental, refinanced or otherwise modified from time to time, including any agreement extending the maturity of, refinancing or replacing or otherwise restructuring all or any portion of the Indebtedness incurred under such agreement. "Senior Note Purchase Agreement" means that certain Securities ------------------------------ Purchase Agreement dated as of December 17, 2001 by and among the Corporation, Aviall Services, Inc., J. H. Whitney Mezzanine Fund, L.P. and the other purchasers named therein. "Series A Preferred Stock" means the Series A Junior ------------------------ Participating Preferred Stock, $.01 par value per share, of the Corporation. "Significant Subsidiary" means any Subsidiary of the ---------------------- Corporation that would be a "significant subsidiary" as defined in Regulation S-X promulgated by the Securities and Exchange Commission. "Subsidiary" means, with respect to any specified Person: ---------- (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the 7 only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Voting Stock" as of any date means the capital stock of the ------------ Corporation that is at the time entitled to vote in the election of the Board of Directors of the Corporation. 2. Number of Shares and Designations. Five Hundred Thousand --------------------------------- (500,000) shares of the preferred stock, $0.01 par value per share, of the Corporation are hereby constituted as a series of the preferred stock designated as Series C Senior Participating Preferred Stock (the "Mezzanine Preferred ------------------- Stock"). - ----- 3. Dividends. --------- (a) The record holders of Mezzanine Preferred Stock shall be entitled to receive dividends payable by the Corporation at the Dividend Rate. Such dividends shall be cumulative from the Initial Issue Date and shall be payable quarterly in arrears as provided in subparagraphs 3(b) and 3(c) below. (b) Dividends on the Mezzanine Preferred Stock shall be paid on each share of Mezzanine Preferred Stock, at the option of the holder thereof (which option shall be exercised as provided in subparagraph 3(f)) either (i) in cash, to the extent permitted under the terms of the Senior Debt and the Mezzanine Debt (such dividends being referred to as the "Cash ---- Dividends") or (ii) in fully paid and nonassessable shares of Mezzanine - --------- Preferred Stock valued at $1,000 per share (such dividends paid in kind (including any dividends payable in kind pursuant to the proviso to this sentence) being herein called "PIK Dividends"); provided, however, that, to the ------------- -------- ------- extent that the Corporation fails to pay Cash Dividends required to be paid by the Corporation for any Dividend Period, the Corporation shall be required to pay dividends for such Dividend Period in additional fully paid and nonassessable shares of Mezzanine Preferred Stock valued at $1,000 per share. PIK Dividends shall be paid by delivering to the record holders of Mezzanine Preferred Stock of a number of shares of Mezzanine Preferred Stock determined by dividing the total amount of the aggregate dollar amount of dividends accrued and unpaid with respect to such record holder of sharesof Mezzanine Preferred Stock during the applicable Dividend Payment Period (rounded to the nearest whole cent) by the Liquidation Preference. The Corporation shall not issue fractional shares of Mezzanine Preferred Stock to which holders may become entitled pursuant to this subparagraph, but in lieu thereof, the Corporation shall deliver its check in an amount equal to the applicable fraction of the Liquidation Preference. Any additional shares of Mezzanine Preferred Stock issued pursuant to this paragraph shall be governed by this resolution and shall be subject in all respects, except as to the date of issuance and date from which dividends accrue and cumulate as set forth below, to the same terms as the shares of Mezzanine Preferred Stock originally issued hereunder. (c) Dividends on shares of Mezzanine Preferred Stock shall accrue and be cumulative from and including the Initial Issue Date to and including the date on which such shares shall have been redeemed pursuant to paragraph 5 hereof or repurchased pursuant to paragraph 7 or paragraph 8 hereof. Such dividends shall accrue whether or not there shall be (at the time such dividend becomes payable or at any other time) profits, surplus or other funds of the 8 Corporation legally available for the payment of dividends. The PIK Dividends shall be paid whether or not declared and whether or not there are profits, surplus or other funds of the Corporation legally available for payment of dividends. The Cash Dividends shall be payable when, as and if declared by the Board of Directors of the Corporation out of funds legally available for the payment of dividends. Dividends shall be payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year (a "Dividend Payment ---------------- Date"), commencing on the first Dividend Payment Date following the Initial - ---- Issue Date, and for dividends paid on PIK Dividends, commencing on the first Dividend Payment Date after such shares are issued. If any Dividend Payment Date occurs on a day that is not a Business Day, any accrued dividends otherwise payable on such Dividend Payment Date shall be paid on the next succeeding Business Day. The amount of dividends payable on Mezzanine Preferred Stock for each full Dividend Period shall be computed by dividing by four (4) the annual dividend at the Dividend Rate set forth in subparagraph 3(a) above. Dividends shall be paid to the holders of record of the Mezzanine Preferred Stock as their names shall appear on the share register of the Corporation on the Record Date for such dividend. Dividends payable in any Dividend Period which is less than a full Dividend Period in length will be computed on the basis of a ninety (90) day quarterly period and actual days elapsed in such Dividend Period. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time to holders of record on the Record Date therefore. For any Dividend Period in which dividends are not paid in full on the Dividend Payment Date first succeeding the end of such Dividend Period, then on such Dividend Payment Date such accrued and unpaid dividends shall be added to the Liquidation Preference of the Mezzanine Preferred Stock effective at the beginning of the Dividend Period succeeding the Dividend Period as to which such dividends were not paid and shall thereafter accrue additional dividends in respect thereof at the rate set forth in subparagraph 3(a) above until such accrued and unpaid dividends have been paid in full. (d) So long as (i) ten percent (10%) of the Bridge Preferred Stock issued on the Closing Date or (ii) if no Bridge Preferred Stock is outstanding, ten percent (10%) of the shares of Mezzanine Preferred Stock issued on the Initial Issue Date (after giving effect to the issuance of all shares of Mezzanine Preferred Stock issued on the Initial Issue Date) shall be outstanding, the Corporation shall not declare, pay or set apart for payment on any Junior Stock any dividends whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Junior Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall the Corporation make any distribution on any Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries of which it owns not less than a majority of the outstanding voting power nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Junior Stock, unless all dividends to which the holders of Mezzanine Preferred Stock shall have been entitled for all previous Dividend Periods shall have been paid or declared and a sum of money or PIK Dividends, as applicable (as provided in subparagraph 3(b)), sufficient for the payment thereof has been set apart. Any such dividend or distribution declared, or required to be declared or to be paid, on the Mezzanine Preferred Stock shall be deemed to have "accrued" on the Mezzanine Preferred Stock for all purposes of this paragraph 3 and shall remain an "accrued dividend" on the Mezzanine Preferred Stock for all purposes of this Section until paid. 9 (e) In the event that full Cash Dividends are not paid or made available to the holders of all outstanding shares of Mezzanine Preferred Stock and of any Parity Stock on the applicable Dividend Payment Date and funds available for payment of Cash Dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of Cash Dividends shall be distributed ratably among all such holders of Mezzanine Preferred Stock and of any Parity Stock in proportion to the full amount to which they would otherwise be respectively entitled. (f) Each holder of shares of Mezzanine Preferred Stock that has not delivered to the Corporation a Cash Election Notice (as defined below) shall be deemed for the purposes of subparagraph 3(a) to have elected to receive dividends on such holder's shares of Mezzanine Preferred Stock in additional fully paid and nonassessable shares of Mezzanine Preferred Stock unless such holder subsequently delivers to the Corporation a Cash Election Notice. At any time and from time to time after the Initial Issue Date, to the extent permitted by the terms of the Senior Debt and the Mezzanine Debt, any holder of shares of Mezzanine Preferred Stock may provide to the Corporation a notice (a "Cash Election Notice") indicating such holder's election (as -------------------- contemplated by subparagraph 3(a)) to receive dividends on such holder's shares of Mezzanine Preferred Stock in cash in lieu of fullypaid and nonassessable shares of Mezzanine Preferred Stock. For each Dividend Period occurring after the receipt of such a Cash Election Notice from a holder of Mezzanine Preferred Stock, to the extent permitted by the terms of the Senior Debt and the Mezzanine Debt, such holder shall be deemed to have elected in accordance with subparagraph 3(a) to receive dividends in respect of the shares of Mezzanine Preferred Stock held by such holder in cash, unless such holder subsequently delivers to the Corporation a Revocation Notice. Any holder of shares of Mezzanine Preferred Stock that has delivered to the Corporation a Cash Election Notice may subsequently deliver to the Corporation a notice (a "Revocation ---------- Notice") revoking such Cash Election Notice. For each Dividend Period occurring - ------ after receipt of a Revocation Notice from a holder of Mezzanine Preferred Stock that has delivered to the Corporation a Revocation Notice, such holder shall be deemed to have elected in accordance with subparagraph 3(a) to receive dividends in respect of the shares of Mezzanine Preferred Stock held by such holder in additional fullypaid and nonassessable shares of Mezzanine Preferred Stock unless such holder subsequently delivers to the Corporation another Cash Election Notice. 4. Distributions Upon Liquidation, Dissolution or Winding Up. --------------------------------------------------------- (a) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation (in connection with the bankruptcy or insolvency of the Corporation or otherwise), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Stock, the holders of Mezzanine Preferred Stock shall be entitled to be paid out of the assets of the Corporation in cash or property at its fair market value as determined by the Board of Directors of the Corporation an amount per share equal to the Liquidation Preference plus an amount equal to all dividends accrued and unpaid thereon to the date of such liquidation or dissolution or such other winding up. (b) If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment 10 in full of the Liquidation Preference per share plus an amount equal to all dividends accrued and unpaid on the Mezzanine Preferred Stock and the full liquidating payments on all Parity Stock, then the assets of the Corporation or the proceeds thereof shall be ratably distributed among the holders of Mezzanine Preferred Stock and of any Parity Stock in proportion to the full amounts to which they would otherwise be entitled if all amounts payable thereon were paid in full. (c) Written notice of any liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when and the place where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than 30 days prior to any payment date stated therein, to the holders of record of the shares of Mezzanine Preferred stock at their address as the same shall appear in the records of the Corporation. 5. Redemption by the Corporation. ----------------------------- (a) The Corporation shall (subject to the legal availability of funds therefore) be required to redeem, at the option of the holders of the Mezzanine Preferred Stock (exercised as provided in subparagraph 5(b)), all outstanding shares of the Mezzanine Preferred Stock requested to be redeemed by such holders (as provided in subparagraph 5(b)), at the Redemption Price, on or at any time following the Initial Redemption Date. (b) Notice shall be sent by or on behalf of the Corporation not more than sixty (60) days nor less than thirty (30) days prior to the Initial Redemption Date, by first class mail, postage prepaid, to all holders of record of the Mezzanine Preferred Stock at their respective last addresses as they shall appear on the books of the Corporation notifying each such holder that all shares of Mezzanine Preferred Stock are eligible for redemption by the Corporation; provided, however, that no failure to give such notice or any defect therein or in the mailing thereof shall (i) relieve the Corporation from its obligation to redeem the Mezzanine Preferred Stock pursuant to this paragraph 5 or (ii) affect the validity of the proceedings for the redemption of any shares of Mezzanine Preferred Stock; provided that the Corporation shall be obligated in accordance with this paragraph 5 to redeem shares of Mezzanine Preferred Stock held by any holder to whom the Corporation has failed to give notice or as to whom notice was defective. In addition to any information required by law or by the applicable rules of any exchange upon which Mezzanine Preferred Stock may be listed or admitted to trading, such notice shall state: (i) the Initial Redemption Date; (ii) the Redemption Price; (iii) the place or places in the United States where certificates for such shares are to be surrendered for payment of the Redemption Price; and (iv) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date. In order for the Mezzanine Preferred Stock to be redeemed at the option of the holder, the holder must (i) notify the Corporation at such office that such holder elects to have the Corporation redeem it shares of Mezzanine Preferred Stock and the number of shares such holder wishes to have redeemed (any such notice being referred to as a "Redemption Demand") and (ii) surrender the certificate or ----------------- certificates evidencing the shares of Mezzanine Preferred Stock to be redeemed, duly endorsed at the office of the Corporation or transfer agent for the Mezzanine Preferred Stock. In the case of lost or destroyed certificates evidencing ownership of shares of Mezzanine Preferred Stock to be surrendered for redemption, the holder shall submit such proof of loss or destruction and, if requested by the Corporation, an appropriate indemnity, reasonably required by the Corporation. In 11 the event that a holder fails to notify the Corporation of the number of shares of Mezzanine Preferred Stock which he wishes to redeem, he shall be deemed to have elected to redeem all shares represented by the certificate or certificates surrendered for conversion. Upon satisfaction of the foregoing requirements the Corporation shall on the later of (i) the Initial Redemption Date and (ii) the date on which such requirements are satisfied, redeem for the Redemption Price the shares of Mezzanine Preferred Stock for which such requirements have been satisfied. As soon as practicable after the Redemption Date and in any event within five (5) Business Days of the Redemption Date, the Corporation shall deliver or cause to be delivered to the holder of shares of Mezzanine Preferred Stock, the Redemption Price for such shares of Mezzanine Preferred Stock for which such holder is seeking redemption. (c) On or prior to each Redemption Date, the Corporation shall deposit the Redemption Price for all shares of Mezzanine Preferred Stock required to be redeemed pursuant to this paragraph 5 with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the Mezzanine Preferred Stock, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date, upon receipt of notification from the Corporation that such holder has surrendered his, her or its share certificate to the Corporation pursuant to subparagraph 5(b) above. (d) If a Redemption Demand has been received by the Corporation in accordance with subparagraph 5(b) above with respect to any shares of Mezzanine Preferred Stock and provided that, on or before the Redemption Date with respect to any shares of Mezzanine Preferred Stock, all funds necessary for redemption of such shares shall have been set aside by the Corporation, separate and apart from its other funds in trust for the pro rata benefit of the holders of such shares of Mezzanine Preferred Stock, so as to be, and to continue to be available therefor, then, from and after the Redemption Date, dividends on such shares of Mezzanine Preferred Stock shall cease to accrue, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Mezzanine Preferred Stock, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the Redemption Price) shall cease. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the Redemption Price. (e) Any funds deposited with a bank or trust Corporation for the purpose of redeeming Mezzanine Preferred Stock shall be irrevocable except that: (i) the Corporation shall be entitled to receive from such bank or trust Corporation the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and (ii) any balance of monies so deposited by the Corporation and unclaimed by the holders of the Mezzanine Preferred Stock entitled thereto at the expiration of two (2) years from the applicable Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Corporation, and after any such repayment, 12 the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings. (f) No Mezzanine Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price. If, upon any Redemption Date, the assets of the Corporation legally available to redeem the Mezzanine Preferred Stock shall be insufficient to redeem all outstanding shares of Mezzanine Preferred Stock, (i) the Corporation shall redeem that number of shares of Mezzanine Preferred Stock required to redeem on such Redemption Date that may be redeemed with the assets of the Corporation legally available to redeem the Mezzanine Preferred Stock (pro rata among the holders of Mezzanine --- ---- Preferred Stock requesting redemption on such Redemption Date based on the relative number of shares of Mezzanine Preferred Stock held by such holders) and (ii) any unredeemed shares shall be carried forward and shall be redeemed at such time as funds are legally available to so redeem such shares. All shares of Mezzanine Preferred Stock which are subject to redemption hereunder but which have not been redeemed due to insufficient legally available funds and assets shall continue to be outstanding and entitled to all dividends, liquidation, conversion and other rights, preferences and privileges of the Mezzanine Preferred Stock until such shares are converted or redeemed. (g) All shares of Mezzanine Preferred Stock redeemed pursuant to this paragraph 5 shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock, without designation as to series and may thereafter be reissued as shares of any series of preferred stock other than shares of Mezzanine Preferred Stock. (h) Except as specifically provided in this paragraph 5, the Mezzanine Preferred Stock shall not be redeemable. 6. Voting Rights. ------------- In addition to any voting rights provided by law, the holders of shares of Mezzanine Preferred Stock shall have the following voting rights: (a) On any matter on which the holders of Mezzanine Preferred Stock are entitled by law or under the Certificate of Incorporation to vote separately as a class, each such holder shall be entitled to one vote for each share held, and such matter shall be determined by a majority of the votes cast unless the Delaware General Corporation Law or this Certificate of Designations requires approval by a higher percentage. (b) So long as (i) ten percent (10%) of the Bridge Preferred Stock issued on the Closing Date remain issued and outstanding and any shares of Mezzanine Preferred Stock are issued and outstanding or (ii) if no Bridge Preferred Stock is outstanding and ten percent (10%) of the shares of Mezzanine Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Mezzanine Preferred Stock issued on the Initial Issue Date) are outstanding, the Corporation will not, without the affirmative vote or consent of the holders of at least a majority of the issued and outstanding shares of Mezzanine Preferred Stock voting together as a separate class: 13 (i) amend, modify, alter, repeal or waive the application of (including by way of merger, consolidation, combination or otherwise) any provision of the Certificate of Incorporation or by-laws of the Corporation or any of its Subsidiaries in any manner that adversely effects the powers, rights, preferences or privileges of the holders of the Mezzanine Preferred Stock, the Permanent Preferred Stock or the Bridge Preferred Stock or enter into any agreement or take any other corporate action (or permit any of its Subsidiaries to enter into any agreement or take any corporate action) which would in any way amend, modify alter, repeal or waive the powers, rights, preferences or privileges of the Mezzanine Preferred Stock, the Permanent Preferred Stock or the Bridge Preferred Stock; (ii) amend (including by way or merger, consolidation, combination or otherwise) in any respect the Permanent Preferred Stock Certificate of Designations, the Bridge Preferred Stock Certificate of Designations or subdivide, combine or reclassify the Bridge Preferred Stock, the Permanent Preferred Stock, the Series A Preferred Stock or the Mezzanine Preferred Stock; (iii) create, authorize or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) shares of any class or series of capital stock of the Corporation other than (i) the issuance of shares of Mezzanine Preferred Stock as PIK Dividends pursuant to subparagraph 3(b) hereof, (ii) the issuance of shares of Common Stock, Mezzanine Preferred Stock or Permanent Preferred Stock upon conversion of the Bridge Preferred Stock, (iii) the issuance of shares of Permanent Preferred Stock as dividends on outstanding shares of Permanent Preferred Stock as provided in the Permanent Preferred Stock Certificate of Designations, (iv) the issuance of shares of Common Stock upon exercise of Rights and Options or conversion of Convertible Securities outstanding on the Initial Issue Date, (vi) the issuance of securities pursuant to the Senior Note Purchase Agreement, and (vii) the issuance of Options to employees (and the issuance of Common Stock upon exercise thereof) under the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, and the Corporation's Stock Incentive Plan; provided, however, that (A) following the Initial Increase -------- ------- Date, the Corporation shall not issue in any calendar year Options to purchase more than 200,000 shares of Common Stock (adjusted appropriately for any stock split with respect to the Common Stock or any subdivision or combination of the Common Stock) and (B) the per share exercise price of any such Options shall not be less than the conversion price of the Permanent Preferred Stock; (iv) permit any Subsidiary of the Corporation to create, authorize or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any class or series of capital stock of such Subsidiary; 14 (v) consolidate or merger with or into any entity (or permit any Subsidiary to consolidate or merge with or into any entity) or sell assign, transfer, lease convey or otherwise dispose (or permit any Significant Subsidiary of the Corporation to sell, assign, transfer, lease, convey or otherwise dispose) of all or substantially all of the assets of the Corporation or any Significant Subsidiary of the Corporation; (vi) enter into (or permit any Subsidiary of the Corporation to enter into) any transaction involving (a) any payment to, or any sale, lease, transfer or other disposition of any properties or assets to, any Affiliate of the Corporation, (b) any purchase, acquisition or lease of property or assets from any Affiliate of the Corporation, or (c) any loan, guarantee or advance to or from or for the benefit of, or any contract, agreement or lease with, any Affiliate of the Corporation, other than (I) any employment agreement entered into by the Corporation or any of its Subsidiaries in the Corporation or any of its Subsidiaries in the ordinary course of business with any employee of the Corporation or any of its Subsidiaries; (II) any transaction between or among the Corporation and/or its Subsidiaries; (III) payment of directors' fees to Persons who are not otherwise Affiliates of the Corporation other than by reason of their position as an officer or director; (IV) compensation payable to or other benefits provided to, or any agreement to pay such compensation or benefits with, officers and employees of the Corporation;(V) transactions with holders of the Mezzanine Preferred Stock and (VI) transactions contemplated by the Senior Note Purchase Agreement; (vii) redeem, acquire, purchase, defease or otherwise retire for value or make any other payment or distribution in respect of any shares of capital stock of the Corporation or any Subsidiaries of the Corporation or pay any dividends or make any other distributions on or in respect of any shares of capital stock of the Corporation other than (i) any such redemption, acquisition, purchase, retirement or other payment or distribution in respect of the Mezzanine Preferred Stock, (ii) any redemption, acquisition, purchase, retirement or other payment or distribution by any Subsidiary of the Corporation in respect of shares of capital stock of such Subsidiary held by the Corporation or another wholly-owned Subsidiary of the Corporation, (iii) the repurchase of shares of Common Stock or options to purchase Common Stock, in each case, issued under the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, and the Corporation's Stock Incentive Plan from terminated or retired employees, to the extent permitted under the terms of the then outstanding Indebtedness of the Corporation and its Subsidiaries, (iv) the acquisition by the Corporation or Aviall Services, Inc. of two (2) outstanding shares of capital stock of Aviall S.A.R.L. from Ryder System, Inc., (v) the cashless exercise of Rights or Options, the cashless exercise of the warrants, if any, issued in lieu of the issuance of Common Stock pursuant to the Senior Note Purchase Agreement and the surrender by holders of restricted shares of capital stock of the Corporation in payment of any tax liabilities by such holders pursuant to the Corporation's Amended and 15 Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, and the Corporation's Stock Incentive Plan, and (vi) the redemption of rights pursuant to the Rights Plan as in effect on the Closing Date at a redemption price of no greater than $.01; (viii) effect any voluntary liquidation, dissolution or winding-up of the Corporation; (ix) purchase, acquire or lease (or permit any Subsidiary of the Corporation to purchase, acquire or lease), in one transaction or series of related transactions, assets, properties, capital stock or other securities of any Person for consideration having a fair market value in excess of $30,000,000 (other than any (i) inventory purchases in the ordinary course of business pursuant to any contract in effect or executed on or before the Closing Date and (ii) inventory purchases in the ordinary course of business pursuant to any contract to be executed by the Corporation after the Closing Date, but not including initial payments or consideration for inventory, license fees, distribution rights or other similar payments which in the aggregate exceed $30,000,000); (x) engage in, or permit any Subsidiary of the Corporation to engage in, any business other than the businesses in which the Corporation and any of its Subsidiaries are engaged in as of the date hereof and any business reasonably related, incidental or ancillary to such business. (xi) take any action (or permit any Subsidiary of the Corporation to take any action) that would cause a dividend or other distribution to be received by the holders of Mezzanine Preferred Stock for federal income tax purposes unless such dividend or other distributions is actually received by such holders in cash; or (xii) amend in any respect the Rights Plan or the terms of the Series A Preferred Stock or adopt any rights plan, "poison pill" or other plan or arrangements (other that the Rights Plan as currently in effect), or issue any Rights or other securities to the holders of its Common Stock (other than pursuant to the Rights Plan as currently in effect), intended to result in the dilution of any Person's ownership of Common Stock as a result of such Person becoming the Beneficial Owner of a specified percentage of the Common Stock or other Voting Stock of the Corporation; (xiii) incur or guarantee or permit any Subsidiary of the Corporation to incur or guarantee any Indebtedness if, after giving effect to such incurrence or guarantee, the aggregate principal amount of Indebtedness incurred or guaranteed by the Corporation and/or its Subsidiaries on a consolidated basis during the preceding twelve calendar month period ending on the date of such guarantee or incurrence would exceed $30,000,000, other than Indebtedness incurred (A) pursuant to the Corporation's revolving credit facility in place as of 16 the Initial Issue Date and (B) pursuant to any future refinancings of the Corporation's outstanding Indebtedness on the Closing Date or any Indebtedness of the type in clause (A) above incurred after the Closing Date (such Indebtedness being refinanced being referred to as the "Pre-existing Debt"), not to exceed the principal amount ----------------- of the Pre-existing Debt of the Corporation and its Subsidiaries on the date of such refinancing; (xiv) declare any dividends (other than dividends payable solely in additional shares of Common Stock) on outstanding shares of Common Stock; (xv) declare or pay any dividends or make any other distributions in respect of Common Stock or Junior Stock (other than dividends on Common Stock payable solely in additional shares of Common Stock) on outstanding shares of Common Stock or any other class of Junior Stock; or (xvi) adopt and/or implement an Annual Operating Plan for any fiscal year unless such Annual Operating Plan has been adopted and approved by a majority of the members of the Board of Directors and a majority of the Preferred Stock Directors; provided, however, that nothing herein shall prohibit the Corporation from distributing rights pursuant to the terms of the certain Rights Agreement, dated as of December 7, 1993, as amended, between the Corporation and BankBoston, N.A. (as successor to the First National Bank of Boston), as Rights Agent, as such Rights Agreement is in effect on the Closing Date. (c) So long as (i) ten percent (10%) of the Bridge Preferred Stock issued on the Closing Date remains issued and outstanding or (ii) no Bridge Preferred Stock is outstanding and ten percent (10%) of the shares of Mezzanine Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Mezzanine Preferred Stock issued on the Initial Issue Date) remain outstanding, (i) except as provided in subparagraph 6(e) or in clause (ii) of this sentence, the number of Directors comprising the Board of Directors shall not exceed eight (8) and (ii) the holders of Mezzanine Preferred Stock, voting separately as a class, shall have the exclusive right to elect two (2) Directors (each such Director, a "Preferred Stock Director") at any special ------------------------ meeting of stockholders called for such purpose, at each annual meeting of stockholders and in any written consent of stockholders pursuant to Section 228 of the Delaware General Corporation Law; provided, however, that the number of -------- ------- Preferred Stock Directors shall be increased to four (4) Directors (and the total number of Directors shall be increased to ten (10)) in the event that the Required Stockholder Approval has not been obtained on or prior to the Initial Increase Date. So long as (i) ten percent (10%) of the Bridge Preferred Stock issued on the Closing Date remains issued and outstanding or (ii) no Bridge Preferred Stock is outstanding and ten percent (10%) of the shares of Mezzanine Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Mezzanine Preferred Stock issued on the Initial Issue Date) remain outstanding, (i) the Board of Directors shall maintain an Executive Committee and Compensation Committee of the Board of Directors and (ii) at least one of the Preferred Stock Directors shall serve as a member of such Executive Committee and such Compensation Committee. 17 (d) The Preferred Stock Directors elected as provided herein shall serve until the next annual meeting or until their respective successors shall be elected and shall qualify. Any Preferred Stock Director may be removed with or without cause by, and shall not be removed other than by, the vote of the holders of a majority of the outstanding shares of Mezzanine Preferred Stock, voting separately as a class, at a meeting called for such purpose or by written consent in accordance with Section 228 of the Delaware General Corporate Law. If the office of any Preferred Stock Director becomes vacant by reason of death, resignation, retirement, disqualification or removal from office or otherwise, the remaining Preferred Stock Directors may elect a successor, or, alternatively, the holders of a majority of the outstanding shares of Mezzanine Preferred Stock, voting separately as a class, at a meeting called for such purpose or by written consent in accordance with Section 228 of the Delaware General Corporation Law may elect a successor. Any such successor shall hold office for the unexpired term in respect of which such vacancy occurred. Upon any termination of the right of the holders of Mezzanine Preferred Stock to vote for and elect Preferred Stock Directors as herein provided, the Preferred Stock Directors then serving on the Board of Directors may continue to hold their office for the remainder of their term. (e) (i) Upon the occurrence and during the continuation of any Default Event, the holders of Mezzanine Preferred Stock shall have the exclusive right, voting separately as a class, to elect, in addition to the Preferred Stock Directors, two Directors at the Corporation's next annual meeting of stockholders and at each subsequent annual meeting of stockholders; provided, -------- however, that if such voting rights shall become vested more than 90 days or - ------- less than 20 days before the date prescribed for the annual meeting of stockholders, thereupon the holders of the shares of Mezzanine Preferred Stock shall be entitled to exercise their voting rights at a special meeting of the holders of shares of Mezzanine Preferred Stock as set forth in clauses (ii) and (iii) of this subparagraph 6(e). At elections for such Directors, each holder of Mezzanine Preferred Stock shall be entitled to one vote for each share held. Upon the vesting of such right of the holders of Mezzanine Preferred Stock, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of outstanding Mezzanine Preferred Stock as hereinafter set forth. The right of holders of Mezzanine Preferred Stock, voting separately as a class without regard to series, to elect members of the Board of Directors as aforesaid shall continue until such time as such Default Event has been cured, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent Default Event. (ii) Whenever such voting right shall have vested, such right may be exercised initially either at a special meeting of the holders of shares of Mezzanine Preferred Stock called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing Directors, and thereafter at such meetings or by the written consent of such holders pursuant to Section 228 of the General Corporation Law of the State of Delaware. (iii) At any time when such voting right shall have vested in the holders of shares of Mezzanine Preferred Stock entitled to vote thereon, and if such right shall not already have been initially exercised, an officer of the Corporation shall, upon the written request of holders of record of ten percent (10%) of the voting power represented by the shares of such Mezzanine Preferred Stock then outstanding, addressed to the Treasurer of the Corporation, call 18 a special meeting of holders of shares of such Mezzanine Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Treasurer of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within 30 days after the personal service of such written request upon the Treasurer of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Treasurer of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the holders of record of ten percent (10%) of the voting power represented by the shares of Mezzanine Preferred Stock then outstanding may designate in writing any person to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this paragraph. Any holder of shares of Mezzanine Preferred Stock then outstanding that would be entitled to vote at such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this paragraph. Notwithstanding the provisions of this paragraph, however, no such special meeting shall be called or held during a period within 45 days immediately preceding the date fixed for the next annual meeting of stockholders. (iv) The directors elected pursuant to this subparagraph 6(e) shall serve until the earlier of (i) the next annual meeting or until their respective successors shall be elected and shall qualify or (ii) until the right of the holders of Mezzanine Preferred Stock to elect such additional Directors pursuant to this subparagraph 6(e) shall terminate; any Director elected by the holders of Mezzanine Preferred Stock pursuant to this subparagraph 6(e) may be removed by, and shall not be removed otherwise than by, the vote of the holders of a majority of the voting power of the outstanding shares of the Mezzanine Preferred Stock who were entitled to participate in such election of directors, voting as a separate class, at a meeting called for such purpose or by written consent as permitted by law and the Certificate of Incorporation and Bylaws of the Corporation. If the office of any Director elected by the holders of Mezzanine Preferred Stock pursuant to this subparagraph 6(e), voting as a class, becomes vacant by reason of death, resignation, retirement, disqualification or removal from office or otherwise, the remaining Director elected by the holders of Mezzanine Preferred Stock, voting as a class, may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Upon any termination of the right of the holders of Mezzanine Preferred Stock to vote for directors as provided in this subparagraph 6(e), the term of office of all Directors then in office elected by the holders of Mezzanine Preferred Stock, voting as a class, shall terminate immediately. Whenever the terms of office of the Directors elected by the holders of Mezzanine Preferred Stock, voting as a class, shall so terminate and the special voting powers vested in the holders of Mezzanine Preferred Stock shall have expired, the number of Directors shall be such number as may be provided for in the Bylaws or Certificate of Incorporation irrespective of any increase made pursuant to the provisions of this subparagraph 6(e). 7. Repurchase Upon Change of Control. To the extent permitted by the --------------------------------- terms of the Senior Debt and the Senior Note Purchase Agreement, if a Change of Control occurs, each holder of the Mezzanine Preferred Stock shall have the right to require the Corporation to repurchase all or any part of that holder's Mezzanine Preferred Stock pursuant to the offer described below (the 19 "Change of Control Offer"). In the Change of Control Offer, the Corporation ----------------------- shall offer a payment in cash for each outstanding share of Mezzanine Preferred Stock equal to 120% of the Liquidation Preference per share of Mezzanine Preferred Stock repurchased plus accrued and unpaid dividends, if any, thereon, to the date of repurchase (the "Change of Control Payment"). Within 30 days ------------------------- following any Change of Control, the Corporation shall mail a notice to each holder of shares of Mezzanine Preferred Stock describing the transaction or transactions that constitute the Change of Control and offering to repurchase the Mezzanine Preferred Stock on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the ------------------------------ procedures required by this Certificate of Designation and described in such notice. The Corporation shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Mezzanine Preferred Stock as a result of a Change of Control. On the Change of Control Payment Date, the Corporation shall, to the extent lawful: (1) accept for payment all shares of Mezzanine Preferred Stock or portions thereof properly tendered pursuant to the Change of Control Offer; (2) promptly mail to each holder of Mezzanine Preferred Stock so tendered the Change of Control Payment for each share of Mezzanine Preferred Stock so tendered and promptly authenticate and mail to each such holder a new certificate representing the shares of Mezzanine Preferred Stock equal in Liquidation Preference to any unpurchased portion of the Mezzanine Preferred Stock surrendered, if any. This paragraph shall be applicable regardless of whether any other provisions of this Certificate of Designation are applicable. 8. Repurchase Upon the Occurrence of any Repurchase Event. Upon the ------------------------------------------------------ occurrence of any Repurchase Event, to the extent permitted under the terms of the Senior Debt and the Mezzanine Debt, the Corporation shall offer to repurchase all or any part of the Mezzanine Preferred Stock then outstanding pursuant to the offer described below (the "Repurchase Event Offer"). In the ---------------------- Repurchase Event Offer, the Corporation shall use the net cash proceeds received by the Corporation and/or its Subsidiaries in connection with such Repurchase Event (the "Repurchase Event Proceeds") to repurchase the outstanding shares of ------------------------- Mezzanine Preferred Stock at a repurchase price equal to the Liquidation Preference, plus all accrued and unpaid dividends thereon through the date of redemption (the "Repurchase Event Payment"). Within 30 days following the ------------------------ occurrence of any Repurchase Event, the Corporation shall mail a notice to each holder of shares of Mezzanine Preferred Stock describing the transaction or transactions that constitute the Repurchase Event and offering to repurchase the number of shares of Mezzanine Preferred Stock equal to (x) the Repurchase Event Proceeds, divided by (y) the Liquidation Preference, on the date specified in ---------- such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such 20 notice is mailed (the "Repurchase Event Payment Date"), pursuant to the procedures required by this Certificate of Designations and described in such notice. If the aggregate number of shares of Mezzanine Preferred Stock shares tendered into such Repurchase Event Offer exceeds the number of shares of Mezzanine Preferred Stock equal to (x) the Repurchase Event Proceeds, divided by (y) the Liquidation Preference, the Corporation will select the shares of Mezzanine Preferred Stock to be repurchased on a pro rata basis, based on the number of shares of Mezzanine Preferred Stock held by each holder requesting repurchase of such shares. The Corporation shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Mezzanine Preferred Stock as pursuant to a Repurchase Event Offer. On the Repurchase Event Payment Date, the Corporation shall, to the extent lawful: (1) accept for payment all shares of Mezzanine Preferred Stock or portions thereof properly tendered pursuant to Repurchase Event Offer; (2) promptly mail to each holder of Mezzanine Preferred Stock so tendered the Repurchase Event Payment for the shares of Mezzanine Preferred Stock so tendered and promptly authenticate and mail to each such holder a new certificate representing the shares of Mezzanine Preferred Stock equal in Liquidation Preference to any unpurchased portion of the Preferred Stock surrendered, if any. This paragraph shall be applicable regardless of whether any other provisions of this Certificate of Designations are applicable. 21 9. Financial Statements; Information Right. --------------------------------------- (a) Unless such financial statements or reports have been filed with the Commission, whether or not required by the rules and regulations of the Commission, so long as (i) ten percent (10%) of the Bridge Preferred Stock issued on the Closing Date or (ii) if no Bridge Preferred Stock is outstanding, ten percent (10%) of the shares of Mezzanine Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuances of all shares of Mezzanine Preferred Stock issued on the Initial Issue Date) is outstanding, the Corporation shall furnish to the holders of Mezzanine Preferred Stock (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Corporation were required to file such Forms, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Corporation's certified independent accountants, (ii) all monthly financial statements required to be prepared and submitted pursuant to the terms and conditions of the Senior Note Purchase Agreement and (iii) all current reports that would be required to be filed with the Commission on Form 8-K if the Corporation were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Corporation shall file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, for so long as (i) ten percent (10%) of the Bridge Preferred Stock issued on the Closing Date or (ii) if no Bridge Preferred Stock is outstanding, ten percent (10%) of the shares of Mezzanine Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Mezzanine Preferred Stock issued on the Initial Issue Date) remains outstanding, the Corporation shall furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (b) The Corporation shall, so long as (i) ten percent (10%) of the Bridge Preferred Stock issued on the Closing Date remains issued and outstanding or (ii) no Bridge Preferred Stock is outstanding andten percent (10%) of the shares of Mezzanine Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuances of all shares of Mezzanine Preferred Stock issued on the Initial Issue Date) are outstanding, deliver to the holders of Mezzanine Preferred Stock, forthwith upon any Executive Officer of the Corporation becoming aware of any default under this Certificate of Designations, an Officers' Certificate specifying such default and what action the Corporation is taking or proposes to take with respect thereto. (c) The Corporation shall provide to any holder of Mezzanine Preferred Stock, upon written request of such holder to the Corporation, such financial and other information concerning the Corporation and its Subsidiaries as may from time to time be reasonably requested by such holder. 10. Modification and Waiver. Except as otherwise provided above, the ----------------------- terms of this Certificate of Designations may be amended and the rights hereunder may be waived only with the consent of holders of a majority of the shares of the Mezzanine Preferred Stock then outstanding, provided, that if any -------- such modification or waiver has a material adverse effect on 22 the holders' rights with respect to dividends or conversion, then the consent of each holder of Mezzanine Preferred Stock shall be required. 11. Headings of Subdivisions. The headings of the various subdivisions ------------------------ hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 12. Severability of Provisions. If any voting powers, preferences and -------------------------- relative, participating, optional and other special rights of the Mezzanine Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of the Mezzanine Preferred Stock and any qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of the Mezzanine Preferred Stock or qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of the Mezzanine Preferred Stock or qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Mezzanine Preferred Stock or qualifications, limitations and restrictions thereof unless so expressed herein. 13. Record Holders. The Corporation and the transfer agent for the -------------- Mezzanine Preferred Stock may deem and treat the record holder of any shares of Mezzanine Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor the transfer agent shall be affected by any notice to the contrary. 14. Notice. Except as may otherwise be provided for herein, all notices ------ referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon receipt, in the case of a notice of conversion given to the Corporation as contemplated in Section 5(b) hereof, or, in all other cases, upon the earlier of receipt of such notice or three Business Days after the mailing of such notice if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Designations) with postage prepaid, addressed: if to the Corporation, to its offices at 2750 Regent Blvd., DFW Airport, Texas 75261, Attention: Secretary or to an agent of the Corporation designated as permitted by this Certificate, or, if to any holder of the Mezzanine Preferred Stock, to such holder at the address of such holder of the Mezzanine Preferred Stock as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Mezzanine Preferred Stock); or to such other address as the Corporation or holder, as the case may be, shall have designated by notice similarly given. 16. Merger or Consolidation of the Corporation. The Corporation shall not ------------------------------------------ merge or consolidate with any other Person, or enter into or effect any reorganization, unless the surviving corporation or other entity resulting from such merger, consolidation or reorganization shall make appropriate provision in connection with such merger, consolidation or reorganization such that (i) the shares of Mezzanine Preferred Stock outstanding immediately prior to the effective time of such merger, consolidation or reorganization remain outstanding immediately following 23 such merger, consolidation or reorganization or (ii) the shares of Mezzanine Preferred Stock outstanding immediately prior to the effective time of such merger, consolidation or reorganization shall be converted into an equivalent number of shares of convertible preferred stock of such surviving corporation or other entity having terms identical to the terms of the Mezzanine Preferred Stock. 24 IN WITNESS WHEREOF, the Corporation has caused this certificate to be duly executed by Paul E. Fulchino, its Chairman, President and CEO, this 21/st/ day of December, 2001. AVIALL, INC. By: /s/ Paul E. Fulchino --------------------------- Name: Paul E. Fulchino Title: Chairman, President and CEO ATTEST: By: /s/ Jeffrey J. Murphy -------------------------- Name: Jeffrey J. Murphy Title: Senior Vice President, Law & Human Resources, Secretary & General Counsel 25 EX-99 6 dex993.txt EXHIBIT D Exhibit D CERTIFICATE OF DESIGNATIONS OF SERIES D SENIOR CONVERTIBLE PARTICIPATING PREFERRED STOCK OF AVIALL, INC. ------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------- THE UNDERSIGNED, being the President of Aviall, Inc., a Delaware corporation (the "Corporation"), does hereby certify that pursuant to the ----------- authority contained in Article Fourth of its Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and in accordance with the ---------------------------- provisions of Section 151(g) of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has adopted the following resolution, which resolution remains in full force and effect on the date hereof: RESOLVED, that there is hereby established a series of authorized preferred stock, having a par value of $0.01 per share, which series shall be designated as "Series D Senior Convertible Participating Preferred Stock" (the "Convertible Preferred Stock"), consisting of 160,000 shares and having the --------------------------- following voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions thereof: 1. Certain Definitions. ------------------- Unless the context otherwise requires, the terms defined in this paragraph 1 shall have, for all purposes of this resolution, the meanings herein specified (with terms defined in the singular having comparable meanings when used in the plural). "Affiliate" means (i) with respect to any Person, any other Person --------- that directly or indirectly controls or manages, is controlled or managed by, or is under common control or management with such Person, whether through the ownership of equity interests, by contract or otherwise; and (ii) with respect to an individual, in addition to any Person specified in clause (i), the spouse, any parent or any child of such individual and any trust for the benefit of such individual's spouse, parent or child. "Annual Operating Plan" means the annual operating plan of the --------------------- Corporation established by the Corporation for each fiscal year, which shall include, without limitation, the annual capital expenditure and other budgets of the Corporation for such fiscal year. "Beneficial Owner" has the meaning assigned to such term in Rule ---------------- 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning. "Board of Directors" means the Board of Directors of the Corporation. ------------------ "Business Day" means a day other than a Saturday or Sunday or a day ------------ on which commercial banks in the City of New York are authorized or obligated by law or executive order to close. "Cash Dividends" shall have the meaning set forth in subparagraph -------------- 3(b) below. "Change of Control" means the occurrence of any of the following: ----------------- (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger, consolidation or transfer of the Company Voting Stock), in one or a series of related transactions, of all or substantially all of the properties or assets of the Corporation and its Subsidiaries, taken as a whole, to any "person" (as that terms is used in Section 13(d)(3) of the Exchange Act) other than the Corporation or a wholly-owned Subsidiary of the Corporation; (2) the consummation of any transaction or series of related transactions (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the holders of the Convertible Preferred Stock, becomes the Beneficial Owner, directly or indirectly, of more than 30% of the Voting Stock of the Corporation, measured by voting power rather than number of shares; (3) a "change of control" or other similar event shall occur under any issue of Indebtedness with an aggregate principal amount in excess of $10,000,000 of the Corporation or its Subsidiaries; or (4) during any period of twelve (12) consecutive months after the Initial Issue Date, the individuals who at the beginning of any such 12-month period constituted the Board of Directors (the "Incumbent --------- Board") cease for any reason to constitute at least a majority of ----- such Board; provided that (i) any individual becoming a director whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of the stockholders having the specific right to designate such director (including, without limitation, the 2 exercise by the holders of Convertible Preferred Stock of their right to elect directors) and (ii) any director whose election to the Board of Directors or whose nomination for election by the stockholders of the Corporation was approved by majority vote of the Board of Directors, shall, in each such case, be considered as though such individual were a member of the Incumbent Board, but excluding, as a member of the Incumbent Board, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) and further excluding any person who is an affiliate or associate (as those terms are defined in the General Rules and Regulations under the Exchange Act) of any Person having or proposing to acquire beneficial ownership of twenty-five percent (25%) or more of the Voting Stock of the Corporation; or (5) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the respective Beneficial Owners of the Voting Stock immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, Beneficially Own, directly or indirectly, more than fifty percent (50%) of the Voting Stock resulting from such reorganization, merger or consolidation; provided that the occurrence of any event identified in subparagraphs (1) through (5) above that would otherwise be treated as a Change of Control shall not constitute a Change of Control hereunder if (i) the Board of Directors, by vote duly taken, and (ii) the holders of a majority of the outstanding shares of Convertible Preferred Stock, by written consent, shall so determine. "Change of Control Payment" shall have the meaning set forth in ------------------------- paragraph 8 below. "Closing Date" means December 21, 2001. ------------ "Commission" means the United States Securities and Exchange ---------- Commission. "Common Equity" means all shares now or hereafter authorized of any ------------- class of common stock of the Corporation, including the Common Stock, and any other stock of the Corporation, howsoever designated, authorized after the Initial Issue Date, which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. "Common Stock" means the common stock, $0.01 par value per share, of ------------ the Corporation. "Conversion Date" shall have the meaning set forth in subparagraph --------------- 5(b) below. "Conversion Price" shall initially mean $5.80 and thereafter shall be ---------------- subject to adjustment from time to time pursuant to the terms of paragraph 5 below. 3 "Convertible Preferred Stock" has the meaning set forth in paragraph --------------------------- 2 below. "Current Market Price" means, for a share of Common Stock on any -------------------- date, the average of Quoted Prices for ten (10) consecutive Trading Days commencing fifteen (15) Trading Days before the date in question. "Default Event" means the occurrence of any of the following events: ------------- (i) the failure of the Corporation to declare and pay PIK Dividends for any Dividend Period for which the Corporation is required to pay PIK Dividends on the respective Dividend Payment Date; (ii) the failure of the Corporation to redeem, on the Redemption Date, all shares of Convertible Preferred Stock, (iii) the failure of the Corporation to purchase any shares of Convertible Preferred Stock that it is required to purchase pursuant to paragraph 8 hereof on the Change of Control Payment Date or (iv) the material breach of the provisions of paragraph 7 hereof; provided, that any Default Event referred to in clause (iv) shall be deemed to have been cured in the event that the Corporation rescinds the transaction or other occurrence giving rise to such Default Event such that the economic, legal and/or other effect of such transaction on the holders of the Convertible Preferred Stock on the rights of, privileges and preferences of the Convertible Preferred Stock has been removed or rescinded. "Director" means a member of the Corporation's Board of Directors. -------- "Dividend Payment Date" has the meaning set forth in subparagraph --------------------- 3(c) below. "Dividend Period" means the period from, and including, the Initial --------------- Issue Date to, but not including, the first Dividend Payment Date and thereafter, each quarterly period from, and including, each Dividend Payment Date to, but not including, the next Dividend Payment Date. "Dividend Rate" means nine percent (9%) per annum of Liquidation ------------- Preference; provided, however, that, in the event that a Default Event shall -------- ------- have occurred and shall be continuing, the Dividend Rate shall increase by 2% of the Liquidation Preference per annum (up to a maximum rate of 19%) for each full 30 day period during which such Default Event is continuing until such Default Event shall have been cured. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Indebtedness" of any Person means (a) all liabilities and ------------ obligations of such Person, contingent or otherwise (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services, except those incurred in the ordinary course of business that would constitute ordinarily a trade payable to trade creditors, (iv) evidenced by bankers' acceptances, (v) for payment of money relating to leases that are required to be capitalized for financial reporting purposes under generally accepted accounting principles or (vi) evidenced by a letter of credit or reimbursement obligation of such Person with respect to any letter of credit, (b) all liabilities and obligations of others of the kind described in the preceding clause (a) that such Person has guaranteed or that is otherwise its legal liability or 4 which are secured by the assets or property of such Person and (c) all obligations of such Personto purchase, redeem or acquire any capital stock (other than the Convertible Preferred Stock) arising at any time prior to the date that is one hundred eighty (180) days after the Redemption Date. "Initial Issue Date" means the date that shares of Convertible ------------------ Preferred Stock are first issued by the Corporation. "Junior Stock" means, for the purposes of paragraph 3 below, Common ------------ Equity, and any class or series of stock of the Corporation which is not entitled to receive any dividends in any Dividend Period unless all dividends required to have been paid or declared and set apart for payment on the Convertible Preferred Stock and any other Parity Stock shall have been so paid or declared and set apart for payment, and for purposes of paragraph 4 below, shall mean Common Equity and any class or series of stock of the Corporation which is not entitled to receive any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Convertible Preferred Stock and any other Parity Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. "Liquidation Preference" shall mean $1,000 per share of Convertible ---------------------- Preferred Stock. "Parity Stock" means, for purposes of paragraph 3 below, and any ------------ class or series of stock of the Corporation authorized after the Initial Issue Date which is entitled to receive payment of dividends on a parity with the Convertible Preferred Stock without preference or priority of one over the other and, for purposes of paragraph 4 below, shall mean any class or series of stock of the Corporation authorized after the Initial Issue Date which is entitled to receive assets upon liquidation, dissolution or winding up of the affairs of the Corporation on a parity with the Convertible Preferred Stock without preference or priority of one over the other. "Person" means any individual, corporation, association, partnership, ------ joint venture, limited liability company, trust, estate or other entity. "PIK Dividends" has the meaning set forth in subparagraph 3(b) below. ------------- "Pre-existing Debt" has the meaning set forth in subparagraph ----------------- 7(c)(xiii) below. "Preferred Stock Director" has the meaning set forth in paragraph ------------------------ 7(d) below. "Pricing Change" has the meaning set forth in subparagraph 5(g) -------------- below. "Quoted Price" means, with respect to Common Stock, (i) the last ------------ reported sales price of the Common Stock on the New York Stock Exchange or (ii) if not listed on the New York Stock Exchange, the last reported sales price of the Common Stock on such other principal exchange on which the Common Stock is listed or admitted for trading or (iii) if not listed or admitted for trading on a securities exchange, the last reported sales price for Common Stock as reported by the National Association of Securities Dealers, Inc. Automatic Quotations Systems - National Market System, or (iv) if not so reported or listed or admitted for trading, the last 5 reported bid price of the applicable security in the over-the-counter market. In the event that the Quoted Price cannot be determined as aforesaid, the Board of Directors of the Corporation shall determine the Quoted Price on the basis of such quotations as it in good faith considers appropriate. Such determination may be challenged in good faith by holders of a majority of the shares of Convertible Preferred Stock then outstanding, and any dispute shall be resolved at the prevailing party's cost, by the determination of an investment banking firm of recognized national standing selected by the Corporation and acceptable to such holders of a majority of the shares of Convertible Preferred Stock, which determination shall be made in good faith and be conclusive absent manifest error. "Record Date" means the date designated by the Board of ----------- Directors of the Corporation at the time a dividend is declared; provided, -------- however, that such Record Date shall not be more than sixty (60) days nor less - ------- than ten (10) days prior to the respective Dividend Payment Date or such other date designated by the Board of Directors for the payment of dividends. "Redemption Date" means June 21, 2008, or such other later --------------- date approved by the holders of a majority of the Convertible Preferred Stock. "Redemption Price" means a price per share equal to the ---------------- Liquidation Preference per share, plus an amount equal to all cumulative dividends accrued and unpaid on such share to the Redemption Date. "Senior Debt" means the obligations of the Corporation and its ----------- Subsidiaries in respect of all Indebtedness incurred under the Credit Agreement, dated as of December 17, 2001, among Aviall Services, Inc., Aviall, Inc., the lenders and issuers party thereto, and Citicorp USA, Inc., as amended, amended and restated, extended, supplemental, refinanced or otherwise modified from time to time, including any agreement extending the maturity of, refinancing or replacing or otherwise restructuring all or any portion of the Indebtedness of such agreement. "Senior Note Purchase Agreement" means that certain Securities ------------------------------ Purchase Agreement dated as of December 17, 2001 by and among the Corporation, Aviall Services, Inc., J. H. Whitney Mezzanine Fund, L.P. and the other purchasers named therein. "Series A Junior Preferred Stock" means the Series A Junior ------------------------------- Participating Preferred Stock, $0.01 par value per share, of the Corporation. "Subsidiary" means, with respect to any specified Person: ---------- (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and 6 (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Target Price" as of any date means the lesser of (i) the ------------ Conversion Price as in effect on such date and (ii) the Current Market Price per share of Common Stock on such date. "Trading Day" means, with respect to any security, any day on ----------- which any market in which the applicable security is then traded and in which a Quoted Price may be ascertained is open for business. "Voting Stock" as of any date means the capital stock of the ------------ Corporation that is at the time entitled to vote in the election of the Board of Directors of the Corporation. 2. Number of Shares and Designation. One Hundred Sixty Thousand -------------------------------- (160,000) shares of the preferred stock, $0.01 par value per share, of the Corporation are hereby constituted as a series of the preferred stock designated as Series D Senior Convertible Participating Preferred Stock (the "Convertible ----------- Preferred Stock"). - --------------- 3. Dividends. --------- (a) The record holders of Convertible Preferred Stock shall be entitled to receive dividends payable by the Corporation at the Dividend Rate. Such dividends shall be cumulative from the Initial Issue Date and shall be payable in arrears. (b) Dividends on the Convertible Preferred Stock (other than dividends payable pursuant to the second to last sentence of subparagraph 3(d)) payable during the period beginning on the first Dividend Payment Date and ending on the first Dividend Payment Date on or following the fourth anniversary of the Closing Date, shall be paid in fully paid and nonassessable shares of Convertible Preferred Stock valued at $1,000 per share (such dividends paid in kind (including any dividends payable in kind pursuant to the proviso in the following sentence) being herein called "PIK Dividends"). Dividends on the ------------- Convertible Preferred Stock payable thereafter shall be paid in cash (such dividends being referred to as the "Cash Dividends"); provided, however, that, -------------- -------- ------- to the extent that the Company fails to pay Cash Dividends for any Dividend Period occurring after the first Dividend Payment Date following the fourth anniversary of the Closing Date, the Company shall be required to pay in lieu thereof dividends for such Dividend Period in additional fully paid and nonassessable shares of Convertible Preferred Stock. Dividends of additional shares of Convertible Preferred Stock shall be paid by delivering to the record holders of Convertible Preferred Stock a number of shares of Convertible Preferred Stock determined by dividing the total amount of the aggregate dollar amount of dividends accrued and unpaid with respect to such record holder of shares during the applicable Dividend Payment Period (rounded to the nearest whole cent) by the Liquidation Preference. The Corporation shall not issue fractional shares of Convertible Preferred Stock to which holders may become entitled pursuant to this subparagraph, but in lieu thereof, the Corporation shall deliver its check in an amount equal to the applicable fraction of the Liquidation Preference. Any additional shares of Convertible Preferred Stock issued pursuant to 7 this paragraph shall be governed by this resolution and shall be subject in all respects, except as to the date of issuance and date from which dividends accrue and cumulate as set forth below, to the same terms as the shares of Convertible Preferred Stock originally issued hereunder. (c) Dividends on shares of Convertible Preferred Stock shall accrue and be cumulative from and including the Initial Issue Date to and including the date on which such shares shall have been converted into Common Stock or redeemed pursuant to paragraph 6 hereof or repurchased pursuant to paragraph 8 hereof. Such dividends shall accrue whether or not there shall be (at the time such dividend becomes payable or at any other time) profits, surplus or other funds of the Corporation legally available for the payment of dividends. The PIK Dividends shall be paid whether or not declared and whether or not there are profits, surplus or other funds of the Corporation legally available for payment of dividends. The Cash Dividends shall be payable when, as and if declared by the Board of Directors of the Corporation out of funds legally available for the payment of dividends. Dividends shall be payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year (a "Dividend Payment Date"), commencing on the last day of the first --------------------- Dividend Payment Date following the Initial Issue Date, and for shares paid as PIK Dividends, commencing on the first Dividend Payment Date after such shares are issued. If any Dividend Payment Date occurs on a day that is not a Business Day, any accrued dividends otherwise payable on such Dividend Payment Date shall be paid on the next succeeding Business Day. The amount of dividends payable on Convertible Preferred Stock for each full Dividend Period shall be computed by dividing by four (4) the annual dividend at the Dividend Rate set forth in subparagraph 3(a) above. Dividends shall be paid to the holders of record of the Convertible Preferred Stock as their names shall appear on the share register of the Corporation on the Record Date for such dividend. Dividends payable in any Dividend Period which is less than a full Dividend Period in length will be computed on the basis of a ninety (90) day quarterly period and actual days elapsed in such Dividend Period. Dividends on account of arrears for any past Dividend Periods may be declared and paid at any time to holders of record on the Record Date therefore. For any Dividend Period in which dividends are not paid in full on the Dividend Payment Date first succeeding the end of such Dividend Period, then on such Dividend Payment Date such accrued and unpaid dividends shall be added to the Liquidation Preference of the Convertible Preferred Stock effective at the beginning of the Dividend Period succeeding the Dividend Period as to which such dividends were not paid and shall thereafter accrue additional dividends in respect thereof at the rate set forth in subparagraph 3(a) above until such accrued and unpaid dividends have been paid in full. (d) So long as ten percent (10%) of the shares of Convertible Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Convertible Preferred Stock issued on the Initial Issue Date) shall be outstanding, the Corporation shall not declare, pay or set apart for payment on any Junior Stock any dividends whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the class or series upon which such dividends are declared or paid, or payable in shares of Common Stock with respect to Junior Stock other than Common Stock, together with cash in lieu of fractional shares), nor shall the Corporation make any distribution on any Junior Stock, nor shall any Junior Stock be purchased, redeemed or otherwise acquired by the Corporation or any of its Subsidiaries of which it owns not less than a majority of the outstanding voting power nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Junior Stock, unless all dividends to which the holders of Convertible Preferred Stock shall have been entitled for all previous 8 Dividend Periods shall have been paid or declared and a sum of money or PIK Dividends, as applicable (as provided in subparagraph 3(b)), sufficient for the payment thereof has been set apart. In addition, in the event that the Corporation declares and/or pays any dividend or other distribution on the Common Stock (other than a dividend payable solely in shares of Common Stock), the Corporation shall, at the time of such declaration and payment, declare and pay a dividend or other distribution on the Convertible Preferred Stock consisting of the dividend or distribution that would have been payable on the shares of Common Stock had the Convertible Preferred Stock been converted into Common Stock immediately prior to the record date for such dividend or distribution, or, if no such record was taken, the date as of which the record holders of Common Stock entitled to such dividend or distribution were determined. Any dividend or distribution declared, or required to be declared or to be paid, on the Convertible Preferred Stock shall be deemed to have "accrued" on the Convertible Preferred Stock for all purposes of this Paragraph 3 and shall remain an "accrued dividend" on the Convertible Preferred Stock for all purposes of this Section until paid. (e) In the event that full Cash Dividends are not paid or made available to the holders of all outstanding shares of Convertible Preferred Stock and of any Parity Stock on the applicable Dividend Payment Date and funds available for payment of Cash Dividends shall be insufficient to permit payment in full to holders of all such stock of the full preferential amounts to which they are then entitled, then the entire amount available for payment of Cash Dividends shall be distributed ratably among all such holders of Convertible Preferred Stock and of any Parity Stock in proportion to the full amount to which they would otherwise be respectively entitled. 4. Distributions Upon Liquidation, Dissolution or Winding Up. --------------------------------------------------------- (a) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation (in connection with the bankruptcy or insolvency of the Corporation or otherwise), before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of Junior Stock, the holders of Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation in cash or property at its fair market value as determined by the Board of Directors of the Corporation an amount per share equal to the Liquidation Preference plus an amount equal to all dividends accrued and unpaid thereon to the date of such liquidation or dissolution or such other winding up. (b) If, upon any such liquidation, dissolution or other winding up of the affairs of the Corporation, the assets of the Corporation shall be insufficient to permit the payment in full of the Liquidation Preference per share plus an amount equal to all dividends accrued and unpaid on the Convertible Preferred Stock and the full liquidating payments on all Parity Stock, then the assets of the Corporation or the proceeds thereof shall be ratably distributed among the holders of Convertible Preferred Stock and of any Parity Stock in proportion to the full amounts to which they would otherwise be entitled if all amounts payable thereon were paid in full. (c) In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Corporation upon completion of the distributions and payments required by subparagraph 4(a) and any other distributions and payments that may be 9 required with respect to any other series of preferred stock that may be authorized after the Initial Issue Date, the remaining assets of the Corporation shall be distributed among the holders of the then outstanding shares of Common Stock and Convertible Preferred Stock, pro rata based on the number of shares of --- ---- Common Stock held by each such holder (where, for this purpose, the holders of the Convertible Preferred Stock shall be deemed to hold the number of shares of Common Stock then issuable upon conversion in full of such shares of Convertible Preferred Stock). (d) Written notice of any liquidation, dissolution or winding up of the Corporation, stating the payment date or dates when and the place where the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage prepaid, not less than 30 days prior to any payment date stated therein, to the holders of record of the shares of Convertible Preferred stock at their address as the same shall appear in the records of the Corporation. 5. Conversion Rights. ----------------- (a) A holder of shares of Convertible Preferred Stock shall have the right, at such holder's option, to convert all or any portion of its shares of Convertible Preferred Stock into Common Stock at any time before the close of business on the Business Day preceding the Redemption Date (unless the Corporation shall default in payment of the Redemption Price, in which case, the right of conversion shall be reinstated). For the purposes of conversion, each share of Convertible Preferred Stock shall be valued at the Liquidation Preference plus all accrued and unpaid dividends thereon through the Conversion Date, which shall be divided by the Conversion Price in effect on the Conversion Date to determine the number of shares issuable upon conversion. Immediately following such conversion, the rights of the holders of converted Convertible Preferred Stock shall cease and the persons entitled to receive the Common Stock upon the conversion of Convertible Stock shall be treated for all purposes as having become the owners of such Common Stock. (b) To convert Convertible Preferred Stock, a holder must (i) surrender the certificate or certificates evidencing the shares of Convertible Preferred Stock to be converted, duly endorsed at the principal office of the Corporation or transfer agent for the Convertible Preferred Stock, if any, (ii) notify the Corporation at such office that such holder elects to convert Convertible Preferred Stock, and the number of shares such holder wishes to convert, (iii) state in writing the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued, and (iv) pay any transfer or similar tax if required (provided, however, that no -------- ------- such payment shall be required if the Common Stock issuable upon conversion is to be issued in the name of the converting holder of Convertible Preferred Stock). In the case of lost or destroyed certificates evidencing ownership of shares of Convertible Preferred Stock to be surrendered for conversion, the holder shall submit such proof of loss or destruction and, if requested by the Corporation, an appropriate indemnity, reasonably required by the Corporation. In the event that a holder fails to notify the Corporation of the number of shares of Convertible Preferred Stock which such holder wishes to convert, such holder shall be deemed to have elected to convert all shares represented by the certificate or certificates surrendered for conversion. The date on which the holder satisfies all those requirements is the "Conversion Date." As soon as --------------- practicable after the Conversion Date, the Corporation shall deliver or shall deliver through its 10 transfer agent a certificate for the number of full shares of Common Stock issuable upon the conversion, a check for any fractional share and a new certificate representing the unconverted portion, if any, of the shares of Convertible Preferred Stock represented by the certificate or certificates surrendered for conversion. The person in whose name the Common Stock certificate is registered shall be treated as the stockholder of record on and after the Conversion Date until such time as record ownership is transferred. All shares of Common Stock issuable upon conversion of the Convertible Preferred Stock shall be fully paid and nonassessable. In the case of Convertible Preferred Stock that has been converted after any Record Date but before the next succeeding Dividend Payment Date, dividends that are payable on such Dividend Payment Date shall be payable on such Dividend Payment Date in an amount equal to the pro rata portion of the Dividend for the portion of the Dividend Period that such Convertible Preferred Stock was outstanding, and such dividends shall be paid to the Person who was the holder of such Convertible Preferred Stock on such Record Date (and shall not constitute "accrued and unpaid dividends" for purposes of paragraph 5(a)). No other payment or adjustment for dividends, or for any dividends in respect of shares of Common Stock shall be made upon conversion. Holders of Common Stock issued upon conversion shall not be entitled to receive any dividend payable to holders of Common Stock as of any record time before the close of business on the Conversion Date. If a holder of Convertible Preferred Stock converts more than one share at a time the number of full shares of Common Stock issuable upon conversion shall be based on the total number of all shares of Convertible Preferred Stock converted. (c) The Corporation shall not issue a fractional share of Common Stock upon conversion of Convertible Preferred Stock. Instead, the Corporation shall deliver a check for an amount equal to the value of the fractional share. The value of a fraction of a share is determined by multiplying the Current Market Price of the Common Stock as of the Conversion Date by the fraction, rounded to the nearest cent. (d) A holder delivering Convertible Preferred Stock for conversion will not be required to pay any taxes or duties in respect of the issue or delivery of Common Stock on conversion but will be required to pay any tax or duty that may be payable in respect of any transfer involved in the issue or delivery of the shares of Common Stock. Certificates representing shares of Common Stock will not be issued or delivered unless all taxes and duties, if any, payable by the holder have been paid. (e) The Corporation has reserved and shall continue to reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of the Convertible Preferred Stock in full. All shares of Common Stock which may be issued upon conversion of Convertible Preferred Stock shall be fully paid and nonassessable. The Corporation will comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Convertible Preferred Stock and will list such shares on each national securities exchange on which the Common Stock is listed. 11 (f) If the Corporation, after the Closing Date: (i) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (ii) subdivides its outstanding shares of Common Stock into a greater number of shares; (iii) combines its outstanding shares of Common Stock into a smaller number of shares; or (iv) issues by reclassification of its Common Stock any shares of its capital stock; then the Conversion Price (as in effect immediately prior to such action) shall be proportionately adjusted so that the holder of Convertible Preferred Stock thereafter converted may receive for the same aggregate Conversion Price the aggregate number and kind of shares of capital stock of the Corporation that such holder would have owned immediately following such action if such holder had converted Convertible Preferred Stock immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of dividend or distribution and immediately after the effective date of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. If, after an adjustment referred to in clauses (i) through (iv) above, a holder of Convertible Preferred Stock upon conversion of it may receive shares of two or more classes of capital stock of the Corporation, the Corporation shall determine the allocation of the Conversion Price between the classes of capital stock. After such allocation, the conversion rights and the Conversion Price with respect to each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this subparagraph 5(f). (g) If at any time or from time to time after the Closing Date but on or before the first anniversary of the Closing Date, the Corporation issues or sells, or is deemed by the provisions of this subparagraph 5(g) to have issued or sold, Additional Shares of Common Stock, otherwise than in connection with a transaction described in subparagraph 5(f), for an Effective Price (as hereinafter defined) that is less than the Conversion Price in effect immediately prior to such issue or sale, then, and in each such case, the Conversion Price shall be reduced, as of the close of business on the date of such issue or sale, to the Effective Price at which such Additional Shares of Common Stock are so issued or sold. If, at any time or from time to time after the first anniversary of the Closing Date, the Corporation issues or sells, or is deemed by the provisions of this subparagraph 5(g) to have issued or sold Additional Shares of Common Stock, otherwise than in connection with a transaction described in subparagraph 5(f), for an Effective Price that is less than the Target Price in effect prior to such issue or sale, then, and in each such case, the Conversion Price shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction: (i) The numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale of Additional 12 Shares of Common Stock plus (B) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Company for the total number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold) by the Target Price in effect immediately prior to such issue or sale; and (ii) The denominator of which shall be the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (B) the number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold). For the purpose of making any adjustment required under this subparagraph 5(g): "Additional Shares of Common Stock" shall mean all shares of Common --------------------------------- Stock issued by the Corporation, whether or not subsequently reacquired or retired by the Company, other than (i) shares of Common Stock issued or issuable upon conversion of Convertible Preferred Stock (including without limitation the issuance of any securities as part of any anti-dilution adjustment made with respect to any securities issued pursuant to the Senior Note Purchase Agreement), (ii) shares of Common Stock issuable upon conversion of Convertible Securities outstanding as of the Closing Date or upon exercise of Rights or Options either outstanding on the Closing Date or pursuant to Options described in clauses (i), (ii) or (iii) of the definition of Rights or Options, and (iii) shares of capital stock issued pursuant to the terms and conditions of the Senior Note Purchase Agreement (other than shares of Common Stock issued as part of any anti-dilution adjustment with respect to securities issued pursuant to the Senior Note). The "Aggregate Consideration Received" by the Corporation for any -------------------------------- issue or sale (or deemed issue or sale) of securities shall (A) to the extent it consists of cash, be computed at the amount of cash received by the Corporation in connection with such issuance or sale; (B) to the extent it consists of property other than cash, be computed at the fair market value of that property; (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options; and (D) if Additional Shares of Common Stock are issued or sold in a public offering or private placement, the consideration shall be deemed to be the amount of cash paid therefor before deducting therefrom any discounts, commissions or placement fees payable by the Corporation to any underwriter or placement agent in connection with the issuance and sale thereof. "Convertible Securities" shall mean stock or other securities ---------------------- convertible into or exchangeable for shares of Common Stock. The "Effective Price" of Additional Shares of Common Stock shall mean --------------- the quotient determined by dividing the Aggregate Consideration Received, or deemed to have been received, by the Corporation under this subparagraph 5(g), for the issue of such Additional 13 Shares of Common Stock by the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold, by the Corporation under this subparagraph 5(g). "Rights or Options" shall mean warrants, options or other rights to ----------------- purchase or acquire shares of Common Stock or Convertible Securities, other than (i) options to purchase up to 100,000 shares of Common Stock (and the issuance of shares of Common Stock issuable upon exercise of such Options) issued pursuant to the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, or the Corporation's Stock Incentive Plan to current employees of the Corporation or its Subsidiaries with a per share exercise price equal to or greater than the fair market value of one share of Common Stock on the date of grant, (ii) Options to purchase up to 100,000 shares of Common Stock (and the issuance of shares of Common Stock issuable upon exercise of such Options) issued pursuant to the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, or the Corporation's Stock Incentive Plan to employees of the Corporation or its Subsidiaries hired after the Closing Date with an exercise price per share equal to or greater than the fair market value of one share of Common Stock on the date of grant and (iii) warrants issued in lieu of the issuance of Common Stock pursuant to the terms of the Senior Note Purchase Agreement. For the purpose of making any adjustment to the Conversion Price required under this subparagraph 5(g), if after the Closing Date, the Corporation issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Conversion Price, then the Corporation shall be deemed to have issued, at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Shares of Common Stock that is equal to the maximum number of shares of Common Stock issuable upon exercise or conversion of such Rights, Options or Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, received by the Corporation for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of consideration, if any, payable to the Corporation upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that (i) if the minimum amounts of such consideration -------- ---- cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Corporation shall be deemed to have received the minimum amounts of consideration without reference to such clauses, and (ii) if the minimum amount of consideration payable to the Corporation upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced. On any change ("Pricing Change") in the number of shares of Common Stock deliverable upon exercise of any Rights or Options or the conversion 14 or exchange of any Convertible Securities or any change in the consideration to be received by the Corporation upon such exercise, conversion or exchange, including, but not limited to, a change resulting from the antidilution provisions thereof, the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had the unexercised portion of such Rights or Options or Convertible Securities been originally issued with the exercise or conversion price in effect following such Pricing Change. On the expiration or cancellation of any Rights or Options that are unexercised, or the termination of the right to convert or exchange any such Convertible Securities, if the Conversion Price shall have been adjusted upon the issuance thereof, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made upon the issuance of such Rights or Options or such Convertible Securities on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such Rights or Options or upon the conversion or exchange of such Convertible Securities. No adjustment of the Conversion Price shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. (h) In case of any consolidation, amalgamation, arrangement or merger of the Corporation with or into another Person or any merger of another Person with or into the Corporation (other than a transaction to which paragraph 5(f) applies), or in case of any sale or transfer of all or substantially all of the assets of the Corporation, each share of Convertible Preferred Stock then outstanding shall, without the consent of the holder of any Convertible Preferred Stock, become convertible only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock (and other securities, if applicable) into which such Convertible Preferred Stock was convertible immediately prior thereto (assuming such holder of Common Stock (and other securities, if applicable) failed to exercise any rights of election and that such Convertible Preferred Stock was then convertible). Concurrently with the consummation of such transaction, the corporation formed by or surviving any such consolidation or merger if other than the Company, or the person to which such sale or conveyance shall have been made, shall enter into a supplemental agreement so providing and further providing for adjustments which shall be as equivalent as may be practicable to the adjustments provided for in this Section. (i) For purposes of any computation respecting consideration received pursuant to a transaction described or contemplated by this paragraph 5, whenever this Certificate of Designation calls for the determination of "fair market value," such fair market value shall be determined in good faith by the Board of Directors as evidenced by a written resolution thereof, and subject to the provisions of subparagraph 5(o) below; and (j) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price. Any adjustments which by reason of this subparagraph 5(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 5 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. 15 (k) The Corporation shall take no action that would cause any adjustment under this paragraph 5 that would reduce the Conversion Price below the par value of the Common Stock. (l) Whenever the Conversion Price is adjusted, the Corporation shall promptly mail to holders of Convertible Preferred Stock, first class, postage prepaid, a notice of the adjustment and a certificate from the Corporation's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. Subject to subparagraph 5(o) below, the certificate shall be conclusive evidence that the adjustment is correct. (m) The Corporation from time to time may, by a vote of two-thirds of the Board of Directors reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) Business Days and if the reduction is irrevocable during the period, but in no event may the Conversion Price be less than the par value of a share of Common Stock. Whenever the Conversion Price is so reduced, the Corporation shall mail to holders of Convertible Preferred Stock a notice of the reduction. The Corporation shall mail the notice first class, postage prepaid, at least 20 days before the date the reduction in the Conversion Price is to take effect. The notice shall state the reduced Conversion Price and the period it will be in effect. A reduction of the Conversion Price pursuant to this subparagraph 5(m) does not change or adjust the Conversion Price otherwise in effect for purposes of subparagraphs 5(f) and 5(g) above. (n) If: (i) the Corporation takes any action that would require an adjustment in the Conversion Price pursuant to clause (iv) of subparagraph 5(f) above; (ii) the Corporation consolidates or merges with, or transfers all or substantially all of its assets to, another corporation, and stockholders of the Corporation must approve the transaction; or (iii) there is a dissolution or liquidation of the Corporation; a holder of Convertible Preferred Stock may want to convert such stock into shares of Common Stock prior to the record date for or the effective date of such transaction. Therefore, the Corporation shall mail to such holders a notice, first class, postage prepaid, stating the proposed record or effective date, as the case may be. The Corporation shall mail such notice at least twenty (20) days before such date. (o) Except as provided in the immediately following sentence, any determination that the Corporation or its Board of Directors must make pursuant to this paragraph 5 shall be conclusive. Whenever the Corporation or its Board of Directors shall be required to make a determination under this paragraph 5, such determination shall be made in good faith and may be challenged in good faith by the holders of a majority of the shares of Convertible Preferred Stock then outstanding (with any shares held by the Corporation or any of its Affiliates not being considered to be outstanding for purposes of this Certificate of Designation), and any dispute shall be resolved, at the prevailing party's expense, by an investment banking firm of recognized national 16 standing selected by the Corporation and acceptable to such holders of a majority of the shares of Convertible Preferred Stock. (p) All shares of Convertible Preferred Stock converted pursuant to this paragraph 5 shall be retired and shall be restored to the status of authorized and unissued shares of preferred stock, without designation as to series and may thereafter be reissued as shares of any series of preferred stock other than Convertible Preferred Stock. (q) The Corporation shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Convertible Preferred Stock against impairment. 6. Redemption by the Corporation. ----------------------------- (a) The Corporation shall (subject to the legal availability of funds therefore) be required to redeem, at the Redemption Price, all outstanding shares of the Convertible Preferred Stock on the Redemption Date. (b) Notice of such redemption shall be sent by or on behalf of the Corporation not more than sixty (60) days nor less than thirty (30) days prior to the Redemption Date, by first class mail, postage prepaid, to all holders of record of the Convertible Preferred Stock at their respective last addresses as they shall appear on the books of the Corporation; provided, however, that no -------- ------- failure to give such notice or any defect therein or in the mailing thereof shall (i) relieve the Corporation from its obligation to redeem the Convertible Preferred Stock pursuant to this paragraph 6 or (ii) affect the validity of the proceedings for the redemption of any shares of Convertible Preferred Stock; provided that the Corporation shall be obligated in accordance with this paragraph 6 to redeem shares of Convertible Preferred Stock held by any holder to whom the Corporation has failed to give notice or as to whom notice was defective. In addition to any information required by law or by the applicable rules of any exchange upon which Convertible Preferred Stock may be listed or admitted to trading, such notice shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the place or places in the United States where certificates for such shares are to be surrendered for payment of the Redemption Price; (iv) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date; (v) the Conversion Price; (vi) that Convertible Preferred Stock called for redemption may be converted at any time before the close of business on the Redemption Date; and (vii) that holders of Convertible Preferred Stock must satisfy the requirements of paragraph 5 above if such holders desire to convert such shares. (c) On or prior to each Redemption Date, the Corporation shall deposit the Redemption Price for all shares of Convertible Preferred Stock not yet redeemed or converted with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the Convertible Preferred Stock, with irrevocable instructions and authority to the bank or trust corporation to publish the notice of redemption thereof and pay the Redemption Price for such shares to their respective holders on or 17 after the Redemption Date, upon receipt of notification from the Corporation that such holder has surrendered his, her or its share certificate to the Corporation pursuant to subparagraph 6(b) above. (d) If notice has been mailed in accordance with subparagraph 6(b) above and provided that, on or before the Redemption Date, all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds in trust for the pro rata benefit of the holders of the Convertible Preferred Stock, so as to be, and to continue to be available therefor, then, from and after the Redemption Date, dividends on the shares of the Convertible Preferred Stock shall cease to accrue, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Convertible Preferred Stock, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the Redemption Price) shall cease. Upon surrender, in accordance with said notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the Redemption Price. (e) Any funds deposited with a bank or trust Corporation for the purpose of redeeming Convertible Preferred Stock shall be irrevocable except that: (i) the Corporation shall be entitled to receive from such bank or trust Corporation the interest or other earnings, if any, earned on any money so deposited in trust, and the holders of any shares redeemed shall have no claim to such interest or other earnings; and (ii) any balance of monies so deposited by the Corporation and unclaimed by the holders of the Convertible Preferred Stock entitled thereto at the expiration of two (2) years from the applicable Redemption Date shall be repaid, together with any interest or other earnings earned thereon, to the Corporation, and after any such repayment, the holders of the shares entitled to the funds so repaid to the Corporation shall look only to the Corporation for payment without interest or other earnings. (f) No Convertible Preferred Stock may be redeemed except with funds legally available for the payment of the Redemption Price. If, upon the Redemption Date, the assets of the Corporation legally available to redeem the Convertible Preferred Stock shall be insufficient to redeem all outstanding shares of Convertible Preferred Stock, (i) the Corporation shall redeem that number of shares of Convertible Preferred Stock that may be redeemed with the assets of the Corporation legally available to redeem the Convertible Preferred Stock (pro rata among the holders of Convertible Preferred Stock based on the --- ---- relative number of shares of Convertible Preferred Stock held by such holders) and (ii) any unredeemed shares shall be carried forward and shall be redeemed at such time as funds are legally available to so redeem such shares. All shares of Convertible Preferred Stock which are subject to redemption hereunder but which have not been redeemed due to insufficient legally available funds and assets shall continue to be outstanding and entitled to all dividends, liquidation, conversion and other rights, preferences and privileges of the Convertible Preferred Stock until such shares are converted or redeemed. (g) All shares of Convertible Preferred Stock redeemed pursuant to this paragraph 6 shall be retired and shall be restored to the status of authorized and unissued shares of 18 preferred stock, without designation as to series and may thereafter be reissued as shares of any series of preferred stock other than shares of Convertible Preferred Stock. (h) Except as specifically provided in this paragraph 6, the Convertible Preferred Stock shall not be redeemable. 7. Voting Rights. ------------- In addition to any voting rights provided by law, the holders of shares of Convertible Preferred Stock shall have the following voting rights: (a) So long as any shares of the Convertible Preferred Stock remain outstanding, each share of Convertible Preferred Stock shall entitle the holder thereof to vote on all matters voted on by holders of Common Stock, voting together with the Common Stock as a single class (together with all other classes and series of stock of the Corporation that are entitled to vote as a single class with the Common Stock) at all meetings of the stockholders of the Corporation, or by written consent of the minimum number of shares required to take such action pursuant to Section 228 of the Delaware General Corporation Law. In any vote with respect to which the Convertible Preferred Stock shall vote with the holders of Common Stock as a single class together with all other classes and series of stock of the Corporation that are entitled to vote as a single class with the Common Stock, each share of Convertible Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the number of votes which could be cast in such vote by a holder of the number of shares of Common Stock into which such share of Convertible Preferred Stock is convertible on the record date of such vote or, if no such record date is established, on the date any written consent of the stockholders is solicited. Such voting right of the holders of the Convertible Preferred Stock may be exercised at any annual meeting of stockholders, any special meeting of stockholders, or by written consent of the minimum number of shares required to take such action pursuant to Section 228 of the Delaware General Corporation Law. (b) On any matter on which the holders of Convertible Preferred Stock are entitled by law or under the Certificate of Incorporation to vote separately as a class, each such holder shall be entitled to one vote for each share held, and such matter shall be determined by a majority of the votes cast unless the General Corporation Law of the State of Delaware or this Certificate of Designations requires approval by a higher percentage. (c) During such time as ten percent (10%) of the shares of Convertible Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Convertible Preferred Stock issued on the Initial Issue Date) is outstanding, the Corporation will not, without the affirmative vote or consent of the holders of at least a majority of the issued and outstanding shares of Convertible Preferred Stock voting together as a separate class: (i) amend, modify, alter, repeal or waive the application of (including by way of merger, consolidation, combination or otherwise) any provision of the Certificate of Incorporation or by-laws of the Corporation or any of its Subsidiaries in any manner that adversely effects the powers, rights, preferences or privileges of the holders of the Convertible Preferred Stock or enter 19 into any agreement or take any other corporate action (or permit any of its Subsidiaries to enter into any agreement or take any corporate action) which would in any way amend, modify, alter, repeal or waive the powers, rights, preferences or privileges of the Convertible Preferred Stock; (ii) [RESERVED]; (iii) create, authorize or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) (A) any class or series of stock ranking senior to or on parity with the Convertible Preferred Stock as to payment of dividends or payments or distributions upon voluntary or involuntary liquidation, dissolution or winding-up of the Corporation or (B) any class or series of stock which the Corporation or any of its Subsidiaries is obligated to purchase, redeem, defease or otherwise retire for value (including, without limitation, any obligation to purchase any such stock upon the occurrence of a Change of Control or similar event), or with respect to which the Corporation or any of its Subsidiaries is required to make any other payment or distribution, at any time prior to the date that is 180 days after the Redemption Date; (iv) permit any Subsidiary of the Corporation to create, authorize or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) (A) any class or series of stock ranking senior to the common stock or other common equity securities of such Subsidiary as to dividends or payments or distributions upon voluntary or involuntary liquidation, dissolution or winding-up of such Subsidiary or (B) any class or series of stock which the Corporation or any of its Subsidiaries is obligated to purchase, redeem, defease or otherwise retire for value (including, without limitation, any obligation to purchase any such stock upon the occurrence of a Change of Control or any similar event), or with respect to which the Corporation or any of its Subsidiaries is obligated to make any other payment or distribution, at any time prior to the date that is 180 days after the Redemption Date; (v) increase the authorized shares of Convertible Preferred Stock or issue any shares of Convertible Preferred Stock after the Initial Issue Date other than the issuance of shares of Convertible Preferred Stock as PIK Dividends pursuant to subparagraph 3(b) hereof; (vi) enter into (or permit any Subsidiary of the Corporation to enter into) any transaction involving (a) any payment to, or any sale, lease, transfer or other disposition of any properties or assets to, any Affiliate of the Corporation, (b) any purchase, acquisition or lease of property or assets from any Affiliate of the Corporation, or (c) any loan, guarantee or advance to or from or for the benefit of, or any contract, agreement or lease with, any Affiliate of the Corporation, other than (I) any employment agreement entered into by the Corporation or any of its Subsidiaries in the Corporation or any of its Subsidiaries 20 in the ordinary course of business with any employee of the Corporation or any of its Subsidiaries; (II) any transaction between or among the Corporation and/or its Subsidiaries; (III) payment of directors' fees to Persons who are not otherwise Affiliates of the Corporation other than by reason of their position as an officer or director; (IV) compensation payable to or other benefits provided to, or any agreement to pay such compensation or benefits with, officers and employees of the Corporation; (V) transactions with holders of the Convertible Preferred Stock; and (VI) transactions contemplated by the Senior Note Purchase Agreement; (vii) redeem, acquire, purchase, defease or otherwise retire for value or make any other payment or distribution in respect of any shares of capital stock of the Corporation or any Subsidiaries of the Corporation (including without limitation any payment or declaration of dividends on any shares of Junior Stock other than dividends on the Common Stock payable solely in cash or additional shares of Common Stock) other than (i) any such redemption, acquisition, purchase, retirement or other payment or distribution in respect of the Convertible Preferred Stock, (ii) any redemption, acquisition, purchase, retirement or other payment or distribution by any Subsidiary of the Corporation in respect of shares of capital stock of such Subsidiary held by the Corporation or another wholly-owned Subsidiary of the Corporation, (iii) the repurchase of shares of Common Stock or options to purchase Common Stock, in each case, issued under the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, and the Corporation's Stock Incentive Plan from terminated or retired employees, to the extent permitted under the terms of the then outstanding Indebtedness of the Corporation and its Subsidiaries, (iv) the acquisition by the Corporation or Aviall Services, Inc. of two (2) outstanding shares of capital stock of Aviall S.A.R.L. from Ryder System, Inc. and (v) the cashless exercise of Rights or Options, the cashless exercise of warrants, if any, issued in lieu of Common Stock pursuant to the Senior Note Purchase Agreement and the surrender by holders of restricted shares of capital stock of the Corporation in payment of any tax liabilities by such holders pursuant to the Corporation's Amended and Restated 1998 Directors Stock Plan, the Corporation's 1998 Stock Incentive Plan, the Corporation's Non-Qualified Stock Option Agreement, and the Corporation's Stock Incentive Plan; (viii) effect any voluntary liquidation, dissolution or winding-up of the Corporation; (ix) purchase, acquire or lease (or permit any Subsidiary of the Corporation to purchase, acquire or lease), in one transaction or series of related transactions, assets, properties, capital stock or other securities of any Person for consideration having a fair market value in excess of $50,000,000 (other than any (i) inventory purchases in the ordinary course of business pursuant to any contract in effect or executed on or before the Closing Date and (ii) inventory purchases in the ordinary course of business pursuant to any contract to be executed by the 21 Corporation after the Closing Date, but not including initial payments or consideration for inventory, license fees, distribution rights or other similar payments which in the aggregate exceed $50,000,000); (x) engage in, or permit any Subsidiary of the Corporation to engage in, any business other than the businesses in which the Corporation and any of its Subsidiaries are engaged in as of the date hereof and any businesses reasonably related, incidental or ancillary to such businesses. (xi) take any action (or permit any Subsidiary of the Corporation to take any action) that would cause a dividend or other distribution to be received by the holders of Convertible Preferred Stock for federal income tax purposes unless such dividend or other distributions is actually received by such holders in cash; or (xii) amend in any respect the Rights Plan or the terms of the Series A Junior Preferred Stock, or adopt any rights plan, "poison pill" or other plan or arrangements (other than the Rights Plan as currently in effect), or issue any Rights or other securities to the holders of its Common Stock (other than the Rights Plan as currently in effect), intended to result in the dilution of any Person's ownership of Common Stock as a result of such Person becoming the Beneficial Owner of a specified percentage of the Common Stock or other Voting Stock of the Corporation; (xiii) incur or guarantee or permit any Subsidiary of the Corporation to incur or guarantee any Indebtedness if, after giving effect to such incurrence or guarantee, the aggregate principal amount of Indebtedness incurred or guaranteed by the Corporation and/or its Subsidiaries on a consolidated basis during the preceding twelve calendar month period ending on the date of such guarantee or incurrence would exceed $50,000,000, other than Indebtedness incurred (A) pursuant to the Corporation's revolving credit facility in place as of the Initial Issue Date and pursuant to the Senior Note Purchase Agreement on the Initial Issue Date, and (B) pursuant to any future refinancings of the Corporation's outstanding Indebtedness on the Closing Date and future refinancings of any other Indebtedness described in clause (A) above (such Indebtedness being refinanced being referred to as the "Pre-existing Debt"), not to exceed the ----------------- principal amount of the Pre-existing Debt of the Corporation and its Subsidiaries on the date of such refinancing; or (xiv) adopt and/or implement an Annual Operating Plan for any fiscal year unless such Annual Operating Plan has been adopted and approved by a majority of the members of the Board of Directors and a majority of the Preferred Stock Directors. provided, however, that nothing herein shall prohibit the Corporation from - -------- ------- distributing rights pursuant to the terms of that certain Rights Agreement, dated as of December 7, 1993, as 22 amended, between the Corporation and BankBoston, N.A. (as successor to the First National Bank of Boston), as Rights Agent, as such Rights Agreement is in effect on the Closing Date. (d) So long as ten percent (10%) of the shares of Convertible Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Convertible Preferred Stock issued on the Initial Issue Date) remains outstanding, (i) except as provided in subparagraph 7(f) or in clause (ii) of this sentence, the number of Directors comprising the Board of Directors shall not exceed eight (8) and (ii) the holders of Convertible Preferred Stock, voting separately as a class, shall have the exclusive right to elect two (2) Directors (each such Director, a "Preferred Stock Director") at ------------------------ any special meeting of stockholders called for such purpose, at each annual meeting of stockholders and in any written consent of stockholders pursuant to Section 228 of the Delaware General Corporation Law; provided, however, that the -------- ------- number of Preferred Stock Directors shall be increased to three (3) Directors (and the total number of Directors shall be increased to nine (9)) in the event that the number of shares of Common Stock issuable upon conversion of the outstanding shares Convertible Preferred Stock at any time exceeds the product of (x) 0.4 and (y) the sum of the number of issued and outstanding shares of Common Stock and the number of shares of Common Stock issuable upon conversion of all outstanding shares of Convertible Preferred Stock. So long as ten percent (10%) of the shares of Convertible Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Convertible Preferred Stock issued on the Initial Issue Date) remain outstanding, (i) the Board of Directors shall maintain an Executive Committee and Compensation Committee Board of Directors and (ii) at least one of the Preferred Stock Directors shall serve as a member of such Executive Committee and such Compensation Committee. (e) The Preferred Stock Directors elected as provided herein shall serve until the next annual meeting or until their respective successors shall be elected and shall qualify. Any Preferred Stock Director may be removed with or without cause by, and shall not be removed other than by, the vote of the holders of a majority of the outstanding shares of Convertible Preferred Stock, voting separately as a class, at a meeting called for such purpose or by written consent in accordance with Section 228 of the Delaware General Corporate Law. If the office of any Preferred Stock Director becomes vacant by reason of death, resignation, retirement, disqualification or removal from office or otherwise, the remaining Preferred Stock Directors may elect a successor, or, alternatively, the holders of a majority of the outstanding shares of Convertible Preferred Stock, voting separately as a class, at a meeting called for such purpose or by written consent in accordance with Section 228 of the Delaware General Corporation Law may elect a successor. Any such successor shall hold office for the unexpired term in respect of which such vacancy occurred. Upon any termination of the right of the holders of Convertible Preferred Stock to vote for and elect Preferred Stock Directors as herein provided, the Preferred Stock Directors then serving on the Board of Directors may continue to hold their office for the remainder of their term. (f) (i) Upon the occurrence and during the continuation of any Default Event, the holders of Convertible Preferred Stock shall have the exclusive right, voting separately as a class, to elect, in addition to the Preferred Stock Directors, two Directors at the Corporation's next annual meeting of stockholders and at each subsequent annual meeting of stockholders; provided, -------- however, that if such voting rights shall become vested more than 90 days or - ------- less than 20 days before the date prescribed for the annual meeting of stockholders, thereupon the holders of the 23 shares of Convertible Preferred Stock shall be entitled to exercise their voting rights at a special meeting of the holders of shares of Convertible Preferred Stock as set forth in clauses (ii) and (iii) of this subparagraph 7(f). At elections for such Directors, each holder of Convertible Preferred Stock shall be entitled to one vote for each share held. Upon the vesting of such right of the holders of Convertible Preferred Stock, the maximum authorized number of members of the Board of Directors shall automatically be increased by two and the two vacancies so created shall be filled by vote of the holders of outstanding Convertible Preferred Stock as hereinafter set forth. The right of holders of Convertible Preferred Stock, voting separately as a class without regard to series, to elect members of the Board of Directors as aforesaid shall continue until such time as such Default Event has been cured, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent Default Event. (ii) Whenever such voting right shall have vested, such right may be exercised initially either at a special meeting of the holders of shares of Convertible Preferred Stock called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing Directors, and thereafter at such meetings or by the written consent of such holders pursuant to Section 228 of the General Corporation Law of the State of Delaware. (iii) At any time when such voting right shall have vested in the holders of shares of Convertible Preferred Stock entitled to vote thereon, and if such right shall not already have been initially exercised, an officer of the Corporation shall, upon the written request of holders of record of 10% of the voting power represented by the shares of such Convertible Preferred Stock then outstanding, addressed to the Treasurer of the Corporation, call a special meeting of holders of shares of such Convertible Preferred Stock. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Treasurer of the Corporation. If such meeting shall not be called by the proper officers of the Corporation within 30 days after the personal service of such written request upon the Treasurer of the Corporation, or within 30 days after mailing the same within the United States, by registered mail, addressed to the Treasurer of the Corporation at its principal office (such mailing to be evidenced by the registry receipt issued by the postal authorities), then the holders of record of 10% of the voting power represented by the shares of Convertible Preferred Stock then outstanding may designate in writing any person to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of stockholders and shall be held at the same place as is elsewhere provided in this paragraph. Any holder of shares of Convertible Preferred Stock then outstanding that would be entitled to vote at such meeting shall have access to the stock books of the Corporation for the purpose of causing a meeting of stockholders to be called pursuant to the provisions of this paragraph. Notwithstanding the provisions of this paragraph, however, no such special meeting shall be called or held during a period within 45 days immediately preceding the date fixed for the next annual meeting of stockholders. (iv) The directors elected pursuant to this subparagraph 7(f) shall serve until the earlier of (i) the next annual meeting or until their respective successors shall be elected and shall qualify or (ii) until the right of the holders of Convertible Preferred Stock to elect such 24 additional Directors pursuant to this subparagraph 7(f) shall terminate; any Director elected by the holders of Convertible Preferred Stock pursuant to this subparagraph 7(f) may be removed by, and shall not be removed otherwise than by, the vote of the holders of a majority of the voting power of the outstanding shares of the Convertible Preferred Stock who were entitled to participate in such election of directors, voting as a separate class, at a meeting called for such purpose or by written consent as permitted by law and the Certificate of Incorporation and Bylaws of the Corporation. If the office of any Director elected by the holders of Convertible Preferred Stock pursuant to this subparagraph 7(f), voting as a class, becomes vacant by reason of death, resignation, retirement, disqualification or removal from office or otherwise, the remaining Director elected by the holders of Convertible Preferred Stock, voting as a class, may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Upon any termination of the right of the holders of Convertible Preferred Stock to vote for directors as provided in this subparagraph 7(f), the term of office of all Directors then in office elected by the holders of Convertible Preferred Stock, voting as a class, shall terminate immediately. Whenever the terms of office of the Directors elected by the holders of Convertible Preferred Stock, voting as a class, shall so terminate and the special voting powers vested in the holders of Convertible Preferred Stock shall have expired, the number of Directors shall be such number as may be provided for in the Bylaws or Certificate of Incorporation irrespective of any increase made pursuant to the provisions of this subparagraph 7(f). 8. Repurchase Upon Change of Control. To the extent permitted by the --------------------------------- terms of the Senior Debt and the Senior Note Purchase Agreement, if a Change of Control occurs, each holder of the Convertible Preferred Stock shall have the right to require the Corporation to repurchase all or any part of that holder's Convertible Preferred Stock pursuant to the offer described below (the "Change ------ of Control Offer"). In the Change of Control Offer, the Corporation shall offer - ---------------- a payment in cash for each outstanding share of Convertible Preferred Stock equal to the greater of (i) 101% of the Liquidation Preference per share of Convertible Preferred Stock repurchased plus accrued and unpaid dividends, if any, thereon, to the date of repurchase and (ii) the aggregate Current Market Price of all shares of Common Stock issuable upon conversion a share of Convertible Preferred Stock so repurchased, determined as of the date of such Change of Control (the "Change of Control Payment"). Within 30 days following any Change of Control, the Corporation shall mail a notice to each holder of shares of Convertible Preferred Stock describing the transaction or transactions that constitute the Change of Control and offering to repurchase the Convertible Preferred Stock on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures ------------------------------ required by this Certificate of Designation and described in such notice. The Corporation shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Convertible Preferred Stock as a result of a Change of Control. On the Change of Control Payment Date, the Corporation shall, to the extent lawful: 25 (1) accept for payment all shares of Convertible Preferred Stock or portions thereof properly tendered pursuant to the Change of Control Offer; (2) promptly mail to each holder of Convertible Preferred Stock so tendered the Change of Control Payment for each share of Convertible Preferred Stock so tendered and promptly authenticate and mail to each such holder a new certificate representing the shares of Convertible Preferred Stock equal in Liquidation Preference to any unpurchased portion of the Convertible Preferred Stock surrendered, if any. This paragraph shall be applicable regardless of whether any other provisions of this Certificate of Designation are applicable. 9. Financial Statements; Information Right. --------------------------------------- (a) Unless such financial statements or reports have been filed with the Commission, whether or not required by the rules and regulations of the Commission, so long as ten percent (10%) of the shares of Convertible Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Convertible Preferred Stock issued on the Initial Issue Date) is outstanding, the Corporation shall furnish to the holders of Convertible Preferred Stock (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Corporation were required to file such Forms, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Corporation's certified independent accountants, (ii) all monthly financial statements required to be prepared and submitted pursuant to the terms and conditions of the Senior Note Purchase Agreement and (iii) all current reports that would be required to be filed with the Commission on Form 8-K if the Corporation were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Corporation shall file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, for so long as ten percent (10%) of the shares of Convertible Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Convertible Preferred Stock issued on the Initial Issue Date) remains outstanding, the Corporation shall furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (b) The Corporation shall, so long as ten percent (10%) of the shares of Convertible Preferred Stock outstanding on the Initial Issue Date (after giving effect to the issuance of all shares of Convertible Preferred Stock issued on the Initial Issue Date) is outstanding, deliver to the holders of Convertible Preferred Stock, forthwith upon any Executive Officer of the Corporation becoming aware of any default under this Certificate of Designation, an Officers' Certificate specifying such default and what action the Corporation is taking or proposes to take with respect thereto. 26 (c) The Corporation shall provide to any holder of Convertible Preferred Stock, upon written request of such holder to the Corporation, such financial and other information concerning the Corporation and its Subsidiaries as may from time to time be reasonably requested by such holder. 10. Modification and Waiver. Except as otherwise provided above, the terms ----------------------- of this Certificate of Designation may be amended and the rights hereunder may be waived only with the consent of holders of a majority of the shares of the Convertible Preferred Stock then outstanding, provided, that if any such -------- modification or waiver has a material adverse effect on the holders' rights with respect to dividends or conversion, then the consent of each holder of Convertible Preferred Stock shall be required. 11. Headings of Subdivisions. The headings of the various subdivisions ------------------------- hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 12. Severability of Provisions. If any voting powers, preferences and -------------------------- relative, participating, optional and other special rights of the Convertible Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of the Convertible Preferred Stock and any qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of the Convertible Preferred Stock or qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of the Convertible Preferred Stock or qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Convertible Preferred Stock or qualifications, limitations and restrictions thereof unless so expressed herein. 13. Record Holders. The Corporation and the transfer agent for the -------------- Convertible Preferred Stock may deem and treat the record holder of any shares of Convertible Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Company nor the transfer agent shall be affected by any notice to the contrary. 14. Notice. Except as may otherwise be provided for herein, all notices ------ referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon receipt, in the case of a notice of conversion given to the Corporation as contemplated in Section 5(b) hereof, or, in all other cases, upon the earlier of receipt of such notice or three Business Days after the mailing of such notice if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Designation) with postage prepaid, addressed: if to the Corporation, to its offices at 2750 Regent Blvd., DFW Airport, Texas 75214, Attention: Secretary or to an agent of the Corporation designated as permitted by this Certificate, or, if to any holder of the Convertible Preferred Stock, to such holder at the address of such holder of the Convertible Preferred Stock as listed in the stock record books of the Corporation (which may 27 include the records of any transfer agent for the Convertible Preferred Stock); or to such other address as the Company or holder, as the case may be, shall have designated by notice similarly given. 15. Merger or Consolidation of the Corporation. The Corporation shall not ------------------------------------------ merge or consolidate with any other Person, or enter into or effect any reorganization, unless the surviving corporation or other entity resulting from such merger, consolidation or reorganization shall make appropriate provision in connection with such merger, consolidation or reorganization such that (i) the shares of Convertible Preferred Stock outstanding immediately prior to the effective time of such merger, consolidation or reorganization remain outstanding immediately following such merger, consolidation or reorganization or (ii) the shares of Convertible Preferred Stock outstanding immediately prior to the effective time of such merger, consolidation or reorganization shall be converted into an equivalent number of shares of convertible preferred stock of such surviving Corporation or other entity having terms identical to the terms of the Convertible Preferred Stock, except that such shares of convertible preferred stock of such surviving corporation or other entity shall be convertible into securities, cash or other property as provided in subparagraph 5(h). 28 IN WITNESS WHEREOF, the Corporation has caused this certificate to be duly executed by Paul E. Fulchino, its Chairman, President and CEO, this 21/st/ day of December, 2001. AVIALL, INC. By: /s/ Paul E. Fulchino -------------------- Name: Paul E. Fulchino Title: Chairman, President and CEO ATTEST: By: /s/ Jeffrey J. Murphy --------------------- Name: Jeffrey J. Murphy Title: Senior Vice President, Law & Human Resources, Secretary & General Counsel 29 EX-99 7 dex994.txt EXHIBIT E Exhibit E STANDSTILL AGREEMENT This STANDSTILL AGREEMENT, dated as of December 21, 2001 (this "Agreement"), is entered into by and among Aviall, Inc., a Delaware corporation (the "Company"), Carlyle Partners III, L.P., a Delaware limited partnership ("CPIII"), and CP III Coinvestment L.P., a Delaware limited partnership ("CPIII Co." together with CPIII, the "Carlyle Funds"). CPIII and CPIII Co. are sometimes referred to herein individually as an "Investor" and collectively, as the "Investors". WHEREAS, the Investors and the Company have entered into a Securities Purchase Agreement, dated December 17, 2001 (the "Purchase Agreement"); WHEREAS, an affiliate of the Investors and the Company and other purchasers named therein have entered into a Note Purchase Agreement, dated December 17, 2001 (the "Note Purchase Agreement"); WHEREAS, as a condition to the consummation of the Purchase Agreement, the Company desires that the Investors make certain representations, warranties, covenants and agreements as set forth in this Agreement. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and in the Purchase Agreement and in the Note Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Definitions. Capitalized terms used herein but not otherwise ----------- defined herein shall have the meaning ascribed thereto in the Purchase Agreement. 2. Representations and Warranties of Each Investor. To induce the ----------------------------------------------- Company to enter into this Agreement, the Purchase Agreement and the Note Purchase Agreement and to consummate the transactions contemplated hereby and thereby, each Investor represents and warrants to the Company as follows: 2.1 Binding Agreement. The execution, delivery and performance ----------------- of this Agreement by such Investor and the consummation by such Investor of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate or partnership action on the part of such Investor. This Agreement has been duly executed and delivered by such Investor, and, assuming the valid authorization, execution and delivery hereof by the Company, is a valid and binding obligation of such Investor, enforceable against such Investor in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting or relating to the enforcement of creditors' rights generally and by general principles of equity (whether applied in a proceeding at law or in equity). 2.2 Execution; No Violations. The execution and delivery of this ------------------------ Agreement by such Investor does not, and the consummation by such Investor of the transactions contemplated hereby will not: (a) violate or conflict with the organizational documents of such Investor or any agreement, order, injunction, decree, or judgment to which such Investor is a party or by which such Investor or any of its respective properties is bound; or (b) violate any law, rule or regulation applicable to such Investor. -1- 2.3 Governmental and Other Consents. No consent, approval or ------------------------------- authorization of, or designation, registration, declaration or filing with, any governmental entity or third Person is required on the part of such Investor in connection with the execution or delivery of this Agreement or the consummation by it of the transactions contemplated hereby. 2.4 Share Ownership. Such Investor does not own any voting --------------- securities of the Company, or any securities convertible into or exchangeable or exercisable for any voting securities of the Company, or which, upon redemption thereof could result in such Investor or any of its Affiliates receiving any voting securities of the Company, or options, warrants, contractual rights or other rights of any kind to acquire or vote any voting securities of the Company (collectively, the "Voting Securities"), except those securities acquired pursuant to the Purchase Agreement, the Note Purchase Agreement or issuable upon conversion of the securities acquired pursuant to the Purchase Agreement (the "Company Shares"). 3. Standstill Arrangements. ----------------------- 3.1 Acquisition of Additional Voting Securities. Each Investor ------------------------------------------- hereby covenants and agrees that prior to the Termination Date (as hereinafter defined), neither such Investor nor any of its controlled Affiliates will, without the prior approval of the Board of Directors of the Company, directly or indirectly, purchase or otherwise acquire (other than pursuant to a stock split or stock dividend) or make any proposal, other than a confidential proposal to the Board of Directors of the Company, to or agree to acquire, or become or agree to become the beneficial owner of, more than 5% of the outstanding Voting Securities, other than (i) the Company Shares; (ii) any Voting Securities acquired through the exercise, conversion or exchange of the Company Shares (the "Conversion Shares"), (iii) any Voting Securities acquired through the exercise, conversion or exchange of the Conversion Shares (together with the Company Shares and the Conversion Shares, the "Investor Shares") or (iv) any voting securities issued as dividends on or otherwise issued in exchange or in consideration of or with respect to the Investor Shares (the "Dividend Shares") or shares issued as dividends on the Dividend Shares or in exchange for or in respect of the Dividend Shares. 3.2 Prohibited Actions. Each Investor hereby agrees that prior ------------------ to the Termination Date, neither such Investor nor any of its Affiliates will, without the prior approval of the board of Directors of the Company, directly or indirectly, solicit, request, advise, assist or encourage others to, take any of the following actions: (a) form, join in or in any other way participate in a "partnership, limited partnership, syndicate or other group" within the meaning of Section 13(d)(3) of the Exchange Act with respect to Voting Securities or deposit any Voting Securities in a voting trust or similar arrangement or subject any Voting Securities to any voting agreement or pooling arrangement, other than with one or more Affiliates of such Investor with respect to the Company Shares or with one or more beneficial owners of the Company Shares that does not own any Voting Securities other than the Company Shares; (b) solicit proxies or written consents of stockholders with respect to Voting Securities (other than the Investor Shares) under any circumstances, or make, or in any way participate in, any "solicitation" of any "proxy" to vote any Voting Securities (other than conducted by the Company), or become a "participant" in any election contest with -2- respect to the Company (as such terms are defined or used in Rules 14a-1 and 14a-11 under the Exchange Act) other than an election contest related to election of members of the Board of Directors elected solely by the holders of the Investor Shares; (c) seek to call, or request the call of, a special meeting of the stockholders of the Company (other than as contemplated by the Purchase Agreement) or seek to make, or make, a stockholder proposal at any meeting of the stockholders of the Company that has not first been presented to the Board of Directors; (d) commence, or announce any intention to commence, any tender offer for any Voting Securities; (e) make, announce any intention or desire to make, or facilitate the making of, any proposal (other than a confidential proposal to the Company) or bid with respect to (i) the acquisition of any substantial portion of the assets of the Company or of the assets or stock of any of its subsidiaries or of all or any portion of the outstanding Voting Securities, or (ii) any merger, consolidation, other business combination, restructuring, recapitalization or liquidation involving the Company or any of its subsidiaries; (f) knowingly arrange, or in any way knowingly participate in, any financing for any transaction referred to in clauses 3(a) through 3(e) above; or (g) make any request, or otherwise seek (in any fashion that would require public disclosure by the Company, such Investor or their respective Affiliates) to obtain any waiver or amendment of any provision of this Agreement or take any action restricted hereby. 4. Termination. This Agreement shall terminate with respect to a ----------- particular Investor on the date that such Investor and its Affiliates no longer own Voting Securities representing at least 15% of the outstanding Voting Securities of the Company (the "Termination Date"). 5. Remedies. Each party hereto hereby acknowledges and agrees -------- that irreparable harm would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to specific performance hereunder, including, without limitation, an injunction or injunctions to prevent and enjoin breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any state or federal court in the State of New York, in addition to any other remedy to which they may be entitled at law or in equity. Any requirements for the securing or posting of any bond with such remedy are waived. All rights and remedies under this Agreement are cumulative, not exclusive, and shall be in addition to all rights and remedies available to either party at law or in equity. 6. Jurisdiction; Venue. The parties hereto hereby irrevocably and ------------------- unconditionally consent to and submit to the jurisdiction of the courts of the State of New York and of the United States of America located in the State of New York for any actions, suits or proceedings arising out of or relating to this Agreement or the transactions contemplated hereby, and further agree that service of any process, summons, notice or document by U.S. certified mail to the respective addresses set forth in Section 11 hereof shall be effective service of process for any such action, suit or proceeding brought against any party in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement, or the transactions contemplated hereby, in the courts of the States of New York or the United States of America located in the State of -3- New York, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in any inconvenient forum. 8. Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties with respect to the subject matter hereof and may be amended only by an agreement in writing executed by the parties hereto. 9. Headings. Descriptive headings are for convenience only and -------- shall not control or affect the meaning or construction of any provision of this Agreement. 10. Number; Gender. Whenever the singular number is used herein, -------------- the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate. 11. Notices. All notices, consents, requests, instructions, ------- approvals and other communications provided for herein and all legal process in regard hereto shall be validly given, made or served, if in writing and sent by U.S. certified mail, return receipt requested: if to the Company: Aviall, Inc. 2750 Regent Boulevard DFW Airport, Texas 75261 Attention: Jeffrey J. Murphy with a copy to: Haynes and Boone, LLP 901 Main Street Suite 3100 Dallas, Texas 75202 Attention: Janice V. Sharry, Esq. if to CPIII or CPIII Co: The Carlyle Group 1001 Pennsylvania Avenue, NW Washington, DC 20004 Attention: Allan M. Holt Peter J. Clare with a copy to: Latham & Watkins 555 Eleventh Street, NW Suite 1000 Washington, DC 20004 Attention: Daniel Lennon 12. Enforceability. If any term, provision, covenant or -------------- restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby the stipulated and declared to be the intention of the parties that the parties would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable. In addition, the parties agree to use their best efforts to agree upon and substitute a valid and enforceable term, provision, covenant or restriction for any of such that is held invalid, void or unenforceable by a court of competent jurisdiction. -4- 13. Law Governing. This Agreement shall be governed by and ------------- construed and enforced in accordance with the laws of the State of New York, without regard to any conflict of laws provisions thereof. 14. Binding Effect; No Assignment. This Agreement shall be binding ----------------------------- upon and inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. Neither party to this Agreement may assign its rights or delegate its obligations hereunder (whether voluntarily, involuntarily, or by operation of law) without the prior written consent of the other party. Any such attempted assignment shall be null and void. 15. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. Section Headings. The headings contained in this Agreement ---------------- are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. * * * * * -5- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written hereinabove. AVIALL, INC. By: /s/ Jeffrey J. Murphy --------------------- Name: Jeffrey J. Murphy Title: Senior Vice President, Law and Human Resources, Secretary and General Counsel CARLYLE PARTNERS III, L.P. By: TC GROUP III, L.P., its general partner By: TC GROUP III, L.L.C., its general partner By: TC Group, L.L.C., its sole member By: TCG Holdings, L.L.C. its managing member By: /s/ Peter J. Clare ------------------ Name: Peter J. Clare Title: Managing Director CP III COINVESTMENTS, L.P., By: TC GROUP III, L.P., its general partner By: TC GROUP III, L.L.C., its general partner By: TC Group, L.L.C., its sole member By: TCG Holdings, L.L.C. its managing member By: /s/ Peter J. Clare ------------------ Name: Peter J. Clare Title: Managing Director -6- EX-99 8 dex995.txt EXHIBIT F Exhibit F ================================================================================ AVIALL, INC. _______________________ REGISTRATION RIGHTS AGREEMENT Dated as of December 21, 2001 ================================================================================ 1. DEFINITIONS ........................................................... 1 2. SHELF REGISTRATION .................................................... 4 3. DEMAND REGISTRATIONS .................................................. 4 (a) Timing Of Demand Registrations ...................................... 4 (b) Number of Demand Registrations ...................................... 5 (c) Required Thresholds ................................................. 5 (d) Participation ....................................................... 5 (e) Underwriter's Cutback ............................................... 5 (f) Managing Underwriter ................................................ 5 4. PIGGYBACK REGISTRATIONS ............................................... 6 (a) Participation ....................................................... 6 (b) Underwriter's Cutback ............................................... 6 (c) Company Control ..................................................... 6 5. HOLD-BACK AGREEMENTS .................................................. 6 6. LIQUIDATED DAMAGES .................................................... 7 7. REGISTRATION PROCEDURES ............................................... 7 8. REGISTRATION EXPENSES ................................................. 11 9. INDEMNIFICATION ....................................................... 12 (a) Indemnification by Company .......................................... 12 (b) Indemnification Procedures .......................................... 13 (c) Indemnification by Holder of Registrable Securities. ................ 13 (d) Contribution ........................................................ 14 10. EXCHANGE ACT REPORTING REQUIREMENTS ................................... 14 11. REQUIREMENTS FOR PARTICIPATION IN UNDERWRITTEN OFFERINGS .............. 15 12. FUTURE REGISTRATION RIGHTS AGREEMENTS ................................. 15 13. MISCELLANEOUS ......................................................... 16 (a) Remedies ............................................................ 16 (b) No Inconsistent Agreements .......................................... 16 (c) Amendments and Waivers .............................................. 16 (d) Notices ............................................................. 16 (e) Successors and Assigns .............................................. 17 (f) Counterparts ........................................................ 17 (g) Table of Contents and Headings ...................................... 17 (h) Governing Law ....................................................... 17 (i) Severability ........................................................ 17 (j) Forms ............................................................... 17 (k) Entire Agreement .................................................... 18
i AVIALL, INC. This Registration Rights Agreement ("Agreement") is made and entered into as of December 21, 2001, by and among Aviall, Inc., a Delaware corporation (the "Company"), and the investors (herein referred to collectively as the ------- "Investors" and individually as an "Investor") constituting the "Purchasers" --------- -------- ---------- under the Securities Purchase Agreement dated as of December 17, 2001 (the "Purchase Agreement"). In order to induce the Investors to enter into the ------------------ Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following capitalized terms shall have the following meanings: "Board of Directors": The Board of Directors of the Company. ------------------ "Bridge Securities": (a) The shares of Bridge Preferred Stock, (b) ----------------- the shares of Common Stock and Mezzanine PreferredStock issued or issuable upon conversion of the Bridge Preferred Stock, and (c) any securities issued or issuable with respect to either (a) or (b) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization. "Claim": Any loss, claim, damages, liability or expense (including ----- the reasonable costs of investigation and legal fees and expenses). "Common Stock": The common stock, par value $.01 per share, of the ------------ Company. "Demand Registration": A registration pursuant to Section 3 hereof. ------------------- "Effectiveness Deadline": The deadline set forth in Section 2 hereof. ---------------------- "Equity Security": Any capital stock of the Company or any security --------------- convertible, with or without consideration, into any such stock, or any security carrying any warrant or right to subscribe to or purchase any such stock, or any such warrant or right. "Exchange Act": The Securities Exchange Act of 1934, as from time to ------------ time amended. "Filing Deadline" The deadline set forth in Section 2 hereof. --------------- "Firm Commitment Underwritten Offering": An offering in which the ------------------------------------- underwriters agree to purchase securities for distribution pursuant to a registration statement under the Securities 1 Act and in which the obligation of the underwriters is to purchase all the securities being offered if any are purchased. "Holder": The beneficial owner of a security. For all purposes of ------ this Agreement, the Company shall be entitled to treatthe record owner of a security as the beneficial owner of such security unless the Company has been given written notice of the existence and identity of a different beneficial owner. A Holder of Bridge Preferred Stock shall be deemed to be the Holder of the Common Stock and Mezzanine Preferred Stock into which such Bridge Preferred Stock could be converted. "Indemnified Holder": Any Holder of Registrable Securities, any ------------------ officer, director, employee or agent of any such Holder and any Person who controls any such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act. "Initial Increase Date": The date which is 100 calendar days after --------------------- the Initial Issue Date. "Initial Issue Date": The date that shares of Bridge Preferred Stock ------------------ are first issued by the Company. "Misstatement": An untrue statement of a material fact or an omission ------------ to state a material fact required to be stated in a Registration Statement or Prospectus or necessary to make the statements in a Registration Statement, Prospectus or preliminary prospectus, in light of the circumstances under which they were made, not misleading. "Other Registration Rights Agreement": That certain Registration ----------------------------------- Rights Agreement dated as of December 21, 2001 by and amongthe Company, J.H. Whitney Mezzanine Fund, L.P. and the other purchasers named therein. "Parity Stock": The shares of Restricted Stock (as defined in the ------------ Other Registration Rights Agreement). "Person": A natural person, partnership, corporation, business trust, ------ association, joint venture, limited liability company or other entity or a government or agency or political subdivision thereof. "Piggyback Registration": A registration pursuant to Section 4 hereof. ---------------------- "Prospectus": The prospectus included in any Registration Statement, as supplemented by any and all prospectus supplements and as amended by any and all post-effective amendments and including all material incorporated by reference in such prospectus. "Registrable Securities": The Bridge Securities, any shares of the ---------------------- Permanent Preferred Stock, any shares of Common Stock issuable upon conversion of any shares of Permanent Preferred Stock and any securities issued or issuable with respect to thereto by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization (including, without limitation the shares of Bridge Preferred Stock 2 issued as dividends on outstanding shares of Bridge Preferred Stock and shares of Permanent Preferred Stock issued as dividends on outstanding shares of Permanent Preferred Stock). "Registration": A Shelf Registration, Demand Registration or a ------------ Piggyback Registration. "Registration Default": A registration default pursuant to Section 6 -------------------- hereof. "Registration Expenses": The out-of-pocket expenses incurred in --------------------- connection with a Registration, including: (1) all registration and filing fees (including fees with respect to filings required to be made with the National Association of Securities Dealers); (2) fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel for the underwriters or selling Holders in connection with blue sky qualifications of the Registrable Securities and determinations of their eligibility for investment under the laws of such jurisdictions as the managing underwriters or Holders of a majority of the Registrable Securities being sold may designate); (3) printing, messenger, telephone and delivery expenses; (4) fees and disbursements of counsel for the Company, counsel for the underwriters and of not more than one firm of attorneys for the sellers of the Registrable Securities; (5) fees and disbursements of all independent certified public accountants of the Company incurred in connection with such Registration (including the expenses of any special audit and comfort letters incident to such registration); (6) fees and disbursements of underwriters (excluding discounts, commissions, fees or expenses of underwriters, selling brokers, dealer managers or similar securities industry professionals relating to the distribution of the Registrable Securities); and (7) fees and expenses of any other Persons retained by the Company. "Registration Statement": Any registration statement under the ---------------------- Securities Act on an appropriate form (which form shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements required by the SEC to be filed therewith) which covers Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included in such registration statement, amendments (including post-effective amendments) and supplements to such registration statement, and all exhibits to and all material incorporated by reference in such registration statement. "Securities Act": The Securities Act of 1933, as from time to time -------------- amended. 3 "SEC": The Securities and Exchange Commission. --- "Shelf Registration": A registration pursuant to Section 2 hereof. ------------------ 2. Shelf Registration If the Required Stockholder Approval shall not have been obtained on or prior to the Initial Increase Date, the Company shall file with the SEC, as soon as practicable, but in any event within thirty (30) days after the Initial Increase Date (the "Filing Deadline"), a registration statement on Form S-3 (the --------------- "Shelf Registration Statement") in accordance with Rule 415 of the Securities ---------------------------- Act providing for resale, from time to time, of the Bridge Securities by the Holders of the Bridge Securities. The Company shall cause such Registration Statement to become effective under the Securities Act as soon as practicable but in any event within ninety (90) days of the Initial Increase Date (the "Effectiveness Deadline"). The Company shall keep any Shelf Registration ---------------------- Statement required by this Section 2 continuously effective, supplemented, amended and current as required by and subject to the provisions of Section 7 hereof and in conformity with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the SEC as announced from time to time, until the earlier of (a) the date on which the Bridge Securities are no longer outstanding, (b) the date on which all Bridge Securities are eligible for resale under Rule 144(k) promulgated under the Securities Act, and (c) the date on which the Required Stockholder Approval has been obtained and the Permanent Preferred Shares have been issued to the Holders of the Bridge Securities. 3. Demand Registrations (a) Timing Of Demand Registrations Holders of Registrable Securities constituting at least 51% of the Registrable Securities then outstanding may request in writing at any time and from time to time that the Company file a registration statement under the Securities Act on an appropriate form (which form shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements required by the SEC to be filed therewith) covering the shares of Registrable Securities that are the subject of such request. Notwithstanding the foregoing, the Holders of Registrable Securities shall not request that the Company file a registration statement for the Bridge Securities prior to the Initial Increase Date. Following such request, the Company shall (i) file with the SEC, as soon as possible but in any event within thirty (30) days of receipt of such request, such a Registration Statement covering the Registrable Securities requested to be included in such registration and (ii) cause such Registration Statement to be declared effective by the SEC, as soon as possible, but in any event within ninety (90) days of receipt of such request. The Company shall keep any Registration Statement required by this Section 3 continuously effective, supplemented, amended and current as required by and subject to the provisions of Section 7 hereof and in conformity with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the SEC as announced from time to time, until the earlier of (a) the date on which all Registrable Securities registered pursuant to such Registration Statement have been sold pursuant to such Registration Statement and (b) the date on which all Registrable Securities registered pursuant to such Registration Statement are eligible for resale under Rule 144(k) promulgated under the Securities Act. If requested by the 4 Holders requesting registration of Registrable Securities pursuant to this Section 3(a), such registration shall provide for resale, from time to time, of the Registrable Securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. (b) Number of Demand Registrations No more than four Demand Registrations pursuant to Section 3(a) shall provide for underwritten offering (any registration for such offering being referred to as an "Underwritten Demand Registration"); provided, however, -------------------------------- that any such Registration shall not be counted as one of the four Underwritten Demand Registrations hereunder unless it becomes effective and is maintained effective in accordance with the requirements specified in Section 3(a). (c) Required Thresholds The Company shall not be obligated to prepare, file and cause to become effective pursuant to this Section 3 a Registration Statement unless the proposed aggregate public offering price of the securities to be included in such Demand Registration is at least $10,000,000 (except for the final Demand Registration exercised). (d) Participation The Company shall promptly give written notice to all Holders of Registrable Securities upon receipt of a request for a Demand Registration pursuant to Section 3(a) above. The Company shall, subject to Section 3(e) below, include in such Demand Registration such shares of Registrable Securities for which it has received written requests to register such shares within 20 days after such written notice has been given. No shares of Common Stock or other securities to be sold by the Company or any holder of shares of Common Stock or other securities of the Company (other than the Holders) shall be included in any Registration effected pursuant to this Section 3. (e) Underwriter's Cutback If the public offering of Registrable Securities is to be underwritten and, in the good faith judgment of the managing underwriter, the inclusion of all the Registrable Securities requested to be registered hereunder would interfere with the successful marketing of a smaller number of such shares of Registrable Securities, the number of shares of Registrable Securities to be included in such registration shall be reduced to such smaller number with the participation in such offering to be pro rata among the Holders of Registrable Securities requesting such registration, based upon the number of shares of Registrable Securities owned by such Holders. (f) Managing Underwriter The managing underwriter or underwriters of any underwritten public offering covered by a Demand Registration shall be selected by the Holders of a majority of the shares of Registrable Securities to be included in such registration and shall be reasonably acceptable to the Company. For the purposes hereof, the parties hereto agree that Salomon Smith Barney shall be an acceptable underwriter. 5 4. Piggyback Registrations (a) Participation Each time the Company decides to file a registration statement under the Securities Act (other than registrations on Forms S-4 or S-8 or any successor form thereto, and other than a Demand Registration) covering the offer and sale by it or any of its security Holders of any of its securities for cash (other than any Registration Statement filed pursuant to the Other Registration Rights Agreement) (a "Piggyback Registration"), the Company shall give written ---------------------- notice thereof to all Holders of outstanding Registrable Securities. The Company shall include in such Registration Statement such shares of Registrable Securities for which it has received written requests to register such shares within 20 days after such written notice has been given. If the Registration Statement is to cover an underwritten offering, such Registrable Securities shall be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. (b) Underwriter's Cutback Subject to the requirements of Section 11 hereof, if in the good faith judgment of the managing underwriter of such offering the inclusion of all of the shares of Registrable Securities and any other Common Stock requested to be registered would interfere with the successful marketing of a smaller number of such shares, then the number of shares of Registrable Securities and other Common Stock to be included in the offering shall be reduced to such smaller number with the participation in such offering to be in the following order of priority: (i) first, the shares of Common Stock which the Company proposes to sell for its own account, (ii) second, the shares of Registrable Securities and the Parity Stock requested to be included in such registration, and (iii) third, any other shares of Common Stock requested to be included. Any necessary allocation among the Holders of Registrable Securities and Holders of shares of Parity Stock shall be pro rata among such Holders based upon the number of --- ---- shares of Parity Stock and Registrable Securities owned by such Holders. (c) Company Control The Company may decline to file a Registration Statement after giving notice to any Holder pursuant to Section 4(a) above, or withdraw a Registration Statement filed pursuant to Section 4(a) after filing and after such notice, but prior to the effectiveness thereof, provided that the Company shall promptly notify each Holder in writing of any such action and provided further that the Company shall bear all expenses incurred by such Holder or otherwise in connection with such withdrawn Registration Statement. 5. Hold-Back Agreements Except as required pursuant to the Other Registration Rights Agreement, the Company agrees not to effect any public sale or distribution of its Equity Securities during the 30-day period prior to, and during the 120-day period after, the effective date of each underwritten offering made pursuant to a Demand Registration or a Piggyback Registration, if so requested in writing by the managing underwriter of any offering effected pursuant to this Agreement (except as part of such underwritten offering or pursuant to registrations on Forms S-4 or S-8). 6 6. Liquidated Damages If (i) the Shelf Registration Statement required by this Agreement is not filed with the SEC on or prior to the Filing Deadline, (ii) the Shelf Registration Statement has not been declared effective by the SEC on or prior to the applicable Effectiveness Deadline, or (iii) the Shelf Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded within 2 days by a post-effective amendment to the Shelf Registration Statement that cures such failure and that is itself declared effective within 5 days of filing such post-effective amendment to the Shelf Registration Statement (each such event referred to in clauses (i) through (iii), a "Registration Default"), then the Company hereby agrees to pay to each -------------------- Holder of Bridge Securities affected thereby liquidated damages in an amount equal to $0.50 per week per $1,000 liquidation preference of the Bridge Preferred Stock and/or Mezzanine Preferred Stock held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $0.25 per week per $1,000 liquidation preference of the Bridge Preferred Stock and/or Mezzanine Preferred Stock with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $2.50 per week per $1,000 liquidation preference of the Bridge Preferred Stock and/or Mezzanine Preferred Stock; provided that the Company shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Shelf Registration Statement, in the case of (i) above, (2) upon the effectiveness of the Shelf Registration Statement, in the case of (ii) above, (3) upon the filing of a post-effective amendment to the Shelf Registration Statement or an additional Registration Statement that causes the Shelf Registration Statement to again be declared effective or made usable in the case of (iii) above, the liquidated damages payable with respect to the Registrable Securities as a result of such clause (i), (ii) or (iii), as applicable, shall cease. All accrued liquidated damages shall be paid to the Holders entitled thereto, in cash on each Dividend Payment Date (as defined in the Bridge Preferred Stock Certificate of Designations or the Preferred Stock Certificate of Designations, as applicable). Notwithstanding the fact that any securities for which liquidated damages are due cease to be Registrable Securities, all obligations of the Company to pay liquidated damages with respect to securities shall survive until such time as such obligations with respect to such securities shall have been satisfied in full. 7. Registration Procedures In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company shall: (a) prepare and file with the SEC as soon as practicable a Registration Statement with respect to such Registrable Securities and use its commercially reasonable efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Sections 2, 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (B) 7 not to be effective and usable for resale of Registrable Securities during the period required by this Agreement, the Company shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if SEC review is required, use its commercially reasonable efforts to cause such amendment to be declared effective by the SEC as soon as practicable; (b) prepare and file with the SEC such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Sections 2, 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (c) promptly notify the selling Holders of Registrable Securities and the managing underwriter, if any, and (if requested by any such Person) confirm such advice in writing, (1) when the Prospectus or any supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (3) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, (4) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (5) of the existence of any fact or the happening of any event which results in the Registration Statement, the Prospectus or any amendment or supplement thereto, or any document incorporated therein by reference containing a Misstatement; (d) make every commercially reasonable effort to obtain the withdrawal or lifting of any order suspending the effectiveness of the Registration Statement at the earliest possible time; (e) if requested by the managing underwriter or a Holder of Registrable Securities being sold in connection with an underwritten offering, promptly incorporate in a supplement or post-effective amendment such information as the managing underwriter and the Holders of a majority of the Registrable Securities being sold agree should be included therein relating to the sale of the Registrable Securities, including, without limitation, information with respect to the number of shares of Registrable Securities being sold to underwriters, the purchase 8 price being paid therefor by such underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such supplement or post-effective amendment as soon as notified of the matters to be incorporated in such supplement or post-effective amendment; (f) furnish to each selling Holder of Registrable Securities and the managing underwriter, without charge, before filing with the SEC, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (not including any Form 8-K, Form 10-Q, Form 10-K or Proxy Statement incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders in connection with such sale, if any, for a period of three Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (not including any Form 8-K, Form 10-Q, Form 10-K or Proxy Statement incorporated by reference after the initial filing of such Registration Statement) to which such Holders shall reasonably object within three Business Days after the receipt thereof. A Holder shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a Misstatement or fails to comply with the applicable requirements of the Securities Act; (g) furnish to each Holder of Registrable Securities and the managing underwriter, without charge, at least one copy of the Registration Statement, as first filed with the SEC, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (h) deliver to each selling Holder of Registrable Securities and the underwriters, if any, without charge, as many copies of each Prospectus (and each preliminary prospectus) as such Persons may reasonably request (the Company hereby consenting to the use of each such Prospectus (or preliminary prospectus) by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus (or preliminary prospectus) in accordance with applicable law and the disclosure set forth in such Prospectus); (i) prior to any public offering of Registrable Securities, register or qualify or cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as such selling Holders or underwriters may designate in writing and do anything else reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject; (j) cooperate with the selling Holders of Registrable Securities and the managing underwriter, if any, to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold and cause such Registrable Securities to be in such denominations and registered in such names as the managing 9 underwriter may reasonably request at least three business days prior to any sale of Registrable Securities to the underwriters; (k) cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; (l) if the Registration Statement or the Prospectus contains a Misstatement, prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain a Misstatement; (m) cause all Registrable Securities covered by the Registration Statement to be listed on the New York Stock Exchange; (n) provide a CUSIP number for all Registrable Securities not later than the effective date of the Registration Statement; (o) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement in customary form with the managing underwriter of such offering and perform all other action as are customary in such an underwritten public offering, including reasonable participation of senior management in a "road show." (p) enter into such agreements (including an underwriting agreement) and do anything else reasonably necessary or advisable in order to expedite or facilitate the disposition of such Registrable Securities in accordance with applicable law and the disclosure set forth in the applicable Registration Statement, and in such connection, whether or not the registration is an underwritten registration: (1) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings; (2) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter, if any, and the Holders of a majority of the Registrable Securities being sold) addressed to each selling Holder and the underwriter, if any, covering the matters customarily covered in opinions delivered to underwriters in primary underwritten offerings and such other matters as may be reasonably requested by such Holders or underwriters; (3) obtain comfort letters and updates thereof from the Company's independent certified public accountants addressed to the selling Holders of Registrable Securities registered thereunder and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in comfort letters by underwriters in connection with underwritten offerings; and 10 (4) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold and the managing underwriter, if any, to evidence compliance with clause (1) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement; (q) following reasonable advance notice, make available for inspection by representatives of the Holders of a majority of the Registrable Securities being sold, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant retained by the sellers or any such underwriter, all relevant financial and other records and pertinent corporate documents and properties of the Company, as shall be reasonably deemed necessary the such Holder, and cause the Company's officers, directors and employees to supply all relevant information, reasonably requested by any such selling Holder, underwriter, attorney or accountant in connection with the Registration as is customary for similar due diligence examinations during normal business hours at the offices where such information is normally kept; provided that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such Persons unless disclosure of such records, information or documents is required by court or administrative order; and (r) otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the SEC, and make generally available to its security Holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of any 12-month period (or 90 days, if such period is a fiscal year) (x) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in an underwritten offering, or, if not sold to underwriters in such an offering, (y) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statements shall cover said 12-month periods. Notwithstanding anything set forth in this Agreement, the Company shall have the right once per calendar year to delay the filing of a Registration Statement pursuant to this Agreement and to suspend the effectiveness of any such Registration Statement for a reasonable period of time (not exceeding thirty (30) days) if the Company furnishes to the selling Holders a certificate signed by the Chairman of the Board or the President of the Company stating that the Company has determined in good faith that effecting such registration or offering at such time would adversely affect a material financing, acquisition or disposition of assets, distribution rights or stock, merger or other comparable transaction or would require the Company to make public disclosure of information the public disclosure of which would have a material adverse effect upon the Company. 8. Registration Expenses (a) All expenses incurred in connection with the Company's performance of or compliance with this Agreement will be borne by the Company (other than underwriting discounts or commissions), regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of 11 compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing, messenger and delivery services and telephone; (iv) all fees and disbursements of one counsel for the Company and one counsel for the Holders of Registrable Securities; (v) all application and filing fees in connection with listing the Registrable Securities on the New York Stock Exchange pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. (b) In connection with any Registration Statement required by this Agreement, the Company will reimburse the Holders of Registrable Securities for the reasonable fees and disbursements of not more than one counsel. Notwithstanding the foregoing, the Company shall not have any obligation whatsoever in respect of any underwriters' discounts or commissions, brokerage commissions, dealers' selling concessions, transfer taxes or except as otherwise expressly set forth herein. 9. Indemnification (a) Indemnification by Company The Company agrees to indemnify and hold harmless each Indemnified Holder from and against all Claims arising out of or based upon any Misstatement or alleged Misstatement, except insofar as such Misstatement or alleged Misstatement was based upon or reliance upon information furnished in writing to the Company by such Indemnified Holder expressly for use in the document containing such Misstatement or alleged Misstatement. This indemnity shall not be exclusive and shall be in addition to any liability which the Company may otherwise have. The foregoing notwithstanding, the Company shall not be liable to the extent that any such Claim arises out of or is based upon a Misstatement or alleged Misstatement made in any preliminary prospectus if (i) such Indemnified Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale of Registrable Securities giving rise to such Claim and (ii) the Prospectus would have corrected such untrue statement or omission. In addition, the Company shall not be liable to the extent that any such Claim arises out of or is based upon a Misstatement or alleged Misstatement in a Prospectus, (x) if such Misstatement or alleged Misstatement is corrected in an amendment or supplement to such Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Indemnified Holder thereafter fails to deliver such Prospectus as so amended or supplemented prior to or concurrently with the sale to the person who purchased a Registrable Security from such Indemnified Holder and who is asserting such Claim. 12 (b) Indemnification Procedures If any action or proceeding (including any governmental investigation or inquiry) shall be brought or asserted against an Indemnified Holder in respect of which indemnity may be sought from the Company, such Indemnified Holder shall promptly notify the Company in writing, and the Company shall assume the defense thereof, including the employment of counsel satisfactory to such Indemnified Holder and the payment of all expenses. Such Indemnified Holder shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such separate counsel shall be the expense of such Indemnified Holder unless (i) the Company has agreed to pay such fees and expenses, (ii) the Company shall have failed to assume the defense of such action or proceeding or has failed to employ counsel reasonably satisfactory to such Indemnified Holder in any such action or proceeding or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both such Indemnified Holder and the Company, and such Indemnified Holder shall have been advised by counsel that there may be one or more legal defenses available to such Indemnified Holder that are different from or additional to those available to the Company. If such Indemnified Holder notifies the Company in writing that it elects to employ separate counsel at the expense of the Company as permitted by the provisions of the preceding paragraph, the Company shall not have the right to assume the defense of such action or proceeding on behalf of such Indemnified Holder. The foregoing notwithstanding, the Company shall not be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for such Indemnified Holder and any other Indemnified Holders (which firm shall be designated in writing by such Indemnified Holders) in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances. The Company shall not be liable for any settlement of any such action or proceeding effected without its written consent, but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action or proceeding, the Company agrees to indemnify and hold harmless such Indemnified Holders from and against any loss or liability by reason of such settlement or judgment to the extent such Indemnified Holder is entitled to indemnification under Section 9(a). (c) Indemnification by Holder of Registrable Securities. Each Holder of Registrable Securities agrees to indemnify and hold harmless the Company, its directors and officers and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Holder, but only with respect to information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement, Prospectus or preliminary prospectus. In no event, however, shall the liability hereunder of any selling Holder of Registrable Securities be greater than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. 13 In case any action or proceeding shall be brought against the Company or its directors or officers or any such controlling person, in respect of which indemnity may be sought against a Holder of Registrable Securities, such Holder shall have the rights and duties given the Company and the Company or its directors or officers or such controlling person shall have the rights and duties given to each Holder by Sections 9(a) and 9(b) above. (d) Contribution If the indemnification provided for in this Section 9 is unavailable to an indemnified party under Section 9(a) or Section 9(c) above (other than by reason of exceptions provided in those Sections) in respect of any Claims referred to in such Sections, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Claims in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of the Indemnified Holder on the other in connection with the statements or omissions which resulted in such Claims as well as any other relevant equitable considerations. The amount paid or payable by a party as a result of the Claims referred to above shall be deemed to include, subject to the limitations set forth in Section 9(b), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The relative fault of the Company on the one hand and of the Indemnified Holder on the other shall be determined by reference to, among other things, whether the Misstatement or alleged Misstatement relates to information supplied by the Company or by the Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such Misstatement or alleged Misstatement. The Company and each Holder of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 9(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 9(d), an Indemnified Holder shall not be required to contribute any amount in excess of the amount by which (i) the total price at which the securities that were sold by such Indemnified Holder and distributed to the public were offered to the public exceeds (ii) the amount of any damages which such Indemnified Holder has otherwise been required to pay by reason of such Misstatement. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 10. Exchange Act Reporting Requirements From and after the date hereof, the Company shall timely file such information, documents and reports as the SEC may require or prescribe under Section 13 or 15(d) (whichever is applicable) of the Exchange Act by all Persons to which such requirements are applicable (whether or not such requirements are applicable to the Company. In addition, the Company shall take such other measures and file such other information, documents and reports, as shall hereafter be 14 required by the SEC as a condition to the availability of Rule 144 under the Securities Act (or any successor provision) and the use of Form S-3. From and after the date hereof, the Company shall forthwith upon request furnish any Holder of Registrable Securities (i) a written statement by the Company that it has complied with such reporting requirements, (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents filed by the Company with the SEC as such Holder may reasonably request in availing itself of an exemption for the sale of Registrable Securities without registration under the Securities Act. The purpose of the foregoing requirements are (x) to enable any such Holder to comply with the current public information requirements contained in paragraph (c) of Rule 144 under the Securities Act (or any successor provision) and (y) to qualify the Company for the continued use of registration statements on Form S-3. 11. Requirements for Participation in Underwritten Offerings No Person may participate in any underwritten offering pursuant to a Registration hereunder unless such Person (a) agrees to sell such Person's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 12. Future Registration Rights Agreements Except for an underwriting agreement between the Company and one or more professional underwriters of securities, the Company shall not agree to register any Equity Securities under the Securities Act unless such agreement specifically provides that: (a) the Holder of such Equity Securities may not participate in any Demand Registration without the consent of the Holders of a majority of the shares of the Registrable Securities included in such registration. (b) the Holder of such Equity Securities may not participate in any Piggyback Registration if the sale of Registrable Securities is to be underwritten unless, if the managing underwriter limits the total number of shares to be sold, the Holders of such Equity Securities and the Holders of Registrable Securities are entitled to participate in such underwritten distribution based on the order of priority set forth in Section 3 hereof; and (c) all Equity Securities excluded from any Registration as a result of the foregoing limitations may not be publicly offered or sold for a period (not to exceed at least 30 days prior to the effective date and 120 days thereafter) that the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering of Registrable Securities registered pursuant to this Agreement. 15 13. Miscellaneous (a) Remedies Each Holder of Registrable Securities, in addition to being entitled to exercise all rights provided herein, in the Purchase Agreement and granted by law, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements The Company shall not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. Except for the Other Registration Rights Agreement, the Company has not previously entered into any agreement with respect to its securities granting any registration rights to any Person. The rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with and are not inconsistent with the rights granted to the Holders of the Company's securities under any such agreements. (c) Amendments and Waivers The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Holders of at least a majority of the outstanding shares of Registrable Securities. The foregoing notwithstanding, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders of shares of Registrable Securities whose shares are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of shares of Registrable Securities may be given by the Holders of a majority of the shares of Registrable Securities being sold. (d) Notices All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder of Registrable Securities, at the most current address given by such Holder to the Company in accordance with the provisions hereof, which address initially is, with respect to each Investor, the address set forth in the Purchase Agreement, with a copy to Latham & Watkins, 555 11/th/ Street, N.W., Suite 1300, Washington, D.C. 20004, Attention: Daniel T. Lennon, Esq.; and 16 (ii) if to the Company, initially at its address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions hereof, with a copy to Haynes and Boone, LLP, 901 Main Street, Dallas, Texas 75202, Attention: Janice V. Sharry, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. The Company shall promptly provide a list of the most current addresses of the Holders of Registrable Securities given to it in accordance with the provisions hereof to any such Holder for the purpose of enabling such Holder to communicate with other Holders in connection with this Agreement. (e) Successors and Assigns This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. (f) Counterparts This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Table of Contents and Headings The table of contents and headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State New York. (i) Severability In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (j) Forms All references in this Agreement to particular forms of registration statements are intended to include all successor forms which are intended to replace, or to apply to similar transactions as, the forms herein referenced. 17 (k) Entire Agreement This Agreement and the Purchase Agreement are intended by the parties as the final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement and the Purchase Agreement supersede all prior agreements and understandings between the parties with respect to such subject matter. 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. AVIALL, INC. By: /s/ Jeffrey J. Murphy --------------------- Name: Jeffrey J. Murphy Title: Senior Vice President, Law and Human Resources, Secretary and General Counsel CARLYLE PARTNERS III, L.P. By: TC Group III, L.P., its General Partner By: TC Group III, L.L.C., its General Partner By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ------------------ Name: Peter J. Clare Title: Managing Director CP III COINVESTMENT, L.P. By: TC Group III, L.P., its General Partner By: TC Group III, L.L.C., its General Partner By: TC Group, L.L.C., its Managing Member By: TCG Holdings, L.L.C., its Managing Member By: /s/ Peter J. Clare ------------------ Name: Peter J. Clare Title: Managing Director 19 -----END PRIVACY-ENHANCED MESSAGE-----