Document:

Exhibit 10.27

 

EMPLOYMENT AGREEMENT

 

PARTIES

 

This employment Agreement
(this “Agreement”), dated as of the 3rd day of April 2006, is entered into
by and between CardioTech International, Inc., a Massachusetts corporation
having its principal place of business at 229 Andover Street, Wilmington MA
01887 (the “Company”), and Eric G. Walters., an individual with an address at
167 Monument Street, Concord, MA 01742 (the “Executive”).

 

TERMS OF AGREEMENT

 

In consideration of
this-Agreement and the continued employment of the Executive by the Company,
the parties agree as follows:

 

1.                                       Employment.
The Company hereby employs the Executive, on a full-time basis, to act as Vice
President. and Chief Financial Officer of the Company and to perform such
acts and duties and furnish such services to the Company in connection with and
related to those positions as is customary for persons with similar positions
in like companies, and as the Board of Directors of the Company (the “Board”)
shall from time to time reasonably direct. The Executive shall be an officer of
the Company. The Executive hereby accepts said employment. The Executive shall
use his best and most diligent efforts to promote the interests of the Company;
shall discharge his duties in a highly competent manner; and shall devote his
full business time and his best business judgment, skill and knowledge to the
performance of his duties and responsibilities hereunder. The Executive shall
report directly to the Chief Executive Officer. Nothing contained herein shall
preclude the Executive from devoting incidental and insubstantial amounts of
time to activities other than the business of the Company.

 

2                                          Term
of Employment. The Company
agrees to employ the Executive for
the period commencing on the date hereof and ending on April 1, 2008 (the “Employment
Period”)  Notwithstanding the foregoing,
both the Executive and the Company shall have the right to terminate the
Executive employment under this Agreement upon thirty (30) days written notice
to the other party, subject to the Company’s obligation to pay severance
benefits under certain circumstances as provided in Sections 3.6 and 3.7 hereof.
If the Executive shall remain in the employ of the Company beyond the
Employment Period, in the absence of any other express agreement between the
parties, this Agreement shall be deemed to continue on a month-to-month basis
(the “Extended Employment Period”).

 

3.                                       Compensation
and Benefits; Disability.

 

3.1.                              Salary.
During the Executive’s employment, the company shall pay the Executive an
annualized base salary of One Hundred Seventy Five Thousand Dollars ($175,000)
(the “Base Salary”), payable in equal installments pursuant to the Company’s
customary payroll policies in force at the time of payment (but in no event
less frequently than monthly), less required payroll deductions and state and
federal withholdings. The Base Salary may be adjusted from time to time in
the sole discretion of the Chief Executive Officer.

 

3.2.                              Bonus
Payment. During the Employment Period, the Executive may receive, in
the sole discretion of the Chief Executive Officer, an annual bonus payment in
an amount, if any, to be determined by the Compensation Committee.

 

3.3.                              Executive
Benefits. During the Employment Period, the Executive shall receive such
benefits as are customarily provided to other officers and employees of the
Company, including but not limited to the following benefits:

 

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(a)                                  Health
Insurance. Non-contributory health insurance pursuant to a health policy or substantially similar policy; and

 

(b)                                 Life
Insurance. Life insurance on the life of the Executive with an
Executive-directed beneficiary in the amount of 200% of the Base Salary.

 

3.4.                              Paid
time off The Executive may take
17 days of paid time off during each year at such times as shall be Consistent
with the Company’s policies and with
the Company’s paid time off schedule for officers and other employees.

 

3.5.                              Disability
or Death. If during the Employment Period, the Executive shall (I) become
ill, disabled or otherwise incapacitated so as to be unable to perform his
usual duties (a) for a period in excess of one hundred twenty (120)
consecutive days or (b) for more than one hundred eighty (180) days in-any
consecutive twelve (12) month period, or (ii) die, then the Company shall
have the right to terminate this Agreement, in accordance with applicable laws, on thirty (30) days written notice to the
Executive or his estate.

 

3.6.                              Severance
Payment. In the event (I)  the
Company terminates this Agreement without cause (i.e., other than pursuant to Section 3.5
or Section 4 hereof) at any time (including during the Extended Employment
Period), or (ii) the Executive terminates his employment for Good Reason
following a Change in Control of the Company, or (iii) the Company fails
to renew this Agreement within- two (2) years following the occurrence of
a Change in Control, the Company shall pay the Executive a severance payment
equal to the Executive’s then current Base Salary multiplied by 2.00; such
severance payment to be adjusted to the extent necessary to avoid such payment
being treated as an “excess parachute payment” for purposes of Section 28OG
of the Internal Revenue Code of 1986.

 

“Good Reason” shall mean,
during the nine (9) month period following a Change -in Control, (1) a
good faith determination by the Executive that as a result of such Change in
Control he is not able to discharge his duties effectively or (2) without
the Executive’s express written consent, the occurrence of any of the following
circumstances: (a) the assignment to the Executive of any duties
inconsistent (except in the nature of a promotion) with the position in the
Company that he held immediately prior to the Change in Control or a
substantial adverse alteration in the nature or status of his position or
responsibilities or the Conditions of his employment from those in effect
immediately prior to the Change in Control; (b) a reduction by the Company
in the Base Salary as in effect on the date of the Change in Control; (c) the
Company’s requiring the Executive to be based more than twenty-five (25) miles
from the Company’s offices at which he was principally employed immediately
prior to the date of the Change in Control except for required travel on the
Company’s business to an extent substantially consistent with his present
business travel obligations; or (d) the failure by the Company to continue
in effect any material compensation or benefit plan in which the Executive
participates immediately prior to the Change in Control unless an equitable
arrangement (embodied in an ongoing substitute or alterative plan) has been
made with respect to such plan, or the failure by the Company to Continue the
Executive’s participation therein (or in such substitute or alterative plan) on
a basis not materially less favorable, both in terms of the amount of benefits
provided and the level of his participation relative to other participants than
existed at the time of the Change in Control. The Executive’s continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.

 

For purposes of this
Agreement, a “Change in Control” shall occur or be deemed to have occurred only
if any of the following events occur: (i) any person, as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), (other than any majority owned subsidiary
thereof, the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, any trustee or other fiduciary of a
trust treated for federal, income tax purposes as a grantor trust of which the
Company is the grantor, or any corporation owned directly or indirectly by the
Stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the company representing 50% or more of the combined voting power
of the Company’s then outstanding securities on any matter which could come
before its stockholders for approval; (ii) individuals who, as of the date hereof, constitute the
Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company’s
stockholders,

 

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was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an 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 Company, as such terms are used in
Rule14 a -11 of Regulation 14A under the Exchange Act) shall be, for purposes
of this Agreement, considered as though such person were a member of the
Incumbent Board; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no person (as hereinabove defined) acquires more than 50%
of the combined voting power of the Company’s then outstanding securities; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets.

 

3.7.                        Benefits
After Termination  Except as
otherwise required by law, the Executive shall not be entitled to any employee
benefits provided under Section 3.3 hereof after termination of the
employment of the Executive, whether or not severance pay is being provided,
except that if the Executive is entitled to the severance payment described in Section 3.6
of this Agreement, (I) the Company shall continue in full force and effect, at
its expense, the life insurance provided for in Section 3.3(b) hereof
for a period of one (1) year after termination of the Executive’s
employment hereunder or until the Executive becomes employed, whichever first
occurs, and (ii) during the six (6) month period following the
termination of the Executive’s employment, the Company shall reimburse the Executive
for out-of-pocket health insurance expenses incurred by the Executive pursuant
to the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”). If the
Executive elects not to maintain health insurance pursuant to COBRA, the
Company is under no obligation to reimburse the Executive for his otherwise
elected coverage. The Executive shall be obligated to give the Company prompt
notice of his employment.

 

4.                                       Discharge
for Cause. The Company may discharge the Executive and terminate his
employment under this Agreement for Cause without further liability to the
Company by a majority vote of the Board, except that Executive, if a Director,
shall not be entitled to vote thereon. As used in this Agreement, “Cause” shall
mean any or all of the following:

 

(a)                                  misconduct
of the Executive during the course of his employment which is materially
injurious to the Company and which is brought to the attention of the Executive
promptly after discovery by the Company, including but not limited to, theft or
embezzlement from the Company, the intentional provision of services to
competitors of the Company, or improper disclosure of proprietary information,
but not including any act or failure to act by the Executive that he believed
in good faith to be proper conduct not adverse to his duties hereunder;

 

(b)                                 willful
disregard or neglect by the Executive of his duties or of the Company’s
interests that continues after being brought to the attention of the Executive;

 

(c)                                  unavailability
(except as provided in Section 3.5 hereof) of the Executive to
substantially perform the duties provided for herein;

 

(d)                                 conviction
of a fraud or felony or any criminal offense involving dishonesty, breach of
trust or moral turpitude during the Executive’s employment;

 

(e)                                  the
Executive’s breach of any of the material terms of this Agreement (including
the failure of the Executive to discharge his duties in a highly competent
manner) or any of the agreements executed in connection herewith as enumerated
in Section 10.1 hereof.

 

In the event the Company
exercises its right to terminate the Executive’s employment under this Section 4,
the Executive shall not be entitled to receive any severance pay or other
termination benefits, except as required by law.

 

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5.                                       Termination
Without Cause. The Company may terminate this Agreement without cause,
without further liability to the Company except as set forth in Sections 3.6
and 3.7 hereof, by a majority vote of the Board. The Executive, if a Director,
shall not be entitled to vote on the termination of this Agreement without
Cause.

 

6.                                       Expenses.
Pursuant to the Company’ s customary policies in force at the time of payment,
the Executive shall be promptly reimbursed, against presentation of vouchers or
receipts therefor, for all authorized expenses properly incurred by him on the
Company’s behalf in the performance of his duties hereunder.

 

7.                                       Additional
Agreements. The Executive has executed and delivered to the Company a
Non-Disclosure and Invention Assignment Agreement, dated October 3, 2005,
which shall survive the expiration of or termination of this Agreement and the
termination of Executive’s employment with the Company for any reason.

 

8.                                       Arbitration.
All disputes and claims relating
to this Agreement and the rights, obligations and performance of the parties
hereto shall be settled by a single arbitrator sitting in Boston, Massachusetts
under the applicable rules of the American Arbitration Association.

 

9.                                       Notices.
Any notice of communication given by any party hereto to the other party or
parties shall be in writing and personally delivered, mailed by certified mail,
return receipt requested, postage prepaid, or delivered by a recognized
overnight carrier, to the addresses provided above. All notices shall be deemed
given when actually received. Any person entitled to receive notice (or a copy
thereof) may designate in writing, by notice to the others, another
address to which notices to such person shall thereafter be sent.

 

10.                                 Miscellaneous.

 

10.1.                        Entire
Agreement. This Agreement contains the entire understanding of the parties
in respect of its subject matter and supersedes all prior agreements and
understandings between the parties with respect to such subject matter;
provided, however, that nothing in this Agreement shall affect the Executive’s
or the Company’s obligations under the Non-Disclosure and Invention Assignment
Agreement dated October 3, 2005, between the parties hereto.

 

10.2.                        Amendment;
Waiver. This Agreement may not be amended, supplemented, canceled or
discharged, except by written instrument executed by the party affected thereby.
No failure to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof. No waiver of any breach
of any provision of this Agreement shall be deemed to be a waiver of any
preceding or succeeding breach of the same or any other provisions.

 

10.3.                        Binding
Effect; Assignment. The rights and obligations of this Agreement shall bind
and inure to the benefit of any successor of the Company by reorganization,
merger or consolidation, or any assignee of all or substantially all of the
Company’s business and properties. The Executive’s rights or obligations under
this Agreement may not be assigned by the Executive; except that the
Executive’s right to compensation to the earlier of the date of death,
disability pursuant to Section 3.5 hereof, or termination of actual
employment, shall pass to the Executive’s executor or administrator.

 

10.4.                        Headings.
The headings contained in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.

 

10.5.                        Governing
Law: Interpretation. This Agreement shall be construed in accordance with
and governed for all purposes by the laws and public policy of the Commonwealth
of Massachusetts applicable to contracts executed and to be wholly performed
within such Commonwealth. Service of process in any dispute shall be effective (a) upon
the Company, if service is made on any officer of the Company other than the
Executive; (b) upon the Executive, if served at the Executive’s residence
last known to the Company with an information copy to the Executive at any
other residence, or in care of a subsequent employer of which the Company may be
aware.

 

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10.6.                        Further Assurances. Each
of the parties agrees to execute, acknowledge, deliver and perform, or cause to
be executed, acknowledged, delivered or performed, at any time, or from time to
time, as the case may be, all such further acts deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be
necessary or proper to carry out the provisions or intent of this Agreement.

 

10.7.                        Severability.
If any one or more of the terms, provisions, covenants or restrictions of this
Agreement shall be determined 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. If, moreover,
any one or more of the provisions contained in this Agreement shall for any
reason be determined by a court of competent jurisdiction to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting or reducing it so as to be enforceable to the extent
compatible with then applicable law.

 

EXECUTION

 

The parties executed this
Agreement as a sealed instrument as of
the date first above written, whereupon it became binding in accordance with
its terms.

 

 

	
   

  	
  CARDIOTECH
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/

  	
  Michael Szycher

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Michael Szycher, Ph.D.

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/

  	
  Eric G. Walters

  	
   

  
	
   

  	
   

  	
   

  	
  Eric G. Walters

  
						

 

5Exhibit 4.1

 

THIRD
SUPPLEMENTAL INDENTURE

 

THIRD SUPPLEMENTAL INDENTURE (this “Third
Supplemental Indenture”), dated as of March 31, 2006, among Atlantic
Express Transportation Corp., a New York corporation (the “Company”),
the Guarantors named herein, as guarantors, and The Bank of New York, as
Trustee and Collateral Agent (the “Trustee”).

 

WHEREAS, the Company has duly issued its 12% Senior
Secured Notes due 2004 (the “Fixed Rate Notes”) and its Senior Secured
Floating Rate Notes (the “Floating Rate Notes” and, together with the
Fixed Rate Notes, the “Notes”), in the aggregate principal amount of
$115,000,000 pursuant to an Indenture dated as of April 22, 2004, among the
Company, the Guarantors named therein and the Trustee (the “Base Indenture”),
as supplemented by the First Supplemental Indenture, dated as of March 3, 2005
(the “First Supplemental Indenture”) and the Second Supplemental
Indenture, dated as of June 30, 2005 (the “Second Supplemental Indenture”
and, together with the Base Indenture and the First Supplemental Indenture, the
“Indenture”), and the Notes in the principal amount of $115,000,000 are
outstanding on the date hereof; and

 

WHEREAS, Section 9.02 of the Indenture provides that
the Company and the Trustee may amend any provision of the Indenture (other
than certain provisions enumerated in Section 9.02 of the Indenture, none of
which provisions are implicated hereby) with the written consent of the Holders
(as defined in the Indenture) of at least a majority of the aggregate principal
amount of the then outstanding Notes and execute a supplemental indenture; and

 

WHEREAS, the Company solicited, and has received,
consents upon the terms and subject to the conditions set forth in the Consent
Agreement dated March 27, 2006, from Holders representing at least a majority
in aggregate principal amount of its outstanding Securities to certain
amendments described therein to the Indenture; and

 

WHEREAS, it is provided in Section 9.04 of the
Indenture that a supplemental indenture becomes effective in accordance with
its terms and thereafter binds every Holder;

 

NOW, THEREFORE, the parties hereto agree as follows:

 

DEFINITIONS.

 

Capitalized terms not defined herein shall have the
meaning given to such terms in the Indenture.

 

AMENDMENTS TO THE INDENTURE.

 

Amendment to the definition of “Asset
Sale.”

 

“Asset Sale” means any direct or indirect sale,
issuance, conveyance, transfer, lease (other than operating leases entered into
in the ordinary course of business), assignment or other transfer for value by
the Company or any of its Restricted Subsidiaries (including any Sale and
Leaseback Transaction) to any Person other than the Company or a Wholly Owned
Subsidiary of the Company that is a Guarantor of:  (1) any Capital Stock of any Restricted
Subsidiary of the Company; or (2) any other property or assets of the
Company or any of its Restricted Subsidiaries other than in the ordinary course
of business; provided, however, that “Asset Sale” shall not include:  (a) a transaction or series of related 

 

 

transactions for which the Company or its Restricted
Subsidiaries receive aggregate consideration of less than $1.0 million;
(b) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets (determined on a consolidated basis) of the
Company as permitted under Section 5.01; (c) any Restricted Payment
permitted by Section 4.10 or that constitutes a Permitted Investment;
(d) the sale of Cash Equivalents; (e) the sale of any accounts receivable
and the sale or other disposition of used, worn out, obsolete or surplus
assets; (f) sales or grants of licenses to use the Company’s or any Restricted
Subsidiary’s patents, trade secrets, know-how and technology to the extent that
such license does not prohibit the licensor from using the patent, trade
secret, know-how or technology or require any payments by the Company or its
Restricted Subsidiaries for any such use; (g) the sale of assets currently
owned by Jersey Bus Sales, Inc.; (h) the sale of real property in Bordentown,
New Jersey and improvements thereon currently owned by Jersey Business Land
Co., Inc.; and (i) the sale of the assets currently
owned by Atlantic North Casualty Company.

 

Amendment to the definition of “Permitted
Indebtedness.”

 

The definition of “Permitted Indebtedness” as set
forth in Section 1.01 of the Indenture is hereby amended and restated to read
in its entirety as follows:

 

“Permitted Indebtedness” means, without duplication, each of the following: (1) Indebtedness
under the Notes issued on the Issue Date or in the Exchange Offer with respect
to such Notes issued on the Issue Date in an aggregate outstanding principal
amount not to exceed $115.0 million and the related Guarantees; (2)
Indebtedness incurred pursuant to the Credit Agreement in an aggregate
principal amount at any time outstanding not to exceed $20.0 million before
September 25, 2006 and $30.0 million on or after September 25, 2006; (3) other
Indebtedness of the Company and its Restricted Subsidiaries outstanding on the
Issue Date (other than Indebtedness 
outstanding under the Credit Agreement); (4) Interest Swap Obligations
of the Company or any of its Restricted Subsidiaries covering Indebtedness of
the Company or any of its Restricted Subsidiaries; provided, however,
that such Interest Swap Obligations are entered into for the purpose of fixing
or hedging interest rates with respect to any fixed or variable rate
Indebtedness that is permitted by this Indenture to be outstanding to the
extent that the notional amount of any such Interest Swap Obligation does not
exceed, at the time of the incurrence thereof, the principal amount of
Indebtedness to which such Interest Swap Obligation relates; (5) Indebtedness
of a Restricted Subsidiary of the Company to the Company or to another
Restricted Subsidiary for so long as such Indebtedness is held by the Company
or a Restricted Subsidiary of the Company, in each case subject to no Lien by
anyone other than the Company; provided  that (a) any such
Indebtedness is subordinated, pursuant to a written agreement, to such
Subsidiary’s Obligations under this Indenture and its Guarantee and (b) if as
of any date any Person other than the Company or a Guarantor owns or holds any
such Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Issuer of such Indebtedness (unless such Indebtedness may
otherwise be incurred pursuant to the terms of this Indenture); (6) Indebtedness of the
Company to a Restricted Subsidiary of the Company for so long as such
Indebtedness is held by a Restricted Subsidiary of the Company, in each case
subject to no Lien; provided  that (a) any such Indebtedness is
subordinated, pursuant to a written agreement by the holder thereof, to the
Company’s obligations under this Indenture and the Notes and (b) if as of any
date any Person other than a Restricted Subsidiary owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness, such
date shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company (unless such Indebtedness may otherwise be incurred
pursuant to the terms of this Indenture); (7) Indebtedness arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument inadvertently  (except in the
case of daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is
extinguished within three Business Days of incurrence; (8) Indebtedness of the
Company or any of its Restricted Subsidiaries represented by (i) letters of credit for 

 

 

the account of the Company or such Restricted
Subsidiary, as the case may be, in order to provide security for performance
bonds, bankers’ acceptances, surety or appeal bonds, workers’ compensation
claims, automobile liability loss fund claims, payment obligations in
connection with self-insurance or similar requirements incurred in the ordinary
course of business or (ii) performance bonds, appeal bonds, surety bonds,
insurance obligations or bonds and other similar bonds or obligations incurred
in the ordinary course of business; (9) Indebtedness represented by Capitalized
Lease Obligations and Purchase Money Obligations of the Company and its
Restricted Subsidiaries exiting on the Issue Date, and Indebtedness represented
by Capitalized Lease Obligations and Purchase Money Obligations of the Company
and its Restricted Subsidiaries after the Issue Date up to, but not exceeding
$3.5 million at any time outstanding; (10) Refinancing Indebtedness; (11)
Guarantees by the Company or a Restricted Subsidiary of the Company of
Indebtedness incurred by the Company or a Restricted Subsidiary of the Company
so long as the incurrence of such Indebtedness by the Company or any such
Restricted Subsidiary is otherwise permitted by the terms hereof; (12)
Indebtedness arising from agreements of the Company or a Subsidiary of the
Company providing for indemnification, adjustment of purchase price or similar
obligations, in each case, incurred in connection with the disposition of any
business, assets or Subsidiary, other than guarantees of Indebtedness incurred
by any Person acquiring all or any portion of such business, assets or
Subsidiary for the purpose of financing such acquisition; provided  that
the maximum aggregate liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds actually received by the Company and the
Subsidiary of the Company in connection with such disposition; (13)
Reimbursement obligations for letters of credit issued under the Credit
Agreement in an aggregate principal amount not to exceed $10.0 million at any
time outstanding; (14) additional Indebtedness of the Company and its
Restricted Subsidiaries in an aggregate principal amount not to exceed $5.0
million at any time outstanding (which amount may, but need not be, incurred in
whole or in part under the Credit Agreement); and (15) additional Indebtedness in an
aggregate principal amount not to exceed $15.0 million plus the aggregate
principal amount of New PIK Notes issued in
connection therewith at any one time outstanding of Third Priority Senior
Secured Notes due 2008 and any related Guarantees.

 

Amendment to the “Limitation on
Asset Sales” Covenant.

 

Section 4.16 of the Indenture is hereby amended and
restated to read in its entirety as follows:

 

The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:

 

(1)           the Company or the applicable
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the Fair Market Value of the assets sold
or otherwise disposed of (as determined in good faith by senior management or,
in the case of an Asset Sale in excess of $5.0 million, the Company’s Board of
Directors); and

 

(2)           at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is
received at the time of such disposition; provided  that (a) the
amount of any liabilities (as shown on the most recent applicable balance
sheet) of the Company or such Restricted Subsidiary (other than liabilities
that are by their terms subordinated to the Notes) that are assumed by the
transferee of any such assets shall be deemed to be cash for the purposes of
this clause (2) so long as the documents governing such liabilities
provide that there is no further recourse to the Company or any of its
Subsidiaries with respect to such liabilities and (b) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary
from the transferee that are contemporaneously, subject to ordinary settlement 

 

 

periods, converted by
the Company or such Restricted Subsidiary into cash, shall be deemed to be cash
to the extent of the cash received in that conversion.

 

The Company may apply an
aggregate of $10.0 million of the Net Cash Proceeds from one or more Asset
Sales occurring on or after the date of the Third Supplemental Indenture in any
manner not prohibited by the Indenture. If the Company generates aggregate Net
Cash Proceeds from one or more Asset Sales on or after the date of the Third
Supplemental Indenture in excess of $10.0 million, then the Company shall apply
the amount of such excess (but only such excess, and not the first $10.0
million) as set forth in the next succeeding paragraph. The first date on which
the Company generates such aggregate Net Cash Proceeds in excess of $10.0
million, and each subsequent date on which the Company generates additional Net
Cash Proceeds from an Asset Sale, are each referred to as a “Net Proceeds
Offer Trigger Date.”

 

The Company shall apply an
amount equal to 80% of such excess Net Cash Proceeds (such amount being the “Net
Proceeds Offer Amount”)  to make an
offer to purchase (the “Net Proceeds Offer”) on a date (the “Net
Proceeds Offer Payment Date”) not less than 30 nor more than 60 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at
a price equal to 100% of the principal amount of the Notes to be purchased,
plus accrued and unpaid interest and Additional Interest and Additional PIK Interest (which, for such purpose, shall be payable in
cash), if any, thereon, to the date of purchase; provided, however,
that if at any time any non-cash consideration received by the Company or any
of its Restricted Subsidiaries, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder on the date of such conversion or disposition, as the case may be,
and the Net Cash Proceeds thereof shall be applied in accordance with this Section
4.16.

 

The Company may defer any
Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer
Amount equal to or in excess of $5.0 million resulting from one or more Asset
Sales in which case the accumulation of such amount shall constitute a Net
Proceeds Offer Trigger Date (at which time, the entire unutilized Net Proceeds
Offer Amount, and not just the amount in excess of $5.0 million, shall be
applied as required pursuant to the immediately preceding paragraph). For the
avoidance of doubt, the Company shall not be required to make a Net Proceeds
Offer with the 20% of the Net Cash Proceeds from any Asset Sale that does not
constitute part of the Net Proceeds Offer Amount, and the Company may apply
such 20% in any manner not prohibited by the indenture.

 

For purposes of this Section
4.16 hereof, the term “Notes” shall include the Third Priority Senior
Secured Notes due 2008 plus the New PIK Notes issued
in connection therewith and the term “Holder” shall include the holders of the
Third Priority Senior Secured Notes due 2008 and the New PIK
Notes issued in connection therewith.

 

In the event of the transfer
of substantially all (but not all) of the property and assets of the Company
and its Restricted Subsidiaries as an entirety to a Person in a transaction
permitted under Section 5.01, which transaction does not constitute a
Change of Control, the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this Section 4.16 with respect to such deemed sale as if it
constituted an Asset Sale. In addition, the Fair Market Value of such
properties and assets of the Company or its Restricted Subsidiaries deemed to
be sold shall be deemed to be Net Cash Proceeds for purposes of this Section
4.16.

 

 

Each notice of a Net
Proceeds Offer shall be mailed to the record Holders as shown on the register
of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a
copy to the Trustee, and shall comply with the procedures set forth in this
Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect
to tender their Notes in whole or in part in integral multiples of $1,000 in
exchange for cash. To the extent Holders properly tender Notes in an amount exceeding
the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on
a pro rata basis (based on amounts tendered). To the extent that the aggregate
amount of the notes tendered pursuant to a Net Proceeds Offer is less than the
Net Proceeds Offer Amount, the Company may use such excess Net Proceeds Offer
Amount for general corporate purposes or for any other purposes not prohibited
by this Indenture. Upon completion of any such Net Proceeds Offer, the Net
Proceeds Offer Amount shall be reset at zero. A Net Proceeds Offer shall remain
open for a period of 20 Business Days or such longer period as may be required
by law.

 

Pending the final
application of the Net Cash Proceeds, the Company and any its Restricted
Subsidiaries may temporarily reduce Indebtedness or otherwise use such Net Cash
Proceeds in any manner not prohibited by this Indenture.

 

The Company will 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 Notes pursuant to a Net
Proceeds Offer. To the extent that the provisions of any securities laws or
regulations conflict with this Section 4.16, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under Section 4.16 by virtue thereof.

 

Amendment to the “Maintenance
of Consolidated EBITDA” Covenant.

 

Section 4.25 of the Indenture is hereby amended and
restated to read in its entirety as follows:

 

The Consolidated EBITDA of
the Company shall not be less than $23.0 million on the last day of each fiscal
quarter of the Company (beginning with the fiscal quarter ending December 31,
2006 and for so long as the Notes remain outstanding) during the four
consecutive full fiscal quarters of the Company ending as of such date.

 

EFFECTIVE DATE.

 

This Third Supplemental Indenture shall become
effective on the date hereof.

 

MISCELLANEOUS.

 

Governing Law.

 

THIS THIRD SUPPLEMENTAL INDENTURE SHALL BE
CONSTRUED, INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND
PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OF OR RELATING TO THIS AGREEMENT, 

 

 

AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY AND EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO 
SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE COMPANY AND EACH GUARANTOR IRREVOCABLY CONSENTS, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY
THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
TO THE COMPANY AT ITS ADDRESS SET FORTH IN THE INDENTURE, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY GUARANTOR IN
ANY OTHER JURISDICTION.

 

Continuing Agreement.

 

Except as herein amended, all terms, provisions and
conditions of the Indenture, all Exhibits thereto and all documents executed in
connection therewith shall continue in full force and effect and shall remain
enforceable and binding in accordance with their terms.

 

Conflicts.

 

In the event of a conflict between the terms and
conditions of the Indenture and the terms and conditions of this Third
Supplemental Indenture, then the terms and conditions of this Third
Supplemental Indenture shall prevail.

 

Counterpart Originals.

 

The parties may sign any number of copies of this
Third Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.

 

Headings,
Etc.

 

The headings of the Sections of this Third
Supplemental Indenture have been inserted for convenience of reference only,
are not to be considered a part hereof and shall in no way modify or restrict
any of the terms or provisions hereof.

 

Trustee’s
Disclaimer.

 

The recitals contained herein shall be taken as the
statements of the Company and the Guarantors and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or sufficiency of this Third Supplemental Indenture.

 

[Signatures on following pages]

 

 

SIGNATURES

 

IN WITNESS WHEREOF, the parties hereto have executed
and delivered this Third Supplemental Indenture as of the date first written
above.

 

	
   

  	
  ATLANTIC EXPRESS TRANSPORTATION CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Domenic Gatto

  
	
   

  	
   

  	
  Name:

  	
  Domenic Gatto

  
	
   

  	
   

  	
  Title:

  	
  President

  

 

 

Attest:

 

 

	
  /s/
  Neil J. Abitabilo

  	
   

  
	
  Name:

  	
  Neil
  J. Abitabilo

  
	
  Title:

  	
  Chief
  Financial Officer

  
			

 

 

	
  GUARANTORS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  180 Jamaica Corp.

  201 West Sotello Realty, Inc.
Amboy Bus Co., Inc.
Atlantic Escorts Inc.
Atlantic Express Coachways, Inc.
Atlantic Express New England, Inc.
Atlantic Express of California, Inc.
Atlantic Express of Illinois, Inc.
Atlantic Express of L.A. Inc.
Atlantic Express of Missouri Inc.
Atlantic Express of New Jersey, Inc.
Atlantic Express of Pennsylvania, Inc.
Atlantic Paratrans of Arizona, Inc.
Atlantic Paratrans of NYC, Inc.
Atlantic Paratrans, Inc.
Atlantic Queens Bus Corp.
Atlantic Transit, Corp.
Atlantic-Conn. Transit, Inc.
Atlantic-Hudson, Inc.
Block 7932, Inc.
Brookfield Transit Inc.
Central New York Reorganization Corp.
Courtesy Bus Co., Inc.

  	
   

  	
  Fiore Bus Service, Inc.

  Groom Transportation, Inc.
G.V.D.
  Leasing Co., Inc.
James McCarty Limo Service, Inc.
Jersey Bus Sales, Inc.
Jersey Business Land Co., Inc.
K. Corr, Inc.
Merit Transportation Corp.
Metro Affiliates, Inc.
Metropolitan Escort Service, Inc.
Midway Leasing Inc.
Mountain Transit, Inc.
R. Fiore Bus Service, Inc.
Raybern
  Bus Service, Inc.
Raybern
  Capital Corp.
Raybern
  Equity Corp.
Robert L. McCarthy & Son, Inc.
Staten Island Bus, Inc.
Temporary Transit Service, Inc.
T-NT Bus Service, Inc.
Transcomm,
  Inc.
Winsale,
  Inc.
Wrightholm
  Bus Line, Inc.

  

 

[Signature on following page]

 

 

	
   

  	
  By:

  	
  /s/ Domenic Gatto

  
	
   

  	
   

  	
  Name:

  	
  Domenic Gatto

  
	
   

  	
   

  	
  Title:

  	
  President

  

 

 

 

	
   

  	
  THE BANK OF NEW YORK, as
  Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Julie Salovitch-Miller

  
	
   

  	
   

  	
  Name:

  	
  Julie Salovich-Miller

  
	
   

  	
   

  	
  Title:

  	
  Vice President

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