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EXHIBIT 4.16
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
DATED AS OF OCTOBER 16, 1996
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
SECTION 1.01. DEFINITIONS ..........................................................................1
ARTICLE II PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES............................................................................6
SECTION 2.02. CLOSING...............................................................................6
ARTICLE III CONVERSION
SECTION 3.01. CONVERSION; NUMBER....................................................................7
SECTION 3.02. CONVERSION PROCEDURE..................................................................7
SECTION 3.03. REPRESENTATIONS, WARRANTIES COVENANTS, NO
DEFAULT, CONDITIONS PRECEDENT TO CONVERSION ..........................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE
POWER.................................................................................8
SECTION 4.02. AUTHORIZATION.........................................................................8
SECTION 4.03. VALIDITY..............................................................................9
SECTION 4.04. CAPITALIZATION........................................................................9
SECTION 4.05. FINANCIAL STATEMENTS.................................................................10
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE
SHEET................................................................................10
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS .........................................................10
SECTION 4.08. LITIGATION...........................................................................11
SECTION 4.09. COMPLIANCE WITH LAW..................................................................11
SECTION 4.10. TITLE TO PROPERTIES .................................................................11
SECTION 4.11. LEASEHOLD INTERESTS..................................................................11
SECTION 4.12. TAXES ...............................................................................12
SECTION 4.13. PATENTS, TRADEMARKS, ETC ............................................................12
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES ................................................13
SECTION 4.15. GUARANTEES ..........................................................................13
SECTION 4.16. GOVERNMENTAL APPROVALS ..............................................................13
SECTION 4.17. DISCLOSURE ..........................................................................13
SECTION 4.18. BROKERS..............................................................................13
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SECTION 4.19. SECURITIES ACT.......................................................................13
SECTION 4.20. MARGIN REGULATIONS...................................................................14
SECTION 4.21. INSURANCE COVERAGE...................................................................14
SECTION 4.22. ERISA................................................................................14
SECTION 4.23. ENVIRONMENTAL COMPLIANCE.............................................................15
SECTION 4.24. PERMITS AND LICENSES.................................................................15
SECTION 4.25. BOARD COMPOSITION....................................................................15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER ...........................................................................15
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER .............................................16
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER........................................16
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY ........................................18
ARTICLE VIII COVENANTS OF THE COMPANY
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS.....................................................19
SECTION 8.02. CORPORATE EXISTENCE..................................................................21
SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE..............................................21
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE..................................................21
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED....................................................22
SECTION 8.06. TRANSACTIONS WITH AFFILIATES.........................................................22
SECTION 8.07. USE OF PROCEEDS......................................................................22
SECTION 8.08. SUBSIDIARIES.........................................................................22
SECTION 8.09. COMPLIANCE WITH LAWS ................................................................22
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT..............................................22
SECTION 8.11. OBLIGATIONS AND TAXES................................................................22
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE
DEBENTURES; LOST CONVERTIBLE DEBENTURES..............................................23
SECTION 8.13. LIMITATION ON DEBT ..................................................................23
SECTION 8.14. LIMITATION ON LIENS..................................................................23
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS....................................................24
SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND
FILING OF CERTIFICATE OF DESIGNATION ................................................24
ARTICLE IX EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION.........................................................................25
SECTION 9.02. RESCISSION OF ACCELERATION...........................................................27
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION.................................................27
SECTION 9.04. OTHER REMEDIES.......................................................................28
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ARTICLE X MISCELLANEOUS
SECTION 10.01. PAYMENTS ...........................................................................28
SECTION 10.02. EXPENSES............................................................................28
SECTION 10.03. CONSENT TO AMENDMENTS ..............................................................29
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS ..............................................29
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES .........................................30
SECTION 10.06. BROKERAGE ..........................................................................30
SECTION 10.07. PARTIES IN INTEREST ................................................................30
SECTION 10.09. NOTICES.............................................................................30
SECTION 10.09. ENTIRE AGREEMENT ...................................................................31
SECTION 10.10. COUNTERPARTS........................................................................32
SECTION 10.11. SEVERABILITY........................................................................32
SECTION 10.12. DESCRIPTIVE HEADINGS ...............................................................32
SECTION 10.13. GOVERNING LAW ......................................................................32
SECTION 10.14. GENDER; PLURALS.....................................................................32
EXHIBITS
EXHIBIT A Form of Convertible Debenture
EXHIBIT B Form of Certificate of Designation
EXHIBIT C Certificate of Incorporation
EXHIBIT D Form of Investors Rights Agreement
EXHIBIT E Form of Opinion of General Counsel
SCHEDULES
SCHEDULE 4.04 Outstanding Options, Warrants, Etc.
SCHEDULE 4.06 Events Subsequent to Balance Sheet
SCHEDULE 4.07 Violations, Defaults
SCHEDULE 4.08 Defaults
SCHEDULE 4.11 Leasehold Interests
SCHEDULE 4.14 Existing Debt
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement"), dated as of
October 16, 1996, between AIR SOUTH AIRLINES, INC., a Delaware corporation (the
"Company"), and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, a United States citizen residing in Singapore
(the "Purchaser").
RECITALS
WHEREAS, the Company wishes to issue and sell to the Purchaser its
convertible debenture (herein, together with any such convertible debentures
which may be issued pursuant to any provision of this Agreement, and any such
convertible debentures which may be used in substitution or exchange thereon,
collectively called the "Convertible Debentures" and individually called a
"Convertible Debenture") in the original aggregate principal amount of $120,000,
to be dated the date of issue, to mature August 16, 1999, to bear interest on
the unpaid balances thereof from the date thereof until the principal shall have
become due and payable at the rate of 6% per annum, which interest shall be
deferred and added to the outstanding principal balance of the Convertible
Debentures, and to be substantially in the form of Exhibit A attached hereto;
and such Convertible Debenture will be a part of up to $4,000,000 of convertible
debentures having identical terms (other than as to the purchaser, date and
amount) which the Company may sell pursuant to a convertible debenture purchase
agreement and an investor's rights agreement having the same terms as this
Agreement and the Investor's Rights Agreement.
WHEREAS, the Purchaser wishes to purchase the Convertible Debenture on
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the mutual
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following meanings specified with respect
thereto below:
"AGREEMENT" shall mean this Convertible Debenture Purchase
Agreement, as the same may be amended or supplemented and in effect from
time to time.
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"AMENDMENT" shall have the meaning ascribed thereto in Section
8.16.
"BALANCE SHEET" shall have the meaning ascribed thereto in Section
4.05.
"BANKRUPTCY LAW" shall have the meaning ascribed thereto in
Section 9.01.
"BLANK CHECK PREFERRED STOCK" shall have the meaning ascribed
thereto in Section 4.04.
"BUSINESS DAY" shall mean any day which is not a Saturday or
Sunday or a national banking holiday.
"BY-LAWS" shall mean the By-laws of the Company, as amended.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of
Designation of the Company to be substantially in the form of Exhibit B
attached hereto.
"CERTIFICATE OF INCORPORATION" shall mean the Certificate of
Incorporation of the Company, including all amendments thereto through
the date hereof, including any amendments effected by means of a
certificate of designation, a copy of which is attached hereto as Exhibit
C.
"CLOSING" shall have the meaning ascribed thereto in Section 2.02.
"CLOSING DATE" shall have the meaning ascribed thereto in Section
2.02.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"COMMON CONVERSION SHARES" shall mean the shares of Common Stock
issuable upon conversion of the Preferred Conversion Shares.
"COMMON STOCK" shall mean the Common Stock, par value $0.001 per
share, of the Company.
"COMPANY" shall have the meaning ascribed thereto in the preamble.
"CONVERTIBLE DEBENTURE" shall have the meaning ascribed thereto in
the preamble.
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"CONVERSION" shall have the meaning ascribed thereto in Section
3.01.
"CONVERSION NOTICE" shall mean the notice of conversion in the
form attached to the Convertible Debenture, which notice shall set forth
the name of the registered owner of the Convertible Debenture being
converted and the principal balance, or portion thereof, being converted.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or by
the terms of any instrument or agreement relating thereto matures on
demand or within one year from the date of the creation thereof and is
not directly or indirectly renewable or extendible at the option of the
debtor to a date more than one year from the date of the creation
thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974. as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of
the same controlled group of corporations as the Company within the
meaning of Section 414(b) of the Code, or any trade or business which is
under common control with the Company within the meaning of Section
414(c) of the Code, or any other entity which is considered to be a
single employer with the Company pursuant to Sections 414(m), (n) or (o)
of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in
Section 9.01 provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of
time, or the happening of any further condition, event or act, and
"Default" shall mean any of such events, whether or not any such
requirement has been satisfied.
"EXISTING DEBT" shall have the meaning ascribed thereto in Section
4.14.
"FUNDED DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor to a date more than
one year from, the date of the creation thereof
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect
to any indebtedness, lease dividend or other obligation of another,
including, without limitation, any such
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obligation directly or indirectly guaranteed, endorsed (otherwise than
for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which
such Person is otherwise directly or indirectly liable, including,
without limitation, any such obligation in effect guaranteed by such
Person through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or any security therefor,
or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), or to maintain the solvency or any balance
sheet or other financial condition of the obligor of such obligation, or
to make payment for any products, materials or supplies or for any
transportation or services regardless of the non-delivery or
non-furnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected against
loss in respect thereof.
"HUD LOAN" shall mean that certain loan to the Company by
Lexington County, South Carolina pursuant to the United States Department
of Housing and Urban Development Section 108 Loan Program.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items which in accordance with generally accepted
accounting principles would be included in determining total liabilities
as shown on the liability side of a balance sheet of such Person as of
the date on which Indebtedness is to be determined, (ii) all indebtedness
secured by any Lien on any property or asset owned or held by such Person
subject thereto, whether or not the indebtedness secured thereby shall
have been assumed, and (iii) all indebtedness of others with respect to
which such Person has become liable by way of a Guarantee.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed thereto in
Section 4.13.
"INVESTOR'S RIGHT AGREEMENT" shall mean the Investor's Right
Agreement, dated the date hereof, between the Company and the Purchaser,
a copy of which is attached hereto as Exhibit D.
"LIEN" shall mean any mortgage, pledge, priority, security
interest, encumbrance, lien (statutory or otherwise) or charge of any
kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the
nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction) or any
other type of preferential arrangement for the purpose, or having the
effect, of protecting a creditor against loss or securing the payment or
performance of an obligation.
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"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
the assets, business, operations or financial condition of the Company.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the
name of the Company by its Chairman of the Board, President and Chief
Executive Officer, Chief Financial Officer, one of its Vice Presidents or
its General Counsel and Secretary.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"PERSON" shall mean a corporation, an association, a partnership,
an organization, a business, an individual, a governmental or political
subdivision thereof or a governmental agency.
"PLAN" shall mean any "employee pension benefit plan" (as such
term is defined in Section 3(2) of ERISA) which is or has been
established or maintained, or to which contributions are or have been
made, by the Company or any ERISA Affiliate.
"PREFERRED CONVERSION SHARES" shall mean the shares of Series E
Preferred Stock issuable upon conversion of the Convertible Debentures as
set forth in Article III hereof.
"PREFERRED STOCK" shall mean all classes or series of preferred
stock, par value $0.001 per share, of the Company.
"PURCHASER" shall have the meaning ascribed thereto in the
preamble.
"RESTRICTED PAYMENT" shall mean (i) the declaration, payment or
setting apart of any sum for payment of dividend (including a dividend
payable in capital stock of the Company) on, or any distribution
(including a distribution in capital stock of the Company) in respect of,
any shares of capital stock of the Company or any warrants, rights or
options to purchase any shares of capital stock of the Company or (ii)
the redemption, repurchase, retirement or other acquisition of (or the
setting apart of any sum in respect of any of the foregoing actions) any
shares of capital stock of the Company or any warrants, rights or
options to purchase or acquire any shares of capital stock.
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"SECURITIES" shall have the meaning ascribed thereto in Section
4.19.
"SECURITIES ACT" shall have the meaning ascribed thereto in
Section 4.19.
"SERIES E PREFERRED STOCK" shall mean shares of Series E Preferred
Stock of the Company.
"STOCKHOLDER APPROVAL" shall have the meaning ascribed thereto in
Section 8.16.
"SUBSIDIARY" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting power
to elect a majority of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or
classes shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the
Company, or by one or more of its subsidiaries.
"TRANSFEREE" shall mean any direct or indirect transferee of all
or any part of any Convertible Debenture purchased by the Purchaser under
this Agreement.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE DEBENTURES.
The Company agrees to issue and sell to the Purchaser and the Purchaser hereby
agrees to purchase from the Company, the Convertible Debentures in the aggregate
principal amount of $120,000 at 100% of such aggregate principal amount.
SECTION 2.02. CLOSING. The closing shall take place at the offices of Air
South Airlines, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ at 12:30
o'clock p.m. Eastern Daylight Savings Time, on October 16, 1996, or at such
other location, date and time as may be agreed upon between the Purchaser and
the Company (such closing being called the "Closing" and such date and time
being called the "Closing Date"). At the Closing, the Company shall issue and
deliver to the Purchaser one or more Convertible Debentures, registered in the
name of such Purchaser, evidencing the aggregate principal amount of Convertible
Debentures to be purchased by the Purchaser at the Closing, and in the
denomination or denominations specified in writing by the Purchaser. As payment
in full for the Convertible Debentures being purchased by the Purchaser under
this Agreement, on the Closing Date the Purchaser shall deliver to the Company a
check payable to the order of the Company, in the amount of the purchase price
or shall transfer such sum to the account of the
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Company by wire transfer, or shall deliver to the Company notes evidencing
indebtedness of the Company for cancellation thereof, or any combination of the
foregoing.
ARTICLE III
CONVERSION
SECTION 3.01. CONVERSION; NUMBER. The holder of any Convertible
Debenture, at its option, will be entitled at any time commencing three (3)
Business Days after Stockholder Approval and ending on the close of business on
the final maturity date of the Convertible Debentures to convert any Convertible
Debentures, or portions thereof, into shares of Series E Preferred Stock. The
Convertible Debenture will automatically be converted into shares of Series E
Preferred Stock upon the closing of a firmly underwritten public offering of
Common Stock on a Form S-l Registration Statement at an aggregate public
offering price (after underwriting discounts and commissions) of at least
$10,000,000 and a per share price equal to or greater than $4.00 (as
appropriately adjusted for stock splits and the like). In either case (each of
which is sometimes hereinafter referred to as a "Conversion"), the number of
shares of Series E Preferred Stock to be issued upon such Conversion shall be
determined by dividing the aggregate principal balance of the Convertible
Debenture to then be converted by twenty-five hundredths (0.25). The Company is
not required to issue fractional shares of Series E Preferred Stock upon
conversion of any Convertible Debenture and, in lieu thereof, will pay a cash
adjustment.
SECTION 3.02. CONVERSION PROCEDURE. If the holder elects to convert any
Convertible Debenture such holder may do so by delivering the Convertible
Debenture at the specified office of the Company, accompanied by a duly signed
and completed Conversion Notice. The date of the Conversion shall be the date on
which the Convertible Debenture and the duly signed and completed Conversion
Notice are received by the Company. A holder delivering a Convertible Debenture
for conversion will not be required to pay any taxes or duties payable with
respect to the issue or delivery of Series E Preferred Stock on Conversion and
any such taxes or duties shall be paid by the Company.
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO DEFAULT;
CONDITIONS PRECEDENT TO CONVERSION.
(a) On and as of the date of each Conversion, (i) the Company
shall be deemed to have (A) remade, ratified and confirmed all
representations and warranties of the Company contained in Article IV of
this Agreement, (B) certified compliance with all covenants contained in
Article VIII of this Agreement and (C) certified that no Event of Default
or Default exists and is continuing, and (ii) the Company shall deliver
an Officer's Certificate to the effects set forth in (A), (B) and (C)
above.
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(b) In addition to the provisions of Section 3.03(a) above, on
and as of the date of each Conversion, the Company shall have caused to
be delivered to the Purchaser an opinion of the General Counsel of the
Company, substantially in the form of Exhibit E attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that:
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and
is duly qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such qualification, except where the failure to be so qualified
would not have a Material Adverse Effect. The Company has the corporate
power and authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, to execute,
deliver and perform its obligations under this Agreement, to issue, sell
and deliver the Convertible Debentures and, subject to approval by the
stockholders of the Company of an amendment to the Certificate of
Incorporation, to increase the authorized number of shares of Common
Stock and Preferred Stock, to issue and deliver the Preferred Conversion
Shares and the Common Conversion Shares.
(b) The Company has no Subsidiaries. The Company does not (i)
own of record or beneficially, directly or indirectly (A) any shares of
capital stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership, joint
venture or other non-corporate business enterprise or (ii) control,
directly or indirectly, any other entity.
SECTION 4.02. AUTHORIZATION. The execution and delivery by the Company of
this Agreement, the performance by the Company of its obligations hereunder, the
issuance, sale and delivery of the Convertible Debentures and, subject to
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized number of shares of Common Stock and
Preferred Stock, the issuance and delivery of the Preferred Conversion Shares
and the Common Conversion Shares have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation or the
By-laws, or any provision of any indenture, agreement or other instrument to
which the Company, any of its
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subsidiaries or any of their respective properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture agreement or other instrument,
or result in the creation or imposition of any lien, charge, restriction, claim
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company or any of its subsidiaries.
SECTION 4.03. VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms.
SECTION 4.04. CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 18,000,000 shares of Common Stock, par value $0.001 per
share; (ii) 1,250,000 shares of Series A Preferred Stock, par value $0.001 per
share;(iii) 625,000 shares of Series B Preferred Stock, par value $0.001 per
share; (iv) 120,000 shares of Series C Preferred Stock, par value $0.001 per
share; and (v) 5,000 shares of one or more series of Preferred Stock (the "Blank
Check Preferred Stock"). Immediately prior to the Closing, 6,917,182 shares of
Common Stock, 1,250,000 shares of Series A Preferred Stock, 625,000 shares of
Series B Preferred Stock and 120,000 shares of Series C Preferred Stock were
outstanding and have been validly issued and are fully paid and nonassessable
with no personal liability attaching to the ownership thereof. The Company has
sold $4,000,000 of convertible debentures due August 16, 1999. Such convertible
debentures are convertible into 16,000,000 shares of Series D Preferred Stock
which, when authorized and issued, will in turn, be convertible into 16,000,000
shares of Common Stock. The convertible Debentures are part of up to an
additional $3,000,000 of convertible debentures due August 16, 1999 authorized
to be issued on or prior to September 30, 1996; such additional convertible
debentures shall be convertible into a number of shares of Series E Preferred
Stock determined by dividing the aggregate principal balance of the convertible
debentures to then be converted by twenty five hundredths (0.25). Such shares of
Series E Preferred Stock are in turn each convertible into one share of Common
Stock. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Certificate of
Incorporation, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Except as set forth on Schedule
4.04, there are no outstanding options, preemptive or other rights, warrants,
agreements, voting trusts, proxies, contracts, calls, commitments or demands of
any character relating to any shares of capital stock, or any other securities
of the Company, whether or not issued, including, but not limited to, securities
convertible into or evidencing the right to purchase any capital stock or other
securities of the Company. Except as set forth on Schedule 4.04, the Company has
no obligation (contingent or other) to purchase, redeem or otherwise acquire any
of its equity securities or any interest therein or to pay any dividend or make
any other distribution in respect thereof. Except as set forth on Schedule 4.04,
there are no voting trusts or agreements, stockholders' agreements,
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pledge agreements, buy-sell agreements, rights of first refusal, preemptive
rights or proxies relating to any securities of the Company or any of its
subsidiaries (whether or not the Company or any of its subsidiaries is a party
thereto). All of the outstanding securities of the Company were issued in
compliance with all applicable federal and state securities laws.
SECTION 4.05. FINANCIAL STATEMENTS. The Company has furnished to the
Purchaser the consolidated balance sheet of the Company as of December 31, 1995
(the "Balance Sheet"), and the related statements of income, stockholders'
equity and cash flows of the Company for the year ended December 31, 1995. All
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied and fairly present the
financial position of the Company as of December 31, 1995, and the results of
operations and cash flows of the Company for the year ended December 31, 1995.
Since the date of the Balance Sheet, (i) there has been no change in the assets,
liabilities or financial condition of the Company (on a consolidated basis) from
that reflected in the Balance Sheet, except for changes in the ordinary course
of business which in the aggregate have not been materially adverse, and (ii)
none of the business, prospects, financial condition, operations, property or
affairs of the Company (on a consolidated basis) has been materially adversely
affected by any occurrence or development, individually or in the aggregate,
whether or not insured against.
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET. Since
the date of the Balance Sheet, the Company has not, except as set forth on
Schedule 4.06, (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Balance Sheet and current liabilities incurred since
the date of the Balance Sheet in the ordinary course of business, (iv) declared
or made any payment or distribution to stockholders or purchased or redeemed any
share of its capital stock or other security, (v) mortgaged, pledged or
subjected to lien any of its assets, tangible or intangible, other than liens of
current real property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade name,
service ▇▇▇▇, copyright, trade secret or other intangible asset, (viii) suffered
any loss of property or waived any right of substantial value whether or not in
the ordinary course of business, (ix) made any change in officer compensation
except in the ordinary course of business and consistent with past practice, (x)
made any material change in the manner of business or operations of the Company,
(xi) entered into any transaction except in the ordinary course of business or
as otherwise contemplated hereby or (xii) entered into any commitment
(contingent or otherwise) to do any of the foregoing.
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SECTION 4.07. COMPLIANCE WITH INSTRUMENTS. The Company is not in
violation of any term of its Certificate of Incorporation or By-laws, or any
statute, rule or regulation applicable to the Company. Except as set forth on
Schedule 4.07, the Company is not in violation or in default of any term
contained in any instrument or contract to which it is a party. Except as set
forth on Schedule 4.07, no event or failure of performance has occurred which,
with the passage of time or the giving of notice or both, would constitute such
a violation. None of the violations set forth on Schedule 4.07 will have a
Material Adverse Effect.
SECTION 4.08. LITIGATION. Except as set forth on Schedule 4.08, there are
no (i) actions, suits, claims, proceedings or investigations pending or, to the
best of the Company's knowledge, threatened against or affecting the Company, at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) arbitration proceedings relating to the Company
pending under collective bargaining agreements or otherwise or (iii)
governmental inquiries pending or, to the best of the Company's knowledge,
threatened against or affecting the Company (including without limitation any
inquiry as to the qualification of the Company to hold or receive any license or
permit), and the Company is not aware of any basis for any of the foregoing.
None of the actions, suits, claims, proceedings, or investigations set forth on
Schedule 4.08 will have a Material Adverse Effect. The Company is not in default
with respect to any order, writ, injunction or decree known to or served upon
the Company of any court or of any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
SECTION 4.09. COMPLIANCE WITH LAW. The Company has complied with all
laws, rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, and the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted to the extent failure to do so would
have a material adverse effect on the business of the Company. There is no
existing law, rule, regulation or order, and the Company is not aware of any
proposed law, rule, regulation or order, whether federal or state, which would
prohibit or restrict the Company from, or otherwise materially adversely affect
the Company in, conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
SECTION 4.10. TITLE TO PROPERTIES. The Company has good and marketable
title to its properties and assets reflected on the Balance Sheet or acquired by
It since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances, except (i) for Liens set forth on Schedule 4.10, (ii) for Liens
for taxes not yet due and payable and minor imperfections of title, if any, not
material in nature or amount and
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(iii) for Liens not materially detracting from the value or impairing the use of
the property subject thereto or impairing the operations or proposed operations
of the Company.
SECTION 4.11. LEASEHOLD INTERESTS. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement without any default of the Company
thereunder, except as set forth on Schedule 4. 11, and, to the best of the
Company's knowledge, without any default thereunder of any other party thereto.
No event has occurred and is continuing which, with due notice or lapse of time
or both, would constitute a default or event of default by the Company under any
such lease or agreement or, to the best of the Company's knowledge, by any other
party thereto. The Company's possession of such property has not been disturbed
and, to the best of the Company's knowledge, no claim has been asserted against
the Company adverse to its rights in such leasehold interests.
SECTION 4.12. TAXES. The Company has filed all tax returns, federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third parties. All such taxes with
respect to which the Company has become obligated pursuant to elections made by
the Company in accordance with generally accepted practice have been paid and
adequate reserves have been established for all taxes accrued but not yet
payable. The Federal income tax returns of the Company have never been audited
by the Internal Revenue Service. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county or local taxes is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien, whether imposed by any federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company.
SECTION 4.13. PATENTS, TRADEMARKS, ETC. The Company owns or possesses
adequate licenses or other rights to use all trademarks, trademark applications,
service marks, service ▇▇▇▇ applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets and know how, and all patents and patent
applications known to the Company (collectively, "Intellectual Property"),
necessary to the conduct of its business as conducted and as proposed to be
conducted, and no claim is pending or, to the best of the Company's knowledge,
threatened to the effect that the operations of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and there is no known basis for any such claim (whether or not pending
or threatened). No claim is pending or threatened to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and
there is no basis known to the Company for any such claim (whether or not
pending or threatened). To the best of the Company's knowledge, all technical
information developed by and belonging to the Company which has not been
patented has been kept confidential. Except as set forth on Schedule 4.13, the
Company has
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not granted or assigned to any other person or entity any right to manufacture,
have manufactured, assemble or sell the products or proposed products or to
provide the services or proposed services of the Company.
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES.
(a) All of the outstanding Debt of the Company is set forth on
Schedule 4.14 ("Existing Debt"). Except as set forth on Schedule 4.07,
there exists no default under the provisions of any instrument evidencing
such Existing Debt or of any agreement relating thereto.
(b) The Company does not have any outstanding loans or advances
to any person and is not obligated to make any such loans or advances,
except, in each case, for advances to employees of the Company in respect
of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company.
SECTION 4.15. GUARANTEES. The Company is not a party to any Guarantee by
it of obligations of any other party.
SECTION 4.16. GOVERNMENTAL APPROVALS. No registration or filing with, or
consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement, the
issuance, sale and delivery of the Convertible Debentures, the issuance and
delivery of the Preferred Conversion Shares upon the conversion of the
Convertible Debentures, or the issuance and delivery of the Common Conversion
Shares upon conversion of the Preferred Conversion Shares, other than the
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized number of shares of Common Stock and
Preferred Stock.
SECTION 4.17. DISCLOSURE. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading
There is no fact which the Company has not disclosed to the Purchaser and of
which the Company is aware which materially and adversely affects or could
materially and adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company or any of its subsidiaries.
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SECTION 4.18. BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 4.19. SECURITIES ACT. The offer, sale and issuance of the
Convertible Debentures, the Preferred Conversion Shares and the Common
Conversion Shares (collectively, the "Securities") will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of any applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the
Securities to any Person so as to bring the sale of such Securities by the
Company within the registration provisions of the Securities Act.
SECTION 4.20. MARGIN REGULATIONS. The Company will not, directly or
indirectly, use any of the proceeds of the Securities for the purpose, whether
immediate, incidental or ultimate, of maintaining, purchasing or carrying any
stock that is currently a "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System (12 C.F.R. 207, as amended)
or Regulation U of such Board (12 C.F.R. 221, as amended), or otherwise take or
permit to be taken any action which would result in the carrying out of any of
the other transactions contemplated hereby or thereby being violative of such
Regulation G or Regulation U, or of Regulation T (12 C.F.R. 220, as amended),
Regulation X (12 C.F.R. 224, as amended) or any other regulation of such Board.
The Company and its Subsidiaries do not own or intend to acquire any "margin
stock" within the meaning of such Regulation G or such Regulation U.
SECTION 4.21. INSURANCE COVERAGE. Each property of the Company is insured
for the benefit of the Company in amounts deemed adequate by the Company's
management against risks usually insured against by persons operating businesses
similar to those of the Company in the localities where such properties are
located.
SECTION 4.22. ERISA. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists
with respect to any Plan (other than a Multiemployer Plan). No liability to the
PBGC has been or is expected by the Company or any ERISA Affiliate to be
incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company or any ERISA Affiliate which would have a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate Is a participant in any
Multiemployer Plan. The execution and delivery of this Agreement and the
issuance and sale of the Convertible Debentures will be exempt from or will not
involve any transaction which is subject to, the prohibitions of Section 406 of
ERISA and will not involve any transaction in connection with which a penalty
could be imposed under Section 502(i) of ERISA or a tax could be imposed
pursuant to Section,4975 of the Code. The Company and its ERISA Affiliates do
not provide any benefits to former employees except as may be
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required by COBRA (Section 4980B of the Code and Sections 601 et seq. of ERISA).
Neither the Company nor any ERISA Affiliate is a party to a collective
bargaining agreement or is required to bargain with any collective bargaining
unit.
SECTION 4.23. ENVIRONMENTAL COMPLIANCE. The Company and its properties
and facilities have complied at all times and in all respects with all federal,
state, local and regional statutes, laws, ordinances and judicial or
administrative orders, judgments, rulings and regulations relating to protection
of the environment except, in any such case, where failure to comply would not
have a Material Adverse Effect.
SECTION 4.24. PERMITS AND LICENSES. The Company has all federal, state
and local governmental permits, licenses, certificates of authority any similar
authority necessary for the conduct of its business as now being conducted and
as proposed to be conducted. The Company is not in default in any material
respect under any such permit, license, certificate of authority or other
similar authority.
SECTION 4.25. BOARD COMPOSITION. Article III, Section 1 of the By-laws
provides that the number of directors which shall constitute the whole Board of
Directors of the Company (the "Board") shall be not less that three (3) nor more
than fifteen (15), with the specific number determined by a resolution of the
Board, or by the shareholders of the Company at the annual meeting. Effective
immediately upon the Closing, the current Board members will be ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Company that:
(a) the Convertible Debentures being purchased by it are being
acquired for its own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof;
(b) it understands that: (i) there is not now any market for
the Convertible Debentures, the Series E Preferred Stock or the Common
Stock (collectively, the "Securities") and that it is possible that no
market may develop in the foreseeable future; (ii) that the Securities
when issued will have been issued in transactions which are exempt from
registration under the federal securities laws and any applicable state
securities laws (the "Securities Laws"); (iii) will be "restricted
securities" in the
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context of the Securities Laws; and, thus, (iv) will not be transferable
unless registered or an exemption from registration is available.
(c) it understands that an investment in the Securities
involves a high degree of risk and that there is a significant risk of
losing the investment in its entirety;
(d) if the investor is a natural person he or she is either (i)
a person who has an individual net worth, or joint net worth with that
person's spouse, on the date hereof of $1,000,000 or (ii) a person who
had an individual income of $200,00 in each of the two most recent years
or joint income with that person's spouse of $300,000 in each of those
years and has a reasonable expectation of reaching the same income level
in the current year.
(e) it has not employed any broker or finder in connection with
the transactions contemplated by this Agreement; and
(f) the execution, delivery and performance by it of this
Agreement have been duly authorized by all requisite action by it and
this Agreement constitutes the valid and binding obligation of it,
enforceable in accordance with its terms.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASER
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER. The
obligation of the Purchaser to purchase and pay for the Convertible Debentures
being purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in Article IV
shall be true, complete and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been
made on and as on such date.
(b) PERFORMANCE. The Company shall have performed and compiled
with all agreements contained herein required to be performed or compiled
with by it prior to or at the Closing Date
(c) OFFICER'S CERTIFICATE. The Company shall have executed and
delivered to the Purchaser an Officer's Certificate to the effects set
forth in (a) and (b) above.
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(d) INVESTOR'S RIGHTS AGREEMENT. The Company shall have
executed and delivered the Investor's Rights Agreement to the Purchaser.
(e) OPINION OF COUNSEL. The Purchaser shall have received an
opinion of the General Counsel of the Company, such opinion to be
substantially in the form of Exhibit F attached hereto.
(f) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto shall
be satisfactory in form and substance to the Purchaser and its counsel,
and the Purchaser and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they reasonably may request.
(g) SUPPORTING DOCUMENTS. The Purchaser and its counsel shall
have received copies of the following documents:
(i) a certificate of the Secretary of State of the State
of Delaware, dated as of a recent date as to the due incorporation
and good standing of the Company;
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company dated the Closing Date and certifying:
(A) that the Certificate of Incorporation attached to this
Agreement is a true and complete copy of the Certificate of
Incorporation of the Company; (B) that the Certificate of
Incorporation has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to
clause (ii)(A) above; (C) that attached thereto is a true and
complete copy of the By-laws of the Company as in effect on the
date of such certification; (D) that attached thereto is a true
and complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing the
execution, delivery and performance of this Agreement, and the
issuance, sale and delivery of the Convertible Debentures and that
all such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreement; and (E) to the incumbency and
specimen signature of each officer of the Company executing this
Agreement, the Convertible Debentures and any certificate or
instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature
of the officer signing the certificate referred to in this
subparagraph 6.01(g)(ii); and
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(iii) such additional supporting documents and other
information with respect to the operations and affairs of the
Company as the Purchaser or its counsel reasonably may request.
(h) THIRD PARTY CONSENTS, PERMITS AND WAIVERS. The Company
shall have obtained any and all consents, permits and waivers necessary
or appropriate for the consummation of the transactions contemplated by
this Agreement.
(i) NO INJUNCTIONS OR RESTRAINTS. There shall be no action,
suit, investigation or proceeding pending, or, to the best of the
Company's knowledge, threatened, against or affecting the Company, any of
the Company's properties or rights, or any of the Company's officers or
directors, before any court, arbitrator or administrative or governmental
body which (i) seeks to restrain, enjoin, or prevent the consummation of
the transactions contemplated by this Agreement or (ii) questions the
validity or legality of any such transactions or seeks to recover damages
or to obtain other relief in connection with any such transactions and,
to the best of the Company's knowledge, there shall be no valid basis for
any such action, proceeding or investigation.
All such documents shall be satisfactory in form and substance to the Purchaser
and its counsel.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and sell the Convertible Debentures on the
Closing Date is, at its option, subject to the satisfaction, on or before the
Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Purchaser contained in Article 5
shall be true, complete and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been
made on and as of such date.
(b) PERFORMANCE. The Purchaser shall have performed and
complied with all agreements contained herein required to be performed or
complied with by it prior to or at the Closing Date.
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(c) OFFICER'S CERTIFICATE. The Purchaser shall have delivered
to the Company a certificate of an officer of the Purchaser to the
effects set forth in (a) and (b) above.
(d) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Purchaser in connection with the
transactions contemplated hereby and all documents incident thereto shall
be satisfactory in form and substance to the Company and its counsel, and
the Company and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as they
reasonably may request.
(e) NO INJUNCTIONS OR RESTRAINTS. There shall be no action,
suit, investigation or proceeding pending, or, to the best of the
Company's knowledge, threatened, against or affecting the Company, any of
the Company's properties or rights, or any of the Company's officers or
directors, before any court, arbitrator or administrative or governmental
body which (i) seeks to restrain, enjoin, or prevent the consummation of
the transactions contemplated by this Agreement or (ii) questions the
validity or legality of any such transactions or seeks to recover damages
or to obtain other relief in connection with any such transactions and,
to the best of the Company's knowledge, there shall be no valid basis for
any such action, proceeding or investigation.
ARTICLE VIII
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that so long as any
Convertible Debenture is outstanding:
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS. The Company shall furnish
to the Purchaser:
(a) as soon as practicable, and in any event at least 30 days
prior to the beginning of each fiscal year of the Company, consolidated
statements of forecasted income and cash flow and consolidated forecasted
balance sheet of the Company for each month and each fiscal quarter in
such fiscal year and for the period from the beginning of such fiscal
year to the end of each such month and end of each such fiscal quarter,
in each case as at the end of each such month and fiscal quarter;
(b) as soon as practicable after the end of each month in each
fiscal year (other than the last month in each fiscal year), and in any
event within 30 days thereafter, consolidated statements of income and
cash flow of the Company for such
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month and for the period from the beginning of the current fiscal year to
the end of such month and a consolidated balance sheet of the Company as
at the end of such month, and setting forth, in each case, in comparative
form, figures for the corresponding months in the preceding fiscal year
(other than any such corresponding months ended prior to the Closing) and
figures in the Company's budget for the corresponding months in the
current fiscal year;
(c) as soon as practicable after the end of each fiscal quarter
of the Company in each fiscal year (other than the last fiscal quarter in
each fiscal year), and in any event within forty-five (45) days
thereafter, a consolidated balance sheet of the Company and the related
consolidated statements of income, stockholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted accounting
principles and certified by the Chief Financial Officer of the Company,
such consolidated balance sheet to be as of the end of such fiscal
quarter and such consolidated statements of income, stockholders' equity
and cash flows to be for such fiscal quarter and for the period from the
beginning of the fiscal year to the end of such fiscal quarter, in each
case with comparative statements for the corresponding period in the
prior fiscal year;
(d) as soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, a
consolidated balance sheet of the Company as of the end of such fiscal
year and the related consolidated statements of income, stockholders'
equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and certified by
a firm of independent public accountants of recognized national standing
selected by the Board of Directors of the Company;
(e) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Commission;
(f) promptly upon sending, all press releases that the Company
disseminates:
(g) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Company or any Subsidiary;
(h) as soon as practicable and in any event within five days
after any officer of the Company obtaining knowledge (i) of any condition
or event which, in the opinion of management of the Company, would have a
Material Adverse Effect (ii)
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that any Person has given any notice from any Person to the Company or
taken any other action with respect to a claimed default or event or
condition of the type referred to in Section 9.01(ii), (iii) of the
institution of any litigation involving claims against the Company equal
to or greater than $100,000 with respect to any single cause of action or
of any adverse determination in any court proceeding in any litigation
involving a potential liability to the Company equal to or greater than
$100,000 with respect to any single cause of action which makes the
likelihood of an adverse determination in such litigation against the
Company substantially more probable, or (iv) of any regulatory proceeding
which may have a Material Adverse Effect on the Company, an Officer's
Certificate specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by
such Person and the nature of any such claimed default, event or
condition, or specifying the details of such proceeding, litigation or
dispute and what action the Company has taken, is taking or proposes to
take with respect thereto;
(i) promptly after the filing or receiving thereof, copies of
all reports and notices which the Company files under ERISA with the
Internal Revenue Service or the PBGC or the U.S. Department of Labor or
which the Company receives from such corporation; and
(j) with reasonable promptness, such other information
respecting the condition or operations, financial or otherwise, of the
Company as the Purchaser may reasonably request.
Together with each delivery of financial statements required by clauses (c) and
(d) above, the Company will deliver to the Purchaser an Officer's Certificate
stating that there exists no Event of Default or Default, or, if any Event of
Default or Default exists, specifying the nature and period of existence thereof
and what action the Company proposes to take with respect thereto. Together with
each delivery of financial statements required by clause (d) above, the Company
will deliver to the Purchaser a certificate of such accountants stating that, in
making the audit necessary for their report on such financial statements, they
have obtained no knowledge of any Event of Default or Default, or, if they have
obtained knowledge of any Event of Default or Default, specifying the nature and
period of existence thereof.
The Company also covenants that immediately after any officer obtains
knowledge of an Event of Default or Default, it will deliver to the Purchaser an
Officer's Certificate specifying the nature and period of existence thereof and
what action the Company proposes to take with respect thereto.
SECTION 8.02. CORPORATE EXISTENCE. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
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SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company will
maintain or cause to be maintained in good repair, working order and condition
all properties used or useful in the business of the Company and from time to
time will make or cause to be made appropriate repairs, renewals and
replacements thereof. The Company shall maintain its properties and business,
with financially sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts as is customary for
companies similarly situated, including but not limited to fire and other risks
insured against by extended coverage, product liability insurance and public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by the Company, which insurance shall be deemed by
the Company to be sufficient; and maintain workers' compensation insurance and
such other insurance as may be required by law.
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE. The Company shall
permit the Purchaser to visit and inspect any of the properties of the Company,
examine its books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company with its officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
the Purchaser such affairs, finances and accounts), and consult with and advise
the management of the Company as to its affairs, finances and accounts, all at
reasonable times and upon reasonable notice.
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED. The Company shall not
become a party to any agreement which by its terms restricts the Company's
performance of this Agreement.
SECTION 8.06. TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement, the Company shall not enter into any transaction
with any director, officer, employee or holder of more than 5% of the
outstanding capital stock of any class or series of capital stock of the
Company, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof.
SECTION 8.07. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Convertible Debentures solely for working capital or other such
uses as may be authorized by the Board of Directors.
SECTION 8.08. SUBSIDIARIES. The Company shall not create or have any
Subsidiaries.
SECTION 8.09. COMPLIANCE WITH LAWS. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which could
have a Material Adverse Effect.
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SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep true records and books of account, in which full and complete entries will
be made in accordance with generally accepted accounting principles consistently
applied, reflecting all financial and business transactions of the Company, and
in which, for each fiscal year, all proper accruals and reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made as shall be required
under generally accepted accounting principles consistently applied.
SECTION 8.11. OBLIGATIONS AND TAXES. The Company shall pay all of its
indebtedness and obligations promptly and in accordance with their terms and pay
and discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or its income or profits or in respect of its property, before
the same shall become in default, as well as all lawful claims for labor and
supplies or otherwise which, if unpaid, might become a lien or charge upon such
properties or any part thereof; provided, however, that the Company shall not be
required to pay and discharge or to cause to be paid and discharged any tax,
assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings and the Company
shall set aside on its books such reserves as are required by generally accepted
accounting principles with respect to any such tax, assessment, charge, levy or
claim so contested.
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE DEBENTURES; LOST
CONVERTIBLE DEBENTURES. Upon surrender for registration or transfer of any
Convertible Debenture at the principal office of the Company, the Company shall,
at its expense, execute and deliver one or more new Convertible Debentures of
like tenor and of a like aggregate principal amount, registered in the name of
such transferee or transferees. At the option of the Purchaser, such Convertible
Debenture may be exchanged for other Convertible Debentures of like tenor and of
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Convertible Debenture to be exchanged at the principal office
of the Company. Whenever any Convertible Debentures are so surrendered for
exchange, the Company shall, at its expense, execute and deliver the Convertible
Debentures which the Purchaser making the exchange is entitled to receive. Every
Convertible Debenture surrendered for registration of transfer or exchange shall
be duly endorsed, or be accompanied by a written instrument of transfer duly
executed, by the Purchaser of such Convertible Debenture or the Purchaser's
attorney duly authorized in writing. Any Convertible Debenture or Convertible
Debentures issued in exchange for any Convertible Debenture or upon transfer
thereof shall carry the rights to unpaid interest and interest to accrue which
were carried by the Convertible Debenture so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the Purchaser of the loss, theft,
destruction or mutilation of such Convertible Debenture and, in the case of any
such loss, theft or destruction, upon receipt of the Purchaser's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Convertible Debenture, the Company will make and deliver a
new Convertible
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Debenture, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Convertible Debenture. The Purchaser's own agreement of indemnity shall
constitute indemnity satisfactory to the Company for purposes of this Section
8.12.
SECTION 8.13. LIMITATION ON DEBT. The Company will not create, incur,
assume or otherwise become or be liable with respect to any Debt except (i) Debt
represented by the Convertible Debentures; (ii) Existing Debt of the Company;
and (iii) Debt of the Company aggregating not more than $500,000 in unpaid
principal amount at any time outstanding.
SECTION 8.14. LIMITATION ON LIENS. The Company will not create, assume or
suffer to exist any Lien upon any of its properties or assets, whether now owned
or hereafter acquired and whether or not provision is made by equally and
ratably securing the Convertible Debentures; provided, however, that the
foregoing restriction and limitation shall not apply to the following Liens:
(a) Liens for taxes, assessments or governmental charges or
levies not yet delinquent or which are being contested in good faith by
appropriate proceedings;
(b) other Liens incidental to the conduct of their business or
the ownership of their properties and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or
credit, and which do not in the aggregate materially detract from the
value of their properties or assets, or materially impair the use thereof
in the operation of their business; and
(c) any Lien existing at the time of acquisition upon any real
or personal property acquired by the Company through purchase, merger or
consolidation or otherwise, whether or not assumed by the Company, or
placed upon real or personal property being acquired by the Company
(within six months of such acquisition) to secure all or a portion of the
purchase price thereof or any Debt incurred to finance all or any portion
of such purchase price; provided, however, that (A) such property is not
and shall not thereby become encumbered in an amount in excess of the
lesser of the cost thereof or fair value thereof (as determined in good
faith by the Company), and (B) any such Lien shall not encumber any other
property of the Company; and provided, further, that the aggregate amount
at any time of all such Debt secured under this subparagraph ) shall be
permitted by Section 8.13 (and any Lien renewing, extending or refunding
any Lien permitted by this subparagraph 8.14 (c)(iii), provided that the
principal amount secured it not increased, the Lien is not extended to
other property and the Debt secured thereby would be permitted under the
provisions of Section 8.13).
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS. The Company will not
directly or indirectly make any Restricted Payments.
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SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND FILING OF
CERTIFICATE OF DESIGNATION.
(a) On or prior to February 1, 1997 the Company will have
solicited and obtained the requisite approval of its stockholders (the
"Stockholder Approval") to an amendment to the Certificate of
Incorporation (the "Amendment") to increase (i) the number of authorized
shares of Preferred Stock by a sufficient number of shares to allow all
securities of the Company which are convertible into Preferred Stock to
be converted and (ii) the number of authorized shares of Common Stock by
a sufficient number of shares to allow (A) all securities of the Company
which are convertible either directly or indirectly into Common Stock to
be converted and (B) the exercise of all options, warrants and any other
rights to purchase Common Stock to be exercised.
(b) Within two (2) Business Days after obtaining the
Stockholder Approval, the Company shall (i) file the Amendment and the
Certificate of Designation with the Secretary of State of the State of
Delaware, and (ii) take such other action as may be necessary to enable
the Purchaser, in its sole discretion, to convert any Convertible
Debenture into Series E Preferred Stock at any time thereafter and from
time to time.
(c) After giving effect to Sections 8.16(a) and (b) above,
upon the conversion of any Convertible Debenture, the Preferred
Conversion Shares and, upon conversion of the Preferred Conversion
Shares, the Common Conversion Shares, will have been duly authorized and
will be validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and will be free and clear
of all Liens imposed by or through the Company. In addition, after giving
effect to Sections 8.16(a) and (b), the Preferred Conversion Shares and
the Common Conversion Shares will have been duly reserved for issuance
upon conversion of the Convertible Debenture or conversion of the
Preferred Conversion Shares, respectively. Neither the issuance, sale or
delivery of the Preferred Conversion Shares or the Common Conversion
Shares will be subject to any preemptive right of stockholders of the
Company or to any right of first refusal or other right in favor of any
person.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION. if any of the following events shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law or
otherwise):
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(i) the Company defaults in the payment of any principal of or
interest on any Convertible Debenture when the same shall become due,
either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults (whether as primary obligor or as
guarantor or other surety) in any payment of principal of or interest on
any other obligation for money borrowed beyond any period of grace
provided with respect thereto, or the Company fails to perform or observe
any other agreement, term or condition contained in any agreement under
which any such obligation is created (or if any other event thereunder or
under any such agreement shall occur and be continuing) and the effect of
such failure or other event is to cause, or to permit the holder or
holders of such obligation (or a trustee on behalf of such holder or
holders) to cause, such obligation to become due (or to be repurchased by
the Company) prior to any stated maturity; or
(iii) any representation or warranty made by the Company herein
or by the Company or any of its officers in any writing furnished in
connection with or pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(iv) the Company fails to perform or observe (A) any term,
covenant or agreement contained in Sections 8.01(h)(i), 8.02, 8.04, 8.08,
8.09, 8.11, 8.13, 8.14, 8.15, 8.16 or 8.17, or (B) any other agreement,
covenant, term or condition contained herein and such failure shall not
be remedied within 30 days after any officer obtains actual knowledge
thereof; or
(v) a majority of the members of the Board of Directors shall
be persons nominated by a person or entity other than the Company; or
(vi) the Company makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become due;
or
(vii) any decree or order for relief in respect of the Company is
entered under any bankruptcy reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law, whether now or hereafter in effect (the "Bankruptcy Law"), of any
jurisdiction; or
(viii) the Company petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Company, or of
any substantial part of the assets of the Company, or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Company under the Bankruptcy Law of any other
jurisdiction; or
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(ix) any such petition or application is filed, or any such
proceedings are commenced, against the Company and the Company by any act
indicates its approval thereof, consent thereto or acquiescence therein,
or an order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving the
petition in any such proceedings, and such order, judgment or decree
remains unstayed and in effect for more than 30 days; or
(x) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 60
days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing a split-up of the Company which requires
the divestiture of assets representing a substantial part of the
consolidated assets of the Company (determined in accordance with
generally accepted accounting principles) for any of the three fiscal
years then most recently ended, and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(xii) any judgment or order, or series of judgments or orders, is
rendered against the Company and either (A) enforcement proceedings have
been commenced by any creditor upon such judgment or order or (B) within
60 days after entry thereof, such judgment is not discharged or execution
thereof stayed pending appeal, or within 60 days after the expiration of
any such stay, such judgment is not discharged;
then (a) if such event is an Event of Default specified in clause (i) of this
Section 9.01 the Purchaser may at its option, by notice in writing to the
Company, declare such Convertible Debenture to be, and such Convertible
Debenture shall thereupon be and become, immediately due and payable at par
together with interest accrued thereon, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Company, (b) if
such event is an Event of Default specified in clause (vi), (vii), (viii) or
(ix) of this Section 9.01 with respect to the Company, all of the Convertible
Debentures at the time outstanding shall automatically become immediately due
and payable at par together with interest accrued thereon, without presentment,
demand, protest or notice of any kind, all of which are hereby waived by the
Company, and (c) if such event is not an Event of Default specified in clause
(vi), (vii), (viii) or (ix) of this Section 9.01 with respect to the Company,
the Purchaser may, by notice in writing to the Company, declare all of the
Convertible Debentures to be, and all of the Convertible Debentures shall
thereupon be and become, immediately due and payable together with interest
accrued thereon with respect to each Convertible Debenture, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Company.
SECTION 9.02. RESCISSION OF ACCELERATION. At any time after any or all of
the Convertible Debentures shall have been declared immediately due and payable
pursuant to
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Section 9.01, the Purchaser may, by notice in writing to the Company, rescind
and annul such declaration and its consequences if (i) the Company shall have
paid all overdue interest on the Convertible Debentures, the principal payable
with respect to any Convertible Debentures which have become due otherwise than
by reason of such declaration, and interest on such overdue interest and overdue
principal at the rate specified in the Convertible Debentures, (ii) the Company
shall not have paid any amounts which have become due solely by reason of such
declaration, (iii) all Events of Default and Defaults, other than non-payment of
amounts which have become due solely by reason of such declaration, shall have
been cured or waived pursuant to Section 10.03, and (iv) no judgment or decree
shall have been entered for the payment of any amounts due pursuant to the
Convertible Debentures or this Agreement. No such rescission or annulment shall
extend to or affect any subsequent Event of Default or Default or impair any
right arising therefrom.
SECTION 9.03. OTHER REMEDIES. If any Event of Default or Default shall
occur and be continuing, the Purchaser may proceed to protect and enforce its
rights under this Agreement and such Convertible Debenture by exercising such
remedies as are available to such holder in respect thereof under applicable
law, either by suit in equity or by action at law, or both, whether for specific
performance of any covenant or other agreement contained in this Agreement or in
aid of the exercise of any power granted in this Agreement. No remedy conferred
in this Agreement upon the Purchaser is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. PAYMENTS. The Company will make payments of principal of
and interest on any Convertible Debenture by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to the account or accounts as specified by the Purchaser in
writing. The Purchaser agrees that, before disposing of any Convertible
Debenture, the Purchaser will make a notation thereon (or on a schedule attached
thereto) of all principal payments previously made thereon and of the date to
which interest thereon has been paid. Anything in this Agreement or in the
Convertible Debenture to the contrary notwithstanding, any payment in respect of
the Convertible Debenture that is due on a date other than a Business Day shall
be made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall be included on the computation of
the amount payable on such Business Day.
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SECTION 10.02. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save the
Purchaser harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by the Purchaser in connection with this Agreement, the
transactions contemplated hereby and any subsequent proposed modification of, or
proposed consent under, this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted, and (ii) the costs
and expenses, including attorneys' fees, incurred by you or such Transferee in
enforcing (or determining whether or how to enforce) any rights under this
Agreement or the Convertible Debentures or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the transactions contemplated hereby, including without
limitation costs and expenses incurred in any bankruptcy case.
SECTION 10.03. CONSENT TO AMENDMENTS. This Agreement may be amended, and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the written
consent to such amendment, action or omission to act, of the Purchaser. No
course of dealing between the Company and the Purchaser nor any delay in
exercising any rights hereunder or under the Convertible Debenture shall operate
as a waiver of any rights of any holder of the Purchaser.
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Convertible Debenture is registered as the owner and holder of
such Convertible Debenture for the purpose of receiving payment of principal of,
interest on such Convertible Debenture and for all other purposes whatsoever,
whether or not such Convertible Debenture shall be overdue, and the Company
shall not be affected by notice to the contrary.
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made herein or any certificate or instrument
delivered by the parties pursuant to or in connection with this Agreement shall
survive the execution and delivery of this Agreement, the issuance, sale and
delivery of the Convertible Debenture, the transfer by the Purchaser of any
Convertible Debenture or portion thereof or interest therein and the payment of
any Convertible Debenture.
SECTION 10.06. BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and In respect of any claim for brokerage or other
commissions relative to this Agreement or the transactions contemplated hereby,
based in any way on agreements, arrangements or understandings made or claimed
to have been made by such party with any third party.
SECTION 10.07. PARTIES IN INTEREST. All representations covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind
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and inure to the benefit of the respective permitted successors and assigns of
the parties hereto whether so expressed or not.
SECTION 10.09. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (i) upon receipt at the address specified below after having been sent by
certified or registered mail, return receipt requested, postage prepaid; or (ii)
upon receipt at the address specified below after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the party to be
notified at the address set forth below:
(a) if to the Purchaser, to
Captain ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ #0160
Eastern Lagoon II
Singapore 1545
(b) if to the Company. to
Air South Airlines, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
with a copy (which shall not constitute notice) to
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Monteith Law Offices
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 10.09. ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 10.10. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
SECTION 10.11. SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
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SECTION 10.12. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 10.13. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 10.14. GENDER; PLURALS. Words of the masculine gender shall be
deemed and construed to include correlative words of the feminine and neuter
genders. Words importing the singular number shall include the plural number and
vice versa.
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IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
COMPANY:
AIR SOUTH AIRLINES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
PURCHASER:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
By:
---------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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INVESTOR'S RIGHTS AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
OCTOBER 16, 1996
38
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 4th day of September 1996, by and among AIR SOUTH AIRLINES, INC., a Delaware
corporation (the "Company") and ▇▇▇▇ ▇. GLLLCRIST, a United States citizen
residing in Singapore ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue up to an aggregate
of $4,000,000 of convertible debentures (the "Debentures") and Purchaser propose
to purchase $120,000 of Debentures pursuant to the Convertible Debenture
Purchase Agreement of even date herewith between the Company and Purchaser (the
"Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and certain other rights as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth in this Agreement and in the
Purchase Agreement, the parties mutually agree as follows:
GENERAL.
DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"EQUITY SECURITIES" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"FAMILY MEMBER" means a Holder's spouse, children, stepchildren and
grandchildren.
"FINAL PROSEPCTUS" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities.
"INITIAL OFFERING" means the first underwritten public offering of the
Company's securities.
"INITIATING HOLDERS" means the Holder or Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
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"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness by the SEC of
such registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares; and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferors rights under Article 2 of this Agreement
are not assigned. Outstanding Shares and warrants, rights and other securities
issued as a dividend or other distribution with respect to outstanding Shares,
or in exchange or replacement of outstanding Shares, shall be deemed to
represent a number of shares of Registrable Securities equal to the number of
shares of Common Stock into which such Shares, warrants, rights or other
securities are convertible as of the time such determination is made.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARES" shall mean shares of Company's Series E Preferred Stock,
assuming the conversion of the Convertible Debentures.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
RESTRICTIONS ON TRANSFER; REGISTRATION.
RESTRICTIONS ON TRANSFER.
Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities unless and until the transferee has agreed
in writing for the benefit of the Company to be bound by this Section 2.1
provided and to the extent such Section is then applicable and either:
there is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(A) such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (B) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act.
Notwithstanding the provisions of subparagraphs 2.l(a)(i)
and (ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder (A) which is a partnership to its partners
in accordance with partnership interests, (B) to the Holder's Family Member or
trust for the benefit of an individual Holder or (C) to an affiliate (as that
term is defined in Rule 144 (a)(l) of the Securities Act) of the Holder (an
"Affiliate"), provided the transferee will be subject to the terms of this
Section 2.1 to the same extent as if he were an original Holder hereunder.
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Each certificate representing Registrable Securities shall
(unless otherwise permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER
WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
DOES NOT REQUIRE REGISTRATION.
The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
DEMAND REGISTRATIONS AND FORM S-3 REGISTRATION
(A) The Purchaser shall have no right to demand that the
Company shall register all or any part of any Registrable Securities.
(B) If holders of shares of the Company's Series A Preferred
Stock or Series B Preferred Stock or when authorized and issued Series D
Preferred Stock (collectively, "A, B and D Preferred") shall exercise their
right to demand that the Company shall register any registrable securities, as
such term is defined in the investors rights agreements (the "Applicable
Agreements") relating to the A, B and D Preferred, then the Company shall also
allow the Purchaser to register Registrable Securities on a pro-rata basis to
the number of registrable securities being registered by holders of A, B and D
Preferred, based on the ratio of the total number of shares of Common Stock into
which the Series A, B and D Preferred, as the case may be, are convertible to
the total number of shares of Common Stock into which shares of the Series E
Preferred Stock are convertible. If Registrable Securities are so included in a
demand registration, the holders of such included securities shall be subject to
the terms and conditions, and obligations regarding such registration contained
in the Applicable Agreements.
(C) If the holders of A, B and D Preferred shall exercise their
right to a Form S-3 Registration under the Applicable Agreements then the
Company shall also allow the Purchaser to register Registrable Securities on
Form S-3 on a pro-rata basis to the number of registrable securities being
registered by holders of A, B and D Preferred, based on the ratio of the total
number of shares of Common Stock into which the A, B, and D Preferred, as the
case may be, are convertible to the number of shares of Common Stock into which
the Series E Preferred Stock is convertible If Registrable Securities are so
included in a Form S-3 registration, the holders of such included securities
shall be subject to the terms and conditions, and obligations regarding such
registration contained in the Applicable Agreements.
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(D) The Company has issued and outstanding a class of preferred
stock known as Series C Preferred Stock which is entitled to registration rights
which are substantially the same as those contained in subsections 2.2 (b) and
(c), above. Series C Preferred Stock avail themselves of such registration
rights than the pro-rata registration rights provided in subsections 2.2 (b) and
(c), above will be based on the ratio of the total number of shares of Common
Stock into which the A, B and D Preferred, as the case may be, are convertible
to the total number of shares of Common Stock into which the shares of Series C
Preferred Stock and Series E Preferred Stock are convertible.
PIGGYBACK REGISTRATIONS.
The Company shall notify all Holders in writing at least
thirty (30) days prior to the filing of any registration statement under the
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to the Initial Offering, employee benefit plans and corporate
reorganizations) and will afford each such Holder who would have been unable to
sell all of such Registrable Securities on an unrestricted basis pursuant to
Rule 144 promulgated under the Securities Act, during the four-week period
immediately preceding the effective date of the registration statement, an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein. Notwithstanding anything to the contrary, the
foregoing shall nor apply to any registrations occurring on or after the fifth
anniversary of the Initial Offering
(B) If the registration statement under which the Company gives
notice under this Section 2.3 is for an underwritten offering, the Company shall
so advise the Holders. In such event, the right of any such Holder to be
included in a registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of the Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to the Company; second, to the
holders of shares of the Company's Series A, Series B, Series C, Series D and
Series E Preferred Stock allocated pro rata on the basis of the total number of
shares of Common Stock into which the shares of Series A, Series B, Series C,
Series D and Series E Preferred Stock are convertible; third to the 7,500 shares
of Common Stock par value $0.001 per share held by a designee of NationsBank,
N.A.; and fourth to any), stockholder of the Company (other than a Holder) on a
pro rata basis. No such reduction shall reduce the securities being offered by
the Company for its own account to be included in the registration and
underwriting.
(C) The Company shall bear all fees and expenses incurred in
connection with any registration under this Section 2.3 ( excluding
underwriters' discounts and commissions, which shall be paid by the selling
Holders pro rata with respect to their included shares), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders (which counsel
shall also be counsel to the Company unless counsel to the Company has a
conflict of interest with
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respect to the representation of any selling Holder or the underwriters object
to the selling Holders representation by Company counsel).
FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.3, that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Article 2.
INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2 or 2.3:
To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, officer or director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 2.6(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished to
the Company expressly for use in connection with such registration by such
Holder, partner, officer, director, underwriter or controlling person of such
Holder.
To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities joint or several) to which the Company or
any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or
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controlling person of such other Holder may become subject under the Securities
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.5(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.6 exceed the proceeds from the offering received
by such Holder.
Promptly after receipt by an indemnified party under this
Section 2.5 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 2.6, deliver to the indemnifying party a written notice of
the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.6.
If the indemnification provided for in this Section 2.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided that, in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary
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prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
Final Prospectus, such indemnity agreement shall not inure to the benefit of any
person obligated under the Securities Act to furnish to the person asserting the
loss, liability, claim or damage a copy of the Final Prospectus if a copy of the
Final Prospectus was furnished to the indemnified party and was not furnished to
the person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act.
The obligations of the Company and Holders under this
Section 2.5 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Article 2 may be assigned by
a Holder to a transferee or assignee of Registrable Securities; provided,
however, that no such transferee or assignee shall be entitled to registration
rights under Sections 2.2 and 2.3, hereof unless such transferee or assignee:
(i) is a Holder; (ii) holds after such transfer or assignment at least one
hundred thousand (100,000) shares of Registrable Securities (as adjusted for
stock dividends, splits and combinations); or (iii) is a Family Member or a
subsidiary, parent, general partner, Affiliate, or limited partner of a Holder.
In each such case, the Company shall, within twenty (20) days after such
transfer, be furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned.
AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Article 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of more than fifty percent (50%)
of the Registrable Securities. Any amendment or waiver effected in accordance
with this Section 2.8 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Article 2, each Holder hereby agrees to be
bound by the provisions hereunder.
2.9 "MARKET STAND-OFF" AGREEMENT. If requested by the Company
and an underwriter of Common Stock (or other securities) of the Company, the
Purchaser shall not sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by such stockholder (other than those
included in the registration) for a period specified by the underwriters not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company and all holders of at least one
percent (1%) of the Company's voting securities enter into similar agreements.
The obligations described in this Section 2.9 shall not apply to a registration
relating solely to employee benefit plans on Form S-l or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
COVENANTS OF THE COMPANY.
BASIC FINANCIAL INFORMATION AND REPORTING.
The Company will maintain true books and records of account
in which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting
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45
principles consistently applied, and will set aside on its books all such proper
accruals and reserves as shall be required under generally accepted accounting
principles consistently applied.
As soon as practicable after the end of each fiscal year of
the Company, and in any event within 90 days thereafter or, after the Initial
Offering, simultaneously with the filing of the Company's annual report on Form
10-K with the SEC), the Company will furnish each Holder a consolidated balance
sheet of the Company, as at the end of such fiscal year, and a consolidated
statement of income and a consolidated statement of cash flows of the Company
for such year, all prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail. Such financial statements
shall be accompanied by a report and opinion thereon by independent public
accountants of national standing selected by the Company's Board of Directors.
As soon as practicable after the end of each fiscal quarter
of the Company, and in any event within thirty days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's reports on
Form 10-Q with the SEC), the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal quarter, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such quarter, prepared and presented in a manner consistent with
the financial statements described in Section 3.l(b). Such statement shall be
accompanied by a certificate signed by the Chairman of the Board and Chief
Financial Officer of the Company stating that the preparation and presentation
of such statements is consistent with the financial statements described in
Section 3.l(b).
So long as a Holder (with its Affiliates) shall own not
less than one hundred thousand (100,000) shares of Registrable Securities, the
Company will furnish such Holder a consolidated balance sheet of the Company, as
at the end of each calendar month, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such month, prepared and
presented in a manner consistent with the financial statements described in
Section 3.l(b). Such statements shall be furnished as soon as practicable after
the end of each month and in any event within ten days thereafter and shall be
accompanied by a certificate signed by the Chairman of the Board and Chief
Financial Officer of the Company stating that the preparation and presentation
of such statements is consistent with the financial statements described in
Section 3.l(b). Prior to January 1st of each year, the Company shall furnish
such Holders an annual budget for the Company for the following twelve month
period, broken down by month. The Company's obligations under this Section
3.l(d) shall terminate upon the Initial Offering.
3.2 Inspection Rights. So long as a Holder (with its
affiliates) shall own not less than one hundred thousand (100,000) shares of
Registrable Securities, each such Holder shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, all at such reasonable times and as often as may
be reasonably requested; provided, however, that the Company shall not be
obligated under this Section 3.2 with respect to a competitor of the Company or
with respect to information which the Board of Directors determines in good
faith is confidential and should not , therefore be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Holder agrees to use, and
to use its best efforts to insure that its authorized representative use, the
same degree of care as such Holder uses to protect its own confidential
information to keep confidential any information furnished to it which the
company identifies as being confidential or proprietary (so long as such
information is not in the public
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domain), except that such Holder may disclose such proprietary or confidential
information to any partner, subsidiary, Affiliate or parent of such Holder for
the purpose of evaluating its investment in the Company as long as such partner,
subsidiary or parent is advised of the confidentiality provisions of this
Section 3.3
3.4 RESERVATION OF SERIES E PREFERRED STOCK. Upon filing by the
Company of the Certificate of Designation (as defined in the Purchase Agreement)
with the Secretary of State of the State of Delaware and at all times
thereafter, the Company will reserve and keep available, solely for issuance and
delivery upon the conversion of the Convertible Debentures, all Series E
Preferred Stock issuable from time to time upon such conversion.
3.5 RESERVATION OF COMMON STOCK. Upon filing by the Company of
the Certificate of Designation (as defined in the Purchase Agreement) with the
Secretary of State of the State of Delaware and at all times thereafter, the
Company will reserve and keep available solely for issuance and delivery upon
the conversion of the Series E Preferred Stock issuable upon conversion of the
Convertible Debentures, all Common Stock issuable from time to time upon such
conversion.
RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Holder shall have a right of
first refusal to purchase its pro rata share of all Equity Securities that the
Company may, from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 4.6 hereof. Each
Holder's pro rata share is equal to the ratio of the number of shares of Common
Stock, assuming full conversion of all shares of Registrable Securities owned by
such Holder, held by such Holder immediately prior to the issuance of such
Equity Securities to the total number of shares of the Company's outstanding
Common Stock (including all shares of Common Stock issuable upon conversion of
the Registrable Securities).
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Holder written notice of its intention,
describing the Equity Securities, the price, and the terms and conditions upon
which the Company proposes to issue the same. Each Holder shall have fifteen
(15) days from the receipt of such notice to agree to purchase its pro rata
share of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Holder who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the
Holders fail to exercise in full the rights of first refusal, the Company shall
have ninety (90) days thereafter to sell the Equity Securities in respect of
which the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities, without first offering
such securities to the Holders in the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Article IV shall terminate upon the closing of the
Initial Offering.
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4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal
of each Holder under this Article IV may be transferred to any subsidiary or
parent of such Holder, to any successor in interest to all or substantially all
the assets of such Holder, or to an assignee or transferee who acquires
Registrable Securities.
4.6 EXCLUDED SECURITIES. The rights of first refusal established by
this Article IV shall have no application to any of the following Equity
Securities:
(A) shares of Common Stock (and/or options, warrants or other
common Stock purchase rights issued pursuant to such options, warrants or other
rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company, pursuant to stock purchase or stock
option plans or other compensation arrangements that are approved by the Board
of Directors of the Company;
(B) stock issued pursuant to any rights, options and warrants
granted after the date of this Agreement, provided that the rights of first
refusal established by this Article IV applied with respect to the initial sale
or grant by the Company of such rights, options or warrants;
(C) Any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination;
(D) any Equity Securities that are issued by the Company as part
of the Initial Offering referred to in Section 4.4 hereof;
(E) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
(F) shares of Common Stock issued upon conversion of the Company's
Preferred Stock; and
(G) shares of Series E Preferred Stock issued upon conversion of
the Convertible Debentures; and
(H) any Equity Securities issued pursuant to any equipment leasing
arrangement or commercial bank financing approved by the Company's Board of
Directors.
4.7 OTHER RIGHTS OF FIRST REFUSAL. The Company has granted to the
Holders of its outstanding Series A and Series B Preferred Stock rights of first
refusal similar to the rights of first refusal granted by this Article IV. The
Company has obtained an agreement between the Company, and the holders of Series
A, Series B and Series C Preferred Stock that the Rights of the Purchaser shall
rank pari passu with each other based upon the relative number of shares of
Common Stock into which the Series A, Series B and Series C are convertible.
MISCELLANEOUS.
5.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of New York.
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5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instruments delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
5.4 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
5.5 AMENDMENT AND WAIVER.
Except as otherwise expressly provided, this Agreement may be amended or
modified only upon the written consent of the Company and the holders of more
than fifty percent (50%) of the Registrable Securities.
Except as otherwise expressly provided, the obligations of the Company
and the rights of the Holders under this Agreement may be waived only with the
written consent of the holders of more than fifty percent (50%) of the
Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under this Agreement
or any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
5.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) upon receipt alter having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iii) upon receipt
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth below or at such
other address as such party may designate by ten (10)days advance written
notice to the other party hereto in the manner provided above.
IF TO THE COMPANY: WITH A COPY TO:
Air South Airlines, Inc. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: President; ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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IF TO THE PURCHASER
Captain ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ #▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ II
Singapore 1545
5.8 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
5.9 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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50
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
AIR SOUTH AIRLINES, INC. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By:
--------------------- -----------------------
Vice President ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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51
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR IN THE
OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
EXHIBIT A
FORM OF CONVERTIBLE DEBENTURE
AIR SOUTH AIRLINES, INC.
6% CONVERTIBLE DEBENTURE DUE AUGUST 16, 1999
No. CD-1996-5 October __, 1996
$120,000
FOR VALUE RECEIVED, the undersigned, AIR SOUTH AIRLINES, INC. (the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, or registered assigns, the
principal sum of One Hundred Twenty Thousand and 00/100 DOLLARS ($120,000)
(together with all additional sums of deferred interest, if any, added to the
principal balance of this Convertible Debenture as provided below) on August 16,
1999, (the "Maturity Date") with interest (computed on the basis of a 360-day
year of twelve 30-day months)(a) on the unpaid balance thereof at the rate of
6% per annum from the date hereof, payable quarterly on the last day of March,
June, September and December in each year, commencing with the March 31, June
30, September 30 or December 31 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) on any overdue
payment of principal or any overdue payment of interest accruing after the
Maturity Date or the acceleration hereof, payable quarterly (or, at the option
of the registered holder hereof, on demand), at a rate per annum from time to
time equal to the greater of (i) 8% or (ii) 2.0% over the rate of interest
publicly announced by ▇▇▇▇▇▇ Guaranty Trust Company of New York from time to
time in New York City as its Prime Rate; but in no event shall the rate of
interest exceed the maximum rate of nonusurious interest permitted by law to be
paid by the Company (and to the extent permitted by law, interest on any overdue
principal or interest thereon).
This convertible debenture (the "Convertible Debenture") is one of a
series of up to $3,000,000 of convertible debentures which may be issued by the
Company on or before October 16, 1996 and is issued pursuant to a Convertible
Debenture Purchase Agreement, dated as of September _, 1996 (the "Agreement"),
between the Company and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and is entitled :o the benefits
thereof. Capitalized terms used herein and not otherwise defined shall have the
meaning ascribed thereto in the Agreement.
Interest accruing on this Convertible Debenture and remaining unpaid on
the last day of March, June, September and December in each year, commencing
with the March 31, June 30, September 30 or December 31 next succeeding the date
hereof and extending through the Maturity Date, shall be added to the
outstanding principal balance of this Convertible Debenture with effect as of
such date and any interest thereafter shall be due and payable in cash according
with the terms hereof.
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52
Payments of principal of and interest on this Convertible Debenture are to
be made to ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ #▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ II, Singapore 1545,
or at such other place as the holder hereof shall designate to the Company in
writing, in lawfUl money of the United States of America. All payments made
hereunder, whether at maturity or as a result of acceleration, shall be
allocated first to costs and expenses of the holder resulting from collection
efforts with respect to this Convertible Debenture, second to accrued but unpaid
interest, and third to principal.
This Convertible Debenture is a registered Convertible Debenture and, as
provided in the Agreement, and subject to compliance with federal and any
applicable state securities laws upon surrender of this Convertible Debenture
for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Convertible Debenture for a
like principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Convertible Debenture is registered as
the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
This Convertible Debenture may be prepaid, in whole or in part from time
to time, without penalty.
The outstanding principal balance and accrued interest on this Convertible
Debenture may be converted in whole or in part at any time or from time to time
at the option of the holder or may automatically be converted into shares of
Series E Preferred Stock, all as set forth in the Agreement.
If an Event of Default, as defined in the Agreement, shall occur and be
continuing, the principal of this Convertible Debenture may be declared or
otherwise become due and payable in the manner and with the effect provided in
the Agreement.
THIS CONVERTIBLE DEBENTURE iS INTENDED TO BE PERFORMED IN THE STATE OF
DELAWARE AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW
OF SUCH STATE.
IN WITNESS WHEREOF, the Company has issued this Convertible Debenture as of
the 16th day of October, 1996.
AIR SOUTH AIRLINES, INC.
By:
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
53
FORM OF
NOTICE OF CONVERSION
To be executed if holder desires to convert
this Convertible Debenture)
TO: AIR SOUTH AIRLINES, INC.
The undersigned hereby irrevocably elects to convert the principal
balance, or portion thereof specified below, of this Convertible Debenture into
the number of shares of Series E Preferred Stock of the Company determined in
accordance with and under the Agreement and requests that certificates for the
shares of Series E Preferred Stock to be issued upon such conversion be issued
in the name of:
------------------------------------
(Please Print Name)
Address (print):
____________________________________
____________________________________
____________________________________
Social Security Number
____________________________________
(Please print principal balance of
this Convertible Debenture being
converted)
------------------------------------
Signature
(Signature must conform in all respects to name of holder as
specified on the face of this Convertible Debenture.)
54
EXHIBIT B
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES E PREFERRED STOCK
OF
AIR SOUTH AIRLINES, INC.
a corporation organized and existing under the General Corporation Law of the
State of Delaware.
DOES HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of said corporation, and pursuant to the provisions
of Section 151 of Title 8 of the Delaware Code of 1953, said Board of Directors
has established a class of preferred stock of this Corporation designated
Series E Preferred Stock ("Series E Preferred") consisting of __________________
million (____________) shares* of such Series E Preferred. Such Series E
Preferred was established with the powers, designations, preferences and
relative participating optional or other rights contained in EXHIBIT I attached
hereto.
IN WITNESS WHEREOF, said Air South Airlines, Inc. has caused this
Certificate to be signed by ______________________, its President and Chief
Executive Officer, this ___________ day of _____________________,1997.
By:___________________________________
*This is to be set based on the amount of Convertible Debentures which will be
Convertible into Series E Preferred Stock.
55
EXHIBIT I
AIR SOUTH AIRLINES, INC. SERIES E PREFERRED STOCK
SECTION 1. CLASS OF PREFERRED STOCK. The Air South Airlines Series E
Preferred Stack shall have such voting powers, and such other powers,
designations, preferences and other special rights set out below.
SECTION 2. DIVIDENDS. The holders of outstanding shares of Series E
Preferred stock shall be entitled to receive dividends at the rate of two cents
($0.02) per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) per annum, when, if and as declared by the Board of
Directors, out of funds legally available therefor. The right to such dividends
on the Series E Preferred Stock shall not be cumulative. No cash dividend shall
be paid on the Common Stock in any year unless an equal dividend is paid with
respect to all outstanding shares of Series E Preferred Stock in an amount for
each such share to a holder of the number of shares of Common Stock into which
such share of Series E Preferred Stock could then be converted.
SECTION 3. LIQUIDATION RIGHTS.
a. In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of the Series E
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock, the amount of twenty-five cents ($0.25) per share
(the "Original Issue Price") (as adjusted for any stock dividends, combinations
or splits with respect to such shares) plus all accrued or declared but unpaid
dividends on each share of Series E Preferred Stock held by such holders (the
"Preferential Amount"). The right of the holders of Shares of Series E Preferred
Stock to a preference in such a liquidation dissolution or winding up shall in
all respects be pari passu with the rights of the holders of shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. If upon
the occurrence of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, the assets and funds to be distributed among
the holders of Series E Preferred Stock shall be insufficient to permit the
payment to such holders of the full Preferential Amount, the entire assets and
funds of the Corporation legally available for distribution shall be distributed
ratably among the holders of the Series E Preferred Stock in proportion to the
Preferential Amount each such holder is otherwise entitled to receive.
b. After payment to the holders of the Series E Preferred
Stock of the Preferential Amount, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
ratably among the holders of Series E Preferred Stock and the Common Stock in
proportion to the shares of Series E Preferred Stock and Common Stock then held
by such holders.
c. For purposes of this Section 3, (i) a merger or
consolidation of the Corporation into or with another corporation (other than
with a wholly owned subsidiary of this Corporation), or any other corporate
reorganization in which the stockholders of the Corporation
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will not own a majority of the outstanding shares of the surviving entity of
such merger, consolidation or reorganization, or (ii) a sale, transfer or other
disposition of all or substantially all of the assets of the Corporation, shall
be deemed to be a liquidation, dissolution or winding up of the Corporation.
SECTION 4. CONVERSION.
A. RIGHT TO CONVERT. Each share of Series E Preferred Stock
shall initially be convertible, at the option of the holder, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series E Preferred Stock, into one (1) fully paid and
nonassessable shares of Common Stock (subject to adjustment as set forth
herein). The number of shares of Common Stock into which one share of Series E
Preferred Stock may be converted hereinafter is referred to as the "Series E
Conversion Rate". The price at which shares of Common Stock shall be deliverable
upon conversion of shares of Series E Preferred shall initially be twenty-five
cents ($0.25) per share of Common Stock (the "Series E Conversion Price"). Such
initial Series E Conversion Price shall be subject to adjustment from time to
time, as hereinafter provided.
B. AUTOMATIC CONVERSION. Each share of Series E Preferred
Stock shall automatically be converted into shares of Common Stock at the then
effective Series E Conversion Rate upon the earlier of (i) the closing of a
firmly underwritten public offering of the Corporation's Common Stock on a Form
S-l Registration Statement at an aggregate public offering price (after
underwriting discounts and commission) of at least $10,000,000 and a per share
price equal to or greater than fifty cents ($0.50) (as appropriately adjusted
for stock splits and the like) (an "Initial Public Offering"); (ii) the vote or
written consent of the holders of at least 50% of the then outstanding shares of
Series E Preferred Stock; or (iii) the date as of which less than 20% of the
maximum number of shares of Series E Preferred Stock issued by the Company (or
issuable upon conversion or exchange of securities of the Company) prior to such
date remain outstanding (the "Automatic Conversion Event").
C. MECHANICS OF CONVERSION. Before any holder of Series E
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares, duly endorsed, at the office of the Corporation or of any transfer agent
for the Series E Preferred Stock, or notify the Corporation or its transfer
agent that such Series E Preferred Stock certificates have been lost, stolen or
destroyed and execute an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection with such
certificates, and shall give written notice to the Corporation at such office
that such holder elects to convert the same and shall state in the notice the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall then, as soon as is
practicable, issue and deliver at such office to such holder of Series E
Preferred Stock, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of surrender of the shares of Series E
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
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all purposes as the record holder or holders of such shares of Common Stock on
such date; provided, however, that in the event of automatic conversion pursuant
to Section 4(b), such conversion shall be deemed to have been made upon the
occurrence of the Automatic Conversion Event triggering such conversion without
any further action by the holders of shares of Series E Preferred Stock,
although the Corporation shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such automatic conversion unless the
certificates evidencing such shares of Series E Preferred Stock are delivered to
the Corporation or its transfer agent as provided above, or the holder notifies
the Corporation or its transfer agent that such Series E Preferred Stock
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. If the conversion is in
connection with an underwritten offering of securities pursuant to the
Securities Act, the conversion may, at the option of any holder tendering shares
of Series E Preferred Stock for conversion, be conditioned upon the closing with
the underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock upon conversion of
Series E Preferred Stock shall not be deemed to have converted such Series E
Preferred Stock until immediately prior to the closing of such sale of
securities.
D. ADJUSTMENTS TO THE SERIES E CONVERSION PRICE FOR CERTAIN
DILUTING ISSUES.
(I) SPECIAL DEFINITIONS. For purposes of this Section
4(d), the following definitions apply:
(1) "Option " shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).
(2) "Original Issue Date " shall mean the date on
which a share of Series E Preferred Stock was first issued or securities
convertible or exchangeable for Series E Preferred Stock were first issued.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Section (4)(d)(iii),
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series E
Preferred Stock;
(B) to officers, directors or employees
of, or consultants to, the Corporation pursuant to stock option or stock
purchase plans or agreements on terms approved by the Board of Directors;
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(C) as a dividend or distribution on
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock;
(D) for which adjustment of the Series E
Conversion Price is made pursuant to Section 4(e) or for which adjustment of the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price is made pursuant to the counterpart of Section 4(e)
in the charter documents of the Company;
(E) upon the closing of an Initial Public
Offering;
(F) upon conversion of up to an aggregate
of $4.0 million in convertible debentures which are convertible into Series D
Preferred Stock and the conversion of $____ in Convertible Debentures which are
convertible into Series E Preferred Stock; or
(G) in connection with an acquisition of
another company on terms approved by the Board of Directors.
(5) "Initial Public Offering" shall mean the
first underwritten public offering of the Corporation's equity securities.
(II) NO ADJUSTMENT OF THE SERIES E CONVERSION
PRICE. Any provisions herein to the contrary notwithstanding, no adjustment in
the Series E Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share (determined
pursuant to Section 4(d)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Series E
Conversion Price in effect on the date of, and immediately prior to, such issue.
(III) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK. In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
such. a record date for the determination of holders of any class of securities
then entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein designed to protect against
dilution) of Common Stock issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been futed, as of the close of business on such record date, provided
that in any such case in which Additional Shares of Common Stock are deemed to
be issued:
(1) no further adjustment in the Series E
Conversion Price shall be made upon the upon the exercise of such Options or
conversion or exchange of such Convertible Securities to the extent that
adjustment had been previously made pursuant to this Section 4(d);
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(2) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
decrease or increase in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series E Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities provided, however, that
no such adjustment of the Series E Conversion Price shall affect Common Stock
previously issued upon conversion of the Series E Preferred);
(3) upon the expiration of any such Options
or any rights of conversion or exchange under such Conversion Securities which
shall not have been exercised, the Series E Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities and the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options, and
the consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 4(d) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clause (2)
or (3) above shall have the effect of increasing the Series E Conversion Price
to an amount which exceeds the lower of (a) the Series E Conversion Price on the
original adjustment date, or (b) the Series E Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such adjustment date;
(5) in the case of any Options which
expire by their terms not more than 30 days after the date of issue thereof, no
adjustment of the Series E Conversion Price
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shall be made until the expiration or exercise of all such Options whereupon
such adjustment shall be made in the same manner provided in clause (3) above.
(IV) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event this Corporation, at any time after the
Original Issue Date, shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 4
without consideration or for a consideration per share less than the Series E
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, the Series E Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Series E Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Series E
Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued. For the purpose of the above calculation, the number of
shares of Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all shares of Series E Preferred and
all Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding Options had been fully
exercised immediately prior to such issuance (and the resulting securities fully
converted into shares of Common Stock, if so convertible) as of such date, but
not including in such calculation any additional shares of Common Stock issuable
with respect to shares of Series E Preferred, Convertible Securities, or
outstanding Options, solely as a result of the adjustment of the Series E
Conversion Price (or other conversion ratio) resulting from the issuance of the
Additional Shares of Common Stock causing the adjustment in question.
(V) DETERMINATION OF CONSIDERATION. For purpose of this Section
4(d), the consideration received by the Corporation for the issuance of any
Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such consideration shall:
(A) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as if consists of property other than
cash, be computed as the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other stock or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clause (A) and (B) above, as
determined in good faith by the Board of Directors.
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(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(d)(iii), relating
to Options and Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution) payable
to the Corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of Common Stock
(as set forth in the instruments relating hereto, without regard to any
provision contained therein designed to protect against the dilution), issuable
upon the exercise of such Options or conversion or exchange of such Convertible
Securities.
E. ADJUSTMENT TO SERIES E CONVERSION PRICE FOR STOCK DIVIDENDS
AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that this
Corporation at any time or from time to time after the Original Issue Date shall
declare or pay, without consideration, any dividend on the Common Stock payable
in Common Stock or in any right to acquire Common Stock for no consideration, or
shall effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by stock split, reclassification or
otherwise than by payment of a dividend in Common Stock or in any right to
acquire Common Stock), or in the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, then the Series E Conversion Price in
effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
F. ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon conversion of Series E Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of shares, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 4(e) above or a merger or other reorganization referred to in Section 3
(c) above), the Series E Conversion Price than in affect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series E Preferred shall be convertible
into, in lieu of the number of shares of. Common Stock which the holders would
otherwise have been entitled to receive, a number of shares. of such other class
or classes of stock
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equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of the Series E Preferred Stock
immediately before that change.
G. OTHER DISTRIBUTIONS. In the event the Corporation shall at
anytime or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities (including evidences of indebtedness)
of the Corporation other than Common Stock, then in each such event provision
shall be made so that the holders of Series E Preferred Stock shall receive,
upon the conversion thereof, the securities of the Corporation which they would
have received had their Series E Preferred Stock been converted into Common
Stock on the date of such event.
H. NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate to protect the holders of the Series E Preferred Stock against
impairment of the rights afforded them by this Section A.
I. CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to Section 4(d) of the Series E Conversion
Rate or in the other securities or property (including cash) deliverable upon
the conversion of the shares of Series E Preferred Stock, the Corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms thereof, and cause independent certified public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of Series E Preferred Stock a certificate setting
forth such adjustment or readjusrment and showing in detail the facts upon which
such adjustment or readjustment is based.
J. NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive shares of
Common Stock, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, the
Corporation shall cause to be mailed by first class mail to each holder of
Series E Preferred Stock, at least twenty (20) days prior to the applicable
record date, a notice specifying the date on which any such record was to be
taken for the purpose of such dividend, distribution, security or right, and the
amount and character of such dividend, distribution, security or right.
K. ISSUE TAXES. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue of delivery of
shares of Common Stock on conversion of shares of Series E Preferred Stock
pursuant hereto.
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L. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall take such corporate action as may be necessary, in the opinion
of its counsel, to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient to effect the conversion of all
the outstanding shares of Series E Preferred Stock into shares of Common Stock
at such time as the Corporation elects to effect such conversion, including,
without limitation, using its best efforts to obtain the requisite stockholder
approval of any necessary amendment to its Certificate of Incorporation.
M. FRACTIONAL SHARES. No fractional share shall be issued upon
the conversion of any share of Series E Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series E Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
should result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to such fraction
multiplied by the Series E Conversion Price then in effect.
N. NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series E Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
Section 5. AMENDMENT. Any term relating to the Series E Preferred
Stock may be amended only with the vote or written consent of holders of at
least a majority of all shares of Series E Preferred Stock then outstanding. Any
such amendment shall be binding upon the Corporation and any holder of Series E
Preferred Stock.
Section 6. VOTING RIGHTS. Except as otherwise provided herein or as
required by law, the holders of Series E Preferred Stock shall be entitled to
notice of any stockholders' meeting and to vote together with the holders of
Common Stock as single class of capital stock upon the election of directors and
upon any other matter submitted to the stockholders for a vote, On the following
basis:
A. Holders of Common Stock shall have one (1) vote per share;
and
B. Holders of Series E Preferred Stock shall have the number
of votes per share as is equal to the number of full shares of Common Stock into
which each such share of Series E Preferred Stock held by such holder is
convertible at the record date for the determination of the stockholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent to stockholders is solicited.
C. In addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least a majority of the
outstanding shares of Series E Preferred Stock shall be necessary:
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(I) for any amendment, alteration, or repeal of any
provision of the Certificate of Incorporation (including any Certificates of
Designation of Preferred Stock) or Bylaws of the Corporation (including any
filing of a Certificate of Designation);
(II) to alter or change the rights, preferences or
priviledges of the Series E Preferred Stock;
(III) to create any new series of Preferred Stock having
preferences over the Series E Preferred Stock;
(IV) to increase the authorized number of shares of
Series E Preferred Stock;
(V) for any action that results in any liquidation,
acquistion, merger or sale of the Corporation or all or substantially all or its
assets;
(VI) for any action that results in any change in the
principal business of the Corporation; or
(VII) for any action that results in the repurchase of
equity securities of the Corporation (other than the repurchase of stock from
employees of the Corporation at original cost or pursuant to a Board approved
incentive stock option plan).
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