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EXHIBIT 4.15
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
between
AIR SOUTH AIRLINES, INC.
and
FIL-FIBER MANUFACTURING, INC. LTD
Dated as of September 30, 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
SECTION 4.19. SECURITIES ACT............................................................... 13
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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 OBLIGATION 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
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SECTION 9.04. OTHER REMEDIES............................................................... 28
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 (Series D Preferred Stock)
EXHIBIT F Form of Opinion of General Counsel (Convertible Debentures)
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
September 30, 1996, between AIR SOUTH AIRLINES, INC., a Delaware corporation
(the "Company"), and FIL-FIBER MANUFACTURING, INC., LTD., a company of British
Virgin Islands registry (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
$400,000, 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 6% convertible debentures authorized to be issued by the
Company's Board of Directors (the "Board").
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.
"AMENDMENT" shall have the meaning ascribed thereto in Section 8.16.
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"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, per 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 recitals.
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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,
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lease, dividend or other obligation of another, including, without
limitation, any such 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 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 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
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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.
"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 D
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, per 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
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Company or any warrants, rights or options to purchase or acquire any
shares of capital stock.
"SECURITIES" shall have the meaning ascribed thereto in Section 4.19.
"SECURITIES ACT" shall have the meaning ascribed thereto in Section
4.19.
"SERIES D PREFERRED STOCK" shall mean shares of Series D 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 have 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 $400,000 at 100% of such aggregate principal
amount.
SECTION 2.02. CLOSING. The closing shall take place at the offices of
▇▇▇▇▇▇, Davidoff, Wolfe, ▇▇▇▇▇▇▇▇▇ & Kass, P.C., ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ at such date and time, 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 a Convertible Debenture, registered in the name of
such Purchaser, evidencing the principal amount of the Convertible Debenture
to be purchased by the Purchaser at the Closing, and in the denomination or
denominations specified in writing
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by the Purchaser. As payment in full for the Convertible Debenture being
purchased by the Purchaser under this Agreement, on the Closing Date the
Purchaser shall transfer such sum to the account of the Company by wire
transfer.
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 D Preferred Stock. The
Convertible Debenture will automatically be converted into shares of Series D
Preferred Stock upon the closing of a firmly underwritten public offering of
Common Stock on a Form S-1 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 D 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 D 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 D 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
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Event or 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.
(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 Debenture and, subject to
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized
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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 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, per 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 initially 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 Company has sold $500,000 of 6%
convertible debentures due August 16, 1996; these convertible Debentures are
part of up to an additional $4,000,000 of convertible debentures due August 16,
1999 authorized to be issued by the Board; such additional convertible
debentures shall be convertible into 2,000,000 shares of Series E Preferred
Stock which, when authorized and issued will in turn be convertible into
2,000,000 shares 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
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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, 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 June 30, 1996
(the "Unaudited Balance Sheet"), and the related statements of income,
stockholders' equity and cash flows of the Company for the year ended unaudited
June 30, 1996. 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 June 30, 1996, and the
results of operations and cash flows of the Company for the year ended June 30,
1996. 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)
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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.
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.
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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 (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
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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 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.
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
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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.
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.
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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
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. The
current Board consists of seven directors. The current Board members are ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇'▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇.
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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 has not employed any broker or finder in connection with the
transactions contemplated by this Agreement; and
(c) 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 of such date.
(b) Performance. The Company 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 Company shall have executed and
delivered to the Purchaser an Officer's Certificate to the effects set
forth in (a) and (b) above.
(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
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incumbency and signature of the officer signing the certificate
referred to in this subparagraph 6.01 (g) (ii); and
(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.
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(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.
(c) 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.
(d) 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;
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(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 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
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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) 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.
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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.
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.
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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.
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
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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 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
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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 (iii) 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.
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 D
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
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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.
SECTION 8.17. BOARD NOMINEES. On the Closing Date, the Board will adopt a
resolution fixing the number of members of the Board at seven. Subject to the
right of the holders of Preferred Stock, the Company will only nominate for
election as directors of the Company persons approved in advance and in writing
by the Purchaser.
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):
(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 or of 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
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(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
(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,
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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, protect 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, 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, protect or other
notice of any kind, all of which are hereby waived by the Company.
SECTION 9.02. RECISSION OF ACCELERATION. At any time after any or all of
the Convertible Debentures shall have been declared immediately due and payable
pursuant to 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 recission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION. Whenever any
Convertible Debenture shall be declared immediately due and payable pursuant to
Section 9.01 or any such declaration shall be rescinded and annulled pursuant
to Section 9.02, the Company shall forthwith give written notice thereof to the
holder of each Convertible Debenture at the time outstanding.
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SECTION 9.04. 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 tie, on the date
due) (i) in the case of the Purchaser to the account or accounts as specified
by the Purchaser in writing and (ii) in the case of any other holder of a
Convertible Debenture pursuant to the payments instructions provided by such
holder. 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.
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
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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 Required Holder(s)
except that, without the written consent of the holder or holders of all
Convertible Debentures at the time outstanding, no amendment to this Agreement
shall change the maturity of any Convertible Debenture, or change the principal
of, or the rate or time of payment of interest on any Convertible Debenture, or
change the proportion of the principal amount of the Convertible Debentures
required with respect to any consent, amendment, waiver or declaration. Each
holder of any Convertible Debenture at the time or thereafter outstanding shall
be bound by any consent authorized by this Section 10.03, whether or not such
Convertible Debentures issued thereafter may bear a notation referring to any
such consent. No course of dealing between the Company and the holder of any
Convertible Debenture nor any delay in exercising any rights hereunder or under
any Convertible Debenture shall operate as a waiver of any rights of any holder
of such Convertible Debenture.
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. Subject to the
preceding sentence, the holder of any Convertible Debenture may from time to
time grant participations in such Convertible Debenture to any Person on such
terms and conditions as may be determined by such holder in its sole and
absolute discretion.
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, and may be relied upon by any Transferee, regardless
of any investigation made at any time by or on behalf of you or any Transferee.
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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 and inure to the benefit of the respective permitted
successors and assigns of the parties hereto whether so expressed or not.
Without limiting the generality of the foregoing but subject to the proviso
contained therein, all representations, covenants and agreements benefiting the
Purchaser shall inure to the benefit of any Transferee.
SECTION 10.09. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (a) upon receipt at the address specified below after having been sent
by (i) certified or registered mail, return receipt requested, postage prepaid;
or (b) upon receipt at the address specified below after deposit by 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
Fil-Fiber Manufacturing Inc., Ltd.
c/o A&E Group
▇▇▇▇▇▇ ▇▇▇▇ Plaza, 2H
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy (which shall not constitute notice) to
▇▇▇▇▇▇, Davidoff, Wolfe, Mandelker & Kass, P.C.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esquire
(b) if to the Company, to
Air South Airlines, Inc.
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▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
with a copy (which shall not constitute notice) to
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
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.
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.
AIR SOUTH AIRLINES, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive
Officer
FIL-FIBER MANUFACTURING, INC. LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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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 1996-4 September ____, 1996
$400,000
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 Fil-Fiber Manufacturing, Inc. Ltd, or
registered assigns, the principal sum of FOUR HUNDRED THOUSAND DOLLARS
(together with all additional sums of deferred interest, if any, added to the
principal balance of this Convertible Debenture as provided below) on September
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).
39
This convertible debenture (the "Convertible Debenture") is issued
pursuant to a Convertible Debenture Purchase Agreement, dated of even date
herewith (the "Agreement"), between the Company and Fil-Fiber Manufacturing,
Inc. Ltd. and is entitled to 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, 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.
Payments of principal of and interest on this Convertible Debenture are to
be made at Fil-Fiber Manufacturing, Inc. Ltd., c/o A & E Group, ▇▇▇▇▇▇ Hill
Plaza, 2H, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other place
as the holder thereof 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 D Preferred Stock, all as set forth in the Agreement.
40
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 _____ day of September, 1996.
AIR SOUTH AIRLINES, INC.
SEAL
Attest:
By:
------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
Chairman of the Board, President
Chief Executive Officer
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Secretary
3
41
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.)
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42
EXHIBIT B
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 D Preferred Stock ("Series D Preferred") consisting of
Eighteen million Four Hundred Thousand (18,400,000) shares of such Series D
Preferred. Such Series D 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 Chairman of the Board,
President and Chief Executive Officer, this _____ day of _______________, 1997.
By:
---------------------------
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EXHIBIT I
AIR SOUTH AIRLINES, INC. SERIES D PREFERRED STOCK
Section 1. CLASS OF PREFERRED STOCK. The Air South Airlines Series D
Preferred Stock 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 D
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 D 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 D 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 D 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 D
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 D Preferred Stock held by such holders (the
"Preferential Amount"). The right of the holders of Shares of Series D
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 the Series D 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 D 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 D Preferred Stock and the Common Stock in
proportion to the shares of Series D Preferred Stock and Common Stock then held
by such holders.
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c. For purposes of this Section 3, (i) a merger or consolidation
of the Corporation into or with another corporation (other than a wholly owned
subsidiary of this Corporation), or any other corporate reorganization in which
the stockholders of the Corporation 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 D 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 D 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 D
Preferred Stock may be converted hereinafter is referred to as the "Series D
Conversion Rate". The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series D Preferred shall initially be
twenty-five cents ($0.25) per share of Common Stock (the "Series D Conversion
Price"). Such initial Series D Conversion Price shall be subject to adjustment
from time to time, as hereinafter provided.
b. Automatic Conversion. Each share of Series D Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Series D 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-1 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 D Preferred Stock; or (iii) the date as of which less than 20% of the
maximum number of shares of Series D 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 D
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 D Preferred Stock, or notify the Corporation or its
transfer agent that such Series D 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
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Series D 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
D 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
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 D 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 D 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 D 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 D 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 D Preferred Stock shall not be deemed to have converted such Series D
Preferred Stock until immediately prior to the closing of such sale of
securities.
d. Adjustments to the Series D 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 D Preferred Stock was first issued or securities convertible
or exchangeable for Series D 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:
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46
(A) upon conversion of shares of Series D
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;
(C) as a dividend or distribution on Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock;
(D) for which adjustment of the Series D
Conversion Price is made pursuant to Section 4(e) or for which adjustment of
the Series A Conversion Price, Series B Conversion Price or Series C 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 notes originally issued to ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ Group
and its affiliates; or
(G) in connection with an acquisition of another
company on terms approved by the Board of Directors.
(ii) No Adjustment of the Series D Conversion Price. Any
provisions herein to the contrary notwithstanding, no adjustment in the Series
D 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 D 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
fix 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, 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 fixed, 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:
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(1) no further adjustment in the Series D Conversion
Price shall be made upon the upon the exercise of such Options or conversion or
exchange of such Convertible Securities to the extend that adjustment had been
previously made pursuant to this Section 4(d);
(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 D 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 D Conversion Price shall affect Common Stock
previously issued upon conversion of the Series D 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 D 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 D Conversion Price to an
amount which exceeds the lower of (a) the Series D Conversion Price on the
original adjustment date, or (b) the Series D
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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 issuance thereof, no adjustment
of the Series D Conversion Price 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 D Conversion Price in effect on the date of and immediately prior to
such issue, then and in such event, the Series D Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series D 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 D Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be 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 D Preferred and
all Convertible Securities had been 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 D Preferred, Convertible Securities, or outstanding Options,
solely as a result of the adjustment of the Series D 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;
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(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.
(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 D 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 D
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.
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f. Adjustments for Reclassification and Reorganization. If
the Common Stock issuable upon conversion of Series D 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 D Conversion Price than in affect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series D 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 equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the Series
D 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 D Preferred Stock shall receive,
upon the conversion thereof, the securities of the Corporation which they would
have received had their Series D 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 D 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 D
Conversion Rate or in the other securities or property (including cash)
deliverable upon the conversion of the shares of Series D 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 D Preferred Stock
a certificate setting forth such adjustment or readjustment 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,
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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 D 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 D Preferred Stock
pursuant hereto.
l. Reservation of Stock Issuable Upon Conversion. T0he
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 D 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 D Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more
than one share of Series D 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 D Conversion Price then in effect.
n. Notices. Any notice required by the provisions of this
Section C to be given to the holders of shares of Series D 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 D Preferred Stock
may be amended only with the vote or written consent of holders of at least a
majority of all shares of Series D Preferred Stock then outstanding. Any such
amendment shall be binding upon the Corporation and any holder of Series D
Preferred Stock.
Section 6. VOTING RIGHTS. Except as otherwise provided herein or as
required by law, the holders of Series D 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:
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a. Holders of Common Stock shall have one (1) vote per share;
and
b. Holders of Series D 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 D 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 at least a majority of
the outstanding shares of Series D Preferred Stock shall be necessary:
(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 privileges of the Series D Preferred Stock;
(iii) to create any new series of Preferred Stock
having preferences over the Series D Preferred Stock;
(iv) to increase the authorized number of shares
of Series D Preferred Stock;
(v) for any action that results in any
liquidation, acquisition, merger or sale of the Corporation or all or
substantially all of 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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EXHIBIT D
INVESTOR'S RIGHTS AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
FIL-FIBER MANUFACTURING, INC. LTD
DATED AS OF SEPTEMBER _____, 1996
54
TABLE OF CONTENTS
Page
I. General .......................................................................................1
1.1 Definitions............................................................................1
II. Restrictions On Transfer; Registration..........................................................2
2.1 Restrictions on Transfer...............................................................2
2.2 Demand Registration....................................................................3
2.3 Piggyback Registrations................................................................4
2.4 Form S-3 Registration..................................................................5
2.5 Obligations of the Company.............................................................6
2.6 Furnish Information....................................................................7
2.7 Delay of Registration..................................................................7
2.8 Indemnification........................................................................7
2.9 Assignment of Registration Rights......................................................9
2.10 Amendment of Registration Rights......................................................10
2.11 "Market Stand-Off" Agreement..........................................................10
III. Covenants Of The Company.......................................................................10
3.1 Basic Financial Information and Reporting.............................................10
3.2 Inspection Rights.....................................................................11
3.3 Confidentiality of Records............................................................11
3.4 Reservation of Series D Preferred Stock...............................................11
3.5 Reservation of Common Stock...........................................................11
IV. Rights Of First Refusal........................................................................12
4.1 Subsequent Offerings..................................................................12
4.2 Exercise of Rights....................................................................12
4.3 Issuance of Equity Securities to Other Persons........................................12
4.4 Termination of Rights of First Refusal................................................12
4.5 Transfer of Rights of First Refusal...................................................12
4.6 Excluded Securities...................................................................12
V. Miscellaneous .............................................................................13
5.1 Governing Law.........................................................................13
5.2 Survival ............................................................................ 13
5.3 Successors and Assigns................................................................13
5.4 Separability..........................................................................13
5.5 Amendment and Waiver..................................................................14
5.6 Delays or Omissions...................................................................14
5.7 Notices .............................................................................14
5.8 Attorney's Fees.......................................................................14
5.9 Titles and Subtitles..................................................................14
5.10 Counterparts..........................................................................14
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INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as of
the ____th day of September 1996, by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and FIL-FIBER MANUFACTURING, INC. LTD, a
company of British Virgin Island registry. ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue an aggregate of $400,000
principal amount of convertible debentures (the "Convertible Debentures")
pursuant to that certain Convertible Debenture Purchase Agreement (the
"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 a right of first refusal 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:
I. GENERAL.
1.1 Definitions. As used in this Agreement the following terms shall have
the following respective meanings:
"1934 Act" means the Securities Exchange Act of 1934.
"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 Prospectus" means an amended prospectus filed with the SEC pursuant
to SEC Rule 424(b) of the Securities Act.
"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 transferor's rights under Article II 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 the Company's Series D Preferred Stock issuable
assuming the conversion of the Convertible Debentures.
"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.
"SEC" or "Commission" means the Securities and Exchange Commission.
II. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1 Restrictions on Transfer
(a) 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:
(i) 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
(ii) (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.
(iii) Notwithstanding the provisions of paragraphs (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
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trust for the benefit of an individual Holder or (C) to an affiliate of the
Holder (as that term is defined in Rule 144(a)(1) of the Securities Act (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.
(b) Each certificate representing Series D Preferred Stock or
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.
(c) 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.
(d) 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.
2.2 Demand Registration.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive at any time after the later of December 31, 1996 or one hundred
twenty (120) days after the closing of the Initial Offering, a written request
from the Initiating Holders that the Company file a registration statement
under the Securities Act covering the registration of (i) at least 25% of the
Registrable Securities held by such Initiating Holders or (ii) any lesser
number of shares if the anticipated aggregate offering price of such shares,
net of underwriting discounts and commissions, would exceed $5,000,000), then
the Company shall, within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of
Section 2.2(b), effect, as soon as practicable, the registration under the
Securities Act; provided, however, that the Initiating Holders may request
registration of less than 25% of such Registrable Securities if the anticipated
aggregate offering price, net of underwriting discounts and commissions,
exceeds $5,000,000.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred
to in Section 2.2(a). In such event, the right of any Holder to include such
Holder's Registrable Securities in such registration shall be conditioned upon
such
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Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding any
other provision of this Section 2.2, if the underwriter advises the Company in
writing that marketing factors require a limitation of the number of securities
to be underwritten (including Registrable Securities) then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(c) The Company shall not be obligated to effect more than two (2)
registrations pursuant to this Section 2.2
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 2.2, a
certificate signed by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than thirty (30) days after receipt of the request of
the Initiating Holders; provided that such right to thirty (30) days after
receipt of the request of the Initiating Holders; provided that such right to
delay a request shall be exercised by the Company no more than once in any
one-year period.
(e) All expenses incurred in connection with a registration pursuant
to this Section 2.2 (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 for the
Company, and the reasonable fees and disbursements of a single counsel for 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 for the Company, and the
reasonable fees and disbursements of a single counsel for the selling Holders,
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2.2 if the registration request is subsequently withdrawn, unless
the withdrawal of the registration request results from either (a) intentional
actions by the Company outside the normal course of business that materially
reduce the feasibility of the registration proceeding, or (b) the discovery of
information about the Company that was not known at the time of the Initiating
Holders' request made pursuant to Section 2.2(a), and such information
materially reduces the feasibility of the registration proceeding. If the
Company is required to pay the registration expenses pursuant to this Section
2.2(e), then the Holders shall not forfeit their rights pursuant to this
Section 2.2 to a demand registration.
2.3 Piggyback Registrations.
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(a) 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 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 not 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 on a pro rata basis based on the total number
of Registrable Securities held by the Holders; and third, 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, except that in no event shall
the amount of securities of the selling Holders included in the registration be
reduced below twenty percent (20%) of the total amount of securities included
in such registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event
will shares of any other selling stockholders, in which event any or all of the
Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. In no event will shares of any other selling
stockholder be included in such registration which would reduce the number of
shares which may be included by Holders without the written consent of Holders
of not less than fifty percent (50%) of the Registrable Securities proposed to
be sold in the offering.
(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
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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 respect to the representation of any
selling Holder or the underwriters object to the selling Holders representation
by Company counsel).
2.4 Form S-3 Registration. In case the Company shall receive from the
Holders of at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of
Registrable Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of written notice from the Company
pursuant to Section 2.4(a); provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4: (i) if Form S-3 is not available under the Securities Act
or rules or regulations promulgated thereunder for such offering by the
Holders; (ii) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than $500,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than thirty (30) days after
receipt of the request of the Holder or Holders under this Section 2.4,
provided that, such right to defer the filing may be exercised by the Company
no more than once in any one-year period; (iv) if the Company has, within the
six (6) month period preceding the date of such request, already effected one
(1) registrations on Form S-3 for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All such expenses incurred in connection
with registrations requested pursuant to this Section 2.4 shall be paid by the
selling Holders (and any other selling stockholders pro rata with respect to
their included
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shares, including without limitation all registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of a single counsel for the
selling Holder or Holders.
2.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and each other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or state
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company
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for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated as of such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
2.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 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.
2.7 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 II.
2.8 Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) 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 9134 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 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 2.8(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
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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.
(b) 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 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 2.8(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 2.8
exceed the proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.8 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 2.8, 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
2.8, 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 2.8.
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(d) If the indemnification provided for in this Section 2.8 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.
(e) 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 prospectus but eliminated or remedied it he 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.
(f) The obligations of the Company and Holders under this Section 2.8
shall survive the completion of any offering of Registrable Securities pursuant
to a registration statement, or otherwise.
2.9 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Article II 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, 2.3 or 2.4 hereof unless such transferee or assignee:
(i) is a Holder; (ii) holds after such transfer or assignment at least five
hundred thousand (500,000) 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.
2.10 Amendment of Registration Rights. Any provision of this Article
II 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
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waiver effected in accordance with this Section 2.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article II,
each Holder hereby agrees to be bound by the provisions hereunder.
2.11 "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 2.11 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 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.
III. Covenants Of The Company.
3.1 Basic Financial Information and Reporting.
(a) 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 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.
(b) 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.
(c) 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
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such quarter, prepared and presented in a manner consistent with the financial
statements described in Section 3.1 (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 3.1 (b).
(d) So long as a Holder (with its Affiliates) shall own not less than
one million (1,000,000) 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 n
Section 3.1 (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 3.1 (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 3.1 (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 representatives 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 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 D 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 D 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
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Delaware and at all times thereafter, the Company will reserve and keep
available, solely for issuance and delivery upon the conversion of the Series D
Preferred Stock issuable upon conversion of the Convertible Debentures, all
Common Stock issuable from time to time upon such conversion.
IV. 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 Convertible
Debentures and 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 Convertible
Debentures and 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.
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:
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(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 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 are 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 D Preferred Stock or Common 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.
V. MISCELLANEOUS.
5.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York.
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 instrument 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,
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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.
(a) 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.
(b) 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 at the address on the signature
page hereto after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iii) one (1) day 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 on the signature page hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
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.
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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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IN WITNESS WHEREOF, the parties hereto have executed this Investor's
Rights Agreement as of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. FIL-FIBER MANUFACTURING, INC. LTD
By: By:
--------------------------- -----------------------------
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President Attorney-in-Fact
Address: Address:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇. ▇/▇ ▇ & ▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ Plaza, 2H
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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72
EXHIBIT E
FORM OF OPINION
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property
and assets and to conduct its business as it is currently being conducted and
is qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in the United States in which the ownership of its property
or the conducts of its business requires such qualification and where the
failure to so qualify would have a material adverse effect on the Company, its
assets, financial condition or operations.
3. The Company's authorized capital stock consists of (a) __________
(__________) shares of Common Stock, $.001 par value, of which __________
(__________) shares are issued and outstanding, and (b) __________ (__________)
shares of Preferred Stock, $.001 par value, of which (i) One Million Two
Hundred Fifty Thousand (1,250,000) shares have been designated Series A
Preferred Stock having a liquidation preference of Two Dollars ($2.00) per
share all of which shares are issued and outstanding; (ii) Six Hundred
Twenty-Five Thousand (625,000) shares have been designated Series B Preferred
Stock having a liquidation preference of Four Dollars ($4.00) per share all of
which shares are issued and outstanding; (iii) One Hundred Twenty Thousand
(120,000) shares have been designated Series C Preferred Stock having a
liquidation preference of Twelve Dollars and Fifty Cents ($12.50) per share all
of which shares are issued and outstanding; and (iv) Sixteen Million
(16,000,000) shares have been designated Series D Preferred Stock having a
liquidation preference of Twenty-Five Cents ($0.25) per share none of which
shares are issued and outstanding and __________ shares of Series E Preferred
Stock, none of which are issued and outstanding. The outstanding shares of
Common Stock and Preferred Stock have been duly authorized and validly issued
and are fully paid and nonassessable. The rights, preferences and privileges of
the Series A Preferred Stock are as stated in the Certificate of Incorporation.
The rights, preferences and privileges of the Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are
each set forth in their respective Certificate of Designation filed by the
Company with the Secretary of State of Delaware. The shares of Common Stock
issuable upon conversion of the Preferred Stock have been duly authorized and
reserved. To my knowledge, there are no preemptive rights, rights of first
refusal or rights of co-sale which exist with respect to the issuance and sale
of the Debentures that have not been waived.
The Company has reserved __________ shares of Common Stock for
issuance upon the exercise of: (i) options to purchase shares of Common Stock
pursuant to its various stock option plans for directors, officers and
employees; (ii) and warrants to purchase shares of Common Stock which have been
issued to a supplier, former employees, consultants to the Company, a bank
lender to the Company and the guarantor of certain bank debt of the Company.
Other than as set forth above and except as may be granted pursuant to (i) that
certain Investor's Rights Agreement entered into as of December 29, 1995
between the Company and purchasers of the Company's Series B Preferred Stock;
(ii) that certain Investor's Rights Agreement entered into as of May 24, 1996
between the Company and purchasers of the Company's
E-1
73
Series B Preferred Stock; (iii) those certain Investor's Rights Agreement
entered into as of June 14, 1996 and June 26, 1996 between the Company and
purchasers of the Company's Series C Preferred Stock; (iv) that certain
Investor's Rights Agreement entered into as of August 16, 1996 between the
Company and purchasers of $4 million of the Company's convertible debentures on
August 16, 1996, there are no outstanding options, warrants, rights (including
conversion or preemptive rights),proxy or stockholder agreements, or agreements
of any kind for the purchase or acquisition from the Company of any of its
securities.
4. To the best of such counsel's knowledge, there is no action,
proceeding or investigation pending or overtly threatened against the Company
before any court or administrative agency that questions the validity of the
shares of Series E Preferred Stock issuable upon conversion of the Convertible
Debentures (the "Shares") or that might result, either individually or in the
aggregate, in any material adverse change in the business, condition (financial
or otherwise), properties or results of operations of the Company.
5. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required for the issuance of the Shares have been
made or obtained.
6. The issuance of the Shares is exempt from the registration
requirements of the Securities Act of 1933, as amended.
▇-▇
▇▇
▇▇▇ ▇▇▇▇▇, INC. [LETTERHEAD]
EXHIBIT F
September _____ 1996
Fil-Fiber Manufacturing, Inc. Ltd.
c/o A & E Group
▇▇▇▇▇▇ Hill Plaza, 2H
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: $400,000.00
Air South Airlines, Inc.
Convertible Debentures
Gentlemen:
I refer to: (a) the proposed transaction in which Air South Airlines,
Inc., a Delaware corporation (the "Company"), will sell to Fil-Fiber
Manufacturing inc., Ltd. (the "Purchaser") $400,000.00 of its Convertible
Debentures (the "Debenture"); (b) that certain Convertible Debenture Purchase
Agreement dated even date herewith between the Company and the Purchaser (the
"Purchase Agreement"); and (c) that certain Investor's Rights Agreement dated
even date herewith between the Company and the Purchaser (the "Rights
Agreement").
I have examined the Purchase Agreement, the Rights Agreement, the
Debenture, the form of a Certificate of Designation for the Series D Preferred
stock into which the Debenture will be convertible and such other documents
relating to the sale of the Debenture as I have deemed appropriate in the
circumstances. I have reviewed, to the extent I have deemed appropriate, the
corporate proceedings and records of the Company. I have examined, also to the
extent I have deemed appropriate, proceedings of various governmental entities
and agencies involved in the business and affairs of the Company.
In rendering this opinion, as to certain matters of fact, I have
relied upon representations, warranties and covenants made by the parties to
the Purchase Agreement, certificates of officers of the Company, certificates
of public officials and oral interviews of various officers, agents and
attorneys of the Company.
I have assumed the genuineness of all signatures (except those of
persons signing the Purchase Agreement, Rights Agreement and other documents
and instruments on behalf of the Company) to, and the authenticity of, all
documents submitted to me as originals and the conformity with originals of all
documents submitted to me as copies.
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Fil-Fiber Manufacturing, Inc. Ltd. - 2 -
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I am also assuming that the Purchaser has all requisite power and
authority and has taken all necessary actions to enter into the Purchase
Agreement and the Rights Agreement and to effect any transactions contemplated
thereby. Finally, I have made or caused to be made such other investigations of
law and fact as in my judgment permits me to render an informed opinion on the
matters set forth below.
Capitalized terms used but not defined herein shall have the meanings
given them in the Purchase Agreement.
Based upon and subject to the foregoing, it is my opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property
and assets and to conduct its business as it is currently being conducted and
is qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in the United States in which the ownership of its property
or the conduct of its business requires such qualification and where the
failure to so qualify would have a material adverse effect on the Company, its
assets, financial condition or operations.
3. The Purchase Agreement and the Rights Agreement have been duly and
validly authorized, executed and delivered by the Company and constitute valid
and binding agreements of the Company enforceable against the Company in
accordance with their terms, except as rights to indemnity under section 2.8 of
the Rights Agreement may be limited by applicable laws and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance.
4. The Debenture has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except as
enforcement of the Debenture may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting creditor's rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
5. The opinions stated in paragraphs 3. and 4., above are qualified by
the following: (a) the Company does not have sufficient authorized Preferred
Stock to allow the conversion of the Debenture into Series D Preferred Stock;
(b) the Company does not have sufficient authorized Common Stock to allow the
conversion of the Series D Preferred Stock into Common Stock.
6. The Company's authorized capital stock consists of (a) Eighteen
Million (18,000,000) shares of Common Stock, $0.001 par value ("Common Stock")
, of which Six Million Nine Hundred Seventeen Thousand One Hundred Eighty-Two
(6,917,182) shares are issued and outstanding, and (b) Two Million (2,000,000)
shares of Preferred Stock, $0.001 par value (the "Preferred Stock"), of which:
(i) One Million Two Hundred Fifty Thousand (1,250,000) shares have been
designated Series A Preferred Stock having a liquidation preference of Two
Dollars ($2.00) per share all of which shares are issued and outstanding; (ii)
Six Hundred Twenty-Five Thousand (625,000) shares have been designated Series B
Preferred Stock having a liquidation
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Fil-Fiber Manufacturing, Inc. Ltd. - 3 -
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preference of Four Dollars ($4.00) per share all of which shares are issued and
outstanding; and (iii) One Hundred Twenty Thousand (120,000) shares have been
designated Series C Preferred Stock having a liquidation preference of Twelve
and 50/100 dollars ($12.50) per share, all of which shares are issued and
outstanding. The outstanding shares of Common Stock and Preferred Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
The rights, preferences and privileges of the Series A Preferred Stock are as
stated in the Certificate of Incorporation. The rights, preferences and
privileges of the Series B Preferred Stock are set forth in a Certificate of
Designation filed by Company with the Secretary of State of Delaware. The rights
preferences and privileges of the Series C Preferred Stock are set forth in a
Certificate of Designation filed by the Company with the Secretary of State of
Delaware. The 9,250,000 shares of Common Stock issuable upon conversion of the
issued and outstanding shares of Preferred Stock have been duly authorized and
reserved. To the best of my knowledge, there are no preemptive rights, rights of
first refusal or rights of co-sale which exist with respect to the issuance and
sale of the Debentures which have not been waived.
The Company has reserved 10,384,833 shares of Common Stock (the
"Reserved Shares") for issuance upon the: (a) exercise of options to purchase
shares of Common Stock pursuant to its stock option plans for directors,
officers and employees; (b) the exercise of warrants and options to purchase
shares of Common Stock which have been issued to a supplier, former employees,
consultants to the Company and the guarantor of certain bank debt of the
Company. To the best of my knowledge, after inquiry, other than (a) rights to
convert issued and outstanding shares of Preferred Stock and (b) the options
and warrants related to the Reserved Shares as set forth above and except as
may be granted pursuant to (i) that certain Investor's Rights Agreement entered
into December 29, 1995 between the Company and purchasers of the Company's
Series A Preferred Stock, (ii) that certain Investor's Rights Agreement entered
into May 24, 1996 between the Company and purchasers of the Company's Series B
Preferred Stock, (iii) those certain Investor's Rights Agreements entered into
as of June 14, 1996 and June 28, 1996 between the Company and purchasers of the
Company's Series C Preferred Stock, will be (iv) that certain Investor's Rights
Agreement entered into August 16, 1996 between the Company and the purchaser of
$4,000,000 of the Company's Convertible Debentures which will be convertible
into the Company's Series D Preferred Stock (when such preferred stock has been
authorized) and (v) that certain Investor's Rights Agreement entered into as of
September 4, 1996, between the Company and the Purchaser of $500,000 of the
Company's Convertible Debentures which will be convertible into the Company's
Series E Preferred Stock (when such preferred stock has been authorized) there
are no outstanding options, warrants, rights (including conversion or
preemptive rights), proxy or stockholder agreements, or agreements of any kind
for the purchase or acquisition from the Company of any of its securities.
7. The execution and delivery of the Purchase Agreement and the Rights
Agreement by the Company and the issuance of the Debenture pursuant thereto do
not violate any provisions of the Company's Certificate of Incorporation or
By-Laws, and to not constitute a material default (which has not been consented
to or waived) under the provisions of any material agreement known to me which
the Company is a party or by which it is bound, and do not violate or
contravene (A) any governmental statute, rule or regulation applicable to the
Company or (B) any order, writ, judgment, injunction, decree, determination or
award which has been entered against the Company and of which I am aware, the
violation or contravention of which would have a Material Adverse Effect.
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Fil-Fiber Manufacturing, Inc. Ltd. - 4 -
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8. To the best of my knowledge, there is not action, proceeding or
investigation pending or overtly threatened against the Company before any
court or administrative agency that questions the validity of the Debenture,
the Purchase Agreement or the Rights Agreement or might result, either
individually or in the aggregate, in a Material Adverse Effect. I call to your
attention the inquiry of the United States Department of Transportation (the
"DOT") which is described in Schedule 4.08 of the Purchase Agreement. Although
I do not believe it is likely, such inquiry could lead to actions by the DOT
which could have a Material Adverse Effect. I also call your attention to the
civil lawsuits referred to in Schedule 4.8 of the Purchase Agreement in which
the Company is a defendant. It the plaintiffs were to prevail in such lawsuits
in a manner in which none of the Company's defenses (both as to liability and
damages) such lawsuits could be deemed to have caused a material adverse
effect.
9. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required for the consummation by the Company of the
transactions contemplated by the Purchase Agreement, have been made or
obtained.
10. The offer and sale of the Debenture is exempt from the
registration requirements of the Securities Act of 1933, as amended. The
qualification of an indenture with respect to the Debentures under the Trust
Indenture Act of 1939, as amended, is not required in connection with the
offer, issue, sale and delivery of the Debentures.
11. The issue and sale of the Debentures and the carrying out of any
of the other transactions contemplated in the Purchase Agreement will not
violate Regulation G of the Board of Governors of the Federal Reserve System
(12.C.F.R. 207, as amended) or Regulation U (12.C.F.R. 221, as amended),
Regulation T (12.C.F.R. 220, as amended) or Regulation X (12.C.F.R. 224, as
amended) or any other regulation of such Board.
This opinion is being furnished to you solely in connection with the
transaction referred to above and is not to be relied upon by any other person.
The opinions expressed herein are rendered and speak only as of the date
hereof, and I specifically disclaim any undertaking to update such opinion or
to advise you of subsequent legal or factual developments affecting the same
that hereafter may come to my attention.
Sincerely,
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
DYM/akd
78
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.04
(1) The Company's Series A, Series B and Series C Preferred Stock
have: (a) rights to convert their shares to shares of Common Stock par value
$0.001 per share ("Common Stock") of the Company; (b) a right of first refusal
as to any additional issues of equity securities of the Company; and (c)
anti-dilution rights in the event of certain issuances of equity securities.
(2) On August 16, 1996 the Company sold $4,000,000 of Convertible
Debentures due August 16, 1999. The holders of such debentures have: (a) rights
to convert their debentures to shares of Series D Convertible Preferred Stock
par value $0.001 per share which, in turn are convertible into shares of Common
Stock; and (b) a right of first refusal as to any equity securities of the
Company; on September 4, 1996 the Company sold $500,000 of Convertible
Debentures due August 16, 1999. The holders of said debentures have: (a) rights
to convert their debentures to shares of Series E Preferred Stock par value
$0.001 per share which, in turn are convertible into shares of Common Stock;
(b) a right of first refusal as to certain equity securities; and (c)
anti-dilution rights as to certain issuances of equity securities.
(3) The Company has reserved 10,384,833 shares of Common Stock
pursuant to (i) its various stock option plans for directors, officers and
employees; (ii) warrants to purchase shares of Common Stock which have been
issued to a supplier, certain former employees, consultants to the Company, and
the guarantor of certain bank debt of the Company; and (iii) conversion rights
of the Company's Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock. Up to an additional 32,000,000 shares of Preferred Stock and
32,000,000 shares of Common Stock will be required to authorized and reserved
for conversion of the Company's convertible debentures and Series D and Series
E Preferred Stock if the maximum number of debentures convertible into Series E
Preferred authorized by the Board are sold.
(4) The Company believes that certain of its shareholders may hold
proxies from family members and others to whom they transferred shares of
Common Stock; however, the Company does not believe that such proxies cover
more than an insubstantial number of shares.
(5) The Company believes that substantially all of its outstanding
securities were issued in compliance with all applicable federal and state
securities laws; however, as to an insubstantial number of shares of Common
Stock, the Company does not have sufficient knowledge of the circumstances of
their issuance to make an informed judgment as to their having been issued in
compliance with such laws.
79
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.06
(i) Issuances of Stocks, Bonds or Other Corporate Securities
(a) On May 24, 1996 the Company issued 625,000 shares of its
Series B Preferred Stock.
(b) On June 14, 1996 the Company issued 40,000 shares of its
Series C Preferred Stock.
(c) On June 26, 1996 the Company issued 80,000 shares of its
Series C Preferred Stock.
(d) On July 17, 1996 the Company issued 100,000 shares of Common
Stock par value $0.001 per share to its Chief Executive
Officer in fulfillment of an incentive to his employment.
(e) On April 26, 1996 the Company issued to H&Q Group a warrant
exercisable for 400,000 shares of Series A Preferred Stock.
(f) On August 16, 1996 the Company sold $4,000,000 of convertible
debentures due August 16, 1999.
(g) On September 4, 1996 the Company sold $500,000 of convertible
debentures due August 16, 1999; these debentures are part of
the $4,000,000 of such debentures of which the Debentures are
a part.
(ii) Incurrence of Liabilities
(a) On March 29, 1996 the Company entered into a $1 Million
Revolving Line of Credit (the "NationsBank Line") with
NationsBank, N.A. $500,000 has been drawn against such line
of credit.
(b) On April 26, 1996 the Company closed a $2 Million loan with
National Bank of South Carolina guaranteed by ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇ Group.
(C) On May 17, 1996, the Company entered into a $1 Million demand
loan with H&Q Air South Investors, L.P. ("H&Q"). This loan
was repaid with proceeds from the Series B Preferred Stock
financing referred to in (i) "(a)" above.
80
(d) On July 17 and July 18, 1996, the Company entered into demand
loans with H&Q for $250,000 and $800,000, respectively.*
(e) On August 1 and August 8, 1996, the Company entered into
demand loans with H&Q for $1,000,000 and $250,000,
respectively.*
(f) On August 13, 1996, the Company entered into a demand loan
with H&Q for $250,000.*
(g) On August 15, 1996, the Company entered into a demand loan
with H&Q for $250,000.*
(iii) Mortgages, Pledges and Creation of Liens
In connection with the NationsBank Line the Company granted a first
lien on substantially all its assets.
(iv) Sale of Assets
On April 26, 1996 the Company sold $441,400 of its aircraft parts
inventory under an agreement by which it would repurchase certain of
such parts from time-to-time on an as needed basis.
(v) Change in Business Operations
Beginning on March 14, 1996 the Company changed its business plan from
being a Southeastern regional airline to one providing service from
underserved cities in the Southeast to high population density areas
of the Northeast and Midwest.
(vi) Redemptions
On January 2, 1996, the Company redeemed 250,000 shares of its Common
Stock, par value $0.001 per share held by ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇, the
former President of the Company, and certain other persons designated
by him for $2.00 per share.
(vii) Changes in Officer Compensation
On August 25, 1996 the Company elected a new President and Chief
Executive Officer whose aggregate compensation is significantly higher
than its former President and Chief Executive Officer.
---------------
* Each of these demand loans was satisfied out of the proceeds of the
transaction referred to in (i)(f), above
81
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.07
The Company is in violation or in default of the following instruments or
contracts as to which it is a party.
(a) Air South, Inc. (now Air South Airlines, Inc.) HUD Section
108 Loan Program.
(b) Revolving Credit Facility with NationsBank, N.A.
(c) Loan Agreement with the National Bank of South Carolina.
(d) Aircraft leases on five Boeing 737 aircraft leased through GE
Capital Aviation Services, Inc.
The Company may be in violation of other instruments or contracts to which it
is a party; however, the Company believes that any such violations either
individually or in the aggregate will not result in a Material Adverse Effect.
82
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.08
The Company is the subject of an inquiry from the United States Department
of Transportation (the "DOT") with regard to its fitness to be a certificated
air carrier. The inquiry stated that it arose as a result of publicity
concerning a dispute between the Company and the Hillsborough County Aviation
Authority over the Company's cessation of operations at and non-payment
of rent for Tampa International Airport, Florida. The Company has
responded to the inquiry. Through its counsel, Bagileo, ▇▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇ of Washington, D.C., the Company has received additional inquiries
from the DOT; the Company is preparing its response to such additional
inquiries. The Company is the defendant in a lawsuit arising out of its
contracts with the Hillsborough County Aviation Authority relating to its
use of Tampa International Airport. The Company has been sued by a former
president and chief executive officer of the Company seeking damaged
incurred because of an alleged breach of the terms of his employment by
the Company.
83
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.10
All of the properties and assets of the Company are subject to security
interests created by:
(a) the HUD Loan; and
(b) that certain loan from NationsBank, N.A. to the Company made
March 29, 1996.
84
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.11
The Company is in default in one or more respects, including the making of
lease payments thereon as to the following leases of property, real or
personal:
(a) Aircraft Lease Agreement for five Boeing 737 aircraft
arranged through GE Capital Aviation Services, Inc.
(b) Terminated lease and other agreements with Hillsborough
County Aviation Authority relating to the Company's
operations (discontinued since April 5, 1996) at Tampa
International Airport, Florida.
85
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.14
The outstanding Debt of the Company consists of:
(a) debt incurred pursuant to the HUD Loan of which $12 million
is outstanding on the date hereof;
(b) debt incurred pursuant to a loan from NationsBank N.A. to the
Company, of which $500,000 is outstanding on the date hereof;
(C) debt incurred pursuant to a loan from The National Bank of
South Carolina to the Company of which $2 million is
outstanding on the date hereof; and
(d) debt incurred pursuant to the issuance of $4,000,000 of
convertible debentures due August 16, 1996; and
(e) debt incurred pursuant to the issuance of $500,000 of
convertible debentures on September 4, 1996.