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EXHIBIT 4.14
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
▇. ▇. ▇▇▇▇▇ & ASSOCIATES, INC.
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, QUALIFICATION 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 OBLIGATION
OF THE PURCHASER......................16
SECTION 6.01. CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASER...................... 16
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS
OF THE COMPANY........................ 18
ARTICLE VIII COVENANTS OF THE COMPANY
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS...... 19
SECTION 8.02. CORPORATE EXISTENCE................... 21
SECTION 8.03. MAINTENANCE OF PROPERTIES
AND INSURANCE......................... 21
SECTION 8.04. INSPECTION, CONSULTATION
AND ADVICE............................ 21
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED..... 22
SECTION 8.06. TRANSACTIONS WITH AFFILIATES.......... 22
SECTION 8.07. USE OF PROCEEDS....................... 22
SECTION 8.08. SUBSIDIARIES.......................... 22
SECTION 8.09. COMPLIANCE WITH LAWS.................. 22
SECTION 8.10. KEEPING OF RECORDS AND BOOKS
OF ACCOUNT............................ 22
SECTION 8.11. OBLIGATIONS AND TAXES................. 22
SECTION 8.12. TRANSFER AND EXCHANGE OF
CONVERTIBLE DEBENTURES; LOST
CONVERTIBLE DEBENTURES................ 23
SECTION 8.13. LIMITATION ON DEBT.................... 23
SECTION 8.14. LIMITATION ON LIENS................... 23
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS..... 24
SECTION 8.16. COVENANT REGARDING STOCKHOLDER
VOTE AND FILING OF CERTIFICATE
OF DESIGNATION........................ 24
ARTICLE IX EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION.......................... 25
SECTION 9.02. RESCISSION OF ACCELERATION............ 27
SECTION 9.03. NOTICE OF ACCELERATION OR
RESCISSION............................ 27
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SECTION 9.04. OTHER REMEDIES........................ 28
ARTICLE X MISCELLANEOUS
SECTION 10.01. PAYMENTS.............................. 28
SECTION 10.01. 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
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 ______, 1996, between AIR SOUTH AIRLINES, INC., a Delaware
corporation (the "Company"), and ▇. ▇. ▇▇▇▇▇ & ASSOCIATES, INC., a New York
Corporation (the "Purchaser").
RECITALS
WHEREAS, the Company on August 16, 1996 sold to H&Q Air South
Investors, L.P. certain convertible debentures due August 16, 1999 (the "H&Q
Debentures").
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 thereof,
collectively called the "Convertible Debentures" and individually called a
"Convertible Debenture"), such convertible Debenture to be on substantially the
same terms and conditions as the H&A Debentures in the original aggregate
principal amount of $200,000, to be dated the date of issue, to mature August
16, 1999, to 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:
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"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.
"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 SHARE" shall mean the share of Common Stock
issuable upon conversion of the Preferred Conversion Share.
"COMMON STOCK" shall mean the Common Stock, par value $0.001 per
share, of the Company.
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"COMPANY" shall have the mean ascribed thereto in the preamble.
"CONVERTIBLE DEBENTURE" shall have the meaning ascribed thereto in the
recitals.
"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 to 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 mean of Section
414(b) of the Code, or any trade or business which is under common control with
the Company within the mean 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
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is directly or indirectly renewable to extendible at the option of the debtor
to a date more than one year from, the date of the creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such 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 therefore, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation or services regardless of the non-delivery
or non-furnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof.
"HUD LOAN" shall mean that certain loan to the Company by Lexington
County, South Carolina pursuant to the United States Department of Housing and
Urban Development Section 108 Loan Program.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items which in accordance with generally accepted
accounting principles would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as of the date on
which Indebtedness is to be determined, (ii) all indebtedness secured by any
Lien on any property or asset owned or held by such Person subject thereto,
whether or not the indebtedness secured thereby shall have been assumed, and
(iii) all indebtedness of others with respect to which such Person has become
liable by way of a Guarantee.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed thereto in
Section 4.13.
"INVESTOR'S RIGHT AGREEMENT" shall mean the Investor's Right
Agreement, dated the date hereof, between the Company and the Purchase of a
copy of which is attached hereto as Exhibit D.
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"LIEN" shall mean any mortgage, pledge, priority, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction) or any other type of preferential arrangement for the
purpose, or have 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 share 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,
par value $0.001 per share, of the Company.
"PURCHASER" shall have the meaning ascribed thereto in the preamble.
"RESTRICTED PAYMENT" shall mean (i) the declaration, payment or
setting apart of any sum for payment of dividend (including a dividend payable
in capital stock of the Company) on, or any distribution (including a
distribution in capital stock of the
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Company) in respect of, any share of capital stock of the Company or any
warrants, rights or options to purchase any shares of capital stock of the
Company or (ii) the redemption, repurchase, retirement or other acquisition of
(or the setting apart of any sum in respect of any of the foregoing actions)
any shares of capital stock of the Company or any warrants, rights or options
to purchase or acquire any share 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 share 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 having ordinary voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned by the Company, or by one or more of its
subsidiaries.
"TRANSFEREE" shall mean any direct or indirect transferee of all or
any part of any Convertible Debenture purchased by the Purchaser under this
Agreement.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES. The Company agrees to issue and sell to the Purchaser and the
Purchaser hereby agrees to purchase from the Company, the Convertible
Debentures in the aggregate principal amount of $200,000 at 100% of such
aggregate principal amount.
SECTION 2.02. CLOSING. The closing shall take place at the office of
▇. ▇. ▇▇▇▇▇ & Associates, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ on
such date and time or at such other location 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").
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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
of the Closing, and in the denomination or denominations specified in writing
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 share 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.
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(a) On and as of the date of each Conversion, (i) the
Company shall be deemed to have (A) remade, ratified and confirmed all
representations and warranties of the Company contained in Article IV of this
Agreement, (B) certified compliance with all covenants contained in Article
VIII of this Agreement and (C) certified that no Event of Default or Default
exists and is continuing, and (ii) the Company shall deliver an Officer's
Certificate to the effects et for the in (A), (B), (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 to 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 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 use, 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 share 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 of (ii) control, directly or
indirectly, any other entity.
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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 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 of lapse of time or both) a default under any
such indenture agreement or other instrument, or result in the creation or
imposition of any lien, charge restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of its
subsidiaries.
SECTION 4.03. VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms.
SECTION 4.04. CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 18,000,000 shares of Common Stock, par value $0.001 per
share; (ii) 1,250,000 shares of Series A Preferred Stock, par value $0.001 per
share, (iii) 625,000 share 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, 1999; 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,
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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 share of capital stock, or any other securities
of the Company, whether or not issued, including, but not limited to,
securities convertible into or evidencing the right to purchase any capital
stock or other securities of the Company. Except as set forth on Schedule
4.04, the Company has no obligation (contingent or other) to purchase, redeem
or otherwise acquire any of its equity securities or any interest therein or to
pay an 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 right 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 of 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 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
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real property taxes not yet due and payable, (vi) sold, assigned or transferred
any of its tangible assets except in the ordinary course of business, or
canceled any debt or claim, (vii) sold, assigned, transferred or granted any
exclusive license with respect to any patent, trademark, trade name, service
▇▇▇▇, copyright, trade secret or other intangible asset, (viii) suffered any
loss of property or waived any right of substantial value whether or not in the
ordinary course of business, (ix) made any change in officer compensation
except in the ordinary course of business and consistent with past practice,
(x) made any material change in the manner of business or operations of the
Company, (xi) entered into any transaction except in the ordinary course of
business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
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
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law, rule regulation or order, whether federal or state, which would prohibit
or restrict the Company from, or otherwise materially adversely affect the
Company in, conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
SECTION 4.10. TITLE TO PROPERTIES. The Company has good and
marketable title to its properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security interests, liens, charges, claims restrictions and
other encumbrances, except (i) for Liens set forth on Schedule 4.10, (ii) for
Liens for taxes not yet due and payable and minor imperfections of title, if
any, not material in nature or amount and (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 of
lapse of time or both, would constitute a default to event of default by the
Company under any such lease or agreement or, to the best of the Company's
knowledge, by any other part 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.
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SECTION 4.13. PATENTS, TRADEMARKS, ETC. The Company owns or
possesses adequate licenses or other rights to use all trademarks, trademark
applications, service marks, service ▇▇▇▇ applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets and know how, and
all patents and patent applications known to the Company (collectively,
"Intellectual Property"), necessary to the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of
the Company's knowledge, threatened to the effect that the operations of the
Company infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and there is no known basis for any such claim
(whether or not pending or threatened). No claim is pending or threatened to
the effect that any such Intellectual Property owned or licensed by the
Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company, and there is no basis known to the Company for
any such claim (whether or not pending or threatened). To the best of the
Company's knowledge, all technical information developed by and belonging to
the Company which has not been patented has been kept confidential. Except as
set forth on Schedule 4.13, the Company has 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 part 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
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the Company of an amendment to the Certificate of Incorporation to increase the
authorized number of shares of Common Stock and Preferred Stock.
SECTION 4.17. DISCLOSURE. Neither this Agreement, nor any Schedule
or Exhibit to this Agreement contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the
transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not disclosed
to the Purchaser and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company
or any of its subsidiaries.
SECTION 4.18. BROKERS. The Company has no contract, arrangements 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 being 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. 200, 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.
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SECTION 4.21. INSURANCE COVERAGE. Each property of the Company is
insured for the benefit of the Company in amounts deemed adequate by the
Company's management against risks usually insured against by persons operating
businesses similar to those of the Company in the localities where such
properties are located.
SECTION 4.22. ERISA. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No
liability to the PBGC has been or is expected by the Company or any ERISA
Affiliate to be incurred with respect to any Plan (other than a Multiemployer
Plan) by the Company or and 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 is fixed at 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 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
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 Agreements; 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,
and of the Company's properties or rights, or any of the Company's
officers od 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 practical 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 practical 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 probably, 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 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 received from such corporations; 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 typed 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, with
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, discus 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 of 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 $500,00 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 E Preferred Stock at any time
thereafter and from time to time.
(c) After giving effect to Sections 8.16(a) and (b)
above, upon the conversion of any Convertible Debenture, the Preferred
Conversion Shares and, upon conversion of the Preferred Conversion
Shares, the Common Conversion Shares, will have been duly authorized
and will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and will be free
and clear of all Liens imposed by or through the Company. In
addition, after giving effect to Sections 8.16(a) and (b), the
Preferred Conversion Shares and the Common Conversion Shares will have
been duly reserved for issuance upon conversion of the Convertible
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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 any person.
SECTION 8.17. BOARD NOMINEES. 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 of or
interest on any other obligation for money borrowed beyond any period
of grace provided with respect thereto, or the Company fails to
perform or observe any other agreement, term or condition contained in
any agreement under which any such obligation is created (or if any
other event thereunder or under any such agreement, shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become
due (or to be repurchased by the Company) prior to any stated
maturity; or
(iii) any representation or warranty made by the Company
herein or by the Company or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made; or
(iv) the Company fails to perform or observe (A) any term,
covenant or agreement contained in Sections 8.01(h)(i), 8.02, 8.04,
8.08, 8.09, 8.11, 8.13, 8.14, 8.15, 8.16 or 8.17, or (B) any other
agreement, covenant, term or condition contained herein and such
failure shall not be remedied within 30 days after any officer obtains
actual knowledge thereof; or
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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 it 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 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, protest or
other notice of any kind, all of which are hereby waived by the Company, (b) if
such event is an Event of Default specified in clause (vi), (vii), (viii) or
(ix) of this Section 9.01 with respect to the Company, all of the Convertible
Debentures at the time outstanding shall automatically become immediately due
and payable at par together with interest accrued thereon, without presentment,
demand, protest or notice of any kind, all of which are hereby waived by the
Company, and (c) if such event is not an Event of Default specified in clause
(vi), (vii, (viii) or (ix) of this Section 9.01 with respect to the Company,
the Purchaser may, by notice in writing to the Company, declare all of the
Convertible Debentures to be, and all of the Convertible Debentures shall
thereupon be and become, immediately due and payable together with interest
accrued thereon with respect to each Convertible Debenture, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company.
SECTION 9.02. RESCISSION OF ACCELERATION. At any time after any or
all of the Convertible Debentures shall have been declared immediately due and
payable pursuant to Section 9.01, the Purchaser may, by notice in writing to
the Company, rescind and annul such declaration and its consequences if (i) the
Company shall have paid all overdue interest on the Convertible Debentures, the
principal payable with respect to any Convertible Debentures which have become
due otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal at the rate specified in the Convertible
Debentures, (ii) the Company shall not have paid any amounts which have become
due solely by reason of such declaration, (iii) all Events of Default and
Defaults, other than non-payment of amounts which have become due solely by
reason of such declaration, shall have been cured or waived pursuant to Section
10.03, and (iv) no judgment or decree shall have been entered for the payment
of any amounts due pursuant to the Convertible Debentures or this Agreement.
No such rescission or annulment shall extend to or affect any subsequent Event
of Default or Default or impair any right arising therefrom.
SECTION 9.03. 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 time, 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 product 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 attorney's fees, incurred by you or such Transferee in
enforcing (or determining whether or hot to enforce) any rights under this
Agreement or the Convertible Debentures or in responding to
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34
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 the 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 Debenture shall have been marked to
indicate such consent, but any 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
deliver 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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35
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 or 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 part
to be notified at the address set forth below:
(a) if to the Purchaser, to
▇. ▇. ▇▇▇▇▇ & Associates, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇. ▇. ▇▇▇▇▇
with a copy (which shall not constitute notice) to
Dolgenos, ▇▇▇▇▇▇ & ▇▇▇▇▇▇. L.L.P.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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(b) if to the Company, to
Air South Airlines, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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 Scheduled 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
▇. ▇. ▇▇▇▇▇ & ASSOCIATES, INC.
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
▇▇.▇▇ 1996-3 September ______, 1996
$200,000
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 ▇. ▇. ▇▇▇▇▇ & Associates, Inc., or registered
assigns, the principal sum of TWO 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 extend 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 ▇. ▇. ▇▇▇▇▇ & Associates,
Inc. 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 or December 31 next succeeding the
date hereof and extending through the Maturity Date, shall be added to the
outstanding principal balance of this Convertible Debenture with effect as of
such date and any interest thereafter shall be due and payable in cash
according with the terms hereof.
Payments of principal of and interest on this Convertible Debenture
are to be made at ▇. ▇. ▇▇▇▇▇ & Associates, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other place as the holder hereof shall designate to
the Company in writing, in lawful money of the United States of America. All
payments made hereunder, whether at maturity or as a result of acceleration
shall be allocated first to costs and expenses of the holder resulting from
collection efforts with respect to this Convertible Debenture, second to
accrued but unpaid interest, and third to principal.
This Convertible Debenture is a registered Convertible Debenture and,
as provided in the Agreement, and subject to compliance with federal and any
applicable state securities laws upon surrender of this Convertible Debenture
for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Convertible Debenture for a
like principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Convertible Debenture is registered as
the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
This Convertible Debenture may be prepaid, in whole or in part from
time to time, without penalty.
The outstanding principal balance and accrued interest on this
Convertible Debenture may be converted in whole or in part at any time or from
time to time at the option of the holder or ▇▇▇ automatically be converted into
shares of Series D Preferred Stock, all as set forth in the Agreement.
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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 and Chief
Executive Officer
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Secretary
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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 D Preferred Stock of the Company determined in
accordance with and under the Agreement and requests that certificates for the
shares of Series D 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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EXHIBIT B
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES D 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 cent ($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 therefore. 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 holer 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
center ($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 Series
D Preferred Stock shall be insufficient to permit the payment to such holders
of the full Preferential Amount, the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series 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
with 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,
consolidated 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 $10,000,000 and a per share
price equal to or greater than fifty cents ($.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
share 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 dates; 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 and 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 fir 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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(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 and Options therefore, the conversion or
exchange of such Convertible Securities, shall be deemed to be additional
Shares of Common Stock issued as of the time of such issue or, in case such a
record date shall have been 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 exercise of such Options or
conversion or exchange of such Convertible Securities to the extent that
adjustment had been previously made pursuant to this Section 4(d);
(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 therefore 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
Share of Common Stock between the original adjustment date and such adjustment
date;
(5) in the case of any Options which
expire by their terms not more than 30 days after the date of issue thereof, no
adjustment of the Series 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 Share 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 shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Share 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 immediately prior to such issuance and any outstanding Options
had been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, of 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
questions.
(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 Security 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 share 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.
The Corporation shall take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient to effect the
conversion of all the outstanding shares of Series 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 the 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 holder
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 sock 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 is established, at the date such vote
is taken or any written consent to stockholders is solicited.
c. In addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of at least a
majority of the outstanding shares of Series 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 to eh 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 to 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
▇. ▇. ▇▇▇▇▇ & ASSOCIATES, INC.
DATED AS OF SEPTEMBER 30, 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 Attorneys' 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 ▇. ▇. ▇▇▇▇▇ & ASSOCIATES, INC., a New
York corporation ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue an aggregate of
$200,000 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 of 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 transferror'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 be 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 interest, (B) to the Holder's family
member or
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trust for the benefit of an individual Holder of (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 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 rate 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 a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder
shall nevertheless continue to have the right to include any Registrable
Securities in any subsequent registration statement or registration statements
as may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein. Notwithstanding anything to
the contrary, the foregoing shall 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 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 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-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 such 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 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 2.8(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 of the counsel retained by the
indemnifying party would be inappropriate due to the 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 in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(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 accounts 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 in 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. ▇. ▇. ▇▇▇▇▇ & ASSOCIATES, INC.
By: ________________________ By: ________________________
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President President
Address: Address:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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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 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 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 redemptive 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
E-1
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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
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, authorization, 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.
▇-▇
▇▇
▇▇▇▇▇▇▇ ▇
September 10, 1996
▇. ▇. ▇▇▇▇▇ & Associates, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: $200,000.00
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 ▇. ▇. ▇▇▇▇▇ &
Associates, Inc. (the "Purchaser") $200,000.00 of its Convertible Debentures
(the "Debenture"); (b) that certain Convertible Debenture Purchase Agreement
dated of 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 Debentures 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.
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.
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▇.▇. ▇▇▇▇▇ & Associates, Inc.
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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 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 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
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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, (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 do not constitute a material default (which has
not been consented to or waived) under the provisions of any material agreement
known to me to which the Company is a party or by which it is bound, and do not
violate or contravene (A) any governmental statue, 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.
8. To the best of my 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 Debentures,
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
77
▇.▇. ▇▇▇▇▇ & Associates, Inc. 4-
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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. If 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,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇/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 issuance 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 be 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 have 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) Issuance 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 damages 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.