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EXHIBIT 4.11
AIR SOUTH AIRLINES, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
FIL-FIBER MANUFACTURING INC., LTD.
JUNE 26, 1996
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AIR SOUTH AIRLINES, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of June 26, 1996 by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and Fil-Fibers Manufacturing Inc. Ltd., a
company of British Virgin Islands registry (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of 120,000 shares of its Series C Preferred Stock par value $0.001
per share (the "Preferred Stock");
WHEREAS, Purchaser desire to purchase 80,000 shares of the Preferred
Stock (the "Shares") on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to Purchaser
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing
(as defined in Section 2 below), the Company shall have authorized the sale and
issuance to the Purchaser of the Shares having the rights, preferences,
privileges and restrictions set forth in the Certificate of Designations (the
"Certificate of Designations"), which the Company has adopted and filed with
the Secretary of State of the State of Delaware.
1.2 SALE AND PURCHASE.
(A) Subject to the terms and conditions hereof, at the
Closing (as hereinafter defined) the Company hereby agrees to issue and sell to
the Purchaser and the Purchaser agrees to purchase from the Company 80,000
Shares at a purchase price of twelve and 50/100 dollars ($12.50) per share.
2. CLOSING, DELIVERY AND PAYMENT.
(A) The closing of the sale and purchase of the Shares
under this Agreement (the "Closing") shall take place at 10:00 a.m. on June 26,
1996 (the "Closing"), at the offices of the Purchaser at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other time or place as the
Company and the Purchaser may mutually agree.
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(B) At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser a certificate representing
the number of Shares to be purchased at the Closing by the Purchaser, against
payment of the purchase price therefor by a wire transfer made payable to the
order of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware. The Company has full power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as presently proposed to be conducted. The
Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business. The
Company has no subsidiaries and owns no equity securities of any other
corporation, limited partnership or similar entity.
3.2 CAPITALIZATION. The authorized capital stock of the
Company, immediately prior to the Closing, consists of eighteen million
(18,000,000) shares of Common Stock par value $0.001 per share ("Common
Stock"), six million nine hundred seventeen thousand one hundred eighty-two
(6,917,182) shares of which are issued and outstanding; ad two million
(2,000,000) shares of Preferred Stock par value $0.001 per share, one million
two hundred fifty thousand (1,250,000) of which are designated Series A
Preferred Stock, all of which are issued and outstanding, six hundred
twenty-five thousand (625,000) of which are designated Series B Preferred
Stock, all of which are issued and outstanding and one hundred twenty thousand
(120,000) of which are designated Series C Preferred Stock, 40,000 of which are
issued and outstanding. All shares of the Company's Common Stock (i) have been
duly authorized and validly issued, and (ii) are fully paid and nonassessable.
The rights, preferences, privileges and restrictions of the Shares shall be as
stated in the Certificate of Incorporation. The shares of Common Stock issuable
upon the conversion of the Shares (the "Conversion Shares") have been duly and
validly reserved for issuance and, when issued in accordance with the
Certificate of Incorporation, will be validly issued, fully paid and
nonassessable. The Company has reserved 10,384,833 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) 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;
and (iii) conversion rights of the outstanding Company's Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock. Other than as set
forth above and except as may be granted pursuant to the Investor's Rights
Agreements (defined below), 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. Investor's Rights Agreements (the "Investor's Rights
Agreements") shall mean those certain investor's rights agreements entered into
by the Company in connection with the issuance of the Series A, Series B, and
Series C Preferred Stock, and in
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connection with the issuance to the Purchaser of shares of Series C Preferred
Stock (the Purchaser's Agreement). A true and correct list of the Company's
stockholders as of the date hereof has been delivered to the Purchaser.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate
action on the part of the Company, its officers, directors and stockholders
necessary for the authorization, sale and issuance of the Shares pursuant
hereto and the Conversion Shares pursuant to the Certificate of Incorporation
and for the performance of the Company's obligations hereunder and under the
Purchaser's Agreement has been taken or will be taken prior to the Closing. The
Agreement and the Investor's Rights Agreement when executed and delivered, will
be valid and binding obligations of the Company enforceable in accordance with
their terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (ii) general principles of equity that
restrict the availability of equitable remedies; and (iii) to the extent that
the enforceability of the indemnification provisions in Section 2.6 of the
Purchaser's Agreement may be limited by applicable laws. The sale of the Shares
and the subsequent conversion of Shares into Conversion Shares are not and will
not be subject to any preemptive rights or rights of first refusal that have
not been properly waived or complied with. When issued in compliance with the
provisions of this Agreement and the Certificate of Incorporation, the Shares
and the Conversion Shares will be validly issued, fully paid and nonassessable
and will be free of any liens or encumbrances; provided, however, that the
Shares and the Conversion Shares may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
3.4 FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser its unaudited financial statements (balance sheet, statement of
income, statement of stockholders' equity and statement of cash flows,
including notes thereto) at December 31, 1995 and for the year then ended (the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated. The Financial Statements fairly present the financial
condition and position of the Company as of the date and for the period
indicated therein. Except as set forth in the Financial Statements or Exhibit D
hereto, the Company has no material liabilities, contingent or otherwise, other
than (I) liabilities incurred in the ordinary course of business subsequent to
December 31, 1995 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which in
both cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
3.5 CONTRACTS AND OTHER COMMITMENTS.
(A) Except as set forth in Exhibit A hereto, the Company
does not have any contracts, agreements, lease or other commitment, written or
oral, absolute or contingent, other than (i) contracts for the purchase of
supplies and services that were entered into in the ordinary and usual course
of business and that do not involve more than $100,000 and that do not extend
for more than one year beyond the date hereof and (ii) contracts terminable at
will by the Company on no more than 30 days notice without cost or liability to
the Company and are not material to the conduct of the Company's business.
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(B) Except as set forth in Exhibit D hereto, the Company
has not (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) redeemed, directly or indirectly, any shares of its capital stock or
otherwise purchased shares of its capital stock, or (iii) made any loans or
advances to any person, or (iv) sold, exchanged or otherwise disposed of any of
its assets or rights.
3.6 NO OBLIGATIONS TO RELATED PARTIES. Except as set
forth in Exhibit D hereto, there are no obligations of the Company to current
or former officers, directors, stockholders, or employees of the Company.
3.7 TRADEMARKS. The Company has sufficient trade names,
trade secrets, information, proprietary title and ownership of all trademarks,
service marks, rights and processes necessary for its business as currently
conducted and as proposed to be conducted, without any conflict with or
infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the trademarks, service marks, trade names, trade secrets,
licenses, proprietary rights and processes of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
that would conflict with the Company's business as currently conducted and as
proposed to be conducted. Neither the execution nor delivery of this Agreement
or the Investor's Rights Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as currently conducted and as proposed, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of , or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees made prior to their employment by the Company. The Company is not
aware of any violation by a third party of any of the Company's trademarks,
service marks, trade names, trade secrets or other proprietary rights.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not
in violation of any term of its Certificate of Incorporation of By Laws, or any
term contained in any material instrument or contract to which it is a party,
and, to the best of its knowledge, is not in violation of any statute, rule, or
regulation applicable to the Company which violation would have a material
adverse effect on the Company's business, condition (financial or otherwise),
properties, prospects or results of operations. 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. The execution, delivery, and
performance of and compliance with this Agreement and the Purchaser's Agreement
and the issuance and sale of the Shares pursuant hereto and of the Conversion
Shares pursuant to the Certificate of Incorporation, will not result in any
such violation, or be in conflict with or constitute a default under any such
term, or result in the creation of any mortgage, pledge, lien, encumbrance, or
charge upon any of the properties or assets of the Company. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement, or the Investor's
Rights Agreement, and the issuance of the Shares or the Conversion Shares,
except such as has been duly and validly obtained or
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filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner.
3.9 TITLE TO PROPERTIES AND ASSERTS; LIENS, ETC. The
Company has good and marketable title to all of its properties and assets it
purports to own, in each case subject to no mortgage, pledge, lien, lease,
security interest, encumbrance or charge, other than (i) liens for current
taxes not yet due and payable, and (ii) liens and encumbrances which do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company, and which have not arisen
other than in the ordinary course of business.
3.10 LITIGATION. There is no action, suit, proceeding or
investigation pending or threatened against the Company which questions the
validity of this Agreement, or the Investor's Rights Agreement, or the right of
the Company to enter into either of them, or to consummate the transaction s
contemplated hereby and thereby, or which might result, either individually or
in the aggregate, in any material adverse changes in the business, condition
(financial otherwise), properties, prospects or results of operations of the
Company, or any change in the current equity ownership of the Company. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.11 PERMITS, 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.
3.12 ENVIRONMENTAL AND SAFETY LAWS. To the best of its
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and
to the best of its knowledge, no material expenditures are or will be required
in order to comply with any such existing statute, law or regulation.
3.13 CHANGES. Except as listed on Exhibit A, since
December 31, 1995 there has not been:
(A) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(B) any damage, destruction or loss, whether or not
covered by insurance which materially and adversely affects the business,
condition (financial or otherwise), properties, prospects or results of
operations of the Company;
(C) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, condition
(financial or otherwise), properties, prospects or results of operations of the
Company;
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(D) any mortgage, pledge, transfer of a security interest
in , or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due and payable;
(E) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any member of their
immediate families, other than advances in the ordinary course of business;
(F) to the best of the Company's knowledge, any other
event or condition of any character that might materially and adversely affect
the business, condition (financial or otherwise), properties, prospects or
results of operations of the Company; or
(G) any agreement or commitment by the Company to do any
of the things described in this Section 3.13.
3.14 TAX RETURNS AND PAYMENTS. The Company has filed all
tax returns (federal, state and local) required to filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and all other
taxes due and payable by the Company on or before the Closing have been paid or
will be paid prior to the time they become delinquent.
3.15 INSURANCE. The Company has in full force and effect
fire and casualty insurance, with extended coverage, aircraft hull insurance
and liability and errors and omissions insurance in amounts customary for
commercial passenger airlines.
3.16 EMPLOYEES. Except as disclosed on Exhibit A hereto,
the Company has no employment contract with any officer or employee or other
consultant or person which is not terminable by it at will without liability,
except as the Company's right to terminate its employees at will may be limited
by applicable law. To the Company's knowledge, no employee of the Company, nor
any consultant with whom the Company has contracted, is in violation of any
term of any employment contract or any other agreement relating to the right of
any such individual to be employed by, or to contract with, the Company because
of the nature of the business to be conducted by the Company; and to the
Company's knowledge, the continued employment by the Company of its present
employees, and the performance of the Company's contracts with its independent
contractors, will not result in any such violation. There are no controversies
or labor trouble or union organization activities pending or, to the knowledge
of the Company, threatened between it and its employees. None of the Company's
employees belongs to any union or collective bargaining unit. To the best of
its knowledge, the Company has complied with all applicable state and federal
equal employment opportunity laws and other laws related to employment in which
the failure to so comply might have a material adverse effect on the business,
condition (financial or otherwise), properties, prospects or results of
operations of the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate his, her or
their employment with the Company, nor does the Company have a present
intention to terminate the employment of any officer or key employee.
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3.17 REGISTRATION RIGHTS. Except as set forth in Exhibit D
hereto and except as required pursuant to the Investor's Rights Agreement, the
Company is presently not under any obligation, and has not granted any rights,
to register (as defined in Section 1.1 of the Investor's Rights Agreements) any
of the Company's presently outstanding securities or any of its securities that
may hereafter by issued.
3.18 OFFERING VALID. Assuming the accuracy of the
representations and warranties of the Purchaser contained in Section 4.3
hereof, the offer, sale and issuance of the Shares and the Conversion Shares
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 Shares to any person or persons so as to bring the sale
of such Shares by the Company within the registration provisions of the
Securities Act.
3.19 FULL DISCLOSURE. This Agreement, the Exhibits hereto
and all other documents delivered by the Company to the Purchaser or
Purchaser's attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue
statement of a material fact nor, to the Company's knowledge, omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
3.20 REAL PROPERTY HOLDING CORPORATION. The Company is
not a real property holding corporation within the meaning of Internal Revenue
Code Section 897(c)(2) and nay regulations promulgated thereunder.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and the Investor's Rights Agreement and to carry out
the provisions of this Agreement and the Investor's Rights Agreement. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Investor's Rights Agreement have been or will be
effectively taken prior to the Closing. Upon their execution and delivery this
Agreement and the Investor's Rights Agreement will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditor's
rights; (ii) general principles of equity that restrict the availability of
equitable remedies; and (iii) to the extent that the enforceability of the
indemnification provisions of Section 2.8 of the Investor's Rights Agreement
may be limited by applicable laws.
4.2 CONSENTS. All consents, approvals, orders,
authorizations, registrations, qualifications, designations, declarations or
filings with any governmental or banking authority on the part of Purchaser
required in connection with the consummation of the transactions contemplated
in
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this Agreement and the Purchaser's Agreement have been or shall have been
obtained prior to and be effective as of the Closing.
4.3 INVESTMENT REPRESENTATIONS. Purchaser understands
that neither the Shares nor the Conversion Shares have been registered under
the Securities Act. Purchaser also understands that the Shares are being
offered and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon Purchaser's representations contained in the
Agreement. Purchaser hereby represents and warrants as follows:
(A) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares (or the
Conversion Shares) are registered pursuant to the Securities Act, or an
exemption from registration is available. Purchaser understands that there is
no assurance that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow Purchaser to transfer all or any portion of the Shares
or the Conversion Shares under the circumstances, in the amounts or at the
times Purchaser might propose.
(B) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution. If the Purchaser is
other than a natural person, Purchaser represents that each and every
shareholder, partner, member, beneficiary, or other owner thereof is or will be
an "Accredited Investor" as defined in Rule 501 of Regulation D under the
Securities Act.
(C) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Investor's Rights Agreement. Further, Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in this
Agreement.
(D) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements has received other written materials about the Company
and has had an opportunity to discuss the Company's business, management and
financial affairs with directors, officers and management of the Company and
has had the opportunity to review the Company's operations and facilities.
Purchaser has also had the opportunity to ask questions of and receive answers
from, the Company and its management regarding the terms and conditions of this
investment.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING.
Purchaser's obligations to purchase the Shares at the Closing are subject to
the satisfaction, at or prior to the Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct in
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all material respects as of the Closing Date with the same force and effect as
if they had been made as of the Closing Date, and the Company shall have
performed all obligations and conditions herein required to be performed or
observed by it on or prior to the Closing.
(B) THIRD PARTY CONSENTS, PERMITS, AND WAIVERS. The
Company shall have obtained any and all consents, permits, and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the Investor's Rights Agreement.
(C) CORPORATE DOCUMENTS. The Company shall have
delivered to the Purchaser or its counsel copies of all corporate documents of
the Company as the Purchaser shall reasonably request.
(D) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Shares shall have been duly authorized
and reserved for issuance upon such conversion.
(E) FILING OF CERTIFICATE OF DESIGNATIONS. The
Certificate of Designations shall have been filed with the Secretary of State
of the State of Delaware.
(F) COMPLIANCE CERTIFICATE. The Company shall have
delivered to the Purchaser a Compliance Certificate, executed by the President
and Chief Executive Officer of the Company, dated the Closing Date, to the
effect that the conditions specified in subsections (a) through (e) of this
Section 5.1 have been satisfied.
(G) INVESTOR'S RIGHTS AGREEMENT. The Purchaser's
Agreement in form and substance reasonably satisfactory to Purchaser and its
counsel shall have been executed and delivered by the Company.
(H) PROCEEDINGS AND DOCUMENTS. At the Closing all
corporate and other proceedings in connection with the transactions
contemplated at the Closing hereby and all documents and instruments incident
to such transactions shall be reasonably satisfactory in substance and form 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 may reasonably request.
(I) OPINION. Purchaser shall have received from ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ of the Bars of New York and South Carolina, General Counsel to the
Company, an opinion letter in form and substance reasonably satisfactory to
Purchaser and its counsel.
(J) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective as of the Closing. No stop order or other order
enjoining the sale of the Shares or the proposed issuance of the Conversion
Shares shall have been issued and no proceedings for such purpose shall be
pending or, to the knowledge of the Company, threatened by the Securities and
Exchange Commission or any commissioner or corporations or similar officer of
any state having jurisdiction over this transaction. At the time of Closing,
the sale and issuance of the
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Shares and the proposed issuance of the Conversion Shares shall be legally
permitted by all laws and regulations to which the Purchaser and the Company
are subject.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
Company's obligation to issue and sell the Shares at the Closing is subject to
the satisfaction, on or prior to the Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Purchaser in
Section 4 hereof shall be true and correct in all material respects at the date
of the Closing Date, with the same force and effect as if they had been made on
and as of said date, and the Purchaser shall have performed and complied with
all agreements and conditions herein required to be performed or complied with
by it on or before the Closing.
(B) THIRD PARTY CONSENTS, PERMITS, AND WAIVERS. The
Company shall have obtained any and all consents, permits, and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the Investor's Rights Agreement.
(C) FILING OF CERTIFICATE OF DESIGNATIONS. The
Certificate of Designations shall have been filed with the Secretary of State
of the State of Delaware.
(D) INVESTOR'S RIGHTS AGREEMENT. The Purchaser's
Agreement shall have been executed and delivered by the Purchaser.
(E) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective as of the Closing. No stop order or other order
enjoining the sale of the Shares or the proposed issuance of the Conversion
Shares shall have been issued and no proceedings for such purpose shall be
pending or, to the knowledge of the Company, threatened by the Securities and
Exchange Commission or any commissioner or corporations or similar officer of
any state having jurisdiction over this transaction. At the time of Closing,
the sale and issuance of the Shares and the proposed issuance of the Conversion
Shares shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
6. AFFIRMATIVE COVENANTS OF THE COMPANY.
6.1 BOARD OF DIRECTORS MEETINGS. For as long as any
shares of Series C Preferred remain outstanding, the Company agrees that it
shall hold meetings of the Board of Directors no less frequently than once per
calendar quarter.
6.2 QUALIFIED SMALL BUSINESS STOCK. The Company
covenants that so long as any of the Shares, or Conversion Shares, are held by
Purchaser (or a transferee in whose hands such Shares or Conversion Shares are
eligible to qualify as Qualified Small Business Stock as defined in Section
1202(c) of the Internal Revenue Code of 1986, as amended), it will use its
reasonable efforts to cause the Shares, or the Conversion Shares, to qualify as
Qualified Small Business Stock; provided, however, that "reasonable efforts" as
used in this Section 6.3 shall not be construed to require the
10
12
Company to operate its business in a manner which would adversely affect its
business, limit its future prospects or alter the timing or resource allocation
related to its planned operations or financing activities.
6.3 BOARD OF DIRECTOR APPROVAL. The Company covenants
that so long as any shares of Series C Preferred Stock remain outstanding, the
approval of the Board of Directors of the Company shall be obtained prior to
taking any of the following actions:
(A) The hiring of any officer of the Company;
(B) The adoption of any compensation program, including
base salaries and bonus programs for officers and key employees of the Company;
(C) The adoption of any stock option plan and the
issuance of any stock and stock options;
(D) The adoption of an annual budget, business or
financial plan;
(E) The purchase or lease of any real estate, fixed asset
or aircraft lease in excess of $500,000;
(F) The approval by the Company of any obligation or
commitment, including capital equipment leases or purchases, with a value in
excess of $500,000 or which are outside the most recent business plan or budget
approved by the Board of Directors; and
(G) Transfers by stockholders of more than 10,000 shares
of the Company's stock; provided, however, that this Section 6.3(g) shall
expire on an initial public offering of the Company's Common Stock resulting in
aggregate proceeds (net of underwriting discounts and commissions) to the
Company of at least $10,000,000 at a minimum price of $4.00 per share; and
provided further, that the provisions of this Section 6.3(g) shall not apply to
transfers by a stockholder to such stockholder's partners, family members and
affiliates.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in
all respects by the laws of the State of New York.
7.2 SURVIVAL. The representations, warranties,
covenants, and agreements made herein shall survive any investigation made by
the Purchaser 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.
7.3 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,
11
13
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 the
Shares from time to time.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and
Schedules hereto, the Purchaser's Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants, and agreements except as specifically set forth herein and therein.
7.5 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.
7.6. AMENDMENT AND WAIVER.
This Agreement may be amended or modified only upon the
written consent of the Company and holders of more than fifty percent (50%) of
the Shares.
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to the Purchaser,
upon any breach, default or noncompliance of the Company under this Agreement,
the Purchaser's Agreement, or the Certificate of Incorporation, 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
or in 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 Purchaser's part of any breach, default or noncompliance under
this Agreement or under the Certificate of Incorporation or any waiver on
Purchaser's part of any provisions or conditions of the 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, the Certificate of
Incorporation, Bylaws, or otherwise afforded to Purchaser, shall be cumulative
and not alternative.
7.8 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 after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iii) upon receipt after deposit with a nationally recognized overnight
courier, with written verification of receipt. All communications shall be sent
to the party to be notified at the address as set forth below or at such other
address such party may designate by advance written notice to the other party
hereto given in the manner set forth above.
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IF TO THE COMPANY: WITH A COPY TO:
Air South Airlines, Inc. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: President; ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
IF TO THE PURCHASER: WITH A COPY TO:
Fil-Fibers Manufacturing Inc. ▇▇▇▇▇▇ Davidoff ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & Kass
▇/▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esquire
7.9 EXPENSES. The Company shall pay all costs and
expenses that it incurs with respect to the negotiation, execution, delivery
and performance of this Agreement. The Company shall, at the Closing, reimburse
the reasonable fees, not to exceed $7,500, and reasonable expenses of ▇▇▇▇▇▇
Davidoff ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & Kass, Counsel for the Purchaser.
7.10 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.
7.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.12 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.
7.13 BROKER'S FEES. Each party hereto represents and
warrants that no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such party hereto is or will be entitled to
any broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses
incurred by such other party as a result of the representation in this Section
7.13 being untrue.
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IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive Officer
FIL FIBER MANUFACTURING INC., LTD.
BY: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
NAME: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
TITLE: Attorney-In-Fact
14
16
SCHEDULE OF EXCEPTIONS
TO
AIR SOUTH AIRLINES, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
The Company makes the following exceptions to representations and
warranties made by the Company in this Series C Preferred Stock Purchase
Agreement.
(a) Section 3.5 (a). The Company has the contracts and agreements
listed on Exhibit I hereto.
(b) Section 3.5 (a). The Company has leases on the following
properties:
(i) ▇▇▇▇ ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇;
(ii) ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇; and
(iii) ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
(c) Section 3.5 (b). (i) The Company on January 2, 1996 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.
(ii) The Company has made loans to its President and Vice
President-Marketing in the amounts of $25,000 each for the purchase of shares
of Common Stock of the Company.
(iii) In May 1996 the Company sold a substantial portion of
its aircraft parts inventory to its supplier of aircraft parts as satisfaction
of approximately $615,000 of indebtedness to such supplier.
(d) Section 3.6. The Company has entered into agreements with
▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇, the former General Counsel of the Company,
relative to the termination of their service as employees and as directors of
the Company (the "▇'▇▇▇▇/▇▇▇▇▇ Agreements").
(e) Section 3.8. (i) The Company is in violation of certain
covenants contained in its Loan Agreement entered into in connection with its
$12,000,000 HUD Section 108 program Loan (the "HUD Loan"); it has been informed
by the Administrator of such loan that it does not consider such violations to
be material.
(ii) The Company has past due indebtedness arising out of
various contracts with others of approximately $5,000,000. It has been sued in
various courts for collection of approximately $635,000 of such indebtedness.
17
(f) Section 3.9. The Company has incurred a lien on
substantially all its properties pursuant to (i) the HUD Loan; and
(ii) a $1,000,000 line of credit from NationsBank, N.A.
(g) Section 3.10. See the exception, above, relating to
Section 3.8.
(h) Section 3.13 (c). See the exception, above, relating to
Section 3.5 (b).
Section 3.13 (d). See the exception, above, relating to
Section 3.9.
(i) Section 3.16. The Company has employment agreements with
the President and all but one of its Vice Presidents. The agreements with the
Vice Presidents are at will employment contracts with 6 months of salary
severance payments upon dismissal.
(j) Section 3.17. The ▇'▇▇▇▇/▇▇▇▇▇ Agreements provide that they
will be accorded "Piggy-Back" rights on substantially the same basis that such
rights are provided to ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ Group pursuant to an investor's right
agreement executed in connection with the issuance of its Series A Preferred
Stock.
The Company has granted registration rights in connection with: (i)
the issuance of 1,250,000 shares of Series A Preferred Stock; 625,000 shares of
Series B Preferred Stock ad 40,000 shares of Series C Preferred Stock (ii) the
issuance of 7,500 shares of Common Stock in connection with a $1,000,000
revolving line of credit, and (iii) the issuance of a warrant to purchase
400,000 shares of Common Stock.
Certain warrants (copies of which have been provided to counsel for
the Purchaser) have been issued which contain registration rights which may be
in conflict with the Investor's Rights Agreement.
18
EXHIBIT I
AIR SOUTH CONTRACTUAL AGREEMENTS
AIRPORT AGREEMENTS
ATLANTA
Agreement with City of Atlanta, Department of Aviation.
Covers all airport related charges.
CHARLESTON
Agreement with Charleston County Aviation Authority covers all airport related
services.
Agreement with Hawthorne Aviation Services covers ground handling.
COLUMBIA
Agreement with Richland-Lexington Airport District.
Covers all airport related charges. Separate agreement covers use of cargo
facility used for parts storage and ground equipment maintenance.
GREENVILLE-SPARTANBURG
Airport Use Agreement with the Greenville-Spartanburg Airport Commission.
Covers all airport related services.
Aircraft Ground Handling Agreement Intex Aviation Services, Inc.
JACKSONVILLE
Agreement with Jacksonville Port authority.
Covers all airport related charges.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Agreement with the Port Authority of New York and New Jersey covers all airport
related services.
Agreement with American Airlines covers gate and ticket counter, passenger
services and ground handling.
19
MIAMI
Agreement with Metro Dade Aviation Authority.
Covers all airport related charges (landing fees, terminal rents, and facility
use charges including utilities other than telephones/computer systems(/
MIDWAY (CHICAGO)
Agreement with Chicago Department of airports covers all airport related
services.
Agreement with Airport Technical Service Corp. covers ground handling.
MYRTLE BEACH
Agreement with Horry County Aviation Authority.
Covers all airport related charges. Separate agreement covers all aircraft ramp
handling.
NEWARK
Agreement with the Port Authority of New York and New Jersey covers all airport
related services. Agreement with ▇▇▇▇▇ Aviation covers ground handling.
Agreement with Ariana Airlines covers ticket counter facilities.
NORFOLK
Airport Use Agreement with Norfolk Airport Authority.
Covers all airport related services.
SAVANNAH
Agreement with Savannah Airport Commission.
Covers all airport related services.
Agreement with American Airlines covers ground handling.
AIRCRAFT LEASES
GENERAL ELECTRIC CAPITAL AVIATION SERVICES (GECAS)
Covers leases on the following five Boeing 737-200 aircraft:
Serial Numbers 21186, 21356, 21612, 21677, 21733.
MIMI LEASING CORP.
Covers leasing on S/N 19607, S/N 19612.
20
COMPUTER SYSTEMS
SABRE DECISION TECHNOLOGIES (AMR CORP. SUBSIDIARY)
Host Reservation Computer System (software 7 operating system license &
operating support).
ENGINE LEASES
THE AGES GROUP, L.L.P.
Covers one JT8D-9A jet engine.
AMTEC JET, INC.
Covers two JT8D-9A jet engine.
DALLAS AEROSPACE, INC.
Covers one JT8D-9A jet engine.
PEGASUS LEASING
Covers two JT8D-9A jet engines.
PIEDMONT AVIATION, INC.
Covers lease of one APU.
MAINTENANCE AGREEMENTS
US AIR, INC.*
Covers scheduled C-Check aircraft maintenance.
PSA, INC.
Covers scheduled C-Check aircraft maintenance.
AIRKAMAN, INC.
Covers on-call maintenance-Jacksonville.
AMERICAN AIRLINES, INC.
Covers on-call maintenance and general support.
▇▇▇▇▇ GROUND SERVICES, INC.
Covers on-call maintenance-Atlanta.
CONTINENTAL AIRLINES, INC.
Covers on-call maintenance-Atlanta, Miami and general support.
ALLIED SIGNAL AEROSPACE, INC.
Covers wheel and brake repair and overhaul.
THE AGES GROUP, L.L.P.
Covers engine maintenance.
-----------------------------
*Non exclusive contract
21
AIRCRAFT SPARE PARTS
AVIATION SALES COMPANY
Covers agreement for all rotable spare parts inventory.
AVIATION FUEL
WORLD FUEL SERVICES, INC.
Covers all jet fuel purchase requirements.
22
INVESTOR'S RIGHTS AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
FIL-FIBER MANUFACTURING, INC. LTD.
JUNE 26, 1996
23
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 26th day of June 1996, by and among AIR SOUTH AIRLINES, INC., a Delaware
corporation (the "Company") and Fil-Fiber Manufacturing, Inc. Ltd., a company
of British Virgin Islands registry ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue Eighty Thousand
(80,000) shares of its Series C Preferred Stock ("Series C Preferred) pursuant
to the Series C Preferred Stock Purchase Agreement of even date herewith
between the Company and Purchaser (the "Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and certain other rights as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1. 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, as amended.
"EQUITY SECURITIES" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"FAMILY MEMBER" means a Holder's spouse, children, stepchildren and
grandchildren.
"FINAL PROSPECTUS" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion of incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities.
"INITIAL OFFERING" means the first underwritten public offering of the
Company's securities.
"INITIATING HOLDERS" means the Holder or Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
1
24
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares; and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferors rights under Article II of this Agreement
are not assigned. Outstanding Shares and warrants, rights and other securities
issued as a dividend or other distribution with respect to outstanding Shares,
or in exchange or replacement of outstanding Shares, shall be deemed to
represent a number of shares of Registrable Securities equal to the number of
shares of Common Stock into which such Shares, warrants, rights or other
securities are convertible as of the time such determination is made.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARES" shall mean the shares held by the Holders of Company's Series
C Preferred Stock.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
2. 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 n writing for the benefit of the Company to be bound by this Section
2.1, provided and to the extent such Section is then applicable and either:
(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.
(B) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder (A) which is a partnership to its partners
in accordance with partnership interests, (B) to the Holder's Family Member or
trust for the benefit of an individual Holder or (C) to an affiliate of the
Holder (as that term is defined in Rule 144 (a)(1) of the Securities Act (an
"Affiliate"), provided the transferee will be subject to the terms of this
Section 2.1 to the same extent as if he were an original Holder hereunder.
2
25
Each certificate representing Series C 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 REGISTRATIONS AND FORM S-3 REGISTRATION
(A) The Purchaser shall have no right to demand that the
Company shall register all or any part of any Registrable Securities.
(B) If holders of shares of the Company's Series A
Preferred Stock or Series B Preferred Stock (collectively, "A and B Preferred")
shall exercise their right to demand that the Company shall register any
registrable securities, as such term is defined in the investors rights
agreements (the "Applicable Agreements") relating to the A and B Preferred,
then the Company shall also allow the Purchaser to register Registrable
Securities on a pro-rata basis to the number of registrable securities being
registered by holders of A and B Preferred, based on the ratio of the total
number of shares of Common Stock into which the Series A Preferred Stock or
Series B Preferred Stock, as the case may be, are convertible to the total
number of shares of Common Stock into which the Series C Preferred Stock are
convertible. If Registrable Securities are so included in a demand
registration, the holders of such included securities shall be subject to the
terms and conditions, and obligations regarding such registration contained in
the Applicable Agreements.
(C) If the holders of A and B Preferred shall exercise
their right to a Form S-3 Registration under the Applicable Agreements then the
Company shall also allow the Purchaser to register Registrable Securities on
Form S-3 on a pro-rata basis to the number of registrable securities being
registered by holders of A and B Preferred, based on the ratio of the total
number of shares of Common Stock into which the Series A Preferred Stock or
Series B Preferred Stock, as the case may be, are convertible to the number of
shares of Common Stock into which the Series C Preferred Stock. If Registrable
Securities are so included in a Form S-3 registration, the holders of such
included securities shall be subject to the terms and conditions, and
obligations regarding such registration contained in the Applicable Agreements.
3
26
2.3 PIGGYBACK REGISTRATIONS.
(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 n 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 provisions of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the holders of shares of the Company's Series A, Series B
and Series C Preferred Stock allocated pro rata on the basis of the total
number of shares of Common Stock into which the Series A, Series B and Series C
Preferred Stock are convertible; third to the 7,500 shares of Common Stock par
value $0.001 per share held by a designee of NationsBank, N.A.; and fourth to
any stockholder of the Company (other than a Holder) on a pro rata basis. No
such reduction shall reduce the securities being offered by the Company for its
own account to be included in the registration and underwriting.
(C) The Company shall bear all fees and expenses incurred
in connection with any registration under this Section 2.3 (excluding
underwriters' discounts and commissions, which shall be paid by the selling
Holders pro rata with respect to their included shares), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders (which counsel
shall also be counsel to the Company unless counsel to the Company has a
conflict of interest with respect to the representation of any selling Holder
or the underwriters object to the selling Holders representation by Company
counsel).
2.4 FURNISH INFORMATION. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Sections 2.3, that the selling Holders shall furnish to the Company such
information regarding themselves, the
4
27
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.
2.5 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.
2.6 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under Section 2.3:
(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 be 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 of alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 2.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished to the Company expressly for use
in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(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 of 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
5
28
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 2.5(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.6 exceed the proceeds from the offering received
by such Holder.
(C) Promptly after receipt by an indemnified party under
this Section 2.5 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.6.
(D) If the indemnification provided for in this Section
2.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by a court of law by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided that, in no event shall any
contribution by a Holder hereunder exceed the proceeds from the offering
received by such Holder.
(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.
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(F) The obligations of the Company and Holders under this
Section 2.5 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
2.7 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 Section 2.3, hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least one hundred thousand (100,000) shares of Registrable
Securities (as adjusted for stock dividends, splits and combinations); or (iii)
is a Family Member or a subsidiary, parent, general partner, Affiliate, or
limited partner of a Holder. In each such case, the Company shall, within
twenty (20) days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned.
2.8 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
waiver effected in accordance with this Section 2.8 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article II,
each Holder hereby agrees to be bound by the provisions hereunder.
2.9 "MARKET STAND-OFF" AGREEMENT. If requested by the
Company and an underwriter of Common Stock (or other securities) of the
Company, the Purchaser shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such stockholder
(other than those included in the registration) for a period specified by the
underwriters not to exceed one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the
Securities Act, provided that all officers and directors of the Company and all
holders of at least one percent (1%) of the Company's voting securities enter
into similar agreements. The obligations described in this Section 2.9 shall
not apply to a registration relating solely to employee benefit plans on Form
S-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 n 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.
3. 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.
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30
(B) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's annual report
on Form 10-K with the SEC, the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such year, all prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accountants of national standing selected by the Company's Board of
Directors.
(C) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
after the Initial Offering, simultaneously with the filing of the Company's
reports on Form 10-Q with the SEC, the Company will furnish each Holder a
consolidated balance sheet of the Company, as at the end of such fiscal
quarter, and a consolidated statement of income and a consolidated statement of
cash flows of the Company for 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 hundred thousand (100,000) shares of Registrable Securities,
the Company will furnish such Holder a consolidated balance sheet of the
Company, as at the end of each calendar month, and a consolidated statement of
income and a consolidated statement of cash flows of the Company for such
month, prepared and presented in a manner consistent with the financial
statements described in Section 3.1(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.
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3.4 RESERVATION OF COMMON STOCK. The Company will at all
times reserve and keep available, solely for issuance and delivery upon the
conversion of the Series C Preferred Stock, all Common Stock issuable from time
to time upon such conversion.
3.5 ELECTION OF DIRECTOR. The Company agrees that at the
next annual meeting of stockholders of the Company a director designated by the
Purchaser and nominated by the nominating committee of the Board of Directors
will be nominated as a director of the Company to serve until his or her
successor duly elected and shall have qualified.
4. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Holder shall have a right
of first refusal to purchase its pro rata share of all Equity Securities that
the Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6
hereof. Each Holder's pro rata share is equal to the ratio of the number of
shares of Common Stock, assuming full conversion of all shares of Registrable
Securities owned by such Holder, held by such Holder immediately prior to the
issuance of such Equity Securities to the total number of shares of the
Company's outstanding Common Stock (including all shares of Common Stock
issuable upon conversion of the Registrable Securities).
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue
any Equity Securities, it shall give each Holder written notice of its
intention, describing the Equity Securities, the price, and the terms and
conditions upon which the Company proposes to issue the same. Each Holder shall
have fifteen (15) days from the receipt of such notice to agree to purchase its
pro rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to any Holder who would cause the Company to be in
violation of applicable federal securities laws by virtue of such offer or
sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If
the Holders fail to exercise in full the rights of first refusal, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in respect
of which the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities, without first
offering such securities to the Holders in the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal established by this Article IV shall terminate upon the closing
of the Initial Offering.
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4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal of each Holder under this Article IV may be transferred to any
subsidiary or parent of such Holder, to any successor in interest to all or
substantially all the assets of such Holder, or to an assignee or transferee
who acquires Registrable Securities.
4.6 EXCLUDED SECURITIES. The rights of first refusal
established by this Article IV shall have no application to any of the
following Equity Securities:
(A) shares of Common Stock (and/or options, warrants or
other common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of ,
or consultants or advisors to , the Company, pursuant to stock purchase or
stock option plans or other compensation arrangements that are approved by the
Board of Directors of the Company;
(B) stock issued pursuant to any rights, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Article IV applied with respect to the
initial sale or grant by the Company of such rights, options or warrants;
(C) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(D) any Equity Securities that are issued by the Company
as part of the Initial Offering referred to in Section 4.4 hereof;
(E) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(F) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; and
(G) any Equity Securities issued pursuant to any
equipment leasing arrangement or commercial bank financing approved by the
Company's Board of Directors.
4.7 OTHER RIGHTS OF FIRST REFUSAL. The Company has
granted to the Holders of its outstanding Series A and Series B Preferred Stock
rights of first refusal similar to the rights of first refusal granted by this
Article IV. The Company has obtained an agreement between the Company, and the
holders of Series A, Series B and Series C Preferred Stock that the Rights of
the Purchaser shall rank pari passu with each other based upon the relative
number of shares of Common Stock into which the Series A, Series B and Series C
are convertible.
5. MISCELLANEOUS.
5.1 GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of New York.
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5.2 SURVIVAL. The representations, warranties, covenants,
and agreements made herein shall survive any investigation made by any Holder
and the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other 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, 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 after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iii) upon receipt after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the party to be notified at the address set
forth below or at such other address as such party may designate by ten (10)
days advance written notice to the other party hereto in the manner provided
above.
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IF TO THE COMPANY: WITH A COPY TO:
Air South Airlines, Inc. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: President: ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
IF TO THE PURCHASER: WITH A COPY TO:
Fil-Fibers Manufacturing Inc. Ltd. ▇▇▇▇▇▇ Davidoff ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & Kass
▇/▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esquire
5.8 ATTORNEYS' FEES. If legal action is brought to
enforce or interpret this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and legal costs in connection therewith.
5.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. FIL-FIBER MANUFACTURING, INC. LTD.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------- -----------------------------
▇▇▇▇▇ A ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President and Chief Executive Officer Title: Attorney-In-Fact
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H&Q AIR SOUTH INVESTORS ▇▇
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ GROUP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
June 26, 1996
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive Officer
Air South Airlines, Inc.
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fil-Fiber Manufacturing, Inc. Ltd.
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇. ▇. ▇▇▇▇▇ & Associates, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇. ▇. ▇▇▇▇▇
Air South Airlines, Inc.
Re: Series C Preferred Stock
Gentlemen:
We refer to the following:
(a) 1,250,000 shares of Air South Airlines, Inc. (the "Company")
Series A Preferred Stock (the "Series A Preferred") held by H&Q Air South
Investors LP ("H&Q");
(b) 625,000 shares of Series B Preferred Stock of the Company (the
"Series B Preferred") held by H&Q;
(c) 40,000 shares of Series C Preferred Stock of the Company (the
"Series C Preferred") held by ▇. ▇. ▇▇▇▇▇ & Associates, Inc. ("▇▇▇▇▇");
(d) 80,000 shares of Series C Preferred proposed to be sold and
issued to Fil-Fiber Manufacturing, Inc. Ltd. ("Fil-Fiber"); and
(e) the Certificate of Designations, Preferences and Rights of
Series C Preferred Stock filed with the office of the Secretary of State of
Delaware on June 14, 1996 (the "Series C Certificate") which provides, among
other things, as follows:
37
(i) in Section 2, that dividends may not be paid on the
Common Stock of the Company unless an equal dividend is paid
with respect to all outstanding shares of Series C Preferred,
but makes no similar limiting provision as to dividends
payable on Series A Preferred and Series B Preferred; and
(ii) in Section 3. a. that the right of holders to a
preference in a liquidation dissolution or winding up shall in
all respects be subordinate to any preferential or other
rights of the holders of shares of Series A Preferred and
Series B Preferred.
We understand that as a condition to the issuance of Series C
Preferred to Fil-Fiber, Fil-Fiber requires that the shares of Series C
Preferred be treated on a pari passu basis with the Series A Preferred and
Series B Preferred as to dividends and liquidation rights. We also understand
that the Company desires that ▇▇▇▇▇, the only other holder of Series C
Preferred, shall be treated equally in such respects.
In connection with the foregoing, H&Q, the sole holder of shares of
Series A Preferred and Series B Preferred, the Company, Fil-Fiber and ▇▇▇▇▇
agree as follows:
(A) As regards the payment of dividends, the Company shall not
declare dividends in any amount on the shares of either the Series A
Preferred, Series B Preferred of Series C Preferred unless it also
declares a dividend upon the shares of each of the other classes of
preferred stock; provided, however, that if a dividend is paid on a
class of preferred stock in an amount more or less than the dividend
provided for in the terms of such class, the dividend payable to the
other classes shall be more or less than the dividend provided for
such classes in a proportionate amount.
(B) As regards the preferences upon distribution of any of the
assets or surplus of the Company in any liquidation, dissolution or
winding up of the Company, H&Q agrees that the Series A Preferred,
Series B Preferred and Series C Preferred shall participate in any
such distribution on a pari passu basis without regard to the
subordination of the Series C Preferred provided for in Section 3. a.
of the Series C Certificate. For purposes of this agreement, pari
passu shall mean that the dissolution preferences of the Series A,
Series B and Series C Preferred shall be the Amounts stated in the
designations (the "designated Preferences") for each such class which
are, respectively $2.00 per share, $4.00 per share and $12.50 per
share (in each case as adjusted for stock dividends, combinations or
splits with respect to such shares) or, a total of Designated
Preferences of $6,500,000 on all outstanding shares of preferred stock
after issuance of the shares of Series C Preferred to Fil-Fiber. If
the value of the cash and other assets available for distribution (the
"Distributable Assets") is less than $6,500,000 the dividend per share
payable to each class of preferred stock shall be an amount equal to
the product obtained by multiplying the Designated Preference by a
fraction, the numerator of which shall be the Distributable Assets and
the denominator of which shall be $6,500,000.
After payment to the holders of the Series A, Series B and
Series C Preferred Stock of the aggregate Preferential Amount for such
classes, the entire remaining assets and funds of the Corporation
legally available for distribution, if any, shall be distributed
ratably among the holders of Series A, Series B and Series C Preferred
Stock on the one hand and the holders of Common Stock on the other in
proportion to the shares of Common Stock into which the Series A,
Series B and Series C Preferred Stock may be converted on the one hand
and the outstanding shares of Common Stock on the other.
38
In connection with the sale to Fil-Fiber of shares of Series C
Preferred, the Company has entered into an Investor's Rights Agreement with
Fil-Fiber (the "Fil-Fiber Agreement") of even date herewith which, among other
things, provides for certain registration rights and rights of first refusal
for holders of shares of Series C Preferred, some of which are in conflict with
certain rights of the holders of Series A Preferred and Series B Preferred
provided in investors rights agreements related to such classes of preferred
stock.
H&Q has reviewed the Fil-Fiber Agreement and agrees to honor the
commitments made therein by the Company to Fil-Fiber.
H&Q understands that (i) the company has entered into an Investors
Rights Agreement with ▇▇▇▇▇ (the "▇▇▇▇▇ Agreement") which has different
registration rights and no rights of first refusal and (ii) the Company and
▇▇▇▇▇ wish to amend the ▇▇▇▇▇ Agreement to make it conform to the Fil-Fiber
Agreement. H&Q hereby agrees that it will interpose no objection to such
amendment and will honor the commitments made by the Company to ▇▇▇▇▇ in the
amended ▇▇▇▇▇ Agreement.
H&Q, Fil-Fiber, ▇▇▇▇▇ and the Company hereby agree that subsequent to
the execution and delivery of this agreement, they will cooperate in doing all
things and executing all documents necessary to carry out the intent of this
Agreement; and if ambiguities or inconsistencies in this Agreement are
discovered or differences of interpretation of this Agreement arise among any
of the parties that they will negotiate in good faith to resolve such matters.
[This space left intentionally blank]
39
If the foregoing correctly states our agreements, please sign the
agreement in the place provided.
Very truly yours,
H&Q Air South Investors, LP
by
H&Q Management Corporation
its general partner
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
Title: Attorney-in-Fact
ACCEPTED and AGREED
Air South Airlines, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive Officer
Fil-Fiber Manufacturing Inc., Ltd.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Attorney-in-Fact
▇. ▇. ▇▇▇▇▇ & Associates, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
▇. ▇. ▇▇▇▇▇
President