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EXHIBIT 4.13
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
▇▇▇▇▇▇ GROUP LTD.
DATED AS OF SEPTEMBER 4, 1996
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.02. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III CONVERSION
SECTION 3.01. CONVERSION; NUMBER . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.02. CONVERSION PROCEDURE . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO
DEFAULT; CONDITIONS PRECEDENT TO CONVERSION . . . . . . . . . . 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE
POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.02. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.03. VALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.04. CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.05. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE
SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS . . . . . . . . . . . . . . . . . . 10
SECTION 4.08. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.09. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.10. TITLE TO PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.11. LEASEHOLD INTERESTS . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.12. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.13. PATENTS, TRADEMARKS, ETC. . . . . . . . . . . . . . . . . . . . 12
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES . . . . . . . . . . . . . 13
SECTION 4.15. GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.16. GOVERNMENTAL APPROVALS . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.17. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.18. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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SECTION 4.19. SECURITIES ACT . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.20. MARGIN REGULATIONS . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.21. INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.22. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.23. ENVIRONMENTAL COMPLIANCE . . . . . . . . . . . . . . . . . . . 15
SECTION 4.24. PERMITS AND LICENSES . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.25 BOARD COMPOSITION . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . 16
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER . . . . . . . . . 16
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY . . . . . . . . . 18
ARTICLE VIII COVENANTS OF THE COMPANY
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS . . . . . . . . . . . . . . . 19
SECTION 8.02. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE . . . . . . . . . . . . 21
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE . . . . . . . . . . . . . . 21
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED . . . . . . . . . . . . . . . 22
SECTION 8.06. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . 22
SECTION 8.07. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.08 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.09. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT . . . . . . . . . . . . 22
SECTION 8.11. OBLIGATIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE
DEBENTURES; LOST CONVERTIBLE DEBENTURES . . . . . . . . . . . . 23
SECTION 8.13. LIMITATION ON DEBT . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.14. LIMITATION ON LIENS . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS . . . . . . . . . . . . . . . 24
SECTION 8.16 COVENANT REGARDING STOCKHOLDER VOTE AND
FILING OF CERTIFICATE OF DESIGNATION . . . . . . . . . . . . . 24
ARTICLE IX EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 9.02. RESCISSION OF ACCELERATION . . . . . . . . . . . . . . . . . . 27
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION . . . . . . . . . . . . . 27
SECTION 9.04. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 28
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ARTICLE X MISCELLANEOUS
SECTION 10.01. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 10.02. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 10.03. CONSENT TO AMENDMENTS . . . . . . . . . . . . . . . . . . . . . 29
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS . . . . . . . . . . . . . 29
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 30
SECTION 10.06. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.07. PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.09 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.09 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 10.10. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.11. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.12. DESCRIPTIVE HEADINGS . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.13. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.14. Gender; Plurals . . . . . . . . . . . . . . . . . . . . . . . . 32
EXHIBITS
EXHIBIT A Form of Convertible Debenture
EXHIBIT B Form of Certificate of Designation
EXHIBIT C Certificate of Incorporation
EXHIBIT D Form of Investors Rights Agreement
EXHIBIT E Form of Opinion of General Counsel
SCHEDULES
SCHEDULE 4.04 Outstanding Options, Warrants, Etc.
SCHEDULE 4.06 Events Subsequent to Balance Sheet
SCHEDULE 4.07 Violations, Defaults
SCHEDULE 4.08 Defaults
SCHEDULE 4.11 Leasehold Interests
SCHEDULE 4.14 Existing Debt
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement"), dated as of
September 4, 1996, between AIR SOUTH AIRLINES, INC., a Delaware corporation
(the "Company"), and ▇▇▇▇▇▇ GROUP, LTD., a North Carolina corporation (the
"Purchaser").
RECITALS
WHEREAS, the Company wishes to issues and sell to the Purchaser its
convertible debenture (herein, together with any such convertible debentures
which may be issued pursuant to any provision of this Agreement, and any such
convertible debentures which may be used in substitution or exchange thereon,
collectively called the "Convertible Debentures" and individually called a
"Convertible Debenture") in the original aggregate principal amount of
$500,000, to be dated the date of issue, to mature August 16, 1999, to bear
interest on the unpaid balances thereof from the date thereof until the
principal shall have become due and payable at the rate of 6% per annum, which
interest shall be deferred and added to the outstanding principal balance of
the Convertible Debentures, and to be substantially in the form of Exhibit A
attached hereto; and such Convertible Debenture will be a part of up to
$4,000,000 of convertible debentures having identical terms (other than as to
the purchaser, date and amount) which the Company may sell pursuant to a
convertible debenture purchase agreement and an investor's rights agreement
having the same terms as this Agreement and the Investor's Rights Agreement.
WHEREAS, the Purchaser wishes to purchase the Convertible Debenture on
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the mutual
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used herein, unless the context
otherwise requires, the following terms have the following meanings
specified with respect thereto below:
"AGREEMENT" shall mean this Convertible Debenture Purchase
Agreement, as the same may be amended or supplemented and in effect
from time to time.
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"AMENDMENT" shall have the meaning ascribed thereto in Section
8.16.
"BALANCE SHEET" shall have the meaning ascribed thereto in
Section 4.05.
"BANKRUPTCY LAW" shall have the meaning ascribed thereto in
Section 9.01.
"BLANK CHECK PREFERRED STOCK" shall have the meaning ascribed
thereto in Section 4.04.
"BUSINESS DAY" shall mean any day which is not a Saturday or
Sunday or a national banking holiday.
"BY-LAWS" shall mean the By-laws of the Company, as amended.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of
Designation of the Company to be substantially in the form of Exhibit B
attached hereto.
"CERTIFICATE OF INCORPORATION" shall mean the Certificate of
Incorporation of the Company, including all amendments thereto through
the date hereof, including any amendments effected by means of a
certificate of designation, a copy of which is attached hereto as
Exhibit C.
"CLOSING" shall have the meaning ascribed thereto in Section
2.02.
"CLOSING DATE" shall have the meaning ascribed thereto in
Section 2.02.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMMISSION" shall mean the Securities and Exchange
Commissions or any other federal agency at the time administering the
Securities Act.
"COMMON CONVERSION SHARES" shall mean the shares of Common
Stock issuable upon conversion of the Preferred Conversion Shares.
"COMMON STOCK" shall mean the Common Stock, par value $0.001
per share, of the Company.
"COMPANY" shall have the meaning ascribed thereto in the
preamble.
"CONVERTIBLE DEBENTURE" shall have the meaning ascribed
thereto in the preamble.
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"CONVERSION" shall have the meaning ascribed thereto in
Section 3.01.
"CONVERSION NOTICE" shall mean the notice of conversion in the
form attached to the Convertible Debenture, which notice shall set
forth the name of the registered owner of the Convertible Debenture
being converted and the principal balance, or portion thereof, being
converted.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or
by the terms of any instrument or agreement relating thereto matures
on demand or within one year from the date of the creation thereof and
is not directly or indirectly renewable or extendible at the option of
the debtor to a date more than one year from the date of the creation
thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"ERISA" shall mean the Employee retirement Income Security Act
of 1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member
of the same controlled group of corporations as the Company within the
meaning of Section 414(b) of the Code, or any trade of business which
is under common control with the Company withing the meaning of
Section 414(C) of the Code, or any other entity which is considered to
be a single employer with the Company pursuant to Sections 414(m), (n)
or (o) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in
Section 9.01 provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of
time, or the happening of any further condition, event or act, and
"DEFAULT" shall mean any of such events, whether or not any such
requirement has been satisfied.
"EXISTING DEBT" shall have the meaning ascribed thereto in
Section 4.14.
"FUNDED DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is
otherwise payable or unpaid, more than one year from, or is directly
or indirectly renewable or extendible at the option of the debtor to a
date more than one year from, the date of the creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct
or indirect liability, contingent or otherwise, of such Person with
respect to any indebtedness, lease, dividend or other obligation of
another, including, without limitation, any such
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obligation directly or indirectly guaranteed, endorsed (otherwise than
for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which
such Person is otherwise directly or indirectly liable, including,
without limitation, any such obligation in effect guaranteed by such
Person through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment of discharge of such
obligation (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), or to maintain the solvency or any
balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies
or for any transportation or services regardless of the non-delivery or
non-furnishing thereof, in any such case if the purpose or intent of
such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders or such obligation will be
protected against loss in respect thereof.
"HUD LOAN" shall mean that certain loan to the Company by
Lexington County, South Carolina pursuant to the United States
Department of Housing and Urban Development Section 108 Loan Program.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (I) all items which in accordance with generally accepted
accounting principles would be included in determining total
liabilities as shown on the liability side of a balance sheet of such
Person as of the date on which Indebtedness is to be determined, (ii)
all indebtedness secured by any Lien on any property or asset owned or
held by such Person subject thereto, whether or not the indebtedness
secured thereby shall have been assumed, and (iii) all indebtedness of
others with respect to which such Person has become liable by way of a
Guarantee.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed
thereto in Section 4.13.
"INVESTOR'S RIGHT AGREEMENT" shall mean the Investor's Right
Agreement, dated the date hereof, between the Company and the
Purchaser, a copy of which is attached hereto as Exhibit D.
"LIEN" shall mean any mortgage, pledge, priority, security
interest, encumbrance, lien (statutory or otherwise) or charge of any
kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the
nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction) or
any other type of preferential arrangement for the purpose, or having
the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
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"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on the assets, business, operations or financial condition of the
Company.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a
"multiemployer plan" (as such term is defined in Section 4001(a)(3) of
ERISA).
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the
name of the Company by its Chairman of the Board, President and Chief
Executive Officer, Chief Financial Officer, one of its Vice Presidents
or its General Counsel and Secretary.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor entity.
"PERSON" shall mean a corporation, an association, a
partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
"PLAN" shall mean any "employee pension benefit plan" (as such
term is defined in Section 3(2) of ERISA) which is or has been
established or maintained, or to which contributions are or have been
made, by the Company or any ERISA Affiliate.
"PREFERRED CONVERSION SHARES" shall mean the shares of Series
E Preferred Stock issuable upon conversion of the Convertible
Debentures as set forth in Article III hereof.
"PREFERRED STOCK" shall mean all classes or series of
preferred stock, par value $0.001 per share, of the Company.
"PURCHASER" shall have the meaning ascribed thereto in the
preamble.
"RESTRICTED PAYMENT" shall mean (I) the declaration, payment
or setting apart of any sum for payment of dividend (including a
dividend payable in capital stock of the Company) on, or any
distribution (including a distribution in capital stock of the
Company) in respect of, any shares of capital stock of the Company or
any warrants, rights or options to purchase any shares of capital
stock of the Company or (ii) the redemption, repurchase, retirement or
other acquisition of (or the setting apart of any sum in respect of
any of the foregoing actions) any shares of capital stock of the
Company or any warrants, rights or options to purchase or acquire any
shares of capital stock.
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"SECURITIES" shall have the meaning ascribed
thereto in Section 4.19.
"SECURITIES ACT" shall have the meaning ascribed thereto in
Section 4.19.
"SERIES E PREFERRED STOCK" shall mean shares of Series E
Preferred Stock of the Company.
"Stockholder Approval" shall have the meaning ascribed
thereto in Section 8.16.
"SUBSIDIARY" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting
power to elect a majority of the Board of Directors of such
corporation (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason
of the happening of any contingency) is at the time directly or
indirectly owned by the Company, or by one or more of its
subsidiaries.
"TRANSFEREE" shall mean any direct or indirect transferee of
all or any part of any Convertible Debenture purchased by the
Purchaser under this Agreement.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES. The Company agrees to issue and sell to Purchaser and the
Purchaser hereby agrees to purchase from the Company, the Convertible
Debentures in the aggregate principal amount of $500,000 at 100% of such
aggregate principal amount.
SECTION 2.02. CLOSING. The closing shall take place at the offices
of Air South Airlines, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ at
12:30 o'clock p.m. Eastern Daylight Savings Time, on September 4, 1996, or at
such other location, date and time as may be agreed upon between the Purchaser
and the Company (such closing being called the "Closing" and such date and time
being called the "Closing Date"). At the Closing, the Company shall issue and
deliver to the Purchaser one or more Convertible Debentures, registered in the
name of such Purchaser, evidencing the aggregate principal amount of
Convertible Debentures to be purchased by the Purchaser at the Closing, and in
the denomination or denominations specified in writing by the Purchaser. As
payment in full for the Convertible Debentures being purchased by the Purchaser
under this Agreement, on the Closing Date the Purchaser shall deliver to the
Company a check payable to the order of the Company, in the amount of the
purchase price or shall transfer such sum to the account of the Company by wire
transfer, or shall deliver to the Company
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notes evidencing indebtedness of the Company for cancellation thereof, or any
combination of the foregoing.
ARTICLE III
CONVERSION
SECTION 3.01. CONVERSION; NUMBER. The holder of any Convertible
Debenture, at its option, will be entitled at any time commencing three (3)
Business Days after Stockholder Approval and ending on the close of business on
the final maturity date of the Convertible Debentures to convert any
Convertible debentures, or portions thereof, into shares of Series E Preferred
Stock. The Convertible Debenture will automatically be converted into shares
of Series E Preferred Stock upon the closing of a firmly underwritten public
offering of Common Stock on a Form S-1 Registration Statement at an Aggregate
public offering price (after underwriting discounts and commissions) of at
least $10,000,000 and a per share price equal to or greater than $4.00 (as
appropriately adjusted for stock splits and the like). In either case (each of
which is sometimes hereinafter referred to as a "Conversion"), the number of
shares of Series E Preferred Stock to be issued upon such Conversion shall be
determined by dividing the aggregate principal balance of the Convertible
Debenture to then be converted by twenty-five hundredths (0.25). The Company
is not required to issued fractional shares of Series E Preferred Stock upon
conversion of any Convertible Debenture and, in lieu thereof, will pay a cash
adjustment.
SECTION 3.02. CONVERSION PROCEDURE. If the holder elects to
convert any Convertible Debenture such holder may do so by delivering the
Convertible Debenture at the specified office of the Company, accompanied by a
duly signed and completed Conversion Notice. The date of the Conversion shall
be the date on which the Convertible Debenture and the duly signed and
completed Conversion Notice are received by the Company. A holder delivering a
Convertible Debenture for conversion will not be required to pay any taxes or
duties payable with respect to the issue or delivery of Series E Preferred
Stock on Conversion and any such taxes or duties shall be paid by the Company.
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO DEFAULT;
CONDITIONS PRECEDENT TO CONVERSION.
(a) On and as of the date of each Conversion, (i) the
Company shall be deemed to have (A) remade, ratified and confirmed all
representations and warranties of the Company contained in Article IV
of this Agreement, (B) certified compliance with all covenants
contained in Article VIII of this Agreement and (c) certified that no
Event of Default or Default exists and is continuing, and (ii) the
Company shall deliver an Officer's Certificate to the effects set
forth in (A), (B) and (C) above.
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(b) In addition to the provisions of Section 3.03(a)
above, on and as of the date of each Conversion, the Company shall
have caused to be delivered to the Purchaser an opinion of the General
Counsel of the Company, substantially in the form of Exhibit E
attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that:
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the
properties owned or leased by it requires such qualification, except
where the failure to be so qualified would to have a Material Adverse
Effect. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and
as proposed to be conducted, to execute, deliver and perform its
obligations under this Agreement, to issue, sell and deliver the
convertible Debentures and, subject to approval by the stockholders of
the Company of an amendment to the Certificate of Incorporation, to
increase the authorized number of shares of Common Stock and Preferred
Stock, to issue and deliver the Preferred Conversion Shares and the
Common Conversion Shares.
(b) The Company has no Subsidiaries. The Company does
not (i) own of record or beneficially, directly or indirectly (A) any
shares of capital stock or securities convertible into capital stock
of any other corporation or (B) any participating interest in any
partnership, joint venture or other non-corporate business enterprise
or (ii) control, directly or indirectly, any other entity.
SECTION 4.02. AUTHORIZATION. The execution and delivery by the
Company of this Agreement, the performance by the Company of its obligations
hereunder, the issuance, sale and delivery of the Convertible Debentures and,
subject to approval by the stockholders of the Company of an amendment to the
Certificate of Incorporation to increase the authorized number of shares of
Common Stock and Preferred Stock, the issuance and delivery of the Preferred
Conversion Shares and the Common Conversion Shares have been duly authorized by
all requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Certificate of
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Incorporation or the By-laws, or any provision of any indenture, agreement or
other instrument to which the Company, any of its subsidiaries or any of their
respective properties or assets is bound, or conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under any
such indenture agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of its
subsidiaries.
SECTION 4.03. VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms.
SECTION 4.04. CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 18,000,000 shares of Common Stock, par value $0.001 per
share; (ii) 1,250,000 shares of Series A Preferred Stock, par value $0.001 per
share; (iii) 625,000 shares of Series B Preferred Stock, par value $0.001 per
share; (iv) 120,000 shares of Series C Preferred Stock, par value $0.001 per
share; and (v) 5,000 shares of one or more series of Preferred Stock (the
"Blank Check Preferred Stock"). Immediately prior to the Closing, 6,917,182
shares of Common Stock, 1,250,000 shares of Series A preferred Stock, 625,000
shares of Series B Preferred Stock and 120,000 shares of Series C Preferred
Stock were outstanding and have been validly issued and are fully paid and
nonassessable with no personal liability attaching to the ownership thereof.
The Company has sold $4,000,000 of convertible debentures due August 16,1999.
Such convertible debentures are convertible into 16,000,000 shares of Series D
Preferred Stock which, when authorized and issued, will in turn, be convertible
into 16,000,000 shares of Common Stock. The convertible debentures are part of
up to an additional $3,000,000 of convertible debentures due August 16, 1999
authorized to be issued on or prior to September 30, 1996; such additional
convertible debentures shall be convertible into a number of shares of Series E
preferred Stock determined by dividing the aggregate principal balance of the
convertible debentures to then be converted by twenty five hundredths (.025).
Such shares of Series E Preferred Stock are in turn each convertible into one
share of Common Stock. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and
series of authorized capital stock of the Company are as set forth in the
Certificate of Incorporation, and all such designations, powers, preferences,
rights, qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws. Except as set forth on
Schedule 4.04, there are no outstanding options, preemptive or other rights,
warrants, agreements, voting trusts, proxies, contracts, calls, commitments or
demands of any character relating to any shares of capital stock, or any other
securities of the Company, whether or not issued, including, but not limited
to, securities convertible into or evidencing the right to purchase any capital
stock or other securities of the Company. Except as set forth on Schedule
4.04, the Company has no obligation (contingent or other)
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to purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as set forth on Schedule 4.04, there are no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company or any of its subsidiaries (whether or not the
Company or any of its subsidiaries is a party thereto). All of the outstanding
securities of the Company were issued in compliance with all applicable federal
and state securities laws.
SECTION 4.05. FINANCIAL STATEMENTS. The Company has furnished to
the Purchaser the consolidated balance sheet of the Company as of December 31,
1995 (the "Balance Sheet"), and the related statements of income, stockholders'
equity and cash flows of the Company for the year ended December 31, 1995. All
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied and fairly present the
financial position of the Company as of December 31, 1995, and the results of
operations and cash flows of the Company for the year ended December 31, 1995.
Since the date of the Balance Sheet, (i) there has been no change in the
assets, liabilities or financial condition of the Company (on a consolidated
basis) from that reflected in the Balance Sheet, except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse, and (ii) non of the business, prospects, financial condition,
operations, property or affairs of the Company (on a consolidated basis) has
been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET.
Since the date of the Balance Sheet, the Company has not, except as set forth
on Schedule 4.06, (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Balance Sheet and current liabilities incurred since
the date of the Balance Sheet in the ordinary course of business, (iv) declared
or made any payment or distribution to stockholders or purchased or redeemed
any share of its capital stock or other security, (v) mortgaged, pledged or
subjected to lien any of its assets, tangible or intangible, other than liens
of current real property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade
name, service ▇▇▇▇, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business or as otherwise
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contemplated hereby or (xii) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS. The Company is not in
violation of any term of its Certificate of Incorporation or By-laws, or any
statue, rule or regulation applicable to the Company. Except as set forth on
Schedule 4.07, the Company is not in violation or in default of any term
contained in any instrument or contract to which it is a party. Except as set
form on Schedule 4.07, no event or failure of performance has occurred which,
with the passage of time or the giving of notice or both, would constitute such
a violation. None of the violations set forth on Schedule 4.07 will have a
Material Adverse Effect.
SECTION 4.08 LITIGATION. Except as set forth on Schedule 4.08.
There are no (i) actions, suits, claims, proceedings or investigations pending
or, to the best of the Company's knowledge, threatened against or affecting the
Company, at law or in equity, or before or by and federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceedings relating to
the Company pending under collective bargaining agreements or otherwise or
(iii) governmental inquiries pending or, to the best of the Company's
knowledge, threatened against or affecting the Company (including without
limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and the Company is not aware of any basis for
any of the foregoing. None of the actions, suits, claims, proceedings, or
investigations set forth on Schedule 4.08 will have a Material Adverse Effect.
The Company is not in default with respect to any order, writ, injunction or
decree known to or served upon the Company of any court or of any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign.
SECTION 4.09. COMPLIANCE WITH LAW. The Company has complied with
all laws, rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, and the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted to the extent failure to do so would
have a material adverse effect on the business of the Company. There is no
existing law, rule, regulation or order, and the Company is not aware of any
proposed law, rule, regulation or order, whether federal or state, which would
prohibit or restrict the Company from, or otherwise materially adversely affect
the Company in, conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
SECTION 4.10. TITLE TO PROPERTIES. The Company has good and
marketable title to its properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets
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are free and clear of mortgages, pledges, security interests, liens, charges,
claims restrictions and other encumbrances, except (i) for Liens set forth on
Schedule 4.10, (ii) for Liens for taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and (iii) for
Liens not materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations or proposed operations of
the Company.
SECTION 4.11. LEASEHOLD INTERESTS. Each lease or agreement to
which the Company is a party under which it is a lessee of any property, real
or personal, is a valid and subsisting agreement without any default of the
Company thereunder, except as set forth on Schedule 4.11, and, to the best of
the Company's knowledge, without any default thereunder of any other party
thereto. No event has occurred and is continuing which, with due notice or
lapse of time or both, would constitute a default or event of default by the
Company under any such lease or agreement or, to the best of the Company's
knowledge, by any other party thereto. The Company's possession of such
property has not been disturbed and, to the best of the Company's knowledge, no
claim has been asserted against the Company adverse to its rights in such
leasehold interests.
SECTION 4.12. TAXES. The Company has filed all tax returns,
federal, state, county and local, required to be filed by it, and the Company
has paid all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable,
including without limitation all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. All
such taxes with respect to which the Company has become obligated pursuant to
elections made by the Company in accordance with generally accepted practice
have been paid and adequate reserves have been established for all taxes
accrued but not yet payable. The Federal income tax returns of the Company
have never been audited by the Internal Revenue Service. No deficiency
assessment with respect to or proposed adjustment of the Company's Federal,
state, county or local taxes is pending or, to the best of the Company's
knowledge, threatened. There is no tax lien, whether imposed by any federal,
state, county or local taxing authority, outstanding against the assets,
properties or business of the Company.
SECTION 4.13. PATENTS, TRADEMARKS, ETC. The Company owns or
possesses adequate licenses or other rights to use all trademarks, trademark
applications, service marks, service ▇▇▇▇ applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets and know how, and
all patents and patent applications known to the Company (collectively,
"Intellectual Property"), necessary to the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the
Company infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and there is no known basis for any such claim
(whether or not pending or threatened). No claim is pending or threatened to
the effect that any such Intellectual Property owned or
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licensed by the Company, or which the Company otherwise has the right to use,
is invalid or unenforceable by the Company, and there is no basis known to the
Company for any such claim (whether or not pending or threatened). To the best
of the Company's knowledge, all technical information developed by and belonging
to the Company which has not been patented has been kept confidential. Except
as set forth on Schedule 4.13, the Company has not granted or assigned to any
other person or entity any right to manufacture, have manufactured, assemble or
sell the products or proposed products or to provide the services or proposed
services of the Company.
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES.
(a) All of the outstanding Debt of the Company is set
forth on Schedule 4.14 ("Existing Debt"). Except as set forth on
Schedule 4.07, there exists no default under the provisions of any
instrument evidencing such Existing Debt or of any agreement relating
thereto.
(b) The Company does not have any outstanding loans or
advances to any person and is not obligated to make any such loans or
advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be
incurred by them in connection with their performance of services for
the Company.
SECTION 4.15. GUARANTEES. The Company is not a party to any
Guarantee by it of obligations of any other party.
SECTION 4.16. GOVERNMENTAL APPROVALS. No registration or filing
with, or consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement, the
issuance, sale and delivery of the Convertible Debentures, the issuance and
delivery of the Preferred Conversion Shares upon the conversion of the
Convertible Debentures, or the issuance and delivery of the Common Conversion
Shares upon conversion of the Preferred Conversion Shares, other than the
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized number of shares of Common Stock
and Preferred Stock.
SECTION 4.17. DISCLOSURE. Neither this Agreement, nor any Schedule
or Exhibit to this Agreement contains an untrue statement of a material fact or
omits a material fact necessary to make the statement contained herein or
therein not misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the
transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not disclosed
to the Purchaser and of
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which the Company is aware which materially and adversely affects or could
materially and adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company or any of its subsidiaries.
SECTION 4.18. BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 4.19. SECURITIES ACT. The offer, sale and issuance of the
Convertible Debentures, the Preferred Conversion Shares and the Common
Conversion Shares (collectively, the "Securities") will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit
qualification requirements of any applicable state securities laws. Neither
the Company nor any agent on its behalf has solicited or will solicit any
offers to sell or has offered to sell or will offer to sell all or any part of
the Securities to any Person so as to bring the bring the sale of such
Securities by the Company within the registration provisions of the Securities
Act.
SECTION 4.20. MARGIN REGULATIONS. The Company will not, directly
or indirectly, use any of the proceeds of the Securities for the purpose,
whether immediate, incidental or ultimate, of maintaining, purchasing or
carrying any stock that is currently a "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System (12 C.F.R
207, as amended) or Regulation U of such Board (12 C.F.R. 221, as amended), or
otherwise take or permit to be taken any action which would result in the
carrying out of any of the other transactions contemplated hereby or thereby
being violative of such Regulation G or Regulation U, or of Regulation T (12
C.F.R. 220, as amended), Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such Board. The Company and its Subsidiaries do not own or
intend to acquire any "margin stock" within the meaning of such Regulation G or
such Regulation U.
SECTION 4.21. INSURANCE COVERAGE. Each property of the Company is
insured for the benefit of the Company in amounts deemed adequate by the
Company's management against risks usually insured against by persons operating
businesses similar to those of the Company in the localities where such
properties are located.
SECTION 4.22. ERISA. No accumulated funding deficiency (as defined
in Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No
liability to the PBGC has been or is expected by the Company or any ERISA
Affiliate to be incurred with respect to any Plan (other than a Multiemployer
Plan) by the Company or any ERISA Affiliate which would have a Material Adverse
Effect. Neither the Company nor any ERISA Affiliate is a participant in any
Multiemployer Plan. The execution and delivery of this Agreement and the
issuance and sale of the Convertible Debentures will be exempt from, or will
not
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involve any transaction which is subject to, the prohibitions of Section 406 of
ERISA and will not involve any transaction in connection with which a penalty
could be imposed under Section 502(i) of ERISA or a tax could be imposed
pursuant to Section 4975 of the Code. The Company and its ERISA Affiliates do
not provide any benefits to former employees except as may be required by COBRA
(Section 4980B of the Code and Sections 601 et seq. Of ERISA). Neither the
Company nor any ERISA Affiliate is a party to a collective bargaining agreement
or is required to bargain with any collective bargaining unit.
SECTION 4.23. ENVIRONMENTAL COMPLIANCE. The Company and its
properties and facilities have complied at all times and in all respects with
all federal, state, local and regional statutes, laws, ordinances and judicial
or administrative orders, judgments, rulings and regulations relating to
protection of the environment except, in any such case, where failure to comply
would not have a Material Adverse Effect.
SECTION 4.24. PERMITS AND LICENSES. The Company has all federal,
state and local governmental permits, licenses, certificates of authority any
similar authority necessary for the conduct of its business as now being
conducted and as proposed to be conducted. The Company is not in default in
any material respect under any such permit, license, certificate of authority
or other similar authority.
SECTION 4.25. BOARD COMPOSITION. Article III, Section 1 of the
By-laws provides that the number of directors which shall constitute the whole
Board of Directors of the Company (the "Board") shall be not less than three
(3) nor more than fifteen (15), with the specific number determined by a
resolution of the Board, or by the shareholders of the Company at the annual
meeting. Effective immediately upon the Closing, the current Board members
will be ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Company that:
(a) the Convertible Debentures being purchased by it are
being acquired for its own account for the purpose of investment and
not with a view to or for sale in connection with any distribution
thereof;
(b) it understands that: (i) there is not now any market
for the Convertible Debentures, the Series E Preferred Stock or the
Common Stock (collectively, the "Securities") and that it is possible
that no market may develop in the foreseeable
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future; (ii) that the Securities when issued will have been
issued in transactions which are exempt from registration under the
federal securities laws and any applicable state securities laws (the
"Securities Laws"); (iii) will be "restricted securities" in the
context of the Securities Laws; and, this, (iv) will not be
transferable unless registered or an exemption from registration is
available.
(c) it understands that an investment in the Securities
involves a high degree of risk and that there is a significant risk of
losing the investment in its entirety;
(d) if the investor is a natural person he or she is
either (i) a person who has an individual net worth, or joint net
worth with that person's spouse, on the date hereof of $1,000,000 or
(ii) a person who had an individual income of $200,000 in each of the
two most recent years of joint income with that person's spouse of
$300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
(e) it has not employed any broker or finder in
connection with the transactions contemplated by this Agreement; and
(f) the execution, delivery and performance by it of this
Agreement have been duly authorized by all requisite action by it and
this Agreement constitutes the valid and binding obligation of it,
enforceable in accordance with its terms.
ARTICLE VI
CONDITION TO THE OBLIGATIONS
OF THE PURCHASER
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER. The
obligation of the Purchaser to purchase and pay for the Convertible Debentures
being purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND
CORRECT. The representations and warranties of the Company contained
in Article IV shall be true, complete and correct on and as of the
Closing Date with the same effect as though such representations and
warranties had been mad eon and as of such date.
(b) PERFORMANCE. The Company shall have performed and
complied with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date.
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(c) OFFICER'S CERTIFICATE. The Company shall have
executed and delivered to the Purchaser an Officer's Certificate to
the effects set forth in (a) and (b) above.
(d) INVESTOR'S RIGHTS AGREEMENT. The Company shall have
executed and delivered the Investor's Rights Agreement to the
Purchaser.
(e) OPINION OF COUNSEL. The Purchaser shall have
received an opinion of the General Counsel of the Company, such
opinion to be substantially in the form of Exhibit F attached hereto.
(f) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate
and other proceedings to be taken by the Company in connection with
the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Purchaser
and its counsel, and the Purchaser and its counsel shall have received
all such counterpart originals or certified or other copies of such
documents as they reasonably may request.
(g) SUPPORTING DOCUMENTS. The Purchaser and its counsel
shall have received copies of the following documents:
(i) a certificate of the Secretary of State of
the State of Delaware, dated as of a recent date as to the due
incorporation and good standing of the Company;
(ii) a certificate of the Secretary or an
Assistant Secretary of the Company dated the Closing Date and
certifying: (A) that the Certificate of Incorporation attached
to this Agreement is a true and complete copy of the
Certificate of Incorporation of the Company; (B) that the
Certificate of Incorporation has not been amended since the
date of the last amendment referred to in the certificate
delivered pursuant to clause (ii)(A) above;(c) that attached
thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification; (D)
that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors or the
stockholders of the Company authorizing the execution,
delivery and performance of this Agreement, and the issuance,
sale and delivery of the Convertible Debentures and that all
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreement; and (E) to the incumbency and
specimen signature of each officer of the Company executing
this Agreement, the Convertible Debentures and any certificate
or instrument furnished pursuant hereto, and a certification
by another officer of the Company as to
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the incumbency and signature of the officer signing the certificate referred
to in this subparagraph 6.01 (g) (ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs
of the Company as the Purchaser or its counsel reasonable may
request.
(h) THIRD PARTY CONSENTS, PERMITS AND WAIVERS. The
Company shall have obtained any and all consents, permits and waivers
necessary or appropriate for the consummation of the transactions
contemplated by this Agreement.
(i) NO INJUNCTIONS OR RESTRAINTS. There shall be no
action, suit, investigation or proceeding pending, or, to the best of
the Company's knowledge, threatened, against or affecting the Company,
any of the Company's properties or rights, or any of the Company's
officers or directors, before any court, arbitrator or administrative
or governmental body which (i) seeks to restrain, enjoin, or prevent
the consummation of the transactions contemplated by this Agreement or
(ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with
any such transactions and, to the best of the Company's knowledge,
there shall be no valid basis for any such action, proceeding or
investigation.
All such documents shall be satisfactory in form and substance to the Purchaser
and its counsel.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and sell the Convertible Debentures on the
Closing Date is, at its option, subject to the satisfaction, on or before the
Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND
CORRECT. The representations and warranties of the Purchaser
contained in Article 5 shall be true, complete and correct on and as
of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
(b) PERFORMANCE. The Purchaser shall have performed and
complied with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date.
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(c) OFFICER'S CERTIFICATE. The Purchaser shall have
delivered to the Company a certificate of an officer of the Purchaser
to the effects set forth in (a) and (b) above.
(d) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate
and other proceedings to be taken by the Purchaser in connection with
the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Company and
its counsel, and the Company and its counsel shall have received all
such counterpart originals or certified or other copies of such
documents as they reasonably may request.
(e) NO INJUNCTIONS OR RESTRAINTS. There shall be no
action, suite, investigation or proceeding pending, or, to the best of
the Company's knowledge, threatened, against or affecting the Company,
any of the Company's properties or rights, or any of the Company's
officers or directors, before any court, arbitrator or administrative
or governmental body which (i) seeks to restrain, enjoin, or prevent
the consummation of the transactions contemplated by this Agreement or
(ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with
any such transactions and, to the best of the Company's knowledge,
there shall be no valid basis for any such action, proceeding or
investigation.
ARTICLE VIII
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that so long as
any Convertible Debenture is outstanding:
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS. The Company shall
furnish to the Purchaser:
(a) as soon as practicable, and in any event at least 30
days prior to the beginning of each fiscal year of the Company,
consolidated statements of forecasted income and cash flow and
consolidated forecasted balance sheet of the Company for each month
and each fiscal quarter in such fiscal year and for the period from
the beginning of such fiscal year to the end of each such month and
end of each such fiscal quarter, in each case as at the end of each
such month and fiscal quarter;
(b) as soon as practicable after the end of each month in
each fiscal year (other than the last month in each fiscal year), and
in any event within 30 days
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thereafter, consolidated statements of income and cash flow of the Company for
such month and for the period from the beginning of the current fiscal year to
the end of such month and a consolidated balance sheet of the Company as at the
end of such month, and setting forth, in each case, in comparative form,
figures for the corresponding months in the preceding fiscal year (other than
any such corresponding months ended prior to the Closing) and figures in the
Company's budget for the corresponding months in the current fiscal year;
(c) as soon as practicable after the end of each fiscal
quarter of the Company in each fiscal year (other than the last fiscal
quarter in each fiscal year), and in any event within forty-five (45)
days thereafter, a consolidated balance sheet of the Company and the
related consolidated statements of income, stockholders' equity and
cash flows, unaudited but prepared in accordance with generally
accepted accounting principles and certified by the Chief Financial
Officer of the Company, such consolidated balance sheet to be as of
the end of such fiscal quarter and such consolidated statements of
income, stockholders' equity and cash flows to be for such fiscal
quarter and for the period from the beginning of the fiscal year to
the end of such fiscal quarter, in each case with comparative
statements for the corresponding period in the prior fiscal year;
(d) as soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company as of the end
of such fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with generally accepted accounting principles
and certified by a firm of independent public accountants of recognized
national standing selected by the Board of Directors of the Company;
(e) promptly upon transmission thereof, copies of all
such financial statements, proxy statements, notices and reports as it
shall send to its stockholders and copies of all registration
statements (without exhibits) and all reports which it files with the
Commission;
(f) promptly upon sending, all press releases that the
Company disseminates;
(g) promptly upon receipt thereof, a copy of each other
report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company or any Subsidiary;
(h) as soon as practicable and in any event within five
days after any officer of the Company obtaining knowledge (i) of any
condition or event which, in
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the opinion of management of the Company, would have a Material Adverse
Effect (ii) that any Person have given any notice from any Person to
the Company or taken any other action with respect to a claimed default
or event or condition of the type referred to in Section 9.01(ii),
(iii) of the institution of any litigation involving claims against the
Company equal to or greater than $100,000 with respect to any single
cause of action or of any adverse determination in any court proceeding
in any litigation involving a potential liability to the Company equal
to or greater than $100,000 with respect to any single cause of action
which makes the likelihood of an adverse determination in such
litigation against the Company substantially more probable, or (iv) of
any regulatory proceeding which may have a Material Adverse Effect on
the Company, an Officer's Certificate specifying the nature and period
of existence of any such condition or event, or specifying the notice
given or action taken by such Person and the nature of any such claimed
default, event or condition, or specifying the details of such
proceeding, litigation or dispute and what action the Company has
taken, is taking or proposes to take with respect thereto;
(i) promptly after the filing or receiving thereof,
copies of all reports and notices which the Company files under ERISA
with the Internal Revenue Service or the PBGC or the U.S. Department
of Labor or which the Company receives from such corporation; and
(j) with reasonable promptness, such other information
respecting the condition or operations, financial or otherwise, of the
Company as the Purchaser may reasonably request.
Together with each delivery of financial statements required by clauses (c) and
(d) above, the Company will deliver to the Purchaser an Officer's Certificate
stating that there exists no Event of Default or Default, or, if any Event of
Default or Default exists, specifying the nature and period of existence
thereof and what action the Company proposes to take with respect thereto.
Together with each delivery of financial statements required by clause (d)
above, the Company will deliver to the Purchaser a certificate of such
accountants stating that, in making the audit necessary for their report on
such financial statements, they have obtained no knowledge of any Event of
Default or Default, or, if they have obtained knowledge of any Event of Default
or Default, specifying the nature and period of existence thereof.
The Company also covenants that immediately after any officer obtains
knowledge of an Event of Default or Default, it will deliver to the Purchaser
an Officer's Certificate specifying the nature and period of existence thereof
and what action the Company proposes to take with respect thereto.
SECTION 8.02. CORPORATE EXISTENCE. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
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SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company
will maintain or cause to be maintained in good repair, working order and
condition all properties used or useful in the business of the Company and from
time to time will make or cause to be made appropriate repairs, renewals and
replacements thereof. The Company shall maintain its properties and business,
with financially sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts as is customary for
companies similarly situated, including but not limited to fire and other risks
insured against by extended coverage, product liability insurance and public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by the Company, which insurance shall be deemed by
the Company to be sufficient; and maintain workers' compensation insurance and
such other insurance as may be required by law.
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE. The Company
shall permit the Purchaser to visit and inspect any of the properties of the
Company, examine its books and take copies and extracts therefrom, discuss the
affairs, finances and accounts of the Company with its officers, employees and
public accountants (and the Company hereby authorizes said accountants to
discuss with the Purchaser such affairs, finances and accounts), and consult
with and advise the management of the Company as to its affairs, finances and
accounts, all at reasonable times and upon reasonable notice.
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED. The Company shall
not become a party to any agreement which by its terms restricts the Company's
performance of this Agreement.
SECTION 8.06. TRANSACTIONS WITH AFFILIATES. Except for
transactions contemplated by this Agreement, the Company shall not enter into
any transaction with any director, officer, employee or holder of more than 5%
of the outstanding capital stock of any class or series of capital stock of the
Company, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof.
SECTION 8.07. USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Convertible Debentures solely for working capital or other
such uses as may be authorized by the Board of Directors.
SECTION 8.08. SUBSIDIARIES. The Company shall not create or have
any Subsidiaries.
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SECTION 8.09. COMPLIANCE WITH LAWS. The Company shall comply with
all applicable laws, rules, regulations and orders, noncompliance with which
could have a Material Adverse Effect.
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep true records and books of account, in which full and complete
entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial and business
transactions of the Company, and in which, for each fiscal year, all proper
accruals and reserves for depreciation, depletion, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business shall be
made as shall be required under generally accepted accounting principles
consistently applied.
SECTION 8.11. OBLIGATIONS AND TAXES. The Company shall pay all of
its indebtedness and obligations promptly and in accordance with their terms
and pay and discharge promptly all taxes, assessments and governmental charges
or levies imposed upon it or its income or profits or in respect of its
property, before the same shall become in default, as well as all lawful claims
for labor and supplies or otherwise which, if unpaid, might become a lien or
charge upon such properties of any part thereof; provided, however, that the
Company shall not be required to pay and discharge or to cause to be paid and
discharged any tax, assessment, charge, levy or claim so long as the validity
or amount thereof shall be contested in good faith by appropriate proceedings
and the Company shall set aside on its books such reserves as are required by
generally accepted accounting principles with respect to any such tax,
assessment, charge, levy or claim so contested.
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE DEBENTURES; LOST
CONVERTIBLE DEBENTURES. Upon surrender for registration or transfer of any
Convertible Debenture at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Convertible
Debentures of like tenor and of a like aggregate principal amount, registered
int he name of such transferee or transferees. At the option of the Purchaser,
such Convertible Debenture may be exchanged for other Convertible Debentures of
like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Convertible Debenture to be exchanged at the
principal office of the Company. Whenever any Convertible Debentures are so
surrendered for exchange, the Company shall, at its expense, execute and
deliver the Convertible Debentures which the Purchaser making the exchange is
entitled to receive. Every Convertible Debenture surrendered for registration
of transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the Purchaser of such Convertible
Debenture or the Purchaser's attorney duly authorized in writing. Any
Convertible Debenture or Convertible Debentures issued in exchange for any
interest to accrue which were carried by the Convertible Debenture so exchanged
or transferred, so that neither gain nor loss of interest shall result from any
such transfer or
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exchange. Upon receipt of written notice from the Purchaser of the loss,
theft, destruction or mutilation of such Convertible Debenture and, in the case
of any such loss, theft or destruction, upon receipt of the Purchaser's
unsecured indemnity agreement, or in the case of any such mutilation upon
surrender and cancellation of such Convertible Debenture, the Company will make
and deliver a new Convertible Debenture, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Convertible Debenture. The Purchaser's own
agreement of indemnity shall constitute indemnity satisfactory to the Company
for purposes of this Section 8.12.
SECTION 8.13. LIMITATION ON DEBT. The Company will not create,
incur, assume or otherwise become or be liable with respect to any Debt except
(i) Debt represented by the Convertible Debentures; (ii) Existing Debt of the
Company; and (iii) Debt of the Company aggregating not more than $500,000 in
unpaid principal amount at any time outstanding.
SECTION 8.14. LIMITATION ON LIENS. The Company will not create,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired and whether or not provision is made by
equally and ratably securing the Convertible Debentures; provided, however,
that the foregoing restriction and limitation shall not apply to the following
Liens:
(a) Liens for taxes, assessments or governmental charges
or levies not yet delinquent or which are being contested in good
faith by appropriate proceedings;
(b) other Liens incidental to the conduct of their
business or the ownership of their properties and assets which were
not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate
materially detract from the value of their properties or assets, or
materially impair the use thereof in the operation of their business;
and
(c) any Lien existing at the time of acquisition upon any
real or personal property acquired by the Company through purchase,
merger or consolidation or otherwise, whether or not assumed by the
Company, or placed upon real or personal property being acquired by
the Company (within six months of such acquisition) to secure all or a
portion of the purchase price thereof or any Debt incurred to finance
all or any portion of such purchase price; provided, however, that (A)
such property is not and shall not thereby become encumbered in an
amount in excess of the lesser of the cost thereof or fair value
thereof (as determined in good faith by the Company, and (B) any such
Lien shall not encumber any other property of the Company; and
provided, further, that the aggregate amount at any time of all such
Debt secured under this subparagraph (iii) shall be permitted by
Section 8.13 (and any Lien renewing, extending or refunding any Lien
permitted by this subparagraph 8.14 (c) (iii), provided that the
principal amount secured is not increased, the Lien is
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not extended to other property and the Debt secured thereby
would be permitted under the provisions of Section 8.13).
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS. The Company will
not directly or indirectly make any Restricted Payments.
SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND FILING OF
CERTIFICATE OF DESIGNATION.
(a) On or prior to February 1, 1997 the Company will have
solicited and obtained the requisite approval of its stockholders (the
"Stockholder Approval") to an amendment to the Certificate of
Incorporation (the "Amendment") to increase (i) the number of
authorized shares of Preferred Stock by a sufficient number of shares
to allow all securities of the Company which are convertible into
Preferred Stock to be converted and (ii) the number of authorized
shares of Common Stock by a sufficient number of shares to allow (A)
all securities of the Company which are convertible either directly or
indirectly into Common Stock to be converted and (B) the exercise of
all options, warrants and any other rights to purchase Common Stock to
be exercised.
(b) Within two (2) Business Days after obtaining the
Stockholder Approval, the Company shall (i) file the Amendment and the
Certificate of Designation with the Secretary of State of the State of
Delaware, and (ii) take such other action as may be necessary to
enable the Purchaser, in its sole discretion, to convert any
Convertible Debenture into Series E Preferred Stock at any time
thereafter and from time to time.
(c) After giving effect to Sections 8.16(a) and (b)
above, upon the conversion of any Convertible Debenture, the Preferred
Conversion Shares and, upon conversion of the Preferred Conversion
Shares, the Common Conversion Shares, will have been duly authorized
and will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and will be free
and clear of all Liens imposed by or through the Company. In
addition, after giving effect to Sections 8.16(a) and (b), the
Preferred Conversion Shares and the Common Conversion Shares will have
been duly reserved for issuance upon conversion of the Convertible
Debenture or conversion of the Preferred Conversion Shares,
respectively. Neither the issuance, sale or delivery of the Preferred
Conversion Shares or the Common Conversion Shares will be subject to
any preemptive right of stockholders of the Company or to any right of
first refusal or other right in favor of any person.
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ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any principal
of or interest on any Convertible Debenture when the same shall become
due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults (whether as primary obligor or
as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed beyond any period
of grace provided with respect thereto, or the Company fails to
perform or observe any other agreement, term or condition contained in
any agreement under which any such obligation is created (or if any
other event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become
due (or to be repurchased by the Company) prior to any stated
maturity; or
(iii) any representation or warranty made by the Company
herein or by the Company or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made; or
(iv) the Company fails to perform or observe (A) any term,
covenant or agreement contained in Sections 8.01(h)(i), 8.02, 8.04,
8.08, 8.09, 8.11, 8.13, 8.14, 8.15, 8.16 or 8.17, or (B) any other
agreement, covenant, term or condition contained herein and such
failure shall not be remedied within 30 days after any officer obtains
actual knowledge thereof; or
(v) a majority of the members of the Board of Directors
shall be persons nominated by a person or entity other than the
Company; or
(vi) the Company makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become
due; or
(vii) any decree or order for relief in respect of the
Company is entered under any bankruptcy reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (the
"Bankruptcy Law"), of any jurisdiction; or
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(viii) the Company petitions or applies to any tribunal for,
or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the
Company, or of any substantial part of the assets of the Company, or
commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings relating to the Company under the Bankruptcy
Law of any other jurisdiction; or
(ix) any such petition or application is filed, or any
such proceedings are commenced, against the Company and the Company by
any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect for
more than 30 days; or
(x) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing a split-up of the Company
which requires the divestiture of assets representing a substantial
part of the consolidated assets of the Company (determined in
accordance with generally accepted accounting principles) for any of
the three fiscal years then most recently ended, and such order,
judgment or decree remains unstayed and in effect for more than 60
days; or
(xii) any judgment or order, or series of judgments or
orders, is rendered against the Company and either (A) enforcement
proceedings have been commenced by any creditor upon such judgment or
order or (B) within 60 days after entry thereof, such judgment is not
discharged or execution thereof stayed pending appeal, or within 60
days after the expiration of any such stay, such judgment is not
discharged:
then (a) if such event is an Event of Default specified in clause (i) of this
Section 9.01 the Purchaser may at its option, by notice in writing to the
Company, declare such Convertible Debenture to be, and such Convertible
Debenture shall thereupon be and become, immediately due and payable at par
together with interest accrued thereon, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Company, (b) if
such event is an Event of Default specified in clause (vi), (vii), (viii) or
(ix) of this Section 9.01 with respect to the Company, all of the Convertible
Debentures at the time outstanding shall automatically become immediately due
and payable at par together with interest accrued thereon, without presentment,
demand, protest or notice of any kind, all of which are hereby waived by the
Company, and (c) if such event is not an
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Event of Default specified in clause (vi), (vii), (viii) or (ix) of this
Section 9.01 with respect to the Company, the Purchaser may, by notice in
writing to the Company, declare all of the Convertible Debentures to be, and
all of the Convertible Debentures shall thereupon be and become, immediately
due and payable together with interest accrued thereon with respect to each
Convertible Debenture, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Company.
SECTION 9.02. RESCISSION OF ACCELERATION. At any time after any or
all of the Convertible Debentures shall have been declared immediately due and
payable pursuant to Section 9.01, the Purchaser may, by notice in writing to
the Company, rescind and annul such declaration and its consequences if (i) the
Company shall have paid all overdue interest on the Convertible Debentures, the
principal payable with respect to any Convertible Debentures which have become
due otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal at the rate specified in the Convertible
Debentures, (ii) the Company shall not have paid any amounts which have become
due solely by reason of such declaration, (iii) all Events of Default and
Defaults, other than non-payment of amounts which have become due solely by
reason of such declaration, shall have been cured or waived pursuant to Section
10.03, and (iv) no judgment or decree shall have been entered for the payment
of any amounts due pursuant to the Convertible Debentures or this Agreement.
No such rescission or annulment shall extend to or affect any subsequent Event
of Default of Default or impair any right arising therefrom.
SECTION 9.03. OTHER REMEDIES. If any Event of Default or Default
shall occur and be continuing, the Purchaser may proceed to protect and enforce
its rights under this Agreement and such Convertible Debenture by exercising
such remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both, whether
for specific performance of any covenant or other agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement. No
remedy conferred in this Agreement upon the Purchaser is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statue or otherwise.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. PAYMENTS. The Company will make payments of principal
of and interest on any Convertible Debenture by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to the account or accounts as specified by the Purchaser in
writing. The Purchaser agrees that, before
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disposing of any Convertible Debenture, the Purchaser will make a notation
thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been
paid. Anything in this Agreement or in the Convertible Debenture to the
contrary notwithstanding, any payment in respect of the Convertible Debenture
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day. If the date for any payment is extended to the next
succeeding Business Day by reason of the preceding sentence, the period of such
extension shall be included on the computation of the amount payable on such
Business Day.
SECTION 10.02. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save the
Purchaser harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by the Purchaser in connection with this Agreement, the
transactions contemplated hereby and any subsequent proposed modification of,
or proposed consent under, this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted, and (ii) the costs
and expenses, including attorneys' fees, incurred by you or such Transferee in
enforcing (or determining whether or how to enforce) any rights under this
Agreement or the Convertible Debentures or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the transactions contemplated hereby, including without
limitation costs and expenses incurred in any bankruptcy case.
SECTION 10.03. CONSENT TO AMENDMENTS. This Agreement may be amended,
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the Purchaser.
No course of dealing between the Company and the Purchaser nor any delay in
exercising any rights hereunder or under the Convertible Debenture shall
operate as a waiver of any rights of any holder of the Purchaser.
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Convertible Debenture is registered as the owner and holder of
such Convertible Debenture for the purpose of receiving payment of principal
of, interest on such Convertible Debenture and for all other purposes
whatsoever, whether or not such Convertible Debenture shall be overdue, and the
Company shall not be affected by notice to the contrary.
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made herein or any certificate or instrument
delivered by the parties pursuant to or in connection with this Agreement shall
survive the execution and delivery of this Agreement, the issuance, sale and
delivery of the Convertible Debenture, the transfer by the Purchaser of any
Convertible Debenture
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or portion thereof or interest therein and the payment of any Convertible
Debenture.
SECTION 10.06. BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or the transactions contemplated hereby,
based in any way on agreements, arrangements or understandings made or claimed
to have been made by such party with any third party.
SECTION 10.07. PARTIES IN INTEREST. All representations, covenants
and agreements contained in this Agreement by on or behalf of any of the
parties hereto shall bind and inure of the benefit of the respective permitted
successors and assigns of the parties hereto whether so expressed or not.
SECTION 10.09. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (i) upon receipt at the address specified below after having been sent
by certified or registered mail, return receipt requested, postage prepaid; or
(ii) upon receipt at the address specified below after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address set forth below:
(a) if to the Purchaser, to
▇▇▇▇▇▇ Group Ltd.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) if to the Company, to
Air South Airlines, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
with a copy (which shall not constitute notice) to
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Monteith Law Offices
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 10.09. ENTIRE AGREEMENT. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 10.10. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
SECTION 10.11. SEVERABILITY. If any provision of this Agreement
shall be declared void or unenforceable by any judicial or administrative
authority, the validity of any other provision and of the entire Agreement
shall not be affected thereby.
SECTION 10.12. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 10.13. GOVERNING LAW. This agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
SECTION 10.14. GENDER; PLURALS. Words of the masculine gender shall
be deemed and construed to include correlative words of the feminine and neuter
genders. Words importing the singular number shall include the plural number
and vice versa.
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IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
AIR SOUTH AIRLINES, INC.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
President
▇▇▇▇▇▇ GROUP LTD.
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
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INVESTOR'S RIGHTS AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
▇▇▇▇▇▇ GROUP LTD.
SEPTEMBER 4, 1996
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INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 4th day of September 1996, by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and ▇▇▇▇▇▇ GROUP LTD., a North Carolina
corporation ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue up to an aggregate of
$300,000 of convertible debentures (the "Debentures")and Purchaser propose to
purchase $500,000 of Debentures pursuant to the Convertible Debenture Purchase
Agreement 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 extent to it registration rights,
information rights and a right of first refusal as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
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.
"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 or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities.
"INITIAL OFFERING" means the first underwritten public offering of the
Company's securities.
"INITIATING HOLDERS" means the Holder of Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
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"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares; and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exerciseof any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under Article 2 of this Agreement
are not assigned. Outstanding Shares and warrants, rights and other securities
issued as a dividend or other distribution with respect to outstanding Shares,
or in exchange or replacement of outstanding Shares, shall be deemed to
represent a number of shares of Registrable Securities equal to the number of
shares of Common Stock into which such Shares, warrants, rights or other
securities are convertible as of the time such determination is made.
"SECURITIES ACT" shall be the Securities Act of 1933, as amended.
"SHARES" shall mean the Company's Series D Preferred Stock issuable
assuming the conversion of the Convertible Debentures.
"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 in writing for the benefit of the Company to be bound by this
Section 2.1, provided and to the extent such Section is then applicable and
either:
(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 subparagraphs
2.1(a) (i) and (ii) above, no such registration statement or opinion of counsel
shall be necessary for a transfer by a Holder (A) which is a partnership to its
partners in accordance with partnership interests, (B) to the Holder's Family
Member or trust for the benefit of an individual Holder of (C) to an affiliate
(as that term is defined in Rule 144 (a)(1) of the Securities Act) of the
Holder (an "Affiliate"), provided the transferee will be subject to the terms
of this Section 2.1 to the same extent as if he were an original Holder
hereunder.
(c) Each certificate representing Registrable Securities
shall (unless otherwise
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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.
(d) 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.
(e) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION
(a) The Purchaser shall have no right to demand that the
Company shall register all or any part of any Registrable Securities.
(b) If holders of shares of the Company's Series A
Preferred Stock or Series B Preferred Stock or when authorized and issued
Series D Preferred Stock (collectively, "A, B and D Preferred") shall exercise
their right to demand that the Company shall register any registrable
securities, as such term is defined in the investors rights agreements (the
"Applicable Agreements") relating to the A, B and D Preferred, then the Company
shall also allow the Purchaser to register Registrable Securities on a pro-rata
basis to the number of registrable securities being registered by holders of A,
B and D Preferred, based on the ratio of the total number of shares of Common
Stock into which the Series A, B and D Preferred, as the case may be, are
convertible to the total number of shares of Common Stock into which shares of
the Series E Preferred Stock are convertible. If Registrable Securities are so
included in a demand registration, the holders of such included securities
shall be subject to the terms and conditions, and obligation regarding such
registration contained in the Applicable Agreements.
(c) If the holders of A, B and D Preferred shall exercise
their right to a Form S-3 Registration under the Applicable Agreements then the
Company shall also allow the Purchaser to register Registrable Securities on
Form S-3 on a pro-rata basis to the number of registrable securities being
registered by holders of A, B and D Preferred, based on the ratio of the total
number of shares of Common Stock into which the A, B, and D Preferred, as the
case may be, are convertible to the number of shares of Common Stock into which
the Series E Preferred Stock is convertible. If Registrable Securities are so
included in a Form S-3 registration, the holders of such included securities
shall be subject to the terms and conditions, and obligations regarding such
registration contained in the Applicable
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Agreements.
(d) The Company has issued and outstanding a class of
preferred stock known as Series C Preferred Stock which is entitled to
registration rights which are substantially the same as those contained in
subsections 2.2 (b) and (c), above. Series C Preferred Stock avail themselves
of such registration rights than the pro-rata registration rights provided in
subsections 2.2 (b) and (c), above will be based on the ratio of the total
number of shares of Common Stock into which the A, B and D Preferred, as the
case may be, are convertible to the total number of shares of Common Stock into
which the shares of Series C Preferred Stock and Series E Preferred Stock are
convertible.
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 in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder
shall nevertheless continue to have the right to include any Registrable
Securities in any subsequent registration statement or registration statements
as may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein. Notwithstanding anything to
the contrary, the foregoing shall not apply to any registrations occurring on
or after the fifth anniversary of the Initial Offering.
(b) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such
Holder to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the holders of shares of the Company's Series A, Series B,
Series C, Series D and Series E Preferred stock allocated pro rata on the
basis of the total number of shares of Common Stock into which the shares of
Series A, Series B, Series C, Series D and Series E Preferred Stock are
convertible; third to the 7,500 shares of Common Stock par value $0.001 per
share held by a designee of NationsBank, N.A.; and fourth to any stockholder of
the Company (other than a
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42
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
Section 2.3, that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities.
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 2.
2.6 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under Sections 2.2 or 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 become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 2.6(a) shall not apply to amounts paid in
settlement of anysuch 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
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43
written information furnished to the Company expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal of state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity
agreement contained in this Section 2.5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.6 exceeds 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 of the counsel retained by the
indemnifying party would be inappropriate due to the actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action, if materially prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.6, 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.
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(d) If the indemnification provided for 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.
(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 2
may be assigned by a Holder to a transferee or assignee of Registrable
Securities; provided, however, that no such transferee or assignee shall be
entitled to registration rights under Sections 2.2 and 2.3, hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least one hundred thousand (100,00) 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 2 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the company and the Holders of
more than fifty percent (50%) of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 2.8 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article 2,
each Holder hereby agrees to be bound by the provisions hereunder.
2.9 "MARKET STAND-OFF" AGREEMENT. If requested by the
Company and an underwriter of Common Stock (or other securities) of the
Company, the Purchaser shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such stockholder
(other than those included in the registration) for a period
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45
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 in the future.
The Company may impose stop-transfer instructions with respect to the shares
(or securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) days 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.
(b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's annual report
on Form 10-K with the SEC, the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such year, all prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accounts of national standing selected by the Company's Board of
Directors.
(c) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
after the Initial Offering, simultaneously with the filing of the Company's
reports on Form 10-Q with the SEC, the Company will furnish each Holder a
consolidated balance sheet of the Company, as at the end of such fiscal
quarter, and a consolidated statement of income and a consolidated statement of
cash flows of the Company for 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 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
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46
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 (100,00) shares of
Registrable Securities, each such Holder shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, all at such reasonable times and as often as
may be reasonably requested; provided, however, that the Company shall not be
obligated under this Section 3.2 with respect to a competitor of the Company or
with respect to information which the Board of Directors determines in good
faith is confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Holder agrees to
use, and to use its best efforts to insure that its authorized representatives
use, the same degree of care as such Holder uses to protect its own
confidential information to keep confidential any information furnished to it
which the Company identifies as being confidential or proprietary (so long as
such information is not in the public domain), except that such Holder may
disclose such proprietary or confidential information to any partner,
subsidiary, Affiliate or parent of such Holder for the purpose of evaluating
its investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 3.3.
3.4 RESERVATION OF SERIES E PREFERRED STOCK. Upon filing
by the Company of the Certificate of Designation (as defined in the Purchase
Agreement) with the Secretary of State of the State of Delaware and at all
times thereafter, the Company will reserve and keep available, solely for
issuance and delivery upon the conversion of the Convertible Debentures, all
Series E Preferred Stock issuable from time to time upon such conversion.
3.5 RESERVATION OF COMMON STOCK. Upon filing by the
Company of the Certificate of Designation (as defined in the Purchase
Agreement) with the Secretary of State of the State of Delaware and at all
times thereafter, the Company will reserve and keep available, solely for
issuance and delivery upon the conversion of the Series E Preferred Stock
issuable upon conversion of the Convertible Debentures, all Common Stock
issuable from time to time upon such conversion.
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 Convertible Debentures
and Registrable Securities owned by such Holder, held by such Holder
immediately prior to the issuance of such Equity Securities to the total number
of shares of the Company's outstanding Common Stock (including all shares of
Common Stock issuable upon conversion of the Convertible Debentures and
Registrable Securities).
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity
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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 4 shall terminate upon the closing
of the Initial Offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal of each Holder under this Article IV may be transferred to any
subsidiary or parent of such Holder, to any successor in interest to all or
substantially all the assets of such Holder, or to an assignee or transferee
who acquires Registrable Securities.
4.6 EXCLUDED SECURITIES. The rights of first refusal
established by this Article IV shall have no application to any of the
following Equity Securities:
(a) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
of the Company;
(b) stock issued pursuant to any rights, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Article IV are applied with respect to the
initial sale or grant by the Company of such rights, options or warrants;
(c) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combinations;
(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;
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(f) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; and
(g) shares of Series E Preferred Stock issued upon
conversion of the Convertible Debentures; and
(h) any Equity Securities issued pursuant to any
equipment leasing arrangement or commercial bank financing approved by the
Company's Board of Directors.
V. MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of New York.
5.2 SURVIVAL. The representations, warranties,
covenants, and agreements made herein shall survive any investigation made by
any Holder and the closing of the transactions contemplated hereby. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors, and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each person who shall be a holder of Registrable Securities from
time to time; provided, however, that prior to the receipt by the Company of
adequate written notice of the transfer of any registrable Securities
specifying the full name and address of the transferee, the Company may deem
and treat the person listed as the holder of such shares in its records as the
absolute owner and holder of such shares for all purposes, including the
payment of dividends or any redemption price.
5.4 SEPARABILITY. In case any provision of the Agreement
shall be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
5.5 AMENDMENT AND WAIVER.
Except as otherwise expressly provided, this Agreement may be amended
or modified
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only upon the written consent of the Company and the holders of more than fifty
percent (50%) of the Registrable Securities.
Except as otherwise expressly provided, the obligations of the Company
and the rights of the Holders under this Agreement may be waived only with the
written consent of the holders of more than fifty percent (50%) of the
Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any Holder, upon
any breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
5.7 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified; (ii) upon receipt 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 as
set forth below or at such other address as such party may designate by ten
(10) days advance written notice to the other party hereto.
IF TO THE COMPANY: WITH A COPY TO:
Air South Airlines, Inc. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: President; ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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IF TO THE PURCHASER
▇▇▇▇▇▇ Group Ltd.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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. ▇▇▇▇▇▇ GROUP LTD.
By: By:
---------------------------- ----------------------------
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President and Chief Executive Officer Title:
----------------------
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