<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-b(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or
ss. 240.14a-12
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
NOT APPLICABLE
------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies: ____________________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11(1): _____________
4) Proposed maximum aggregate value of transaction: ____________
5) Total fee paid: _____________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: _____________________________________
2) Form, Schedule or Registration Statement No.: _______________
3) Filing Party: _______________________________________________
4) Date Filed: _________________________________________________
-------------------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE> 2
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
1950 SPECTRUM CIRCLE, SUITE B-100
MARIETTA, GEORGIA 30067
June 1, 2000
TO OUR SHAREHOLDERS:
You are cordially invited to attend the 2000 Annual Meeting of
Shareholders (the "Annual Meeting") of Professional Transportation Group Ltd.,
Inc. (the "Company"). The Annual Meeting will be held at the Georgian Club, 17th
Floor, 100 Galleria Parkway, Atlanta, Georgia 30339 on Thursday, June 29, 2000,
at 10:00 a.m., local time. The attached Notice of Annual Meeting and Proxy
Statement describe the formal business expected to be transacted at the Annual
Meeting. In addition to the specific matters to be acted upon, there also will
be a report on the operations of the Company, and directors and officers of the
Company will be present to respond to your questions.
Included with the Proxy Statement is a copy of the Company's 1999
Annual Report to Shareholders, which includes the Company's Annual Report on
Form 10-K. We encourage you to read the Annual Report. It includes the Company's
audited financial statements for the year ended December 31, 1999 as well as
information on the Company's operations, markets and services.
Please use this opportunity to take part in the affairs of the Company
by voting on the business to come before this Annual Meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO MARK, SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. Returning the proxy
does NOT deprive you of your right to attend the Annual Meeting and to vote your
shares in person for the matters acted upon at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ Dennis A. Bakal
Dennis A. Bakal
Chief Executive Officer and President
<PAGE> 3
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
1950 SPECTRUM CIRCLE, SUITE B-100
MARIETTA, GEORGIA 30067
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, JUNE 29, 2000
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the 2000 Annual Meeting of Shareholders
(the "Annual Meeting") of Professional Transportation Group Ltd., Inc., a
Georgia corporation (the "Company"), will be held at the Georgian Club, 17th
Floor, 100 Galleria Parkway, Atlanta, Georgia 30339 on Thursday, June 29, 2000,
at 10:00 a.m., local time, for the following purposes:
1. to elect five directors;
2. to consider and act upon the proposal to amend the Company's
1996 Stock Option Plan to increase the shares reserved for
issuance thereunder from 2,000,000 to 3,000,000;
3. to approve the issuance of sufficient shares of the Company's
common stock to permit conversion of 100% of the Company's
Series B Convertible Preferred Stock into common
stock;
4. to approve the issuance of shares of the Company's common
stock to the stockholders of Dedicated Transportation
Services, Inc. in order to comply with the corporate
governance requirements of the Nasdaq Stock Market; and
5. to transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on May 26, 2000
are entitled to notice of, and to vote at, the Annual Meeting and at any
continuation or adjournment thereof. In accordance with the Georgia Business
Corporation Code (the "Georgia Law"), a list of shareholders entitled to vote at
the Annual Meeting shall be open to the examination of any shareholder, his
agent or attorney for any purpose relevant to the Annual Meeting upon written
notice, all as provided by the Georgia Law, and the list shall be available for
inspection at the Annual Meeting by any shareholder that is present.
By Order of the Board of Directors,
/s/ Linda K. Roberts
LINDA K. ROBERTS
SECRETARY
Marietta, Georgia
June 1, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS
PROMPTLY AS POSSIBLE.
<PAGE> 4
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
1950 SPECTRUM CIRCLE, SUITE B-100
MARIETTA, GEORGIA 30067
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON THURSDAY, JUNE 29, 2000
This Proxy Statement and the accompanying Notice of Annual Meeting and
Proxy Card are being furnished to the shareholders of Professional
Transportation Group Ltd., Inc., a Georgia corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors (the
"Board") of the Company for use at the 2000 Annual Meeting of Shareholders (the
"Annual Meeting"). The Annual Meeting will be held on Thursday, June 29, 2000 at
10:00 a.m., local time, at the Georgian Club, 17th Floor, 100 Galleria Parkway,
Atlanta, Georgia 30339.
VOTING RIGHTS AND VOTES REQUIRED
All shareholders of record of the Company's common stock, no par value
per share (the "Common Stock"), on May 26, 2000, the record date, will be
entitled to vote at the Annual Meeting or any continuation or adjournment
thereof. At the close of business on the record date, the Company had 8,031,726
shares of Common Stock outstanding and entitled to vote. A majority of the
outstanding shares of Common Stock will constitute a quorum for the transaction
of business at the Annual Meeting. Each holder of record of Common Stock on the
record date is entitled to one vote for each share of Common Stock so held on
each matter to be voted upon at the Annual Meeting. This Proxy Statement and the
accompanying Notice of Annual Meeting, Proxy Card and the Company's Annual
Report to Shareholders were first mailed to the shareholders on or about June 1,
2000.
The five directors to be elected at the Annual Meeting will be elected
by the affirmative vote of the holders of a plurality of the shares of Common
Stock represented at the Annual Meeting in person or by proxy. Because the
directors will be elected by a plurality vote (i.e., the five persons receiving
the highest number of favorable votes will be elected) and assuming such
election is uncontested, votes withheld from any one or more nominees will not
have any effect on the outcome of the election of directors.
Approval and ratification of the amendment to the Company's 1996 Stock
Option Plan (the "Plan"), approval and ratification of the issuance of shares of
Common Stock to be issued on conversion of the Company's Series B Preferred
Stock, approval of the issuance of shares of Common Stock to be issued to the
stockholders of Dedicated Transportation Services, Inc. ("Dedicated") in
accordance with the corporate governance requirements of the Nasdaq Stock Market
and actions with respect to any other matter that may properly come before the
Annual Meeting will require the affirmative vote of the holders of a majority of
the shares of Common Stock represented at the Annual Meeting in person or by
proxy and entitled to vote on the matter. Abstentions will be counted in
determining the total number of shares present and entitled to vote on each such
proposal. Accordingly, although not counted as a vote "for" or "against" a
proposal, an abstention on any such proposal will have the same effect as a vote
"against" that proposal. Broker non-votes will be deemed not entitled to vote on
such proposals and, therefore, will have no legal effect on the vote on such
proposals.
<PAGE> 5
APPOINTMENT AND REVOCATION OF PROXIES
The Board has designated Danny L. Pixler and W. Anthony Huff, and each
or either of them, as proxies to vote the shares of Common Stock solicited on
its behalf. If the Proxy Card is executed and returned, it may nevertheless be
revoked at any time before it has been exercised by: (i) giving written notice
to the Secretary of the Company; (ii) delivery of a properly completed later
dated proxy; or (iii) attending the Annual Meeting and voting in person. Such
notice or later proxy will not affect a vote on any matter taken prior to the
receipt thereof by the Company or its transfer agent. The mere presence at the
Annual Meeting of the shareholder who has appointed a proxy will not revoke the
prior appointment. If not revoked, the proxy will be voted at the Annual Meeting
in accordance with the instructions indicated on the Proxy Card by the
shareholder or, if no instructions are indicated, will be voted FOR the slate of
directors described herein, FOR the proposal to amend the Plan, FOR the proposal
to approve and ratify the issuance of shares of Common Stock to be issued on
conversion of the Series B Preferred Stock, FOR the proposal to approve the
issuance of shares of Common Stock to the stockholders of Dedicated in
accordance with the corporate governance requirements of the Nasdaq Stock Market
and as to any other matter that may be properly brought before the Annual
Meeting, in accordance with the judgment of the proxy holders.
EXPENSES OF SOLICITATION
The expense of soliciting proxies will be borne by the Company. The
Company does not expect to pay any compensation for the solicitation of proxies
but may reimburse brokers and other persons holding stock in their names, or in
the names of nominees, for their expenses for sending proxy material to
principals and obtaining their proxies. Certain directors, officers and other
employees of the Company, without additional compensation, may use their
personal efforts, by personal interview, telephone, facsimile or otherwise, to
obtain proxies in addition to solicitation by mail.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
At the Annual Meeting, the shareholders will elect five directors to
hold office for one-year terms or until successors have been elected and
qualified or until any such director's earlier resignation or removal. Each
nominee is presently available for election and is a member of the Board. If any
nominee should become unavailable, which is not now anticipated, the persons
voting the accompanying proxy may in their discretion vote for a substitute. The
following table sets forth the name and age of each person nominated for
election as a director; the principal occupation, business or employment of the
nominee during the last five years; all other positions with the Company now
held by the nominee and the name of any publicly-traded corporation of which the
nominee is a director; and the date on which the nominee first became a director
of the Company.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE NOMINATED
DIRECTORS.
2
<PAGE> 6
<TABLE>
<CAPTION>
POSITIONS WITH THE COMPANY;
PRINCIPAL OCCUPATIONS DURING DIRECTOR OF THE
NAME (AGE) PAST FIVE YEARS; OTHER DIRECTORSHIPS COMPANY SINCE
---------- ------------------------------------ ---------------
<S> <C> <C>
Robert E. Altenbach (53) 1997
Partner with the law firm of Kutak Rock since May 1,
1998. General Counsel, Secretary and member of senior
management team of Vista 2000, Inc. from March 1996
until April 30, 1998. Partner with the law firm of
Johnson & Montgomery from 1995-1998.
Gregory G. Hardwick (54) 1997
Certified Public Accountant in public practice
since 1974.
Danny L. Pixler (51) 1999
President, CEO and Director of U.S. Trucking, Inc.
since September 1998. Other offices to predecessors
and affiliates of U.S. Trucking, Inc. from March 1994.
W. Anthony Huff (38) 1999
Chairman of the Board of the Company since December
1999. Executive Vice President and Chairman of the
Board of U.S. Trucking, Inc. since September 1998.
Other offices and administrative services to
predecessors and affiliates of U.S. Trucking, Inc. from
March 1995. President of United Acquisition Corp II, a
company formed to acquire companies in the trucking
business from November 1995 to January 1997.
Dennis A. Bakal (55) 1990
President and Chief Executive Officer of the Company.
Chairman of the Board from 1990 until December 1999.
</TABLE>
DIRECTOR COMPENSATION
In March 1998, the Company's Board of Directors adopted and approved
the Professional Transportation Group Ltd., Inc. 1998 Director Stock Option Plan
(the "1998 Director Plan"). The 1998 Director Plan provides for the granting of
non-qualified stock options to non-employee directors of the Company. The 1998
Director Plan authorizes the issuance of up to 100,000 shares of Common Stock
3
<PAGE> 7
pursuant to options having an exercise price equal to the fair market value of
the Common Stock on the date of grant. The 1998 Director Plan contains
provisions providing for adjustment of the number of shares available for option
and subject to unexercised options in the event of stock splits, dividends
payable in Common Stock, business combinations or certain other events affecting
the Common Stock. The Board administers the 1998 Director Plan subject to
certain limitations.
The 1998 Director Plan provides for the grant of options to purchase
2,000 shares to each non-employee director of the Company on the date of the
adoption of the 1998 Director Plan, 2,000 shares upon a non-employee director's
re-election or initial appointment to the Board and 1,000 shares to each
non-employee director of the Company who serves as a member of a committee of
the Board. All of the options will be granted at an exercise price equal to the
fair market value of the Common Stock on the date the options are granted. Each
option shall be exercisable in full beginning six months after the date of grant
and shall expire five years after the date of grant, unless canceled sooner as a
result of termination of service or death, unless such option is fully exercised
prior to the end of the option period. As of March 31, 2000, options to acquire
18,000 shares of Common Stock were outstanding under the 1998 Director Plan.
In addition, the Company has paid all travel expenses and reimbursed
the directors for their out of pocket expenses related to their services as
directors. Directors also receive a cash fee of $750 per meeting for their
services as directors of the Company.
BOARD MEETINGS AND COMMITTEES
The Board met or acted by written consent 10 times during the fiscal
year ended December 31, 1999. Standing committees of the Board currently
include: an Audit Committee and a Compensation Committee. Each director attended
at least 75% of all Board and relevant committee meetings during the year ended
December 31, 1999.
Messrs. Altenbach and Hardwick are presently the members of the Audit
Committee. The Audit Committee met once during the year ended December 31, 1999.
The principal functions of the Audit Committee are reviewing the Company's
internal controls and the objectivity of its financial reporting, making
recommendations regarding the Company's employment of independent auditors and
reviewing the annual audit with the auditors.
Messrs. Altenbach and Hardwick are presently the members of the
Compensation Committee. Neither Mr. Altenbach nor Mr. Hardwick has been an
officer or an employee of the Company at any time. The Compensation Committee
(through the Board) met or acted by written consent twice during the year ended
December 31, 1999. The functions of the Compensation Committee are to review and
set the compensation of the Company's Chief Executive Officer and certain of its
most highly compensated officers, including salaries, bonuses and other
incentive plans, stock options and other forms of compensation, and to
administer the Plan. See "Report of the Compensation Committee on Executive
Compensation."
The Company does not maintain a standing nominating committee or other
committee performing a similar function.
4
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 30,
2000 with respect to the beneficial ownership of the Common Stock by: (i) each
director; (ii) each executive officer named in the Summary Compensation Table;
(iii) each shareholder known by the Company to be a beneficial owner of more
than 5% of the Common Stock; and (iv) all executive officers and directors as a
group. Unless otherwise indicated, each of the shareholders listed below
exercises sole voting and dispositive power over the shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
-----------------------------------
NUMBER PERCENT
--------------- -------------
<S> <C> <C>
Dennis A. Bakal(2)................................................... 1,000,000 13.7%
Linda K. Roberts(3).................................................. 182,500 2.8%
Susan P. Dial(4)..................................................... 27,550 *
William M. Kelly(5).................................................. 157,500 2.4%
Stanley E. Laiken(6)................................................. 81,250 1.3%
Robert E. Altenbach(7)............................................... 6,000 *
Gregory G. Hardwick(8)............................................... 27,400 *
Danny L. Pixler(9)................................................... 2,500,000 39.8%
W. Anthony Huff(9)................................................... 2,500,000 39.8%
Logistics Management LLC(10)......................................... 2,500,000 39.8%
All directors and executive officers as a group (7 persons).......... 3,982,800 50.5%
</TABLE>
---------------------------
* Represents less than 1%.
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. Under the rules of
the Securities and Exchange Commission, a person is deemed to be a
"beneficial" owner of securities if he or she has or shares the power
to vote or direct the voting of such securities or the power to dispose
or direct the disposition of such securities. A person is also deemed
to be a beneficial owner of any securities which that person has the
right to acquire beneficial ownership within 60 days. More than one
person may be deemed to be a beneficial owner of the same securities.
(2) Consists of options to acquire 750,000 and 250,000 shares of Common
Stock, which are currently exercisable at exercise prices of $0.50 and
$1.75 per share, respectively.
(3) Consists of (1) 2,500 shares owned by this shareholder and (2) options
to acquire 70,000, 100,000 and 10,000 shares of Common Stock, which are
currently exercisable at exercise prices of $0.15, $2.97 and $1.44 per
share, respectively. Does not include options to acquire 30,000 shares
which are not exercisable within 60 days of the date of this Proxy
Statement with an exercise price of $1.44 per share.
(4) Consists of (1) 2,500 shares owned by this shareholder and (2) options
to acquire 20,000, 50 and 5,000 shares of Common Stock, which are
currently exercisable at an exercise price of $2.97, $2.69 and $1.44
per share, respectively. Does not include options to acquire 15,000
shares which are not exercisable within 60 days of the date of this
Proxy Statement with an exercise price of $1.44 per share.
(5) Consists of (1) 2,500 shares owned by this shareholder and (2) options
to acquire 70,000, 75,000 and 10,000 shares of Common Stock, which are
currently exercisable at exercise prices of $0.15, $2.97 and $1.44 per
share, respectively. Does not include options to acquire 30,000 shares
which
5
<PAGE> 9
are not exercisable within 60 days of the date of this Proxy Statement
with an exercise price of $1.44 per share.
(6) Consists of (1) 2,500 shares owned by this shareholder and (2) options
to acquire 70,000 and 8,750 shares of Common Stock, which are currently
exercisable at exercise prices of $0.15 and $1.44 per share,
respectively. Does not include options to acquire 26,250 shares which
are not exercisable within 60 days of the date of this Proxy Statement
with an exercise price of $1.44 per share.
(7) Consists of options to acquire 2,000 and 4,000 shares of Common Stock,
which are currently exercisable at exercise prices of $2.58 and $1.50
per share, respectively.
(8) Consists of (1) 20,100 shares held directly; (2) 1,300 shares held for
the benefit of Mr. Hardwick's grandson; and (3) options to acquire
2,000 and 4,000 shares of Common Stock, which are currently exercisable
at exercise prices of $2.58 and $1.44 per share, respectively.
(9) Represents shares owned by Logistics Management LLC. Messrs. Huff and
Pixler are the principals of Logistics Management LLC.
(10) Based solely on the Schedule 13D, dated January 11, 2000, filed by
Logistics Management LLC. The address of this shareholder is 10602
Timberwood Circle, Suite 9, Louisville, Kentucky 40223.
6
<PAGE> 10
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company for services rendered during the years indicated to the Company's Chief
Executive Officer. No other executive officer's total salary and bonus exceeded
$100,000 during the year ended December 31, 1999. The Company did not grant any
stock appreciation rights or make any long-term incentive plan payouts during
the periods shown.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------------- ---------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
YEAR SALARY($) BONUS($)(1) COMPENSATION OPTIONS/SARS (2) COMPENSATION ($)
---- --------- ----------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dennis A. Bakal
Chairman of the Board and
Chief Executive Officer.... 1999 300,000 --- 23,101(3) --- ---
1998 300,000 --- 16,488(4) --- ---
1997 150,000 --- 25,231(5) 250,000 ---
</TABLE>
--------------------
(1) Bonuses for each year include amounts earned for that year, even if
paid in the subsequent year, and exclude bonuses paid during that year
but earned for a prior year.
(2) All figures in this column reflect options to purchase shares of Common
Stock.
(3) Consists solely of payments made on Mr. Bakal's automobile.
(4) Includes $14,568 for payments made on Mr. Bakal's automobile and $1,920
for country club dues.
(5) Includes $9,811 for payments made on Mr. Bakal's automobile, $13,500
for a country club membership and $1,920 for country club dues.
OPTION GRANTS IN LAST FISCAL YEAR
There were no grants of options of the Company's Chief Executive
Officer during 1999.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth the number of options and the value of
options held by the named executive officer as of December 31, 1999.
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
END (#) FISCAL YEAR END ($)(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dennis A. Bakal......................... 1,000,000 - $937,500 -
</TABLE>
-------------------
(1) The closing price of the Common Stock on the Nasdaq SmallCap Market on
December 31, 1999 was $1.75 per share.
7
<PAGE> 11
EMPLOYMENT AGREEMENTS
Bakal Agreement. On April 1, 1997, Mr. Bakal and the Company entered
into an employment agreement (the "Bakal Agreement") pursuant to which he will
serve as the Chief Executive Officer and President of the Company. The Bakal
Agreement provides that Mr. Bakal will receive a base salary of not less than
$300,000 per year and an annual bonus as determined by the Compensation
Committee based upon achievement of targeted levels of performance and such
other criteria as the Compensation Committee shall establish from time to time.
In addition, he may participate in the Company's 1996 Stock Option Plan (the
"Plan"), and will receive health insurance for himself and his dependents,
long-term disability insurance, civic and social club dues, use of an automobile
owned or leased by the Company and other benefits of similarly situated
employees. Mr. Bakal's base salary may be increased upon a periodic review by
the Board of Directors or the Compensation Committee. The Bakal Agreement has a
term of three years and renews daily until either party fixes the remaining term
at three years by giving written notice. The Company can terminate Mr. Bakal's
employment upon his death or disability or for cause, and Mr. Bakal can
terminate his employment for any reason within a 90-day period beginning on the
30th day after any occurrence of any change in control or within a 90-day period
beginning on the one-year anniversary of the occurrence of any change of
control. If Mr. Bakal's employment is terminated by the Company in breach of the
Bakal Agreement or if Mr. Bakal terminates the Bakal Agreement for any reason
after a change in control, the Company must pay Mr. Bakal one-twelfth of his
annual base salary and bonus for each of 36 consecutive 30-day periods following
the termination and must continue Mr. Bakal's life and health insurance until he
reaches 65, and Mr. Bakal's outstanding options to purchase Common Stock would
vest and become immediately exercisable.
In the Bakal Agreement, the Company also granted Mr. Bakal, with
respect to his shares of Common stock, piggyback and, after any termination of
employment or if he is no longer a director of the Company, demand registration
rights . Under the Bakal Agreement, Mr. Bakal agrees to maintain the
confidentiality of the Company's trade secrets. Mr. Bakal agrees that for a
period of two years, if he is terminated for cause, not to compete with or
solicit employees or customers of the Company within the United States.
Other Employment Agreements. On April 1, 1997, the Company entered into
employment agreements with each of Messrs. Kelly and Laiken and Ms. Roberts
(collectively, the "Other Agreements"). The Other Agreements provide for a
minimum base salary per year of $100,000, $88,650 and $100,000, respectively,
and an annual bonus as determined by the Chief Executive Officer and President
based upon achievement of targeted levels of performance and such other criteria
as he shall establish from time to time. In addition, each employee may
participate in the Plan and will receive insurance and other benefits of
similarly situated employees. Each of the Other Agreements has a term of three
years and renews daily until either party fixes the remaining term at three
years by giving written notice. The Company can terminate each of the agreements
upon death or disability or for cause, and the employee can terminate employment
for any reason within one year of a change in control with adequate
justification. If the employee's employment is terminated by the Company for any
reason within one year after a change in control or if the employee terminates
the agreement with adequate justification, the Company must pay the employee
one-twelfth of his or her base salary and bonus for each of 36 consecutive
30-day periods following the termination and must continue the employee's life
and health insurance until age 65, and the employee's outstanding options to
purchase Common Stock would vest and become immediately exercisable. Under the
Other Agreements, each employee agrees to maintain the confidentiality of the
Company's trade secrets. The employee also agrees for a period of one year, if
he or she is terminated for cause or resigns without adequate justification, not
to compete with or solicit employees or customers of the Company within the
United States.
8
<PAGE> 12
CERTAIN TRANSACTIONS
Transactions with Dennis A. Bakal and Affiliates. In May 1996, the
Company moved its operations to a facility leased to Professional Sales Group
Ltd. ("PSG"), a company wholly-owned by Dennis A. Bakal. Under the terms of the
sublease with PSG, the Company subleases certain portions of the facility from
PSG at a competitive market rate and is committed to the facility for a period
of seven years (the remaining term of PSG's lease with the owner, an unrelated
third party). Currently, the Company pays rent of $15,000 per month. The
sublease provides for escalations for items such as taxes and common area
maintenance, with a scheduled rent increase for the last five years of the term.
If Mr. Bakal finds suitable tenants to take the entire premises currently leased
by PSG, it is his intention to terminate the sublease with the Company and move
to other facilities. Currently, more than 40% of the space leased by PSG has
been subleased to unrelated third parties.
Certain credit facilities available to the Company have been guaranteed
personally by Mr. Bakal. Pursuant to the employment agreement entered into by
the Company and Mr. Bakal, the Company will use its best efforts to remove and
cause to be terminated all guarantees provided by Mr. Bakal. Because the Company
was unable to do so prior to December 31, 1997, the Company is obligated to
compensate Mr. Bakal for providing such guarantees. Mr. Bakal waived any such
payment in 1999.
Mr. Bakal has personally guaranteed a portion of the PSG facilities
lease and many of the equipment operating leases and other liabilities of the
Company and its subsidiaries. In the past, Mr. Bakal has personally provided
loans and advances to and has borrowed funds from the Company on an informal
basis. Certain of the loans and advances have been repaid, converted to equity
or remain unpaid at the present time. As of December 31, 1999, the Company had a
net receivable from Mr. Bakal of $231,799.
On December 31, 1996, PTG, Inc. (a wholly owned subsidiary of the
Company) purchased, in a nonmonetary exchange, the assets of Rapid Transit
("Rapid"), and certain other physical assets from a group of companies owned by
Mr. Bakal. As consideration for the purchase, PTG assumed accounts payable
associated with Rapid from these entities. In addition, PTG agreed to pay to a
related party 5% of the gross sales of Rapid for a period of five years. At
December 31, 1999, the obligation under this agreement was approximately
$51,000. Certain assets of Rapid were sold during 1999 and no additional
obligation was accrued for 1999.
Mr. Bakal, as the majority owner of the Company (until December 3,
1999) and other entities, directs the operations of the various entities and the
transactions between them. All long-term financial commitments of the Company
and its subsidiaries with Mr. Bakal and/or other companies controlled by him are
subject to written agreements at terms, in the opinion of management, comparable
to arms-length, third-party transactions of a similar nature.
The Company believes that all the foregoing related-party transactions
were on terms no less favorable to the Company than could reasonably be obtained
from unaffiliated third parties. The Company has adopted a policy whereby all
future transactions with affiliates must be approved by a majority of
disinterested directors of the Company and on the terms no less favorable to the
Company than those that are generally available from unaffiliated third parties.
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<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (the "Exchange Act")
that might incorporate this Proxy Statement or future filings with the
Commission, in whole or in part, the following report and the Stock Performance
Chart which follows shall not be deemed to be incorporated by reference into any
such filing.
The Compensation Committee (the "Committee") consists of the following
members of the Board: Robert E. Altenbach and Gregory G. Hardwick. The Committee
reviews and determines the Company's executive compensation objectives and
policies and administers the Plan. The Committee reviews and sets the
compensation of the Company's Chief Executive Officer and certain other highly
compensated executive officers.
The objectives of the Company's executive compensation program are to:
(i) attract, retain and motivate highly talented and productive executives; (ii)
provide incentives for superior performance by paying above-average
compensation; and (iii) align the interests of the executive officers with the
interests of the Company's shareholders by basing a significant portion of
compensation upon the Company's performance. The Company's executive
compensation program combines the following three components, in addition to the
benefit plans offered to all employees: base salary (including cash provided for
automobile allowances); annual bonus; and long-term incentive compensation
consisting of stock option grants. Each component of the Company's executive
compensation program serves a specific purpose in meeting the Company's
objectives.
It is the Company's policy to set base salary levels, annual bonuses
and long-term incentive compensation above an average of select corporations to
which the Company compares its executive compensation. The Company selects such
corporations on the basis of a number of factors, such as their size and
complexity, the nature of their businesses, the regions in which they operate,
the structure of their compensation programs (including the extent to which they
rely on bonuses and other contingent compensation) and the availability of
compensation information. The corporations with which the Company compares its
compensation are not necessarily those included in the indices used to compare
the shareholder return in the Stock Performance Graph. Further, the corporations
selected for such comparison may vary from year to year based upon market
conditions and changes in both the Company's and the corporations' businesses
over time. The Company believes that above-average compensation levels are
necessary to attract and retain high caliber executives necessary for the
successful conduct of the Company's business.
Base salary. The Committee annually reviews the salaries of the
Company's executives. When setting base salary levels, in a manner consistent
with the objectives outlined above, the Committee considers competitive market
conditions for executive compensation, Company performance and individual
performance.
The measures of individual performance considered in setting 2000
salaries will include, to the extent applicable to an individual executive
officer, a number of quantitative and qualitative factors such as the Company's
historical and recent financial performance in the principal area of
responsibility of the officer (including such measures as gross margin, net
income, sales, customer count and market share), the individual's progress
toward non-financial goals within his area of responsibility, individual
performance, experience and level of responsibility and other contributions made
to the Company's success. The Committee has not found it practicable, nor has it
attempted, to assign relative weights to the specific factors used in
determining base salary levels, and the specific factors used may vary among
individual officers. As
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<PAGE> 14
is typical for most corporations, payment of base salary is not conditioned upon
the achievement of any specific, pre-determined performance targets.
Annual bonus. The Company's cash bonus program seeks to motivate
executives to work effectively to achieve the Company's financial performance
objectives and to reward them when those objectives are met. Executives bonus
payments are based upon the overall profitability of the Company.
Long-term incentive compensation. The Company believes that option
grants: (i) align executives interests with shareholder interests by creating a
direct link between compensation and shareholder return; (ii) give executives a
significant, long-term interest in the Company's success; and (iii) help retain
key executives in a competitive market for executive talent.
The Plan authorizes the Committee to grant stock options to executives.
Option grants are made from time to time to executives whose contributions have
or will have a significant impact on the Company's long-term performance. The
Company's determination of whether option grants are appropriate each year is
based upon individual performance measures established for each individual.
Options are not necessarily granted to each executive during each year.
Generally, options granted to executive officers will vest in equal annual
installments over a period of three to four years and expire ten years from the
date of grant.
Benefits. The Company believes that it must offer a competitive benefit
program to attract and retain key executives. During 1999, the Company provided
medical and other benefits to its executive officers that are generally
available to the Company's other employees.
Compensation of the Chief Executive Officer.
The Chief Executive Officer's compensation plan includes the same
elements and performance measures as the plans of the Company's other executive
officers. The Compensation Committee believes that Mr. Bakal's total
compensation reflects the unique contributions that he makes to the Company's
long-term strategic performance. Mr. Bakal was not awarded a bonus for the year
ended December 31, 1999. For the year ended December 31, 2000, Mr. Bakal's base
salary will be $300,000, which is the same base salary as was paid Mr. Bakal
during 1999. The Committee believes that such salary is appropriate based upon
the Company's financial performance, including earnings per share, revenue
growth and cash flow from operations.
Submitted by: Robert E. Altenbach
Gregory G. Hardwick
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<PAGE> 15
STOCK PERFORMANCE GRAPH
The chart below compares the cumulative total shareholder return on the
Common Stock with the cumulative total return on the Nasdaq (U.S. Companies)
Index and the Nasdaq Transportation and Trucking Stock Index for the period
commencing June 20, 1997 (the first day of trading of the Common Stock as a
result of the Company's initial public offering) and ending December 31, 1999,
assuming an investment of $100 and the reinvestment of any dividends. The base
price for the Company's stock is the initial public offering price of $6.00 per
share. The comparisons in the graph below are based upon historical data and are
not indicative of, nor intended to forecast, future performance of the Common
Stock.
<TABLE>
<CAPTION>
6/20/97 12/31/97 12/31/98 12/31/99
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Professional Transportation Group Ltd., Inc. $ 100.00 $ 63.00 $ 42.00 $ 29.00
Nasdaq (U.S. Companies) $ 100.00 $ 109.00 $ 154.00 $ 278.00
Nasdaq Transportation and Trucking $ 100.00 $ 115.00 $ 102.00 $ 110.00
</TABLE>
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<PAGE> 16
PROPOSAL NO. 2: APPROVAL AND RATIFICATION OF THE ADOPTION OF AN
AMENDMENT TO THE PLAN
On April 6, 2000, the Board approved an amendment to the Plan to
increase the number of shares available for issuance as incentive stock options
or non-qualified options under the Plan from 2,000,000 to 3,000,000. At the
Annual Meeting, the shareholders are being asked to approve and ratify such
increase in shares available for issuance under the Plan and the other
amendments. The Board believes that the adoption of the amendments to the Plan
will foster good employee relations and encourage and assist employees of the
Company to acquire an equity interest in the Company, as well as simplify the
procedure of amending the Plan, saving the Company the time and expenses
involved with obtaining routine shareholder approval. In addition, the Board
believes the utilization of the Plan helps align employee interest with other
shareholders and helps provide for the future financial security of the
Company's employees. The Plan should thereby be helpful in attracting, retaining
and motivating employees. The details of the Plan are described below. A copy of
the amendment to the Plan is attached to this Proxy Statement as Exhibit A.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE PLAN.
DESCRIPTION OF THE PLAN, AS AMENDED
In February 1996, the Board adopted, and the Company's shareholders
approved, the Plan. The Plan originally provided for the issuance of 1,500,000
shares of the Common Stock upon the exercise of options. The Plan was amended in
March 1998 by the Board and ratified by the shareholders in May 1998 to increase
from 1,500,000 to 2,000,000 the number of shares available for issuance and to
provide that the number of shares of Common Stock available for issuance
thereunder shall be automatically increased on the first trading day of each
calendar year by three percent of the number of shares outstanding on the
preceding trading day. Finally, the Plan was amended to change the amendment
requirements to the Plan. The Plan formerly required shareholder approval of all
increases in options available for grant under the Plan. As amended, the Plan
provides that shareholder approval is only required for increases of shares
issuable pursuant to incentive stock options ("ISOs")(other than increases
pursuant to the automatic increase described above) and for changes in the class
of employees eligible to receive ISOs under the Plan. As of April 30, 2000,
options to acquire approximately 2,118,360 shares were outstanding under the
Plan. Mr. Bakal holds options under the Plan to purchase 1,000,000 shares of
Common Stock. The purpose of the Plan is to advance the interests of the
Company, its subsidiaries and its shareholders by affording certain employees of
the Company and its subsidiaries and other key persons an opportunity to acquire
or increase their proprietary interests in the Company. The objective of the
issuance of the options and restricted stock awards is to promote the growth and
profitability of the Company and its subsidiaries because the recipients of
options or restricted stock awards will have an additional incentive to achieve
the Company's objectives through participation in its success and growth and by
encouraging their continued association with or service to the Company. Persons
eligible to participate in the Plan consist of all employees of the Company or
any subsidiary and other key persons whose participation in the Plan the
Committee determines to be in the best interests of the Company. Options granted
under the Plan may be ISOs, which are intended to meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options, which are not intended to meet such requirements
("Non-Qualified Options"). ISOs must have terms of ten years or less from the
date of grant and the fair market value of ISOs that may be exercised for the
first time during any year may not exceed $100,000 based on the fair market
value on the date of grant. The Plan is administered by the Compensation
Committee (the "Committee"), having the duties and authorities set forth in such
Plan in addition to any other authority granted by the Board. The Committee has
the full power and authority, in its discretion, subject to the provisions of
the Plan, to interpret such Plan, to prescribe, amend, and rescind rules and
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<PAGE> 17
regulations relating to them, to determine the details and provisions of each
stock option agreement and restriction agreement, and to make all other
determinations necessary or advisable for the administration of such Plan,
including, without limitation, the amending or altering of such Plan and any
options or restricted stock awards granted thereunder, as may be required to
comply with or to conform to any federal, state, or local laws or regulations.
The Committee, in its discretion, selects the recipients of awards and the
number of shares or options granted thereunder and determines other matters such
as (i) vesting schedules, (ii) the exercise price of options (which cannot be
less than 100% of the fair market value of the Common Stock on the date of grant
for ISOs) and (iii) the duration of awards (which cannot exceed ten years from
the date of grant or modification of the option).
The aggregate number of shares of Common Stock reserved for the
issuance of options and restricted stock awards under the Plan will be 3,000,000
shares, subject to adjustment in accordance with the Plan. Any or all shares of
Common Stock subject to the Plan may be issued in any combination of ISOs,
Non-Qualified Options or restricted stock awards, and the amount of Common Stock
subject to the Plan may be increased from time to time as provided therein.
Shares subject to an option or issued as a restricted stock award may be either
authorized and unissued shares or shares issued and later reacquired by the
Company. The shares covered by any unexercised portion of an option that has
terminated for any reason, or any forfeited portion of a restricted stock award,
may again be optioned or awarded under the Plan, and such shares shall not be
considered as having been optioned or issued in computing the number of shares
of Common Stock remaining available for options or restricted stock awards under
the Plan.
CERTAIN FEDERAL INCOME TAX EFFECTS
The following discussion of the federal income tax consequences of the
Plan is intended to be a summary of applicable federal income tax law. State and
local tax consequences may differ.
ISOs. A participant is not taxed on the grant or exercise of an ISO.
However, the difference between the fair market value of the shares on the
exercise date and the exercise price will be a preference item for purposes of
the alternative minimum tax. If a participant holds the shares acquired upon
exercise of an ISO for at least two years following grant and at least one year
following exercise, the participant's gain, if any, by a subsequent disposition
of such shares will be treated as long term capital gain for federal income tax
purposes. The measure of the gain is the difference between the proceeds
received on disposition and the participant's basis in the shares (which
generally equals the exercise price). If the participant disposes of stock
acquired pursuant to exercise of an ISO before satisfying the one and two year
holding periods described above, the participant will recognize both ordinary
income and capital gain in the year of disposition. The amount of the ordinary
income will be the lesser of (i) the amount realized on disposition less the
participant's adjusted basis in the stock (usually the option exercise price) or
(ii) the difference between the fair market value of the stock on the exercise
date and the option exercise price. The balance of the consideration received on
such disposition will be long term capital gain if the stock had been held for
at least one year following exercise of the ISO. The Company is not entitled to
an income tax deduction on the grant or the exercise of an ISO or on the
participant's disposition of the shares after satisfying the holding period
requirement described above. If the holding periods are not satisfied, the
Company will be entitled to an income tax deduction in the year the participant
disposes of the shares, in an amount equal to the ordinary income recognized by
the participant.
Non-Qualified Options. Generally, a participant is not taxed on the
grant of a Non-Qualified Option. Upon exercise, however, the participant
recognizes ordinary income equal to the difference between the exercise price
and the fair market value of the shares on the date of the exercise. The Company
is entitled to an income tax deduction in the year of exercise in the amount
recognized by the
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<PAGE> 18
participant as ordinary income. Any gain on subsequent disposition of the shares
is long term capital gain if the shares are held for at least one year following
exercise. The Company does not receive an income tax deduction for this gain.
Restricted Stock. Generally, and except as noted below, the grant of
restricted stock is not taxable at the time of the grant. Instead, at the time
restricted stock vests or becomes transferable, an employee will recognize
ordinary income equal to (i) the excess of the fair market value of such
restricted stock on the date the shares vest over (ii) the price, if any, paid
for such restricted stock. An employee may, however, elect to recognize income
as of the date of grant of the restricted stock, in an amount equal to (i) the
excess of the fair market value of the restricted stock on the date of grant
over (ii) the price, if any, paid for the restricted stock. If such an election
is made, no additional income will be recognized at the time the stock vests or
becomes transferable. In the event of a subsequent forfeiture of the shares, an
employee making such an election may be able to recognize a capital loss with
respect to the amount, if any, paid for such restricted stock, but only to the
extent such amount exceeds the amount realized by such employee on such
forfeiture. The employee will not be able to recognize a loss for tax purposes
with respect to the excess of fair market value over the purchase price which
was previously included in income. Dividends paid on the shares of restricted
stock before they vest will be taxed to the employee either as additional
compensation or, if the employee has made the election described above, as
dividend income.
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<PAGE> 19
PROPOSAL NO. 3: PROPOSAL TO APPROVE THE ISSUANCE OF SUFFICIENT NUMBER
OF SHARES OF COMMON STOCK TO PERMIT CONVERSION OF THE
COMPANY'S SERIES B CONVERTIBLE PREFERRED STOCK
INTO COMMON STOCK OF THE COMPANY
SUMMARY OF THE SALE OF SERIES B PREFERRED STOCK
On April 28, 2000, the Company entered into a Convertible Preferred
Stock and Warrants Purchase Agreement (the "Purchase Agreement") with eight
accredited investors for the private placement of its Series B Convertible
Preferred Stock (the "Series B Preferred Stock) and 266,666 warrants (the
"Warrants"). The following discussion, in part, summarizes the principal
features of the Purchase Agreement, a copy of which is attached hereto as
"Exhibit B" to this Proxy Statement. Although this Proxy Statement contains a
summary of the relevant principal terms of the Purchase Agreement, including
terms with respect to conversion of the Series B Preferred Stock, this summary
discussion is not intended to be complete and reference should be made to
Exhibit B to this Proxy Statement for the complete text of the Purchase
Agreement.
At a meeting held on April 6, 2000, the Board of Directors considered a
range of alternative sources of financing prior to approving the terms of the
Purchase Agreement. The Board evaluated the Company's need for funds in order to
complete a proposed acquisition, and for general working capital purposes. At
the April 6, 2000 meeting, the Board also considered the benefits and risks of
raising funds based, in part, on future market prices relative to other
alternatives, and concluded that the terms set forth in the Purchase Agreement
were in the best interests of the Company and represented the best alternative
available to the Company to meet its immediate funding needs.
The sale of the Series B Preferred Stock was consummated on May 17,
2000. The Warrants are exercisable commencing on May 17, 2000, and for three
years thereafter for the purchase of one share of Common Stock per Warrant (the
"Warrant Shares"), at an exercise price of $4.00 per share.
The Series B Preferred Stock is entitled to cash dividends of 6% per
annum, payable semi-annually on June 30 and December 31 of each year, commencing
June 30, 2000. The Series B Preferred Stock is not entitled to any voting
rights, except that at least 85% in interest of the outstanding Series B
Preferred Stock must approve (i) modifying or changing the rights, preferences
or terms of the Series B Preferred Stock; (ii) create any new class or series of
capital stock having parity with or a preference over the Series B Preferred
Stock; (iii) increase the authorized number of shares of Series B Preferred
Stock or (iv) undertake or omit to undertake any act which would result in
taxation of the holders of Series B Preferred Stock.
The Series B Preferred Stock holders are entitled to receive a
liquidation preference equal to the purchase price per share, plus all accrued
but unpaid dividends upon a liquidation, dissolution or winding up of the
Company as well as a sale or disposition of all or substantially all of the
Company's assets or the consolidation, merger or other business combination in
which more than 50% of the voting power of the Company is transferred.
Holders of the Series B Preferred Stock have the option of converting
the Series B Preferred Stock into Common Stock of the Company at a conversion
price (the "Conversion Price") equal to the lesser of (i) ninety percent (90%)
of the average of the three lowest closing bid prices for the twenty-two (22)
consecutive trading days prior to the date of conversion and (ii) $4.00 per
share. The Conversion Price may not be lower than $1.00 per share if the Company
meets certain revenue, net income and cash projections for the quarters ending
June 30, September 30 and December 31, 2000 and April 30, 2001.
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<PAGE> 20
The Company had 6,880,626 shares of Common Stock were issued and
outstanding as of May 17, 2000, the date of the closing of the sale of the
Series B Preferred Stock. In order to ensure continued compliance with the
applicable rules of Nasdaq, the Purchase Agreement governing the terms of the
conversion of the Series B Preferred Stock expressly provides for issuance of no
more than an aggregate of Warrant Shares and shares authorized for issuance upon
conversion of the Series B Preferred Stock (the "Conversion Shares")
representing 19.9% of the issued and outstanding shares on the date of the
Purchase Agreement. The Company's Common Stock is traded on the Nasdaq SmallCap
Market. Pursuant to the rules of the Nasdaq SmallCap Market, shareholder
approval is required for the issuance of a number of shares equal to or more
than 20% of the outstanding Common Stock at a price which is less than the
greater of the book value or market value. The amount of Conversion Shares
required to permit full conversion, although not presently determinable, may
represent a number of shares which exceeds 20% of the issued and outstanding
shares of Common Stock.
The Company is therefore seeking shareholder approval of the issuance
of a sufficient number of shares of Common Stock, in order to permit full
conversion of the Series B Preferred Stock, in order to satisfy shareholder
approval requirements under Nasdaq rules in case, upon such full conversion, the
amount of Conversion Shares issued together with the Warrant Shares, would
represent more than 20% of the issued and outstanding shares of Common Stock.
The number of shares for which this approval is sought cannot be estimated at
this time because computation of the number of shares is subject to a
price-based adjustment mechanism, the Conversion Price, which causes the number
of shares issuable to be dependent on future events, principally consisting of
the future trading prices of the Common Stock in the marketplace and the
conversion decisions made by the holders of the Series B Preferred Stock.
In addition, the Company has agreed to file a registration statement
with respect to the Conversion Shares and the Warrant Shares within 60 days of
the date of the Purchase Agreement. The application of the Conversion Price
formula to the Series B Preferred Stock will cause the number of shares of
Common Stock to be issued upon full conversion to vary inversely with the market
price of the Common Stock. A significant drop in trading price would result in
the issuance of a greater number of shares of stock, which would result in
greater dilution to existing shareholders. If the Series B Preferred Stock had
been converted on May 18, 2000, the Conversion Price would be $1.99 per share,
based on the Conversion Price formula. If the Series B Preferred Stock were
fully converted by the holders at that Conversion Price, assuming shareholder
approval, the Company would have issued 2,160,804 shares of Common Stock upon
conversion. To the extent the Conversion Price is less than $1.99 per share, the
Company would issue more shares of stock resulting in greater dilution to
existing shareholders. Conversely, if the Conversion Price were higher on the
date of conversion, the Company would issue fewer shares of stock. The
information presented above is not intended to constitute a prediction as to the
future market price of the Common Stock or as to when or if holders of the
Series B Preferred Stock will elect to convert the Series B Preferred Stock.
Under Georgia law, the Company's Board of Directors has the authority,
without shareholder approval, to issue the Series B Preferred Stock and to issue
additional shares of Common Stock upon conversion of the Series B Preferred
Stock. Shareholders are not entitled to dissenters rights or appraisal rights in
connection with the sale of the Series B Preferred Stock. In addition,
shareholders have no preemptive rights in connection with the sale of the Series
B Preferred Stock, or the issuance of additional shares of Common Stock upon
conversion of the sale of the Series B Preferred Stock.
If the issuance of a sufficient number of shares to permit full
conversion is not approved, the Company will not be permitted to issue more than
1,376,125 shares of Common Stock upon any
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<PAGE> 21
conversion. If this were to accrue, the Company will be obligated to honor a
conversion request in excess of 19.9% in cash in an amount equal to 120% of the
original purchase price, plus interest.
BOARD RECOMMENDATION AND REQUIRED VOTE
The Board has unanimously approved the proposal to issue a sufficient
number of shares of Common Stock to permit conversion of 100% of the Series B
Preferred Stock into Common Stock of the Company. The affirmative vote of the
holders of a majority of the shares of Common Stock entitled to vote thereon,
present in person or by Proxy at the Annual Meeting, is required to permit this
issuance. If the shareholders approve the proposal, there will be no further
vote on the matter at the time of conversion. Shareholders will not be entitled
to dissenters rights or appraisal rights in connection with conversions at the
time of conversion.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE ISSUANCE OF A NUMBER OF CONVERSION SHARES SUFFICIENT TO PERMIT FULL
CONVERSION.
PROPOSAL NO. 4: PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF THE
COMPANY'S COMMON STOCK TO THE STOCKHOLDERS OF DEDICATED IN
ORDER TO COMPLY WITH THE CORPORATE GOVERNANCE
REQUIREMENTS OF THE NASDAQ STOCK MARKET
SUMMARY OF THE DEDICATED ACQUISITION
On May 17, 2000, the Company acquired Dedicated Transportation
Services, Inc., a California corporation ("Dedicated"). Dedicated, based in the
Los Angeles, California metropolitan area, is a time-definite
less-than-truckload transportation and logistics services company serving the 48
contiguous U.S. state.
Dedicated was acquired pursuant to an Agreement and Plan of Merger
dated May 17, 2000 (the "Merger Agreement") by and among, the Company, DTSI
Acquisition, Inc., a wholly-owned subsidiary of the Company ("DTSI
Acquisition"), Dedicated and the stockholders of Dedicated. The following
discussion, in part, summarizes the principal features of the Merger Agreement,
a copy of which is attached hereto as "Exhibit C" to this Proxy Statement. This
summary is not intended to be complete and reference should be made to Exhibit C
for the complete text of the Merger Agreement.
Under the Merger Agreement, Dedicated merged with and into DTSI
Acquisition. Under the terms of the Merger Agreement, the stockholders of
Dedicated received 930,000 shares of the Company's Common Stock and the right to
receive an additional 930,000 shares of Common Stock on or before September 1,
2000. Because the aggregate number of shares being issued exceeds 20% of the
number of shares of the Company's Common Stock outstanding on the date of the
Merger Agreement, pursuant to the corporate governance requirements of the
Nasdaq Stock Market, the Company's shareholders are being asked at the Annual
Meeting to approve the issuance of the shares. In the event that shareholder
approval is not obtained, the Company will be required to pay the deficit in
number of shares exceeding 20% in cash, with a deemed value of $5.00 per share.
As of the date of the Merger Agreement, the Company had 6,880,626 shares of
Common Stock outstanding. Therefore, as of that date, the Company could issue
1,276,125 shares of Common stock to the Dedicated stockholders without having to
comply with the corporate governance requirements of the Nasdaq Stock Market.
The Company's shareholders are not being asked to approve the acquisition of
Dedicated, rather they are being asked solely to ensure the
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<PAGE> 22
Company's continued compliance with applicable Nasdaq rules and approve the
issuance of shares of the Company's Common Stock that are to be issued to the
stockholders of Dedicated which exceeded the number equal to 20% of the number
outstanding on the date of the Merger Agreement.
The Company has agreed to file a registration statement with the SEC to
register all of the shares issued or to be issued to the stockholders of
Dedicated no later than July 15, 2000.
Under Georgia law, the Company's Board of Directors had the authority,
without shareholder approval, to enter into and consummate the acquisition of
Dedicated and to issue the shares of Common Stock as consideration for the
purchase (except as provided above). The Company is required, however, to obtain
shareholder approval pursuant to the corporate governance rules of the Nasdaq
Stock Market. Shareholders are not entitled to dissenters rights or appraisal
rights in connection with the issuance of the shares of Common Stock to the
stockholders of Dedicated. In addition, shareholders have no preemptive rights
in connection with the issuance of the shares of Common Stock to the
stockholders of Dedicated.
If shareholder approval of issuance of the shares to the stockholders
of Dedicated is not obtained, the Company will be required under the Merger
Agreement to pay to the stockholders of Dedicated approximately $2.4 million,
which represents the number of shares in excess of 20% outstanding on the date
of the Merger Agreement multiplied by $5.00 per share.
BOARD RECOMMENDATION AND REQUIRED VOTE
The Board has unanimously approved the acquisition of Dedicated,
including the issuance of 1.86 million shares of Common Stock to its
stockholders. The affirmative vote of the holders of a majority of the shares of
Common Stock entitled to vote thereon, present in person or by Proxy at the
Annual Meeting, is required to permit the issuance as described above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE ISSUANCE OF SHARES TO THE STOCKHOLDERS OF DEDICATED IN ORDER FOR THE COMPANY
TO COMPLY WITH THE CORPORATE GOVERNANCE REQUIREMENTS OF THE NASDAQ STOCK MARKET.
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COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors and persons who beneficially own more than 10% of a
registered class of the Company's equity securities to file reports of
securities ownership and changes in such ownership with the SEC and Nasdaq.
Officers, directors and greater than 10% beneficial owners also are required by
rules promulgated by the SEC to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, the Company believes that, during the year ended December 31, 1999,
its executive officers, directors and greater than 10% beneficial owners
complied with all applicable Section 16(a) filing requirements.
INDEPENDENT AUDITORS
The Company selected the firm of Yohalem, Gilman & Company to serve as
the independent auditors for the Company for the year ended December 31, 1999.
This is the first year that this firm has served as the auditors for the
Company. Representatives of Yohalem, Gilman & Company are expected to be present
at the Annual Meeting and will be accorded the opportunity to make a statement,
if they so desire, and to respond to appropriate questions.
20
<PAGE> 24
OTHER MATTERS
The Board knows of no amendment or variation of the matters referred to
in the Notice of the Annual Meeting and of no other business to be brought
before the Annual Meeting. However, if any amendment, variation or other matter
is properly brought before the Annual Meeting, it is the intention of the
persons designated as proxies to vote in accordance with their best judgment on
such matters. If any other matter should come before the Annual Meeting, action
on such matter will be approved if the number of votes cast in favor of the
matter exceeds the number opposed.
SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING OF SHAREHOLDERS
Regulations of the Commission require Proxy Statements to disclose the
date by which shareholder proposals must be received by the Company in order to
be included in the Company's proxy materials for the next annual meeting. In
accordance with these regulations, shareholders are hereby notified that if they
wish a proposal to be included in the Company's Proxy Statement and form of
proxy relating to the 2000 annual meeting, a written copy of their proposal must
be received at the principal executive offices of the Company no later than
February 18, 2001. To ensure prompt receipt by the Company, proposals should be
sent certified mail return receipt requested. Proposals must comply with the
proxy rules relating to stockholder proposals in order to be included in the
Company's proxy materials.
ANNUAL REPORT
The Company's 1999 Annual Report to Shareholders (which includes the
Company's Annual Report on Form 10-K) is concurrently being mailed to
shareholders. The Annual Report contains consolidated financial statements of
the Company and the report thereon of Yohalem, Gilman & Company, independent
auditors.
DATED: JUNE 1, 2000
SHAREHOLDERS ARE URGED TO SPECIFY THEIR CHOICES, DATE, SIGN AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, POSTAGE FOR WHICH HAS BEEN
PROVIDED. YOUR PROMPT RESPONSE WILL BE APPRECIATED.
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<PAGE> 25
EXHIBIT A
SECOND AMENDMENT TO THE
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
1996 STOCK OPTION PLAN
WHEREAS, the Board of Directors and shareholders of Professional
Transportation Group Ltd., Inc., a Georgia corporation (the "Company"), adopted
the Professional Transportation Group Ltd., Inc. 1996 Stock Option Plan (the
"Plan") in February 1996; and
WHEREAS, the Board of Directors approved the First Amendment to the
Plan in March 1998, which was ratified by the shareholders in May 1998, with
such amendment, among other things, increasing the maximum number of shares
subject to grant under the Plan to 2,000,000 from 1,500,000; and
WHEREAS, the purpose of the Plan is to advance the interests of the
Company, its subsidiaries and its shareholders by affording certain employees of
the Company and its subsidiaries and other key persons an opportunity to acquire
or increase their proprietary interests in the Company; and
WHEREAS, effective April 6, 2000, the Board of Directors approved the
following amendment to the Plan (the "Second Amendment") and recommend that such
amendment be approved by the shareholders;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Defined Terms. Initially capitalized terms used in this
Amendment, which are not otherwise defined by this Amendment,
are used with the same meaning ascribed to such terms in the
Plan.
2. Amendment.
a. The first paragraph of Section 5.1 of the Plan is
amended to read as follows:
5.1 Limitations. Subject to any antidilution
adjustment pursuant to the provisions of
Section 5.2 hereof, the maximum number of
shares of Stock that may be issued hereunder
shall be 3,000,000, and not more than
300,000 shares of Stock may be made subject
to Options to any individual in the
aggregate in any one fiscal year of the
Company, such limitation to be applied in a
manner consistent with the requirements of,
and only to the extent required for
compliance with, the exclusion from the
limitation on deductibility of compensation
under Section 162(m) of the Code. The number
of shares of Stock available for issuance
hereunder shall automatically increase on
the first trading day each calendar year
beginning January 1, 1999, by an amount
equal to three percent (3%) of the shares of
Stock outstanding on the trading day
immediately preceding January 1; but in no
event shall any such annual increase exceed
500,000 shares. Any or all shares of Stock
subject to the Plan may be issued in any
combination of Incentive Stock Options,
non-
<PAGE> 26
Incentive Stock Options or Restricted Stock,
and the amount of Stock subject to the Plan
may be increased from time to time in
accordance with Article IX. Shares subject
to an Option or issued as an Award may be
either authorized and unissued shares or
shares issued and later acquired by the
Company. The shares covered by any
unexercised portion of an Option that has
terminated for any reason (except as set
forth in the following paragraph), or any
forfeited portion of an Award, may again be
optioned or awarded under the Plan, and such
shares shall not be considered as having
been optioned or issued in computing the
number of shares of Stock remaining
available for option or award hereunder.
3. Effectiveness. This Amendment shall not become effective
unless and until such provisions are approved by at least a majority vote of the
holders of the outstanding capital stock of the Company present, or represented,
and entitled to vote on such matter at a meeting of shareholders duly called and
convened within one year following the date hereof.
4. Approval. Except as hereinabove amended and modified, the Plan
is approved, ratified and affirmed without further modification or amendment.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed as of April 6, 2000, in accordance with the authority provided by the
Board of Directors.
PROFESSIONAL TRANSPORTATION GROUP
LTD., INC.
By: /s/ Dennis A. Bakal
---------------------------------------
Name: Dennis A. Bakal
Title: Chief Executive Officer
<PAGE> 27
EXHIBIT B
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
BETWEEN
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
AND
THE INVESTORS SIGNATORY HERETO
CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT dated as of
April 28, 2000 (the "Agreement"), between the Investors signatory hereto (each
an "Investor" and together the "Investors"), and Professional Transportation
Group Ltd., Inc., a corporation organized and existing under the laws of the
State of Georgia (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) $4,300,000 Stated Value
of Convertible Preferred Stock (as defined below) and (ii) Warrants (as defined
below) to purchase up to 266,666 shares of the Common Stock (as defined below)
at Four Dollars ($4.00) per share.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any Warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.3. "Certificate of Designations" shall mean the Certificate of
Designations setting forth the terms of the Convertible Preferred Stock in the
form of Exhibit A hereto.
<PAGE> 28
Section 1.4. "Closing" shall mean the closing of the purchase and sale of
the Convertible Preferred Stock and Warrants pursuant to Section 2.1.
Section 1.5. "Closing Date" shall mean the date on which all conditions to
the Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock, no par
value per share.
Section 1.7. "Conversion Shares" shall mean the shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock and any shares of
Common Stock issued as dividends upon the Convertible Preferred Stock.
Section 1.8. "Convertible Preferred Stock" shall mean the $4,300,000 Stated
Value of Series B Convertible Preferred Stock, as described in the Certificate
of Designations to be issued to the Investors pursuant to this Agreement.
Section 1.9. "Damages" shall mean any loss, claim, damage, judgment,
penalty, deficiency, liability, costs and expenses (including, without
limitation, reasonable attorney's fees and disbursements and reasonable costs
and expenses of expert witnesses and investigation).
Section 1.10. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.11. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.12. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.13. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
Section 1.14. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.15. "Market Price" on any given date shall mean the average of the
lowest three (3) closing bid prices on the Principal Market, or, at each
Investor's option, on the pink sheets or any other trading market (as reported
by Bloomberg L.P.) of the Common Stock during the twenty-two (22) consecutive
Trading Day period ending on the Trading Day immediately prior to the date for
which the Market Price is to be determined.
Section 1.16. "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, stock price or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designations or the Warrants in any material respect.
2
<PAGE> 29
Section 1.17. "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.18. "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.19. "Principal Market" shall mean the American Stock Exchange,
the New York Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap
Market or the OTC Bulletin Board, whichever is at the time the principal trading
exchange or market for the Common Stock, based upon share volume.
Section 1.20. "Purchase Price" shall mean the Stated Value per share of
Convertible Preferred Stock, as defined in the Certificate of Designations.
Section 1.21. "Registrable Securities" shall mean the Conversion Shares and
the Warrant Shares until (i) the Registration Statement has been declared
effective by the SEC, and all Conversion Shares and Warrant Shares have been
disposed of pursuant to the Registration Statement, (ii) all Conversion Shares
and Warrant Shares have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares and Warrant Shares may be sold without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.
Section 1.22. "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as of
the Closing Date in the form annexed hereto as Exhibit C.
Section 1.23. "Registration Statement" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.24. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.25. "SEC" shall mean the Securities and Exchange Commission.
3
<PAGE> 30
Section 1.26. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.27. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.28. "SEC Documents" shall mean the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.29. "Shares" shall have the meaning set forth in Section 1.16.
Section 1.30. "Stated Value" shall have the meaning set forth in the
Certificate of Designations.
Section 1.31. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.32. "Warrants" shall mean the Warrants substantially in the form
of Exhibit B to be issued to the Investors hereunder.
Section 1.33. "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to exercise of the
Warrants.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE PREFERRED STOCK AND WARRANTS
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein,
the Company agrees to sell, and the Investors agree to purchase the Convertible
Preferred Stock together with the Warrants at the Purchase Price on the Closing
Date as follows:
(i) Upon execution and delivery of this Agreement, each
Investor shall deliver to the Escrow Agent
immediately available funds in their proportionate
amount of the Purchase Price as set forth on the
signature pages hereto, and the Company shall deliver
the Convertible Preferred Stock certificates and the
Warrants to the Escrow Agent, in each case to be held
by the Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in
Section 2.1(b), the Closing ("Closing") shall occur
at the offices of the Escrow Agent at which time the
Escrow Agent (x) shall release the Convertible
Preferred Stock and the Warrants to the Investors and
(y) shall release the Purchase Price to the
4
<PAGE> 31
Company (after all fees have been paid as set forth
in the Escrow Agreement), pursuant to the terms of
the Escrow Agreement.
(b) The Closing is subject to the satisfaction or waiver by the
party to be benefited thereby of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price
of the Convertible Preferred Stock and the Warrants,
as more fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Investors'
obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Convertible Preferred Stock and
Warrants, or shall have the availability of
exemptions therefrom;
(vi) the sale and issuance of the Convertible Preferred
Stock and the Warrants hereunder, and the proposed
issuance by the Company to the Investors of the
Common Stock underlying the Convertible Preferred
Stock and the Warrants upon the conversion or
exercise thereof shall be legally permitted by all
laws and regulations to which the Investors and the
Company are subject and there shall be no ruling,
judgment or writ of any court prohibiting the
transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible
Preferred Stock certificates and Warrants
certificates to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Smith,
Gambrell & Russell, LLP, counsel to the Company, in
the form of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit F; and
(x) delivery to the Escrow Agent of the Registration
Rights Agreement.
(xi) delivery to the Escrow Agent of the written
agreements of each officer and director of the
Company addressed to the Investors, agreeing to vote
all shares of Common Stock over which they have
voting control in favor of a shareholder proposal
permitting the issuance of a number of Conversion
5
<PAGE> 32
Shares in excess of 19.9% of the number of shares of
Common Stock issued and outstanding on the Closing
Date.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and
agree that the sums payable pursuant to the Registration Rights Agreement shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (b) the amounts specified in such Sections bear
a reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its
own account and not with a view to or for sale in connection with any
distribution of the Common Stock. The Investor has no present arrangement
(whether or not legally binding) at any time to sell the Convertible Preferred
Stock, the Warrants, any Conversion Shares or Warrant Shares to or through any
person or entity; provided, however, that by making the representations herein,
the Investor does not agree to hold such securities for any minimum or other
specific term and reserves the right to dispose of the Conversion Shares and
Warrant Shares at any time in accordance with federal and state securities laws
applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to protect
its own interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in the Convertible Preferred
Stock, the Warrants and the underlying Common Stock. The Investor acknowledges
that an investment in the Convertible Preferred Stock, the Warrants and the
underlying Common Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an
Exhibit hereto which is required to be executed by Investor has been duly
authorized and validly executed and delivered by the Investor and is a valid and
binding agreement of the Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
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<PAGE> 33
Section 3.5. Absence of Conflicts. The execution and delivery of this
Agreement and each agreement which is attached as an Exhibit hereto and executed
by the Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has received
all documents, records, books and other publicly available information
pertaining to Investor's investment in the Company that have been requested by
the Investor. The Company is subject to the periodic reporting requirements of
the Exchange Act, and the Investor has reviewed copies of all SEC Documents
deemed relevant by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Georgia and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power
and corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Convertible Preferred Stock, the Conversion Shares,
the Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Certificate of Designations, the
Convertible Preferred
7
<PAGE> 34
Stock certificates and the Warrants by the Company and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Convertible Preferred
Stock certificates and the Warrants have been duly executed and delivered by the
Company and at the Closing shall constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application. The
Company has duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the conversion of the Convertible
Preferred Stock and for the exercise of the Warrants. The Company understands
and acknowledges the potentially dilutive effect to the Common Stock of the
issuance of the Conversion Shares and, upon any exercise of the Warrants, the
Warrant Shares. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Convertible Preferred Stock and Warrant
Shares upon exercise of the Warrants in accordance with this Agreement and the
Certificate of Designations is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). The Company shall not
seek judicial relief from its obligations hereunder except pursuant to the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. ss. 362 in respect of the conversion of the
Convertible Preferred Stock and the exercise of the Warrants. The Company
agrees, without cost or expense to the Investors, to take or consent to any and
all action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, no par value; of which 6,930,626
shares are issued and outstanding as of April 12, 2000, and 100,000 shares of
preferred stock, no par value; of which 217 shares of its Convertible Series A
Preferred Stock are issued and outstanding. The Company has duly and validly
designated 4,300 shares of its preferred stock as Series B Convertible Preferred
Stock. Except for outstanding options and warrants as set forth in the SEC
Documents, there are no outstanding Capital Shares Equivalents nor any
agreements or understandings pursuant to which any Capital Shares Equivalents
may become outstanding. Except as set forth on Schedule 4.3, the Company is not
a party to any agreement granting registration or anti-dilution rights to any
person with respect to any of its equity or debt securities. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq SmallCap
Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such
8
<PAGE> 35
listing. The foregoing sentence is modified by the fact that the Company had
received correspondence from the Principal Market dated January 7, 2000 and
January 11, 2000 that it is now in full compliance with the Principal Market's
continued listing requirements.
Section 4.5. SEC Documents. The Company has made available to the
Investors true and complete copies of the SEC Documents. The Company has not
provided to the Investors any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act, and rules and regulations of the SEC promulgated thereunder
and the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with the
Warrants and validly converted in accordance with the terms of the Convertible
Preferred Stock, the Conversion Shares and the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the
Convertible Preferred Stock, the Conversion Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Designations or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Convertible Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Convertible Preferred Stock,
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the Conversion Shares, the Warrants and the Warrant Shares shall not subject the
Investors to personal liability to the Company or its creditors by reason of the
possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Preferred Stock or the Warrants, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Convertible Preferred Stock, the
Conversion Shares, the Warrants or the Warrant Shares under the Securities Act.
Section 4.8. No Conflicts. Except as set forth on Schedule 4.8, the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby, including
without limitation the issuance of and payment of dividends upon the Convertible
Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares, do
not and will not (i) result in a violation of the Company's Articles of
Incorporation or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument, or any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company is a party, or (iii) result in a violation of any federal, state or
local law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which any
material property or asset of the Company is bound or affected, nor is the
Company otherwise in violation of, conflict with or default under any of the
foregoing (except in each case for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not have,
individually or in the aggregate, a Material Adverse Effect). The business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations that
either singly or in the aggregate would not have a Material Adverse Effect. The
Company is not required under any federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Convertible Preferred Stock or the Warrants in accordance with the
terms hereof (other than any SEC, Principal Market or state securities filings
that may be required to be made by the Company subsequent to Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Principal Market); provided that, for purposes of the representation made
in this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Investors herein.
Section 4.9. No Material Adverse Change. Since December 31, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since December
31, 1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties,
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prospects, operations or financial condition, that, under applicable law, rule
or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed
in the SEC Documents.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold the Convertible Preferred Stock, the Warrants or
any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Convertible Preferred Stock, the Warrants or
Common Stock, or any securities convertible into a exchangeable or exercisable
for the Convertible Preferred Stock or Common Stock or any such other
securities) within the six-month period next preceding the date hereof, and the
Company shall not permit any of its directors, officers or affiliates directly
or indirectly to take, any action (including, without limitation, any offering
or sale to any Person of the Convertible Preferred Stock, Warrants or shares of
Common Stock), so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to
Investors of the Convertible Preferred Stock (and the Conversion Shares) or the
Warrants (and the Warrant Shares) as contemplated by this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the
SEC Documents, there are no lawsuits or proceedings pending or, to the knowledge
of the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Preferred Stock or the
Warrants in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed
to the Investors any material non-public information that (i) if disclosed,
would reasonably be expected to have a material effect on the price of the
Common Stock or (ii) according to applicable law, rule or regulation, should
have been disclosed publicly by the Company prior to the date hereof but which
has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property
and casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
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insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns
which it is required to file under applicable laws; all such Tax Returns are
true and accurate and has been prepared in compliance with all applicable laws;
the Company has paid all Taxes due and owing by it or any subsidiary (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
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"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns
any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property, mineral or water rights, and buildings held under
lease by the Company as tenant are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and intended to be made of such property and buildings by the
Company.
Section 4.18. Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books
and records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company or any subsidiary is a party or
by which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any
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foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties
of the Company contained in this Agreement, any schedule, annex or exhibit
hereto and any agreement, instrument or certificate furnished by the Company to
the Investors pursuant to this Agreement, do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. No Short Sales. On any give Trading Day, in the event that
the closing bid price of the Common Stock is less than $4.00 per share, the
Investor and its affiliates shall not engage in short sales of the Company's
Common Stock on the subsequent Trading Day (as defined in applicable SEC and
NASD rules) so long as the Investor holds any unconverted shares of Convertible
Preferred Stock.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to issue the Conversion Shares and the
Warrant Shares pursuant to any conversion of the Convertible Preferred Stock or
exercise of the Warrants. The number of shares so reserved from time to time, as
theretofore increased or reduced as hereinafter provided, may be reduced by the
number of shares actually delivered pursuant to any conversion of the
Convertible Preferred Stock or exercise of the Warrants and the number of shares
so reserved shall be increased or decreased to
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reflect potential increases or decreases in the Common Stock that the Company
may thereafter be obligated to issue by reason of adjustments to the Warrants.
In the event that the Corporation has not reserved a sufficient number of shares
for issuance upon conversion of all of the outstanding shares of Series B
Convertible Preferred Stock, the shares of Series B Convertible Preferred Stock
reserved shall be pro rated among the original purchasers of such shares and
their respective subsequent transferees.
Section 6.3. Listing of Common Stock. The Company hereby agrees to maintain
the listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the Closing to list the Conversion Shares and the Warrant
Shares on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Conversion Shares and the Warrant Shares, and
will take such other action as is necessary or desirable in the opinion of the
Investors to cause the Conversion Shares and Warrant Shares to be listed on such
other Principal Market as promptly as possible. The Company will take all action
to continue the listing and trading of its Common Stock on a Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market until the
Investors have disposed of all of their Registrable Securities. The Company
agrees to present a proposal for stockholder approval at the next annual meeting
of stockholders to permit the Company to issue a number of Conversion Shares and
Warrant Shares which is in excess of 19.9% of the number of the Company's issued
and outstanding shares of Common Stock on the Closing Date, with the
recommendation of the Board of Directors that such proposal be approved. If such
proposal is not approved, the Company shall either (i) voluntarily de-list its
Common Stock from any Principal Market which requires such approval, within five
(5) Trading Days of such vote, or (ii) redeem any un-convertible Convertible
Stock pursuant to Section 7 of the Certificate of Designations, pro-rata among
the Investors, within five (5) Trading Days of such vote.
Section 6.4. Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(b) or (g) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act until the Investors
have disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable
Securities shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements.
The Company will take all steps necessary to preserve and continue the corporate
existence of the Company. The Company shall not enter into any agreement, the
terms of which agreement would restrict or impair the right or ability of the
Company to perform any of its obligations under this Agreement or any of the
other agreements attached as exhibits hereto or under the Certificate of
Designations.
Section 6.7. Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or
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substantially all of the assets of the Company to, another entity (a
"Consolidation Event") unless the resulting successor or acquiring entity (if
not the Company) assumes by written instrument or by operation of law the
obligation to deliver to the Investors such shares of stock and/or securities as
the Investors are entitled to receive pursuant to this Agreement and the
Certificate of Designations.
Section 6.8. Issuance of Convertible Preferred Stock and Warrant Shares.
The sale of the Convertible Preferred Stock and the Warrants and the issuance of
the Warrant Shares pursuant to exercise of the Warrants and the Conversion
Shares upon conversion of the Convertible Preferred Stock shall be made in
accordance with the provisions and requirements of Section 4(2), 4(6) or
Regulation D and any applicable state securities law. The Company shall make any
necessary SEC and "blue sky" filings required to be made by the Company in
connection with the sale of the Securities to the Investors as required by all
applicable laws, and shall provide a copy thereof to the Investors promptly
after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it
will not enter into any sale of its securities for cash at a discount to Market
Price or a variable rate transaction (a "Subsequent Placement") until one
hundred eighty (180) days after the effective date of the Registration Statement
except for any sales (i) pursuant to any presently existing employee benefit
plan which plan has been approved by the Company's stockholders, (ii) pursuant
to any compensatory plan for a full-time employee or key consultant, or (iii)
with the prior approval of a majority in interest of the Investors, which will
not be unreasonably withheld, in connection with a strategic partnership or
other business transaction, the principal purpose of which is not simply to
raise money. In the event the Company enters into a sale of its securities at a
discount to Market Price or a variable rate transaction pursuant to this Section
6.9, (A) the Company delivers to the Investors a written notice (the "Subsequent
Placement Notice") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the persons and/or entities with whom such Subsequent Placement
shall be effected, and attached to which shall be a term sheet or similar
document relating thereto and (B) the Investors shall not have notified the
Company by 6:30 p.m. (New York City time) on the third (3rd) Trading Day after
their receipt of the Subsequent Placement Notice of their willingness to provide
(or to cause its sole designee to provide), subject to completion of mutually
acceptable documentation, financing to the Company on conversion, reset and
pricing terms (including original issue discount, if any) and substantially on
such other terms as set forth in the Subsequent Placement Notice. If the
Investors shall fail to notify the Company of their intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Placement substantially upon the terms and to the persons and/or entities (or
Affiliates of such persons and/or entities) set forth in the Subsequent
Placement Notice; provided, however, that the Company shall provide the
investors with a second Subsequent Placement Notice, and the Investors shall
again have the right of first refusal set forth above in this Section, if the
Subsequent Placement subject to the initial subsequent Placement Notice shall
not have been consummated for any reason on conversion, reset and pricing terms
(including original issue discount, if any) and substantially on such other
terms set forth in such Subsequent Placement Notice within thirty (30) Trading
Days after the date of the initial Subsequent Placement Notice with the persons
and/or entities (or an Affiliate of such persons and/or entities) identified in
the Subsequent Placement Notice. If an Investor shall
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indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Investor shall be entitled to provide
financing pursuant to such Subsequent Placement Notice up to an amount equal to
such Investor's pro rata portion of the aggregate number of Shares purchased by
such Investor under this Agreement, but the Company shall not be required to
accept financing from the Investors in an amount less than or in excess of the
amount set forth in the Subsequent Placement Notice. In addition, each Investor
may elect to exchange its Convertible Preferred Stock and Warrants for the
securities to be issued in the Subsequent Placement, valued at the Purchase
Price originally paid by the Investor for the Convertible Preferred Stock, on
the same terms as the other investors in such Subsequent Placement.
Section 6.10. Pro-Rata Redemption. The Company agrees that if it shall
redeem any of the Convertible Preferred Stock, that it shall make such
redemption pro-rata among all Investors in proportion their respective initial
purchases of such securities pursuant to this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants made
by each of the Company and each Investor in this Agreement, the annexes,
schedules and exhibits hereto and in each instrument, agreement and certificate
entered into and delivered by them pursuant to this Agreement, shall survive the
Closing and the consummation of the transactions contemplated hereby. In the
event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and
hold harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of
any of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company
pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement; or
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(iii) any action instituted against the Investors, or any
of them, by any stockholder of the Company who is not an Affiliate of
an Investor, with respect to any of the transactions contemplated by
this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Company Indemnitees for reasonable all out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with any misrepresentation, omission of fact, or breach of any of the
Investor's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this Agreement
or any failure by the Investor to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this Agreement
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission so to notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent
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of the Indemnified Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnified Party from all
liabilities with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand being asserted
by a third party, the Indemnified Party promptly shall deliver notice of such
claim to the Indemnifying Party. If the Indemnified Party disputes the claim,
such dispute shall be resolved by mutual agreement of the Indemnified Party and
the Indemnifying Party or by binding arbitration conducted in accordance with
the procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company
shall make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other filings with the SEC, and all other publicly
available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such publicly available information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information
to the Investors, advisors to or representatives of the Investors unless prior
to disclosure of such information the Company identifies such information as
being non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
19
<PAGE> 46
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
20
<PAGE> 47
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Registrable Securities and no instructions
or "stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect
in any way each Investor's obligations to comply with all applicable securities
laws upon resale of the Common Stock.
21
<PAGE> 48
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available, and the non-prevailing party to any such injunctive
proceeding shall pay the expenses of the prevailing party, including reasonable
attorney's fees, in connection with such proceeding.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any permitted transferee
of any of the Convertible Preferred Stock or Warrants purchased or acquired by
any Investor hereunder with respect to the Convertible Preferred Stock or
Warrants held by such person, and (b) upon the prior written consent of the
Company, which consent shall not unreasonably be withheld or delayed, each
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any other person or entity (including any Affiliate of
22
<PAGE> 49
the Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the terms of this Agreement.
ARTICLE XII
NOTICES
Section 12.1. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) hand delivered, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the first business day following the date of sending by reputable
courier service, fully prepaid, addressed to such address, or (c) upon actual
receipt of such mailing, if mailed. The addresses for such communications shall
be:
<TABLE>
<S> <C>
If to the Company: Professional Transportation Group Ltd., Inc.
1950 Spectrum Circle
Suite B-100
Marietta, Georgia 30067
Attention: Dennis A. Bakal
Telephone: (678) 264-0400
Facsimile:
with a copy to (shall not constitute Smith, Gambrell & Russell, LLP
notice): Promenade II
1230 Peachtree Street, N.E.
Suite 3100
Atlanta, Georgia 30309
Attention: Jon H. Klapper, Esq.
Telephone: (404) 815-3722
Facsimile: (404) 685-7022
if to the Investors: As set forth on the signature pages hereto
with a copy to: Robert F. Charron, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
</TABLE>
23
<PAGE> 50
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Certificate of
Designations, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 13.4. Headings. The headings used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties
to this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
24
<PAGE> 51
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Preferred Stock or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond) or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the Company
at its expense will execute and deliver, in lieu thereof, a new certificate of
like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Epstein Becker & Green, P.C., counsel to the Investors, in an
amount equal to $10,000, all as set forth in the Escrow Agreement.
Section 13.9. Brokerage. Except for the finder's fee of $125,000 payable by
the Company to Andrew Worden, each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investors, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.10. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
25
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as this __ day of April,
2000.
<TABLE>
<S> <C>
PROFESSIONAL TRANSPORTATION
GROUP LTD., INC.
By: /s/ Dennis A. Bakal
------------------------------------
Dennis A. Bakal, President & CEO
INVESTORS:
Address: c/o Utra Finance
Grossmunster Platz 26 AMRO INTERNATIONAL, S.A.
Zurich CH 8022
Switzerland
Amount subscribed for:
1,000 shares of Convertible
Preferred Stock
Warrants: By: /s/ H.U. Bachofen
------------------------------------
H.U. Bachofen, Director
Fax: 011-411 212-5515
Amount subscribed for:
1,000 shares of Convertible
Preferred Stock
Warrants: 62,016
Total Purchase Price: /s/ John P. O'Shea
$1,000,000 -------------------------------------
John P. O'Shea
Address: c/o Westminster Securities, Inc.
100 Park Avenue, #2800
New York, NY 10017
Tel:
Fax: (212) 480-2549
Amount subscribed for:
200 shares of Convertible
Preferred Stock
Warrants: 18,604
Total Purchase Price:
$300,000
</TABLE>
26
<PAGE> 53
<TABLE>
<S> <C> <C>
Address: 14/14 Divrei Chaim Street The Endeavour Capital Fund, S.A.
Jerusalem 94479 Israel By: Endeavour Management, Inc.
Fax: 011-9722-582-4443 By: /s/ Shmuli Margulies
Amount subscribed for: --------------------------------------
1,500 shares Shmuli Margulies, President
Warrants: 93,024
Total Purchase Price: $1,500,000
CELESTE TRUST REG
Address: c/o Trevisa-Trevland-Anstalt
Landstrasse 8
Furstentums 9496 By: /s/ Thomas Hakl
Balzers, Liechtenstein -------------------------------------------
Thomas Hakl, Authorized Signatory
Fax: 011-431-534-532-895
Amount subscribed for:
500 shares
Warrants: 31,008
Total Purchase Price: $500,000
Address: c/o Trident Chambers BALMORE S.A.
Road Town Tortola
British Virgin Islands
By: /s/ Francois Moras
-------------------------------------------
Francois Moras, Authorized Signatory
Fax: 011-411-201-4800
Amount subscribed for:
650 shares
Warrants: 40,309
Total Purchase Price: $650,000
</TABLE>
27
<PAGE> 54
<TABLE>
<S> <C>
TALBIYA B. INVESTMENTS LTD.
By: /s/ John Clarke
-----------------------------------------
John Clarke, Authorized Signatory
Fax: 011-441-624-661-594
Amount subscribed for:
100 shares
Warrants: 6,201
Total Purchase Price: $100,000
WEST CAPITAL MANAGEMENT, INC.
By: /s/ Thierry Ulmann
------------------------------------------
Thierry Ulmann, Authorized Signatory
Fax: 011-412-232-10807
Amount subscribed for:
100 shares
Warrants: 6,201
Total Purchase Price: $100,000
</TABLE>
28
<PAGE> 55
EXHIBIT A
TO EXHIBIT B
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
PURSUANT TO SECTION 14-2-602 OF THE STATE OF GEORGIA
BUSINESS CORPORATION CODE
The undersigned, being the President and Chief Executive
Officer of Professional Transportation Group Ltd., Inc., a corporation organized
and existing under and by virtue of the laws of the State of Georgia
(hereinafter the "Corporation"), DO HEREBY CERTIFY:
FIRST: That pursuant to authority expressly granted and vested in the
Board of Directors of said Corporation by the provisions of the Corporation's
Articles of Incorporation, said Board of Directors adopted the following
resolution on April 6, 2000 determining the designations, preferences and rights
of its Series B Convertible Preferred Stock which will replace in its entirety
the Series B Preferred Stock that was designated and created in December 1999:
RESOLVED: That pursuant to the authority vested in the Board of
Directors of the Corporation by the Corporation's Articles of Incorporation (the
"Articles of Incorporation"), a series of Preferred Stock of the Corporation be,
and it hereby is, created out of the authorized but unissued shares of the
capital stock of the Corporation, such series to be designated Series B
Convertible Preferred Stock (the "Series B Convertible Preferred Stock"), to
consist of 4,300 shares, no par value per share, of which the preferences and
relative and other rights, and the qualifications, limitations or restrictions
thereof, shall be as set forth in the Certificate of Designations annexed
hereto:
1. NUMBER OF SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK. Of
the 100,000 shares of authorized but undesignated Preferred Stock ("Preferred
Stock") of the Corporation, four thousand three hundred (4,300) shares shall be
designated and known as Series B Convertible Preferred Stock, no par value
("Series B Convertible Preferred Stock").
2. VOTING.
(a) Unless required by law, no holder of any shares of
Series B Convertible Preferred Stock shall be entitled to vote their respective
shares of Series B Convertible Preferred Stock at any meeting of stockholders of
the Corporation (or any written actions of stockholders in lieu of meetings)
with respect to any matters presented to the stockholders of the Corporation for
their action or consideration. Notwithstanding the foregoing, the Corporation
shall provide each holder of record of Series B Convertible Preferred Stock with
timely notice of every meeting of
<PAGE> 56
stockholders of the Corporation and shall provide each holder with copies of all
proxy materials distributed in connection therewith.
(b) So long as any shares of Series B Convertible
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by the Georgia
Business Corporation Code) of the holders of at least 85% in interest of the
then outstanding shares of Series B Convertible Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the Series B Convertible Preferred Stock;
(ii) create any new class or series of capital
stock having parity with or a preference over the Series B Convertible Preferred
Stock as to payment of dividends or distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series B Convertible Preferred Stock;
(iii) increase the authorized number of shares of
Series B Convertible Preferred Stock; or
(iv) do any act or thing not authorized or
contemplated by this Certificate of Designations which would result in taxation
of the holders of shares of the Series B Convertible Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable
provision of the Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least eighty-five percent (85%) in
interest of the then outstanding shares of Series B Convertible Preferred Stock
agree to allow the Corporation to alter or change the rights, preferences or
privileges of the shares of Series B Convertible Preferred Stock, pursuant to
subsection (b) above, so as to affect the Series B Convertible Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series B Convertible Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days from the date of notice thereof
to convert any and all shares of then held Series B Convertible Preferred Stock
pursuant to the terms of this Certificate of Designation as in effect prior to
such alteration or change, or else to continue to hold their shares of Series B
Convertible Preferred Stock pursuant to the altered or changed terms.
3. DIVIDENDS.
The holders of shares of Series B Convertible Preferred Stock
shall be entitled to receive, before any cash dividend shall be declared and
paid upon or set aside for the Common Stock or any other series of securities
created hereafter, in any fiscal year of the Corporation, out of funds legally
available for that purpose, cumulative dividends payable in cash in an amount
per share for such fiscal year equal to $60.00 (6%). Such dividends shall accrue
daily and be payable semi-annually on June 30 and December 31 of each year,
commencing June 30, 2000. In the event that the Corporation's Common Stock shall
cease for any reason to be listed on The Nasdaq SmallCap Market or any national
securities exchange, the cash dividend from such date forward shall be at the
rate of $120 (12%) per share.
2
<PAGE> 57
4. LIQUIDATION. (a) If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any such law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidating Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation other than Senior Securities (as defined
above) upon such Liquidating Event unless prior thereto, the holders of shares
of Series B Convertible Preferred Stock shall have received the Liquidation
Preference (as defined in Section 4(c)) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series B Convertible Preferred Stock and
holders of securities ranking pari passu as to preference upon liquidation with
the Series B Convertible Preferred Stock shall be insufficient to permit the
payment to such holders of the preferential amounts payable thereon, then the
entire assets and funds of the Corporation legally available for distribution to
the Series B Convertible Preferred Stock and such pari passu securities shall be
distributed ratably among such shares in proportion to the ratio that that
Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
(b) At the option of each holder, the sale, conveyance of
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series or related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other person or persons when the Corporation is not
the survivor shall be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to such transaction an
amount equal to the Liquidation Preference with respect to each outstanding
share of Series B Convertible Preferred Stock held by such holder in accordance
with and subject to the terms of this Section 4.
(c) The Liquidation Preference shall be the "Stated
Value" of $1,000 per share of Series B Convertible Preferred Stock, plus all
accrued but unpaid dividends.
3
<PAGE> 58
5. OPTIONAL CONVERSION. The holders of shares of Series B
Convertible Preferred Stock shall have the following conversion rights:
(a) RIGHT TO CONVERT; CONVERSION PRICE. Subject to the
terms, conditions, and restrictions of this Section 5, on or after the Original
Issuance Date, the holder of any shares of Series B Convertible Preferred Stock
shall have the right to convert each such share of Series B Convertible
Preferred Stock (except that upon any Liquidating Event, the right of conversion
shall terminate at the close of business on the business day fixed for payment
of the amount distributable on the Series B Convertible Preferred Stock) into
that number of shares of Common Stock equal to the Stated Value of such share or
shares of Series B Convertible Preferred Stock divided by the lesser of (i)
ninety percent (90%) of the Market Price on the Trading Day on which the
Conversion Notice (as defined below) is transmitted by the Holder(s), and (ii)
Four Dollars ($4.00) per share (the "Conversion Price"); provided, however, the
Conversion Price shall not be less than One Dollar ($1.00) per share if the
following projections are met by the Corporation:
<TABLE>
<CAPTION>
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
JUNE 30, 2000 SEPT. 30, 2000 DEC. 31, 2000 MARCH 31, 2001
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
REVENUE $23,000,000 $34,000,000 $40,000,000 $21,000,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
NET INCOME $1,800,000 $2,700,000 $3,100,000 $1,600,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
CASH & CASH $25,000,000 $25,000,000 $28,000,000 $35,000,000
EQUIVALENTS*
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
If the Corporation fails to meet the above projections on any
of the above dates, as reported in the Corporation's Form 10-Q or 10-K filings
with the SEC for such period-ends, the Conversion Price may be less than One
Dollar ($1.00) per share thereafter regardless of whether the Corporation meets
the projections on subsequent dates.
Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the applicable rules of
the Principal Market, if any, the Corporation shall not issue shares of Common
Stock upon conversion of any shares of Series B Convertible Preferred Stock if
such issuance of Common Stock, when added to the number of shares of Common
Stock previously issued by the Corporation upon conversion of shares of the
Series B Convertible Preferred Stock, or issued upon exercise of the Stock
Purchase Warrants issued in conjunction with the issuance of shares of Series B
Convertible Preferred Stock, would exceed 19.9% of the number of shares of the
Corporation's Common Stock which were issued and outstanding on the Original
Issuance Date. The right to convert shares of Series B Convertible Preferred
Stock shall be pro rated among the original purchasers of such shares and their
respective subsequent transferees, if any, in order to comply with the aforesaid
overall limitation. In the event
------------------
* Includes cash, marketable securities, bonafide accounts receivables not
more than 45 days old and is subject to each Holder's right to investigate and
verify the Company's representation as to their Cash and Cash Equivalents at any
time upon two (2) days written notice. In addition, the amount of cash and cash
equivelants shall be adjusted upwards by $1,000,000 increments for every
additional 1,000,000 shares of Common Stock issued and outstanding after the
date hereof (including the Conversion Shares issued pursuant to the Purchase
Agreement).
4
<PAGE> 59
that the Corporation has not obtained stockholder approval of such issuance
prior to receipt of a Conversion Notice which would otherwise violate this
provision, the Corporation shall honor such conversion request (resulting in an
issuance in excess of 19.9%) in cash in an amount equal to the greater of (i)
one hundred and twenty percent (120%) of Stated Value, plus accrued interest or
(ii) the closing ask price on the Conversion Date multiplied by the number of
shares of Common Stock as would have been issued at the Conversion Price upon
such Conversion.
(b) CONVERSION DATE. (i) The holder of any shares of
Series B Convertible Preferred Stock may convert the shares of Series B
Convertible Preferred Stock purchased by such holder from the Corporation at any
time on or after the date on which payment for the sale of the first share of
Series B Convertible Preferred Stock is received by the Corporation, unless
otherwise agreed to in writing by the Corporation and the affected holder (the
"Original Issuance Date").
(ii) In no event shall a holder be permitted to
convert any shares of Series B Convertible Preferred Stock in excess of the
number of such shares upon the conversion of which, (x) the number of shares of
Common Stock owned by such holder (other than shares of Common Stock issuable
upon conversion of shares of Series B Convertible Preferred Stock) plus (y) the
number of shares of Common Stock issuable upon such conversion of those shares
of Series B Convertible Preferred Stock sought to be converted, would be equal
to or exceed 9.9% of the number of shares of Common Stock then issued and
outstanding, including those shares issuable upon conversion of the Series B
Convertible Preferred Stock held by such holder after application of this
Section 5(b)(ii). As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 5(b)(ii) applies, the determination of
whether shares of Series B Convertible Preferred Stock are convertible (in
relation to other securities owned by holder) and of which shares of Series B
Convertible Preferred Stock are convertible shall be in the sole discretion of
such holder, and the submission of shares of Series B Convertible Preferred
Stock for conversion shall be deemed to be such holder's determination of
whether such shares of Series B Convertible Preferred Stock are convertible (in
relation to other securities owned by such holder) and of which shares of Series
B Convertible Preferred Stock are convertible, in each case subject to such
aggregate percentage limitation, and the Corporation shall have no obligation or
right to verify or confirm the accuracy of such determination. Nothing contained
herein shall be deemed to restrict the right of a holder to convert such shares
of Series B Convertible Preferred Stock at such time as such conversion will not
violate the provisions of this paragraph. The provisions of this Section
5(b)(ii) may be waived by a holder of Series B Convertible Preferred Stock as to
itself (and solely as to itself) upon not less than 75 days' prior notice to the
Corporation, and the provisions of this Section 5(b)(ii) shall continue to apply
until such 75th day (or such later date as may be specified in such notice of
waiver). No conversion in violation of this paragraph but otherwise in
accordance with this Certificate of Designation shall affect the status of the
Common Stock issued upon such conversion as validly issued, fully-paid and
nonassessable.
(c) NOTICE OF CONVERSION. The right of conversion shall
be exercised by the holder thereof by giving written notice (the "Conversion
Notice") to the Corporation, by facsimile or by registered mail or overnight
delivery service. The Corporation shall then provide notice to the Corporation's
then transfer agent for its Common Stock that the holder elects to convert a
specified
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<PAGE> 60
number of shares of Series B Convertible Preferred Stock representing a
specified Stated Value thereof into Common Stock and, if such conversion will
result in the conversion of all of such holder's shares of Series B Convertible
Preferred Stock, by surrender of a certificate or certificates for the shares so
to be converted to the Corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holders of the Series B Convertible Preferred Stock) at any time
during its usual business hours on the date set forth in the Conversion Notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued. The
Conversion Notice shall include therein the Stated Value of shares of Series B
Convertible Preferred Stock to be converted, and a calculation (i) of the Market
Price, (ii) the Conversion Price, and (iii) the number of shares of Common Stock
to be issued in connection with such conversion. Such calculations by the holder
shall be conclusive except for manifest error.
(d) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
(i) Promptly, but in no event more than three (3) Trading Days, after the
receipt of the Conversion Notice referred to in Section 5(c) and surrender of
the certificate or certificates for the share or shares of Series B Convertible
Preferred Stock to be converted (if required), the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock into which such shares of Series B
Convertible Preferred Stock have been converted. Such conversion shall be deemed
to have been effected on the date on which such Conversion Notice shall have
been received by the Corporation and at the time specified stated in such
Conversion Notice, which must be during the calendar day of such notice, and at
such time the rights of the holder of such share or shares of Series B
Convertible Preferred Stock shall cease, and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby. Issuance of shares of
Common Stock issuable upon conversion which are requested to be registered in a
name other than that of the registered holder shall be subject to compliance
with all applicable federal and state securities laws.
(ii) The Corporation understands that a delay in
the issuance of the shares of Common Stock beyond three (3) Trading Days could
result in economic loss to the holder. As compensation to the holder for such
loss, the Corporation agrees to pay late payments to the holder for late
issuance of shares of Common Stock upon conversion in accordance with the
following schedule (where "No. Trading Days Late" is defined as the number of
Trading Days beyond three (3) Trading Days from the date of receipt by the
Corporation of the Conversion Notice):
<TABLE>
<CAPTION>
Late Payment For Each
$5,000 of Stated Value
No. Trading Days Late Amount Being Converted
-------------------------------- -------------------------------------------
<S> <C>
1 $100
2 $200
3 $300
</TABLE>
6
<PAGE> 61
<TABLE>
<CAPTION>
Late Payment For Each
$5,000 of Stated Value
No. Trading Days Late Amount Being Converted
-------------------------------- -------------------------------------------
<S> <C>
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Trading Day
Late beyond 10 days
</TABLE>
The Corporation shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit holder's
right to pursue injunctive relief and/or actual damages for the Corporation's
failure to issue and deliver Common Stock to the holder, including, without
limitation, the holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the holder, in the event that the Corporation
fails for any reason to effect delivery of such shares of Common Stock within
five (5) Trading Days the date of receipt of the Conversion Notice, the holder
will be entitled to revoke the relevant Conversion Notice by delivering a notice
to such effect to the Corporation whereupon the Corporation and the holder shall
each be restored to their respective positions immediately prior to delivery of
such Conversion Notice except that holder shall retain the right to receive both
the late payment amounts set forth above plus the actual cost of any "buy-in."
(iii) If, at any time (a) the Corporation
challenges, disputes or denies the right of the holder to effect the conversion
of the Series B Convertible Preferred Stock into Common Stock or otherwise
dishonors or rejects any Conversion Notice properly delivered in accordance with
this Section 5 or (b) any third party who is not and has never been an Affiliate
(as defined in Rule 405 under the Securities Act of 1933, as amended) of the
holder obtains a judgment or order from any court or public or governmental
authority which denies, enjoins, limits, modifies, or delays the right of the
holder hereof to effect the conversion of the Series B Convertible Preferred
Stock into Common Shares, then the holder shall have the right, by written
notice to the Corporation, to require the Corporation to promptly redeem the
Series B Convertible Preferred Stock for cash at a redemption price equal to one
hundred twenty percent (120%) of the Stated Value thereof (the "Mandatory
Purchase Amount"). Under any of the circumstances set forth above, the
Corporation shall indemnify and hold harmless the holder and be responsible for
the payment of all costs and expenses of the holder, including its reasonable
legal fees and expenses, as and when incurred in disputing any such action or
pursuing its rights hereunder (in addition to any other rights of the holder).
The Corporation shall not refuse to honor any Conversion Notice unless its has
actually been enjoined by a court of competent jurisdiction from doing so, and
if so enjoined, the Corporation shall post with such court a performance bond
equal to 150% of the Stated Value of the shares sought to be converted by the
holder which are the subject of such injunction.
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<PAGE> 62
(iv) The holder shall be entitled to exercise its
conversion privilege notwithstanding the commencement of any case under 11
U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). In the event the Corporation is
a debtor under the Bankruptcy Code, the Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the holder's conversion privilege. The Corporation agrees, without
cost or expense the holder, to take or consent to any and all action necessary
to effectuate relief under 11 U.S.C. ss. 362.
(e) FRACTIONAL SHARES. No fractional shares shall be
issued upon conversion of Series B Convertible Preferred Stock into Common
Stock. All fractional shares shall be rounded up to the nearest whole share.
(f) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, or, in the case of any consolidation or merger or mandatory share
exchange of the Corporation with any other corporation in which such other
corporation is the surviving entity then, as a condition of such reorganization,
reclassification or exchange, lawful and adequate provisions shall be made
whereby each holder of a share or shares of Series B Convertible Preferred Stock
shall thereupon have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of Series B Convertible Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
reorganization, reclassification or exchange not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the conversion rights and the
fixing of the Conversion Price) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights. For clarity, it is the
intention of the Corporation that the conversion rights of the holders of the
Series B Convertible Preferred Stock shall survive any consolidation or merger
or mandatory share exchange and that the conversion rights granted hereunder
shall be exercisable against any such successor corporation, and shall not be
terminated or fixed as to amount upon the consummation of any such transaction.
(g) ADJUSTMENTS FOR SPLITS, COMBINATIONS, ETC. The
ceiling Conversion Price and the number of shares of Common Stock into which the
Series B Convertible Preferred Stock shall be convertible shall be adjusted for
stock splits, stock dividends, combinations or other similar events. No
adjustment to the Conversion Price will be made for dividends (other than stock
dividends), if any, paid on the Common Stock or for securities issued pursuant
to exercise for fair value of options or warrants.
6. REQUIRED ADJUSTMENTS. Notwithstanding anything to the contrary
contained in Section 5 herein and except as to (i) sales of shares of Common
Stock by the Company upon conversion or exercise of any convertible securities,
options or warrants outstanding prior to the date
8
<PAGE> 63
hereof or, (ii) sales of shares of the Company's common stock ("Common Stock")
by the Company pursuant to the provisions of any shareholder-approved option or
similar plan heretofore adopted by the Company, if during any period a holder of
Series B Convertible Preferred Stock holds any Convertible Preferred Stock or is
entitled to any accrued but unpaid dividends (the "MFN Period"), the Company
sells any shares of its Common Stock at a per share selling price ("Per Share
Selling Price") lower than the ceiling Conversion Price, then the ceiling
Conversion Price shall be adjusted downward to equal such lower Per Share
Selling Price. The Company shall give to each holder of Series B Convertible
Preferred Stock written notice of any such sale within 24 hours of the closing
of any such sale.
(a) For the purpose of this Section 6, the term
"Per Share Selling Price" shall mean the amount actually paid by third parties
for each share of Common Stock. A sale of shares of Common Stock shall include
the sale or issuance of rights, options, warrants or convertible securities
("derivative securities") under which the Company is or may become obligated to
issue shares of Common Stock, and in such circumstances the sale of Common Stock
shall be deemed to have occurred at the time of the issuance of the derivative
securities and the Per Share Selling Price of the Common Stock covered thereby
shall also include the exercise or conversion price thereof (in addition to the
consideration per underlying share of Common Stock received by the Company upon
such sale or issuance of the derivative security). In the case of any such
security issued within the MFN Period in a "Variable Rate Transaction" or an
"MFN Transaction" (each as defined below), the Per Share Selling Price shall be
deemed to be the lowest conversion or exercise price at which such securities
are converted or exercised or might have been converted or exercised in the case
of a Variable Rate Transaction, or the lowest adjustment price in the case of an
MFN Transaction. If shares are issued for a consideration other than cash, the
per share selling price shall be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company.
(b) For the purpose of Section 6(a), the term
"Variable Rate Transaction" shall mean a transaction in which the Company issues
or sells (a) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (x) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the Common Stock at any time after the initial issuance of such
debt or equity securities, or (y) with a fixed conversion, exercise or exchange
price that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the Company
or the market for the Common Stock (but excluding standard stock split
anti-dilution provisions), or (b) any securities of the Company pursuant to an
"equity line" structure which provides for the sale, from time to time, of
securities of the Company which are registered for resale pursuant to the
Securities Act.
(c) For the purposes of Section 6(a), the term
"MFN Transaction" shall mean a transaction in which the Company issues or sells
any securities in a capital raising transaction or series of related
transactions (the "New Offering") which grants to an holder of Series B
Convertible Preferred Stock (the "New Holder of Series B Convertible Preferred
Stock") the right to receive additional shares based upon future transactions of
the Company on terms more favorable
9
<PAGE> 64
than those granted to the New Holder of Series B Convertible Preferred Stock in
the New Offering.
7. REDEMPTION OF SERIES B CONVERTIBLE PREFERRED STOCK.
(a) RIGHT TO REDEEM SERIES B CONVERTIBLE PREFERRED STOCK.
Upon a thirty (30) day written notice any time after the Original Issuance Date
the Corporation may, in its sole discretion, but shall not be obligated to,
redeem, in whole but not in part, the then issued and outstanding shares of
Series B Convertible Preferred Stock, at a price equal to the greater of (i) one
hundred and twenty percent (120%) of Stated Value, plus accrued interest or (ii)
the closing ask price on the Redemption Date multiplied by the number of shares
of Common Stock as would have been issued on the Redemption Date if such Series
B Convertible Preferred Stock had been converted by the holder on the Redemption
Date, plus all accrued but unpaid dividends; provided, however, that a
registration statement permitting resale of any shares of Common Stock issuable
upon conversion by the holder is then effective. Each holder shall have until
the close of business on the Redemption Date to elect instead to convert such
shares pursuant to Section 5 hereof, notwithstanding that the shares of Series B
Convertible Preferred Stock are not otherwise convertible at such time. Any such
conversions made pursuant to this Section 7(a) shall be made at the Conversion
Price established pursuant to Section 5(a).
(b) MANDATORY REDEMPTION OF SERIES B CONVERTIBLE
PREFERRED STOCK. Upon the closing of a consolidation, merger or mandatory share
exchange in which the Corporation is not the surviving entity and in which the
only consideration to be received by the holders of the Corporation's Common
Stock is cash, the Corporation shall be obligated to, redeem, in whole but not
in part, the then issued and outstanding shares of Series B Convertible
Preferred Stock, at a price equal to the greater of (i) one hundred and twenty
percent (120%) of Stated Value, plus accrued interest or (ii) the closing ask
price on the Redemption Date multiplied by the number of shares of Common Stock
as would have been issued on the Redemption Date if such Series B Convertible
Preferred Stock had been converted by the holder on the Redemption Date, plus
all accrued but unpaid dividends; provided, however, that a registration
statement permitting resale of any shares of Common Stock issuable upon
conversion by the holder is then effective. Each holder shall have until the
close of business on the Redemption Date to elect instead to convert such shares
pursuant to Section 5 hereof, notwithstanding that the shares of Series B
Convertible Preferred Stock are not otherwise convertible at such time. Any such
conversions made pursuant to this Section 7(b) shall be made at the Conversion
Price established pursuant to Section 5(a).
(c) NOTICE OF REDEMPTION. The Corporation shall provide
each holder of record of the Series B Convertible Preferred Stock being redeemed
with written notice of redemption (the "Redemption Notice") not less than thirty
(30) days prior to any date stipulated by the Corporation for the redemption of
the Series B Convertible Preferred Stock (the "Redemption Date"). The Redemption
Notice shall contain (i) the Redemption Date, (ii) the number of shares of
Series B Convertible Preferred Stock to be redeemed from the holder to whom the
Redemption Notice is delivered, and (iii) instructions for surrender to the
Corporation of the certificate or certificates representing the shares of Series
B Convertible Preferred Stock to be redeemed.
10
<PAGE> 65
(d) SURRENDER OF CERTIFICATES; PAYMENT OF REDEMPTION
PRICE. On or before the Redemption Date, each holder of the shares of Series B
Convertible Preferred Stock to be redeemed shall surrender the required
certificate or certificates representing such shares to the Corporation (or an
affidavit of lost certificate in form and content reasonably satisfactory to the
Corporation, but which shall not require the posting of any bond), in the manner
and at the place designated in the Redemption Notice, and upon payment to the
holder of the Redemption Price, each such surrendered certificate shall be
cancelled and retired. If payment of such redemption price is not made in full
by the Redemption Date the Holder shall again have the right to convert the
Series B Convertible Preferred Stock as provided in Section 5 hereof, and the
Corporation shall thereafter be precluded from exercising its rights under this
Section 7. If a certificate is surrendered and all the shares evidenced thereby
are not being redeemed with the consent of the holder, the Corporation shall
issue new certificates to be registered in the names of the person(s) whose
name(s) appear(s) as the owners on the respective surrendered certificates and
deliver such certificate to such person(s).
8. NOTICES. In case at any time:
(a) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other pro rata distribution to
the holders of its Common Stock; or
(b) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of stock of any class
or other rights; or
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(d) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile or by recognized overnight delivery
service to non-U.S. residents, addressed to each holder of any shares of Series
B Convertible Preferred Stock at the address of such holder as shown on the
books of the Corporation, (i) at least twenty (20) Trading Days' prior written
notice of the date on which the books of the Corporation shall close or a record
shall be taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) Trading Days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto and (ii)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
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<PAGE> 66
9. STOCK TO BE RESERVED. The Corporation, upon the effective date
of this Certificate of Designations, has a sufficient number of shares of Common
Stock available to reserve for issuance upon the conversion of all outstanding
shares of Series B Convertible Preferred Stock, assuming immediate conversion.
In the event that the Corporation has not reserved a sufficient number of shares
for issuance upon conversion of all of the outstanding shares of Series B
Convertible Preferred Stock, the shares of Series B Convertible Preferred Stock
reserved shall be pro rated among the original purchasers of such shares and
their respective subsequent transferees. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series B Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series B Convertible
Preferred. The Corporation covenants that all shares of Common Stock which shall
be so issued shall be duly and validly issued, fully paid and non-assessable.
The Corporation will take all such action as may be so taken without violation
of any applicable law or regulation to have a sufficient number of authorized
but unissued shares of Common Stock to issue upon conversion of the Series B
Convertible Preferred Stock. The Corporation will not take any action which
results in any adjustment of the conversion rights if the total number of shares
of Common Stock issued and issuable after such action upon conversion of the
Series B Convertible Preferred Stock would exceed the total number of shares of
Common Stock then authorized by the Corporation's Articles of Incorporation.
10. NO REISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK. Shares
of Series B Convertible Preferred Stock which are converted into shares of
Common Stock as provided herein shall not be reissued.
11. ISSUE TAX. The issuance of certificates for shares of Common
Stock upon conversion of Series B Convertible Preferred Stock shall be made
without charge to the holder for any United States issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series B Convertible Preferred Stock which is being converted.
12. CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Series B Convertible Preferred Stock
or of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series B Convertible Preferred Stock in any manner which interferes
with the timely conversion of such Series B Convertible Preferred Stock, except
as may otherwise be required to comply with applicable securities laws.
13. DEFINITIONS. As used in this Certificate of Designations, the
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock, no par value, as constituted on the date of filing of this Certificate of
Designations, and shall also include any capital stock of any class of the
Corporation thereafter authorized which shall neither be limited to a fixed sum
or percentage of par value in respect of the rights of the holders thereof to
participate in dividends nor entitled to a preference in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; provided that the shares of Common Stock receivable upon
conversion of shares of Series B Convertible Preferred Stock shall include only
shares
12
<PAGE> 67
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization, reclassification, or stock split
of the outstanding shares thereof, the stock, securities or assets provided for
in Subparagraph 5(f) and (g). Any capitalized terms used in this Certificate of
Designations but not defined herein shall have the meanings set forth in that
certain Convertible Preferred Stock and Warrants Purchase Agreement dated as of
April 28, 2000 among the Corporation and the other persons signatory thereto, a
copy of which will be provided to any stockholder of the Corporation upon
request to the Secretary of the Corporation, without charge.
14. LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of certificates representing shares of Series B Convertible Preferred
Stock and, in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (which shall not include
the posting of any bond), or, in the case of any such mutilation, upon surrender
and cancellation of the Series B Convertible Preferred Stock certificate, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated certificates for Series B Convertible Preferred Stock,
new certificates for Series B Convertible Preferred Stock of like tenor. The
Series B Convertible Preferred Stock shall be held and owned upon the express
condition that the provisions of this Section 14 are exclusive with respect to
the replacement of mutilated, destroyed, lost or stolen shares of Series B
Preferred Stock and shall preclude any and all other rights and remedies
notwithstanding any law or statue existing or hereafter enacted to the contrary
with respect to the replacement of negotiable instruments or other securities
without the surrender thereof.
15. WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the person
in whose name the Series B Convertible Preferred Stock shall be registered upon
the registry books of the Corporation to be, and may treat it as, the absolute
owner of the Series B Convertible Preferred Stock for the purpose of conversion
of the Series B Convertible Preferred Stock and for all other purposes, and the
Corporation shall not be affected by any notice to the contrary. All such
payments and such conversion shall be valid and effectual to satisfy and
discharge the liability upon the Series B Convertible Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
16. REGISTER. The Corporation shall maintain a transfer agent,
which may be the transfer agent for the Common Stock or the Corporation itself,
for the registration of the Series B Convertible Preferred Stock. Upon any
transfer of the Series B Convertible Preferred Stock in accordance with the
provisions hereof, the Corporation shall register or cause the transfer agent to
register such transfer on the Series B Convertible Preferred Stock register.
17. WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
B Convertible Preferred Stock.
18. HEADINGS. The headings of the Sections of this Certificate of
Designations are inserted for convenience only and do not constitute a part of
this Certificate of Designations.
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<PAGE> 68
IN WITNESS WHEREOF, Dennis A. Bakal, President and Chief Executive
Officer of the Corporation, under penalties of perjury, does hereby declare and
certify that this is the act and deed of the Corporation and the facts stated
herein are true and accordingly has signed this Certificate of Designations as
of this 8th day of May l, 2000.
PROFESSIONAL TRANSPORTATION
GROUP LTD., INC.
By: /s/ Dennis A. Bakal
-----------------------------------
Dennis A. Bakal, President and CEO
14
<PAGE> 69
EXHIBIT C
AGREEMENT AND PLAN OF MERGER
BY
AND
AMONG
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
DTSI ACQUISITION, INC.
DEDICATED TRANSPORTATION SERVICES, INC.
AND
THE STOCKHOLDERS OF DEDICATED TRANSPORTATION SERVICES, INC.
Dated as of May 17, 2000
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<PAGE> 70
MERGER AGREEMENT AND PLAN OF REORGANIZATION
This Merger Agreement and Plan of Reorganization (the "Agreement") is
made and entered into as of May 17, 2000 by and between Professional
Transportation Group Ltd., Inc., a Georgia corporation (the "Buyer"), DTSI
Acquisition, Inc., a Georgia corporation (the "MergerSub"), Robert Serra and
Susan Martin as Trustees of the Serra/Martin Living Trust, Robert Serra, Susan
Martin and Mark Kapper (collectively, the "Seller"), and, Dedicated
Transportation Services, Inc., a California corporation (the "Company").
WHEREAS, the parties desire that the Company merge with and into
MergerSub upon the terms and conditions set forth herein and in accordance with
the laws of the State of California and the State of Georgia;
NOW, THEREFORE, in consideration of the mutual terms and conditions
herein contained, and intending to be legally bound, it is agreed between the
parties hereto as follows:
ARTICLE 1
THE MERGER
1.1 MERGER, SURVIVING CORPORATION. In accordance with the
provisions of this Agreement and the California Corporations Code, Section
1103, et seq. (the "CCC"), and the Georgia Corporation Code, O.C.G.A.
ss.14-2-1100 (the "GCC"), at the Effective Time (as such term is defined in
Section 1.5 hereof), Company shall be merged with and into MergerSub (the
"Merger"), and MergerSub shall be the surviving corporation in the Merger
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Georgia. At the
Effective Time, the separate existence of the Company shall cease. All
properties, franchises and rights belonging to the Company and MergerSub, by
virtue of the Merger and without further act or deed, shall be deemed to be
vested in the Surviving Corporation, which shall thenceforth be responsible for
all the liabilities and obligations of each of MergerSub and the Company.
1.2 ARTICLES OF INCORPORATION. The Articles of Incorporation of
MergerSub as in effect immediately prior to the Effective Time shall thereafter
continue in full force and effect as the Articles of Incorporation of the
Surviving Corporation until altered or amended as provided therein or by law
and by the Plan of Merger effecting the Merger.
1.3 BYLAWS. The Bylaws of MergerSub immediately prior to the
Effective Time shall thereafter continue in full force and effect as the Bylaws
of the Surviving Corporation until amended as provided by law.
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1.4 DIRECTORS AND OFFICERS. The directors and officers of
MergerSub immediately prior to the Effective Time shall serve as directors and
officers of the Surviving Corporation following the Effective Time in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation and the CCC and the GCC.
1.5 EFFECTIVE TIME. The Merger shall become effective at the time
and date of the acceptance for filing of Agreement of Merger (the "Agreement of
Merger") by the Secretary of State of the State of California in accordance
with the provisions of Section 1103 of the CCC, and the acceptance for filing
of Articles of Merger by the Secretary of State of the State of Georgia in
accordance with the provisions of Section 14-2-1105 of the GCC. The Agreement
of Merger and the Articles of Merger shall have attached as an exhibit thereto
a fully executed plan of merger (the "Plan of Merger") in substantially the
form attached as Exhibit A hereto. The Agreement of Merger and the Articles of
Merger shall be executed by MergerSub and the Company and delivered to the
Secretary of State of the State of California and the State of Georgia for
filing, as stated above, on the Closing Date provided for in Section 1.8. The
date and time when the Merger shall become effective are referred to herein as
the "Effective Time."
1.6 CONVERSION OF COMPANY SHARES. Each share of Common Stock of
the Company (the "Company Common Stock"), issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted at the Effective Time
into the Merger Consideration provided for in Article 2 hereof.
1.7 MERGERSUB COMMON STOCK. At the Effective Time, each share of
Common Stock of MergerSub issued and outstanding immediately prior to the
Effective Time shall remain outstanding as shares of the Surviving Corporation,
without any action on the part of the holder thereof.
1.8 CLOSING; EXCHANGE OF CERTIFICATES. (a) At the Closing
provided for in paragraph (b) below, immediately after the Effective Time of
the Merger, each Seller shall surrender to the Surviving Corporation all of the
outstanding certificates theretofore representing shares of Company Common
Stock in exchange for the Merger Consideration payable to him/her/it at Closing
as provided for herein. Until such certificates are surrendered, outstanding
certificates formerly representing shares of Company Common Stock shall be
deemed for all purposes as evidencing the right to receive the Merger
Consideration into which such shares have been converted as though said
surrender and exchange had taken place.
(b) The Closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Company as
soon as practicable after the execution and delivery of this Agreement and
satisfaction of the conditions to closing (the date of the Closing hereafter
the "Closing Date").
1.9 MERGER CONSIDERATION. All of the issued and outstanding
shares of Common Stock of the Company shall be converted at the Effective Time
of the Merger into the right to receive up
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to 1,860,000 shares (the "Stock Consideration") of Buyer common stock
("Shares") and, under certain conditions, a cash payment in lieu of a portion
of the Stock Consideration (the "Cash Consideration")(collectively, the "Merger
Consideration"), as further provided below, such Merger Consideration to be
payable to the Sellers pro rata in accordance with their holdings of Company
Shares. The Stock Consideration shall be delivered to Sellers not later than
five days after the Effective Time.
At the Closing, Buyer shall deliver to Sellers 930,000 Shares. The
balance of the Stock Consideration shall be paid to Sellers only if Buyer's
shareholders approve such payment at a meeting of Buyer's stockholders to be
held on June 29, 2000. Upon such approval, the balance of the Stock
Consideration shall be paid to Sellers. If such approval is not received by
September 1, 2000, Buyer shall promptly deliver such number of additional
Shares as may be permitted without shareholder approval pursuant to NASDAQ
rules and regulations, and Buyer shall pay the balance to Sellers in cash. The
Stock Consideration for purposes of this provision shall be deemed to have a
value per share of $5.00.
1.10 TAX-FREE REORGANIZATION. The parties intend to adopt this
Agreement as a tax-free plan of reorganization to the extent of the Stock
Consideration, and to consummate the Merger in accordance with the provisions
of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended, and
to take such further actions as may be reasonably be required to qualify this
transaction as an "A" reorganization and not take such further actions as may
disqualify this transaction from such treatment. The parties believe that the
value of the Stock Consideration to be received by Seller in the Merger is
equal to not less than 50% of the value of the Company common stock to be
surrendered in exchange therefor. The Merger Consideration will be paid solely
in exchange for the Company Shares and no other transaction other than the
Merger represents, provides for or is intended to be an adjustment to, the
consideration paid for the Company Shares. Buyer represents now, and as of the
Closing, that it presently intends to continue the Company's historic business
or use a significant portion of the Company's business assets in a business.
Sellers acknowledge that they have received independent tax advice and counsel
with respect to the Merger and the transactions contemplated herein and is not
relying on representations relating to personal tax matters made by Buyer or
its counsel, accountants or advisors with respect thereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER AND COMPANY
Seller and Company represent and warrant to Buyer and to MergerSub as
of the date hereof and as of the Effective Time as follows:
2.1. ORGANIZATION AND STANDING. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, is qualified as a foreign corporation in good standing under the
laws of all of the jurisdictions in which the conduct of its business or the
ownership of its properties requires qualification, and has all corporate power
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and authority to own and lease its properties and to carry on its business as
now conducted. The copies of the Company's Articles of Incorporation, as
amended (including any certificates designating the powers, designation, rights
and preferences of the Company's capital stock) previously provided to Buyer
are true, complete and correct as of the date hereof.
2.2. SUBSIDIARIES. Except as set forth in Schedule 2.2, the
Company has no subsidiaries and 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.
2.3. CAPITALIZATION. The Company has authorized capital stock
consisting solely of 2,000 shares of common stock, no par value, of which 1,000
shares are issued and outstanding and held of record by Mark Kapper, and 1,000
shares are issued and outstanding to the Serra/Martin Living Trust, of which
the co-trustees are Robert Serra and Susan Martin.
All of the issued and outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, and such shares have
been so issued in full compliance with all federal and state securities laws.
There are no outstanding options, subscriptions, convertible securities,
warrants, preemptive rights, rights of first refusal, proxies, voting
agreements, restrictions (other than restrictions on transfer imposed under
federal or state securities laws) or agreements or understandings of any
character (contingent or otherwise) which restrict or relate to the voting or
transfer of, require the issuance, sale, purchase or redemption of, or
otherwise relate to, such securities.
2.4. TITLE TO SHARES, AUTHORIZATIONS.
(a) Seller Mark Kapper is the owner, beneficially and of
record, of the Shares titled in his name, and such Shares are free and clear of
all liens, encumbrances, security agreements, equities, options, claims,
charges, and restrictions of any kind, other than restrictions on transfer
imposed under federal or state securities laws. Seller Serra/Martin Living
Trust holds legal title to the Shares titled in its name, and such Shares are
beneficially owned by Robert Serra and Susan Martin as community property under
the laws of the State of California. The Serra/Martin Living Trust is the owner
of the Shares titled in its name, and such Shares are free and clear of all
liens, encumbrances, security agreements, equities, options, claims, charges,
and restrictions of any kind, other than restrictions on transfer imposed under
federal or state securities laws.
(b) Seller has full power, legal capacity and authority
to execute and deliver this Agreement and to transfer the Shares to Buyer
without obtaining the consent or approval of any other person or governmental
authority.
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(c) This Agreement has been duly and validly executed
and delivered by Seller and constitutes a valid and binding Agreement of Seller
and is enforceable in accordance with its terms; and
(d) The delivery of the Shares to Buyer pursuant to this
Agreement will transfer to Buyer good title thereto, free and clear of any and
all liens, encumbrances and claims of any kind whatsoever.
2.5. FINANCIAL STATEMENTS. Seller has delivered to Buyer: (a)
unaudited balance sheets of the Company as of January 31, 2000 (the "Balance
Sheet" and the "Balance Sheet Date") and each of the fiscal years 1998 through
2000, and the related unaudited statements of income and cash flows for each of
the fiscal years or periods then ended and (b) unaudited financial statements
for the period ended March 31, 2000 (the "Financial Statements"). The Financial
Statements fairly present the financial condition and results of operations of
the Company as of the respective dates thereof and for the periods therein
referred. Except as reflected in the Balance Sheet and to the best knowledge
and belief of Seller, the Company has no actual or contingent liabilities,
except for liabilities arising since the Balance Sheet Date in the ordinary
course of business, not involving borrowings, which are usual and normal in
amount, both individually and in the aggregate and obligations under contracts
and commitments accrued in the ordinary course of business and not required
under generally accepted accounting principles consistently applied to be
reflected in the Financial Statements.
2.6. NO ADVERSE CHANGES. Since the Balance Sheet Date the Company
has not:
(i) to the best knowledge and belief of Seller, suffered
any material adverse change in its condition (financial or otherwise),
operations, assets, properties, business, or prospects and no event has
occurred or is contemplated or threatened, which might reasonably be expected
to cause such a change in the future;
(ii) declared any dividend, made any payment, redemption,
purchase or distribution or set aside any such payment, in respect of shares of
its capital stock or purchased or otherwise acquired any option, warrant or
other right to purchase any such capital stock;
(iii) made any changes in accounting methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates); or
(iv) entered into any agreement or commitment (contingent
or otherwise) to do any of the things described in this SECTION 2.6.
2.7. TAXES. The Company has filed within the time and manner
prescribed by law all foreign, federal, state, county and local income, gross
receipts, excise, property, sales, use, transfer, employment and other tax
returns or reports which are required to be filed by, or with respect to, it
and such returns or reports are true and correct in all material respects. The
Company has paid all
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taxes, interest, penalties, assessments or deficiencies shown as due and
payable on such reports. The charges, accruals, and reserves for unpaid taxes
on the books of the Company as of the Balance Sheet Date, are sufficient in all
respects for the payment of all unpaid federal, foreign, state, county and
local taxes of the Company accrued for or applicable to all periods ended on or
before that date. The Company has withheld or collected from each payment made
to each of its employees, the amount of all taxes, including, but not limited
to, federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes, required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers of authorized
depositaries. There are no outstanding waivers or extensions of time with
respect to the assessment or audit of any tax or tax return of the Company, or
claims pending or matters under discussion with any taxing authority with
respect to any tax liability of the Company.
The Company's federal and state tax returns have not been audited nor
has the Company received notice of any audit of federal, state or local income
or excise tax returns of the Company and, to the best knowledge of Seller, no
properties of any kind of the Company which serve as a basis for the imposition
of a tax have been or are in the process of being appraised, examined or
reassessed since the filing of the most recent return relating to, or the
payment of, such a tax. The Company has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as an S
corporation. The Company has not elected to be treated as a collapsible
corporation pursuant to Section 341(f) of Section 1362(a) of the Code, nor has
it made any other elections pursuant to the Code (other than elections that
relate solely to methods of accounting, depreciation, or amortization) that
would have a material effect on the business, properties, prospects, or
financial condition of the Company.
2.8. COMPLIANCE WITH LAWS. The Company has complied in all
material respects with all applicable laws and regulations relating to or
affecting the business.
2.9. LIST AND STATUS OF PROPERTIES, CONTRACTS AND OTHER DATA.
Schedule 2.9 sets forth the following:
(i) (A) a complete and accurate legal description
of each parcel of real property owned in whole or in part by the Company,
together with either a true and correct survey or a substantially true and
correct plat of each parcel, a description of all buildings, fixtures and other
improvements located on the properties and a list of all indebtedness secured
by a lien, mortgage or deed of trust thereon, and the address of each such
parcel leased or subleased by the Company, indicating the location of each such
property and, in the case of leased or subleased properties, the name of the
lessor or sublessor and termination dates and renewal conditions of each lease
or sublease. None of the real property owned by the Company or any Subsidiary
has been used as "Agricultural Land" as defined in 7 CFR ss.781.2(b) within
five years prior to the date of this Agreement.
(B) (I) a complete listing of each item of
personal property owned or used by the Company in the business and having more
than a nominal value. Such personal property
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constitutes all such property necessary for the conduct by the Company of the
business as presently conducted.
(II) a listing of all policies of title
and liability insurance held by the Company since January 1, 1997, and all
policies of insurance by which properties, buildings, machinery, equipment,
fixtures or other assets and business of the Company is insured as of the date
hereof. Such policies, with respect to their amounts, scope and types of
coverage, are usual and customary in the Company's industry and reasonably
insure in accordance with industry practices (subject to reasonable
deductibles) the Company's assets and businesses for property damage and loss
of income by fire or other casualty, products liability and against all risks
of loss, including business interruption. Except as shown on Schedule 2.9(ii),
there are no pending claims by, or to the best knowledge and belief of Seller,
against the Company or under such policies or unresolved disputes between the
Company and any carrier in respect of such policies, nor are there any past due
premium payments with respect to such policies nor has there been any claims
history which would cause the Company to become liable for a material
retroactive premium increase with respect to any such policy for any period
prior to the date hereof;
(III) a listing of the following
contracts to which the Company is a party or by which it is bound:
(A) all guaranties or indemnities by
the Company of the obligations of others other than the endorsement of
negotiable instruments for collection in the ordinary course of business;
(B) all licenses or other contracts in
which the Company has granted to others any material rights or interests in
intellectual property rights or in any proprietary information of the Company,
or in which others have granted to the Company any rights or interests in
intellectual property or in any proprietary information;
(C) all consulting, management service
or any other similar type contracts;
(D) all agreements with any labor
union or collective bargaining organization;
(E) all employment agreements,
severance agreements, indemnification agreements, executive compensation plans,
incentive compensation plans, bonus plans, deferred compensation agreements,
employee noncompetition, confidentiality and or secrecy agreements, employee
pension plans or retirement plans, employee profit-sharing plans, employee
stock purchase and stock option plans, group life insurance, hospitalization
and dental insurance, disability insurance, clothing allowance program, service
record award program; performance award program, tuition reimbursement program,
savings plan, or other plans or arrangements providing for benefits for
employees;
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(F) all contracts or agreements
pursuant to which the Company has borrowed or agreed to borrow money, other
than credit transactions in the ordinary course of business and the contracts
set forth in (G), below;
(G) all notes, indentures or
instruments relating to or evidencing indebtedness of the Company, or
mortgaging, pledging or granting or creating a lien or security interest or
other encumbrance on any property of the Company, including the names of each
bank or other lender from which loans, lines of credit or other commitments to
lend money to the Company are outstanding, the amount of each such line or
commitment and the principal terms thereof;
(H) all material contracts with any
manufacturers, dealers, distributors, agents, salesmen, jobbers, advertisers,
commissioned agents or sales representatives;
(I) all powers of attorney given by
the Company to any person or organization for any purpose;
(J) all agreements limiting the
freedom of the Company or its employees to compete in any line of business or
in any geographic area or with any person;
(K) any agreement, indenture or other
instrument which contains restrictions with respect to payment of dividends or
any other distribution in respect of its capital stock;
(L) any agreement, contract or
commitment relating to capital expenditures;
(M) any loan or advance to, or
investment in, any individual, partnership, joint venture, corporation, trust,
unincorporated organization, government or other entity (each a "Person") or
any agreement, contract or commitment relating to the making of any such loan,
advance or investment;
(N) all other contracts, series of
contracts, leases, arrangements, understandings or agreements which involve
future payments, performance of services or the purchase or sale of goods
and/or materials of an individual amount or value in excess of Five Thousand
Dollars ($5,000);
(O) a true and complete list of all
intangible assets, other than those specifically referred to elsewhere in this
Agreement, and the location of certificates or other evidences of title to
these assets, and
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(P) any agreement, contract or
commitment which might reasonably be expected to have a potential adverse
impact on the business or operations of the Company.
Each of the contracts and agreements listed or described in Schedules
2.9(i), 2.9(ii) and 2.9 (iii)(A)-(P) is in full force and effect, and except as
set forth in such Schedule, there exists no event of noncompliance, default or
event of default by the Company or any party to such contract or agreement, or
to the best of Seller's knowledge, any other party thereto, or any event,
occurrence, condition or act (including the transactions contemplated herein),
which, with the giving of notice, the lapse of time, or both, would become a
default or event of default thereunder, which would constitute an event of
noncompliance which would allow a party thereto to require acceleration of
performance thereunder by the Company, or which would result in the creation of
any material lien, charge, or encumbrance upon any assets of the Company. The
Company has not received notice from any other party that such other party
claims the Company to be in noncompliance or default under the contract
concerned, or intends, either based on a claimed default by the Company under
the contract concerned or based on a claimed right to do so in the absence of
default by the Company, to suspend, cancel, or terminate such contract prior to
the normal date of expiration set forth therein. Except as shown on Schedule
2.9(iii), to Seller's best knowledge, there exists no material dispute between
the Company and any customer of the Company and no such customer is considering
termination or nonrenewal of the agreement or understanding by which it acts as
such for the Company. All such agreements were entered into on an arm's length
basis. Seller has caused to be made available for inspection and copying by
Buyer and its advisers true, complete and correct copies of all documents
(including all amendments, supplements, extensions and modifications) referred
to in this Article 2 or in any Schedule attached hereto.
(iv) the names and annual compensation rates of all
officers, employees, directors, agents, and manufacturers of the Company
earning as a base salary and/or commission in excess of $25,000 per year;
(v) the names of all retired employees of the Company
who are receiving or are entitled to receive any unfunded death or disability,
retirement or welfare benefit, medical benefit or termination payments not
covered by any pension plan to which the Company or any Subsidiary is a party,
their ages and their current annual unfunded payment rates; and
(vi) with respect to the Company, a list of all bank
accounts, safe deposit boxes and credit card charge accounts; together with the
names of the individuals authorized to draw or charge thereon, and with respect
to bank accounts the approximate balances thereof, all restrictions or
limitations as to withdrawal (except for time restrictions applicable to time
certificates of deposit), and a list of certificates of deposit and other debt
instruments issued by banks, governments or other obligors.
2.10. TITLE TO PROPERTIES, ABSENCE OF LIENS AND ENCUMBRANCES. The
Company has good and marketable title to all of its properties and assets used
in its business or owned by it, whether
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real, personal, tangible or intangible. Subject to the terms of their
respective leases, the Company has the right to quiet enjoyment of all its
leased property for the full term of each lease and any renewal option. The
Company has all rights of ingress and egress necessary for all operations
conducted by it.
2.11. ACCOUNTS RECEIVABLE. All accounts receivable of the Company
reflected in the Balance Sheet represent valid sales in the ordinary course of
business, and are current and collectible in the ordinary course of business
subject to the reserve for doubtful accounts as reflected on the Balance Sheet,
and none of such accounts receivable or other debts is or will at the Closing
Date be subject to any counterclaim or set-off except to the extent of any such
reserves. There has been no material adverse change since the Balance Sheet
Date in the amount of accounts receivable or other debts due the Company or the
Subsidiaries or the allowances with respect thereto, or accounts payable of the
Company from that reflected in the Balance Sheet.
2.12. LICENSES AND PERMITS. The Company has all licenses, permits
and other authorizations (collectively "Licenses") required for the conduct of
its business as presently conducted; all such Licenses are currently in force
and there is no other License required to be held or actions required to be
taken by the Company under the laws and regulations of the United States or any
state or local subdivision thereof, for the Company to own and lease its
properties and to conduct its business in all respects as presently conducted.
Schedule 2.12 contains a list of such licenses, permits and authorizations.
2.13. LABOR MATTERS. The Company is not a party to any collective
bargaining agreement. There has not been, and to the best knowledge of Seller
there will not be, any material adverse change in relations with employees of
the Company as a result of any announcement or consummation of the transactions
contemplated by this Agreement. No severance pay liability of the Company will
result solely from the consummation of the transactions contemplated herein.
None of the employees of the Company or any Subsidiary is obligated under any
contract or other agreement, or subject to any judgment, decree or order of any
court or agency, which materially conflicts with the Company's business as
presently or proposed to be conducted. No officer or key employee of the
Company has notified the Company he or she is planning to terminate his or her
employment. Subject to general principles related to wrongful termination of
employees, the employment of each officer and employee of the Company is
terminable at the will of the Company.
2.14. EMPLOYEE BENEFIT PLANS.
Neither the Company nor any Subsidiary has ever contributed
to any multiemployer pension plan (within the meaning of ss.ss.3(37) or
4001(a)(3) of The Employee Retirement Income Security Act of 1974, as amended
("ERISA")), nor has any of them incurred any withdrawal liability (either as a
contributing employer or as part of a controlled group which includes a
contributing employer) in connection with any complete or partial withdrawal
for any such plan.
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The Company has never sponsored or otherwise maintained any employee
pension benefit plan (within the meaning of ss.3(2) of ERISA) or severance pay
plan.
2.15. LITIGATION. Except as provided in Schedule 2.15, there is no
litigation, action, suit, governmental investigation, arbitration, proceeding
(including administrative proceedings) (collectively referred to as
"Litigation") presently pending or to the best knowledge and belief of Seller
and the Company, presently threatened against or involving the Company or any
of their assets or rights or which could affect the performance of this
Agreement or the consummation of the transactions contemplated hereby and
Seller knows of no valid basis for any potential litigation. There are no
outstanding judgments, awards, orders or decrees against or involving the
Company or any of its assets. The Company is not in default with respect to any
order, writ, injunction, or decree of any federal, state, local, or foreign
court, department, agency, or instrumentality. The Company is not presently
engaged in any legal action to recover moneys due to it or damages sustained by
it.
2.16. NO VIOLATION OF AGREEMENTS. The execution, delivery and
performance of this Agreement by Seller and the consummation of the
transactions contemplated hereby and thereby do not and will not conflict with
or violate any provision of the Articles of Incorporation of Seller and, do not
and will not conflict with, violate, result in a breach of, cause a default
under an accelerated performance under or accelerate performance under (whether
with notice or lapse of time or otherwise), (i) any provision of law or
regulation relating to the business of the Company, (ii) any provision of any
order, arbitration award, judgment or decree to which Seller or the Company is
subject (iii) any provision of any agreement, license or instrument to which
Seller or the Company or any of their assets is subject, or (iv) any other
restriction of any kind or character to which the Company or any of its
properties is subject, which conflicts, violations, breaches, defaults or
accelerations in each of clauses (i), (ii), (iii) or (iv) above would,
individually or in the aggregate, adversely affect the Company or which would
prohibit or restrict the consummation of the transactions contemplated by this
Agreement.
2.17. CONSENTS REQUIRED. The execution, delivery and performance of
this Agreement by Seller will not require Seller or the Company to obtain any
consent, approval or other action to avoid: (I)the loss of any permit or
license or other governmental authorization hold by the Company, (ii) the
violation or breach of, or a default under any real property lease or any
commitment, note, indenture, mortgage, lien, instrument, license, contract or
agreement to which Seller or the Company or any of their assets are subject, or
(iii) giving to others any interests or rights, including rights of
termination, acceleration or cancellation, in or with respect to any of the
real property leases or material properties, agreements, contracts or business
of the Company.
2.18. CUSTOMERS AND SALES. Schedule 2.18 is a correct and current
list of all customers of the Company together with summaries of the sales made
to each customer during the most recent fiscal year. Except as indicated in
Schedule 2.18, neither the Company nor Seller has any information, or is aware
of any facts, indicating that any of these customers intend to cease doing
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business with the Company or materially alter the amount of the business they
are presently doing with the Company.
2.19. DOCUMENTS, BOOKS AND RECORDS. The Company has made available
for inspection by Buyer or its advisors, originals or true and correct copies
of all documents listed in any Schedule delivered by Seller to Buyer pursuant
to this Agreement which Buyer has requested to inspect. The minute books of the
Company, as previously made available to the Buyer and its representatives,
contain accurate records of all meetings of, and corporate actions taken by
(including actions taken by written consent) the respective shareholders and
Boards of Directors of the Company. The Company has no records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or hold by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company.
2.20. TRANSACTIONS WITH MANAGEMENT. Except as set forth in Schedule
2.20, the Company is not a party to any contract, agreement, lease or
commitment with Seller, any affiliate of Seller, the Company, or any officer or
director of Seller, the Company, or any "associates" of any such officers or
directors (as the term "associates" is defined in Rule 405 of the rules and
regulations under the Securities Act of 1933), none of such officers or
directors or their associates owns, directly or indirectly, any interest
(equity or debt) in any entity which is a supplier, customer or competitor of
the Company (other than the ownership of one percent (1%) or less of the
outstanding capital stock of a publicly-held company), and there are no loans
or advances outstanding to any of such persons from the Company (excluding
advances for normal reimbursable business expenses).
2.21 ACCOUNTING CONTROLS. Neither the Company, nor any director,
officer, agent, employee, consultant or other person associated with or acting
on behalf of the Company (including, without limitation, any shareholder), has
(a) used any corporate funds for any unlawful contributions, gifts,
entertainment or any other unlawful expenses relating to political activity, or
(b) made any direct or indirect unlawful payments to government officials or
others from corporate funds or established or maintained any unlawful or
unrecorded funds. The Company makes and keeps accurate books and records
reflecting its assets and maintains internal accounting controls which provide
reasonable assurance that (i) transactions are executed in accordance with
management's authorization, (ii) transactions are recorded as necessary to
permit preparation of the Company's financial statements and to maintain
accountability for the earnings and assets of the Company, and (iii) access to
the assets of the Company is permitted only in accordance with management's
authorization, and the recorded accountability of the assets of the Company is
compared with its existing assets at reasonable intervals.
2.22. DISCLOSURE. None of this Agreement, the financial statements
referred to in SECTION 2.5 hereof (including the footnotes thereto); any
Schedule, Exhibit or certificate attached hereto or delivered in accordance
with the terms hereof or any document or statement in writing which has been
supplied by or on behalf of the Seller or by any of the Company's directors or
officers in
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connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact, or omits any statement of a material fact
necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to the Seller and not known to Buyer which
materially and adversely affects the business, prospects or financial condition
of the Company or its properties or assets, which has not been set forth in
this Agreement, the financial statements referred to in SECTION 2.5 hereof
(including the footnotes thereto), any Schedule, Exhibit or certificate
attached hereto or delivered in accordance with the terms hereof or any
document or statement in writing which has been supplied by or on behalf of the
Seller or by any of the Company's directors or officers in connection with the
transactions contemplated by this Agreement.
2.23. PURCHASE FOR INVESTMENT. Seller understands that the Stock
Consideration is being offered and sold under exemptions from registration
provided for under U.S. and state securities laws, that they are purchasing an
interest in Buyer without being furnished any offering literature other than
Buyer's Form 10-K for fiscal 1999 (the "Buyer SEC Reports")(which each Seller
hereby represents and warrants that he or she has received and read), that this
transaction has not been scrutinized by any administrative agency charged with
the administration of the securities laws of any jurisdiction because of the
private aspects of the offering, that all documents, records and books,
pertaining to this investment, have been made available to the Seller and his
representatives, including his attorney, his accountant and/or his purchaser
representative, and that the books and records of the Buyer will be available
upon reasonable notice for inspection by investors during reasonable business
hours at its principal place of business.
The Stock Consideration is being acquired by Seller in good faith
solely for his own personal account, for investment purposes only, and are not
being purchased for resale, resyndication, distribution, subdivision or
fractionalization thereof; and he understands that as a result he must bear the
economic risk of the investment for an indefinite period of time because the
shares have not been registered under applicable securities laws and,
therefore, cannot be sold unless they are subsequently registered under such
laws (and the Buyer agrees to use its reasonable best efforts on or before July
15, 2000 to file a registration statement with the SEC on the appropriate form,
which registration statement will include the Stock Consideration) or unless an
exemption from such registration is available. Sellers will not be subject to
any restrictions on resale upon release of the Stock Consideration from the
Price Adjustment Agreement transfer restrictions other than those imposed under
applicable securities laws.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGERSUB
Buyer and MergerSub represent and warrant to Seller as of the date
hereof and as of the Effective Time as follows:
3.1. ORGANIZATION, STANDING AND AUTHORITY. Each of Buyer and
MergerSub is a corporation duly incorporated, validly existing and in good
standing under the laws of its respective
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3.2. NO VIOLATION OF LAW, AGREEMENTS. The execution, delivery and
performance of this Agreement by Buyer and MergerSub and the consummation of the
transactions contemplated hereby and thereby do not and will not conflict with
or violate any provision of the Articles of Incorporation of Buyer or MergerSub
and, do not and will not conflict with, violate, result in a breach of, cause a
default under an accelerated performance under or accelerate performance under
(whether with notice or lapse of time or otherwise), (i) any provision of law or
regulation relating to the business of the Buyer, (ii) any provision of any
order, arbitration award, judgment or decree to which Buyer or MergerSub is
subject (iii) any provision of any agreement, license or instrument to which
Buyer or MergerSub or any of their assets is subject, or (iv) any other
restriction of any kind or character to which the Buyer or MergerSub or any of
its properties is subject, which conflicts, violations, breaches, defaults or
accelerations in each of clauses (i), (ii), (iii) or (iv) above would,
individually or in the aggregate, adversely affect the Buyer or which would
prohibit or restrict the consummation of the transactions contemplated by this
Agreement.
3.3. CONSENTS REQUIRED. The execution, delivery and performance of this
Agreement by Buyer and MergerSub will not require Buyer or MergerSub to obtain
any consent, approval or other action to avoid: (i) the loss of any permit or
license or other governmental authorization hold by the Company, (ii) the
violation or breach of, or a default under any real property lease or any
commitment, note, indenture, mortgage, lien, instrument, license, contract or
agreement to which Buyer or MergerSub or any of their assets are subject, or
(iii) giving to others any interests or rights, including rights of termination,
acceleration or cancellation, in or with respect to any of the real property
leases or material properties, agreements, contracts or business of Buyer, which
consent has not already been obtained.
3.4. BUYER SEC REPORTS. Buyer has delivered to each Seller copies of
the Buyer SEC Reports as filed by Buyer with the Securities and Exchange
Commission. All of the Buyer SEC Reports are delivered without exhibits. The
financial statements contained in the Buyer SEC Reports (the "Buyer Financial
Statements") fairly present the consolidated financial condition and results of
operations of Buyer as at and for the periods therein specified in accordance
with generally accepted accounting principles consistently applied, all as more
particularly set forth in such financial statements and the notes thereto. The
Buyer SEC Reports do not contain any untrue statements of a material fact or
omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE 4
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COVENANTS PENDING CLOSING
4.1. COVENANTS OF THE COMPANY AND THE SELLERS PENDING THE CLOSING. From
the date hereof to the Closing Date, the Company and the Sellers shall use their
best efforts to satisfy the conditions precedent to the consummation of this
transaction to be performed by them or their agents or representatives and the
Company shall, and the Sellers shall cause the Company to:
(i) Operate its business diligently in the usual, regular and
ordinary course consistent with past practice, to preserve intact its present
business organization and good will, keep available the services of its present
officers and employees, and preserve its relationships with licensors, lenders,
creditors, suppliers, distributors, customers and others having business or
financial dealings with it, and not to institute any changes to its methods of
accounting, manufacture; operation or management.
(ii) Not (a) amend its Articles of Incorporation or bylaws;
(b) issue any shares of its capital stock; (c) issue or create any warrants,
obligations, subscriptions, options, convertible securities, or other
commitments under which any additional shares of its capital stock of any class
might be directly or indirectly authorized, issued, or transferred from
treasury; (d) declare, set aside, or pay any dividend or make any distribution
in respect of its capital stock except for a distribution of accounts
receivable; (e) directly or indirectly purchase, redeem, or otherwise acquire
any shares of its capital stock; or (f) agree to do any of the acts listed
above.
(iii) Not enter into any contract, commitment or transaction
not in the usual and ordinary course of its business or involving an amount
exceeding $10,000 individually or $50,000 in the aggregate or modify, amend,
cancel, or terminate any of its existing contracts or agreements, or agree to do
any of those acts.
(iv) Not make or commit to make any capital expenditures in
excess of $10,000 for any single item or $50,000 in the aggregate, or enter into
any leases of capital equipment or property under which the annual lease charge
is in excess of $10,000.
(v) Maintain all its material property in customary repair,
order and condition, reasonable wear and use excepted, and maintain its
insurance policies in full force and effect.
(vi) Not enter into or amend or modify any collective
bargaining agreement, employee benefit plans or arrangements or any contracts of
employment with officers, directors or shareholders, or grant any increase
(except for increases made in accordance with established compensation policies
of the Company applied on a basis consistent with past practice) in salaries,
wages, commissions or benefits payable or to become payable to any officer,
employee, agent or representative, or grant any bonuses to officers or
employees, or agree to do any of the foregoing.
(vii) Not sell, dispose of, lease, or encumber any of its
property or assets or make any acquisition or engage in any activity or
transaction, amend or terminate any material contracts,
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licenses or commitments, or agree to do any of the foregoing, except in the
ordinary course of business and replace any assets transferred with assets of
equal value, quality and usefulness.
(viii) Not borrow any funds or, except in the ordinary course
of business, issue any evidences of indebtedness or increase any existing
borrowings or perform, pay or otherwise discharge any obligation or liability
(fixed or contingent) other than current liabilities, waive or compromise any
right or claim, cancel, without full payment, any note, loan, or other
obligation owing to the Company, or agree to do any of the foregoing.
(ix) Cooperate with Buyer and MergerSub, to the extent
cooperation on the part of the Company is needed, in Buyer's' and MergerSub's
efforts to obtain the consents referred to in SECTION 3.3 of this Agreement
provided, however, that Buyer and MergerSub shall not be obligated under this
paragraph to execute any guaranty, assumption of liability, or other document or
instrument requiring it to assume obligations not contemplated by this
Agreement.
(x) Use its best efforts to obtain, to the extent action on
the part of the Company is needed, the consents referred to in SECTION 2.17 of
this Agreement.
(xi) Grant to Buyer and its counsel, accountants and other
representatives full access during normal business hours to all key employees,
properties, books, accounts, records, contracts and documents of or relating to
the Company and furnish or cause to be furnished to Buyer and its
representatives all data and information concerning the organization, business,
finances and properties of the Company that Buyer may reasonably request, but no
investigation pursuant to this SECTION 4.1 shall affect any representations or
warranties of the Company or Sellers, or the conditions to the obligations of
Buyer and MergerSub to consummate the transactions contemplated by this
Agreement.
(xii) Confer on a regular and frequent basis with Buyer's
representatives to report material matters concerning the business, operations
and financial condition of the Company and to promptly notify Buyer of any
extraordinary event concerning the Company or any fact or information which, if
known on the date hereof, would cause any of the representations and warranties
in Article 2 to be materially false or incorrect.
(xiii) Refrain from taking any of the actions referred to in
SECTION 2.6 hereof.
(xiv) Refrain from taking any action or series of actions
which would cause the representations and warranties contained in Article 2
hereof to be materially untrue or incorrect.
(xv) Use their best efforts to cause the Company and its
officers, employees, agents, and representatives (including any investment
banker) not, directly or indirectly, to solicit, encourage, initiate or engage
in any discussions with, or negotiate or otherwise deal with or provide any
information to, any person other than Buyer, MergerSub, and their respective
officers, employees, and agents, concerning any mergers sale of substantial
assets, or similar transaction
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involving the Company or division of the Company, or any sale of any of its
capital stock. The Company will notify Buyer immediately upon receipt of any
inquiry, offer, or proposal relating to any of the foregoing.
(xvi) At the written request of Buyer, Company will within
five days document and describe any of its trade secrets, processes, or business
procedures specified by Buyer, in form and content satisfactory to Buyer.
(xvii) Notify Buyer of any changes, additions, or events which
may cause any change in or addition to the Schedules delivered by it under this
Agreement promptly after the occurrence of the same and again at the Closing by
delivery of appropriate updates to all such Schedules. No such notification made
pursuant to this Section shall be deemed to cure any breach of any
representation or warranty made in this Agreement unless Buyer specifically
agrees thereto in writing, nor shall any such notification be considered to
constitute or give rise to a waiver by Buyer of any condition set forth in this
Agreement.
4.2. Covenants of Buyer and MergerSub Pending the Closing. Buyer and
MergerSub agree that from the date hereof to the Closing Date, Buyer and
MergerSub will use their best efforts:
(i) To satisfy the conditions precedent to consummation of the
transactions contemplated by this Agreement to the extent they are to be
performed by them, their agents or representatives.
(ii) To cooperate with the Company, to the extent cooperation
on the part of Buyer and MergerSub is needed, in the Company's efforts to obtain
the consents referred to in SECTION 2.17 of this Agreement.
(iii) To use their best efforts to obtain the consents
referred to in Section 3.3 of this Agreement.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND SELLERS
The obligations of the Company and the Sellers to consummate the Merger
are subject to the fulfillment of the following conditions, unless waived by the
Company and the Sellers in their sole discretion, prior to or at the Closing:
5.1. REPRESENTATIONS AND COVENANTS. The representations and warranties
of Buyer and MergerSub set forth in this Agreement shall be true and correct in
all material respects on the Closing Date as if made on and as of such date, and
Buyer and MergerSub shall have duly performed, complied with and satisfied, in
all material respects, with all covenants, agreements and
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conditions to be performed, complied with or satisfied by Buyer and MergerSub
on or prior to the Closing Date. The Company and the Sellers shall have received
a certificate of a duly authorized officer of Buyer and MergerSub, dated the
Closing Date, certifying as to the fulfillment of the conditions specified in
this SECTION 5.1.
5.2. LITIGATION. On the Closing Date, there shall be no Litigation
existing to the transactions contemplated herein pending or threatened which, in
the reasonable opinion of counsel to the Sellers, would have a material adverse
effect on the benefits to be received by the Sellers as a result of the
consummation of the transactions contemplated hereby.
5.3. ABSENCE OF ADVERSE GOVERNMENTAL ACTION. No action shall have been
taken or threatened and no statute, rule, regulation or order shall have been
enacted or entered by any governmental body, agency or by any court which would
prohibit, delay or establish material conditions to the consummation of the
transactions contemplated herein which the Company reasonably deems
unacceptable.
5.4. PROCEEDINGS. All proceedings to be taken in connection with this
Agreement and all documents related thereto shall be satisfactory in all
reasonable respects to the Company, the Sellers, and their counsel.
5.5. CORPORATE ACTION. The Company shall have received certified copies
of Buyer and MergerSub's corporate approvals of the execution, delivery and
performance of this Agreement and the transactions contemplated hereby and
incumbency certificates with respect to the officers of Buyer and MergerSub
executing this Agreement or any documents, instruments or certificates delivered
to the Company and the Sellers in connection with the transactions contemplated
hereby.
5.6. CONSENTS AND APPROVALS. All waivers, licenses, agreements,
permits, consents, approvals or authorizations of third parties or governmental
agencies, domestic or foreign, shall have been obtained, and any material
modifications or amendments to existing agreements with third parties required
under SECTION 2.17 and SECTION 3.3 shall have been obtained, provided that such
modifications or amendments shall have been approved by the Company in writing
prior to the Closing, which approval shall not be unreasonably withheld or
delayed.
5.7. EMPLOYMENT AGREEMENTS. MergerSub and Sellers Mark Kapper and
Robert Serra shall have entered into an employment agreement on terms and
conditions agreeable to each such Seller.
5.8. NO MATERIAL ADVERSE CHANGES. There shall not have been any
material adverse change in the assets, business, labor relations, operations or
condition (financial or otherwise) or prospects of the Buyer.
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ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF BUYER AND MERGERSUB
The obligations of Buyer and MergerSub to consummate the purchase and
sale of the Shares under this Agreement are subject to the fulfillment of the
following conditions, unless waived by Buyer and MergerSub in their sole
discretion, prior to or at the Closing:
6.1. REPRESENTATIONS AND COVENANTS. The representations and warranties
of the Company and the Sellers set forth in this Agreement shall be true and
correct in all material respects on the Closing Date as if made on and as of
such date, and the Company and Sellers shall have duly performed, complied with
and satisfied, in all material respects, all covenants, agreements and
conditions to be performed, complied with or satisfied by the Company and
Sellers on or prior to the Closing Date. Buyer shall have received a certificate
executed by the Company and Sellers, dated the Closing Date, certifying as to
the fulfillment of the conditions specified in this SECTION 6.1.
6.2. LITIGATION. On the Closing Date, there shall be no Litigation
relating to the transactions contemplated herein pending or threatened, which in
the reasonable opinion of counsel to Buyer, would materially adversely affect
the business, assets, financial condition or operations of the Surviving
Corporation, or otherwise materially affect the benefits of the transactions
contemplated herein to Buyer and MergerSub.
6.3. ABSENCE OF GOVERNMENTAL ACTION. No action shall have been taken or
threatened and no statute, rule, regulation or order shall have been enacted or
entered by any governmental body, agency or by any court which would prohibit,
delay or establish material conditions to the consummation of the transactions
contemplated herein which Buyer reasonably deems unacceptable or which would
materially adversely affect the assets, business; financial condition, business
prospects or operations of the Surviving Corporation.
6.4. PROCEEDINGS. All proceedings to be taken in connection with this
Agreement and all documents relating thereto shall be satisfactory in all
reasonable respects to Buyer and its counsel.
6.5. CORPORATE ACTION. Buyer shall have received certified copies of
the resolutions of the Company approving the execution, delivery and performance
of this Agreement and the transactions contemplated hereby and incumbency
certificates with respect to the officers of Buyer executing this Agreement or
any documents, instruments or certificates delivered to Buyer in connection with
the transactions contemplated hereby. The Merger Agreement and related Plan of
Merger shall have been unanimously approved by the Sellers.
6.6. CONSENT AND APPROVALS. All waivers, licenses, agreements, permits,
consents, approvals or authorizations of third parties or governmental agencies,
domestic or foreign shall have been obtained and any material modifications or
amendments to existing agreements with third parties required under Section 2.17
and Section 3.3 shall have been obtained, provided that such
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modifications or amendments shall have been approved by Buyer in writing prior
to the Closing, which approval shall not be unreasonably withheld or delayed.
6.7. EMPLOYMENT AGREEMENTS. Surviving Corporation and each of Sellers
Mark Kapper and Robert Serra shall have entered into an agreement regarding
employment with the Surviving Corporation following the Closing in form and
substance reasonably satisfactory to Buyer and such individual.
6.8 LEGAL OPINION. Buyer and MergerSub shall have received the legal
opinion of the Company's legal counsel in substantially the form set forth in
Schedule 6.8.
6.9. NO MATERIAL ADVERSE CHANGES. There shall not have been any
material adverse change in the assets, business, labor relations, operations or
condition (financial or otherwise) or prospects of the Company.
6.10. FILINGS. The Agreement of Merger and the Articles of Merger shall
have been filed as provided in Article 1 in order for the Merger to become
effective, or Buyer shall have satisfied itself that all such filings will be or
are capable of being made effective as of the Closing Date.
6.11. SCHEDULES. Target shall have delivered the Schedules, updated
through the Closing Date. In its sole and absolute discretion, Buyer shall be
satisfied with any matter reflected, listed, or disclosed in the updated
Schedules that was not reflected, listed, or disclosed in the original
Schedules.
ARTICLE 7
TERMINATION; AMENDMENT AND WAIVER
7.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing by the mutual written consent of Buyer, MergerSub,
the Company and the Sellers.
7.2. TERMINATION BY EITHER PARTY. If any condition precedent to the
Company's and Seller's obligations hereunder is not satisfied and such condition
is not waived by the Company and Seller at or prior to the Closing Date, or if
any condition precedent to Buyer' or MergerSub's obligations hereunder is not
satisfied and such condition is not waived by Buyer and MergerSub at or prior to
the Closing Date, the Company and the Sellers, or Buyer and MergerSub, as the
case may be, may terminate this Agreement at their option by written notice to
the other party unless the terminating party shall be in default of its
obligations hereunder or unless the failure of condition is the result of the
material breach of this Agreement by the party seeking to terminate. In the
event that a condition precedent to its obligations is not satisfied, nothing
contained herein shall be deemed to require any party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
transactions contemplated hereby or permit the other party additional time to
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attempt to satisfy such condition precedent. If the Closing Date has not
occurred by June 30, 2000 any party may terminate this Agreement by written
notice to the other parties.
7.3. AMENDMENT. This Agreement may be amended or modified in whole or
in part at any time but only by an agreement in writing executed in the same
manner as this Agreement.
ARTICLE 8
PURCHASE PRICE ADJUSTMENT
8.1 Adjustments to Purchase Price.
(a) The Stock Consideration will be adjusted downward based upon any
variation in the Company's EBITDA as reflected on its financial statements as of
January 31, 2000 and the determination of the Company's EBITDA as determined by
Buyer. The parties agree and acknowledge that the Merger Consideration was
determined based upon an assumed EBITDA of the Company of $1,500,000 multiplied
by six, plus $300,000 for the Company's operating system. The Merger
Consideration shall be increased or diminished (as the case may be) by using
this same capitalization rate of six. For purposes of this provision, the
parties agree that the Stock Consideration shall be diminished by no more than
60,000 Shares (having an agreed value per share of $5.00.
(b) Buyer shall have primary responsibility for preparing an initial
accounting reflecting the adjustments called for by this Section 8.1. If Seller
does not object to Buyer's determination within 30 days after receipt by Seller
of Buyer's determination, the Seller shall be deemed to have agreed to Buyer's
determination. In the event that Seller objects, Seller shall transmit to the
Buyer within 30 days' after Seller receives Buyer's determination its objection,
which shall set forth the basis for Seller's objection. In the event that Seller
and Buyer are unable to agree upon the accuracy of the accounting and the
adjustments provided for herein within 15 days after the Buyer receives Seller's
objection, the Buyer and the Seller shall retain, at their joint expense, the
accounting firm of Ernst & Young LLP, Certified Public Accountants, to determine
such adjustments, whose determination shall be final and binding on the parties.
ARTICLE 9
INDEMNIFICATION
9.1. INDEMNIFICATION BY SELLER. Sellers shall jointly and severally
indemnify, defend and hold harmless Buyer and MergerSub, and Buyer's and
MergerSub's officers, directors, employees, affiliates and agents, against and
in respect of any and all losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including interest, penalties and
reasonable attorneys' fees (collectively "Damages") that any of them shall incur
or suffer, and to the extent not otherwise compensated by insurance, which
arise, result from, or relate to the failure of any Seller's
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or the Company's representations or warranties to be true and correct, or any
breach by Seller or the Company of, or any failure by Seller or the Company to
perform, any of its representations, warranties, covenants or agreements in this
Agreement or in any certificate, exhibit or other instrument furnished or to be
furnished by Seller or the Company under this Agreement; provided, however that
a Damages Certificate (as such term is defined in SECTION 9.3) covering any item
of claimed Damages for which indemnification is sought pursuant to this SECTION
9.1 shall have been delivered to Seller prior to the termination of the Survival
Period (as defined in SECTION 9.7) applicable to such representation, warranty,
covenant or agreement. Notwithstanding the foregoing, Sellers shall be jointly
and severally responsible for all Damages incurred or suffered by the Company
attributable to the matter described in Schedule 2.15.
9.2. INDEMNIFICATION BY BUYER AND MERGERSUB. Buyer and MergerSub shall
jointly and severally indemnify, defend and hold harmless Seller in respect of
any and all losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including interest, penalties and reasonable
attorneys' fees (collectively "Damages") that any of them shall incur or suffer,
and to the extent not otherwise compensated by insurance, which arise, result
from, or relate to the failure of any of Buyer's or MergerSub's representations
or warranties to be true and correct, or any breach by Buyer or MergerSub of, or
any failure by Buyer or MergerSub to perform, any of its representations,
warranties, covenants or agreements in this Agreement or in any certificate,
exhibit or other instrument furnished or to be furnished by Buyer or MergerSub
under this Agreement provided, however, that a Damages Certificate covering any
item of claimed Damages for which indemnification is sought pursuant to this
SECTION 9.2 shall have been delivered to Buyer prior to termination of the
Survival Period (as defined in SECTION 9.7) applicable to such representation,
warranty, covenant or agreement.
9.3. DAMAGES CERTIFICATE. If any Damages shall be paid or accrued by
any person entitled to be indemnified under this Article 9 (an "Indemnitee") or
a claim or proceeding shall be asserted or pending against an Indemnitee which
may give rise to any Damages with respect to which such Indemnitee would be
entitled to be indemnified hereunder by the other party hereto (an
"Indemnitor"), such Indemnitee shall deliver a certificate signed by Seller, in
the case of a claim against Buyer or MergerSub, or by an officer of Buyer or
MergerSub, in the case of a claim against Seller (a "Damages Certificate"),
which Damages Certificate shall:
(a) state that the Indemnitee has paid or properly accrued
Damages, or that a claim has been asserted against such
Indemnitee, or a proceeding is pending, which claim or
proceeding, in the Indemnitee's judgment, may result in the
incurrence of Damages to which the Indemnitee is entitled to
indemnification pursuant hereto; and
(b) specify in reasonable detail each individual item of paid
or accrued Damages or each such claim or proceeding and the
amount of such paid or accrued Damages or the amount of Damage
that, in Indemnitee's judgment, may arise from such claim or
proceeding.
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9.4. OBJECTIONS TO CLAIMS. If an Indemnitor shall object to the
indemnification of an Indemnitee in respect of any claim or claims specified in
any Damages Certificate, the Indemnitor shall, within 30 days after delivery to
the Indemnitor of such Damages Certificate, deliver to the Indemnitee a Damages
Certificate to such effect, and the Indemnitor and the Indemnitee shall, within
the 30 day period beginning on the date of delivery to the Indemnitee of such
written objection, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims to which the Indemnitor
shall have so objected. If the Indemnitee and the Indemnitor shall succeed in
reaching agreement on their respective rights with respect to any of such
claims, the Indemnitee and the Indemnitor shall promptly prepare and sign a
memorandum setting forth such agreement.
9.5. THIRD PARTY CLAIMS. Promptly after the assertion by any third
party of any claim against any Indemnitee that, in the judgment of such
Indemnitee, may result in the incurrence by such Indemnitee of Damages for which
such Indemnitee would be entitled to indemnification pursuant to this Agreement,
such Indemnitee shall deliver to the Indemnitor from whom such indemnification
could be sought an Damages Certificate with respect to such claim, and such
Indemnitor may, at its option, assume and control the defense (including any
settlement thereof) of the Indemnitee against such claim. Any Indemnitee shall
receive notice of the status, any current developments and management of the
claims, and prior written notice of any proposed settlement or conclusion of
such claim, and shall have the right to employ separate counsel in any such
action or claim and to participate in the defense thereof, but the fees and
expenses of such counsel shall not be an expense of the Indemnitor unless (i)
the Indemnitor shall have failed, within a reasonable time after having been
notified by the Indemnitee of the existence of such claim as provided in the
preceding sentence, to assume the defense of such claim, or (ii) the employment
of such counsel has been specifically authorized by the Indemnitor. If there is
a final judgment against an Indemnitee under this Agreement in any such action,
or if there is a settlement of any such action effected with the consent of such
Indemnitor, such Indemnitor shall, subject, in the case of claims for
indemnification against the Seller, to the provisions of SECTION 9.1, and, in
the case of claims for indemnification against Buyer, to the provisions of
SECTION 9.2, indemnify and hold harmless each Indemnitee from and against any
Damages by reason of such judgment or settlement.
9.6. AGREED CLAIMS. Claims specified in any Damages Certificate to
which an Indemnitor shall not object in writing within 30 days after receipt by
such Indemnitor of such Damages Certificate, claims covered by a memorandum of
agreement of the nature described in SECTION 9.4 and claims which have been
reduced to non-appealable judgment or settled with the consent of the Indemnitor
as provided in SECTION 9.5 are hereinafter referred to, collectively, as "Agreed
Claims." The amount of any Agreed Claim shall be paid, in cash, by the
Indemnitor to the Indemnitee with respect thereto promptly after the
determination thereof.
9.7. SURVIVAL PERIOD. Except for the representations made by Seller and
the Company under Sections 2.3 and 2.4, and representations breached
fraudulently, all of which representations shall survive until the applicable
statute of limitations has expired, the representations, warranties, covenants
and agreements of Seller and the Company and the indemnification by Seller with
respect
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<PAGE> 93
thereto provided for herein shall survive the Closing for a period of three
years from the Closing Date, except that Seller's covenant to indemnify Buyer
and MergerSub under this Article 9 shall survive such three-year period until
all claims properly and timely asserted by Buyer or MergerSub under this Article
9 have been satisfied as provided in this Article 9. The representations,
warranties, covenants and agreements of Buyer and MergerSub, and the
indemnification by Buyer and MergerSub with respect thereto, shall survive the
Closing for a period of three years from the Closing Date, except that Buyer's
and MergerSub's covenant to indemnify the Sellers under this Article 9 shall
survive such three-year period until all claims properly and timely asserted by
Sellers under this Article 9 have been satisfied as provided in this Article 9.
For purposes of this Article 9, the respective period of survival of any such
representations, warranties, covenants and agreements is referred to as the
"Survival Period."
9.8. LIMITATIONS ON INDEMNITY. Sellers shall not be required to
indemnify Buyer or MergerSub until Damages caused by Sellers or the Company
under this Agreement exceed in the aggregate $50,000 (the "Deductible"). Neither
Buyer nor MergerSub shall be required to indemnify Sellers until Damages caused
by Buyer or MergerSub under this Agreement exceed in the aggregate the
"Deductible". Notwithstanding the foregoing, this limitation shall not apply to
Damages attributable to the matter disclosed on Schedule 2.15.
ARTICLE 10
MISCELLANEOUS
10.1. GOVERNING LAW, ARBITRATION. This Agreement and the legal
relations between the parties shall be governed by and construed in accordance
with the laws of the State of Georgia, without regard to conflicts of laws
principles. In the event that there shall be a dispute arising out of or
relating to this Agreement, any document referred to herein or centrally related
to the subject matter hereof, or the subject matter of any of the same, the
parties agree that such dispute shall be submitted to binding arbitration in
Orange County, California, under the auspices of, and pursuant to the rules of
the American Arbitration Association, as then in effect, or such other
procedures as the parties may agree to at the time, before a tribunal of three
arbitrators, one of which shall be selected by each of the parties to the
dispute and the third of which shall be selected by the two arbitrators so
selected. Any award issued as a result of such arbitration shall be final and
binding between the parties, and shall be enforceable by any court having
jurisdiction over the party against whom enforcement is sought. The costs of the
arbitration shall be shared equally by the parties, provided that the fees,
costs, and expenses of the prevailing party (as reasonably determined by the
arbitrators), including arbitrators' and reasonable attorney fees incurred in
connection with any such arbitration, shall be paid by the losing party in the
event the arbitrators determine the proceeding was brought or defended in bad
faith by the losing party. The costs and expenses of the prevailing party in
collecting any such award shall be paid by the non-prevailing party.
In such arbitration proceedings, each of the parties shall submit to
the arbitrators in writing their respective positions with respect to the
dispute for which arbitration proceedings have been
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commenced, together with such supporting documentation as such party deems
necessary or as such arbitrators request. Such arbitrators shall, as soon as
practicable after receiving the written positions of both parties and all
subsequent supporting documentation requested by such arbitrators, and after
having heard such testimony as they may deem appropriate, render their decisions
as to such dispute, which decision shall be in writing and final and binding on,
and nonappealable by, (except as provided by law), the parties hereto. The
arbitrators shall issue any injunctive or similar order they deem appropriate.
If the arbitrators notify the parties that they believe a portion of a dispute
(which may be the entire dispute) is essentially reducible to monetary terms,
the arbitrators shall accept the entire position of one of the parties with
respect thereto, it being understood that, in such circumstances, such
arbitrators shall have no discretion to accept only part of either party's
position with respect thereto.
10.2. COSTS. Seller and Buyer shall each bear those expenses
attributable to them in connection with the Merger and negotiating and entering
into this Agreement, including their own fees of counsel and brokerage fees.
10.3. BROKERS. Buyer and MergerSub on one hand and Seller and the
Company on the other hand warrant and represent to each other party hereto that
no person is entitled to any commission or finder's fee in connection with the
transactions contemplated in this Agreement. Each party hereto agrees to
indemnify, defend and hold harmless each other party hereto and the Company
against any claim, loss, liability or expense for any such commission or fee
incurred by reason of any act, omission or statement of the indemnifying party.
The Company does not have any obligation to pay finder's or broker's fees or
commissions in connection with the exercise of options to renew or extend real
estate leases to which the Company is a party.
10.4. COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement, binding on
each of the parties, notwithstanding that all the parties are not signatory to
the original or the same counterpart.
10.5. NO ASSIGNMENT. This Agreement may not be assigned, transferred or
hypothecated by any party hereto other than by operation of law except that
Buyer may assign in whole or in part its rights and obligations hereunder to any
affiliate company. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties' respective heirs, successors and
assigns.
10.6. PUBLICITY. All notices to third parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by Buyer and Seller. Unless otherwise required by
applicable laws, neither of the parties shall act unilaterally in this regard
without the prior approval of the other party, which approval shall not be
unreasonably withheld.
10.7. SEVERABILITY. If any portion of this Agreement shall be deemed
unenforceable by a court of competent jurisdiction, the remaining portions shall
remain valid and enforceable.
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<PAGE> 95
10.8. NO THIRD PARTY BENEFICIARIES. Except as expressly provided
herein, each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than the
parties hereto.
10.9. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent. In the event an ambiguity or question of intent or interpretation
arises, this Agreement will be construed as if drafted jointly by the parties,
and no presumption or burden of proof shall arise favoring or disfavoring any
person or entity by virtue of the authorship of any of the provisions of this
Agreement.
10.10. COVENANT NOT TO COMPETE. In consideration for the payments by
Buyer to be made hereunder, each Seller agrees he will not at any time within
the five year period following the Closing Date compete with the Company,
solicit the customers of the Company, or directly or indirectly solicit for
employment any employees of Company. For purposes of this paragraph the term
"compete" means engaging in the same or any business competitive with the
Company as engaged in by Company immediately prior to the Closing Date in any
manner whatsoever (other than as a passive investor), including without
limitation, as a proprietor, partner, investor, shareholder, director, officer,
employee, consultant, independent contractor, or otherwise, within any county in
the territory in which the business of the Company was conducted at the Closing
Date. For purposes of Sections 10.10 through 10.12 hereof, "Company" shall
include any entity into which the Company may be merged (including without
limitation the Surviving Corporation) or to which the business and assets of the
Company is transferred.
10.11. REASONABLENESS OF RESTRICTIONS.
(a) Each Seller has carefully read and considered the
provisions of Section 10.10 and, having done so, agrees that the restrictions
set forth therein, including, but not limited to, the time period of restriction
and geographical areas of restriction, are fair and reasonable and are
reasonably required for the protection of the interests of the Buyer.
(b) If, notwithstanding the foregoing, any of the provisions
of Section 10.10 shall be held to be invalid or unenforceable, the remaining
provisions shall nevertheless continue to be valid and enforceable as though the
invalid or unenforceable parts had not been included. In the event that any
provision of Section 10.10 relating to the time period and/or the areas of
restriction and/or related aspects shall be declared by a court of competent
jurisdiction to exceed the maximum restrictiveness such court deems reasonable
and enforceable, the time period and/or areas of restriction and/or related
aspects deemed reasonable and enforceable by the court shall become the maximum
restriction in such regard, and the restriction shall remain enforceable to the
fullest extent deemed reasonable by such court.
10.12. REMEDIES FOR BREACH. In the event of a breach or threatened
breach of any of the covenants in Section 10.10, the Buyer shall have the right
to seek equitable relief, including specific
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<PAGE> 96
performance by means of an injunction against the Seller and against the
Seller's partners, agents, representatives, servants, employers, employees,
and/or any and all persons acting directly or indirectly by or with it or them,
to prevent or restrain any breach or further breach. In the event such Buyer
obtains any such equitable relief, the party against whom relief is obtained
shall reimburse Buyer for its reasonable attorney's fees and costs related
thereto.
10.13. SURVIVAL. Sections 10.9 through 10.12 shall survive Closing of
the transactions contemplated herein.
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<PAGE> 97
IN WITNESS WHEREOF, Buyer, MergerSub, Seller and the Company have duly
executed and delivered this Agreement as of the date first above written.
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
BY: /s/ Dennis A. Bakal
---------------------------------
Dennis A. Bakal, President
DTSI ACQUISITION, INC.
BY: /s/ Dennis A. Bakal
---------------------------------
Dennis A. Bakal, Director
DEDICATED TRANSPORTATION SERVICES, INC.
BY:/s/ Robert Serra
---------------------------------
Robert Serra, President
SERRA/MARTIN LIVING TRUST
BY:/s/ Robert Serra
---------------------------------
Robert Serra, Trustee
BY:/s/ Susan Martin
---------------------------------
Susan Martin, Trustee
/s/ Robert Serra
---------------------------------
Robert Serra
/s/ Mark Kapper
---------------------------------
Mark Kapper
/s/ Susan Martin
---------------------------------
Susan Martin
29
<PAGE> 98
APPENDIX A
PROFESSIONAL TRANSPORTATION GROUP LTD., INC.
1950 SPECTRUM CIRCLE, SUITE B-100
MARIETTA, GEORGIA 30067
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
2000 ANNUAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints W. Anthony Huff and Danny Pixler or
either of them, with power of substitution to each, the proxies of the
undersigned to vote the Common Stock of the undersigned at the Annual Meeting of
Shareholders of Professional Transportation Group Ltd., Inc. to be held on June
29, 2000, at 10:00 a.m. at the Georgian Club, 17th Floor, 100 Galleria Parkway,
Atlanta, Georgia 30339, and any adjournments or postponements thereof:
1. To elect five (5) directors to the Board of Directors to serve for
terms of one year until their successors are elected and qualified.
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees listed
below) below
</TABLE>
W. Anthony Huff, Danny L. Pixler, Gregory G. Hardwick, Robert E.
Altenbach and Dennis A. Bakal
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
WRITE THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
-----------------------------------------------------------------------
2. To consider and act upon the proposal to amend the Company's 1996
Stock Option Plan to increase the shares reserved for issuance thereunder from
2,000,000 to 3,000,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve the issuance of sufficient shares of the Company's common
stock to permit conversion of 100% of the Company's Series B Convertible
Preferred Stock into shares of common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE> 99
4. To approve the issuance of shares of the Company's common stock to
the stockholders of Dedicated Transportation Services, Inc. in order to comply
with the corporate governance requirements of the Nasdaq Stock Market.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ABOVE PROPOSALS AND UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY
WILL BE SO VOTED.
Please date and sign this Proxy exactly as
name(s) appears on the mailing label.
-------------------------------------------
-------------------------------------------
Print Name(s):
-----------------------------
NOTE: When signing as an attorney, trustee,
executor, administrator or guardian, please
give your title as such. If a corporation or
partnership, give full name by authorized
officer. In the case of joint tenants, each
joint owner must sign.
Dated:
--------------------------------------
