<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
eResource Capital Group, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
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[ ] 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:
------------------------------------------------------------------------
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------------------------------------------------------------------------
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(4) Date Filed:
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<PAGE> 2
ERESOURCE CAPITAL GROUP, INC.
5935 CARNEGIE BLVD.
SUITE 101
CHARLOTTE, NC 28209
December 29, 2000
Dear Stockholders:
I am writing to introduce myself as the new Chief Executive Officer of
eResource Capital Group, Inc. (AMEX:RCG), f/k/a flightserv.com, and to make you
aware of the new strategic direction of the Company. Enclosed you will find a
copy of the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2000, as filed with the Securities and Exchange Commission in September
2000. Since the close of our last fiscal year, the Company adopted an expanded
business plan, raised working capital, added new executive management and is in
the process of making a series of strategic transactions and acquisitions to
better position the Company in the current market.
During the fiscal year ended June 30, 2000, the Company continued
development of the Internet delivery of travel services in the private charter
jet aviation market and, in the fourth quarter of fiscal 2000, launched the
Private Seats(TM) program via our Web site, www.flightserv.com. Due to capital
limitations explained in the Form 10-KSB, the Company did not implement
marketing programs required to expand the Private Seats(TM) program.
The expanded strategy of eRCG is to become a technology operating company
that will acquire substantial interests in, operate and enhance the value of
technology and Internet companies. eRCG's strategic focus will be in five
technology industry segments: enabling technology, data/communication systems,
e-commerce, Internet infrastructure, and technology professional services.
Operating companies in the eRCG network currently include: flightserv.com,
Internet Aviation Services, Ltd., and DM Marketing, Inc. In addition, the
Company has entered into a definitive agreement to acquire Avenel Ventures, Inc.
and its wholly-owned subsidiary, Avenel Alliance, Inc., and a letter of intent
to acquire LST, Inc. d/b/a/ Lifestyle Technologies. You can learn more about
these companies on our Web site and in recent press releases.
Please note the above contact information as we have recently established a
second corporate headquarters in Charlotte, NC. We also encourage you to visit
our Web site, www.eresourcecapital.com, where you can sign up for e-mail
notifications of recent Company news.
I look forward to meeting the stockholders at the annual stockholders'
meeting which will be held on January 19, 2001 and welcome any questions you may
have. Your new management is focused on the aggressive execution of the
Company's new business plan, which we feel offers the Company significant growth
opportunities. We appreciate the support of our stockholders during this period
and look forward to a successful fiscal 2001.
Sincerely,
/s/ Michael D. Pruitt
Michael D. Pruitt
Chief Executive Officer
<PAGE> 3
ERESOURCE CAPITAL GROUP, INC.
3353 PEACHTREE ROAD, N.E.
SUITE 130
ATLANTA, GEORGIA 30326
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 19, 2001
---------------------
To the Stockholders of eResource Capital Group, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders (together
with any adjournments or postponements thereof, the "Meeting") of eResource
Capital Group, Inc., a Delaware corporation (the "Company"), will be held at the
Atlanta Marriott Marquis located at 265 Peachtree Center Avenue, Atlanta,
Georgia 30303 on January 19, 2001 at 10:00 a.m., local time, for the purpose of
considering and voting upon the following matters:
(1) To elect a board of five directors, each to serve a one-year term;
(2) To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
common stock from 100,000,000 to 200,000,000;
(3) To approve an amendment to the Company's 2000 Stock Option Plan to
increase the number of shares of common stock for which options may be
granted thereunder from 10,000,000 to 20,000,000;
(4) To ratify the Company's issuance of 8,450,000 restricted shares of
its common stock in connection with the acquisition of DM Marketing, Inc.;
and
(5) To transact such other business as may properly come before the
Meeting.
These items are more fully described in the accompanying Proxy Statement,
which is hereby made a part of this Notice of Annual Meeting of Stockholders.
The Board has fixed the close of business on December 18, 2000 as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Meeting.
A copy of the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2000 is enclosed. The Annual Report is not a part of the proxy
soliciting material enclosed with this Notice.
By Order of the Board,
/s/ Michael D. Pruitt
Michael D. Pruitt
Chief Executive Officer
Atlanta, Georgia
December 29, 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE-PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST BRING TO THE MEETING A
LETTER FROM THE BROKER, BANK OR OTHER NOMINEE CONFIRMING YOUR BENEFICIAL
OWNERSHIP OF THE SHARES. ADDITIONALLY, IN ORDER TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 4
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS OF
ERESOURCE CAPITAL GROUP, INC.
JANUARY 19, 2001
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement (the "Proxy Statement") and the accompanying form of
proxy are being furnished to the stockholders of eResource Capital Group, Inc.
(the "Company") in connection with the solicitation of proxies by the Board of
the Company (the "Board") from holders of its outstanding common stock (the
"Common Stock"), for use at the Annual Meeting of Stockholders of the Company
(together with any adjournments or postponements thereof, the "Meeting") to be
held at the Atlanta Marriott Marquis located at 265 Peachtree Center Avenue,
Atlanta, Georgia 30303 on January 19, 2001 at 10:00 a.m., local time. This Proxy
Statement, the accompanying form of proxy and the Annual Report to Stockholders
are expected to be mailed to stockholders of the Company on or about December
30, 2000.
SOLICITATION
The expense of this solicitation will be borne by the Company. Solicitation
will be primarily by use of the mails. Executive officers and other employees of
the Company may solicit proxies, without additional compensation, personally and
by telephone and other means of communication. The Company will also reimburse
brokers and other persons holding Common Stock in their names or in the names of
their nominees for their reasonable expenses in forwarding proxies and proxy
materials to beneficial owners.
VOTING RIGHTS AND OUTSTANDING SHARES
Stockholders of record as of the close of business on December 18, 2000
(the "Record Date") will be entitled to vote at the Meeting (except as noted
below). Each share of outstanding Common Stock is entitled to one vote. As of
the Record Date, there were 50,888,654 shares of Common Stock outstanding of
which 42,438,654 shares will be entitled to vote at the Meeting for the election
of directors and with respect to the proposal to ratify the Company's issuance
of 8,450,000 restricted shares of its Common Stock in connection with the
acquisition of DM Marketing, Inc. (the "DM Marketing Proposal"). All of the
outstanding shares as of the Record Date will be entitled to vote at the Meeting
with respect to the proposal to approve an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock from 100,000,000 to 200,000,000 (the "Proposed Charter
Amendment") and to approve an amendment to the Company's 2000 Stock Option Plan
to increase the number of shares of Common Stock for which options may be
granted thereunder from 10,000,000 to 20,000,000 (the "Proposed Plan
Amendment").
The presence at the Meeting, in person or by proxy, of a majority of the
outstanding shares of Common Stock as of the Record Date will constitute a
quorum for transacting business at the Meeting. Abstentions and broker non-votes
are counted towards a quorum. Provided a quorum is present at the Meeting,
directors will be elected by a plurality of the votes of the shares present in
person or represented by proxy at the Meeting and entitled to vote for the
election of directors. The Proposed Charter Amendment will be approved by an
affirmative vote of a majority of shares entitled to vote thereon that were
outstanding as of the Record Date. The Proposed Plan Amendment and the DM
Marketing Proposal will each be approved by an affirmative vote of the majority
of shares present in person or represented by proxy at the Meeting and entitled
to vote on such proposals. While the 8,450,000 shares issued in connection with
the Company's acquisition of DM Marketing, Inc. will be counted for purposes of
determining a quorum, such shares will not be entitled to vote at the
<PAGE> 5
Meeting with respect to the proposal to elect directors and with respect to the
DM Marketing Proposal. Such shares will be entitled to vote with respect to the
Proposed Charter Amendment and the Proposed Plan Amendment.
The Company has been advised that certain beneficial owners, directors and
executive officers of the Company, who hold in the aggregate approximately 56%
of the outstanding Common Stock entitled to vote at the Meeting with respect to
the election of directors and the DM Marketing Proposal intend to vote their
shares in favor of the nominees and in favor of the DM Marketing Proposal and
that certain beneficial owners, directors and executive officers of the Company
who hold in the aggregate approximately 63% of the outstanding Common Stock
entitled to vote at the Meeting with respect to the Proposed Charter Amendment
and Proposed Plan Amendment intend to vote their shares in favor of such
proposals.
All votes will be tabulated by the inspector of elections appointed for the
Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted for purposes of
determining both the presence or absence of a quorum for the transaction of
business and the total number of votes cast with respect to a particular matter.
Broker non-votes will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business but will not be counted for
or against the particular proposal on which the broker has expressly not voted.
Broker non-votes with respect to proposals set forth in this Proxy Statement
will not be considered votes cast and, accordingly, will not affect the
determination as to whether a majority of votes cast has been obtained with
respect to such matters. However, broker non-votes with respect to the Proposed
Charter Amendment will have the same effect of a negative vote.
REVOCABILITY OF PROXIES
The shares of Common Stock represented by proxy will be voted as instructed
if received in time for the Meeting. If no instructions are indicated, such
shares will be voted in favor of (FOR) (i) each nominee for election as a
director specified herein; (ii) the approval of an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock from 100,000,000 to 200,000,000; (iii) the approval of an
amendment to the Company's 2000 Stock Option Plan to increase the number of
shares of Common Stock for which options may be granted thereunder from
10,000,000 to 20,000,000; (iv) the ratification of the Company's issuance of
8,450,000 restricted shares of its Common Stock in connection with the Company's
acquisition of DM Marketing, Inc.; and (v) in the discretion of the proxy holder
as to any other matter that may properly come before the Meeting. Any person
signing and mailing the proxy may, nevertheless, revoke it at any time before it
is exercised by written notice to the Company (Attention: William Wortman, 3353
Peachtree Road, Suite 130, Atlanta, Georgia 30326), or by attending in person
and voting at the Meeting. Attendance at the Meeting, however, will not itself
constitute the revocation of a proxy.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Five directors, constituting the entire Board, are to be elected at the
Meeting and, if elected, will serve until the next Annual Meeting of
Stockholders and until their successors have been elected and qualified. The
Company's Bylaws, as amended, provide that the Board shall consist of a minimum
of three and a maximum of nine members and, unless otherwise established by
resolution of the Board, shall be five members.
The nominees of the Board are set forth below. All of the current members
of the Board have been nominated to continue to serve as directors of the
Company and Melinda Morris Zanoni has been nominated to fill the existing
vacancy on the Board. In the event any nominee is unable or declines to serve as
a director at the time of the Meeting, the proxies will be voted for any nominee
who shall be designated by the present Board to fill the vacancy. If additional
persons are nominated for election as directors, then the proxy holders intend
to vote all proxies received by them for the nominees listed below unless
instructed otherwise. As of the date of this Proxy Statement, the Company is not
aware of any nominee who is unable or who will decline to serve as a director,
if elected.
2
<PAGE> 6
NOMINEES FOR ELECTION AS DIRECTORS
Set forth below are the names, ages (at December 1, 2000), positions and
offices held and a brief description of the business experience during the past
five years of each person nominated to serve as a director of the Company.
Sylvia A. de Leon (age 50) has served as a director of the Company since
December 12, 1999. Ms. de Leon is a Senior Partner with the law firm of Akin,
Gump, Strauss, Hauer & Feld, L.L.P., where she has been employed since 1977. Ms.
de Leon also serves on the Board of Directors of the National Railroad Passenger
Corporation (Amtrak). During the last five years, Ms. de Leon has also served on
the National Civil Aviation Review Commission, the National Commission to Ensure
a Strong Competitive Airline Industry and the White House Conference on Travel
and Tourism, where she co-chaired the infrastructure and investment committee.
Michael D. Pruitt (age 40) has served as a director of the Company since
October 3, 2000 when he was appointed by the Board to fill a vacancy on the
Board created by the resignation of a director of the Company. Mr. Pruitt has
served as Chief Executive Officer of the Company since November 8, 2000. In
addition, Mr. Pruitt is the founder of Avenel Ventures, Inc., an e-commerce
investment and business development company, and has served as President, Chief
Executive Officer and director of Avenel Ventures, Inc. since its formation in
June, 2000. In May, 1999, Mr. Pruitt founded Avenel Financial Group, Inc., a
financial services firm specializing in e-commerce and technology investments,
where he concentrated his efforts until June, 2000. From October, 1997 through
May, 1999, Mr. Pruitt was the Executive Vice President of Marketers World
International which was acquired by High Speed Net Solutions, Inc. Prior to
that, Mr. Pruitt was an independent consultant from January, 1997 through
October, 1997. From January, 1992 through January, 1997, Mr. Pruitt was the COO
of a trucking company with revenues in excess of $50 million per year.
Dr. James A. Verbrugge (age 59) has served as a director of the Company
since January 11, 1999. Dr. Verbrugge is a Professor of Finance and Chairman,
Department of Banking and Finance of the University of Georgia, where he has
been employed since 1968. Dr. Verbrugge is also actively involved in executive
education programs at the University of Georgia and teaches executive education
programs at the University of Washington, University of Florida and University
of Colorado.
Arthur G. Weiss (age 60) has served as Chairman of the Board of the Company
since January 21, 1999 and has served as a director since January 11, 1999. From
January 21, 1999 to February 10, 1999, Mr. Weiss served as President and Chief
Executive Officer of the Company. Prior to assuming his positions at the
Company, Mr. Weiss was the President and a shareholder of West Side Investors,
Inc., which was acquired by the Company in January, 1999. From March, 1993
through April, 1994, Mr. Weiss served as Chairman of the board of directors of
Medical Resources Companies of America. In addition, Mr. Weiss manages private
real estate investments.
Melinda Morris Zanoni (age 31) has served as Executive Vice President of
the Company since November 8, 2000. In addition, Ms. Zanoni has served as a
director and Executive Vice President of Avenel Ventures, Inc. since June, 2000.
Prior to joining Avenel Ventures, Inc., Ms. Zanoni was an attorney with the law
firm of Nelson Mullins Riley & Scarborough, LLP in Charlotte, North Carolina
where she concentrated in the areas of mergers and acquisitions and commercial
finance from February, 1996 through June, 2000. From May, 1994 through February,
1996, she was a transactional attorney concentrating in corporate law at Fagel &
Haber in Chicago, Illinois.
There are no family relationships among any of the executive officers or
directors of the Company. No arrangement or understanding exists between any
executive officer or any other person pursuant to which any executive officer
was selected as an executive officer of the Company. Executive officers of the
Company are elected or appointed by the Board and hold office until their
successors are elected or until their death, resignation or removal.
3
<PAGE> 7
CERTAIN INFORMATION CONCERNING THE BOARD
The Board is currently comprised of Messrs. Pruitt and Weiss, Dr. Verbrugge
and Ms. De Leon. During the fiscal year ended June 30, 2000, the Board met six
times. From the time each director was appointed to the Board, each director
attended, in person or by telephone, all of such meetings of the Board.
As of June 30, 2000, the Board was comprised of William B. Astrop, Mr. C.
Beverly Lance, Mr. Weiss, Dr. Verbrugge and Ms. de Leon. Mr. Lance resigned as
Chief Executive Officer and as a director of the Company in July, 2000. Mr.
Astrop resigned as a director of the Company in August, 2000. Pursuant to the
Company's Bylaws, the Company appointed Mr. Pruitt to the Board on October 3,
2000 to fill one of the vacancies on the Board created by the resignations of
Messrs. Lance and Astrop and has nominated Ms. Zanoni to be elected to the Board
at this Meeting to fill the remaining vacancy on the Board.
The Board has established an audit committee (the "Audit Committee"). The
Audit Committee is comprised of Ms. de Leon and Dr. Verbrugge with Dr. Verbrugge
serving as its Chairman. The Audit Committee convenes when deemed appropriate or
necessary by its members. During the fiscal year ended June 30, 2000, three
meetings of the Audit Committee were held. Dr. Verbrugge and Mr. Astrop attended
each of the Audit Committee meetings. Ms. de Leon did not attend the two
meetings held after she was appointed to the Audit Committee. Mr. Astrop and Dr.
Verbrugge were appointed to the Audit Committee on February 10, 1999 and Ms. de
Leon was appointed to the Audit Committee on January 14, 2000. Mr. Astrop
resigned from the Audit Committee simultaneously with his resignation from the
Board in August, 2000.
The Board had not established a compensation committee or a nominating
committee.
AUDIT COMMITTEE REPORT
The Company's Board of Directors has adopted a written charter for the
Audit Committee. A copy of the Audit Committee Charter is included as Exhibit A
to this Proxy Statement. The primary functions of the Audit Committee are set
forth in its charter and include: (i) recommending an accounting firm to be
appointed by the Company as its independent auditors; (ii) consulting with the
Company's independent auditors regarding their audit plan; (iii) reviewing the
Company's financial statements with its auditors; and (iv) determining that
management placed no restrictions on the scope or implementation of the
independent auditors' report. The members of the Audit Committee are independent
as defined in Section 121(A) of the American Stock Exchange Listing Standards.
The Audit Committee reports as follows:
(i) The Audit Committee reviewed and discussed the Company's audited
financial statements for the year ended June 30, 2000 with the Company's
management;
(ii) The Audit Committee plans to discuss with Ernst & Young LLP
("Ernst & Young"), the Company's independent auditors, the matters required
to be discussed by Statement of Accounting Standards 61;
(iii) The Audit Committee will receive the written disclosures and the
letter from Ernst & Young required by Independent Standards Board Standard
No. 1 (Independence Discussions with Audit Committees) and has discussed
Ernst & Young's independence with representatives of Ernst & Young; and
(iv) Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 2000 for filing with the Securities and
Exchange Commission.
4
<PAGE> 8
Members of the Audit Committee:
Dr. James A. Verbrugge and Ms. Sylvia A. de Leon.
EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and offices held and a brief
description of the business experience during the past five years of each of the
Company's executive officers who are not also directors or director nominees.
Todd Bottorff (age 32) has served as President and Chief Operating Officer
of the Company since May 16, 2000. Prior to joining the Company, Mr. Bottorff
was a co-founder and a member of the executive committee of HeliosHealth.com, an
Internet-based provider of health information and services. From 1995 to 1999,
Mr. Bottorff was a manager at McKinsey & Company, a global consulting firm. The
Company expects that Mr. Bottorff will resign as President and Chief Operating
Officer in December, 2000 and that he will continue as an independent consultant
for an eight-month period thereafter.
William L. Wortman (age 53) has served as Vice President and Chief
Financial Officer of the Company since June 24, 1999. For the year prior to
joining the Company, Mr. Wortman was a partner and general manager of a new car
dealership. From 1994 through 1998, Mr. Wortman was Vice President and Chief
Financial Officer of A.F.A Services Corporation, a marketing services company.
BENEFICIAL OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 1, 2000 by:
(i) each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock; (ii) each of the Company's directors; (iii)
each of the Company's executive officers included in the Summary Compensation
Table included elsewhere herein; and (iv) all of the Company's directors and
executive officers as a group. Except as otherwise noted, the person or entity
named has sole voting and investment power over the shares indicated.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
BENEFICIALLY
OWNED(1)
-------------------
NAME NUMBER PERCENT
---- --------- -------
<S> <C> <C>
Wendell M. Starke Trust(2).................................. 4,800,000 9.4%
Michael D. Pruitt + ++(3)................................... 4,225,300 8.3
Four Corners Capital, LLC(4)................................ 3,913,842 7.2
Johnny C. Godley(5)......................................... 2,550,000 5.0
William C. Morris(6)........................................ 2,550,000 5.0
Arthur G. Weiss ++(7)....................................... 1,550,000 3.0
Sylvia A. de Leon ++(8)..................................... -0- -0-
Dr. James A. Verbrugge ++(9)................................ 200,000 *
Todd Bottorff +(10)......................................... -0- -0-
William L. Wortman +(11).................................... -0- -0-
Melinda Morris Zanoni +..................................... -0- -0-
All Current Executive Officers and Directors as a Group (7
Persons)(12).............................................. 5,975,300 11.7
</TABLE>
---------------
+ Officer of the Company
++ Director of the Company
* Less than 1%
(1) Information as to beneficial ownership of Common Stock has either been
furnished to the Company by or on behalf of the indicated person or is
taken from reports on file with the Securities and Exchange Commission
("SEC").
5
<PAGE> 9
(2) Based upon its Schedule 13D/A filed on July 2, 1999, Wendell M. Starke is
the trustee of the Wendell M. Starke Trust, which owns 4,800,000 shares.
The trust's address is 4300 Paces Ferry Road, Suite 500, Atlanta, Georgia,
30339.
(3) Represents shares issued in connection with the Company's acquisition of DM
Marketing, Inc. Includes 2,225,000 shares of Common Stock held by Avenel
Financial Group, Inc., a company owned by Mr. Pruitt. Mr. Pruitt's address
is 5935 Carnegie Boulevard, Suite 101, Charlotte, North Carolina, 28209.
(4) Includes warrants to purchase 3,799,866 shares. Excludes 800,000 shares
issuable upon exercise of options that are subject to stockholder approval
and are not exercisable on or within 60 days of December 1, 2000. The
address of Four Corners Capital, LLC is 10 Burton Hills Boulevard, Suite
120, Nashville, Tennessee, 37215.
(5) Includes 300,000 shares owned by Godley Morris Group, LLC of which Mr.
Godley is a Managing Member, and, in such capacity, shares voting and
investment power over such shares. Includes shares owned by each of the
following entities in which Mr. Godley is the Managing Member, and, in such
capacity, has sole voting and investment power over such shares: Johnny
Godley's Kids, LLC -- 750,000 shares; Frankie Godley's Kids, LLC -- 750,000
shares; and Jimmy Godley's Kids, LLC -- 750,000 shares. Mr. Godley's
address, and the address of each such entity is 4918 Rozzelle's Ferry Road,
Charlotte, North Carolina, 28216.
(6) Includes 300,000 shares owned by the Godley Morris Group, LLC of which Mr.
Godley is a Managing Member and, in such capacity, shares voting and
investment power over such shares. Mr. Morris' address is 307 Scotland
Road, Lake City, South Carolina, 29560.
(7) Excludes 2,350,000 shares owned by Mr. Weiss' adult children of which
shares Mr. Weiss disclaims beneficial ownership.
(8) Excludes 1,000,000 shares issuable upon exercise of options that are
subject to stockholder approval and are not exercisable on or within 60
days of December 1, 2000.
(9) Represents 200,000 shares issuable upon the exercise of options that are
currently exercisable. Excludes 800,000 shares issuable upon exercise of
options that are subject to stockholder approval and are not exercisable on
or within 60 days of December 1, 2000.
(10) Excludes 500,000 shares issuable upon exercise of options that are subject
to stockholder approval and are not exercisable on or within 60 days of
December 1, 2000.
(11) Excludes 300,000 shares issuable upon exercise of options that are subject
to stockholder approval and are not exercisable on or within 60 days of
December 1, 2000.
(12) Excludes 2,600,000 shares issuable upon exercise of options that are
subject to stockholder approval and are not exercisable on or within 60
days of December 1, 2000.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Directors of the Company who are not employees of the Company receive
compensation of $1,000 per month plus $1,000 for each quarterly Board meeting.
Directors are also entitled to reimbursement of reasonable out-of-pocket
expenses incurred by them in attending Board meetings. In fiscal 2000, the
Company expensed $62,000 for director fees.
In July, 1999, the Company approved non-qualified stock options to purchase
an aggregate of 1,200,000 shares of Common Stock at an exercise price of $2.50
per share, in connection with Mr. Astrop's, Dr. Verbrugge's and Joel Goldberg's
(a former director) services as directors of the Company. The options were
granted as follows: options for 400,000 shares to each Dr. Verbrugge and Mr.
Astrop and options for 400,000 shares to Four Corners Capital, LLC. (in which
Mr. Goldberg has a 25% interest).
In November, 1999, the Company approved options to purchase 600,000 shares
of Common Stock at an exercise price of $4.00 per share. These options were
granted as follows: (i) options for 200,000 shares to Dr. Verbrugge, (ii)
options for 200,000 shares to Four Corners Capital, LLC, (iii) options for
100,000 shares to Mr. Astrop, and (iv) options for 50,000 shares to each of Mr.
Astrop's two adult children.
Also in November, 1999, the Company granted options to purchase 1,000,000
shares of Common Stock to Ms. de Leon. Of these options 200,000 have a per share
exercise price of $0.4177; 200,000 have a per share
6
<PAGE> 10
exercise price of $0.4375; 400,000 have a per share exercise price of $2.50; and
200,000 have a per share exercise price of $4.00.
The stock options approved by the Board in fiscal 2000 for the Company's
Directors are subject to stockholder approval, which was not obtained at the
Annual Meeting held on July 11, 2000. As a result, the options granted to
directors in fiscal 2000 are not currently exercisable but could be approved by
the stockholders at a later date.
EMPLOYMENT CONTRACTS
On May 7, 2000 the Company entered a one-year employment agreement with Mr.
Bottorff (the "Bottorff Agreement") to serve as the Company's President and
Chief Operating Officer. The Bottorff Agreement provides for an annual base
salary of $160,000, an annual bonus determined by the Board in its sole
discretion and an option to purchase 500,000 shares of the Company's Common
Stock at $1.4375 per share which option has a ten-year term and vested 50% on
November 7, 2000 with the remaining 50% vesting on May 7, 2001. The Company and
Mr. Bottorff are in the process of negotiating a new agreement pursuant to which
Mr. Bottorff would become a consultant to the Company for an eight-month period
in return for a $13,333 monthly consulting fee and all 500,000 options would be
immediately vested with a three-year term subject to the Company's right to
repurchase 100,000 of such options at $2.50 during the next 18 months.
On November 8, 2000 the Company entered into an employment agreement with
Mr. Pruitt (the "Pruitt Agreement") to serve as Chief Executive Officer of the
Company. The Pruitt Agreement provides for an annual gross salary of $180,000,
an annual bonus determined by the Board in its sole discretion, and an
opportunity to receive options to purchase Common Stock under the Company's 2000
Stock Option Plan pursuant to the terms and conditions of a stock option
agreement and subject to approval by the Board. The term of the Pruitt Agreement
is two years unless terminated earlier pursuant to its terms and it renews
automatically for a period of one year unless 60 days written notice is given by
either party. Also, the Pruitt Agreement provides for separation pay up to 12
months depending upon the reason for termination.
On November 8, 2000 the Company entered into an employment agreement with
Ms. Zanoni (the "Zanoni Agreement") to serve as Executive Vice President of the
Company. The Zanoni Agreement provides for an annual gross salary of $160,000,
an annual bonus determined by the Board in its sole discretion, and an
opportunity to receive options to purchase Common Stock under the Company's 2000
Stock Option Plan pursuant to the terms and conditions of a stock option
agreement and subject to approval by the Board. The term of the Zanoni Agreement
is two years unless terminated earlier pursuant to its terms and it renews
automatically for a period of one year unless 60 days written notice is given by
either party. Also, the Zanoni Agreement provides for separation pay up to 12
months depending upon the reason for termination.
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<PAGE> 11
SUMMARY EXECUTIVE COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation awarded
or paid by the Company for services rendered during each of the years in the
three-year period ended June 30, 2000 to its Chief Executive Officer and other
executive officers whose compensation exceeded $100,000 ("Named Executives").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------
LONG-TERM
FISCAL COMPENSATION OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK OPTIONS(8) COMPENSATION
--------------------------- ------ -------- ------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Arthur G. Weiss(1)........................ 2000 $195,000 $ -- -- $ 83,963(2)
Chairman 1999 90,000 -- -- 9,600
C. Beverly Lance(3)....................... 2000 198,333 -- -- 57,530(4)
Chief Executive Officer 1999 85,000 -- -- 9,638
William L. Wortman(5)..................... 2000 133,750 10,000 -- 1,125
Chief Financial Officer
Mark A. Conner(6)......................... 1999 35,308 -- -- 52,148
Chief Executive Officer 1998 61,200 -- -- 109,360(7)
</TABLE>
---------------
(1) Mr. Weiss has been Chairman of the Company since January 21, 1999. Mr.
Weiss' annual base salary was $180,000 for fiscal 2000. The salary amount in
the table above includes Mr. Weiss' base salary and $15,000 of paid
vacation. In July, 2000, Mr. Weiss entered into an agreement with the
Company to reduce his monthly compensation to $4,000.
(2) Includes $54,738 of life and long-term disability insurance premiums.
(3) Mr. Lance was President and Chief Executive Officer from February 10, 1999
through May, 2000 when Mr. Bottorff was appointed President. Mr. Lance
remained as Chief Executive Officer until his resignation in July, 2000. Mr.
Lance's annual base salary for fiscal 2000 was $170,000. The salary amount
in the table above includes Mr. Lance's base salary and $28,333 of paid
vacation.
(4) Includes $29,452 of life and long-term disability insurance premiums.
(5) Mr. Wortman has been Vice President and Chief Financial Officer of the
Company since June 24, 1999. Mr. Wortman's annual base salary is $150,000.
(6) Mr. Conner was President and Chairman of the Board from February 12, 1996
until January 21, 1999 and was Chief Executive Officer from March 9, 1998
until January 21, 1999. Mr. Conner resigned his positions with the Company
on January 21, 1999.
(7) Includes personal expenses paid by the Company on behalf of Mr. Conner.
(8) In fiscal 2000, the Company's Board approved non-qualified options to
purchase Common Stock for Messrs. Weiss, Lance and Wortman subject to
stockholder approval, which approval was not obtained at the Annual Meeting
held on July 11, 2000. The options of Messrs. Weiss and Lance were cancelled
with the agreement of Messrs. Lance and Weiss in July, 2000. The options to
purchase 300,000 shares of Common Stock approved by the Board for Mr.
Wortman could be approved by stockholders at a later date.
LONG-TERM COMPENSATION -- STOCK OPTIONS
Option Grants in Last Fiscal Year
Messrs. Weiss and Lance were issued stock options during fiscal 2000. On
July 2, 1999 each received options to purchase 1,700,000 shares of Common Stock
at an exercise price of $2.50 per share and on November 26, 1999 each received
options to purchase 1,000,000 shares of Common Stock at an exercise price of
$4.00 per share. These options vested immediately, but were subject to
stockholder approval.
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<PAGE> 12
Aggregated Option Exercises in Last Fiscal Year and FY-End Values
The following table sets forth information concerning the value of
unexercised options held by each Named Executive as of June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF OPTIONS
SHARES UNDERLYING UNEXERCISED EXERCISABLE/
ACQUIRED ON VALUE OPTIONS AT 6/30/00 UNEXERCISABLE AT
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE 6/30/00
---- ------------ ------------ ------------------------- ----------------
<S> <C> <C> <C> <C>
C. Beverly Lance.................... 0 0 700,000/3,7000,000 0/0
Arthur G. Weiss..................... 0 0 700,000/3,7000,000 0/0
William L. Wortman.................. 0 0 -0-/300,000 0/0
</TABLE>
In July, 2000, Messrs. Weiss and Lance agreed to the cancellation of all of
their outstanding options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January, 1999, the Company acquired 100% of the issued and outstanding
shares of West Side Investors, Inc., a Georgia corporation which owns P & W
Stonebridge, LLC and P & W Headland, LLC, which own respectively, the
Stonebridge Village Shopping Center located in Dekalb County, Georgia and the
Headland-DeLowe Shopping Center located in Atlanta, Georgia. Arthur G. Weiss was
the President of West Side Investors, Inc. and, together with his adult
children, owned one hundred percent (100%) of the issued and outstanding common
stock of West Side Investors, Inc. (the "West Side Stock") prior to the
transaction. The purchase price for the West Side Stock was the issuance of
3,100,000 shares of the Company's Common Stock as follows: Arthur G. Weiss,
1,550,000 shares; Charles G. Weiss, 775,000 shares; and Caroline Weiss
Kyriopolous, 775,000 shares. The two shopping centers had an appraised value of
$9,130,000 and were subject to $7,886,000 of non-recourse participating
mortgages (of which $7,711,000 was outstanding at June 30, 2000) entitling the
lender to 50% of the profits realized from the shopping centers. The
consideration paid was determined as a result of arm's length negotiations prior
to Mr. Arthur G. Weiss becoming a stockholder, director or officer of the
Company.
In connection with consulting services related to the Company's
Internet-based, private aviation travel service business provided by Mr. Bert
Lance, the father of the Company's former President and Chief Executive Officer,
the Company in fiscal 2000 and 1999 granted warrants to purchase 1,600,000 and
400,000 shares, respectively, of its Common Stock to the Bert Lance Grantor
Trust. In addition, the Company paid consulting fees of $183,000 to Mr. Bert
Lance in fiscal 2000. In August 2000, the Bert Lance Grantor Trust assigned
250,000 of such warrants to an unrelated third party, with the Company's
consent, and such warrants were exercised for cash proceeds of $125,000 to the
Company.
In January, 1999, the Company acquired 100% of the total issued and
outstanding common stock of PDK Properties, Inc., a Georgia corporation (the
"PDK Stock") which owns 100% of Stratos Inns, LLC, a Georgia limited liability
company, located in Atlanta, Georgia. The purchase price for the PDK Stock was
the issuance of 3,600,000 shares of the Company's Common Stock to the Lance
Childrens' Trust, of which Mr. C. Beverly Lance (the Company's former President
and Chief Executive Officer) is trustee. The consideration paid was determined
as a result of arm's length negotiations prior to Mr. C. Beverly Lance becoming
a stockholder, officer or director of the Company.
In January, 1999, the Company closed the sale of its wholly-owned
subsidiary, Henry Holdings, Inc., a Florida corporation (the "Subsidiary") to
Mr. Conner, a former Chief Executive Officer of the Company, in exchange for
5,000,000 shares of Common Stock that were held by Mr. Conner. In accordance
with the terms of the acquisition agreement, Mr. Conner received cash and
property with value of $1,928,292.
On or about January 29, 1999, the Wendell M. Starke Trust (the "Starke
Trust") purchased 2,500,000 shares of restricted Common Stock for $1,000,000 and
on June 29, 1999 the Starke Trust purchased an additional 2,300,000 shares for
$1,725,000. In connection with the sale of the shares, the Company entered into
a Registration Rights Agreement with the trust. The consideration paid was
determined as the result of arm's length negotiation with the Company.
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<PAGE> 13
On or about March 18, 1999, the Godley Morris Group, LLC (the "GMG")
purchased 2,500,000 shares of restricted Common Stock for $1,000,000 and on June
29, 1999 GMG purchased an additional 2,300,000 shares for $1,725,000. In
connection with the sale of the shares, the Company entered into a Registration
Rights Agreement with the GMG. The consideration paid was determined as the
result of arm's length negotiation with the Company.
In January, 2000, the Company entered into a common stock purchase
agreement (the "Four Corners Purchase Agreement") with Four Corners Capital, LLC
("Four Corners") which provided for an equity financing package consisting of
the sale of restricted Common Stock and warrants. Under the terms of the Four
Corners Purchase Agreement, Four Corners purchased from the Company, for an
aggregate purchase price of $1,000,000, 165,070 shares of restricted Common
Stock, and warrants to purchase up to 2,723,668 shares of Common Stock. In
connection with the Four Corners Purchase Agreement, the Company entered into a
Registration Rights Agreement with respect to the Common Stock purchased by Four
Corners and the Common Stock underlying all options or warrants held by Four
Corners. The terms of the Purchase Agreement were the result of arm's length
negotiations between the parties. Mr. Goldberg, a former director of the
Company, owns a 25% interest in Four Corners.
In connection with the equity financing provided by the Four Corners
Purchase Agreement and the Company's $5,000,000 private placement of Common
Stock in January, 2000, the Company agreed to pay Four Corners a fee for
services provided to the Company equal to 6% of the proceeds actually received
by the Company and to reimburse Four Corners for expenses relating to the
financing. In fiscal 2000, the Company paid fees to Four Corners in the amount
of $360,000 and has reimbursed Four Corners for approximately $58,000 in
expenses.
In a series of transactions consummated during fiscal 1999, Mr. Conner (a
former chief executive officer of the Company) and a former officer of the
Company purchased real property assets used in connection with certain
discontinued operations of the Company with an aggregate book value of
$16,000,000 and assumed all related mortgage indebtedness. The Company received
cash, notes receivable or Common Stock in these transactions. In fiscal 2000,
the Company sold additional assets to entities in which former officers,
including Mr. Conner, were investors, including assets of discontinued
operations with a carrying value of $400,000 for cash and other assets of
discontinued operations for $1 million in notes receivable plus assumption of
approximately $2.2 million in mortgage indebtedness. At June 30, 2000, the
aggregate note balance was $900,000 which amount was fully reserved as
uncollectible by the Company due to the purchaser's inability to obtain
financing to complete the planned development of the properties. All such
transactions were the result of arm's length negotiations between the Company
and the former officers.
In December, 1999 the Company issued 400,000 shares of restricted Common
Stock from treasury to certain parties including Langdon Flowers, Jr. (a former
director of the Company), Mr. Flowers' father and a former officer of the
Company. The shares were issued pursuant to an agreement that resolved
outstanding issues related to certain transactions involving the Company's
discontinued real estate operations, which reduced the related asset valuations
by $193,000. The transaction was the result of arm's length negotiations. In
connection therewith, the Company entered into a Registration Rights Agreement
providing the holders of such shares with certain registration rights.
In fiscal 2000, the Company advanced $275,100 in anticipation of an equity
investment in a newly formed entity that would acquire private jets for use in
connection with flights arranged through the Company's Private Seats(TM)
program. The entity was formed and managed by Four Corners. Due to the Company's
inability to raise adequate capital to complete the planned acquisition of
aircraft, these advances were written off as of June 30, 2000.
On October 20, 2000, the Company executed a definitive share exchange
agreement for the acquisition of Avenel Ventures, Inc. for 10 million shares of
Common Stock. On October 20, 2000, the closing market price of the Company's
Common Stock was $1.15 per share. The Company anticipates closing the
acquisition of Avenel Ventures, Inc. on or before January 31, 2001. Avenel
Ventures, Inc. provides investment services to technology companies, and through
its wholly-owned subsidiary, Avenel Alliance, Inc. provides e-commerce, business
development, and advisory services. Avenel Alliance, Inc. provides services to
clients implementing
10
<PAGE> 14
innovative strategies in e-commerce and Internet marketing. Mr. Pruitt, the
Company's Chief Executive Officer and a Company director, is an officer,
director, and stockholder of Avenel Ventures, Inc. The consideration to be paid
to the stockholders of Avenel Ventures, Inc. was the result of arm's length
negotiations between the Company and Avenel Ventures, Inc. prior to Mr. Pruitt
becoming Chief Executive Officer of the Company and was recommended by an
independent special committee of the Board and approved by the Board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors, executive officers, and persons who own
beneficially more than 10% of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of such securities of the Company. Directors, executive
officers and greater than 10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and representations that no other reports were
required, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than 10% beneficial owners were complied with
during the fiscal year ended June 30, 2000.
PROPOSAL 2
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Board believes it is advisable to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of capital stock of
all classes from 110,000,000 shares to 210,000,000 shares, of which 200,000,000
shares would be authorized shares of Common Stock and 10,000,000 shares would be
authorized shares of preferred stock, par value $.01 per share. On December 11,
2000, the Board adopted a resolution approving an amendment to Article FOURTH of
the Certificate of Incorporation and directing that the amendment be presented
to the stockholders for approval. The complete text of the Proposed Charter
Amendment is attached hereto as Exhibit B and incorporated herein by reference.
The Proposed Charter Amendment increases the number of authorized shares of
Common Stock from 100,000,000 to 200,000,000 shares. The Board believes that the
authorization of the increase in the number of shares of Common Stock is in the
best interests of the Company and its stockholders and believes it advisable to
authorize such shares to have them available for, among other things, possible
issuance in connection with such activities as public or private offerings of
shares for cash, dividends payable in stock of the Company, acquisitions of
other companies, implementation of employee benefit plans, including the
Company's 2000 Stock Option Plan, amendment of which is the subject of Proposal
3 hereof, and other stock-based incentive compensation to attract or retain key
employees or consultants and otherwise. The Company has no present plans with
respect to the increased shares of Common Stock.
Of the 100,000,000 presently authorized shares of Common Stock, 50,888,654
shares were issued and outstanding and 435,930 were held by the Company in
treasury as of December 8, 2000. In addition, an aggregate of 29,837,620 shares
of Common Stock have been reserved for issuance as of December 8, 2000 in
respect of certain option and warrant agreements. The holders of such options
and warrants may immediately exercise such options and warrants for an aggregate
of 22,220,120 shares of Common Stock. The remaining options and warrants are
either (i) subject to stockholder approval, or (ii) vest over time. Additional
shares of Common Stock, if authorized, may be issued at such times, for such
purposes and for such consideration as the Board may determine to be appropriate
without further stockholder approval, except as otherwise required by applicable
law. The increase in authorized shares will not have an immediate effect on the
rights of existing stockholders but, to the extent the shares are issued in the
future, they will decrease the existing stockholders' percentage ownership in
the Company and, depending on the price at which they are issued, may be
economically dilutive to the existing stockholders. The stockholders do not have
preemptive rights with respect to issuance of any shares of Common Stock.
11
<PAGE> 15
The Board is required by Delaware law to make any determination to issue
shares of Common Stock based upon its judgment as to the best interests of the
Company. Although the Board has no present intention of doing so, it could issue
shares of Common Stock (within the limits imposed by applicable law) that could,
depending on the terms of such series, make more difficult or discourage any
attempt to obtain control of the Company by means of a merger, tender offer,
proxy contest or other means. When in the judgment of the Board such action
would be in the best interest of the stockholders and the Company, the issuance
of shares of Common Stock could be used to create voting or other impediments or
to discourage persons seeking to gain control of the Company. For example, such
shares could be privately placed with purchasers favorable to the Board in
opposing such actions. The issuance of new shares could also be used to dilute
the stock ownership of a person or entity seeking to obtain control of the
Company should the Board consider the action of such entity or person not to be
in the best interests of the stockholders and the Company.
In Proposal 3 of this Proxy Statement, the Company has also proposed that
the stockholders approve an amendment to the Company's 2000 Stock Option Plan
increasing the number of shares of Common Stock that may be the subject of
options granted pursuant to such plan from 10,000,000 to 20,000,000. The Company
has no agreements or understandings with any eligible participant in such plan
that would require an increase in the authorized number of shares. However,
additional shares of Common Stock authorized by this Proposal could be used to
make awards to eligible participants under such plan in the future.
The affirmative vote of holders of at least a majority of the outstanding
shares of Common Stock entitled to vote at the meeting is required in order to
adopt the Proposed Charter Amendment. Unless indicated to the contrary, the
enclosed proxy will be voted FOR the Proposed Charter Amendment. Votes
"withheld" or abstaining from voting or broker non-votes will have the same
effect as a negative vote or AGAINST the Proposed Charter Amendment.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSED CHARTER
AMENDMENT.
PROPOSAL 3
AMENDMENT TO THE 2000 STOCK OPTION PLAN
BACKGROUND AND GENERAL INFORMATION
On May 16, 2000, the Board adopted the Company's 2000 Stock Option Plan
(the "Plan") which was approved by the Company's stockholders at the Company's
Annual Meeting of Stockholders held on July 11, 2000. On December 11, 2000, the
Board adopted, subject to stockholder approval, an amendment to the Plan
increasing the number of shares of Common Stock for which options may be granted
thereunder from 10,000,000 to 20,000,000 (the "Proposed Plan Amendment"), an
increase of 10,000,000 shares of Common Stock representing approximately 20% of
the number of issued and outstanding shares of the Company's Common Stock as of
the Record Date. As of the Record Date, there are approximately 30 officers,
directors and employees of the Company and its subsidiaries who are eligible to
participate in the Plan.
The purpose of the Plan is to enhance the profitability and value of the
Company for the benefit of its stockholders by providing equity ownership
opportunities to better align the interests of officers, key employees and
valued directors, consultants, independent contractors and other agents with
those of the Company's stockholders. The Plan is also designed to enhance the
profitability and value of the Company for the benefit of its stockholders by
providing stock options to attract, retain and motivate officers, key employees
and valued directors, consultants, independent contractors and other agents who
make important contributions to the success of the Company.
As of the Record Date, options to purchase an aggregate of 5,500,000 shares
of Common Stock have been granted under the Plan, all of which are currently
outstanding, resulting in 4,500,000 shares of Common Stock remaining available
for issuance under the Plan prior to the proposed amendment to the Plan.
On December 8, 2000, the closing sale price of the Common Stock was $1.27
per share, as reported by the American Stock Exchange.
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<PAGE> 16
EXPLANATION OF AMENDMENT
To ensure that the number of shares of Common Stock for which options may
be granted under the Plan is adequate to fulfill the purposes of the Plan as
described above, the Board believes it is necessary to increase such number of
shares of Common Stock. The Board believes that the additional 10,000,000 shares
of Common Stock for which options may be granted under the Plan as provided by
the Proposed Plan Amendment should be sufficient to fulfill such purposes for
the foreseeable future.
SUMMARY OF THE PLAN
A summary of the Plan, as proposed to be amended, is set forth below. The
summary is qualified in its entirety by the full text of the Plan. The Company
will provide, upon written request and without charge, a copy of the full text
of the Plan to each stockholder of the Company who makes such a request.
Requests should be directed to the Company (Attention: William Wortman, 3353
Peachtree Road, Suite 130, Atlanta, Georgia 30326).
The Plan provides for the granting of options to acquire Common Stock,
which may be either incentive stock options (an "ISO") or nonqualified stock
options (an "NSO"). The Plan is administered by the Board or, if so established,
a committee of the Board established for that purpose (the "Committee"), and all
directors, officers and employees of the Company or any subsidiary and any
consultant or adviser providing services to the Company or any subsidiary whose
participation in the Plan is determined by the Board, or if applicable the
Committee, to be in the best interests of the Company are eligible to receive
option grants under the Plan. There is no termination date under the Plan, but
no options may be granted under the Plan after the tenth anniversary of its
adoption by the Board. Receipt of option grants under the Plan is contingent
upon the execution by each prospective option holder of an agreement in such
form as the Board or, if applicable the Committee, may from time to time
determine.
The Plan provides for the grant of options to purchase up to 10,000,000
shares of Common Stock and, if this Proposal 3 is approved, will provide for the
grant of options to purchase up to 20,000,000 shares of Common Stock. The
purchase price per share of Common Stock subject to an option is fixed by the
Board or, if applicable the Committee, when the option is granted. In the case
of any ISO, such exercise price shall be no less than the fair market value of
the Common Stock at the time of grant (110% of such value, in the case of any
shareholder owning directly or indirectly more than 10% of the total voting
power of the Company), as determined by the Board or, if applicable the
Committee, under procedures prescribed in the Plan. Additional terms of options
granted under the Plan, including the vesting provisions of such options, will
be also established at the time of grant. The Board or, if applicable the
Committee, in its sole discretion, may rescind, modify or waive any limitation
or condition on the exercise of an option contained in any option agreement so
as to accelerate the time at which an option may be exercised or extend the
period during which the option may be exercised. In addition to the requirement
requiring minimum exercise price described above, the terms of an option
agreement for an ISO must meet other requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). For example, any ISOs granted
under the Plan would not be transferable except by will or by the laws of
descent and distribution upon the death of the option holder.
Payment for shares purchased under the Plan may be made: (i) in cash; (ii)
by surrender of all or part of an option (including the option being exercised);
(iii) by exchanging shares of Common Stock with a fair market value equal to the
total option price; (iv) by delivery of other property rights and credits deemed
acceptable by the Board or, if applicable the Committee, including the
optionee's promissory note; or (v) any combination of the above payment methods.
Notwithstanding the foregoing, payment other than in cash may be made only with
the consent of the Board or, if applicable the Committee, or if and to the
extent provided for in the option agreement governing such exercise.
In the event of any stock split, stock dividend, spin-off, split-up,
spin-out, recapitalization or similar transaction, the Plan provides that the
Board or, if applicable the Committee, shall make appropriate adjustments to the
number of shares available for issuance under the Plan and to the number and
price of options previously granted. In the event of any merger, consolidation
or share exchange with another corporation, whether or not the Company is the
surviving corporation, or if substantially all of the assets or all
13
<PAGE> 17
of the shares of Common Stock are acquired by another corporation, or in the
event of a separation, reorganization or liquidation of the Company (each a
"Significant Transaction"), the Board or the board of directors of the
corporation that assumes the Company's obligations shall make appropriate
provisions with respect to any outstanding options by substitution on an
equitable basis of appropriate capital stock of the Company of the surviving or
successor corporation, provided that the difference between the aggregate fair
market value of the shares so substituted and the exercise price thereof is not
greater that the difference between the aggregate fair market value of the
Common Stock subject to such options prior to substitution and the exercise
price thereof. Notwithstanding the foregoing, if a Significant Transaction
occurs, the Board or the board of directors of the surviving or successor
corporation may, upon written notice to the holder of any such option, require
that such option be exercised within sixty (60) days of the date of such notice
or such option will be terminated.
The Plan may be amended or terminated at any time by the Board or, if
applicable the Committee, provided, however that the Board or, if applicable the
Committee, may not amend the Plan if the amendment is not approved by the
stockholders and such approval is required under Section 422 of the Code or by
the Board. The Board or, if applicable the Committee, may, in its discretion,
postpone the issuance or delivery of shares following exercise of an option
until the completion of a registration, or other qualification or exemption of
such shares, under applicable state or federal laws. If the Plan is approved by
the stockholders, the Company may, at such time as the Board may determine,
register the shares of Common Stock issuable under the Plan under appropriate
provisions of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
FEDERAL INCOME TAX CONSEQUENCE
Incentive Stock Options. Neither the grant nor the exercise of an ISO will
result in a taxable event to the option holder, and any gain realized upon a
disposition of shares of Common Stock received upon exercise of an ISO will be
taxed as long-term capital gain if the optionee holds the shares for at least
two years after the date the ISO was granted and one year after the date the ISO
was exercised (the "holding period requirement"). The Company is not entitled to
any business expense deduction when an ISO is exercised, except as discussed
below.
For the exercise of an ISO to qualify for the foregoing tax treatment, the
optionee must be an employee of the Company or a subsidiary from the date that
the ISO is granted through a date within three months before the date of
exercise. If an optionee is disabled, he or she has one year to exercise an ISO
following termination for disability. If the optionee dies, both the holding
period requirement and the three-month exercise period are waived.
If all of the foregoing requirements are met except the holding period
requirement (a "Disqualifying Disposition"), the optionee will recognize
ordinary income upon the disposition of the stock generally equal to the
difference between the fair market value of the stock at the time the ISO was
exercised and the option exercise price, but in no event shall such amount
exceed the gain realized upon sale of such stock. The balance of any gain
realized, if any, will be treated as a capital gain. The Company will be allowed
a business expense deduction in such cases to the extent that the optionee
recognizes ordinary income, subject to Section 162(m) of the Code as discussed
below.
If an optionee exercises an ISO by tendering shares of Common Stock with a
fair market value equal to part or all of the option exercise price, the
exchange of shares will be treated as a nontaxable exchange (unless the tender
of such shares would be a Disqualifying Disposition). If the exercise is a
tax-free exchange, the optionee would have no taxable income from the exchange
and exercise, and the tax basis of the shares surrendered would be treated as
the carryover basis for an equivalent number of option shares received, with the
additional option shares received taking a tax basis equal to the amount of
cash, if any, paid to exercise the ISO. If the optionee makes a Disqualifying
Disposition in the exercise of an ISO, the exchange would be treated as a
taxable event with respect to the surrendered shares as described above, with a
number of option shares equivalent in number to the surrendered shares taking a
tax basis equal to fair market value, and the remaining option shares taking a
tax basis equal to the amount of cash, if any, paid to exercise the ISO.
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If, pursuant to the terms of an option agreement, the Company withholds
shares in payment of the exercise price for an ISO, the transaction generally
should be treated as if the withheld shares had been sold in a Disqualifying
Disposition after exercise of the option, so that the optionee will realize
ordinary income with respect to such shares. The tax basis of the option shares
generally would be determined in the same manner as described above where the
optionee physically surrenders ISO shares in a Disqualifying Disposition.
Non-Qualified Options. The grant of an NSO will not be a taxable event for
the optionee or the Company. Upon exercising a NSO, an optionee will recognize
ordinary income generally equal to the difference between the exercise price and
the fair market value of the stock on the date of exercise (except that, if the
optionee is subject to certain restrictions imposed by the securities laws, the
measurement date will be deferred, unless the optionee makes a special tax
election within 30 days after exercise). Upon a subsequent sale or exchange of
shares acquired pursuant to the exercise of a NSO, the optionee will have
taxable gain or loss measured by the difference between the amount realized on
the disposition and the tax basis of the shares (generally, the amount paid for
the shares plus the amount treated as ordinary income at the time the option was
exercised).
If the Company complies with applicable reporting requirements and with the
restrictions of Section 162(m) of the Code, it generally will be entitled to a
business expense deduction in the same amount and at the same time as the
optionee recognizes ordinary income. Under Section 162(m) of the Code, if the
optionee is one of certain specified executive officers, then, unless certain
exceptions apply, the Company is not entitled to deduct compensation with
respect to the optionee, including compensation related to the exercise of stock
options, to the extent such compensation in the aggregate exceeds $1 million for
the taxable year.
If the optionee surrenders shares of Common Stock in payment of part or all
of the exercise price for NSOs, no gain or loss will be recognized with respect
to the shares surrendered (regardless of whether the shares were acquired
pursuant to the exercise of an ISO) and the optionee will be treated as
receiving an equivalent number of shares pursuant to the exercise of the option
in a nontaxable exchange. The tax basis of the shares surrendered will be
treated as the carryover basis for an equivalent number of option shares
received, with such option shares being treated as having been held for the same
holding period as had expired with respect to the surrendered shares. The fair
market value of the additional option shares received will constitute ordinary
compensation income to the optionee, with such additional shares taking a tax
basis in that amount.
If pursuant to an option agreement, the Company withholds shares in payment
of the option price for NSOs or in payment of tax withholding, the transaction
should generally be treated as if the withheld shares had been physically
surrendered as described above.
AWARDS UNDER THE PLAN
Since the terms and conditions of options granted under the Plan are
subject to the discretion of the Board or, if applicable the Committee, the
number of options awardable to and value thereof to eligible participants is not
determinable.
REASONS FOR OBTAINING STOCKHOLDER APPROVAL ON THE AMENDMENT TO THE PLAN
The Company is submitting the Proposed Plan Amendment for stockholder
approval at the Meeting because pursuant to the terms of the Plan stockholder
approval of an amendment to the Plan is required if such approval is required
under Section 422 of the Code. The Board believes that amending the Plan to
increase the number of shares of Common Stock for which options may be granted
under the Plan requires stockholder approval pursuant to Section 422 of the Code
in order for the Plan to remain qualified under such section relating to the
grants of ISOs.
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RECOMMENDATION AND REQUIRED AFFIRMATIVE VOTE
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy at the Meeting and entitled to
vote on the proposal is required for the approval of the Proposed Plan
Amendment. Abstentions and broker non-votes will not be counted as shares voting
on such matter and accordingly will have no effect on the approval the Proposed
Plan Amendment.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE PLAN.
PROPOSAL 4
TO RATIFY THE COMPANY'S ISSUANCE OF 8,450,000 RESTRICTED SHARES OF ITS
COMMON STOCK IN CONNECTION WITH THE ACQUISITION OF DM MARKETING, INC.
GENERAL
On September 7, 2000, the Company acquired all of the issued and
outstanding capital stock of DM Marketing, Inc., a Delaware corporation ("DM").
The Company's acquisition of all the issued and outstanding capital stock of DM
(the "DM Acquisition") was consummated in accordance with the terms of the Stock
Purchase Agreement dated as of August 16, 2000, a copy of which is attached
hereto as Exhibit C (the "DM Purchase Agreement") among the Company, DM, Mr.
Pruitt and Darek Childress (together with Mr. Pruitt, the "DM Stockholders").
Pursuant to the DM Purchase Agreement, the Company acquired all of the issued
and outstanding capital stock of DM from the DM Stockholders and the DM
Stockholders received, in the aggregate, 8,450,000 restricted shares of the
Company's Common Stock (the "Share Consideration") issued without registration
under applicable securities laws in reliance on Section 4(2) of the Securities
Act of 1933, as amended (the "Act"). As a result of the DM Acquisition, DM
became a wholly-owned subsidiary of the Company.
BUSINESS OF DM
DM, a Delaware corporation based in Pensacola, Florida, began operations on
October 2, 1998 and operates a call center providing telemarketing, help desk
and other services primarily for Internet related companies located throughout
the United States. DM's principal executive offices are located at 9530 Nims
Lane, Pensacola, Florida, 32534.
REASONS FOR THE DM ACQUISITION
In reaching its decision to effect the DM Acquisition, the Company's Board
of Directors consulted with a special committee the Board appointed to consider
the acquisition (the "Special Committee") as well as the Company's management
and considered a number of factors, including, but not limited to, the
following:
- The DM Acquisition would support the Company's strategic goal of related
business acquisitions that strengthen the Company's operations and permit
continued development of the Company's existing business;
- The DM Acquisition would provide internal support to the Company's
existing business model and provide an operations base to support
additional reservations and phone-based services;
- DM was anticipated to generate approximately $1.5 million of revenues and
$300,000 of pre-tax income on annualized basis and DM held approximately
$450,000 in cash assets and had less than $25,000 in debt;
- The Company believed, at the time of the DM Acquisition, that DM, as a
wholly-owned subsidiary of the Company, could provide the Company with
potential annual cost savings of up to $700,000 because DM's call center
operations could provide back office services for the Company's
operations; and
- The Special Committee had recommended to the Board that the Company
effectuate the DM Acquisition.
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APPROVAL BY THE BOARD
The decisions to effectuate the DM Acquisition and the amount of the Share
Consideration were determined in arm's length negotiations between the Company
and the DM Stockholders and were recommended by a Special Committee of the
Company's Board of Directors and approved by the Company's Board of Directors on
August 9, 2000.
TERMS OF THE TRANSACTION
The following is a summary of certain terms of the DM Purchase Agreement.
Any capitalized term not defined in this proxy statement shall have the meaning
set forth in the DM Purchase Agreement.
Share Exchange
The DM Purchase Agreement provided that the DM Stockholders would exchange
all of the issued and outstanding shares of the capital stock of DM, totaling
1,500 shares, for 8,450,000 restricted shares of the Company's Common Stock.
Representations, Warranties, Conditions and Covenants
The Company and the DM Stockholders made certain customary representations
and warranties in the DM Purchase Agreement, including representations and
warranties regarding their authority to enter into the DM Stock Purchase
Agreement and the respective due organization and good standing of the Company
and DM.
The obligations of the Company and the DM Stockholders to consummate the
transactions contemplated by the DM Purchase Agreement were subject to the
satisfaction or waiver of certain customary conditions, such as that the
representations and warranties made by each party in the DM Purchase Agreement
be true and correct as of Closing and the absence of litigation, pending or
threatened, to enjoin the consummation of the Transaction. In addition, the
obligation of the Company to consummate the Transaction was subject to the
satisfaction or waiver of certain conditions including: (a) there being no event
that had or may have a material adverse effect on DM, its financial condition or
its operations; (b) the delivery of certain documents by the DM Stockholders;
and (c) the Company's receipt of certain third-party approvals or consents to
the Transaction. The obligation of the DM Stockholders to consummate the
Transaction was subject to the satisfaction or waiver of the following
conditions: (a) the Company's Common Stock being listed and trading on the
American Stock Exchange and not being subject to any trading halt, suspension,
or pending any de-listing procedures; (b) the execution and delivery of
employment agreements with Mr. Pruitt; and (c) the appointment of Mr. Pruitt as
a director of the Company.
The DM Stockholders agreed that from the date of the DM Purchase Agreement
until Closing, the DM Stockholders would cause DM to conduct its operations only
in the ordinary and usual course of business; comply with all laws, regulations,
rules and ordinances applicable to DM; obtain all necessary consents or
approvals required for the consummation of the Transactions; and refrain from
issuing any shares of any class of capital stock of the Company or creating any
securities convertible into such.
At the time of Closing, the Company determined that all the foregoing
conditions had been satisfied or waived and that all the covenants of the DM
Stockholders had been fulfilled.
The foregoing description of the DM Acquisition and the DM Purchase
Agreement is qualified in its entirety by reference to the DM Purchase Agreement
which is filed as Exhibit C to this proxy statement and is incorporated herein
by reference.
FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION.
The Company's acquisition of all of the issued and outstanding capital
stock of DM pursuant to the DM Purchase Agreement will not, of itself, have any
tax consequences to the Company or its Company's stockholders.
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ACCOUNTING TREATMENT
The Company accounted for the DM Acquisition under the "purchase" method of
accounting. The 8,450,000 restricted shares of Common Stock issued by the
Company in connection with the DM Acquisition had a fair market value of
$5,281,250 on August 16, 2000. Including direct acquisition costs the aggregate
purchase price for DM was $6,210,897. The excess value of the purchase price
over the historical value of DM's net assets on the acquisition date has been
allocated to goodwill which is being amortized over five years.
WHY THE COMPANY SEEKS STOCKHOLDER RATIFICATION
Stockholder approval of the DM Acquisition and the issuance by the Company
of the Share Consideration pursuant to the DM Purchase Agreement was not
required under Delaware law or the Company's Articles of Incorporation or
Bylaws. Under the rules of the American Stock Exchange, on which the Common
Stock of the Company is listed, stockholder approval at a meeting held in
accordance with the proxy rules under the Securities and Exchange Act of 1934,
as amended, is required for any transaction in which twenty percent (20%) or
more of a listed company's shares are to be issued. In August, 2000, after the
Company entered into a letter of intent with DM, the Company submitted an
application to the American Stock Exchange (the "Additional Listing
Application") seeking, among other things, the listing of the shares to be
issued in connection with the DM Acquisition. The Additional Listing Application
also included shares to be issued in connection with the Company's acquisition
of Internet Aviation Services, Ltd. ("IASL") and shares to be issued in
connection with a private placement. At the time the Additional Listing
Application was filed, the consideration to be issued to the DM stockholders
would have exceeded 20% of the Company's then outstanding Common Stock.
Thereafter, the Company finalized the terms of and closed the acquisition of
IASL for 1,750,000 shares of Common Stock and completed a private placement for
7,070,000 shares of Common Stock. In addition, previously issued warrants for
500,000 shares of Common Stock were exercised. As a result, on September 7,
2000, the day the Company closed the DM Acquisition, the Share Consideration the
Company issued to the DM Stockholders was less than twenty percent (20%) of the
Company's outstanding Common Stock and, as a result, the Company believed that
stockholder approval of the DM Acquisition and the issuance of the Share
Consideration in connection therewith was not required under the rules of the
American Stock Exchange. On or about October 19, 2000, after completion of the
DM Acquisition, the American Stock Exchange informed the Company that it
believes that stockholder approval should have been obtained in connection with
the DM Acquisition because, at the time the Additional Listing Application was
submitted and the DM Purchase Agreement was executed, the Share Consideration
was greater than twenty percent (20%) of the Company's outstanding Common Stock.
After further conversations with the American Stock Exchange, the Company has
agreed to seek to have the DM Acquisition and the issuance of the Share
Consideration pursuant to the DM Purchase Agreement ratified by the Company's
stockholders, excluding for purposes of such vote the shares issued in
connection with the DM Acquisition. The American Stock Exchange has advised the
Company that the Additional Listing Application with respect to the Share
Consideration will be approved with such approval contingent upon the receipt of
shareholder ratification. As a result, if the DM Acquisition is ratified by the
Company's stockholders, the Company believes it will have satisfied the concerns
that the American Stock Exchange has raised with regard to the need for
stockholder approval in connection with the DM Acquisition and the issuance of
the Share Consideration.
EFFECT IF STOCKHOLDERS FAIL TO RATIFY THE DM ACQUISITION AND THE ISSUANCE OF THE
SHARE CONSIDERATION
If the Company's stockholders do not ratify the DM Acquisition and the
issuance of the Share Consideration in connection therewith, the transaction
will not be rescinded. In such case, the Company will request that the DM
Stockholders agree to amend the DM Purchase Agreement in a manner that will
satisfy the American Stock Exchange that stockholder approval or ratification
was not required. However, there can be no assurance that the DM Stockholders
would agree to amend the terms of the transaction or that the Company would be
able to satisfy the American Stock Exchange that approval of any amended
transaction was not required. Since the Board of Directors of the Company
believes the DM Acquisition and the terms of
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the DM Purchase Agreement are in the best interest of the Company and that it
will likely be ratified by the Company's stockholders, there have been no
discussions with the DM Stockholders regarding any amendment of the terms of the
DM Purchase Agreement.
The Company has been advised that certain beneficial owners, directors and
executive officers of the Company, who hold in the aggregate approximately 56%
of the outstanding Common Stock entitled to vote on the proposal to ratify the
DM Acquisition, intend to vote their shares in favor of the DM Proposal.
REGULATORY APPROVAL
Except for compliance with Federal and state securities laws, and
compliance with the rules of the American Stock Exchange, there were no Federal
or state regulatory requirements that had to be complied with, or Federal or
state approvals that had to be obtained, in order for the Company and the DM
Stockholders to consummate the transactions consummated by the DM Purchase
Agreement.
FINANCIAL INFORMATION CONCERNING THE DM ACQUISITION
The Company had DM's independent auditors, Walker, Crook & Jones, P.C.,
audit the balance sheets of DM as of June 30, 2000 and 1999 and its related
statements of operations and cash flows for the year ended June 30, 2000 and the
ten months ended June 30, 1999.
The Company has also prepared, in accordance with Regulation S-B under the
Exchange Act, pro forma financial statements including an unaudited pro forma
condensed consolidated balance sheet as of June 30, 2000 and an unaudited pro
forma condensed consolidated statement of operations for the year ended June 30,
2000.
A copy of the audit report of Walker, Crook & Jones, P.C., DM's audited
financial statements and the pro forma financial statements are attached hereto
as Exhibit D.
STOCKHOLDER VOTE REQUIRED FOR APPROVAL OF THE PROPOSAL
An affirmative vote by the holders of a majority of the shares of Company's
Common Stock present at the Meeting in person or by proxy, other than the shares
issued pursuant to the DM Purchase Agreement, is required to ratify the DM
Acquisition and the issuance of the Share Consideration.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors unanimously approved the DM Acquisition and the
issuance of the Share Consideration pursuant to the DM Purchase Agreement after
determining that the DM Acquisition, and its terms, were in the best interest of
the Company and its stockholders. Accordingly, the Board of Directors
unanimously recommends that the stockholders vote for the proposal to ratify the
terms of the DM Acquisition and the issuance of the Share Consideration.
AUDITORS
The Audit Committee of the Board has selected Ernst & Young as the
Company's independent auditors for the fiscal year ending June 30, 2001. Ernst &
Young audited the Company's financial statements for the fiscal year ended June
30, 2000. The Company has been advised by Ernst & Young that neither it nor any
member of Ernst & Young has any financial interest, direct or indirect, in the
Company or any of its subsidiaries. In addition to examining and reporting upon
the Company's financial statements, Ernst & Young also reviews the Company's
filings with the SEC and provides consultations on financial statement
implications of matters under consideration by the Company.
The Company has been advised that representatives of Ernst & Young will be
present at the Meeting and will have the opportunity to make a statement at the
Meeting if they so desire. Such representatives will also be available to answer
questions and provide information to the stockholders.
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Ernst & Young replaced Jones and Kolb, who served as independent auditors
of the Company for the fiscal years ended June 30, 1999, June 30, 1998 and June
30, 1997 and who was dismissed by the Company on February 13, 2000. The
Company's principal accountant's report on the financial statements for the
years preceding the dismissal of Jones and Kolb did not contain an adverse
opinion or disclaimer opinion, nor was it modified as to uncertainty, audit
scope or accounting principles. The decision to change accountants was approved
by the Audit Committee. There were no disagreements with Jones and Kolb on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. The Company had no discussions with Ernst & Young
as to specific accounting matters or type of opinion that might be rendered,
other than those related to the normal engagement of certifying accountants. The
Company does not expect that any representatives of Jones and Kolb will be
available at the Meeting.
OTHER MATTERS
The Board does not know of any other matters that may come before the
Meeting. If any other matters are properly presented to the Meeting, it is the
intention of the persons named in the accompanying proxy to vote, or otherwise
to act, in accordance with their best judgment on such matters.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's Meeting
of Stockholders for fiscal year ending June 30, 2001 must be received by the
Company no later than August 15, 2001, in order to be included in the proxy
statement and proxy relating to that annual meeting.
Whether or not you plan to attend, you are urged to complete, sign and
return the enclosed proxy in the accompanying envelope. A prompt response will
greatly facilitate arrangements for the Meeting, and your cooperation will be
appreciated. Stockholders who attend the Meeting may vote their shares
personally even though they have sent in their proxies.
By Order of the Board,
/s/ Michael D. Pruitt
Michael D. Pruitt
Chief Executive Officer
Atlanta, Georgia
December 29, 2000
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EXHIBIT A
AUDIT COMMITTEE CHARTER
MAY 16, 2000
---------------------
ARTICLE I
PURPOSE
The audit committee assists the board of directors in fulfilling its
oversight responsibilities relating to the accounting and reporting practices of
the corporation. The audit committee's primary responsibilities are to serve as
an independent and objective party to review the corporation's auditing,
accounting and financial reporting processes. The audit committee will primarily
fulfill these responsibilities by carrying out the activities enumerated in
Article V of this charter.
ARTICLE II
RELATIONSHIP WITH THE OUTSIDE AUDITORS
The corporation's outside auditing firm is ultimately responsible to the
board of directors and the audit committee. The board of directors, acting
through the audit committee, has the ultimate authority and responsibility to
select, evaluate and replace the outside auditors.
Management is responsible for preparing the corporation's financial
statements. The corporation's outside auditors are responsible for auditing the
financial statements. The activities of the audit committee are in no way
designed to supersede or alter these traditional responsibilities.
The corporation's outside auditors and management have more available time
and information about the corporation than does the audit committee.
Accordingly, the audit committee's role does not provide any special assurances
with regard to the corporation's financial statements, nor does it involve a
professional evaluation of the quality of the audits performed by the outside
auditors.
ARTICLE III
COMPOSITION
The audit committee shall be comprised of three or more directors as
determined by the board. The board of directors shall also designate a
chairperson of the audit committee. Each member of the audit committee shall be
independent of management of the corporation and shall have no relationship that
might, in the opinion of the board of directors, interfere with the exercise of
his or her independent judgment. The members of the audit committee shall
satisfy at all times the requirements for audit committee membership of any
exchange on which the corporation's securities are listed or of any applicable
law. The board of directors shall determine, in its business judgment, whether
the members of the audit committee satisfy all such requirements.
ARTICLE IV
MEETINGS
The audit committee shall meet regularly and as circumstances dictate.
Regular meetings of the audit committee may be held without notice at such time
and at such place as shall from time to time be determined by the chairperson of
the audit committee, the president or the secretary of the corporation. Special
meetings of the audit committee may be called by or at the request of any member
of the audit committee, any of the corporation's executive officers, the
secretary, the director of internal auditing or the outside auditors, in each
case on at least twenty-four hours notice to each member.
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If the board of directors, management or the outside auditors desire to
discuss matters in private, the audit committee shall meet in private with such
person or group.
A majority of the audit committee members shall constitute a quorum for the
transaction of the audit committee's business. Unless otherwise required by
applicable law, the corporation's charter or bylaws, or the board of directors,
the audit committee shall act upon the vote or consent of a majority of its
members at a duly called meeting at which a quorum is present. Any action of the
audit committee may be taken by a written instrument signed by all of the
members of the audit committee. Meetings of the audit committee may be held at
such place or places as the audit committee shall determine or as may be
specified or fixed in the respective notices or waivers of a meetings. Members
of the audit committee may participate in audit committee proceedings by means
of conference telephone or similar communications equipment by means of which
all persons participating in the proceedings can hear each other, and such
participation shall constitute presence in person at such proceedings.
ARTICLE V
SPECIFIC ACTIVITIES
Without limiting the audit committee's authority, the audit committee shall
carry out the following specific activities.
Section 5.1. Review of Documents and Reports. (a) Review and reassess
this charter at least annually.
(b) Review each of the corporation's Annual Reports on Form 10-K, including
the corporation's year end financial statements, before its release. Consider
whether the information contained in the Annual Reports on Form 10-K is adequate
and consistent with the members' knowledge about the corporation and its
operations. Recommend that the audited financial statements be included in the
Annual Report on Form 10-K.
(c) Review the internal reports to management prepared by the internal
auditors and management's response.
Section 5.2. Outside Auditors. (a) Recommend to the board of directors
the selection of the outside auditors, considering independence and
effectiveness and approve the fees and other compensation to be paid to the
outside auditors. The audit committee shall receive the written disclosures
required by generally accepted auditing standards. On an annual basis, the audit
committee shall require the outside auditors to provide the audit committee with
a written statement delineating all relationships between the outside auditors
and the corporation. The audit committee shall actively engage in a dialogue
with the outside auditor with respect to any disclosed relationships or services
that may impact the objectivity and independence of the outside auditor. The
audit committee shall recommend that the board of directors take appropriate
action in response to the outside auditors' report to satisfy itself of the
outside auditors' independence.
(b) Review with the outside auditors prior to the annual audit the scope
and approach of the annual audit and after the annual audit results.
(c) Ensure that the outside auditors inform the audit committee of any
fraud, illegal acts or deficiencies in internal control of which they become
aware and communicate certain required matters to the audit committee.
(d) Review with the outside auditors their performance and recommend to the
board of directors any proposed discharge of the outside auditors when
circumstances warrant.
(e) Direct and supervise special audit inquiries by the internal or outside
auditors as the board of directors or the audit committee may request.
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Section 5.3. Financial Reporting Processes. Review significant accounting
and reporting issues, including recent professional and regulatory
pronouncements or proposed pronouncements, and understand their impact on the
corporation's financial statements.
Section 5.4. Process Improvement. (a) Ensure that significant findings
and recommendations made by the internal and outside auditors are received and
discussed on a timely basis with the audit committee and management.
(b) Review any significant disagreement between management and the outside
auditors in connection with the execution of the annual audit or the preparation
of the financial statements.
Section 5.5. Reporting Responsibilities. Regularly update the board of
directors about audit committee activities and make appropriate recommendations.
ARTICLE VI
MISCELLANEOUS
The audit committee may perform any other activities consistent with this
charter, the corporation's charter and bylaws and governing law, as the audit
committee or the board deems necessary or appropriate.
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EXHIBIT B
If the Proposed Charter Amendment is approved by the stockholders, upon the
filing of the Proposed Charter Amendment with the Secretary of State of the
State of Delaware, Article FOURTH of the Certificate of Incorporation would read
in its entirety as follows:
"FOURTH: (A) The aggregate number of shares of stock of all classes
which the Corporation shall have authority to issue is 210,000,000 shares,
of which 200,000,000 shares shall be common stock of the par value of $.04
per share (the "Common Stock") and 10,000,000 shares shall be preferred
stock of the par value of $.01 per share (the "Preferred Stock").
(B) The Board, or a duly authorized committee thereof, is authorized,
subject to limitations prescribe by law and the provisions of this Article
FOURTH, to provide for the issuance of the shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to
be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof. The authority of the
Board with respect to each series shall include, but not be limited to,
determination of the following:
(1) the number of shares constituting that series and the
distinctive designation of that series;
(2) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on
shares of that series;
(3) whether that series shall have voting rights, in additions to
the voting rights provided by law and, if so, the terms of such voting
rights;
(4) whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board shall
determine;
(5) whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the
date or date upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(6) whether that series shall have a sinking fund for the
redemption or purchase of that series and, if so, the terms and amount
of such sinking fund;
(7) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(8) any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period. If upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the assets available for distribution to
holder of shares of Preferred Stock of all series shall be insufficient to pay
such holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto."
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EXHIBIT C
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into this 16th day
of August, 2000, by and among FLIGHTSERV.COM a Delaware corporation (hereinafter
referred to as "Buyer"); and MICHAEL PRUITT, an individual resident of North
Carolina and DAREK CHILDRESS, an individual resident of Florida (hereinafter
referred to as "Sellers"), being the sole shareholders of DM MARKETING, INC., a
Delaware corporation (hereafter referred to as "Company").
WHEREAS, Sellers are the owners of record and beneficially own One Thousand
Five Hundred (1,500) shares (the "Shares") of the issued and outstanding shares
of the Company's common stock par value $0.10 per share (the "Common Stock")
representing 100% of the Capital Stock of the Company; and
WHEREAS, Sellers desire to sell the Shares to Buyer, and Buyer desires to
purchase the Shares, upon the terms and conditions set forth herein;
NOW, THEREFORE in consideration of the mutual promises and covenants
contained herein, and for other good valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, and subject to the
accuracy of the representations and warranties of the parties, the parties
hereto agree as follows:
I
SALE AND PURCHASE OF THE SHARES
1.1 Sale and Purchase. Subject to the terms and conditions hereof, at the
Closing (as defined in paragraph 1.2 below), Sellers agree to sell, assign,
transfer, convey and deliver to Buyer, and Buyer agrees to purchase from
Sellers, the Shares.
1.2 Closing. The purchase shall be consummated at a closing ("Closing") to
take place at 9:00 o'clock a.m., at the offices of Buyer's counsel on August 30,
2000 or within 3 days after the receipt of any shareholder approval if required
by the rules and regulations of the American Stock Exchange but no later than
October 31, 2000 ("Closing Date").
1.3 Purchase Price. The purchase price ("Purchase Price") for the Shares
shall be Eight Million Four Hundred Fifty Thousand (8,450,000) shares of Common
Stock of the Buyer ("Buyer's Shares"). The purchase price shall be paid at
Closing, by issuance and delivery of Buyer's Shares to Sellers against receipt
of certificates representing the Shares, duly endorsed for transfer to Buyer.
1.4 Other Agreements. At the Closing, the indicated parties shall execute
and deliver the following additional agreements in substantially the form
attached hereto:
(a) Stock certificates representing all of the Shares, duly endorsed
to Buyer and in blank or assignments separate from the certificates,
transferring the Shares from Sellers to Buyer.
(b) Employment Agreement between Michael Pruitt and flightserv.com in
the form attached hereto as Exhibit "B".
(c) Investment Representation Letter to the Buyer from Sellers.
1.5 Basic Agreements and Transaction Defined. This Agreement and other
agreements listed in paragraph 1.4, are sometimes referred to as the "Basic
Agreement". The transactions contemplated by the Basic Agreement are sometimes
referred to as the "Transactions".
C-1
<PAGE> 29
II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Sellers and the Company. Sellers
represent and warrant to Buyer as follows:
(a) Title to the Shares. At Closing, Sellers shall own of record and
beneficially the number of the Shares listed on Exhibit "A", of the
Company, free and clear of all liens, encumbrances, pledges, claims,
options, charges and assessments of any nature whatsoever, with full right
and lawful authority to transfer the Shares to Buyer. No person has any
preemptive rights or rights of first refusal with respect to any of the
Shares. There exists no voting agreement, voting trust, or outstanding
proxy with respect to any of the Shares. There are no outstanding rights,
options, warrants, calls, commitments, or any other agreements of any
character, whether oral or written, with respect to the Shares.
(b) Organization. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of
Delaware. The Company has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business. The
Company is duly qualified and in good standing as a foreign corporation in
each jurisdiction where its ownership of property or operation of its
business requires qualification.
(c) Authorized Capitalization. The authorized capitalization of the
Company consists of One Thousand Five Hundred (1,500) shares of Common
Stock, no par, of which One Thousand Five Hundred (1,500) shares have been
issued and are outstanding. The Shares have been duly authorized, validly
issued, are fully paid and nonassessable with no personal liability
attaching to the ownership thereof and were offered, issued, sold and
delivered by the Company in compliance with all applicable state and
federal laws. The Company does not have any outstanding rights, options,
warrants, calls, commitments, conversion or any other agreements of any
character, whether oral or written, obligating it to issue any shares of
its capital stock, whether authorized or not. The Company is not a party to
and is not bound by any agreement, contract, arrangement or understanding,
whether oral or written, giving any person or entity any interest in, or
any right to share, participate in or receive any portion of, the Company's
income, profits or assets, or obligating the Company to distribute any
portion of its income, profits or assets.
(d) Authority. Sellers have full power and lawful authority to
execute and deliver the Basic Agreements and to consummate and perform the
Transactions contemplated thereby. The Basic Agreements constitute (or
shall, upon execution, constitute) valid and legally binding obligations
upon Sellers, enforceable in accordance with their terms. Neither the
execution and delivery of the Basic Agreements by Sellers, nor the
consummation and performance of the transactions contemplated thereby,
conflict with, requires the consent, waiver or approval of, results in a
breach of or default under, or gives to others any interest or right of
termination, cancellation or acceleration in or with respect to, any
agreement by which Sellers or the Company is a party or by which Sellers or
the Company or any of their respective properties or assets are bound or
affected.
(e) Company Financial Statements. The financial statements of the
Company delivered to Buyer (the "Company Financial Statements") are
complete, were prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods and fairly
present the financial position of the Company as of July 31, 2000 and there
have been no material changes thereafter.
(f) No Undisclosed Liabilities. Except as set forth on Exhibit "C",
the Company is not aware of any liabilities for which the Company currently
is liable or will become liable in the future.
(g) Compliance with Laws. The Company is not in violation of any
federal, state, local or other law, ordinance, rule or regulation
applicable to its business, and have not received any actual or threatened
complaint, citation or notice of violation or investigation from any
governmental authority.
(h) No Litigation. There are no actions, suits, claims, complaints or
proceedings pending or threatened against the Company, at law or in equity,
or before or by any governmental department,
C-2
<PAGE> 30
commission, court, board, bureau, agency or instrumentality; and there are
no facts which would provide a valid basis for any such action, suit or
proceeding. There are no orders, judgments or decrees of any governmental
authority outstanding which specifically apply to the Company or any of its
assets.
(i) Disclosure. All statements of Sellers contained in the Basic
Agreements and in any other written documents delivered by or on behalf of
the Company or Sellers to Buyer are true, and correct in all material
respects and do not omit any material fact necessary to make the statements
contained therein not misleading in light of the circumstances under which
they were made. There are no facts known to Sellers which could have a
materially adversely affect upon the business, financial condition, results
of operations, assets, liabilities, or prospers of the Company, which have
not been disclosed to Buyer in the Basic Agreements.
(j) Material Contracts. The Company has in all material respect
performed all of its obligations required to be performed by it through the
date hereof, and is not in default or alleged to be in default in any
material respect, under any contract and to the Company's knowledge, there
exists no event, condition or occurrence which, after notice or lapse of
time or both, which constitutes such a default.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants
to Sellers as follows:
(a) Organization. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of Delaware.
Buyer has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business. Buyer is duly
qualified and in good standing as a foreign corporation in each
jurisdiction where its ownership of property or operation of its business
requires qualification.
(b) Authorized Capitalization. The authorized capitalization of the
Buyer consists of One Hundred Million (100,000,000) shares of Common Stock,
of which Thirty-three Million One Hundred Eighteen Thousand Six Hundred
Fifty-four (33,118,654) shares have been issued and are outstanding as of
August 9, 2000. At Closing, the Shares will have been duly authorized,
validly issued, are fully paid and nonassessable with no personal liability
attaching to the ownership thereof and were offered, issued, sold and
delivered by the Buyer in compliance with all applicable state and federal
laws. In addition, Buyer has entered into a broker services agreement with
RichMark Capital Corporation for the private placement of up to 6,600,000
shares of Common Stock at $0.375 per share on a best efforts basis and
Buyer has entered into a letter of intent for the acquisition of Internet
Aviation Services, Ltd. for 1,750,000 shares of Common Stock.
(c) Authority. Buyer has full power and lawful authority to execute
and deliver the Basic Agreements and to consummate and perform the
Transactions contemplated thereby. The Basic Agreements constitute (or
shall, upon execution, constitute) valid and legally binding obligations
upon Buyer, enforceable in accordance with their terms. Neither the
execution and delivery of the Basic Agreements by Buyer, nor the
consummation and performance of the Transactions contemplated thereby,
conflicts with, requires the consent, waiver or approval of, results in a
breach of or default under, or gives to others any interest or right of
termination, cancellation or acceleration in or with respect to, any
agreement by which Buyer is a party or by which Buyer or any of its
properties or assets are bound or affected.
(d) No Undisclosed Liabilities. Except as set forth in the Buyer
Financial Statements previously delivered to Sellers and as set forth on
Exhibit "D" or as otherwise disclosed in Buyer's filings with the
Securities and Exchange Commission, Buyer is not aware of any material
liabilities for which the Buyer is liable or will become liable in the
future.
(e) Investment Intent. Buyer is acquiring the Shares of its own
account, for investment purposes only, and not with a view to the sale or
distribution of any part thereof and Buyer has no present intention of
selling, granting participation in, or otherwise distributing the same.
Buyer understands the specific risks related to an investment in the
Shares, especially as it relates to the financial performance of the
Company.
C-3
<PAGE> 31
III
COVENANTS
3.1 Covenants of Sellers. Sellers covenant and agree that from the date
hereof to the Closing without the prior written consent of Buyer:
(a) Ordinary Course of Business. Sellers will operate the business of
the Company only in the ordinary course and will use its best efforts to
preserve the Company's business, organization, goodwill and relationships
with persons having business dealings with them.
(b) Compensation. Sellers will not permit the Company to (1) enter
into or alter any employment agreements; (2) grant any increase in
compensation other than normal merit increases consistent with the
Company's general prevailing practices to any officer or employee; or (3)
enter into or alter any labor or collective bargaining agreement or any
bonus or other employee fringe benefit.
(c) No Indebtedness. Sellers will not permit the Company to create,
incur, assume, guarantee or otherwise become liable with respect to any
obligation for borrowed money, indebtedness, capitalized lease or similar
obligation, except in the ordinary course of business consistent with past
practices where the entire net proceeds thereof are deposited with and used
by and in connection with the business of the Company.
(d) Maintain Books. Sellers will cause the Company to maintain its
books, accounts and records in the usual, regular ordinary and soured
business manner and in accordance with generally accepted accounting
principles applied on a basis consistent with past practices.
(e) No Amendments. Sellers will not permit the Company to amend its
corporate charter or bylaws (or similar documents) without prior consent of
Buyer and will cause the Company to maintain their corporate existence,
licenses, permits, powers and rights in full force and effect.
(f) Taxes and Accounting Matters. Sellers will cause the Company to
file when due all federal, state and local tax returns and reports which
shall be accurate and complete, including but not limited to income,
franchise, excise, ad valorem, and other taxes with respect to its business
and properties, and to pay as they become due all taxes or assessments,
except for taxes for which adequate reserves are established and which are
being contested in good faith by appropriate proceedings. Sellers will not
permit the Company to change their accounting methods or practices or any
depreciation, amortization or inventory valuation policies or practices.
(g) No Securities Issuances. Sellers will not permit the Company to
issue any shares of any class of capital stock, or enter into any contract,
option, warrant or right calling for the issuance of any such shares of
capital stock, or create or issue any securities convertible into any
securities of the Company except for the transactions contemplated herein.
(h) Due Compliance. Sellers will cause the Company to comply with all
laws, regulations, rules and ordinances applicable to it and to the conduct
of its business.
(i) Consents. Sellers will use their, and will cause the Company to
use its, best good faith efforts to obtain the consent or approval of each
person or entity whose consent or approval is required for the consummation
of the Transactions contemplated hereby and to do all things necessary to
consummate the Transactions contemplated by the Basic Agreements.
C-4
<PAGE> 32
IV
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE
The obligation of Buyer to close the Transactions contemplated hereby is
subject to the fulfillment by Sellers prior to Closing of each of the following
conditions, which may be waived in whole or in part by Buyer:
4.1 Compliance with Representations, Warranties and Covenants. The
representations and warranties of Sellers contained in this Agreement shall have
been true and correct when made and shall be true and correct as of the Closing
with the same force and effort as if made at the Closing. Sellers shall have
performed all agreements, covenants and conditions required to be performed by
Sellers prior to the Closing.
4.2 No Adverse Change. There shall have been no event which has had or may
have a material adverse effect upon the business, financial condition, results
of operation, assets, liabilities or prospects of the Company.
4.3 No Legal Proceedings. No suit, action or other legal or administrative
proceeding before any court or other governmental agency shall be pending or
threatened seeking to enjoin the consummation of the Transactions contemplated
hereby.
4.4 Documents to be Delivered by Sellers. Sellers shall have delivered the
following documents:
(a) Stock certificates representing all of the Shares, duly endorsed
to Buyer and in blank or accompanied by duly executed stock powers.
(b) A copy of (i) the Certificate of Incorporation of the Company, and
(ii) the Bylaws of the Company.
(c) All agreements referred to in paragraph 1.5 above, executed by all
parties thereto other than Buyer.
(d) Such other documents or certificates as shall be reasonably
required by Buyer or its counsel in order to close and consummate this
Agreement.
4.5 Shareholder Approval. Buyer shall have received any shareholder
approval required by the rules and regulations of the American Stock Exchange.
V
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS TO CLOSE
The obligation of Sellers to close the Transactions is subject to the
fulfillment prior to Closing of each of the following conditions, any of which
may be waived in whole or in part by Sellers:
5.1 Compliance with Representations, Warranties and Covenants. The
representations and warranties made by Buyer in this Agreement shall have been
true and correct when made and shall be true and correct in all material
respects at the Closing with the same force and effect as if made at the
Closing, and Buyer shall have performed all agreements, covenants and conditions
required to be performed by Buyer prior to the Closing.
5.2 No Legal Proceedings. No suit, action or other legal or administrative
proceedings before any court or other governmental agency shall be pending or
threatened seeking to enjoin the consummation of the Transactions contemplated
hereby.
5.3 American Stock Exchange. The Buyer's common stock shall be listed and
trading on the American Stock Exchange and shall not be subject to any trading
halt, suspension, or pending de-listing procedures.
5.4 Other Agreements. All parties other than Sellers and the Company shall
have executed and delivered the Basic Agreements.
C-5
<PAGE> 33
5.5 Payments. Sellers shall have received from Buyer all Common Stock to
be issued at the Closing by Buyer pursuant to the Basic Agreements.
5.6 Board of Directors. Michael Pruitt shall have been appointed as a
director of Buyer as of the Closing.
VI
MODIFICATION, WAIVERS, TERMINATION AND EXPENSES
6.1 Modification. Buyer and Sellers may amend, modify or supplement this
Agreement in any manner as they may mutually agree in writing,
6.2 Waivers. Buyer and Sellers may in writing attend the time for or waive
compliance by the other with any of the covenants or conditions of the other
contained herein.
6.3 Termination and Abandonment. This Agreement may be terminated and the
purchase of the Shares may be abandoned before the Closing:
(a) By the mutual consent of Sellers and Buyer;
(b) By Buyer, if the representations and warranties of Sellers set
forth herein shall not be accurate, or the conditions precedent set forth
in Article IV shall have not have been satisfied, in all material respects
on or before the Closing Date (as the same may be extended from time to
time);
(c) By Sellers, if the representations and warranties of Buyer set
forth herein shall not be accurate, or the conditions precedent set forth
in Article V shall not have been satisfied in all material respects on or
before the Closing Date (as the same may be extended from time to time).
Termination shall be effective on the date of receipt of written notice
specifying the reasons therefor.
VII
MISCELLANEOUS
7.1 Representations and Warranties to Survive. Unless otherwise provided,
all of the representations and warranties contained in this Agreement and in any
certificate, exhibitor other document delivered pursuant to this Agreement shall
survive the Closing for a period of two (2) years. No investigation made by any
patty hereto or their representatives shall constitute a waiver of any
representation or warranty, and no such representation or warranty shall be
merged into the Closing.
7.2 Binding Effect of the Basic Agreements. The Basic Agreements and the
certificates and other instruments delivered by or on behalf of the parties
pursuant thereto, constitute the entire agreement between the parties. The terms
and conditions of the Basic Agreements shall inure to the benefit of and be
binding upon the respective heirs, legal representatives, successor and assigns
of the parties hereto. Nothing in the Basic Agreements, expressed or implied,
confers any rights or remedies upon any party other than the parties hereto and
their respective heirs, legal representatives and assigns.
7.3 Applicable Law. The Basic Agreements are made pursuant to, and will be
construed under, the laws of the State of Georgia.
C-6
<PAGE> 34
7.4 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and will be deemed to have been duly given when
delivered or mailed, first class postage prepaid:
(a) If to Sellers, to:
Mr. Michael Pruitt, CEO
DM Marketing, Inc.
c/o G. David Gordon & Associates, P.C.
One Memorial Place
7633 East 63rd Place -- Suite 210
Tulsa, Oklahoma 74133
Telephone: (918) 254-4997
Fax: (918) 254-2988
(b) If to Buyer, to:
Todd Bottorff, President
3343 Peachtree Road, N.E.
Atlanta, GA 30326
Telephone: (404) 240-4060
Fax: (404) 240-4101
These addresses may be changed from time to time by written notice to the
other parties.
7.5 Headings. The headings contained in this Agreement are for reference
only and will not affect in any way the meaning or interpretation of this
Agreement.
7.6 Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will constitute one
instrument.
7.7 Severability. If any one or more of the provisions of this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable under
applicable law this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. The remaining
provisions of this Agreement shall be given effect to the maximum extent then
permitted by law.
7.8 Forbearance; Waiver. Failure to pursue any legal or equitable remedy
or right available to a party shall not constitute a waiver of such right, nor
shall any such forbearance, failure a actual waiver imply or constitute waiver
of subsequent default or breach.
7.9 Attorneys' Fees and Expenses. The prevailing party in any legal
proceeding based upon this Agreement shall be entitled to reasonable attorneys'
fees and expenses and court costs.
7.10 Expenses. Each party shall pay all fees and expenses incurred by it
incident to this Agreement and in connection with the consummation of all
transactions contemplated by this Agreement.
7.11 Integration. This Agreement and all documents and instruments
executed pursuant hereto merge and integrate all prior agreements and
representations respecting the Transactions, whether written or oral, and
constitute the sole agreement of the parties in connection therewith. This
Agreement has been negotiated by and submitted to the scrutiny of both Sellers
and Buyer and their counsel and shall be given a fair and reasonable
interpretation in accordance with the words hereof, without consideration or
weight being given to its having been drafted by either party hereto or its
counsel.
[SIGNATURES ON FOLLOWING PAGE]
C-7
<PAGE> 35
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed this
Agreement on the date first written above.
"BUYER"
FLIGHTSERV.COM
By:
------------------------------------
Todd Bottorff, President
"COMPANY"
DM MARKETING, INC.
By:
------------------------------------
Michael Pruitt, President
"SELLERS"
--------------------------------------
I. Michael Pruitt
--------------------------------------
II. Darek Childress
C-8
<PAGE> 36
EXHIBIT D
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of DM Marketing, Inc.
Independent Auditors' Report D-2
Balance Sheets as of June 30, 2000 and 1999 D-3
Statements of Operations and Accumulated Deficit for the
year ended June 30, 2000 and for the ten month period
ended June 30, 1999 D-4
Statements of Cash Flows for the year ended June 30, 2000
and for the ten month period ended June 30, 1999 D-5
Notes to Financial Statements D-6
eResource Capital Group, Inc. Pro Forma Financial Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 2000 D-8
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended June 30, 2000 D-9
</TABLE>
D-1
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors
DM Marketing, Inc.
Pensacola, FL 32534
We have audited the accompanying balance sheets as of June 30, 2000 and
1999, and the related statements of operations and accumulated deficit and the
statements of cash flows for the year ended June 30, 2000 and for the ten month
period ended June 30, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DM Marketing, Inc., as of
June 30, 2000 and 1999, and the results of its operations and cash flows for the
year ended June 30, 2000 and for the ten month period ended June 30, 1999 in
conformity with accounting principles generally accepted in the United States.
By:/s/ WALKER, CROOK & JONES, P.C.
------------------------------------
Walker, Crook & Jones, P.C.
October 31, 2000
D-2
<PAGE> 38
DM MARKETING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
-------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $157,466 $ 1,794
Prepaid expenses............................................ -- 3,006
-------- --------
Current assets.............................................. 157,466 4,800
Property and equipment, net................................. 58,069 21,739
-------- --------
Total assets...................................... $215,535 $ 26,539
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....................... $ 4,232 $ --
-------- --------
Current liabilities......................................... 4,232 --
Commitments and contingent liabilities
Shareholders' equity:
Common stock, no par value, 1500 shares authorized, issued
and outstanding........................................ -- --
Paid-in capital........................................... 218,941 84,117
Accumulated deficit....................................... (7,638) (57,578)
-------- --------
Total shareholders' equity........................... 211,303 26,539
-------- --------
Total liabilities and shareholders' equity........ $215,535 $ 26,539
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-3
<PAGE> 39
DM MARKETING, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Revenues.................................................... $354,854 $ 35,376
Selling, general and administrative expenses................ 298,354 90,379
Depreciation and amortization............................... 6,560 2,575
-------- --------
Net income (loss)................................. 49,940 (57,578)
Accumulated deficit -- beginning of period.................. (57,578) --
-------- --------
Accumulated deficit -- end of period........................ $ (7,638) $(57,578)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-4
<PAGE> 40
DM MARKETING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss)......................................... $ 49,940 $(57,578)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 6,560 2,575
Changes in operating assets and liabilities:
Prepaid expenses....................................... 3,006 (3,006)
Accounts payable and accrued expenses.................. 4,232 --
-------- --------
Net cash provided (used) by operating
activities...................................... 63,738 (58,009)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (42,890) (24,314)
-------- --------
Net cash used by investing activities............. (42,890) (24,314)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... -- 84,117
Capital contributions by shareholder...................... 134,824 --
-------- --------
Net cash provided by financing activities......... 134,824 84,117
-------- --------
Net increase in cash and cash equivalents................... 155,672 1,794
Cash and cash equivalents at beginning of year.............. 1,794 --
-------- --------
Cash and cash equivalents at end of year.................... $157,466 $ 1,794
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-5
<PAGE> 41
DM MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
DM Marketing, Inc. (the "Company"), began operations on October 2, 1998 and
provides telemarketing, help desk and other services primarily for Internet
related companies located throughout the United States.
Cash Equivalents
The Company considers all highly liquid investments readily convertible
into cash or having a maturity of three months or less when purchased to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost less allowance for depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. The Company periodically assesses the realizability
of its long-lived assets and evaluates such assets for impairment whenever
events or change in circumstances indicated the carrying amount of an asset may
not be recoverable.
Advertising Cost
The Company conducts nondirect response advertising. The costs are expensed
as incurred. Advertising cost totaled $30,108 and $5,479 for the year ended June
30, 2000 and for the ten month period ended June 30, 1999, respectively.
Revenue Recognition
The Company provides services to customers under contracts negotiated on a
project basis. Revenue is recognized over the term of each contract ranging from
1 day to 3 months.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could materially differ from those estimates.
2. PROPERTY AND EQUIPMENT
Major classifications of property and equipment and their respective
depreciable lives are summarized below:
<TABLE>
<CAPTION>
2000 1999 DEPRECIABLE LIVES
------- ------- -----------------
<S> <C> <C> <C>
Office equipment..................................... $67,204 $24,314 5-10 years
Less accumulated depreciation........................ (9,135) (2,575)
------- -------
$58,069 $21,739
======= =======
</TABLE>
3. COMMON STOCK
During the ten month period ended June 30, 1999, the Company issued 1,500
shares of common stock for $84,117 in a private placement transaction. During
the year ended June 30, 2000, one of the Company's shareholders made capital
contributions aggregating $134,824.
D-6
<PAGE> 42
DM MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The Company accounts for income taxes in accordance with the liability
method as provided under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Accordingly, deferred income taxes are recognized
for the tax consequences of differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any benefits that
based on available evidence, are not expected to be realized.
No provision for income taxes was recorded for the ten month period ended
June 30, 1999. The Company utilized $49,940 of the available net operating loss
carryforward for the year ended June 30, 2000. The remaining loss carryforward
balance of $7,638 may be applied against future taxable income through 2019. No
other significant deferred income tax assets or liabilities exist.
5. OPERATING LEASE COMMITMENT
The Company entered into a 24 month operating lease agreement for its
office space in July 2000. The lease requires a monthly lease payment of $2,687.
Future minimum lease payments are as follows as of June 30, 2000:
<TABLE>
<S> <C>
2001........................................................ $32,244
2002........................................................ 32,244
</TABLE>
Prior to entering into the above agreement the Company leased office space
on a month to month basis. Rent expense totaled $22,030 and $12,000 for the year
ended June 30, 2000 and the ten month period ended June 30, 1999, respectively.
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consisted of cash. The Company maintains its cash balances in a financial
institution located in Atmore, Alabama. The balances are insured by the Federal
Deposit Insurance Corporation up to $100,000. At June 30, 2000, the Company's
uninsured cash balances totaled $40,566.
7. SUBSEQUENT EVENTS
In August 2000, one of the Company's stockholders made a capital
contribution of $300,000.
On September 7, 2000 the Company exchanged shares in connection with a
definitive purchase agreement executed on August 16, 2000 related to the sale of
DM Marketing, Inc. to flightserv.com (now known as eResource Capital Group,
Inc.). The stockholders of the Company sold their 1,500 shares of common stock
in exchange for 8,450,000 restricted shares of flightserv.com common stock with
a market value of $5,281,250 on August 16, 2000.
D-7
<PAGE> 43
ERESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ERESOURCE ERESOURCE
CAPITAL CAPITAL
GROUP, INC. DM MARKETING, INC. GROUP, INC.
JUNE 30, 2000 JUNE 30, 2000 PRO FORMA JUNE 30, 2000
ACTUAL ACTUAL ADJUSTMENTS(1) PRO FORMA
------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ 526,657 $157,466 $ -- $ 684,123
Accounts and notes receivable........ 55,995 -- -- 55,995
Prepaid expenses -- compensation..... 4,615,862 -- -- 4,615,862
Prepaid expenses -- other............ 119,912 -- -- 119,912
------------ -------- ----------- ------------
Total current assets............ 5,318,426 157,466 -- 5,475,892
Deferred costs and other assets...... 924,743 -- -- 924,743
Predevelopment costs................. 1,164,043 -- -- 1,164,043
Property and equipment, net.......... 9,561,842 58,069 -- 9,619,911
Goodwill............................. -- -- 5,999,594 4,799,676
(1,199,918)
------------ -------- ----------- ------------
Total assets............... $ 16,969,054 $215,535 $ 4,799,676 $ 21,984,265
============ ======== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable -- current portion..... $ 128,683 $ -- $ -- $ 128,683
Accounts payable and accrued
expenses........................... 839,146 4,232 34,250 877,628
------------ -------- ----------- ------------
Total current liabilities....... 967,829 4,232 34,250 1,006,311
Net liabilities of discontinued
operations......................... 5,852 -- -- 5,852
Notes payable........................ 7,582,707 -- -- 7,582,707
Accrued interest payable............. 848,424 -- -- 848,424
Commitments and contingent
liabilities
Shareholders' equity:
Common stock, $.04 par value,
60,000,000 shares authorized,
33,554,584 and 42,004,584 issued
and outstanding, respectively... 1,342,183 -- 338,000 1,680,183
Additional paid-in capital......... 78,147,672 218,941 5,627,344 83,993,457
Accumulated deficit................ (71,788,106) (7,638) (1,199,918) (72,995,662)
Treasury stock -- at cost (435,930
shares)......................... (137,507) -- -- (137,507)
------------ -------- ----------- ------------
Total shareholders' equity...... 7,564,242 211,303 4,765,426 12,540,971
------------ -------- ----------- ------------
Total liabilities and
shareholders' equity..... $ 16,969,054 $215,535 $ 4,799,676 $ 21,984,265
============ ======== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
D-8
<PAGE> 44
ERESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
ERESOURCE CAPITAL DM ERESOURCE CAPITAL
GROUP, INC. MARKETING, INC. GROUP, INC.
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 2000 PRO FORMA JUNE 30, 2000
ACTUAL ACTUAL ADJUSTMENTS(1) PRO FORMA
----------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Sales -- private aviation.......... $ 10,040 $ -- $ -- $ 10,040
Sales-call center.................. -- 354,854 -- 354,854
Lease income -- commercial real
estate.......................... 1,108,438 -- -- 1,108,438
------------ -------- ----------- ------------
1,118,478 354,854 -- 1,473,332
Cost of sales -- private aviation.... 93,561 -- -- 93,561
------------ -------- ----------- ------------
Gross profit............... 1,024,917 354,854 -- 1,379,771
Selling general and administrative
expenses........................... 7,023,055 298,354 -- 7,321,409
Compensation expense related to
issuance of stock options and
warrants........................... 48,996,238 -- 48,996,238
Depreciation and amortization........ 466,482 6,560 1,199,918 1,672,960
Interest expense, net................ 862,975 -- -- 862,975
Loss on investments.................. 1,011,716 -- -- 1,011,716
------------ -------- ----------- ------------
Loss before discontinued
operations............... $(57,335,549) $ 49,940 $(1,199,918) $(58,485,527)
============ ======== =========== ============
Basic and diluted loss per share
before discontinued operations..... $ (1.81) $ (1.46)
============ ============
Weighted average shares outstanding
used in computing basic and diluted
loss per share..................... 31,596,541 40,046,541
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
---------------
(1) The 8,450,000 shares of common stock issued by RCG for the DM acquisition
had a fair market value of $5,281,250 on August 16, 2000. Including direct
acquisition costs the aggregate purchase price for DM was $6,210,897. The
excess value of the purchase price over the historical value of DM's net
assets on the acquisition date has been allocated to goodwill which will be
amortized over five years. Pro forma goodwill amortization aggregated
$1,199,918 for the year ended June 30, 2000.
D-9
<PAGE> 45
ERESOURCE CAPITAL GROUP, INC.
3353 PEACHTREE ROAD, N.E., SUITE 130, ATLANTA, GEORGIA 30326
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 19, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF ERESOURCE CAPITAL GROUP, INC.
The undersigned holder of shares of Common Stock of eRESOURCE CAPITAL GROUP,
INC., a Delaware corporation (the "Company"), hereby appoints Arthur G. Weiss
and William L. Wortman, and each of them, with full power of substitution, the
proxies and attorneys of the undersigned, to vote as specified hereon at the
Annual Meeting of Stockholders (the "Annual Meeting") of the Company to be held
at the Atlanta Marriott Marquis located at 265 Peachtree Center Avenue, Atlanta,
Georgia 30303, January 19, 2001 at 10:00 A.M., local time, and at any
adjournments or postponements thereof, with all powers (other than the power to
revoke the proxy or vote the proxy in a manner not authorized by the executed
form of proxy on the reverse side hereof) that the undersigned would have if
personally present at the Annual Meeting, to act in his or her discretion upon
any other matter or matters that may properly be brought before the Annual
Meeting and to appear and vote all the shares of Common Stock of the Company
that the undersigned may be entitled to vote. The undersigned hereby
acknowledges receipt of the accompanying Proxy Statement and Annual Report on
Form 10-KSB to Stockholders, and hereby revokes any proxy or proxies heretofore
given by the undersigned relating to the Annual Meeting.
This proxy may be revoked at any time prior to the voting thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL.
(Continued and to be signed on the other side)
The Board of Directors recommends a vote FOR the following proposals:
1. To elect the five nominees listed below to the Board of Directors of the
Company.
<TABLE>
<S> <C> <C>
[ ] FOR all nominees (except as marked below)
<S> <C>
[ ] WITHHOLD authority to vote for all nominees
</TABLE>
NOMINEES: Sylvia A. de Leon, Dr. James A. Verbrugge, Melinda Morris Zanoni,
Michael D. Pruitt and Arthur G. Weiss
INSTRUCTIONS: To withhold authority to vote for any nominee, enter the name of
such nominee in the space provided below:
--------------------------------------------------------------------------------
2. To approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of the Company's Common Stock
from 100,000,000 to 200,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment to the Company's 2000 Stock Option Plan to
increase the number of shares of Common Stock for which options may be
granted thereunder from 10,000,000 to 20,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the Company's issuance of 8,450,000 restricted shares of its
Common Stock in connection with the acquisition of DM Marketing, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED AS IF MARKED FOR THE
PROPOSALS ABOVE.
Signature
---------------------
Signature if
jointly held
------------------
Dated: , 200
-------------------
PLEASE DATE AND SIGN AS NAME
APPEARS HEREON. WHEN SIGNING
AS EXECUTOR, ADMINISTRATOR,
TRUSTEE, GUARDIAN OR ATTORNEY,
PLEASE GIVE FULL TITLE AS
SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY
PRESIDENT OR OTHER AUTHORIZED
CORPORATE OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON. JOINT OWNERS SHOULD
EACH SIGN.
