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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[_] Preliminary Information Statement
[_] Confidential, for Use of the Commission Only
(as permitted by Rule 14c-5(d)(2))
[x] Definitive Information Statement
TRANSIT GROUP, INC.
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(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No Fee required
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) 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:
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(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:
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(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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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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TRANSIT GROUP, INC.
2859 Paces Ferry, Suite 1740
Atlanta, Georgia 30339
(770) 444-0240
INFORMATION STATEMENT
This Information Statement is being furnished to the shareholders of
Transit Group, Inc., a Florida corporation ("Company"), in connection with the
approval of Amended and Restated Articles of Incorporation of the Company (the
"Amended and Restated Articles") and an amendment to the Company's 1998 Stock
Incentive Plan (the "Stock Plan Amendment") by the written consent of the
holders of a majority of the issued and outstanding shares of the Company's
common stock and each series of preferred stock. The Amended and Restated
Articles amend the Company's current articles of incorporation by increasing the
number of the Company's authorized common stock to 500,000,000 and revising the
indemnification provisions to reflect the intent of the Company to indemnify its
officers and directors to the fullest extent provided by Florida law as more
specifically set forth in the text of the Amended and Restated Articles attached
hereto. The Stock Plan Amendment amends the Company's 1998 Stock Incentive Plan
by increasing the number of shares of common stock available for issuance
thereunder by 30,000,000 shares.
Only common and preferred shareholders of record at the close of business
on June 8, 2001 (the "Record Date") are entitled to notice of the action taken
by written consent. At the close of business on the Record Date, the Company had
31,959,674 shares of its common stock issued and outstanding, 5,000,000 shares
of its Series A convertible preferred stock issued and outstanding and 2,970,000
shares of Series B convertible preferred stock issued and outstanding.
Written consent of the holders of a majority of the issued and outstanding
common and preferred shares was required to approve the Amended and Restated
Articles and the Stock Plan Amendment. All holders of record as of the Record
Date may submit written consents to the Company with respect to the Amended and
Restated Articles and the Stock Plan Amendment; however, no such consents are
being solicited. No appraisal or other similar rights are available to
dissenters of the Amended and Restated Articles or the Stock Plan Amendment.
The holders of a majority of the outstanding shares of common stock and
preferred stock of the Company have executed a consent to the Amended and
Restated Articles and to the Stock Plan Amendment. Therefore, the Amended and
Restated Articles and the Stock Plan Amendment have been approved by the
Company's shareholders.
The Company will bear all of the costs of the preparation and dissemination
of this Information Statement. No consideration has been or will be paid to any
officer, director, or employee of the Company in connection with the proposed
Amended and Restated Articles or the Stock Plan Amendment or the preparation and
dissemination of this Information Statement or otherwise in connection with the
proposed Amended and Restated Articles and the Stock Plan Amendment.
Correspondence with respect to the proposed Amended and Restated Articles
and Stock Plan Amendment should be addressed to James G. Overley, Senior Vice
President of Finance
1
and Chief Financial Officer of the Company at the Company's principal executive
offices at 2859 Paces Ferry Road, Suite 1740, Atlanta, Georgia 30339.
We are not asking you for a proxy and you are requested not to send us a
proxy. This Information Statement has not been approved or disapproved by the
Securities and Exchange Commission nor has the Commission passed upon the
fairness or merits of the Amended and Restated Articles or the Stock Plan
Amendment or the accuracy or adequacy of the information contained in this
Information Statement. Any representation to the contrary is unlawful.
PURPOSE OF THE AMENDED AND RESTATED ARTICLES
Increase in Authorized Shares of Common Stock
The authorized capital of the Company currently consists of 100,000,000
shares of common stock, $0.01 par value per share. The Amended and Restated
Articles provide for authorized capital of 500,000,000 shares of common stock,
$0.01 par value per share. There are currently 31,959,674 shares of common stock
issued and outstanding, 5,000,000 shares of Series A convertible preferred stock
issued and outstanding and 2,970,000 shares of Series B convertible preferred
stock issued and outstanding.
The increase in authorized common stock is necessary so that there will be
sufficient shares of common stock available for issuance in connection with:
. future capital raising, given recent trading prices of the Company's
common stock (approximately $.05 per share);
. the Company's acquisition strategy;
. the conversion of the Company's preferred stock to common stock; and
. the grant of stock options and awards under the Company's 1998 Stock
Incentive Plan.
The Company issued its outstanding preferred stock in two capital raising
transactions. Due to the timing of the Company's capital raising efforts, the
condition of the capital markets and the Company's financial condition, the
Company issued preferred stock as permitted under its Articles of Incorporation
rather than common stock. The preferred stock has a liquidation preference,
dividend rights, redemption rights, veto rights over certain corporate matters
and other features more particularly described in the Certificate of
Designations for each series of preferred stock attached hereto. The Company's
preferred stock may be converted in the future by the holders into the Company's
common stock if such shares are available for issuance. If all of the Company's
preferred stock were converted, the Company would issue 320,065,847 shares of
common stock to holders of the preferred stock, if such shares are available for
issuance. Our preferred stock is not currently convertible into common stock.
No preferred stockholder has indicated a present intention of converting their
preferred shares to common stock. It is unlikely, due to the substantial rights
and preferences of the preferred stock, that a holder of preferred stock would
convert its preferred stock into common stock except upon a sale of the Company,
which is not currently contemplated. If the shareholders had not approved the
Amended and Restated Articles, then the holders of the preferred stock would
have been entitled to appoint two additional directors to the Board of Directors
of the Company. To the extent that the additional
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authorized shares of the Company's common stock are issued, such issuance will
dilute the voting rights, equity and earnings per share of existing
shareholders.
In addition, the increase in authorized common stock also provides the
Company with flexibility for future financings or acquisitions. The Company has
historically pursued an acquisition strategy using its common stock as
consideration. While no specific issuances are presently contemplated for
acquisitions, the Company intends to pursue this strategy, if possible, in
connection with any future acquisitions. Any such issuances could be authorized
by the Board of Directors without further action by the shareholders.
Expansion of Indemnification Provisions
The Amended and Restated Articles include an additional indemnification
provision as allowed under Florida law. The Amended and Restated Articles
contain this provision to reflect the intent of the Board of Directors that the
Company indemnify to the fullest extent allowed under Florida law any person who
is or was a director, officer, employee or agent of the Company who is a party
to any proceeding, including an action by or in the right of the Company, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Company.
Potential Antitakeover Effect
Although the increase in the number of authorized shares of common stock
contained in the Amended and Restated Articles could, under certain
circumstances, have an anti-takeover effect (for example, by permitting
issuances that would dilute the stock ownership of a person seeking to effect a
change in the composition of the Company's Board of Directors or contemplating a
tender offer or other transaction for the combination of the Company with
another company), the approval of the Amended and Restated Articles was not in
response to any effort the Company is aware of to accumulate the shares of the
Company's common stock or obtain control of the Company, nor was it part of a
plan by management to recommend a series of similar amendments to the Company's
Board of Directors and shareholders. The Company's Board of Directors does not
currently contemplate recommending the adoption of any other amendments to the
Amended and Restated Articles that could be construed to affect the ability of
third parties to take over or change the control of the Company, nor are the
Amended and Restated Articles a part of an anti-takeover strategy.
Proposed Amended and Restated Articles
The Company's Board of Directors has unanimously adopted resolutions
approving and recommending that shareholders approve and adopt the Amended and
Restated Articles.
3
PURPOSE OF THE STOCK PLAN AMENDMENT
Purpose and Administration of Stock Incentive Plan
In March 1998, the Board of Directors adopted, and our shareholders
approved, the 1998 Stock Incentive Plan of Transit Group, Inc. (the "Plan").
The purpose of the Plan is to encourage and enable our employees, directors and
independent contractors and those of our related corporations to acquire or
increase their holdings of our common stock and other proprietary interests in
order to promote a closer identification of their interests with those of us and
our shareholders, thereby further stimulating their efforts to enhance our
efficiency, soundness, profitability, growth and shareholder value.
Our Board of Directors has approved an amendment to the Plan, attached
hereto as Exhibit B, that increases the number of shares of our common stock we
are authorized to issue under the Plan by 30,000,000. By written consent in
lieu of a special meeting, shareholders owning a majority of our outstanding
shares of common stock have also approved the Plan. The Plan, as amended, is
intended to be effective as of July 2, 2001. The discussion that follows is
qualified in its entirety by reference to the Plan, as amended.
The Plan is administered by the Compensation Committee or by our Board of
Directors (both the Board and the Compensation Committee are referred to in this
discussion as the "Committee"). The Committee may make the following types of
grants under the Plan, each of which is referred to as an "award":
. incentive stock options ("ISOs");
. nonqualified stock options ("NQSOs");
. restricted stock awards ("restricted stock awards");
. stock appreciation rights ("SARs"); and
. restricted units ("restricted units").
The material terms of each type of award are discussed below. See "Awards."
Our officers, employees, employee directors, consultants and other
independent contractors or agents are eligible for selection by the Committee to
participate in the Plan, provided, however, that ISOs may be granted only to our
employees. As of June 8, 2001, the approximate number of persons in each class
of participants were as follows: employees (approximately 2,400 persons);
employee directors (two persons); nonemployee directors (two persons); and,
consultants or other independent contractors (approximately 20 persons).
When the amendment to the Plan is effective, we will have authorized and
reserved for issuance an additional 30,000,000 shares of our common stock under
the Plan. The shares of common stock or treasury shares issuable under the Plan
may be authorized but unissued shares, treasury shares or shares purchased in
the open market by private purchase. If any of the awards granted under the
Plan expire, terminate or are forfeited for any reason before they have been
4
exercised, vested or issued in full, the unused shares subject to those expired,
terminated or forfeited awards will again be available for grant under the Plan.
Our Board may amend or terminate the Plan at any time, although shareholder
approval is required if required by applicable law, rule or regulation, and the
request of a recipient is required if his or her rights with respect to an
outstanding award would be adversely affected by amendment or termination. The
Plan will continue in effect until February 29, 2008 unless sooner terminated
under the provisions of the Plan. The Plan also provides that the number of
shares underlying the Plan be adjusted in the event of a change in the shares of
common stock as a result of a merger, consolidation, reorganization, a stock
dividend or stock split or other similar change in the capital structure and
that the terms of awards may also be adjusted.
As of June 8, 2001, the last sale of our common stock quoted on the "pink
sheets" published by Pink Sheets, LLC was $.05.
Awards
As noted above, our Plan authorizes the granting of ISOs, NQSOs, SARs,
restricted stock awards and restricted units. A summary of the material terms
of each type of award is provided below.
Options. Our Plan authorizes the grant of both ISOs and NQSOs, both of
which are exercisable for shares of common stock. The Committee will determine
at the time of grant the option price at which an option may be exercised. In
the case of ISOs, which may only be granted to our employees, the option price
must be at least equal to 100% of the fair market value per share of the common
stock on the date of grant. The option price of NQSOs must be at least 85% of
the fair market value per share of the common stock on the date of grant. The
Committee will determine at the time of grant the term of an option and the
periods and conditions for exercise. In the case of ISOs, the option term may
not exceed 10 years. Unless an individual agreement provides otherwise, payment
of the option price may be made by cash or check and, if permitted by the
Committee, by delivery of shares of common stock, "cashless exercise" or a
combination of these methods. Options are subject to certain restrictions on
exercise if the participant terminates employment or service. The Committee
also has authority to establish other terms and conditions related to options.
Stock Appreciation Rights. Under the terms of our Plan, SARs may be
granted to an optionee of an option (a "related option") with respect to all or
a portion of the shares of common stock subject to the related option (a "tandem
SAR") or may be granted separately (a "freestanding SAR"). The consideration to
be received by the holder of an SAR may be paid in cash, shares of common stock
(valued at fair market value on the date of the SAR exercise), or a combination
of cash and shares of common stock, as the Committee may determine. The
Committee may establish a maximum value payable for an SAR. The consideration
we pay upon exercise of an SAR may be paid currently or on a deferred basis.
SARs are exercisable according to the terms stated in the related
agreement. No SAR may be exercised more than 10 years after it was granted, or
such shorter period as may apply to
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related options in the case of tandem SARs. SAR holders are subject to the same
restrictions on exercise during employment and following termination of
employment or service as optionees.
Restricted Awards. Subject to the limitations of the Plan, the Committee
may in its sole discretion grant restricted awards to such eligible individuals
in such numbers, upon such terms and at such times as the Committee determines.
A restricted award may consist of a restricted stock award or a restricted unit,
or both. Restricted awards may be payable in cash or whole shares of common
stock (including restricted stock), or partly in cash and partly in whole shares
of common stock, in accordance with the terms of the Plan and the Committee's
discretion.
The Committee has authority to determine the nature, length and starting
date of the period, if any, during which the restricted award may be earned (the
"restricted period") for each restricted award, and will determine the
conditions that must be met in order for a restricted award to be granted or to
vest or be earned in whole or in part. These conditions may include, but are
not limited to, attainment of performance objectives, completion of the
restricted period (or a combination of attainment of performance objectives and
completion of the restricted period), retirement, displacement, disability,
death or any combination of these conditions. In the case of restricted awards
based upon performance criteria, or a combination of performance criteria and
continued service, the Committee will determine the performance objectives to be
used in valuing restricted awards and determine the extent to which such awards
have been earned. Performance objectives may vary from participant to
participant and between groups of participants and will be based upon those
company, business unit or individual performance factors and criteria as the
Committee in its sole discretion may deem appropriate, including but not limited
to sales targets, earnings per share, return on equity, return on assets, total
revenues, total return to shareholders or any combination of these factors.
The Committee has authority to determine whether and to what degree
restricted awards have been earned and are payable, as well as to determine the
forms and terms of restricted awards. If a participant's employment or service
is terminated before the participant has earned all or part of a restricted
award, the unearned portion of the award will be forfeited, unless the Committee
elects to accelerate vesting of the award or his individual agreement provides
otherwise.
Summary of Amendment to the Plan
On May 16, 2001, our Board of Directors approved the Stock Plan
Amendment increasing the number of shares of common stock issuable under the
Plan by 30,000,000. On June 8, 2001, by written consent in lieu of a special
meeting, shareholders owning a majority of our outstanding shares of common
stock and preferred stock also approved the Stock Plan Amendment.
In order for the Plan to continue to provide an incentive for highly
qualified individuals to serve or continue service with us, to more closely
align the interests of such individuals with our shareholders, and to provide
stock-based compensation comparable to that offered by other similar companies,
our Board of Directors believes that the number of shares of common stock
authorized for issuance under the Plan needed to be increased as described
herein.
6
Our Board believes that the Stock Plan Amendment is necessary in order for
the Plan to continue to serve as a strong stock-based incentive for our
employees and other eligible individuals now and in the future.
Performance-Based Compensation -- Section 162(m) Requirements
The Plan is intended to preserve our tax deduction for certain awards paid
under the Plan by complying with the terms of Section 162(m) of the Internal
Revenue Code (the "Code") and related regulations. Section 162(m) of the Code
denies an employer a deduction for compensation paid to covered employees
(generally, the Named Executive Officers) of a publicly-held corporation in
excess of $1,000,000 unless the compensation is exempt from the $1,000,000
limitation because it is performance-based compensation or paid on a commission
basis. Although the $1,000,000 deduction limitation is not applicable at this
time to any of our Named Executive Officers, the Plan is structured to comply
with the requirements imposed by Section 162(m) of the Code in order to
preserve, to the extent practicable, our tax deduction for awards made under the
Plan.
In order to qualify as performance-based compensation, the compensation
paid to covered employees must be paid under pre-established objective
performance goals determined and certified by a committee comprised of outside
directors. In addition to other requirements for the performance-based
exception, shareholders must be advised of, and must approve, the material terms
or change in material terms of the performance goal under which compensation is
to be paid. Material terms include the individuals eligible to receive
compensation, a description of the business criteria on which the performance
goal is based, and either the maximum amount of the compensation to be paid or
the formula used to calculate the amount of compensation if the performance goal
is met.
Restricted awards that are performance-based will be based upon such
company, business unit or individual performance factors and criteria as the
Committee determines, including but not limited to sales targets, earnings per
share, return on equity, return on assets, total revenue, total return to
shareholders or any combination of these factors. See "Awards -- Restricted
Awards," above.
New Plan Benefits
The amount of compensation that will be paid pursuant to the grant of
awards under the Plan in the current year to the following persons is not yet
determinable due to vesting, performance and other requirements. However, the
following table sets forth the number of options that were granted in 2000 under
the Plan, which were granted at exercise prices from $.17 per share to $1.28 per
share, to each of the following:
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New Plan Benefits
Number of Shares
Subject to
Name and Position Dollar Value ($)(1) Options (#)
---------------------------------------------------- ------------------- ----------------
T. Wayne Davis
Chairman.......................................... 0 0
Philip A. Belyew
President and Chief Executive Officer............. 0 0
Mark DiLuzio(2)
Senior Vice President, Finance, Mergers and
Acquisitions...................................... 0 100,000
Kim Mattingly
Vice President, Human Resources................... 0 40,000
Wayne N. Nellums(3)
Senior Vice President, Chief Financial Officer and
Secretary......................................... 0 0
Donna Raines (4)
Vice President, Corporate Tax..................... 0 0
Executive Group (5)................................. 0 100,000
Non-Executive Director Group........................ 0 0
Non-Executive Officer Employee Group................ 0 595,000
-----------------
(1) The dollar value is based on a per share price of $.05 (the last sale
reported of our common stock on the "pink sheets" published by Pink Sheets,
LLC on June 8, 2001).
(2) Mr. DiLuzio is no longer an employee.
(3) Mr. Nellums is no longer an employee.
(4) Ms. Raines is no longer an employee.
(5) Includes an option to purchase 60,000 shares of our common stock granted to
James G. Overley in October 2000 in connection with the commencement of his
employment with us as Senior Vice President of Finance, Chief Financial
Officer and Treasurer.
Certain Federal Income Tax Consequences
The following summary generally describes the principal federal (and not
state and local) income tax consequences of awards granted under the Plan. The
summary is general in nature and is not intended to cover all tax consequences
that may apply to a particular participant or to us. The provisions of the Code
and related regulations are complicated and their impact in any one case may
depend upon the particular circumstances.
Incentive Stock Options. ISOs granted under the Plan are intended to
qualify as incentive stock options under Section 422 of the Code. Pursuant to
Section 422, the grant and exercise of an incentive stock option will generally
not result in taxable income to the optionee (with the possible exception of
alternative minimum tax liability) if the optionee does not dispose of shares
received upon exercise of such option less than one year after the date of
exercise and two years
8
after the date of grant, and if the optionee has continuously been our employee
or an employee of a related corporation from the date of grant to three months
before the date of exercise (or 12 months in the event of death or disability).
We will not be entitled to a deduction for income tax purposes in connection
with the exercise of an incentive stock option. Upon the disposition of shares
acquired pursuant to exercise of an incentive stock option, the optionee will be
taxed on the amount by which the amount realized upon such disposition exceeds
the option exercise price, and such amount will be treated as long-term capital
gain or loss. If the holding period requirements for incentive stock option
treatment described above are not met, the option will be treated as a
nonqualified stock option.
Pursuant to the Code and the terms of the Plan, in no event can there first
become exercisable by an optionee in any one calendar year ISOs we grant or any
related corporation grants with respect to shares having an aggregate fair
market value (determined at the time an option is granted) greater than
$100,000. To the extent an ISO exceeds the foregoing limitation, it will be
treated under the Plan as a NQSO. In addition, no ISO may be granted to an
individual who owns, immediately before the time that the option is granted,
stock possessing more than 10% of the total combined voting power of all classes
of our stock or that of a related corporation (unless certain requirements are
met, including an option exercise price greater than or equal to 110% of the
fair market value of the shares and an option period of five years or less).
Nonqualified Stock Options. If an optionee receives an NQSO, the
difference between the market value of the stock on the date of exercise and the
option exercise price will constitute taxable ordinary income to the optionee on
the date of exercise. We will be entitled to a deduction in the same year in an
amount equal to the income taxable to the optionee. The optionee's basis in
shares of our common stock acquired upon exercise of an option will equal the
option exercise price plus the amount of income taxable at the time of exercise.
Any subsequent disposition of the stock by the optionee will be taxed as a
capital gain or loss to the optionee, and will be long-term capital gain or loss
if the optionee has held the stock for more than one year at the time of sale.
Pursuant to the terms of the Plan, we will require any recipient of shares
of our common stock to pay us the amount of any tax or other amount required by
any governmental authority to be withheld and paid over by us to such authority
for the account of such recipient. We also will withhold all required taxes
from any amount payable with respect to an award.
Stock Appreciation Rights. For federal income tax purposes, the grant of
an SAR will not result in taxable income to the holder or a tax deduction to us.
At the time of exercise of an SAR, the SAR holder will forfeit the right to
benefit from any future appreciation of the stock subject to the SAR.
Accordingly, taxable income to the SAR holder is deferred until the SAR is
exercised. Upon exercise, the amount of cash and fair market value of shares
received by the SAR holder, less cash or other consideration paid (if any), is
taxed to the SAR holder as ordinary income and we will receive a corresponding
income tax deduction to the extent the amount represents reasonable compensation
and an ordinary and necessary business expense, subject to any required income
tax withholding.
Restricted Stock Subject to Restricted Awards. Similar to SARs, awards for
restricted stock generally will not result in taxable income to the employee or
a tax deduction to us for
9
federal income tax purposes. Upon expiration of the restricted period applicable
to the restricted stock award, the fair market value of such shares at such date
and any cash amount awarded, less cash or other consideration paid (if any),
will be included in the recipient's ordinary income as compensation, except
that, in the case of restricted stock issued at the beginning of the restriction
period, the recipient may elect to include in his ordinary income as
compensation at the time the restricted stock is awarded, the fair market value
of such shares at such time, less any amount paid therefor. We will be entitled
to a corresponding income tax deduction to the extent that the amount represents
reasonable compensation and an ordinary and necessary business expense, subject
to any required income tax withholding.
Restricted Units and Restricted Awards Other Than Restricted Stock. The
federal income tax consequences of the award of restricted units and other
restricted awards other than restricted stock will depend on the conditions of
the award. Generally, the transfer of cash or property will result in ordinary
income to the recipient and a tax deduction to us. If there is a substantial
risk that the property transferred will be forfeited (for example, because
receipt of the property is conditioned upon the performance of substantial
future services), the taxable event is deferred until the risk of forfeiture
lapses. However, the recipient may generally elect to accelerate the taxable
event to the date of transfer, even if the property is subject to a substantial
risk of forfeiture. If this election is made, subsequent appreciation is not
taxed until the property is sold or exchanged (and the lapse of the forfeiture
restriction does not create a taxable event). Generally, any deduction to us
occurs only when ordinary income in respect of an award is recognized by the
employee (and then the deduction is subject to reasonable compensation and
withholding requirements). Because restricted stock awards will be subject to
such conditions as the Committee may determine, the federal income tax
consequences to the recipient and to us will depend on the specific conditions
of the award.
Potential Antitakeover Effect
Although the increase in the number of shares issuable under the Company's
1998 Stock Incentive Plan could, under certain circumstances, have an anti-
takeover effect (for example, by permitting issuances that would dilute the
stock ownership of a person seeking to effect a change in the composition of the
Company's Board of Directors or contemplating a tender offer or other
transaction for the combination of the Company with another company), the
approval of the amendment to the Company's 1998 Stock Incentive Plan was not in
response to any effort the Company is aware of to accumulate shares of the
Company's common stock or obtain control of the Company, nor was it part of a
plan by management to recommend a series of similar amendments to the Company's
Board of Directors and shareholders.
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 8, 2001, certain information
regarding ownership of our common stock on an "as converted" basis. The
information is presented for each person we know to be a beneficial owner of 5%
or more of our securities, each of our directors and executive officers and all
of our executive officers and directors as a group.
10
Amount and Nature of
Beneficial Ownership of Percentage of Common
Name and Address of Beneficial Owner Common Stock (1) Stock Owned(2)
------------------------------------------------------------- ----------------------- --------------------
T. Wayne Davis............................................... 120,312,875 (3) 29.66%
Philip A. Belyew............................................. 6,473,971 (4) 1.59%
Mark DiLuzio................................................. 7,732 (5) *
Kim Mattingly................................................ 67,300 (6) *
Wayne N. Nellums............................................. 2,577 (5) *
Derek E. Dewan............................................... 100,000 (7) *
Ford G. Pearson.............................................. 1,199,000 (8) *
GE Capital Corporation....................................... 141,258,846 (9) 34.83%
All executive officers and directors as a group (7 persons).. 128,163,455 31.51%
--------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to shares beneficially owned. Shares of common stock issuable
upon the conversion of options or warrants currently exercisable, or
exercisable within 60 days of June 8, 2001, are deemed to be beneficially
owned.
(2) On June 8, 2001, there were 31,959,674 shares of our common stock issued
and outstanding. We have also assumed that options to purchase
approximately 53,507,568 shares of our common stock at $.05 per share
issued to our lenders and to a certain lessor in connection with the
restructuring of our debt have been exercised, that 5,000,000 shares of our
Series A Preferred Stock and 2,970,000 shares of Series B Preferred Stock
have been converted into an aggregate of 320,065,847 shares of our common
stock. In addition, we have assumed that options that have been issued to
directors and executive officers individually and as a group and vested as
of June 8, 2001 (or within 60 days after June 8, 2001), have been converted
into 1,175,000 shares of common stock.
(3) Consists of 6,934,731 shares owned by the ECD Trust, of which Mr. Davis is
Trustee; 1,577,614 shares of our common stock owned directly; 1,276,396
shares owned by the TWD Trust for ECD, of which Mr. Davis is Trustee;
186,602 shares owned by the TWD Trust for DDL, of which Mr. Davis is
Trustee; 171,497 shares owned by the TWD Trust for TDD, of which Mr. Davis
is Trustee; 20,438 shares owned by the TWD Trust for TWD, Jr., of which Mr.
Davis is Trustee; 14,997 shares owned by Redwing Properties, Inc., of which
Mr. Davis is President; 4,912 shares owned by Mr. Davis' wife, Mary O.
Davis; and an aggregate of 50,688 shares of our common stock held by Mr.
Davis as custodian for Mr. Davis' children, C. Rebecca Davis, Elizabeth
Davis and Katherine C. Davis. Additionally, consists of 70,000,000 shares
of our common stock issuable upon the conversion of
11
the Series B Preferred Stock owned by the ECD Trust, of which Mr. Davis is
Trustee, 40,000,000 shares of our common stock issuable on the conversion
of the Series B Preferred Stock issued as a placement fee to Mr. Davis, and
75,000 shares of our common stock issuable on the exercise of presently
exercisable options.
(4) Consists of 228,571 shares of our common stock owned directly, 5,000,000
shares of our common stock issuable on the conversion Series B Preferred
Stock received in consideration of indebtedness forgiveness, 345,400 shares
issuable on conversion of purchased Series B Preferred Stock and 900,000
shares of our common stock issuable on the exercise of presently
exercisable options.
(5) Consists of shares of our common stock owned directly.
(6) Consists of 500 shares of our common stock owned directly and 66,800 shares
of our common stock issuable on the exercise of presently exercisable
options.
(7) Consists of shares of our common stock issuable on the exercise of
presently exercisable options.
(8) Consists of 1,099,000 shares of our common stock issuable on conversion of
purchased Series B Preferred Stock and 100,000 shares of our common stock
issuable on the exercise of presently exercisable options.
(9) Consists of 23,065,847 shares of our common stock issuable on the
conversion of our Series A Convertible Preferred Stock following the
offering, 37,500,000 shares of our common stock issuable on the conversion
of past accrued dividends on Series A Preferred Stock; 40,000,000 shares
of our common stock issuable on conversion of the new GE Capital Equity
Investments, Inc. investment in Series B Preferred Stock, 22,857,143 shares
of our common stock issuable on conversion of the Series B Preferred Stock
issued as placement fee to GE Capital Equity Investments, Inc., and
17,835,856 shares of our common stock issuable on conversion of our Series
B Preferred Stock issuable on the exercise of a presently exercisable
option granted to GE Leasing, Inc. The address of GE Capital Corporation is
120 Long Ridge Road, Stamford, Connecticut 06927.
ACTIONS TAKEN
On June 8, 2001, holders of 17,062,950 shares, or 53.21%, of our common
stock approved and adopted by written consent the Amended and Restated Articles
and Stock Plan Amendment. No further votes are required or necessary to approve
the Amended and Restated Articles or the Stock Plan Amendment. You are being
provided with this Information Statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934, as amended, and Regulation 14C and Schedule 14C
thereunder. The Amended and Restated Articles and Stock Plan Amendment will not
become effective until at least 20 days after the mailing of this Information
Statement. This Information Statement is being mailed to the Company's
shareholders on or about June 11, 2001.
By Order of the Board of Directors
/s/ T. Wayne Davis
------------------
Chairman
Dated June 11, 2001
12
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TRANSIT GROUP, INC.
Pursuant to Section 607.1007 of the Florida Business Corporation Act,
Transit Group, Inc., (the "Corporation") hereby amends and restates its
Articles of Incorporation to read as follows:
ARTICLE I. NAME
The name of this Corporation is TRANSIT GROUP, INC. (the "Corporation").
ARTICLE II. PURPOSE
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any and all lawful act or activity for which
corporations may be organized under the Florida Business Corporation Act as now
or hereinafter in force. The Corporation shall possess and exercise all of the
powers and privileges granted by the Florida Business Corporation Act, by any
other law or by these Articles, together with all such powers and privileges
incidental thereto as may be necessary or convenient to the conduct, promotion
or attainment of the purposes of the Corporation.
ARTICLE III. SHARE STRUCTURE
(a) This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is 520,000,000
shares, of which 500,000,000 shares are Common Stock, $.01 par value per share,
and 20,000,000 shares are Preferred Stock, no par value per share. The rights
and preferences of all outstanding shares of Common Stock shall be identical.
The holders of outstanding shares of Common Stock shall have the right to vote
on all matters submitted to a vote of the stockholders of the Corporation, on
the basis of one vote per share of Common Stock owned.
(b) The Preferred Stock may be issued from time to time in one or more
classes and series pursuant to a resolution or resolutions providing for such
issue duly adopted by the Board of Directors (authority to do so being hereby
expressly vested in the Board of Directors), and such resolution or resolutions
shall also set forth the voting powers, full or limited or none, of each such
class and/or series of Preferred Stock and shall fix the preferences,
limitations and relative rights thereof. The Board of Directors is further
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued class or series of
Preferred Stock and to fix the number of shares of any class or series of
Preferred Stock and the designation of any such class or series of Preferred
Stock to the fullest extent permitted by the Florida Business Corporation Act.
The Board of Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any class or series, may increase or decrease
(but not below the number of shares in any such series then outstanding) the
number of shares thereof subsequent to the issue of shares of that series.
(c) Five million (5,000,000) of the authorized shares of Preferred Stock
have been and are hereby designated "Series A Convertible Preferred Stock." The
rights, preferences, privileges, restrictions and other matters relating to the
Series A Convertible Preferred Stock are as set forth in Exhibit "A" attached
hereto and incorporated herein.
(d) Four million (4,000,000) of the authorized shares of Preferred Stock
have been and are hereby designated "Series B Convertible Preferred Stock." The
rights, preferences, privileges, restrictions and other matters relating to the
Series B Convertible Preferred Stock are as set forth in Exhibit "B" attached
hereto and incorporated herein.
13
ARTICLE IV. DURATION
The Corporation shall have perpetual existence.
ARTICLE V. BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors, which shall exercise all powers conferred
under the laws of the State of Florida. The number of directors shall be
determined in accordance with the Bylaws of the Corporation. The election of
directors of the Corporation may, but need not, be by ballot.
ARTICLE VI. LIABILITY OF DIRECTORS
To the fullest extent permitted by the Florida Business Corporation Act, as
the same now exists or may hereafter be amended in a manner more favorable to
directors, a director of the Corporation shall not be personally liable to the
Corporation, its stockholders or any other person for monetary damages for
breach of fiduciary duty as a director. If the law of the State of Florida is
amended after the filing of these Articles to authorize corporate action
further limiting or eliminating the personal liability of directors of the
Corporation, then the liability of directors to the Corporation or its
stockholders shall be limited or eliminated to the fullest extent permitted by
law of the State of Florida, as so amended from time to time. Any repeal or
modification of the provisions of this Article VI, either directly or by the
adoption of an inconsistent provision of these Articles, shall be prospective
only and shall not adversely affect any right or protection set forth herein
existing in favor of a particular individual at the time of such repeal or
modification.
ARTICLE VII. INDEMNIFICATION
(a) The Corporation shall indemnify, and upon request shall advance expenses
(including attorneys' fees), in the manner and to the fullest extent permitted
by law, to any person who was or is an officer or director of the Corporation
(or the estate of any such person) and who was or is a party to any threatened,
pending or completed action, suit or other type of proceeding, whether civil,
criminal, administrative, or investigative whether formal or informal (a
"proceeding") (other than an action by or in the right of the Corporation), by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan
(an "indemnitee") against liability incurred, including obligations to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred (including attorneys' fees), in connection with such proceeding,
including any appeal thereof, if he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interest of
the Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is an officer or
director of the Corporation (or the estate of any such person) and who was or
is a party to any threatened, pending or completed action, suit or other type
of proceeding, whether civil, criminal, administrative, investigative and
whether formal or informal (a "proceeding") by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee, or agent of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
or other enterprise, against expenses and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the estimated expense of
litigating the proceeding to conclusion, actually and reasonably incurred in
connection with the defense or settlement of such proceeding, including any
appeal thereof, if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not
14
opposed to, the best interests of the Corporation, except that no
indemnification shall be made under this subsection in respect of any claim,
issue, or matter as to which such person shall have been adjudged to be liable
unless, and only to the extent that, the court in which such proceeding was
brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a director, officer, employee, or agent of the
Corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsection (a) or subsection (b) above, or in defense
of any claim, issue, or matter therein, he or she shall be indemnified against
expenses actually and reasonably incurred by him or her in connection
therewith.
(d) The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any liability,
including obligations to pay a judgment, settlement, penalty, fine (including
and excise tax assessed with respect to any employee benefit plan), and
expenses actually and reasonably incurred (including attorneys' fees), to the
fullest extent permitted by law, both as to action in such person's official
capacity and as to action in another capacity while holding such office.
(e) Notwithstanding any provision of this Article VII to the contrary, the
Corporation shall indemnify any indemnitee named above in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
(f) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this Corporation's Articles of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article
VII, with respect to any matter occurring, or any action or proceeding accruing
or arising or that, but for this Article VII, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE VIII. BYLAWS
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal bylaws of the Corporation.
ARTICLE IX. CORPORATE BOOKS
The books of the Corporation may be kept (subject to any provision of law)
outside the State of Florida at such place or places as may be designated from
time to time by the Board of Directors or in the bylaws of the Corporation.
ARTICLE X. STOCKHOLDER PROPOSALS
Advance notice of new business to be brought before any meeting of the
stockholders and stockholder nominations for the election of directors shall be
given in the manner and to the extent provided in the Bylaws of the
Corporation.
IN WITNESS WHEREOF, the undersigned has duly executed these Amended and
Restated Articles of Incorporation on the day of , 2001.
TRANSIT GROUP, INC.
ATTEST: By:
-----------------------------------
Philip A. Belyew, Chief Executive
Officer
----------------------------------------
James Overley, Secretary
15
TRANSIT GROUP, INC.
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF
----------------
Pursuant to Section 607.1004 of the
Florida Business Corporation Act
----------------
TRANSIT GROUP, INC. (the "Company"), a corporation organized and existing
under the laws of the State of Florida, hereby certifies that pursuant to the
provisions of Section 607.1004 of the Florida Business Corporation Act, its
Board of Directors, by action taken April 10, 2001, adopted the following
resolution, which resolution remains in full force and effect as of the date
hereof:
WHEREAS, the Board of Directors of the Company is authorized, within the
limitations and restrictions stated in the articles of incorporation, to fix by
resolution or resolutions the designation of preferred stock and the powers,
preferences and relative participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the Florida
Business Corporation Act; and
WHEREAS, the Board of Directors has previously created and fixed the terms
of the Series A Preferred Stock; and
WHEREAS, it is the desire of the Board of Directors of the Company, pursuant
to its authority as aforesaid, to amend the terms of the Series A Convertible
Preferred Stock of the Company and the number of shares constituting such
preferred stock;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized the Series A
Convertible Preferred Stock on the terms and with the provisions herein set
forth:
AMENDED AND RESTATED
TERMS, PREFERENCES, RIGHTS AND LIMITATIONS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
TRANSIT GROUP, INC.
The relative rights, preferences, powers, qualifications, limitations and
restrictions granted to or imposed upon the Series A Convertible Preferred
Stock or the holders thereof are as follows:
1. Definitions. For purposes of this Designation, the following definitions
shall apply:
"Amendment Date" shall mean the date this amended and restated certificate
is filed with the Florida Department of State.
16
"Board" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Common Stock" shall mean the Common Stock, $.01 par value per share, of the
Company.
"Company" shall mean Transit Group, Inc., a Florida corporation.
"Conversion Price" shall mean the amount computed by dividing the
Liquidation Preference by the Conversion Ratio.
"Conversion Ratio" has the meaning set forth in Section 7 hereof.
"Convertible Preferred Stock" shall refer to shares of Series A Convertible
Preferred Stock, no par value per share, of the Company.
"Current Market Price," when used with reference to shares of Common Stock
or other securities on any date, shall mean the average of the daily market
prices for the 10 consecutive Trading Days immediately prior to such date. The
daily market price for each such Trading Day shall be (i) the last sale price
on such day on the principal stock exchange or NASDAQ Stock Market on which
such Common Stock is then listed or admitted to trading, (ii) if no sale takes
place on such day on any such exchange or market, the average of the last
reported closing bid and asked prices on such day as officially quoted on any
such exchange or market, (iii) if the Common Stock is not then listed or
admitted to trading on any stock exchange or such market, the average of the
last reported closing bid and asked prices on such day in the over-the-counter
market, as furnished by NASDAQ or the National Quotation Bureau, Inc., (iv) if
neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the National
Association of Securities Dealers ("NASD") selected mutually by the Required
Holders and Company or, if they cannot agree upon such selection, as selected
by two such members of the NASD, one of which shall be selected by the Required
Holders and one of which shall be selected by Company.
"Dividend Rate" shall mean 9% per annum.
"Event of Default" shall have the meaning assigned to it in the Purchase
Agreement and shall also mean the failure of the Company to redeem shares of
Convertible Stock pursuant to Section 6 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Securities
and Exchange Commission thereunder, all as the same shall be in effect at the
time. Reference to a particular section of the Securities Exchange Act of 1934,
as amended, shall include reference to the comparable section, if any, of any
such similar Federal statute.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction, with neither being under any
compulsion to buy or sell.
"Fully Diluted Outstanding" shall mean, with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
shares of Common Stock outstanding at such date and all shares of Common Stock
issuable upon the conversion of the Convertible Preferred Stock outstanding on
such date, and other options or warrants to purchase, or securities convertible
into, shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining book value or
net income per share.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.
17
"Liquidation Preference" shall mean $5.00 per share.
"Organic Change" shall mean (A) any sale, lease, exchange or other transfer
of all or substantially all of the property and assets of the Company, (B) any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, (C) any merger or consolidation to which the Company is a party
and which the holders of the voting securities of the Company immediately prior
thereto own less than a majority of the outstanding voting securities of the
surviving entity immediately following such transaction, or (D) any
transaction, other than the conversion of accrued and unpaid dividends on the
Series B Preferred Stock into additional shares of Series B Preferred Stock,
following which any Person or group of Persons (as such term is used in Section
13(d) of the Exchange Act) shall beneficially own (as defined in Rule 13d-3
under the Exchange Act) securities of the Company representing 50% or more of
the voting securities of the Company then outstanding. For purposes of the
preceding sentence, "voting securities" shall mean securities, the holders of
which are ordinarily, in the absence of contingencies, entitled to elect the
corporate directors (or Persons performing similar functions).
"Original Issue Date" shall mean the date of the original issuance of shares
of Convertible Preferred Stock.
"Permitted Issuances" shall mean issuances of shares of Common Stock (i)
upon the exercise or conversion of warrants or convertible securities of the
Company outstanding on the Original Issue Date (including the Convertible
Preferred Stock), (ii) upon the exercise of employee stock options issued with
the approval of the Company's Board of Directors pursuant to Company's current
stock option plans, (iii) as consideration in connection with Permitted
Acquisitions (as such term is defined in the Purchase Agreement) at a price (or
deemed price) per share equal to or greater than the lower of (x) the Current
Market Price per share of Common Stock (calculated as of the date on which such
price per share is agreed upon whether upon the signing of a letter of intent,
if so provided therein, or the signing of a definitive purchase agreement) and
(y) the Conversion Price, (iv) upon the exercise of options to purchase up to
an additional 30,000,000 shares of Common Stock issued with approval of the
Company's Board of Directors, (v) upon the exercise of options to purchase
shares of Common Stock issued to the bank group led by Bank One, N.A., the
Company's primary lender, and General Electric Capital Corporation, and (vi)
issued upon the conversion of Series B Preferred Stock. "Permitted Issuances"
shall also include the issuance of Series B Preferred Stock (i) as a placement
fee relating to the purchase of the Series B Preferred Stock and as a deferral
fee to certain members of the Carroll Fulmer family in an aggregate amount up
to 1,100,000 shares, (ii) as a dividend to holders of the Series B Preferred
Stock, (iii) in connection with the conversion of certain indebtedness owed by
the Company to Philip A. Belyew and certain other individuals in an amount up
to 95,000 shares, and (iv) to holders of the Convertible Preferred Stock for
dividends accrued prior to January 31, 2001.
"Person" shall mean any individual, firm, corporation or other entity, and
shall include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of May 13,
1999, by and between the Company and Purchaser named therein, as amended on the
Amendment Date, and as it may be amended from time to time, a copy of which is
on file at the principal office of the Company.
"Redemption Date" shall mean the date on which any shares of Convertible
Preferred Stock are redeemed by the Company.
"Redemption Price" has the meaning set forth in Section 6(a)(i) of this
Certificate of Designation.
"Required Holders" shall mean the holders of at least a majority of the
outstanding shares of Convertible Preferred Stock.
"Series B Preferred Stock" shall mean the Series B Convertible Preferred
Stock, no par value, of the Company.
18
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power or the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
"Trading Day" shall mean a Business Day or, if the Common Stock is listed or
admitted to trading on any national securities exchange or NASDAQ market, a day
on which such exchange or market is open for the transaction of business.
2. Designation: Number of Shares. The designation of the preferred stock
authorized by this resolution shall be "Series A Convertible Preferred Stock"
and the number of shares of Convertible Preferred Stock authorized hereby shall
be 5,000,000 shares.
3. Dividends.
(a) So long as any shares of Convertible Preferred Stock shall be
outstanding, the holders of such Convertible Preferred Stock shall be entitled
to receive out of any funds legally available therefor, when, as and if
declared by the Board of Directors of the Company, preferential dividends in
cash at the Dividend Rate on the Liquidation Preference hereunder. Such
dividends shall be cumulative and begin to accrue from January 31, 2001 whether
or not declared and whether or not there shall be net profits or net assets of
the Company legally available for the payment of those dividends. All dividends
that have accrued through January 31, 2001, totaling $1,875,000, have been
converted into Series B Preferred Stock at a price of $5.00 per share, which
conversion satisfies all dividend obligations of the Company through such date.
(b) So long as any shares of Convertible Preferred Stock shall be
outstanding, (i) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on account of any Common Stock, and (ii) no shares
of Common Stock shall be purchased, redeemed or acquired by the Company and no
funds shall be paid into or set aside or made available for a sinking fund for
the purchase, redemption or acquisition thereof, other than redemptions of
shares of Common Stock pursuant to contractual obligations in existence on the
Amendment Date and the Series B Preferred Stock.
(c) Notwithstanding anything to the contrary herein, the Company shall be
entitled to pay preferential dividends in cash at 10.5% per annum on the
liquidation preference of the Series B Preferred Stock of the Company, when and
as declared by the Board.
4. Liquidation Rights of Convertible Preferred Stock.
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Convertible Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Company available for distribution to its stockholders, whether such assets are
capital, surplus or earnings, before any payment or declaration and setting
apart for payment of any amount shall be made in respect of any shares of
Common Stock or any share of any other class or series of the Company's
preferred stock ranking junior to the Convertible Preferred Stock with respect
to the payment of dividends or distribution of assets on liquidation,
dissolution or winding up of the Company, and after the payment in full of the
liquidation preference on the Series B Preferred Stock, an amount equal to the
Liquidation Preference plus all declared or accrued and unpaid dividends in
respect of any liquidation, dissolution or winding up consummated.
(b) If upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the remaining assets to be distributed among
the holders of Convertible Preferred Stock shall be insufficient to permit the
payment to such stockholders of the full preferential amounts aforesaid, then
the entire assets of the Company remaining to be distributed shall be
distributed ratably among the holders of Convertible Preferred Stock, based on
the full preferential amounts for the number of shares of Convertible Preferred
Stock held by each holder.
(c) After payment to the holders of Convertible Preferred Stock of the
amounts set forth in Section 4(a) hereof, the entire remaining assets and funds
of the Company legally available for distribution, if any, shall be distributed
among the holders of any Company stock entitled to a preference over the Common
Stock in
19
accordance with the terms thereof and, thereafter, to the holders of Common
Stock, in which distribution the holders of Convertible Preferred Stock and the
Series B Preferred Stock shall participate on an as if converted basis.
(d) If there is an Organic Change of the type referred to in clauses (a) or
(c) of the definition of Organic Change, then such transaction shall be deemed
a liquidation for purposes of distributions to stockholders of the
consideration received in such transaction, subject, however, to the provisions
of Section 5(b)(iii) hereof; provided, however, that solely for the purposes of
this Section 4(d), an Organic Change of the type referred to in such clause (c)
shall not be deemed a liquidation for purposes of this Section 4(d) if,
immediately after consummation of the Organic Change, the stockholders of
Company (as determined immediately prior to such Organic Change) own at least
35% of the voting capital stock of the surviving entity.
5. Voting Rights. In addition to any voting rights provided by law, the
holders of shares of Convertible Preferred Stock shall have the following
voting rights:
(a) So long as any of the Convertible Preferred Stock is outstanding, each
share of Convertible Preferred Stock shall entitle the holder thereof to vote
on all matters voted on by the holders of Common Stock, voting together as a
single and not separate class with other shares entitled to vote at all
meetings of the stockholders of the Company. With respect to any such vote,
each share of Convertible Preferred Stock shall entitle the holder thereof to
cast the number of votes equal to the number of votes which could be cast in
such vote by a holder of the number of shares of Common Stock of the Company
into which such share of Convertible Preferred Stock is convertible on the
record date for such vote.
(b) The affirmative vote of the Required Holders, voting together as a
class, in person or by proxy, at a special or annual meeting of stockholders
called for the purpose, or pursuant to a written consent of stockholders shall
be necessary to
(i) authorize, adopt or approve an amendment to the articles of
incorporation of the Company which would alter or change in any manner
the terms, powers, preferences or special rights of the shares of
Convertible Preferred Stock or grant waivers thereof, or which would
otherwise adversely affect the rights of the Convertible Preferred
Stock, provided that no such modification or amendment may, without
the consent of each holder of Convertible Preferred Stock affected
thereby, (A) change the redemption date of the Convertible Preferred
Stock; (B) raise the Conversion Price or reduce the Liquidation
Preference, Dividend Rate or Redemption Price of the Convertible
Preferred Stock; (C) adversely affect any of the conversion features
of the Convertible Preferred Stock set forth in Section 7 hereof; or
(D) reduce the percentage of outstanding Convertible Preferred Stock
necessary to modify or amend the terms thereof or to grant waivers
thereof;
(ii) issue any shares of the capital stock of the Company ranking senior
to, or pari passu with (either as to dividends or upon voluntary or
involuntary liquidation, dissolution or winding up) the Convertible
Preferred Stock, or issue any securities convertible into or
exchangeable for such shares, except shares of Common Stock; or
(iii) take any action which is in violation of Article V of the Purchase
Agreement.
(c) The holders of shares of Convertible Preferred Stock shall have, in
addition to their other voting rights set forth herein, the exclusive right,
voting separately as a single class, to elect two directors of the Company in
accordance with this Section 5, and if, on any date after the Amendment Date,
an Event of Default shall have occurred and be continuing, then the holders of
the Convertible Preferred Stock shall have the right to elect one additional
member of the Board.
(d) (i) The foregoing rights of holders of shares of Convertible Preferred
Stock to take any actions as provided in this Section 5 may be
exercised at any annual meeting of stockholders or at a special
meeting of stockholders held for such purpose as hereinafter
provided or at any adjournment thereof or pursuant to any written
consent of stockholders.
20
(ii) If the holders of the Convertible Preferred Stock have the right to
elect one director pursuant to Section 5(c) above, or at any time with
respect to the two directors the holder of the Convertible Preferred
Stock is entitled to elect pursuant to Section 5(c) above, a proper
officer of the Company, upon the written request of the holders of
record of at least ten percent (10%) of the shares of Convertible
Preferred Stock then outstanding, addressed to the Secretary of the
Company, shall call a special meeting in lieu of the annual meeting of
stockholders or a special meeting of the holders of Convertible
Preferred Stock, for the purpose of electing directors. Any such
meeting shall be held at the earliest practicable date at the place
for the holding of the annual meetings of stockholders. If such
meeting shall not be called by the proper officer of the Company
within twenty (20) days after personal service of said written request
upon the Secretary of the Company, or within twenty (20) days after
mailing the same within the United States by certified mail, addressed
to the Secretary of the Company at its principal executive offices,
then the holders of record of at least ten percent (10%) of the
outstanding shares of Convertible Preferred Stock may designate in
writing one of their number to call such meeting at the expense of the
Company, and such meeting may be called by the person so designated
upon the notice required for the annual meetings of stockholders of
the Company and shall be held at the place for holding the annual
meetings of stockholders. Any holder of Convertible Preferred Stock so
designated shall have access to the lists of stockholders to be called
pursuant to the provisions hereof.
(e) Any vacancy occurring in the office of director to be elected by the
holders of Convertible Preferred Stock pursuant to Section 5(d) above may be
filled by the remaining director elected by the holders of Convertible
Preferred Stock unless and until such vacancy shall be filled by the holders of
Convertible Preferred Stock. The term of office of the directors elected by the
holders of Convertible Preferred Stock shall terminate upon the election of
their successors at any meeting of stockholders held for the purpose of
electing directors, and the rights of the holders of the Convertible Preferred
Stock to elect members of the Board of Directors of the Company as provided
herein shall terminate at such time as less than five percent (5%) of the
Convertible Preferred Stock remains outstanding.
(f) The directors elected by the holders of shares of Convertible Preferred
Stock voting separately as a single class may be removed from office with or
without cause by the vote of the holders of at least a majority of the
outstanding shares of Convertible Preferred Stock. A special meeting of the
holders of shares of Convertible Preferred Stock may be called in accordance
with the procedures set forth in subparagraph (d) of this Section 5.
6. Redemption of Convertible Preferred Stock.
(a) Upon at least thirty (30) Business Days prior written notice to the
Company by any of the holders of the Convertible Preferred Stock (the
"Redemption Notice"), which written notice may not be sent for a redemption
prior to fifty-four months from the Amendment Date, the Company shall redeem,
at the redemption price equal to the sum of the Liquidation Preference per
share plus an amount equal to all accrued and unpaid dividends per share
thereon (the "Redemption Price"), the number of shares of Convertible Preferred
Stock specified in such notice, up to one-third of the shares issued on the
Original Issue Date if the Redemption Notice is given for a redemption on or
after fifty-four months from the Amendment Date, up to two-thirds of such
amount if given for a redemption on or after sixty-six months from the
Amendment Date and up to all such shares if given for a redemption on or after
seventy-eight months from the Amendment Date and for a period of one year
thereafter. If the Required Holders so elect, on or after seventy-eight months
from the Amendment Date but before one hundred fourteen months from the
Amendment Date or at any time upon the occurrence of an Organic Change, the
Company shall redeem all of the outstanding shares of Convertible Preferred
Stock; provided, however, that solely for the purposes of this Section 6(a), an
Organic Change of the type referred to in clause (c) of the definition of
Organic Change shall not be deemed an Organic Change for purposes of this
Section 6(a) if, immediately after consummation of the Organic Change, the
stockholders of Company (as determined immediately prior to such Organic
Change) own at least 35% of the voting capital stock of the surviving entity.
Such redemption rights shall expire one hundred fourteen months from the
Amendment Date except upon the occurrence of an Organic Change.
21
(b) Upon receipt of a Redemption Notice, the Company shall fix a date for
redemption (the "Redemption Date"), which shall be no later than thirty (30)
Business Days after the date of the Redemption Notice. Within five (5) business
days following receipt of any Redemption Notice, the Company shall notify each
other holder of record of shares of Convertible Preferred Stock and Series B
Preferred Stock which has not made a redemption request at such time,
specifying the name of the holder or holders who have given the Redemption
Notice and the number of shares covered by such request. Each other holder
shall then have a period of fifteen (15) Business Days following the date of
such notice from the Company in which to provide to the Company a Redemption
Notice in order for the Company to simultaneously redeem their shares of
Convertible Preferred Stock and Series B Preferred Stock which are then subject
to redemption. The redemption of any shares of Series B Preferred Stock will be
made pursuant to the terms set forth in the Certificate of Designations with
respect thereto. Each holder of Convertible Preferred Stock who has given the
Company a Redemption Notice shall surrender the certificate or certificates
representing such shares of Convertible Preferred Stock to the Company, duly
endorsed for transfer in the manner and at the place designated by the Company
in a notice to the redeeming holders, and thereupon the Redemption Price for
such shares shall be payable in cash on the Redemption Date to the person whose
name appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be cancelled and retired. In the event that less
than all of the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(c) Unless the Company defaults in the payment in full of the Redemption
Price, dividends on the Convertible Preferred Stock called for redemption shall
cease to accumulate on the Redemption Date, and the holders of such shares
redeemed shall cease to have any further rights with respect thereto on the
Redemption Date, other than to receive the Redemption Price without interest.
(d) If, at the time of any redemption pursuant to this Section 6, the funds
of the Company legally available for redemption of Convertible Preferred Stock
are insufficient to redeem the number of shares required to be redeemed, those
funds which are legally available shall be used to redeem the maximum possible
number of such shares, pro rata based upon the number of shares to be redeemed.
At any time thereafter when additional funds of the Company become legally
available for the redemption of Convertible Preferred Stock, such funds shall
immediately be used to redeem the balance of the shares of Convertible
Preferred Stock which the Company has become obligated to redeem pursuant to
this subparagraph, but which it has not redeemed.
(e) The Company may not otherwise redeem or repurchase the Convertible
Preferred Stock.
(f) Notwithstanding anything to the contrary herein, the rights granted
under this Section 6 shall be subordinate to the redemption rights of the
holders of the Series B Preferred Stock. In the event the holders of the Series
B Preferred Stock exercise the redemption rights provided for in the
Certificate of Designations of the Series B Preferred Stock, the available
funds of the Company shall first be used to satisfy such redemption request.
Any funds available after satisfaction in full of the redemption rights of the
holders of the Series B Preferred Stock shall be available for redemption of
the Convertible Preferred Stock pursuant to this Section 6.
7. Conversion.
(a) Subject to the provisions for adjustment hereinafter set forth, each
share of Convertible Preferred Stock shall be convertible at any time after the
earlier of (i) the ninetieth (90/th/) day following the Amendment Date, or (ii)
the effective date of an amendment to the Articles of Incorporation of the
Company increasing the number of authorized shares of Common Stock to
500,000,000 and from time to time thereafter, at the option of the holder
thereof (such conversion, an "Optional Conversion") into fully paid and
nonassessable shares of Common Stock. The number of shares of Common Stock
deliverable upon conversion of a share of Convertible Preferred Stock, adjusted
as hereinafter provided, is referred to herein as the "Conversion Ratio." The
Conversion Ratio shall initially be one (1), subject to adjustment from time to
time pursuant to paragraph (f) of this Section 7. No fractional shares shall be
issued upon the conversion of any shares of Convertible Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion
of more than one share of Convertible Preferred Stock by a holder thereof shall
be aggregated for purposes of
22
determining whether conversion would result in the issuance of any fractional
share. If, after the aforementioned aggregation, the conversion would result in
the issuance of a fraction of a share of Common Stock, the Company shall, in
lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the Current Market Price of such fraction on
the date of conversion.
(b) (i) An Optional Conversion of the Convertible Preferred Stock may be
effected by any such holder upon the surrender to the Company at
the principal office of the Company of the certificate for such
Convertible Preferred Stock to be converted accompanied by a
written notice stating that such holder elects to convert all or a
specified number of such shares (which may be fractional shares) in
accordance with the provisions of this Section 7 and specifying the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. Upon an
Optional Conversion of any shares of Convertible Preferred Stock,
dividends on the Convertible Preferred Stock so converted shall
cease to accumulate, and the Company shall pay the holder thereof
all accrued and unpaid dividends owing in respect of such shares so
converted, which dividends shall be paid when declared by the
Board.
(ii) In case the written notice specifying the name or name in which
such holder wishes the certificate or certificates for shares of
Common Stock to be issued shall specify a name or names other than
that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common
Stock in such name or names. Other than such taxes, the Company
will pay any and all issue and other taxes (other than taxes based
on income) that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of Convertible Preferred
Stock pursuant hereto. As promptly as practicable, and in any event
within five Business Days after the surrender of such certificate
or certificates and the receipt of such notice relating thereto
and, if applicable, payment of all transfer taxes (or the
demonstration to the satisfaction of the Company that such taxes
have been paid), the Company shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully
paid and nonassessable full shares of Common Stock to which the
holder of shares of Convertible Preferred Stock being converted
shall be entitled and (ii) if less than the full number of shares
of Convertible Preferred Stock evidenced by the surrendered
certificate or certificates is being converted, a new certificate
or certificates, of like tenor, for the number of shares evidenced
by such surrendered certificate or certificates less the number of
shares being converted.
(iii) In the case of an Optional Conversion, such conversion shall be
deemed to have been made at the close of business on the date of
giving the written notice referred to in the first sentence of
(b)(i) above and of such surrender of the certificate or
certificates representing the shares of Convertible Preferred Stock
to be converted so that the rights of the holder thereof as to the
shares being converted shall cease except for the right to receive
shares of Common Stock in accordance herewith, and the person
entitled to receive the shares of Common Stock shall be treated for
all purposes as having become the record holder of such shares of
Common Stock at such time.
(c) In case any shares of Convertible Preferred Stock are to be redeemed
pursuant to Section 6, all rights of conversion shall cease and terminate as to
the shares of Convertible Preferred Stock to be redeemed at the close of
business on the Business Day next preceding the date fixed for redemption
unless the Company shall default in the payment of the Redemption Price.
(d) The Conversion Ratio shall be subject to adjustment from time to time in
certain instances as hereinafter provided.
(e) The Company shall at all times reserve, and keep available for issuance
upon the conversion of the Convertible Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Convertible
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if necessary to permit the conversion of all
outstanding shares of Convertible Preferred Stock.
23
(f) The Conversion Ratio will be subject to adjustment from time to time as
follows:
(i) In case the Company shall at any time or from time to time after the
Original Issue Date (A) pay a dividend, or make a distribution, on
the outstanding shares of Common Stock in shares of Common Stock,
(B) subdivide the outstanding shares of Common Stock, (C) combine
the outstanding shares of Common Stock into a smaller number of
shares or (D) issue by reclassification of the shares of Common
Stock any shares of capital stock of the Company, then, and in each
such case, the Conversion Ratio in effect immediately prior to such
event or the record date therefor, whichever is earlier, shall be
adjusted so that the holder of any shares of Convertible Preferred
Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities of
the Company which such holder would have owned or have been entitled
to receive after the happening of any of the events described above,
had such shares of Convertible Preferred Stock been surrendered for
conversion immediately prior to the happening of such event or the
record date therefor, whichever is earlier. An adjustment made
pursuant to this clause (i) shall become effective (x) in the case
of any such dividend or distribution, immediately after the close of
business on the record date for the determination of holders of
shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision,
reclassification or combination, at the close of business on the day
upon which such corporate action becomes effective. No adjustment
shall be made pursuant to this clause (i) in connection with any
transaction to which paragraph (g) applies.
(ii) In case the Company shall issue shares of Common Stock (or rights,
warrants or other securities convertible into or exchangeable for
shares of Common Stock) after the Original Issue Date, other than
issuances covered by clause (i) above and Permitted Issuances, at a
price per share (or having an exercise, conversion or exchange price
per share) less than the Conversion Price as of the date of issuance
of such shares or of such rights, warrants or other convertible or
exchangeable securities, then, and in each such case, the Conversion
Price shall be reduced (but not increased) to a price determined by
dividing (A) an amount equal to the sum of (x) the number of shares
of Fully Diluted Outstanding Common Stock outstanding immediately
prior to such issue multiplied by the then existing Conversion
Price, plus (y) the consideration, if any, received by Company upon
such issue, by (B) the total number of shares of Fully Diluted
Outstanding Common Stock outstanding immediately after such issue or
sale. The Conversion Ratio shall be adjusted to equal the
Liquidation Preference divided by the Conversion Price. For the
purpose of determining the consideration received by the Company
upon any such issue pursuant to clause (y) above, if the
consideration received by the Company is other than cash, its value
will be deemed its Fair Market Value, as determined in good faith by
the Board of Directors of the Company.
(iii) An adjustment made pursuant to clause (ii) above shall be made on
the next Business Day following the date on which any such issuance
is made and shall be effective retroactively immediately after the
close of business on such date. For purposes of clause (ii), the
aggregate consideration received by the Company in connection with
the issuance of shares of Common Stock or of rights, warrants or
other securities exchangeable or convertible into shares of Common
Stock shall be deemed to be equal to the sum of the aggregate
offering price of all such Common Stock and such rights, warrants,
or other exchangeable or convertible securities plus the minimum
aggregate amount, if any, receivable upon exchange or conversion of
any such exchangeable or convertible securities into shares of
Common Stock.
(iv) In case the Company shall at any time or from time to time after the
Original Issue Date declare, order, pay or make a dividend or other
distribution (including, without limitation, any distribution of
stock or other securities or property or rights or warrants to
subscribe for securities of the Company or any of its Subsidiaries
by way of dividend or spinoff), on its Common Stock, other than
dividends or distributions of shares of Common Stock which are
24
referred to in clause (i) of this paragraph (f), then, and in each
such case, the Conversion Ratio shall be adjusted so that the holder
of each share of Convertible Preferred Stock shall be entitled to
receive, upon the conversion thereof, the number of shares of Common
Stock determined by multiplying (1) the applicable Conversion Ratio
on the day immediately prior to the record date fixed for the
determination of stockholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the
Current Market Price per share of Common Stock at such record date,
and the denominator of which shall be such Current Market Price per
share of Common Stock less the Fair Market Value of such dividend or
distribution per share of Common Stock. No adjustment shall be made
pursuant to this clause (v) in connection with any transaction to
which paragraph (g) applies.
(v) For purposes of this paragraph (f), the number of shares of Common
Stock at any time outstanding shall not include any shares of
Common Stock then owned or held by or for the account of the
Company or any of its subsidiaries.
(vi) If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the
distribution to stockholders thereof legally abandon its plan to
pay or deliver such dividend or distribution, then thereafter no
adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this paragraph (f)
or in the Conversion Ratio then in effect shall be required by
reason of the taking of such record.
(vii) Anything in this paragraph (f) to the contrary notwithstanding, the
Company shall not be required to give effect to any adjustment in
the Conversion Ratio unless and until the net effect of one or more
adjustments (each of which shall be carried forward), determined as
above provided, shall have resulted in a change of the Conversion
Ratio by at least one-tenth of one share of Common Stock, and when
the cumulative net effect of more than one adjustment so determined
shall be to change the Conversion Ratio by at least one-tenth of
one share of Common Stock, such change in Conversion Ratio shall
thereupon be given effect.
(viii) If any option or warrant expires or is cancelled without having
been exercised, then, for the purposes of the adjustments set forth
above, such option or warrant shall have been deemed not to have
been issued and the Conversion Ratio shall be adjusted accordingly.
No holder of Common Stock which was previously issued upon
conversion of Convertible Preferred Stock shall have any obligation
to redeem or cancel any such shares of Common Stock as a result of
the operation of this paragraph (viii).
(g) In case of any Organic Change (or any other merger or consolidation to
which the Company is a party, which for purposes of this paragraph (g) shall be
deemed an Organic Change), each share of Convertible Preferred Stock then
outstanding, other than those shares to be redeemed pursuant to Section 6
hereof, shall thereafter be convertible into, in lieu of the Common Stock
issuable upon such conversion prior to consummation of such Organic Change, the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Organic Change by a holder of
that number of shares of Common Stock into which one share of Convertible
Preferred Stock was convertible immediately prior to such Organic Change
(including, on a pro rata basis, the cash, securities or property received by
holders of Common Stock in any tender or exchange offer that is a step in such
Organic Change). In case securities or property other than Common Stock shall
be issuable or deliverable upon conversion as aforesaid, then all references in
this Section 7 shall be deemed to apply, so far as appropriate and nearly as
may be, to such other securities or property.
(h) In case at any time or from time to time the Company shall pay any stock
dividend or make any other non-cash distribution to the holders of its Common
Stock, or shall offer for subscription pro rata to the holders of its Common
Stock any additional shares of stock of any class or any other right, or there
shall be any capital reorganization or reclassification of the Common Stock of
the Company or consolidation or merger of the
25
Company with or into another corporation, or any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, or there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company, then, in any one or more of said
cases, the Company shall give at least 20 days' prior written notice to the
registered holders of the Convertible Preferred Stock at the addresses of each
as shown on the books of the Company as of the date on which (i) the books of
the Company shall close or a record shall be taken for such stock dividend,
distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be, provided that
in the case of any Organic Change to which paragraph (g) applies the Company
shall give at least 30 days' prior written notice as aforesaid. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale or conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall not
invalidate any action so taken.
8. Reports as to Adjustments. Upon any adjustment of the Conversion Ratio
then in effect and any increase or decrease in the number of shares of Common
Stock issuable upon the operation of the conversion set forth in Section 7,
then, and in each such case, the Company shall promptly deliver to each holder
of the Convertible Preferred Stock, a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Company setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated and specifying the Conversion Ratio then in effect following such
adjustment and the increased or decreased number of shares issuable upon the
conversion granted by Section 7, and shall set forth in reasonable detail the
method of calculation of each and a brief statement of the facts requiring such
adjustment. Where appropriate, such notice to holders of the Convertible
Preferred Stock may be given in advance.
9. Certain Covenants. Any registered holder of Convertible Preferred Stock
may proceed to protect and enforce its rights and the rights of such holders by
any available remedy by proceeding at law or in equity to protect and enforce
any such rights, whether for the specific enforcement of any provision in this
Certificate of Designation or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
10. No Reissuance of Preferred Stock. No Convertible Preferred Stock
acquired by the Company by reason of redemption, purchase, or otherwise shall
be reissued, and all such shares shall be cancelled, retired and eliminated
from the shares which the Company shall be authorized to issue.
11. Notices. All notices to the Company permitted hereunder shall be
personally delivered or sent by first class mail, postage prepaid, addressed to
its principal office located at 2859 Paces Ferry Road, Suite 1740, Atlanta,
Georgia 30339, or to such other address at which its principal office is
located and as to which notice thereof is similarly given to the holders of the
Convertible Preferred Stock at their addresses appearing on the books of the
Company.
IN WITNESS WHEREOF, TRANSIT GROUP, INC. has caused this Certificate to be
signed by its President and Secretary, respectively, on this 10/th/ day of
April, 2001.
/s/ Philip A. Belyew
-------------------------------------
PHILIP A. BELYEW, President
/s/ James G. Overley
--------------------------------------
JAMES G. OVERLEY, Secretary
26
TRANSIT GROUP, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF
----------------
Pursuant to Section 607.1004 of the
Florida Business Corporation Act
----------------
TRANSIT GROUP, INC. (the "Company"), a corporation organized and existing
under the laws of the State of Florida, hereby certifies that pursuant to the
provisions of Section 607.1004 of the Florida Business Corporation Act, its
Board of Directors, by action taken April 10, 2001, adopted the following
resolution, which resolution remains in full force and effect as of the date
hereof:
WHEREAS, the Board of Directors of the Company is authorized, within the
limitations and restrictions stated in the articles of incorporation, to fix by
resolution or resolutions the designation of preferred stock and the powers,
preferences and relative participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the Florida
Business Corporation Act; and
WHEREAS, it is the desire of the Board of Directors of the Company, pursuant
to its authority as aforesaid, to authorize and fix the terms of the preferred
stock to be designated the Series B Convertible Preferred Stock of the Company
and the number of shares constituting such preferred stock;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized the Series B
Convertible Preferred Stock on the terms and with the provisions herein set
forth:
TERMS, PREFERENCES, RIGHTS AND LIMITATIONS
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
TRANSIT GROUP, INC.
The relative rights, preferences, powers, qualifications, limitations and
restrictions granted to or imposed upon the Series B Convertible Preferred
Stock or the holders thereof are as follows:
1. Definitions. For purposes of this Certificate, the following definitions
shall apply:
"Board" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day other than a Saturday, Sunday, or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Common Stock" shall mean the Common Stock, $.01 par value per share, of the
Company.
"Company" shall mean Transit Group, Inc., a Florida corporation.
"Conversion Price" shall mean the amount computed by dividing the
Liquidation Preference by the Conversion Ratio.
27
"Conversion Ratio" has the meaning set forth in Section 7 hereof, and shall
initially be one hundred (100).
"Convertible Preferred Stock" shall refer to shares of Series B Convertible
Preferred Stock, no par value per share, of the Company.
"Current Market Price," when used with reference to shares of Common Stock
or other securities on any date, shall mean the average of the daily market
prices for the 10 consecutive Trading Days immediately prior to such date. The
daily market price for each such Trading Day shall be (i) the last sale price
on such day on the principal stock exchange or NASDAQ Stock Market on which
such Common Stock is then listed or admitted to trading, (ii) if no sale takes
place on such day on any such exchange or market, the average of the last
reported closing bid and asked prices on such day as officially quoted on any
such exchange or market, (iii) if the Common Stock is not then listed or
admitted to trading on any stock exchange or such market, the average of the
last reported closing bid and asked prices on such day in the over-the-counter
market, as furnished by NASDAQ or the National Quotation Bureau, Inc., (iv) if
neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the National
Association of Securities Dealers ("NASD") selected mutually by the Required
Holders and Company or, if they cannot agree upon such selection, as selected
by two such members of the NASD, one of which shall be selected by the Required
Holders and one of which shall be selected by Company.
"Dividend Rate" shall mean 10.5% per annum.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Securities
and Exchange Commission thereunder, all as the same shall be in effect at the
time. Reference to a particular section of the Securities Exchange Act of 1934,
as amended, shall include reference to the comparable section, if any, of any
such similar Federal statute.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction, with neither being under any
compulsion to buy or sell.
"Fully Diluted Outstanding" shall mean, with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
shares of Common Stock outstanding at such date and all shares of Common Stock
issuable upon the conversion of the Convertible Preferred Stock outstanding on
such date, and other options or warrants to purchase, or securities convertible
into, shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining book value or
net income per share.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.
"Liquidation Preference" shall mean $5.00 per share.
"Organic Change" shall mean (A) any sale, lease, exchange or other transfer
of all or substantially all of the property and assets of the Company, (B) any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, (C) any merger or consolidation to which the Company is a party
and which the holders of the voting securities of the Company immediately prior
thereto own less than a majority of the outstanding voting securities of the
surviving entity immediately following such transaction, or (D) any
transaction, other than the conversion of accrued and unpaid dividends into
shares of Convertible Preferred Stock as contemplated in Section 3(a) below,
following which any Person or group of Persons (as such term is used in Section
13(d) of the Exchange Act) shall beneficially own (as defined in Rule 13d-3
under the Exchange Act) securities of the Company representing 50% or more of
the voting securities of the Company then outstanding. For purposes of the
preceding sentence, "voting securities" shall mean securities, the holders of
which are ordinarily, in the absence of contingencies, entitled to elect the
corporate directors (or Persons performing similar functions).
28
"Original Issue Date" shall mean the date of the original issuance of shares
of Convertible Preferred Stock.
"Permitted Issuances" shall mean issuances of shares of Common Stock (i)
upon the exercise or conversion of warrants or convertible securities of the
Company outstanding on the Original Issue Date (including the Series A
Preferred Stock and the Convertible Preferred Stock), (ii) upon the exercise of
employee stock options issued with the approval of the Company's Board of
Directors pursuant to Company's current stock option plans, (iii) upon the
exercise of options to purchase up to an additional 30,000,000 shares of Common
Stock issued with approval of the Company's Board of Directors, and (iv) upon
the exercise of options to purchase shares of Common Stock issued to the bank
group led by Bank One, N.A., the Company's primary lender, and General Electric
Capital Corporation. "Permitted Issuances" shall also include the issuance of
Convertible Preferred Stock (i) as a placement fee relating to the purchase of
the Convertible Preferred Stock and as a deferral fee to certain members of the
Carroll Fulmer family, in an aggregate amount up to 1,100,000 shares, (ii) as a
dividend to holders of the Convertible Preferred Stock, and (iii) to holders of
the Series A Preferred Stock for dividends accrued prior to January 31, 2001.
"Person" shall mean any individual, firm, corporation or other entity, and
shall include any successor (by merger or otherwise) of such entity.
"Redemption Date" shall mean the date on which any shares of Convertible
Preferred Stock are redeemed by the Company.
"Redemption Price" has the meaning set forth in Section 6(a) (i) of this
Certificate of Designation.
"Required Holders" shall mean the holders of at least a majority of the
outstanding shares of Convertible Preferred Stock.
"Series A Preferred Stock" shall mean the Series A Convertible Preferred
Stock, no par value, of the Company.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power or the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
"Trading Day" shall mean a Business Day or, if the Common Stock is listed or
admitted to trading on any national securities exchange or NASDAQ market, a day
on which such exchange or market is open for the transaction of business.
2. Designation: Number of Shares. The designation of the preferred stock
authorized by this resolution shall be "Series B Convertible Preferred Stock"
and the number of shares of Convertible Preferred Stock authorized hereby shall
be 4,000,000 shares.
3. Dividends.
(a) So long as any shares of Convertible Preferred Stock shall be
outstanding, the holders of such Convertible Preferred Stock shall be entitled
to receive out of any funds legally available therefor, when, as and if
declared by the Board of Directors of the Company, preferential dividends in
cash at the Dividend Rate on the Liquidation Preference hereunder. Such
dividends shall be cumulative and begin to accrue from the Original Issue Date,
whether or not declared and whether or not there shall be net profits or net
assets of the Company legally available for the payment of those dividends.
Each holder of the Convertible Preferred Stock shall be entitled to convert its
accrued and unpaid dividends into additional shares of Convertible Preferred
Stock at a price per share of $5.00 (adjusted for stock splits and the like).
29
(b) So long as any shares of Convertible Preferred Stock shall be
outstanding, (i) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on account of any Common Stock, and (ii) no shares
of Common Stock shall be purchased, redeemed or acquired by the Company and no
funds shall be paid into or set aside or made available for a sinking fund for
the purchase, redemption or acquisition thereof, other than redemptions of
shares of Common Stock pursuant to contractual obligations in existence on the
Original Issue Date and shares of Series A Preferred Stock and Convertible
Preferred Stock. Notwithstanding the foregoing, if the Company has made all
dividend payments required by Section 3(a), the Company shall not be prohibited
from paying dividends on the Series A Preferred Stock.
4. Liquidation Rights of Convertible Preferred Stock.
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Convertible Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Company available for distribution to its stockholders, whether such assets are
capital, surplus or earnings, before any payment or declaration and setting
apart for payment of any amount shall be made in respect of any shares of
Common Stock or any share of Series A Preferred Stock or any other class or
series of the Company's preferred stock ranking junior to the Convertible
Preferred Stock with respect to the payment of dividends or distribution of
assets on liquidation, dissolution or winding up of the Company, for each share
of Convertible Preferred Stock, an amount equal to the Liquidation Preference
plus all declared or accrued and unpaid dividends in respect of any
liquidation, dissolution or winding up consummated.
(b) If upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the assets to be distributed among the
holders of Convertible Preferred Stock shall be insufficient to permit the
payment to such stockholders of the full preferential amounts aforesaid, then
the entire assets of the Company to be distributed shall be distributed ratably
among the holders of Convertible Preferred Stock, based on the full
preferential amounts for the number of shares of Convertible Preferred Stock
held by each holder.
(c) After payment to the holders of Convertible Preferred Stock of the
amounts set forth in Section 4(a) hereof, the entire remaining assets and funds
of the Company legally available for distribution, if any, shall be distributed
among the holders of any Company stock entitled to a preference over the Common
Stock in accordance with the terms thereof and, thereafter, to the holders of
Common Stock, in which distribution the holders of Convertible Preferred Stock
and Series A Preferred Stock shall participate on an as if converted basis.
(d) If there is an Organic Change of the type referred to in clauses (a) or
(c) of the definition of Organic Change, then such transaction shall be deemed
a liquidation for purposes of distributions to stockholders of the
consideration received in such transaction; provided, however, that solely for
the purposes of this Section 4(d), an Organic Change of the type referred to in
such clause (c) shall not be deemed a liquidation for purposes of this Section
4(d) if, immediately after consummation of the Organic Change, the stockholders
of Company (as determined immediately prior to such Organic Change) own at
least 35% of the voting capital stock of the surviving entity.
5. Voting Rights. In addition to any voting rights provided by law, the
holders of shares of Convertible Preferred Stock shall have the following
voting rights:
(a) So long as any of the Convertible Preferred Stock is outstanding, each
share of Convertible Preferred Stock shall entitle the holder thereof to vote
on all matters voted on by the holders of Common Stock, voting together as a
single and not separate class with other shares entitled to vote at all
meetings of the stockholders of the Company. With respect to any such vote,
each share of Convertible Preferred Stock shall entitle the holder thereof to
cast the number of votes equal to the number of votes which could be cast in
such vote by a holder of the number of shares of Common Stock of the Company
into which such share of Convertible Preferred Stock is convertible on the
record date for such vote.
30
(b) The affirmative vote of the Required Holders, voting together as a
class, in person or by proxy, at a special or annual meeting of stockholders
called for the purpose, or pursuant to a written consent of stockholders shall
be necessary to
(i) authorize, adopt or approve an amendment to the articles of
incorporation of the Company which would alter or change in any manner
the terms, powers, preferences or special rights of the shares of
Convertible Preferred Stock or grant waivers thereof, or which would
otherwise adversely affect the rights of the Convertible Preferred
Stock, provided that no such modification or amendment may, without
the consent of each holder of Convertible Preferred Stock affected
thereby, (A) change the redemption date of the Convertible Preferred
Stock; (B) raise the Conversion Price or reduce the Liquidation
Preference, Dividend Rate or Redemption Price of the Convertible
Preferred Stock; (C) adversely affect any of the conversion features
of the Convertible Preferred Stock set forth in Section 7 hereof; or
(D) reduce the percentage of outstanding Convertible Preferred Stock
necessary to modify or amend the terms thereof or to grant waivers
thereof; or
(ii) issue any shares of the capital stock of the Company ranking senior
to, or pari passu with (either as to dividends or upon voluntary or
involuntary liquidation, dissolution or winding up) the Convertible
Preferred Stock, or issue any securities convertible into or
exchangeable for such shares, except shares of Common Stock. This
provision is not intended to limit the right of the Company to
increase the number of authorized shares of Convertible Preferred
Stock as may be necessary for the Company to fulfill its obligations
in the event that dividends accrued on the Convertible Preferred Stock
are converted into additional shares of Convertible Preferred Stock
pursuant to Section 3(a) hereof.
(c) The foregoing rights of holders of shares of Convertible Preferred Stock
to take any actions as provided in this Section 5 may be exercised at any
annual meeting of stockholders or at a special meeting of stockholders held for
such purpose as hereinafter provided or at any adjournment thereof or pursuant
to any written consent of stockholders.
6. Redemption of Convertible Preferred Stock.
(a) Upon at least thirty (30) Business Days prior written notice to the
Company by any of the holders of the Convertible Preferred Stock (the
"Redemption Notice"), which written notice may not be sent for a redemption
prior to fifty-four months from the Original Issue Date, the Company shall
redeem, at the redemption price equal to the sum of the Liquidation Preference
per share plus an amount equal to the accrued and unpaid dividends per share of
Convertible Preferred Stock to be redeemed (the "Redemption Price"), the number
of shares of Convertible Preferred Stock specified in such notice, up to one-
third of the shares issued on the Original Issue Date if the Redemption Notice
is given for a redemption on or after fifty-four months from the Original Issue
Date, up to two-thirds of such amount if given for a redemption on or after
sixty-six months from the Original Issue Date and up to all such shares if
given for a redemption on or after seventy-eight months from the Original Issue
Date and for a period of one year thereafter. If the Required Holders so elect,
on or after seventy-eight months from the Original Issue Date but before ninety
months from the Original Issue Date or at any time upon the occurrence of an
Organic Change, the Company shall redeem all of the outstanding shares of
Convertible Preferred Stock; provided, however, that solely for the purposes of
this Section 6(a), an Organic Change of the type referred to in clause (c) of
the definition of Organic Change shall not be deemed an Organic Change for
purposes of this Section 6(a) if, immediately after consummation of the Organic
Change, the stockholders of Company (as determined immediately prior to such
Organic Change) own at least 35% of the voting capital stock of the surviving
entity. Such redemption rights shall expire ninety months from the Original
Issue Date, except upon the occurrence of an Organic Change.
(b) Upon receipt of a Redemption Notice, the Company shall fix a date for
redemption (the "Redemption Date"), which shall be no later than thirty (30)
Business Days after the date of the Redemption Notice. Within five (5) business
days following receipt of any Redemption Notice, the Company shall notify each
other holder of record of shares of Convertible Preferred Stock and Series A
Preferred Stock which has not made a redemption request at such time,
specifying the name of the holder or holders who have given the Redemption
31
Notice and the number of shares covered by such request. Each other holder
shall then have a period of fifteen (15) Business Days following the date of
such notice from the Company in which to provide to the Company a Redemption
Notice in order for the Company to simultaneously redeem their shares of
Convertible Preferred Stock and Series A Preferred Stock which are then subject
to redemption. The redemption of any shares of Series A Preferred Stock will be
made pursuant to the terms set forth in the Certificate of Designations with
respect thereto. Each holder of Convertible Preferred Stock who has given the
Company a Redemption Notice shall surrender the certificate or certificates
representing such shares of Convertible Preferred Stock to the Company, duly
endorsed for transfer in the manner and at the place designated by the Company
in a notice to the redeeming holders, and thereupon the Redemption Price for
such shares shall be payable in cash on the Redemption Date to the person whose
name appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be cancelled and retired. In the event that less
than all of the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(c) Unless the Company defaults in the payment in full of the Redemption
Price, dividends on the Convertible Preferred Stock called for redemption shall
cease to accumulate on the Redemption Date, and the holders of such shares
redeemed shall cease to have any further rights with respect thereto on the
Redemption Date, other than to receive the Redemption Price without interest.
(d) If, at the time of any redemption pursuant to this Section 6, the funds
of the Company legally available for redemption of Convertible Preferred Stock
are insufficient to redeem the number of shares required to be redeemed, those
funds which are legally available shall be used to redeem the maximum possible
number of such shares, pro rata based upon the number of shares to be redeemed.
At any time thereafter when additional funds of the Company become legally
available for the redemption of Convertible Preferred Stock, such funds shall
immediately be used to redeem the balance of the shares of Convertible
Preferred Stock which the Company has become obligated to redeem pursuant to
this subparagraph, but which it has not redeemed.
(e) The Company may not otherwise redeem or repurchase the Convertible
Preferred Stock.
(f) Notwithstanding anything to the contrary herein, the rights granted
under this Section 6 shall be superior to the redemption rights of the holders
of any other class of stock, including the Series A Preferred Stock. The
available funds of the Company shall first be used to satisfy any redemption
request made by the holders of Convertible Preferred Stock pursuant to this
Section 6. Any funds available after satisfaction in full of the redemption
rights of the holders of the Convertible Preferred Stock shall be available for
the redemption of such other classes of the Company's stock.
7. Conversion.
(a) Subject to the provisions for adjustment hereinafter set forth, each
share of Convertible Preferred Stock shall be convertible at any time after the
earlier of (i) the ninetieth (90th) day following the Original Issue Date or
(ii) the effective date of an amendment to the Articles of Incorporation of the
Company increasing the number of authorized shares of Common Stock to
500,000,000 and from time to time thereafter, at the option of the holder
thereof (such conversion, an "Optional Conversion") into fully paid and
nonassessable shares of Common Stock. The number of shares of Common Stock
deliverable upon conversion of a share of Convertible Preferred Stock, adjusted
as hereinafter provided, is referred to herein as the "Conversion Ratio." The
Conversion Ratio shall initially be one hundred (100), subject to adjustment
from time to time pursuant to paragraph (f) of this Section 7. No fractional
shares shall be issued upon the conversion of any shares of Convertible
Preferred Stock. All shares of Common Stock (including fractions thereof)
issuable upon conversion of more than one share of Convertible Preferred Stock
by a holder thereof shall be aggregated for purposes of determining whether
conversion would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Company shall, in lieu of issuing any
fractional share, pay the holder otherwise entitled to such fraction a sum in
cash equal to the Current Market Price of such fraction on the date of
conversion.
32
(b) (i) An Optional Conversion of the Convertible Preferred Stock may be
effected by any such holder upon the surrender to the Company at
the principal office of the Company of the certificate for such
Convertible Preferred Stock to be converted accompanied by a
written notice stating that such holder elects to convert all or a
specified number of such shares (which may be fractional shares) in
accordance with the provisions of this Section 7 and specifying the
name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. Upon an
Optional Conversion of any shares of Convertible Preferred Stock,
dividends on the Convertible Preferred Stock so converted shall
cease to accumulate, and the Company shall pay the holder thereof
all accrued and unpaid dividends owing in respect of such shares so
converted, which dividends shall be paid when declared by the
Board, or may be converted into additional shares of Convertible
Preferred Stock at the holder's election as provided in Section
3(a) above.
(ii) In case the written notice specifying the name or names in which
such holder wishes the certificate or certificates for shares of
Common Stock to be issued shall specify a name or names other than
that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common
Stock in such name or names. Other than such taxes, the Company
will pay any and all issue and other taxes (other than taxes based
on income) that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of Convertible Preferred
Stock pursuant hereto. As promptly as practicable, and in any event
within five Business Days after the surrender of such certificate
or certificates and the receipt of such notice relating thereto
and, if applicable, payment of all transfer taxes (or the
demonstration to the satisfaction of the Company that such taxes
have been paid), the Company shall deliver or cause to be delivered
(i) certificates representing the number of validly issued, fully
paid and nonassessable full shares of Common Stock to which the
holder of shares of Convertible Preferred Stock being converted
shall be entitled and (ii) if less than the full number of shares
of Convertible Preferred Stock evidenced by the surrendered
certificate or certificates is being converted, a new certificate
or certificates, of like tenor, for the number of shares evidenced
by such surrendered certificate or certificates less the number of
shares being converted.
(iii) In the case of an Optional Conversion, such conversion shall be
deemed to have been made at the close of business on the date of
giving the written notice referred to in the first sentence of
(b)(i) above and of such surrender of the certificate or
certificates representing the shares of Convertible Preferred Stock
to be converted so that the rights of the holder thereof as to the
shares being converted shall cease except for the right to accrued
dividends as set forth in Section (b)(ii) above and the right to
receive shares of Common Stock in accordance herewith, and the
person entitled to receive the shares of Common Stock shall be
treated for all purposes as having become the record holder of such
shares of Common Stock at such time.
(c) In case any shares of Convertible Preferred Stock are to be redeemed
pursuant to Section 6, all rights of conversion shall cease and terminate as to
the shares of Convertible Preferred Stock to be redeemed at the close of
business on the Business Day next preceding the date fixed for redemption
unless the Company shall default in the payment of the Redemption Price.
(d) The Conversion Ratio shall be subject to adjustment from time to time in
certain instances as hereinafter provided.
(e) The Company shall at all times reserve, and keep available for issuance
upon the conversion of the Convertible Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Convertible
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if necessary to permit the conversion of all
outstanding shares of Convertible Preferred Stock.
33
(f) The Conversion Ratio will be subject to adjustment from time to time as
follows:
(i) In case the Company shall at any time or from time to time after
the Original Issue Date (A) pay a dividend, or make a
distribution, on the outstanding shares of Common Stock in shares
of Common Stock, (B) subdivide the outstanding shares of Common
Stock, (C) combine the outstanding shares of Common Stock into a
smaller number of shares or (D) issue by reclassification of the
shares of Common Stock any shares of capital stock of the Company,
then, and in each such case, the Conversion Ratio in effect
immediately prior to such event or the record date therefor,
whichever is earlier, shall be adjusted so that the holder of any
shares of Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of
Common Stock or other securities of the Company which such holder
would have owned or have been entitled to receive after the
happening of any of the events described above, had such shares of
Convertible Preferred Stock been surrendered for conversion
immediately prior to the happening of such event or the record
date therefor, whichever is earlier. An adjustment made pursuant
to this clause (i) shall become effective (x) in the case of any
such dividend or distribution, immediately after the close of
business on the record date for the determination of holders of
shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision,
reclassification or combination, at the close of business on the
day upon which such corporate action becomes effective. No
adjustment shall be made pursuant to this clause (i) in connection
with any transaction to which paragraph (g) applies.
(ii) In case the Company shall issue shares of Common Stock (or rights,
warrants or other securities convertible into or exchangeable for
shares of Common Stock) after the Original Issue Date, other than
issuances covered by clause (i) above and Permitted Issuances, at
a price per share (or having an exercise, conversion or exchange
price per share) less than the Conversion Price as of the date of
issuance of such shares or of such rights, warrants or other
convertible or exchangeable securities, then, and in each such
case, the Conversion Price shall be reduced (but not increased) to
a price determined by dividing (A) an amount equal to the sum of
(x) the number of shares of Fully Diluted Outstanding Common Stock
outstanding immediately prior to such issue multiplied by the then
existing Conversion Price, plus (y) the consideration, if any,
received by Company upon such issue, by (B) the total number of
shares of Fully Diluted Outstanding Common Stock outstanding
immediately after such issue or sale. The Conversion Ratio shall
be adjusted to equal the Liquidation Preference divided by the
Conversion Price. For the purpose of determining the consideration
received by the Company upon any such issue pursuant to clause (y)
above, if the consideration received by the Company is other than
cash, its value will be deemed its Fair Market Value, as
determined in good faith by the Board of Directors of the Company.
(iii) An adjustment made pursuant to clause (ii) above shall be made on
the next Business Day following the date on which any such
issuance is made and shall be effective retroactively immediately
after the close of business on such date. For purposes of clause
(ii), the aggregate consideration received by the Company in
connection with the issuance of shares of Common Stock or of
rights, warrants or other securities exchangeable or convertible
into shares of Common Stock shall be deemed to be equal to the sum
of the aggregate offering price of all such Common Stock and such
rights, warrants, or other exchangeable or convertible securities
plus the minimum aggregate amount, if any, receivable upon
exchange or conversion of any such exchangeable or convertible
securities into shares of Common Stock.
(iv) In case the Company shall at any time or from time to time after
the Original Issue Date declare, order, pay or make a dividend or
other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or
warrants to subscribe for
34
securities of the Company or any of its Subsidiaries by way of
dividend or spinoff), on its Common Stock, other than dividends
or distributions of shares of Common Stock which are referred to
in clause (i) of this paragraph (f), then, and in each such case,
the Conversion Ratio shall be adjusted so that the holder of each
share of Convertible Preferred Stock shall be entitled to
receive, upon the conversion thereof, the number of shares of
Common Stock determined by multiplying (1) the applicable
Conversion Ratio on the day immediately prior to the record date
fixed for the determination of stockholders entitled to receive
such dividend or distribution by (2) a fraction, the numerator of
which shall be the Current Market Price per share of Common Stock
at such record date, and the denominator of which shall be such
Current Market Price per share of Common Stock less the Fair
Market Value of such dividend or distribution per share of Common
Stock. No adjustment shall be made pursuant to this clause (v) in
connection with any transaction to which paragraph (g) applies.
(v) For purposes of this paragraph (f), the number of shares of
Common Stock at any time outstanding shall not include any shares
of Common Stock then owned or held by or for the account of the
Company or any of its subsidiaries.
(vi) If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the
distribution to stockholders thereof legally abandon its plan to
pay or deliver such dividend or distribution, then thereafter no
adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this paragraph (f)
or in the Conversion Ratio then in effect shall be required by
reason of the taking of such record.
(vii) Anything in this paragraph (f) to the contrary notwithstanding,
the Company shall not be required to give effect to any
adjustment in the Conversion Ratio unless and until the net
effect of one or more adjustments (each of which shall be carried
forward), determined as above provided, shall have resulted in a
change of the Conversion Ratio by at least one-tenth of one share
of Common Stock, and when the cumulative net effect of more than
one adjustment so determined shall be to change the Conversion
Ratio by at least one-tenth of one share of Common Stock, such
change in Conversion Ratio shall thereupon be given effect.
(viii) If any option or warrant expires or is cancelled without having
been exercised, then, for the purposes of the adjustments set
forth above, such option or warrant shall have been deemed not to
have been issued and the Conversion Ratio shall be adjusted
accordingly. No holder of Common Stock which was previously
issued upon conversion of Convertible Preferred Stock shall have
any obligation to redeem or cancel any such shares of Common
Stock as a result of the operation of this paragraph (viii).
(g) In case of any Organic Change (or any other merger or consolidation to
which the Company is a party, which for purposes of this paragraph (g) shall be
deemed an Organic Change), each share of Convertible Preferred Stock then
outstanding, other than those shares to be redeemed pursuant to Section 6
hereof, shall thereafter be convertible into, in lieu of the Common Stock
issuable upon such conversion prior to consummation of such Organic Change, the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Organic Change by a holder of
that number of shares of Common Stock into which one share of Convertible
Preferred Stock was convertible immediately prior to such Organic Change
(including, on a pro rata basis, the cash, securities or property received by
holders of Common Stock in any tender or exchange offer that is a step in such
Organic Change). In case securities or property other than Common Stock shall
be issuable or deliverable upon conversion as aforesaid, then all references in
this Section 7 shall be deemed to apply, so far as appropriate and nearly as
may be, to such other securities or property.
35
(h) In case at any time or from time to time the Company shall pay any stock
dividend or make any other non-cash distribution to the holders of its Common
Stock, or shall offer for subscription pro rata to the holders of its Common
Stock any additional shares of stock of any class or any other right, or there
shall be any capital reorganization or reclassification of the Common Stock of
the Company or consolidation or merger of the Company with or into another
corporation, or any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety, or there shall
be a voluntary or involuntary dissolution, liquidation or winding up of the
Company, then, in any one or more of said cases, the Company shall give at
least 20 days' prior written notice to the registered holders of the
Convertible Preferred Stock at the addresses of each as shown on the books of
the Company as of the date on which (i) the books of the Company shall close or
a record shall be taken for such stock dividend, distribution or subscription
rights or (ii) such reorganization, reclassification, consolidation, merger,
sale or conveyance, dissolution, liquidation or winding up shall take place, as
the case may be, provided that in the case of any Organic Change to which
paragraph (g) applies the Company shall give at least 30 days' prior written
notice as aforesaid. Such notice shall also specify the date as of which the
holders of the Common Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale or conveyance or
participate in such dissolution, liquidation or winding up, as the case may be.
Failure to give such notice shall not invalidate any action so taken.
8. Reports as to Adjustments. Upon any adjustment of the Conversion Ratio
then in effect and any increase or decrease in the number of shares of Common
Stock issuable upon the operation of the conversion set forth in Section 7,
then, and in each such case, the Company shall promptly deliver to each holder
of the Convertible Preferred Stock, a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Company setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated and specifying the Conversion Ratio then in effect following such
adjustment and the increased or decreased number of shares issuable upon the
conversion granted by Section 7, and shall set forth in reasonable detail the
method of calculation of each and a brief statement of the facts requiring such
adjustment. Where appropriate, such notice to holders of the Convertible
Preferred Stock may be given in advance.
9. Certain Covenants. Any registered holder of Convertible Preferred Stock
may proceed to protect and enforce its rights and the rights of such holders by
any available remedy by proceeding at law or in equity to protect and enforce
any such rights, whether for the specific enforcement of any provision in this
Certificate of Designation or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
10. No Reissuance of Preferred Stock. No Convertible Preferred Stock
acquired by the Company by reason of redemption, purchase, or otherwise shall
be reissued, and all such shares shall be cancelled, retired and eliminated
from the shares which the Company shall be authorized to issue.
11. Notices. All notices to the Company permitted hereunder shall be
personally delivered or sent by first class mail, postage prepaid, addressed to
its principal office located at 2859 Paces Ferry Road, Suite 1740, Atlanta,
Georgia 30339, or to such other address at which its principal office is
located and as to which notice thereof is similarly given to the holders of the
Convertible Preferred Stock at their addresses appearing on the books of the
Company.
IN WITNESS WHEREOF, TRANSIT GROUP, INC. has caused this Certificate to be
signed by its President and Secretary, respectively, on this 10th day of April,
2001.
/s/ Philip A. Belyew
-------------------------
PHILIP A. BELYEW, President
/s/ James G. Overley
-------------------------
JAMES G. OVERLEY, Secretary
36
EXHIBIT B
AMENDMENT TO
TRANSIT GROUP, INC.
1998 STOCK INCENTIVE PLAN
THIS AMENDMENT, is made this 16th day of May, 2001, by TRANSIT GROUP, INC.
(the "Corporation"), to the Corporation's 1998 Stock Incentive Plan (the "1998
Plan").
RECITALS:
WHEREAS, the Board of Directors of the Corporation has deemed it advisable
to amend the 1998 Plan as set forth below.
NOW, THEREFORE, IT IS DECLARED that, effective May 16, 2001, the 1998 Plan
shall be and is hereby amended as follows:
1. Section 4(a) of the 1998 Plan shall be amended by deleting Section 4(a)
and inserting the following Section 4(a) in lieu thereof:
"4. Shares of Stock Subject to the Plan; Award Limitations.
(a) Subject to adjustments as provided in this Section 4, the number
of shares of Common Stock that may be issued pursuant to Awards shall
be the sum of (i) 32,000,000 plus (ii) one percent (1%) of the total
issued and outstanding shares of Common Stock determined as of December
31 for each year that the Plan is in effect. Such shares shall be
authorized but unissued shares or treasury shares of the Corporation or
shares purchased on the open market. Notwithstanding the foregoing, the
maximum number of shares of Common Stock that may be issued pursuant to
Incentive Options shall be 32,000,000 shares."
2. Except as specifically amended herein, all other provisions of the 1998
Plan shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment is executed on behalf of Transit Group,
Inc. as of the day and year first above written.
TRANSIT GROUP, INC.
By: /s/ Philip A. Belyew
-------------------------------------
Philip A. Belyew
ATTEST:
/s/ James G. Overley
---------------------------------
James G. Overley
[CORPORATE SEAL]
37