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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________
Commission File No. 0-23382
Trans Global Services, Inc.
(Exact name of Company as Specified in its Charter)
Delaware 62-1544008
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1393 Veterans Memorial Hwy.,
Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (516) 724-0006
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, par value .01 per share Indicate by a check mark whether the
Company (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding twelve months (or such
shorter period that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of March 31, 1999: $2,023,459
State the number of shares outstanding of each of the Company's classes of
common stock as of March 31, 1999: 3,819,716 shares of Common Stock, par value
$.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Item III is incorporated by reference from the Registrant's definitive proxy
statement relating to its 1999 Annual Meeting of Stocklholders.
2. The following replaces all of Part III, which consists of Items 10, 11, 12,
and 13.
2
PART I
Item 1. Business.
Trans Global Services, Inc. (the "Company"), is engaged in providing technical
temporary staffing services. In performing such services, the Company addresses
the current trend of major corporations in "downsizing" and "outsourcing" by
providing engineers, designers and technical personnel on a temporary contract
assignment basis pursuant to contracts with major corporations. The engagement
may relate to a specific project or may cover an extended period based on the
client's requirements. The Company believes that the market for outsourcing
services such as those offered by the Company results from the trend in
employment practices by major corporations in the aircraft, aerospace,
electronics, energy, engineering and telecommunications industries to reduce
their permanent employee staff and to supplement their staff with temporary
personnel on an as-needed basis. The Company seeks to offer its clients a
cost-effective means of work force flexibility and the elimination of the
inconvenience associated with the employment of temporary personnel, such as
advertising, initial interviewing, fringe benefits and record keeping. Although
the employees provided by the Company are on temporary contract assignment, they
work with the client's permanent employees; however, they may receive different
compensation and benefits than permanent employees.
In providing its services, the Company engages the employees, pays the payroll
and related costs, including FICA, worker's compensation and similar Federal and
state mandated insurance and related payments. The Company charges its clients
for services based upon the hourly payroll cost of the personnel. Each temporary
employee submits to the Company a weekly time sheet with work hours approved by
the client. The employee is paid on the basis of such hours, and the client is
billed for those hours at agreed upon billing rates.
The Company also offers its clients a range of integrated logistical support
services which are performed at the Company's facilities. These services, which
are ancillary to a project, can include the management of technical documents
involving technical writing, preparation of engineering reports, parts
provisioning documents and test equipment support documents, establishing
maintenance concepts and procedures, and providing manpower and personnel
support. In performing these services, the Company may hire the necessary
employees for its own account and may work with the client in developing and
preparing the documentation. Payments are made pursuant to a purchase order from
the client on a project basis and not as a percentage of the cost of the
employees. To date, the integrated logistics support business has not generated
more than nominal revenue, and no assurance can be given that the Company will
generate any significant revenue or profit from such services.
The Company's strategy has been directed at increasing its customer base and
providing additional services, such as integrated logistics support, to its
existing customer base. The Company believes that the key to profitability is to
provide a range of services to an increased customer base. In this connection,
the Company is increasing its marketing effort both through its own personnel
and in marketing efforts with other companies that offer complementary services.
3
Item 1. Business [Continued]
Forward Looking Statements
The statements in this Form 10-K Annual Report that are not descriptions of
historical facts may be forward looking statements that are subject to risks and
uncertainties. In perticular, statements in this Form 10-K Annual Report,
including any material incorporated by reference in this Form 10-K, that state
our intentions, beliefs, expectations, strategies, predictions or any other
statements relating to our future activities or other future events or
conditions are "forward-looking statements." Forward-looking statements are
subject to risks, uncertainties and other factors, including, but not limited
to, those identified under "Risk Factors," those described in Management's
Discussion and Analysis of Financial Conditions and Results of Operations and
those described in any other filings with the Securities and Exchange
Commission, as well as general economic conditions, any one or more of which
could cause actual results to differ materially from those stated in such
statements.
Risk Factors
Our clients are concentrated in the aerospace industry. Our three largest
clients for 1998 and 1997 were The Boeing Company, Lockheed-Martin Corporation
and Northrop Grumman, which accounted for revenues of approximately $40 million,
or 60.1% of revenue, for 1998, and $48 million, or 63.2% of revenue, for 1997.
Our clients may generally terminate their agreements with us without significant
notice. The loss of a major client could have a significant effect upon our
earnings. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business-- Markets and Marketing".
Because our clients are in the aerospace industry, our business is affected by
industry trends. In recent years, the aerospace industry has been reducing its
overhead by using temporary staffing from third parties to provide certain
technical services. Any change in this trend could reduce our revenue and
earnings. In addition, factors which affect the aerospace industry in general
will affect our business. During 1998, the aerospace industry was subject to a
dramatic slowdown, which was reflected in a decline in revenue from our major
customers. A continuation or acceleration of this slowdown in the aerospace
industry could have an increasing negative impact on our business. See Item
7,"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Markets and Marketing."
We need to offer certain benefits to our employees. At present, because of our
financial position, we do not offer our employees the direct deposit of their
payroll checks into their bank accounts. We believe that our growth will be
impaired if we cannot offer employees direct payroll deposit.
We need additional working capital. At December 31, 1998, we had working capital
of approximately $973,000. We require additional working capital in order to
expand our business, to reduce our interest costs and to offer our employees
direct payroll deposit. We do not have any agreements with any party to provide
us with such working capital, and we may not be able to obtain such working
capital. See Item 7, "Management's Discussion and Analysis of financial
Condition and Results of Operations".
4
Item 1. Business [Continued]
We need to attract qualified personnel to service our clients. We are dependent
upon both our ability to obtain contracts with clients and to provide our
clients with qualified employees. The market for qualified personnel is highly
competitive, and we compete with other companies in obtaining contracts with
potential clients and in attracting employees. See "Business--Competition."
Certain of our directors have a conflict of interest. Three of our five
directors are also the directors of Consolidated Technology Group Ltd., our
largest stockholder, which owns 40.1% of our common stock. As a result such
directors may have the power to determine the terms of any agreement between us
and Consolidated.
On February 25, 1999, we entered into an agreement with Consolidated pursuant to
which Consolidated, through a subsidiary, is to transfer to us 1,150,000 shares
of our common stock in satisfaction of (i) Consolidated's obligations to pay the
redemption price of $2,100,000 payable with respect to the Consolidated Series G
2% Cumulative Redeemable Preferred Stock owned by us, together with accrued
dividends of approximately $140,000, and (ii) Consolidated's obligations to pay
us $325,952 in respect of advances made by us to certain of Consolidated's
subsidiaries. The agreement as amended also gives Consolidated the right to
retain the 1,150,000 shares of our common stock if it pays us by April 30, 1999,
the redemption price of $2,100,000 together with the accrued dividends and the
$325,952 due us. The shares are being held in escrow pending the determination
by Consolidated whether to make such payment.
We are dependent upon our management. Our business is dependent upon our senior
executive officers, principally Mr. Joseph G. Sicinski, president, who is
responsible for the Company's operations, including marketing and business
development.
Organization of the Company
The Company is a Delaware corporation which was incorporated in September 1993
under the name Concept Technologies Group, Inc. ("Concept"). The Company's
executive offices are located at 1393 Veterans Memorial Hwy., Hauppauge, New
York 11788, telephone (516) 724-0006
In May 1995, Concept acquired all of the issued and outstanding stock of Trans
Global Services, Inc., a Delaware corporation now known as TGS Services Corp.
("TGS"), in exchange for a controlling interest in the Company.
The Company's operations are conducted through its two subsidiaries, Avionics
Research Holdings, Inc. ("Holdings") and Resource Management International, Inc.
("RMI").
References to the Company refer to the Company and its subsidiaries, unless the
context indicates otherwise.
As of February 25, 1999 Consolidated Technology Group Ltd., a public
corporation, ("Consolidated")owned, through its subsidiary SIS Capital Corp.
("SISC") approximately 40.1% of the Company's outstanding Common Stock. On
February 25, 1999 the Company and Consolidated entered into an agreement
pursuant to which Consolidated is to transfer to the Company 1,150,000 shares of
Trans Global's common stock, which are owned by SISC, in satisfaction of (i)
Consolidated's obligations to pay the redemption price of $2,100,000 payable
with respect to the Consolidated Series G 2% Cumulative Redeemable Preferred
5
Item 1. Business [Continued]
Stock owned by Trans Global together with accrued dividends of approximately
$140,000 and (ii) Consolidated's obligation to pay the Company $325,952 in
respect of advances made by Trans Global to certain of Consolidated's
subsidiaries. The agreement as amended also gives Consolidated the right to
retain such shares if, by April 30, 1999, Consolidated pays the redemption price
of $2,100,000 together with accrued dividends and the $325,952 due to the
Company. If the 1,150,000 shares are transferred, Consolidated will own 379,994
shares, or approximately 14.2% of the Company's common stock, and Consolidated
will have certain registration rights with respect to such shares.
Markets and Marketing
The market for the Company's services is comprised of major corporations in such
industries as aircraft, aerospace, electronics, energy, engineering, computer
services and telecommunications, where "downsizing" and "outsourcing" have
become an increasingly important method of cost reduction. Typically, a client
enters into an agreement with one or a small number of companies to serve as
employer of record for its temporary staff, and its agreements are terminable by
the client without significant notice.
The Company maintains a computerized data base of technical personnel based upon
their qualifications and experience. The data base, which contains more than
100,000 names, is generated through employees previously employed by the
Company, referrals and responses to advertisements placed by the Company in a
variety of local media, including newspapers, yellow pages, magazines and trade
publications. Part of the Company's responsibilities for any engagement is the
recruitment and initial interviewing of potential employees, with the client
conducting any final interviews it deems necessary. The majority of work
performed by the Company's employees is performed at the client's premises and
under the client's direction, although the Company is the employer of record.
The Company markets its services to potential clients through its officers,
management and recruitment personnel who seek to provide potential clients with
a program designed to meet the client's specific requirements. The marketing
effort utilizes referrals from other clients, sales calls, mailings and
telemarketing. The Company also conducts an ongoing program to survey and
evaluate the clients' needs and satisfaction with the Company's services, which
it uses as part of its marketing effort.
Although the Company has seven offices, including its main office in Long
Island, New York, throughout the United States, there is no limited geographic
markets for the Company's services. The Company has in the past established
offices in new locations when it receives a contract in the area and it cannot
effectively service such contract from its existing offices. The Company intends
to continue to establish new offices as necessary to meet the needs of its
customers.
A client will utilize contract engineering services such as those provided by
the Company when it requires a person with specific technical knowledge or
capabilities which are not available from the client's permanent staff or to
supplement its permanent staff for a specific project or to meet peak load
requirements. When the client requires personnel, it provides the Company with a
detailed job description. The Company then conducts an electronic search in its
6
Item 1. Business [Continued]
computerized resume data base for candidates matching the job description. In
addition, each branch office maintains a file of active local resumes for
candidates available for assignment in the vicinity of the branch office. The
candidates are then contacted by telephone by the Company's recruiters, who
interview interested candidates. If a candidate is acceptable to the Company and
interested in the position, the Company refers the candidate to the client. An
employment agreement is executed with the Company prior to the commencement of
employment.
The Company serves primarily the aircraft, aerospace and electronics industries
as well as the telecommunications, banking and computer science industries and
public utilities along with numerous manufacturing companies. The Company is
expanding its effort to address the general trend of "downsizing" and
"outsourcing" by major corporations on a national basis. To meet this goal, the
Company has commenced a national sales campaign addressing a broad spectrum of
Fortune 500 companies, offering a managed staffing service to those companies in
the process of downsizing and outsourcing specific functions. Since a company
engaged in downsizing seeks to focus on its core business needs with its
in-house staff, the Company seeks to identify and address the needs of a
specific task or department not part of the core business for which outsourcing
would be an appropriate method of addressing those needs. In addressing these
needs, the Company has conducted marketing efforts with Manpower International,
Inc., Adecco and Olsten Corporation.
The Company's contracts are generally terminable by the client on short notice.
The Company's largest customers for 1998 were Boeing, Lockheed, Northrop
Grumman, Gulfstream Aerospace and Bell Helicopter Textron which accounted for
approximately $16 million, $12 million, $12 million, $6 million and $4 million
or 24.4%, 18.3%, 17.4%, 9.0% and 6.3% of revenue, respectively.
In 1997, Boeing, Northrop Grumman, Lockheed, Gulfstream Aerospace and Bell
Helicopter Textron were the Company's largest customers. Revenue attributed to
those customers were $20 million, $15 million, $13 million, $7 million and $6
million or 25.9%, 19.9%, 17.4%, 8.6% and 7.5% respectively. The Company's
largest customers for 1996 were Boeing, Lockheed, Northrop Grumman, Gulfstream
Aerospace Corp. and Bell Helicopter Textron , which accounted for approximately
$16 million, $13 million, $9 million, $5 million and $4 million, or 25.6%,
20.8%, 14.4%, 8.0% and 6.4% of revenue, respectively.
Competition
The business of providing employees on either a permanent or temporary basis is
highly competitive and is typically local in nature. The Company competes with
numerous technical service organizations, a number of which are better
capitalized, better known, have more extensive industry contacts and conduct
extensive advertising campaigns aimed at both employers and job applicants. The
Company believes that the ability to demonstrate a pattern of providing reliable
qualified employees is an important aspect of developing new business and
retaining existing business. Furthermore, the ability of the Company to generate
revenues is dependent not only upon its ability to obtain contracts with
clients, but also to provide its clients with qualified employees. The market
for qualified personnel is highly competitive, and the Company competes with
7
Item 1. Business [Continued]
other companies in attracting employees. In order to attract these qualified
employees the company needs to provide them with similar benefits to its
competitiors, such as direct payroll deposit. The Company is not presently able
to provide that benefit to its employees due to insufficient capitalization. The
ability of the Company to increase its business with existing clients or to
attract other clients will be affected by its working capital. Accordingly, the
failure of the Company to increase its working capital may adversely effect its
ability to expand its business.
Government Regulations
The technical temporary staffing industry,in which the Company is engaged, does
not require licensing as a personnel or similar agency. However, as a provider
of personnel for other corporations, the Company is subject to Federal and state
regulations concerning the employment relationship, including those relating to
wages and hours and unemployment compensation. The Company also maintains a
401(k) plan for its employees and is subject to regulations concerning such
plan.
The Company does not have contracts with any government agencies. However, the
Company does have contracts with clients, including major defense contractors,
that have contracts with government agencies. The Company's contracts with its
clients are based on hourly billing rates for each technical discipline. Many of
the clients' contracts with government agencies are subject to renegotiation or
cancellation for the convenience of the government. Since the manpower needs of
each of the Company's clients are based on the clients own requirements and the
client's needs are affected by any modification in requirements, any reduction
in staffing by a client resulting from cancellation or modification of
government contracts could adversely impact the business of the Company.
Employees
At December 31, 1998, the Company had 744 employees, of which 698 were contract
service employees who performed services on the clients' premises and 46 were
executive and administrative employees. Each of the Company's offices is staffed
by recruiters and sales managers. Each contract service employee enters into a
contract with the Company which sets forth the client for whom and the facility
at which the employee's services are to be performed and the rate of pay. If an
employee ceases to be required by the Company's clients for any reason, the
Company has no further obligation to the employee. Although assignments can be
for as short as 90 days, in some cases, they have been for several years. The
average assignment is in the range of six to nine months. The Company's
employees are not represented by a labor union, and the Company considers its
employee relationship to be good.
Executive Officers of the Company
The following are the executive officers of the Company as of March 31, 1999:
Name Age Position with the Company
----- ---- -------------------------
Joseph G. Sicinski 67 Chief Executive Officer, President and director
Edward D. Bright 61 Chairman of the Board
Glen R. Charles 45 Chief Financial Officer, Secretary and Treasurer
Frank J. Vincenti 46 Vice President
8
Item 1. Business [Continued]
Mr. Joseph G. Sicinski has been president and a director of the Company since
May 1995. He served in the same capacities for TGS since its organization in
January 1995, and served as president of a predecessor of TGS since September
1992. He has been chief executive officer of the Company since April 1998. For
more than eight years prior thereto, he was executive vice president of
corporate marketing for Interglobal Technical Services, Inc., which was engaged
in providing technical temporary staffing services. Mr. Sicinski is also a
director of Netsmart Technologies, Inc., ("Netsmart"), which markets medical
information systems. SISC, the Company's largest stockholder is also the largest
stockholder of Netsmart.
Mr. Edward Bright has been a director of the Company since April 1998. In April
1998, Mr. Bright was also elected as chairman, secretary, treasurer and a
director of Consolidated, the parent company of SISC, and a director of
Netsmart. Consolidated, through SISC, is the principal stockholder of the
Company and, through another subsidiary, offers telecommunications services.
From January 1996 until April 1998, Mr. Bright was an executive officer of or
advisor to a subsidiary of Netsmart which was acquired by Netsmart in June 1994.
From June 1994 until January 1996, he was chief executive officer of Netsmart.
Mr. Glen R. Charles has been chief financial officer and treasurer of the
Company since May 1995 and of TGS since its organization in January 1995. He has
been secretary of the Company since April 1998. Mr. Charles served as chief
financial officer of RMI since its acquisition in November 1994. From 1992 to
November 1994, he was engaged in the private practice of accounting.
Mr. Frank J. Vincenti has been Vice President in charge of operations since May
1998. Mr. Vincenti has approximately 25 years of experience in the contract
engineering industry with direct experience in staffing, recruiting, sales and
marketing. Mr. Vincenti was previously employed by CDI, a leading competitor of
the Company, where he served as Vice President of regional operations in the
information technology division.
Item 2. Description of Property.
The Company leases approximately 7,500 square feet of office facilities at its
location in Long Island, New York, where it maintains its executive offices. It
also rents modest office space in Houston Texas, Phoenix Arizona, Arlington
Texas, Los Angeles California, Seattle Washington and Orlando Florida. The
aggregate annual rent payable by the Company is approximately $225,000, which is
subject to annual increases. The Company believes that its present office space
is adequate for its present needs and that additional office space is readily
available on commercially reasonable terms.
9
Item 3. Legal Proceedings.
In November 1997, an action was commenced in the Supreme Court of the State of
New York, County of Suffolk, by Ralph Corace against RMI seeking damages of
approximately $1.1 million for an alleged breach of contract by the Company. Mr.
Corace was the president of Job Shop Technical Services, Inc., from which RMI
purchased assets in November 1994. The Company believes that the action is
without merit, will vigorously contest this matter and has filed counterclaims
against Mr. Corace.
Item 4. Submission of Matters to a vote of Security Holders.
No matters were voted upon during the fourth quarter of 1998.
10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on The Nasdaq SmallCap Market under the
symbol TGSI.
On June 20, 1997, the Company effected a one-for-six reverse split in its Common
Stock. All share and per share information give effect, retroactively, to such
reverse split.
The high and low closing price for the Company's Common Stock since January 1996
are as follows:
Common Stock
---------------
High Low
1997
First Quarter 12-9/16 6-3/4
Second Quarter 9-3/16 1-5/8
Third Quarter 4-3/4 1-9/16
Fourth Quarter 6-9/16 3-7/8
1998
First Quarter 6-1/8 5
Second Quarter 5-3/4 4-1/16
Third Quarter 5 3
Fourth Quarter 4/3/4 1-1/16
1999
First Quarter 1-7/8 3/4
The closing price for the Common Stock on March 31, 1999 was $1.1875. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
As of February 28, 1999, the Company believes that there were approximately
2,000 beneficial holders of record of the Common Stock.
The Company has paid no dividends on its Common Stock since inception, and does
not expect to pay any dividends for the foreseeable future.
11
Item 6. Selected Financial Data.
TRANS GLOBAL SERVICES, INC.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Set forth below is selected financial data with respect to the Company for the
years ended December 31, 1998, 1997, 1996, 1995 and 1994. The selected financial
data has been derived from the financial statements which appear elsewhere in
this Report. This data should be read in conjunction with the financial
statements of the Company and the related notes which are included elsewhere in
this Report.
Statement of Operations Data 1:
- - ------------------------------
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
Revenue $ 67,244 $75,725 $62,594 $63,152 $25,287
Net income/(loss) from continuing operations 805 1,023 (681) (4,413) (411)
Net income/(loss) 805 1,023 (681) (4,696) (411)
Net income/(loss) per share of Common Stock .21 .27 ( .27) (8.88) (4.08)
Weighted average number of shares of
Common Stock outstanding 3,820 3,820 2,530 529 100
Balance Sheet Data:
December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
Working capital (deficiency) $ 972 $ 257 $ (755) $(2,401) $(1,805)
Total assets 12,597 13,942 13,100 12,763 10,345
Total liabilities 3,630 5,943 6,274 8,511 9,033
Accumulated deficit (3,959) (4,765) (5,788) (5,106) (411)
Stockholders' equity 8,967 7,999 6,826 4,252 1,312
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Years ended December 31, 1998, 1997 and 1996
Revenue from technical temporary staffing services is based on the hourly cost
of payroll plus a percentage. The success of the Company's business will be
dependent upon its ability to generate sufficient revenue to enable it to cover
its fixed costs and other operating expenses, and to reduce its variable costs.
Under its agreements with its clients, the Company is required to pay its
employees and pay all applicable Federal and state withholding and payroll taxes
prior to the receipt of payment from the clients. Furthermore, the Company's
payments from its clients are based upon the hourly rate paid to the employee,
without regard to when payroll taxes are payable with
12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
respect to the employee. Accordingly, the Company's cost of services are greater
during the first part of the year, when Federal Social Security taxes and state
unemployment and related taxes, which are based on a specific level of
compensation, are due. Thus, until the Company satisfies its payroll tax
obligations, it will have a lower gross margin than after such obligations are
satisfied. Furthermore, to the extent that the Company experiences turnover in
employees, its gross margin will be adversely affected. For example, in 1999,
Social Security taxes are payable on the first $72,600 of compensation. Once
that level of compensation is paid with respect to any employee, there is no
further requirement for the Company to pay Social Security tax for such
employee. Since most of the Company's employees receive compensation in excess
of that amount, the Company's costs with respect to any employee are
significantly higher during the period when it is required to pay Social
Security taxes than it is after such taxes have been paid.
The Company's revenues, derived principally from the aircraft and aerospace
industry, in 1998, totalled $67.2 million. This reflected a decrease of 11% from
the revenue in 1997. In 1997, the Company experienced a 21% increase in revenue
over that achieved in 1996. The decrease from 1997 to 1998, can be primarily
attributed to the general slowdown in the aerospace industry, including the
effects of reduced orders particularly resulting from the unstable economic
climate in Asia. This trend has continued during the first quarter of 1999. The
increase from 1996 to 1997 was a reflection of the Company's placement efforts
in meeting the increased needs of its customers. During 1998, approximately
60.1% of the Company's revenue was generated from its three largest customers
and approximately 75.4% of the revenue was generated from its five largest
customers. In 1997, approximately 63% of the Company's revenue was derived from
its three largest customers and approximately 79% of such revenue was derived
from its five largest clients. In 1996, these customers accounted for 61% and
75% of revenue respectively. The trend toward consolidation in the defense
industry in general and the aerospace industry in particular has accentuated the
concentration of major clients within the aerospace industry, and the Company
may be adversely affected by any factors which affect the defense and aerospace
industries.
The Company's gross margins for 1998, 1997 and 1996 were 9.2%, 8.8% and 8.2%
respectively. The continued improvement of gross margins reflects both the
Company's efforts to expand its customer base with higher gross margin business
and its willingness to terminate customer relationships or reduce the scope of
services for customers that do not generate an acceptable gross margin.
Selling, general and administrative expenses exclusive of related party expenses
and amortization of intangibles in 1998 increased by 5.2% over 1997 which
reflected an increase of 9.0% from 1996. The Company is focusing its business
strategy on maintaining general and administrative expenses and increasing its
sales efforts in order to compete more effectively in this competitive
marketplace. Related party expenses decreased by 54% based on the termination of
the Company's management services agreement with Consolidated Technology Group,
Ltd., effective April 30. 1998.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
Years Ended December 31, 1998, 1997 and 1996
Amortization of customer lists and other intangible assets declined in 1998 by
approximately 18% compared to that of 1997 which had decreased by 26.6% compared
to that of 1996. This reduction reflected the full amortization in 1997 of
certain intangible assets.
Interest expense for 1998 decreased by 33% compared to 1997 which had increased
by approximately 9% over 1996. This decrease is primarily attributable to the
lower financing rates payable through the Company's credit facility with
Citizens and by reduced borrowing reflecting a reduced level of revenue and
accounts receivable.
Net Income (Loss)
The Company's net income before income tax benefit was $469,000 for 1998,
compared with $748,000 in 1997 and a loss of $681,000 in 1996. The Company
recognized a tax benefit from the use of its tax loss carryforwards of $336,000
in 1998 and $275,000 in 1997. The company's net income was income approximately
$805,000 or $.21 per share for 1998 as compared with net income of approximately
$1,023,000 or $.27 per share for 1997 and a net loss of $681,000 or $.27 per
share loss for
1996.
Liquidity and Capital Resources
At December 31, 1998, Trans Global Services, Inc. had $972,643 of working
capital. The Company's principal source of cash during 1998 was the cash flow
generated from operations and its credit facility with Citizens. Cash flow from
operating activity was $1,116,260 in 1998 compared to $1,072,461 in 1997 and
($1,109,899) in 1996. This increase in cash flow is primarily a result of the
Company's net income of $805,261 in 1998.
On April 23, 1998 the Company entered into a two-year revolving credit agreement
with Citizens Business Credit Company, a division of Citizen's Leasing
Corporation ("Citizens"). Pursuant to the credit agreement, the Company can
borrow up to 85% of its qualified accounts receivables at an interest rate of
prime plus 3/4% with a maximum availability of $7.5 million. Additional costs
associated with the new financing arrangement include an unused line fee equal
to 1/4 of one percent of the unused line and a monthly fee of $2,000. The
borrowings from Citizens are secured by a security interest in all of the
Company's assets. At December 31, 1998, such borrowings were approximately $2.6
million. At December 31, 1997 and 1996 the borrowings from the Company's prior
lender amounted to $3.6 million and $3.7 million. The interest rates (exclusive
of the fee) payable by the Company at December 31, 1998 was 8.5% and at December
31, 1997 and 1996 10.50% and 10.25% respectively.
On February 25, 1999, the Company entered into an agreement with Consolidated
and SISC, pursuant to which SISC is to transfer to the Company 1,150,000 shares
of the Company's common stock which are owned by SISC in satisfaction of (i)
Consolidated's obligations to pay the redemption price of $2,100,000 payable
with respect to the Consolidated Series G 2% Cumulative Redeemable Preferred
Stock owned by the Company together with accrued dividends of approximately
$140,000 and (ii) Consolidated's obligations to pay the Company $325,952 (the
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
"Consolidated Payable") in respect of advances made by the Company to certain of
Consolidates's subsidiaries. The agreement as amended also gives Consolidated
the right to retain the 1,150,000 shares if Consolidated pays the redemption
price of $2,100,000 together with the accrued dividends and the Consolidated
payable by April 30, 1999. The 1,150,000 shares and the Series G Preferred Stock
are being held in escrow pending the election by Consolidated to make such
payment. The Series G Preferred Stock is reflected on the balance sheet as
Investment in Preferred Stock of Affiliate.
If the 1,150,000 shares are transferred to the Company pursuant to the
agreement, the carrying value of the Series G Preferred Stock, which at December
31, 1998, includeing accrued dividends, and the $325,592 Consolidated payable
will be treated as a reduction of stockholder's equity, and the 1,150,000 will
be treated as treasury shares, unless canceled by the Company.
Other assets include deferred acquisition costa of $236,000. If the Company does
not complete an acquisition, such costs will be expensed.
Investing and financing activities required $203,974 and $1,005,850,
respectively, primarily as a result of $136,500 of accrued dividends earned on
the Company's Investment in the Preferred Stock of an Affiliated Company, and
payments amounting to $923,584 to reduce its borrowings from Citizens.
The Company continues to believe that as profits increase its working capital
will increase as well. However, the Company must still improve its working
capital and stockholders' equity in order to increase its revenue from certain
major clients and to attract clients requiring greater working capital.
The Company relies on its ability to generate cash flows from operating activity
and its borrowings to fund operations. The Company does not have any agreements
with any other funding sources and its business may be impaired if it does not
obtain adequate financing.
The previously reported claim by the U.S. Government Printing Office has been
settled with no payment by the Company.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year in a date
field. These programs were designed and developed without considering the impact
of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. This
issue is referred to as the "Year 2000 Issue". A significant portion of the
Company's computer software, particularly the software relating to payroll,
billing and other employee records, is presently Year 2000 compliant. The
Company is in the process of evaluating the potential cost to it in addressing
the Year 2000 issue with respect to its other software and the potential
consequences of and incomplete or untimely resolution of the Year 2000 issue.
Although the Company believes that it will not incur significant expenses to
become Year 2000 compliant, no assurance can be given that the Company will not
incur significant cost in addressing the Year 2000 issue or that the failure to
adequately address the Year 2000 issue will not have a material effect upon the
Company.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
15
Item 8. Financial Statements.
The Financial Statements begin on Page F-1.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
PART III
The information required by Part III is incorporated by reference from our
definitive proxy statement for our 1999 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission not later than April 30, 1999.
16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements.
The following financial statements are filed as part of this Form 10-K:
Trans Global Services, Inc. and Subsidiaries
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31, 1998,
1997, and 1996
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997, and 1996
Notes to Financial Statements
(b) Financial Statement Schedules.
None
(c) Exhibits
3.1-1 Restated Certificate of Incorporation.
3.2-2 By-Laws.
10.1.-6 Employment agreement dated October 15, 1997, between the Company and
Joseph G. Sicinski.
10.2 Employment agreement dated May 26, 1998, between the Company and
Frank Vincenti.
10.3-3 1995 Long-Term Incentive Plan.
10.4-4 1993 Stock Option Plan.
10.5-4 1995 Incentive Stock Plan.
10.6-2 Form of Series A Common Stock Purchase Warrants.
10.7-2 Form of Series D common Stock Purchase Warrants.
10.8-1 Agreement dated February 3, 1995 between the Company and Metro
Factors, Inc. ("Metro").
10.9-1 Letter agreements dated January 29, 1997 and February 5, 1997 between
the Company and Metro.
10.10-6 Letter agreement dated January 29, 1998, between the Company and
Metro.
10.11-7 Credit Agreement dated April 23, 1998 between the Company and Citizens
Business Credit Company.
10.12-8 1998 Long-Term Incentive Plan
10.13 COTG agreement incorporated by reference with Form 8K.
10.14 Agreement dated March 23, 1999 between Trans Global Services, Inc.,
ARC Networks, Consolidated Technology Group, Ltd. Technology
Acquisitions Ltd., and Gemini II, Inc.
17
Part IV [Continued]
11.1 Computation of income (loss) per share.
21.1-5 Subsidiaries of the Registrant
24.1 Consent of Moore Stephens, P.C.
25.1 Powers of attorney (See Signature Page).
27.1 Financial data schedule.
1. Filed as an exhibit to the Company's registration statement on Form S-1,
File No. 333-14289, and incorporated herein by reference.
2. Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995 and incorporated herein by reference.
3. Filed as an exhibit to the Company's definitive proxy material for its
special meeting of stockholders for November 1996 and incorporated herein
by reference.
4. Filed as an exhibit to the Company's Registration Statement on Form SB-2,
File No. 33-73178 and incorporated herein by reference.
5. Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
6. Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by reference.
7. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 and incorporated herein by reference.
8. Filed as an exhibit to the Company's definitive proxy material for its
annual meeting of stockholders for August 1998 and incorporated herein by
reference.
(d) Reports on Form 8-K
None
18
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TRANS GLOBAL SERVICES, INC.
Date: April 15, 1999 By:
Joseph G. Sicinski
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated. Each person whose signature
appears below hereby authorizes Joseph G. Sicinski as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments to this report, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission.
Signature Title Date
Joseph G. Sicinski President, Chief Executive April 15, 1999
Officer and Director
(Principal Executive Officer)
Glen R. Charles Chief Financial Officer (Principal April 15, 1999
Financial and Accounting Officer)
Edward D. Bright Director April 15, 1999
Donald Chaifetz Director April 15, 1999
Seymour Richter Director April 15, 1999
19
INDEX TO FINANCIAL STATEMENTS
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES PAGE
Report of Independent Certified Public Accounts
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997,and 1996 F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-10
Notes to Consolidated Financial Statements F-13
20
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of Trans Global Services, Inc.
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of Trans Global
Services, Inc. and its subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Trans
Global Services, Inc. and its subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
March 23, 1999
21
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1 9 9 8 1 9 9 7
Assets:
Current Assets:
Cash and Cash Equivalents $ 234,917 $ 328,484
Accounts Receivable - Net 3,922,843 5,470,353
Loans Receivable - Officer 5,000 47,500
Deferred Tax Asset-Current Portion 144,000 177,000
Deferred Loan Costs 82,266 -0-
Prepaid Expenses and Other Current Assets 214,323 176,353
---------- ----------
Total Current Assets 4,603,349 6,199,690
---------- ---------
Property and Equipment - Net 171,123 194,513
---------- ---------
Other Assets:
Due from Affiliates 1,615,035 1,675,955
Customer Lists 2,388,607 2,613,564
Goodwill - Net 726,968 775,545
Deferred Acquisition Costs 235,560 160,645
Deferred Tax Asset-Non Current 578,000 178,000
Other Assets 41,407 43,232
Investment in Preferred Stock of Affiliate 2,237,230 2,100,730
---------- --------
Total Other Assets 7,822,807 7,547,671
Total Assets $ 12,597,279 13,941,874
================ ==========
See Notes to Consolidated Financial Statements.
F-3
22
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1 9 9 8 1 9 9 7
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 314,625 $ 591,614
Accrued Income Taxes Payable 13,496 76,357
Accrued Payroll and Related Taxes and Expenses 528,574 1,416,134
Voluntary Settlement Agreement -0- 150,000
Loans Payable - Asset-Based Lender 2,647,244 3,570,828
Note Payable - Other 126,767 138,230
--------- --------
Total Current Liabilities 3,630,706 5,943,163
--------- --------
Commitments and Contingencies [10] -- --
--------- --------
Stockholders' Equity:
Common Stock $.01 Par Value, 25,000,000 Shares
Authorized at December 31,1998 and 50,000,000 Shares
Authorized at December 31,1997. Issued and
Outstanding 3,819,716 38,197 38,197
Capital in Excess of Par Value 12,887,851 12,887,851
Deferred Consulting Fees -0- (162,601)
Accumulated Deficit (3,959,475) (4,764,736)
---------- ---------
Total Stockholders' Equity 8,966,573 7,998,711
---------- --------
Total Liabilities and Stockholders' Equity $12,597,279 $ 13,941,874
=========== ==========
See Notes to Consolidated Financial Statements.
F-4
23
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 6
Revenues $ 67,243,713 $ 75,724,759 $ 62,594,051
Cost of Services Provided 61,023,970 69,077,544 57,436,052
---------- ---------- ----------
Gross Profit 6,219,743 6,647,215 5,157,999
---------- ---------- ----------
Operating Expenses:
Selling, General and
Administrative Expenses 5,040,121 4,791,674 4,396,503
Related Party Administrative Expenses 55,000 120,000 120,000
Amortization - Intangibles 273,537 333,995 455,200
--------- --------- -------
Total Operating Expenses 5,368,658 5,245,669 4,971,703
--------- --------- ---------
Operating Profit 851,085 1,401,546 186,296
--------- --------- ---------
Other Income (Expenses):
Interest Expense (516,698) (775,437) (712,289)
Related Party-Interest Income 130,000 130,000 106,000
Other Income (Expense) 4,611 ( 8,591) 14,743
Settlement Costs -- -- (300,000)
--------- -------- -------
Total Other Expenses - Net (382,087) (654,028) (867,546)
--------- -------- --------
Income(Loss)before Income Tax Benefit 468,998 747,518 ( 681,250)
Income Tax Benefit 336,263 275,363 --
--------- -------- ---------
Net Income (Loss) $ 805,261 $1,022,881 $ (681,250)
========= =========== ===========
Basic Earnings (Loss) Per Share $ .21 $ .27 $ ( .27)
Weighted Average Number of Shares 3,819,716 3,819,574 2,530,495
Diluted Earnings (Loss) Per Share:
Incremental Shares from Assumed
Conversion of Options and Warrants 11,500 69,415 0
--------- ---------- ----------
Weighted Average Number of
Shares Assuming Dilution 3,831,216 3,888,989 2,530,495
Diluted Earnings (Loss) Per Share $ .21 $ .26 $ ( .27)
See Notes to Consolidated Financial Statements
F-5
24
Trans Global Services, Inc.
Consolidated Statement of Stockholders' Equity
Shares Amounts
Preferred stock $0.01 Par Value Series "A"
Convertible participating Authorized 25,000
shares
Balance - December 31,1995 25,000 250
Conversion of Series "A" Preferred Stock
to Common (25,000) (250)
-------- -------
Balance - December 31, 1996, 1997 and 1998 0 0
======== =======
Preferred Stock $.01 Par Value Series
"B" & C"
Convertible Authorized 25,000 shares each
Balance - December 31,1995 50,000 500
Cancelled in SISC Recapitalization (50,000) (500)
------- -----
Balance - December 31,1996, 1997 and 1998 0 0
====== =====
Preferred stock $.01 Par Value Series "D"
Convertible 6.25% Redeemable Authorized 20,000 shares
Balance - December 31,1995 20,000 200
Cancelled in SISC Recapitalization (20,000) (200)
------- -----
Balance December 31, 1996, 1997 and 1998 0 $ 0
======= =====
Preferred stock $0.01 Par Value Series "E"
Convertible participating Authorized 5,000 shares
Balance - December 31,1995 5,000 50
Conversion of shares of Series "E" Preferred
Stock to Common Stock (5,000) ( 50)
------- -----
Balance - December 31,1996, 1997 and 1998 0 0
======= ======
See Notes to Consolidated Financial Statements
F-6
25
Trans Global Services, Inc.
Consolidated Statement of Stockholders' Equity
Shares Amounts
Preferred stock $0.01 Par Value Series "F"
Convertible participating Authorized 10,000 shares
Balance - December 31,1995 -- --
Issued in SISC Recapitialization 10,000 100
Cancelled on Conversion into Common Stock (10,000) (100)
------ ----
Balance- December 31, 1996, 1997 and 1998 0 0
======= ======
Common Stock $.01 Par Value Authorized
50,000,000 shares at December 31, 1997 and
25,000,000 at December 31, 1998
Balance - December 31,1995 570,766 5,707
Issued on Conversion of Series "A" and "E"
Preferred Stock 353,333 3,533
Issuance of shares of Common Stock -
Regulation S 916,666 9,167
Issuance of shares of Common Stock-
Sirrom Capital 1,040 10
Deferred Issuance of shares of Common Stock
Related to Acquisition Stock of Concept 123,413 1,234
Deferred Issuance of shares of Common Stock
Related to Sale of WWR 176,666 1,767
Issued on Conversion of Series F Preferred
Stock 1,666,666 16,667
Exercise of Common Stock Options 8,333 83
---------- -------
Balance - December 31, 1996 3,816,883 38,168
Exercise of Common Stock Options 2,833 29
----------- --------
Balance - December 31, 1997 3,819,716 $38,197
--------- -------
Balance - December 31, 1998 3,819,716 $38,197
========= =======
See Notes to Consolidated Financial Statements
F-7
26
Trans Global Services, Inc.
Consolidated Statement of Stockholders' Equity
Amounts
Capital in Excess of Par Value
Balance - December 31,1995 9,859,773
Conversion of Series "A" and "E" Preferred
Stock to Common ( 3,233)
Issuance of shares of Common Stock-Regulation S 2,315,833
Issuance of shares of Common Stock-Sirrom Capital 9,496
Deferred Issuance of shares of Common Stock related to
Acquisition Stock of Concept (1,234)
Deferred Issuance of shares of Common Stock related to
Sale of WWR ( 1,767)
SISC Recapitalization 750,600
Expiration of Below Market Options (138,125)
Issuance of Below Market Options 79,687
Conversion of Series F Preferred Stock to Common (16,567)
Exercise of Common Stock Option 24,917
--------
Balance - December 31,1996 12,879,380
Exercise of Common Stock Options 8,471
----------
Balance - December 31, 1997 12,887,851
----------
Balance - December 31, 1998 12,887,851
==========
Accumulated Deficit
Balance - December 31, 1995 (5,106,367)
Net (Loss) ( 681,250)
----------
Balance - December 31, 1996 (5,787,617)
Net Income 1,022,881
---------
Balance - December 31, 1997 $(4,764,736)
Net Income 805,261
-----------
Balance - December 31, 1998 $(3,959,475)
===========
See Notes to Consolidated Financial Statements
F-8
27
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
AMOUNT
Deferred Charges
Balance - December 31, 1995 $ (508,512)
Amortization of Deferred Consulting Costs 230,108
Expiration of Below Market Options 138,125
Issuance of Below Market Options ( 79,687)
Recapture of Amortization on Expired Below
Market Options ( 83,507)
---------
Balance - December 31, 1996 ( 303,473)
Amortization of Deferred Consulting Costs 140,872
--------
Balance - December 31, 1997 ( 162,601)
Amortization of Deferred Consulting Costs 162,601
--------
Balance - December 31, 1998 -0-
=========
Total Stockholders' Equity
Balance - December 31, 1995 4,251,601
Issuance of shares of Common Stock-Regulation S 2,325,000
Issuance of shares of Common Stock-Sirrom Capital 9,506
SISC Recapitalization 750,000
Amortization Deferred Consulting Costs 230,108
Recapture of Amortization on Expired Below
Market Options (83,507)
Exercise of Common Stock Options 25,000
Net (Loss) for the Year Ended December 31,1996 (681,250)
-------
Balance - December 31, 1996 6,826,458
Exercise of Common Stock Options 8,500
Amortization of Deferred Consulting Costs 140,872
Net Income for the Year Ended December 31, 1997 1,022,881
--------
Balance - December 31, 1997 $ 7,998,711
Amortization of deferred Consulting Costs 162,601
Net Income for the Year Ended December 31, 1998 805,261
----------
Balance - December 31, 1998 $ 8,966,573
See Notes to Consolidated Financial Statements
F-9
28
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 6
Operating Activities:
Net Income (Loss) $ 805,261 $1,022,881 $(681,250)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided By (Used in)
Operations:
Depreciation and Amortization 393,364 385,351 477,160
Charges from Option Exercise 162,601 140,872 230,108
Deferred Offering Costs -- 320,245 --
Deferred Income Taxes (367,000) (355,000) --
Recapture of Amortization on
Expired Below Market Options -- -- (83,507)
Settlement Costs -- -- 300,000
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Assets:
Accounts Receivable-Net 1,547,510 (280,297) (320,940)
Loan Receivable - Officer 42,500 ( 5,000) (20,000)
Prepaid Expenses and Other
Current Assets ( 37,970) 53,721 (149,108)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued
Expenses ( 276,989) 308,258 (267,738)
Accrued Payroll and Related
Taxes and Expenses ( 887,560) (367,927) 28,376
Accrued Payroll Tax Penalties -0- ( 77,000) (623,000)
Accrued Income Taxes Payable ( 62,861) 76,357 --
Accrued Voluntary Settlement Agreement ( 150,000) (150,000) --
--------- ---------- --------
Total Adjustments 363,595 49,580 (428,649)
---------- --------- ----------
Net Cash - Operating Activities 1,168,856 1,072,461 (1,109,899)
---------- --------- ----------
Forward
See Notes to Consolidated Financial Statements.
F-10
29
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 6
Net Cash -
Operating Activities Forwarded $1,168,856 $1,072,461 $ (1,109,899)
Investing Activities:
Capital Expenditures (55,307) (171,288) (55,536)
Deferred Acquisition Costs (74,915) (160,645) --
Repayments from Affiliates 60,920 -- --
Advances to Affiliates -- (167,453) (274,074)
Other, net 1,825 ( 20,337) 2,116
Investments in Preferred Stock
of Affiliate (136,500) -0- -0-
-------- -------- --------
Net Cash - Investing Activities (203,977) (519,723) (327,494)
---------- ----------- ---------
Financing Activities:
Net(Payments to) Advances from
Asset-Based Lender (923,584) (120,047) 12,173
Repayment of Subordinated Debt -- -- (700,000)
Payments to Affiliates -- -- (176,832)
Deferred Offering Costs -- (168,938) (151,307)
Deferred Loan Costs (123,399) -- --
Issuance of shares of Common Stock -- -- 2,334,506
Exercise of Stock Options -- 8,500 25,000
Repayment of Note Payable (11,463) -- (60,513)
--------- --------- ----------
Net Cash -
Financing Activities (1,058,446) (280,485) 1,283,027
Net(Decrease) Increase in Cash and
Cash Equivalents ( 93,567) 272,253 (154,366)
Cash and Cash Equivalents
- Beginning of Year 328,484 56,231 210,597
Cash and Cash Equivalents
- End of Year $ 234,917 $328,484 $ 56,231
=========== =========== ===========
Supplemental Disclosures of Cash
Flow Information:
Interest $ 516,698 $ 775,437 $ 712,289
Income Taxes $ 68,936 $ -- $ --
See Notes to Consolidated Financial Statements.
F-11
30
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the year ended December 31, 1996, the Company had the following:
Issued preferred stock and warrants to an affiliate and reduced amounts owed to
such affiliate by $750,000 plus accrued interest. A stock option granted in 1995
expired without having been exercised as to 85,000 shares. This resulted in a
recapture of $83,507 of amortization expense. Additional stock options were
granted and non-cash deferred charges of $79,687 were incurred which were
amortized over the 2 year life of the option.
See Notes to Consolidated Financial Statements.
F-12
31
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[1] Basis of Presentation
Trans Global Services, Inc. ("the Company or Trans Global"), a Delaware
corporation, operates through two subsidiaries, Avionics Research Holdings,
Inc., formerly known as ARC Acquisition Group, Inc.["Holdings"] and Resource
Management International,Inc. ["RMI"]. The Company is engaged in providing
technical temporary staffing services throughout the United States, principally
in the aerospace industry. The principal stockholder of the Company is SIS
Capital Corp. ["SISC"], a wholly-owned subsidiary of Consolidated Technology
Group Ltd. ["Consolidated"], a publicly held company. (See Note 18 in connection
with an agreement with Consolidated and SISC pursuant to when SISC may transfer
1,150,000 shares of common stock to the Company in satisfaction of certain
obligations of Consolidated to the Company.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of Trans Global Services, Inc. and its subsidiaries, Holdings and RMI.
All intercompany transactions have been eliminated in consolidation.
Cash and Cash Equivalents - The Company considers all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents. There
were no cash equivalents at December 31, 1998 and 1997.
Prepaid Expenses and Other Current Assets - Prepaid expenses primarily consist
of approximately $172,000 and $144,000 of prepaid insurance at December 31, 1998
and 1997, respectively.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line and accelerated methods over the estimated useful
lives of the respective assets. Estimated useful lives range from 5 to 10 years
as follows:
Furniture and Fixtures 5 - 7 years
Leasehold Improvements 5 - 10 years
Equipment 5 - 10 years
Expenditures for maintenance and repairs, which do not improve or extend the
life of the respective assets are expensed currently while major repairs are
capitalized.
Offering Costs- Deferred offering costs of $ 169,000 and $151,000 were incurred
in 1997 and 1996 with respect to a proposed public offering which was not
completed in 1997. These costs were expensed to selling, general and
administrative expenses in 1997.
F-13
32
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Deferred Acquisition Costs - Deferred acquisition costs represent legal,
accounting and other costs associated with the consummation of business
acquisitions by the Company. When such acquisitions are consummated, these costs
will be added to other costs incurred in the acquisition of such businesses. If
such acquisitions are not completed in the near term, these costs will be
expensed. (See Note 18)
Revenue Recognition - The Company records revenue as services are provided.
Stock Options and Similar Equity Instruments - On January 1, 1996, the Company
adopted the disclosure requirements of Statement of Financial Accounting
Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation," for stock
options and similar equity instruments [collectively, "Options"] issued to
employees, however, the Company will continue to apply the intrinsic value based
method of accounting for options issued to employees prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to
Employees" rather than the fair value based method of accounting prescribed by
SFAS No.123. SFAS No. 123 also applies to transactions in which an entity issues
its equity instruments to acquire goods or services from non- employees. Those
transactions must be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable.
Income Taxes - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". Under SFAS No. 109, the asset and liability
method is used to determine deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Earnings Per Share- Earnings per share of Common Stock reflects the weighted
average number of shares outstanding for each year. On June 20, 1997, the
Company effected a one-for-six reverse split in its Common Stock. All share and
per share information in these financial statements gives effect, retroactively,
to such reverse split.
The Financial Accounting Standards Board has issued SFAS No.128, "Earnings Per
Share", which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the years ended December 31, 1998 and 1997, have been calculated
in accordance with SFAS No. 128.The year ended December 31, 1996 earnings per
share data has been recalculated as necessary to conform to SFAS No.128.
F-14
33
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SFAS No. 128 supercedes APB Opinion No.15, "Earnings Per Share", and replaces
its primary earnings per share with a new basic earnings per share representing
the amount of earnings for the period available to each share of common stock
outstanding during the reporting period. SFAS No.128 also requires a dual
presentation of basic and diluted earnings per share on the face of the
statement of operations for all companies with complex capital structures.
Diluted earnings per share reflects the amount of earnings for the period
available to each share of common stock outstanding during the reporting period,
while giving effect to all dilutive potential common shares that were
outstanding during the period, such as common shares that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have an antidulutive
effect on earnings per share (i.e. increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon the exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.
Securities that could potentially dilute earnings per share in the future are
disclosed in Note 15.
Impairment - The Company reviews certain long-lived assets, including goodwill
and other intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
pursuant to guidance established in SFAS No. 121, "Accounting for the impairment
of long-lived assets and for long-lived assets to be disposed of." [See Note 5]
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-15
34
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[2] Summary of Significant Accounting Policies [Continued]
Concentration of Credit Risk - The Company extends credit to customers which
results in accounts receivable arising from its normal business activities. The
Company does not require collateral or other security to support financial
instruments subject to credit risk. It routinely assesses the financial strength
of its customers and believes that its accounts receivable credit risk exposure
is limited. Such estimate of the financial strength of such customers may be
subject to change in the near term. For each of the years ended December 31,
1998 and 1997, a significant portion of the Company's receivables were derived
from three customers [See Note 13].
Due to the nature of its operations, the Company deposits, on a monthly basis,
amounts in excess of the federally insured limit in financial institutions for
the payment of payroll costs. Such amounts are reduced below the federally
insured limit as payroll checks are presented for payment. Such reduction
generally occurs over three to four business days. At December 31, 1998, the
Company had amounts on deposit with two financial institutions which exceeded
the federally insured limit by approximately $400,000. The Company has not
experienced any losses and believes it is not exposed to any significant credit
risk from cash and cash equivalents.
[3] Accounts Receivable and Loan Payable - Asset Based Lender
Receivables are shown net of an allowance for doubtful accounts of $62,500 at
December 31, 1998 and 1997. On April 23, 1998 the Company entered into a two
year revolving credit agreement with Citizens Business Credit Company, a
division of Citizen's Leasing Corporation ("Citizens"). Pursuant to the credit
agreement, the Company can borrow up to 85% of its qualified accounts
receivables at an interest rate of prime plus 3/4% with a maximum availability
of $7.5 million. Additional costs associated with the new financing arrangement
include an unused line fee equal to 1/4 of one percent of the unused line and a
monthly fee of $2,000. The borrowings from Citizens are secured by a security
interest in all of the Company's assets. At December 31, 1998, such borrowings
were approximately $2.6 million. At December 31, 1997 and 1996 the borrowings
from the company's prior lender amounted to $3.6 million and $3.7 million. The
interest rates (exclusive of the fee) payable by the Company at December 31,
1998 was 8.5% and at December 31, 1997 and 1996 10.50% and 10.25% respectively.
Prior to April 1998 the Company financed a majority of its receivables from an
asset-based lender under agreements entered into in February 1995 and
subsequently amended. The agreements provided a maximum availability of funds of
$5,500,000. Funds were advanced in an amount equal to 85% of the total face
amount of outstanding and unpaid receivables, with the asset-based lender having
the right to reserve 15% of the outstanding and unpaid receivables financed.
F-16
35
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[4] Property and Equipment
Property and equipment at December 31, 1998 and 1997 is as follows:
19 9 8 1 9 9 7
Equipment $ 393,873 $ 349,701
Furniture and Fixtures 196,071 189,134
Leasehold Improvements 97,797 93,602
--------- ---------
Totals - At Cost 687,741 632,437
Less: Accumulated Depreciation 516,618 437,924
--------- ---------
Totals $ 171,123 $ 194,513
Depreciation expense charged to operations was $78,694 in 1998, $51,359 in 1997,
and $22,160 in 1996.
[5] Intangibles
The Company acquired its subsidiaries during 1994. As part of the purchase
agreements, the Company acquired customer lists, a restrictive covenant and
goodwill. The intangible assets acquired and the related amortization on the
straight-line method are summarized as follows:
Accumulated Amortization Net of Amortization
Life December 31, December 31,
Years Cost 1998 1997 1998 1997
Customer Lists 15 $3,374,477 $ 985,870 $ 760,913 $2,388,607 $2,613,564
Goodwill 20 $ 971,623 $ 244,655 $ 196,078 $ 726,968 $ 775,545
Goodwill represents the excess of the acquisition costs over the fair value of
net assets of business acquired. Amortization expense is calculated on a
straight-line basis over twenty years. Other intangibles are Customer Lists and
Covenants Not-to-Compete. Customer Lists represent listings of customers
obtained through acquisitions to which the Company can market its services.
Customer Lists are recorded at cost and are amortized on a straight- line basis
over the estimated useful life of fifteen years. The Company reviews Goodwill
and other intangibles to assess recoverability from future operations using
undiscounted cash flows. If the review indicates impairment, the Company will
incur a charge against operations to the extent that carrying value exceeds fair
value. Management has determined that fair value exceeds carrying value as of
December 31, 1998.
F-17
36
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[6] Related Party Transactions
During 1996, the Company issued to SISC 9,900 shares of Series F Preferred Stock
and warrants to purchase 3,200,000 shares of Common Stock at $7.50 per share in
exchange for the cancellation of $750,000 principal amount of the Company's debt
to SISC and all of the shares of the three series of Preferred Stock that were
owned by SISC, including accrued dividends. Such exchange is referred to as the
"SISC Recapitalization". SISC transferred 1,000 of such shares to Mr. Lewis S.
Schiller, who was then president and chief executive officer of both
Consolidated and the Company, pursuant to Mr. Schiller's employment agreement
with Consolidated. An additional 100 shares of Series F Preferred Stock were
issued to DLB, Inc., which was controlled by Mr. Schiller's wife, in exchange
for the cancellation of shares of preferred stock owned by DLB. The 10,000
shares of Series F Preferred Stock were converted into 10,000,000 shares of
Common Stock during 1996. As a result of this SISC Recapitalization, the
Company's obligations to SISC were reduced to $300,000, which was paid during
1996.
Additionally, the Company issued two-year warrants to purchase an aggregate of
83,333 shares of Common Stock at $21.00 per share. As a result of the March 1996
amendment to the Company's certificate of incorporation increasing the
authorized Common Stock, the 25,000 shares of Series A Convertible Preferred
Stock were automatically converted into 333,333 shares of Common Stock. The
former stockholders of Trans Global have certain registration rights with
respect to securities issued pursuant to the Trans Global Transaction.
In connection with the sale of a subsidiary engaged in an unrelated business, to
a subsidiary of Consolidated, the Company issued 176,666 shares of Common Stock
to SISC. In connection with such transaction, Consolidated satisfied the
obligation to pay approximately $2.1 million due to the Company through the
issuance of preferred stock of Consolidated.
The Company had a management services agreement with a wholly-owned subsidiary
of Consolidated pursuant to which the Company paid a monthly fee of $10,000
through January 1998. Commencing February 1998 such fee was increased to $15,000
through March 2000. The Company terminated the management services agreement
effective April 30, 1998.
At June 30, 1995, SISC converted $200,000 of the Company's obligations to SISC
into 5,000 shares of Series E Preferred Stock. In March 1996, as a result of
amendment to the Company's certificate of incorporation increasing its
authorized common stock, the 5,000 shares of Series E Preferred Stock was
automatically converted into 20,000 shares of Common Stock.
F-18
37
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
As of July, 1996 The Company owed SISC $1,050,000 for advances made by SISC.
Pursuant to an exchange [the "SISC Recapitalization"], the Company issued to
SISC 9,900 shares of Series F Preferred Stock and warrants to purchase 533,333
shares of Common Stock at $7.50 per share in exchange for the cancellation of
$750,000 principal amount of the Company's debt to SISC and all of the shares of
Series B, C, and D Preferred Stock owned by SISC, including accrued dividends
due on the Series D Preferred Stock. As part of the SISC Recapitalization, the
Company issued 100 shares of Series F Preferred Stock to DLB, which owned 5% of
the Series B and C Preferred Stock. The 10,000 shares of Series F Preferred
Stock were converted into 1,666,666 shares of Common Stock in October and
December 1996. As a result of the SISC Recapitalization, the Company's
obligations to SISC was reduced to $300,000, which was paid in 1996.
In April 1996, the Company issued to its directors warrants to purchase an
aggregate of 283,333 shares of Common Stock at $7.50 per share. The warrants
expire on April 1, 2001 and provide the holders with certain registration
rights. In connection with the issuance of such warrants, the obligation of the
Company to issue to two directors warrants to purchase an aggregate of 25,000
shares at $21.00 per share was terminated.
In July 1997, SISC sold 258,333 shares of Common Stock to the President
("President") for $1.625 per share, which was the market price on the date of
sale. The President issued his five-year non-recourse promissory note in payment
of the shares. In August 1997, SISC transferred to the president a warrant to
purchase 83,334 shares of Common Stock at $7.50 per share. SISC and the
president also canceled, ab initio, an option granted by SISC to the president
to purchase 133,333 shares of Common Stock from SISC at $1.50 per share.
The Company has from time to time made advances to three subsidiaries of SISC
[the "SISC Subsidiaries"] which are not owned or controlled by the Company. The
aggregate amount of such advances outstanding on December 31,1998 and 1997 was
$1,615,000 and $1,676,000, respectively. The Company has recorded interest
income from these subsidiaries of $130,000, $130,000 and $106,000 for the three
years ended December 31, 1998, 1997,and 1996 respectively. [See Note 18]
The advances to the SISC Subsidiaries are an obligation from Arc Networks, Inc.,
which is represented by Arc's 10% installment promissory note due August 31,
2003 in the principal amount of $1,216,673 (the "Arc Note"), and an obligation
from Consolidated with respect to $325,952, which is sujbect to the February 25,
1999 agreement with Consolidated. See Note 1.
[7] Note Payable - Other
At December 31, 1998 and 1997, a note payable to former stockholders of an
acquired subsidiary due September 1996 with interest at 7% remained outstanding.
The payment of principal and interest on this note was suspended until the
outcome of the Government Printing Office contingency was resolved.
F-19
38
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENT
[8] Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's net
deferred tax asset as of December 31, 1998 and 1997 are as follows:
December 31,
1998 1997 1996
Deferred Tax Liabilities $ -- $ -- $ --
------- -------- ---------
Deferred Tax Assets:
Allowance for Doubtful Accounts not
Currently Deductible 25,000 25,000 25,000
Net Operating Loss Carryforwards 1,296,000 1,482,000 2,200,000
---------- --------- ---------
Totals 1,321,000 1,507,000 2,225,000
Valuation Allowance 599,000 1,152,000 2,225,000
--------- --------- ---------
Net Deferred Tax Asset 722,000 355,000 --
Net Deferred Tax Asset - Current Portion 144,000 177,000 --
--------- --------- ---------
Net Deferred Tax Asset - Non Current $ 578,000 $ 178,000 $ --
========= ========== =========
The Company has recorded a net deferred tax asset of $722,000 at December 31,
1998. The realization of the net deferred tax asset is dependent on the Company
generating sufficient taxable income in future years. Although realization is
not assured, management believes it is more likely than not that all of the net
deferred tax asset will be realized. The amount of the net deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced.
The Company's deferred tax asset valuation allowance was 599,000 and $1,152,000
as of December 31, 1998 and 1997 , respectively. The valuation allowance
represents the tax effects of net operating loss carryforwards and other
temporary differences which the Company does not expect to realize. The
(decrease) in the valuation allowance amounted to $(553,000) and $(1,073,000)
for the years ended December 31, 1998 and 1997 respectively.
F-20
39
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The current and deferred income tax components of the provision [benefit] for
income taxes consist of the following:
Years ended December 31,
1998 1997 1996
----- ---- -----
Current:
Federal $ 1,041 $ -- $ --
State 29,696 79,637 --
------- ------- -------
Totals $ $ 79,637 $ --
Deferred:
Federal (286,994) (277,610) --
State ( 80,006) ( 77,390) --
--------- --------- --------
Totals (367,000) $(355,000) $ --
-------- ---------- --------
Totals $ (336,263) $(275,363) $ --
========== ========== ========
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
Years Ended December 31,
1998 1997 1996
---- ---- ----
Federal Statutory Rate 34% 34% (34%)
State Income Taxes, net of
federal tax 7% 7% --
Federal tax benefit of net operating
loss carryforwards (32%) (30%) --
(Decrease )Increase in valuation allowance (81%) (48%) 34%
----- ----- -----
Effective tax rate (72%) (37%) --
===== ===== =====
The following summarizes the operating loss carryforwards by year of expiration:
Amount Expiration Date
2,260,000 December 31, 2009
2,826,000 December 31, 2010
189,000 December 31, 2011
---------
3,241,000
F-21
40
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[9] Commitments
The Company leases office space and several office machines under operating
leases which expire in 2002. The following is an analysis of future minimum
lease commitments as of December 31, 1998:
1999 166,824
2000 134,742
2001 134,807
2002 11,328
2003 --
--------
Total $ 447,701
Rent expense amounted to $225,198, $211,503 and $174,312 for the years ended
December 31, 1998, 1997 and 1996 , respectively.
[10] Contingencies
In November 1997, an action was commenced in the Supreme Court of the State of
New York, County of Suffolk, by Ralph Corace against RMI seeking damages of
approximately $1.1 million for an alleged breach of contract by the Company. Mr.
Corace was the president of Job Shop Technical Services, Inc., from which RMI
purchased assets in November 1994. The Company believes that the action is
without merit, will vigorously contest this matter and has filed counterclaims
against Mr. Corace.
Due to the uncertainties in the legal process it is reasonably possible that
management's view of the outcome of the above matter may change in the near
term.
[11] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted SFAS No. 107, which requires
disclosing fair value to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed therein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences or realization or settlement. The following table
summarizes financial instruments by individual balance sheet accounts as of
December 31, 1998 and 1997:
Carrying Amount Fair Value
December 31, December 31,
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
Investment in Preferred Stock
of Affiliate (1) $2,237,230 $2,100,730 $2,237,230 $2,100,730
Debt Maturing Within One Year $2,774,011 $3,859,058 $2,774,011 $3,859,058
- - ---------------------------
(1) See Note 18 in connection with the agreement relating to Investment in
Preferred Stock of Affiliate.
F-22
41
TRANS GLOBAL SERVICES,INC.
NOTES TO FINANCIAL STATEMENTS
For certain financial instruments, including cash and cash equivalents, trade
receivables and payables, and short-term debt, it was assumed that the carrying
amount approximated fair value because of the near term maturities of such
obligations. The investment in preferred stock of affiliate is based upon the
fair value of the guarantee of fair value issued by such affiliate.
[12] Economic Dependency
In 1998, three customers of the Company, accounted for approximately $16
million, $12 million and $12 million respectively of revenue. Accounts
receivable of $1,720,000 were due from these customers collectively at December
31, 1998. In 1997, three customers of the Company, accounted for approximately
$20 million, $15 million and $13 million respectively of revenue. Accounts
receivable of $2,700,000 were due from these customers collectively at December
31, 1997. Three customers of the Company, accounted for approximately $16
million, $13 million and $9 million respectively, of the revenue for 1996.
Accounts receivable of approximately $2,850,000 were due from these customers
collectively at December 31, 1996.
[13] Employment and Management Contracts
In May 1998, the Vice President of Trans Global entered into a five-year
employment agreement pursuant to which he is to receive annual compensation of
$135,200. As additional compensation, he shall receive an annual bonus based on
performance. Bonus shall be determined by the Chief Executive Officer.
In October 1997, the President of Trans Global entered into a five-year
employment agreement, pursuant to which he receives annual compensation of
$260,000 subject to an annual cost of living increase. In addition, he is
entitled to an annual bonus of not less than 5% of the net income before tax and
all non-cash adjustments and expenses, including charges and fees paid to
Consolidated Technology Group, Ltd., its subsidiary and associated companies,
for Trans Global and its wholly or partially owned subsidiaries, currently owned
and acquired during the terms of the Agreement provided that such annual bonus
shall not exceed 200% of his annual salary. This Agreement supercedes his
employment agreement of September 1996.
Effective April 30, 1998, the Company's management services contract with a
subsidiary of Consolidated was terminated. The Company paid such subsidiary a
management services fee of $55,000, $120,000 and $120,000 for 1998, 1998 and
1996, respectively, pursuant to such contract.
[14] Stockholders Equity
At December 31, 1998, the authorized capital stock of the Company consisted of
5,000,000 shares of Preferred Stock, par value $.01 per share, and 25,000,000
shares of Common Stock, par value $.01 per share. The authorized shares of both
preferred and common stock was reduced to these amounts as a result of a
shareholder vote. The Board of Directors has the right to create and to define
the rights, preferences and privileges of the holders of one or more series of
Preferred Stock.
At December 31, 1998, 1997 and 1996 there were no shares of any series of
Preferred Stock outstanding.
F-23
42
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
At December 31, 1998, there were outstanding warrants to purchase 901,485 shares
of Common Stock at prices ranging from $7.50 - $50.70 per share.
A summary of warrant activity is as follows:
1998 1997 1996
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstand-Beginning
of Years 913,359 9.36 1,137,434 $13.92 320,767 $30.26
Granted or Sold
during the years -- -- -- 816,667 7.50
Cancelled during
the years -- -- -- -- --
Expired during
the years 11,874 30.95 224,075 32.51 -- --
Exercised during
the years -- -- -- -- --
Outstanding-
End of Years 901,485 9.07 913,359 9.36 1,137,434 13.92
======= ==== ========= ===== ======= =====
Exercisable -
End of Years 825,835 7.98 837,109 8.31 1,061,784 13.41
======= ==== ========= ===== ======= =====
The following table summarizes warrant information as of December 31, 1998
Weighted Avg. Weighted Avg.
Range of Exercise Price Remaining Exercise
Shares Contractual Life Price
7.50 816,669 2.3 Years 7.50
21.00 75,650 (A) 21.00
50.70 9,166 .2 Years 50.70
-------
901,485
(A) Registration is assumed to be completed December 31, 1999
F-24
43
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
On January 2, 1996 and July 26, 1996, the Company sold 83,333 shares of common
stock and 833,333 shares of common stock pursuant to Regulation S of the
Securities Act of 1933 and received net proceeds of $375,000 and $2,000,000,
respectively.
Non-Employee Directors, Consultants and Advisors Stock Plan - During the year
ended December 31, 1995, the Company authorized a stock option plan for Non-
Employee Directors, Consultants and Advisors to provide compensation for
services rendered to the Company in lieu of cash payments. At various times, the
Company has registered and granted shares pursuant to the plan. During the year
ended December 31, 1995, 127,833 shares were granted and exercised, at an
average price of $5.40 per share, resulting in $2,543,536 of deferred charge
costs computed as follows:
Shares 127,833
Value of Stock at Date of Grant [Weighted Average] $ 25.29885
----------------
3,234,036
Exercise Price (690,500)
----------------
Total Charges Deferred at the Time of Exercise $ 2,543,536
================
In accordance with the agreements relating to the various parties involved,
amortization of the deferred portion in the amount of $162,601, $140,872, and
$101,000 was charged to income from operations for the years ended December 31,
1998, 1997 and 1996, respectively. The unamortized deferred consulting expense
is recorded in the equity section of the balance sheet. Such deferred charges
are being amortized over four years, based on the terms of the related
contracts. All consulting fees have been fully amortized as of December 31,
1998.
Below Market Stock Options - On August 14, 1995, an option was granted under the
Company's 1995 stock incentive plan [See Note 15] to a consultant to purchase
18,333 shares of common stock, at a price of $6.00 per share. The market value
of the stock at the date of grant was $15.75 per share. The deferred charges
amount to:
Shares 18,333
Value of Stock at Date of Grant $ 15.75
-------------
288,750
Exercise Price 110,000
-------------
Total Charges Deferred at the Time of Exercise $ 178,750
=============
F-25
44
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
The option was exercised as to 4,166 shares on October 9, 1995. Such exercise
was made by a reduction in the Company's indebtedness to SISC. This option
expired on August 14, 1996 with 14,166 shares unexercised. It was replaced with
a new grant to purchase 14,166 shares at $3.00 per share with an expiration date
of August 13, 1998. The market value of the stock at the date of grant was
$8.625. The deferred charges amount to:
Shares 14,166
Value of Stock at Date of Grant $ 8.625
------------
122,188
Exercise Price 42,500
------------
Total Charges Deferred at the Time of Exercise $ 79,688
============
The option was exercised as to 11,166 shares of the 14,166 shares as of December
31, 1997. The option expired on August 14, 1998 with 3000 shares unexercised.
[15] Stock Option Plans
The Company has four stock option plans. In 1993, the Company adopted the 1993
Stock Incentive Plan [the "1993 Plan"], covering an aggregate of 25,000 shares
of Common Stock. Options to purchase 20,683 shares of Common Stock were granted
at exercise prices of $18.00 as to 9,083 shares, $30.00 as to 2,433 shares and
$30.00 as to 9,166 shares. The exercise price of all of such options was reduced
to $13.50 per share in February 1995. As of August 31, 1995, options to purchase
1,691 shares had expired unexercised. No options under the 1993 Plan had been
exercised. In January 1995, the board of directors adopted the 1995 Stock
Incentive plan [the "1995 Plan"], pursuant to which stock options and stock
appreciation rights can be granted with respect to 50,833 shares of Common
Stock. At August 31,1995, options to purchase 48,333 shares of Common Stock were
granted pursuant to the 1995 Plan, of which options to purchase 34,166 shares
were exercised and options to purchase 14,166 shares at an exercise price of
$6.00 per share were outstanding. In May 1995, the board of directors adopted,
and, in March 1996, the stockholders approved the 1995 Long Term Incentive Plan
[the "1995 Incentive Plan"], initially covering 83,333 shares of Common Stock.
In April and November 1996, the board of directors and stockholders approved an
amendment to the 1995 Incentive Plan which increased the number of shares of
Common Stock currently subject to the 1995 Incentive Plan to 415,388 shares. The
number of shares of Common Stock subject to the 1995 Incentive Plan
automatically increases by 5% of any shares of Common Stock issued by the
Company other than shares issued pursuant to the 1995 Incentive Plan. In August
1995, the Company granted to an officer six-year incentive stock options to
purchase an aggregate of 41,666 shares of Common Stock pursuant to the 1995
F-26
45
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Incentive Plan at an exercise price of $12.75 per share, being the fair market
value on the date of grant. The option is immediately exercisable as to 7,833
shares of Common Stock and becomes exercisable as to an additional 7,833 shares
of Common Stock on each of January 1, 1996, 1997, 1998 and 1999 and becomes
exercisable as to the remaining 2,500 shares of Common Stock on January 1, 2000.
In April 1996, the Company issued to each of Messrs. Lewis S. Schiller, the
former CEO and a former director of the Company and Joseph G. Sicinski a warrant
to purchase 66,666 shares of Common Stock at $7.50 per share and to each of
Messrs. E. Gerald Kay, Joel S. Kanter and Norman J. Hoskin, all of whom are
former directors of the Company, a warrant to purchase 50,000 shares of Common
Stock at $7.50 per share. In connection with such grants, Messrs. Kay and Kanter
agreed to waive the right to receive previously authorized warrants, which had
not been issued.
In April 1996, the committee granted stock options to purchase an aggregate of
218,333 shares of common stock at $6.75 per share, being the fair market value
on the date of grant. Such options were granted to Mr. Joseph G. Sicinski,
president of the Company, who received an option to purchase 133,333 shares of
common stock, Mr. Lewis S. Schiller, former chairman of the board of the
Company, who received an option to purchase 25,000 shares of common stock, one
other officer, who received an option to purchase 16,666 shares of common stock,
and sixteen other employees who received options to purchase an aggregate of
43,333 shares of common stock. In connection with the grant to Mr. Sicinski, he
agreed to the cancellation of the previously granted incentive stock options.
The option granted to Messrs. Schiller and Sicinski have a ten year term, and
the other options have five year terms [See Note 15].
In October 1997, the committee granted incentive stock options to purchase an
aggregate of 216,000 shares of common stock at $3.875 per share, being the fair
market value on the date of grant. Such options were granted to Mr. Joseph G.
Sicinski, president of the Company, who received an option to purchase 90,000
shares of common stock, Mr. Lewis S. Schiller, chairman of the board of the
Company, who received an option to purchase 25,000 shares of common stock, one
other officer, who received an option to purchase 20,000 shares of common stock
and twenty other employees who received options to purchase an aggregate of
81,000 shares of common stock. All options have a 5 year term.
During the year ended December 31, 1998, the Company authorized the 1998
Long-Term Incentive Plan (the"1998 Plan"), covering 350,000 shares of common
stock.
In June 1998, the committee granted stock options to purchase an aggregate of
215,000 shares of common stock at $4.00 per share, being the fair market value
on the date of grant. In December 1998 these shares were repriced at $1.25, the
fair market value on that date. All options are fully vested as of December 31,
1998. Such options were granted to Mr. Joseph G. Sicinski, president and CEO of
the Company, who received an option to purchase 60,000 shares of common stock,
two other officers who received options to purchase an aggregate of 40,000
shares of common stock, the chairman of the board received options to purchase
20,000 shares of common stock, the three other directors of the Company each
received options to purchase 10,000 shares of common stock and seven other
employees who received options to purchase an aggregate of 65,000 shares of
common stock. All options have a 5 year term.
F-27
46
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
No compensation cost was recognized for stock-based employee awards.
A summary of the activity under the Company's stock option plans is as
follows:
1993 Plan 1995 Plan 1995 Incentive Plan 1998 Incentive Plan
Options Outstanding
and Exercisable
- January 1, 1996 18,992 14,167 41,666 --
Granted -- 14,167 220,833 --
Exercised -- ( 8,333) -- --
Canceled -- (14,167) ( 41,666) --
-------- --------- ---------
Options Outstanding
and Exercisable
- December 31, 1996 18,992 5,833 220,833 --
Weighted Average Exercise
Price $ 13.50 $ 5.28 $ 6.75 --
Granted -- -- 216,000 --
Exercised -- -- -- --
Canceled -- -- -- --
Options Outstanding
and Exercisable
- December 31, 1997 18,992 5,833 436,833 --
Weighted Average Exercise
Price $ 13.50 $ 5.28 $ 5.39 --
Granted -- -- -- 215,000
Exercised -- -- -- --
Canceled -- -- (65,000) --
Options Outstanding and
Exercisable
- December 31, 1998 18,992 5,833 371,833 215,000
Weighted Average Exercise
Price $ 13.50 $ 5.28 $ 5.39 $ 1.25
Weighted Average Remaining
Contractual Life 1.16 years 1.08 years 5.42 years 5.0 years
The following table summarizes option information as of December 31, 1998
Weighted Avg. Weighted Avg.
Range of Exercise Price Remaining Exercise
Shares Contractual Life Price
1.25 215,000 5.0 Years 1.25
3.875 176,000 5.42 Years 3.875
6.75 195,833 5.42 Years 6.75
5.28 5,833 1.08 Years
13.50 18,992 1.16 Years 13.50
F-28
47
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
If the Company had accounted for the issuance of all options and compensation
based warrants pursuant to the fair value based method of SFAS No. 123, the
Company would have recorded compensation expense totaling $168,439, $538,460 and
$1,724,000 for the years ended December 31, 1998, 1997 and 1996, respectively,
and the Company's net income (loss) and net income (loss) per share would have
been as follows:
Years ended
December 31,
1 9 9 8 1 9 9 7 1 9 9 6
Net Income(Loss) as Reported $ 805,261 $1,022,881 $ (681,250)
========== ========= ===========
Pro Forma Net Income(Loss) $ 636,822 484,421 $(2,405,250)
========== ========= ===========
Basic Earnings (Loss)
Per Share as Reported $ .21 .27 $ (.27)
========== ========= ===========
Pro Forma Basic Earnings (Loss)
Per Share $ .17 $ .13 $ (.95)
========= =========== ============
The fair value of options and warrants [See Note 14] at date of grant was
estimated using the fair value based method with the following weighted average
assumptions:
1998 1997 1996
Expected Life [Years] 5 5 2
Interest Rate 4.67% 6.0% 5.8%
Annual Rate of Dividends 0% 0% 0%
Volatility 71.99% 87.61% 84.0%
The weighted average fair value of options at date of grant using the fair value
based method during 1998, 1997, and 1996 is estimated at $0.78 $2.79, and $1.22
respectively.
[16] Employment Benefit Plans
The Company sponsors a Qualified Retirement Plan under section 401(k) of the
Internal Revenue Code. Employees become eligible for participation after
completing three months of service and attaining the age of twenty-one. The
Company has the option to make a matching contribution to the Plan for the years
ended December 31, 1998, 1997 and 1996, however, it has not made any matching
contributions to the Plan.
[17] New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has had on its agenda a project
to address certain practice issues regarding Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees. The FASB plans on
issuing various interpretations of APB Opinion No.25 to address these practice
issues. The proposed effective date of these interpretations would be in the
issuance date of the final Interpretation, which is expected to be in September
1999. If adopted, the Interpretation would be applied prospectively but would be
applied to plan modification and grants that occur after December 15, 1998. The
FASB's tentative interpretations are as follows:
F-29
48
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
APB Opinion No. 25 has been applied in practice to include in its definition of
employees, outside members of the board of directors and independent
contractors. The FASB's interpretation of APB Opinion No. 25 will limit the
definition of an employee to individuals who meet the common law definition of
an employee (which also is the basis for the distinction between employees and
nonemployees in the current U.S.tax code). Outside members of the board of
directors and independent contractors would be excluded from the scope of APB
Opinion No. 25 unless they qualify as employees under common law. Accordingly,
the cost of issuing stock options to board members and independent contractors
not meeting the common law definition of an employee will have to be determined
in accordance with FASB Statement No. 123, Accounting for Stock-Based
Compensation, and usually recorded as an expense in the period of the grant (the
service period could be prospective, however, see EITF 96-18).
Options (or other equity instruments) of a parent company issued to employees of
a subsidiary should be considered options, etc issued by the employer
corporation in the consolidated financial statements, and, accordingly, APB
Opinion No. 25 should continue to be applied in such situations. This
interpretation would apply to subsidiary companies only; it would not apply to
equity method investees or joint ventures.
If the terms of an option (originally accounted for as a fixed option) are
modified during the option term to directly change the exercise price, the
modified option should be accounted for as a variable option. Variable grant
accounting should be applied to the modified option from the date of the
modification until the date of exercise. Consequently, the final measurement of
compensation expense would occur at the date of exercise. The cancellation of an
option and the issuance of a new option with a lower exercise price shortly
thereafter (for example, within six months) to the same individual should be
considered in substance a modified (variable) option.
Additional interpretations will address how to measure compensation expense when
a new measurement date is required.
(18) Subsequent Events
On February 25, 1999, the Company entered into an agreement with Consolidated
and SISC, pursuant to which SISC is to transfer to the Company 1,150,000 shares
of the Company's common stock which are owned by SISC in satisfaction of (i)
Consolidated's obligations to pay the redemption price of $2,100,000 payable
with respect to the Consolidated Series G 2% Cumulative Redeemable Preferred
Stock owned by the Company together with accrued dividends of approximately
$140,000 and (ii) Consolidated's obligations to pay the Company $325,952 (the
"Consolidated Payable") in respect of advances made by the Company to certain of
Consolidated's subsidiaries. The agreement as amended also gives Consolidated
the right to retain the 1,150,000 shares if Consolidated pays the redemption
price of $2,100,000 together with the accrued dividends and the Consolidated
Payable by April 30, 1999. The 1,150,000 shares and the Series G Preferred Stock
will be held in escrow pending the election by Consolidated to make such
payment. If the 1,150,000 shares are transferred, Consolidated will own 379,994
shares, or approximately 14.2% of the Company's common stock, and Consolidated
will have certain registration rights with respect to such shares.
F-30
49
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
In March 1999, the Company entered into an agreement with Consolidated, Arc and
certain other parties who acquired Consolidated's equity interest in Arc.
Pursuant to such agreement, the Company agreed, under certain conditions, to
accept a series of preferred stock as payment for the Arc Note. The conditions
include the completion of a public offering by the new parent of Arc and certain
net worth tests being met. Such agreement is presently held in escrow pending
receipt of certain regulatory approvals.
On April 15, 1999, the Company entered into an agreement to acquire the stock of
Cad Cam Inc., a computer aided design based engineering services company
primarily servicing the automotive industry. The Company has agreed to pay $4.1
million in a combination of cash ($2.0 million) and preferred stock ($2.1
million) plus contingent considerations if certain cash flow targets are
reached.
F-31
50
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.2
FRANK VINCENTI EMPLOYMENT AGREEMENT
This agreement made and entered into this 26th day of May 1998 by and between
Trans Global Services, Inc. (hereinafter referred to as TGS) and Frank Vincenti
residing at 36 Baltic Avenue, Staten Island, NY 10304 (hereinafter referred to
as EMPLOYEE).
WITNESSETH
WHEREAS, TGS is engaged, through its subsidiary companies, in the highly
competitive business of recruiting and providing specialized scientific,
engineering, and technical, clerical or other staffing on a temporary or
permanent basis to industry throughout the United States, and
WHEREAS, TGS has expended substantial amounts of money, time and expertise in
developing and maintaining extensive personnel resources and customer goodwill
throughout the United States and has, by virtue of such efforts, acquired the
continued and repetitive business of it industrial clientele, as well as its
temporary personnel, and
WHEREAS, TGS has expended substantial amounts of money, time and effort in
developing and perfecting its techniques, business methods, management and
financial expertise, customer and business accounts, personnel resources, and
other data all of which is highly confidential information and which EMPLOYEE
hereby recognizes and acknowledges to be valuable, special and unique business
and trade secrets belonging to TGS, and
WHEREAS, EMPLOYEE desires to assume the position of Vice President
in which he/she will become intimately involved with TGS Is business and will be
entrusted with said confidential information of TGS, and by virtue of such
employment will become personally acquainted with the business connections,
customers, and trade of TGS, and
WHEREAS, TGS desires to be able to impart said confidential information to
EMLOYEE with the knowledge that such information will be used solely for its
benefit and not in competition with or to the detriment of TGS.
NOW THEREFORE, Inconsideration of the foregoing and of the mutual covenants
herein contained and other valuable consideration, the receipt and sufficiency
whereof is hereby acknowledged, each of the parties, intending to be legally
bounds, hereby agree as follows:
1. AGREEMENT OF EMPLOYMENT
TGS hereby employs Frank Vincenti as Vice President commencing on the date of
this agreement and EMLOYEE agrees to be so employed, all in accordance with the
terms and provisions of this agreement. Terms of compensation, as well as scope
of duties, are to be reviewed between parties from time to time.
2. FULL TIME NATURE OF EMPLOYMENT
EMPLOYEE shall devote his/her full time, attention and energies to the business
of TGS and shall not during the term of this agreement be engaged in any other
business directly related. This shall not be construed as preventing EMLOYEE
from investing his/her assets in such form or manner as will not require
his/her, rendering any services to entities in which such investments are made.
51
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.2
FRANK VINCENTI EMPLOYMENT AGREEMENT (Continued)
3. TERM OF EMPLOYMENT
The term of this agreement shall be Five (5) years, and shall continue
thereafter until terminated by either party. If TGS terminates EMPLOYEE without
cause, it shall have the option of giving two weeks notice, or paying two weeks
base salary in lieu of notice. This Agreement shall terminate automatically upon
the death of the EN2LOYEE or disability to an extent which prevents him/her from
performing the duties assigned to him/her hereunder, or for cause; i.e.
misconduct, inefficiency.
4. NOTICE OF TERMINATION
Any notice sent hereunder shall be sent by registered or certified mail return
receipt requested, postage prepaid, addressed as follows:
Employee
To: Frank Vincenti
36 Baltic Avenue
Staten Island, NY 10304
TGS
To: TRANS GLOBAL SERVICES, INC.
1393 Veterans Memorial Highway
Hauppauge, New York 11788
Attn: President
5. WARRANTY AND INDEMNIFICATION
EMPLOYEE warrants that he/she is not a party to any other restrictive agreement
limiting his/her activities in the field and/or area of his/her employment by
TGS and that EMPLOYEE will hold TGS harmless from any and all suits and claims
arising out of any breach of such restrictive agreements or contracts.
6. ACKNOWLEDGMENT OF CONFIDENTIAL NATURE OF EMPLOYMENT AND GOODWILL INTERESTS
OF TGS
EMPLOYEE acknowledges (a) that TGS will expend considerable time, effort and,
expense 'n training EMPLOYEE in the methods used by TGS and (b) the EMPLOYEE
will be entrusted with confidential knowledge and information as to TGS
accounts, customers and business patrons, personnel resources, and other data,
as well as confidential knowledge and information concerning the techniques,
business methods, management and financial expertise of TGS and will. become
personally acquainted with and serve as an TGS representative to the business
connections, customers and trade of TGS and (c) that EMPLOYEE will receive such
confidential knowledge and be placed in such a position, that upon leaving TGS's
employment for any reasons, his/her engaging directly, or indirectly, either
alone or in association with any other person or firm in a similar business to
that of TGS or to that of a duly
52
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.2
FRANK VINCENTI EMPLOYMENT AGREEMENT (Continued)
authorized licensee of TGS, will cause irreparable harm and financial loss to
TGS, its good will, and its organization. EMPLOYEE, therefore, agrees, that he
will not while in TGS's employ, directly or indirectly, engage in any activity
whatsoever which is competitive to TGS for himself/herself or in association in
any capacity with any other person or firm engaged in a similar business to
TGS's.
7. AGREEMENT NOT TO COMPETE
As a condition of employment, EMPLOYEE agrees to coordinate all employment
activities through the TGS organization. Additionally, as a condition of
employment, for a 6 month period following the termination of employment with
TGS, EMPLOYEE will not, directly or indirectly solicit, call on or otherwise
deal in any way with any customer or contractor of TGS with whom EMPLOYEE has
dealt during the last 12 months of employment at TGS. EMPLOYEE will not
influence or attempt to influence any customer, vendor or contractor of TGS to
terminate or modify any written or oral agreement or course of dealing with TGS,
or solicit the employment or engagement of any TGS EMPLOYEE or consultant.
Should there be a change in senior management (CEO/President) during the term of
this Agreement, EMPLOYEE will have the option terminating this Agreement with
agreement not to compete (paragraph 7) limited to not greater than 30 days.
8. AGREEMENT NOT TO DIVULGE CONFIDENTIAL INFROMATION
EMPLOYEE agrees that he/she will not at any time during his/her employment with
TGS or within 6 months after leaving its service, for himself/herself or for any
other person or company, divulge the name or address or any information
concerning any TGS accounts, customer and business patrons or technical
personnel. EMPLOYEE further agrees during said period not to disclose any
confidential information or knowledge acquired while in the employ of TGS, said
restriction to include TGS's business methods, techniques, and management and
financial expertise, as well as its plans with respect to acquisitions and
future services to be rendered by TGS.
9. RETURN OF RECORDS AND PAPERS
EMPLOYEE agrees upon the termination of his employment with TGS for any reason
whatsoever, to return to the President of TGS all records, copies of records and
papers pertaining to transactions handled by EMPLOYEE while associated with TGS,
and in event EMPLOYEE shall fail to do so, or in the event ENTLOY'EE shall
violate this instant Agreement, EMPLOYEE shall forfeit all claims to unpaid
compensation without affecting the right of TGS to compel the return of said
records and papers.
10 INJUNCTION RELIEF FROM VIOLATIN OF COVENANTS
EMPLOYEE recognizes that irreparable damage will result to TGS: in the event of
the violation of any covenant contained herein made by him/her, and agrees that
in the event of such violation, TGS shall be entitled, in addition to its other
legal or equitable remedies and damages, to injunctive relief to restrain such
violation hereof by him/her and by all other persons acting for or with him/her.
53
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.2
FRANK VINCENTI EMPLOYMENT AGREEMENT (Continued)
11. DAMAGES
EMPLOYEE further recognizes and acknowledges that it would be difficult to
ascertain the damages arising from a violation by him/her of the convenants
herein contained, and as damages for any such violation EMPLOYEE agrees to
forfeit all existing and future rights to remuneration hereunder whether direct
or indirect, including but not limited to commissions earned but not yet paid,
and any so-called fringe benefits, including severance pay where applicable
EMPLOYEE also agrees that the damages arising as a consequence of a violation of
the covenants contained herein are difficult to ascertain. Accordingly, such
damages will be fixed at an amount equal to the gross profit, or twenty-five
(25%) per cent of the sales, whichever is greater, resulting from business
generated by EMPLOYEE either directly, or indirectly on his/her own account or
as agent, stockholder, employer, employee or otherwise competing for accounts or
personnel which became known to him/her through his/her employment with TGS.
12. TERMINATION OF BUSINESS
In the event the business operations of TGS are terminated for any reason
whatsoever, this Agreement shall automatically terminate at that time. This
section shall not apply in the event of a temporary disruption of business
operations, nor to a corporate reorganization in which the name or ownership of
TGS is changed provided that operations do not terminate. It shall be the
responsibility of employee to make the appropriate inquiry prior to invoking the
provisions of this section.
13. INTERPRETATION OF AGREEMENT
This contract shall be interpreted and construed according to the laws of the
State of New York. Any provisions or clause hereof which shall be invalidated by
virtue of the fact that it is prohibited by law shall be ineffective to the
extent of such illegality; however, this shall in no way affect the remaining
provisions of the Agreement, and this Agreement shall be interpreted as if
such clause or provision were not contained herein, insofar as is practical.
Wherever the context permits in the Agreement, any word in one gender shall
include the other gender.
14. UNDERSTANDING OF PARTIES
This Agreement represents the entire employment Agreement between the parties
and supersedes any and all prior agreements or understandings, oral or written
between EMPLOYEE and TGS pertaining to the subject matter covered by this
Agreement, and may not be changed or terminated orally, and no change,
termination or attempted waiver of any of the provisions hereof shall be binding
unless in writing signed by the President of TGS. It is further agreed that his
contract shall remain in effect notwithstanding any changes in job title, job
assignment, divisional assignment, position, or salary. EMPLOYEE acknowledges
that the convenants and conditions of this Agreement are reasonable and
necessary for the protection of TGS's business.
54
TRANS GLOBAL SERVICES, INC,
EXHIBIT 10.2
FRANK VINCENTI EMPLOYMENT AGREEMENT (Continued)
15. ENFORCEABILITY OF AGREEMENT
In the event this Agreement is terminated for any reason, other than as provided
in Section 12 above, the provisions contained in Section 11 hereinabove, shall
continue in full force and effect from the date of said termination. This
Agreement shall apply to, bind, and enure to the benefit of the respective
parties hereto and where applicable, their heirs, successors, administrators and
assigns.
16. EMPLOYEE shall be entitled by way of remuneration of his/her services to a
weekly base salary of $2,600 . This base salary to be reviewed at reasonable
intervals by the Chief Executive Officer of TGS.
17. As additional compensation, EMPLOYEE shall receive an annual bonus based on
performance. Bonus shall be determined by the Chief Operating Officer and will
be payable within 30 days following the close of the business year (Year End 31
December), audited financial report. Reference should be made to letter of
commitment dated 3 March 1998.
18. a.. TGS will pay 100 percent of authorized business related expenses
upon receipt or documentation of said expense.
b. TGS will pay EMPLOYEE $600.00 monthly for use of employee owned
and maintained auto for business use only.
19. TGS offers as benefits the following:
a. Participation in TGS stock option as may be decided by TGS management.
b. Hospitalization insurance (family coverage) as provided by our present
carrier with 100% paid premiums.
c. EMPLOYEE shall be entitled to two (2) weeks annual vacation after the
first year of employment and three (3) weeks after 2nd thru 5th year of
employment and four (4) weeks after 6th year of employment. TGS shall observe
seven (7) paid holidays during year.
New Year's Day
Memorial Day
July 4th
Labor Day
Thanksgiving Day
Christmas Day
(Floating Holiday)
d. TGS reserves the right to amend these benefits, provided only that such
amendment shall affect all employees of TGS (entitled to such benefits) in the
same (or, if appropriate, in a proportionate) manner.
20. In the event of a suit by TGS to enforce this agreement or to seek damages
for its breach, TGS shall be entitled to a reasonable attorneys fee.
55
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.2
FRANK VINCENTI EMPLOYMENT AGREEMENT (Continued)
Signed and executed as a sealed instrument in two identical counterparts each of
which shall be deemed an original and delivery of which has been made in said
State of New York as of the day and year hereinabove written, each of the
parties retaining an executed counterpart.
TRANS GLOBAL SERVICES, INC.
BY:
Joseph G.Sicinski, President & CEO
ACKNOWLEDGMENT
I acknowledge that I have read and understand the above employment contract
consisting of 9 pages, each of which bears my signature, and I agree to be bound
by its terms, provisions and conditions.
Frank Vincenti
56
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
AGREEMENT
AGREEMENT dated this 23rd day of March, 1999, by and among Trans Global
Services, Inc., a Delaware corporation ("Trans Global"), Arc Networks, Inc., a
Delaware corporation ("Arc"), Consolidated Technology Group Ltd., a New York
corporation ("Consolidated"), Technology Acquisitions Ltd., a Bermuda
corporation ("TA"), and Gemini II, Inc., a Delaware corporation ("Gemini"),
Trans Global, Arc, Consolidated, TA and Gemini being referred to collectively as
the "Parties" and each, individually, as a "Party."
W I T N E S S E T H:
WHEREAS, Trans Global is the holder of Arc's 10% installment promissory note due
August 31, 2003 in the principal amount of $1,216,673 (the "Arc Note"), which is
payable to the order of Trans Global; and
WHEREAS, the Arc Note is guaranteed by Consolidated pursuant to a guarantee
dated September 18, 1998 (the "Consolidated Guarantee"); and
WHEREAS, Trans Global and Consolidated are parties to a Subordination Agreement
dated September 18, 1998 (the "Subordination Agreement"); and
WHEREAS, pursuant to a certain stock purchase agreement dated the date of this
Agreement by and among Arc, Consolidated, SIS Capital Corp., a Delaware
corporation and wholly-owned subsidiary of Consolidated ("SISC"), and TA (the
"Purchase Agreement"), SISC is selling to TA approximately 67% of the
outstanding common stock of Arc, which represents all of the shares of the
common stock of Arc which are owned by SISC, such sale being referred to as the
"Arc Stock Sale" and
WHEREAS, following or contemporaneously with the completion of the Arc Stock
Sale, a wholly-owned subsidiary of Gemini is to merge with and into Arc, which
merger is referred to as the "Arc Merger"; and
WHEREAS, following the completion of the Arc Merger, Gemini intends to file a
registration statement with respect to a proposed public offering of its common
stock, par value $.0001 per share ("Gemini Common Stock"); and
WHEREAS, by the terms of the Arc Note, the full principal amount of the Arc
Note, together with accrued interest, becomes immediately due and payable upon
the occurrence of certain events, which include the Arc Stock Sale and the Arc
Merger; and
WHEREAS, Arc, Consolidated, TA and Gemini have requested that Trans Global agree
that the Arc Note not become immediately due and payable upon either the Arc
Stock Sale or the Arc Merger; and
WHEREAS, Trans Global is willing to agree that neither the consummation of the
Arc Stock Sale nor the Arc Merger will result in the Arc Note becoming
immediately due and payable, on and subject to the terms of this Agreement; and
WHEREAS, each of the Parties believes that the execution of this Agreement and
the performance of its terms is in the best interest of such Party;
57
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
WHEREFORE, the Parties do hereby agree as follows.
(a)ab Trans Global hereby waives the provision of the Arc Note that
provides that the Arc Note becomes payable in full upon the occurrence of either
the Arc Stock Sale or the Arc Merger.
(b)ab The waiver granted by Trans Global pursuant to Paragraph 1(a):
(i)ab is subject to the execution of this Agreement by Arc, Consolidated,
TA and Gemini and the performance by TA and Gemini of all of their obligations
to be performed contemporaneously with or prior to the execution of this
Agreement;
(ii)ab is subject to the execution by TA and Gemini of the Purchaser
Guarantee, as hereinafter defined; and
(iii)ab relates only to the Arc Stock Sale and the Arc Merger and shall not
be deemed to relate in any manner to any other Sale Transaction, as defined in
the Arc Note, or any other transaction set forth in Paragraph 6(b) of this
Agreement.
2.ab Consolidated hereby confirms that (a) the Consolidated Guarantee is in full
force and effect on the date of this Agreement, and (b) none of the obligations
of Consolidated pursuant to the Consolidated Guarantee will be affected in any
manner by the execution of this Agreement or the performance of any of the terms
of this Agreement, including, but not limited to, the waiver by Trans Global
pursuant to Paragraph 1 of this Agreement.
3.ab The Subordination Agreement is hereby terminated and of no force and
effect. (a)ab Trans Global hereby agrees that it will accept shares of Gemini's
Series A Preferred Stock in exchange for the cancellation of the Arc Note and
the Consolidated Guarantee at the time Gemini receives the proceeds from its
initial public offering, as hereinafter defined, if the closing with respect to
Gemini's initial public offering shall have occurred by December 31, 1999, and,
if, on the closing date of such initial public offering:
(i)ab Arc shall not be in default of its obligations pursuant to the Note,
including its obligations to pay the principal and interest and to comply with
all of its other obligations pursuant to the Note and this Agreement, and there
shall have occurred no event which, with the passage of time of the giving of
notice by Trans Global or any other person, would result in an event of default
as set forth in Paragraph 4 of the Arc Note.
(ii)ab Gemini shall have issued the Series A Preferred Stock to Trans
Global in exchange for the cancellation of the Arc Note and the Consolidated
Guarantee, as provided in Paragraph 7 of this Agreement.
(iii)ab The consolidated net tangible book value of Gemini, determined in
accordance with generally accepted accounting principals, shall be not less than
six million dollars ($6,000,000).
(b)ab An "initial public offering" shall mean a firm commitment
underwritten initial public offering pursuant to a effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act").
The date on which the registration statement relating to Gemini's initial public
offering is declared effective by the Securities and Exchange Commission (the
"Commission") is referred to as the "IPO Date."
(c)ab Upon the cancellation of the Arc Note, whether pursuant to Paragraph
58
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
4. (a) of this Agreement or otherwise, the Consolidated Guarantee will
automatically terminate and be of no further force and effect, and Trans Global
shall return the Consolidated Guarantee to Consolidated.
(d)ab Trans Global shall give Consolidated prompt notice of any event which
results in the cancellation of the Arc Note.
5.ab TA and Gemini will, contemporaneously with the execution of this Agreement:
(a)ab Execute their joint and several guarantee (the "Purchaser Guarantee")
of the obligation of Arc pursuant to the Arc Note in the form of Exhibit A to
this Agreement.
(b)ab File or cause to be filed a certificate of designation (the
"Certificate of Designation") setting forth the rights, preferences and
privileges of the holders of the Series A 10% Convertible Redeemable Preferred
Stock, par value $.0001 per share ("Series A Preferred Stock"), in the form of
Exhibit B to this Agreement.
6.ab The terms of the Arc Note are hereby modified as follows:
(a)ab Arc shall continue to make payments of principal and interest on the
Arc Note at the times set forth in the Arc Note, subject to the further
provisions of this Paragraph 6.
(b)ab The principal and interest on the Arc Note shall become immediately
due and payable as follows:
(i)ab The sale by TA or Gemini of all or substantially all of its business
and assets in one transaction or in a series of related transactions, regardless
of whether the transaction is structured as a merger, consolidation, sale of
assets, sale of stock or assets of its subsidiary, sale and leaseback or other
transaction whereby substantially all of the business and assets of TA or Gemini
is conveyed to another person or entity, except that this Paragraph 6(b)(i)
shall not apply to the Arc Merger.
(ii)ab The merger of TA or Gemini with another entity where TA or Gemini is
the surviving entity if, as a result of the merger, the stockholders of TA or
Gemini, as the case may be, prior to the merger (other than persons who became
stockholders in anticipation of or in connection with the merger) own less than
fifty percent (50%) of the outstanding capital stock, either in terms of number
of shares or value of shares, upon the effectiveness of the merger.
(iii)ab The sale by stockholders of their capital stock in TA or Gemini in
a transaction or a series of related transactions which results in the transfer
of at least fifty percent (50%) of the outstanding capital stock; provided,
however, that following a public offering by Arc or Gemini of its securities,
sales by the public stockholders shall not be an event described in this
Paragraph 6(b)(iii) unless such transfers are made in response to a tender offer
or similar transaction.
(iv)ab The failure by Gemini to complete an initial public offering by 5:30
P.M., New York City time, on December 31, 1999.
(v)ab Any breach by TA or Gemini of its obligations pursuant to this
Agreement if such breach is not cured within thirty (30) days after notice of
such breach is given to TA or Gemini, as the case may be, and Consolidated.
(vi)ab The occurrence of any event (other than the Arc Stock Sale and the
Arc Merger) which, pursuant to the terms of the Arc Note, gives the holder of
the Arc Note the right to demand that the principal of and interest on the Arc
Note become immediately due and payable.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
7. At the closing of Gemini's initial public offering, Gemini shall issue to
Trans Global one share of Series A Preferred Stock for each one dollar ($1.00)
of principal on the Arc Note which is outstanding on the date of such closing
and pay to Trans Global the accrued interest on the Arc Note to the date the
Series A Preferred Stock is issued, and Trans Global shall deliver the Arc Note
to Arc for cancellation. The holders of the Series A Preferred Stock will have
the rights, preferences and privileges set forth in the Certificate of
Designation. Except for the issuance of Series A Preferred Stock pursuant to
this Agreement, Gemini shall not issue any additional shares of Series A
Preferred Stock except for transfers of the shares of Series A Preferred Stock
issued to Trans Global pursuant to this Agreement.
8.ab Consolidated and Arc, severally and not jointly, represent and warrant to
Trans Global that:
(a)ab Such Party is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation.
(b)ab Such Party has full power and authority to enter into this Agreement
and the Escrow Agreement, as hereinafter defined, and to carry out the
transactions provided for in this Agreement and the Escrow Agreement, and this
Agreement and the Escrow Agreement constitute the legal, valid and binding
obligations of such Party, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, or similar laws from time to time in effect which affect
creditors' rights generally, and by legal and equitable limitations on the
enforceability of specific remedies, and that no representation is made as to
the enforceability of the indemnification provisions contained in Paragraph 11
of this Agreement. All necessary corporate action required to be taken by such
Party for the consummation of the transactions contemplated by this Agreement
has been duly and validly taken.
(c)ab No consent, approval or agreement of any person, party, court,
governmental authority or entity is required to be obtained by such Party in
connection with the execution and performance by Consolidated or Arc of this
Agreement or the Escrow Agreement.
9. (a) TA and Gemini hereby jointly and severally represent and warrant to Trans
Global that:
(i)ab TA and Gemini are corporations duly organized, validly existing and
in good standing under the laws of Bermuda and the State of Delaware,
respectively.
(ii) TA and Gemini have full power and authority to enter into this
Agreement, the Escrow Agreement and the Purchaser Guarantee, and to carry out
the transactions provided for in this Agreement, the Escrow Agreement and the
Purchaser Guarantee, and this Agreement, the Escrow Agreement and the Purchaser
Guarantee constitute the legal, valid and binding obligations of TA and Gemini,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, moratorium, or similar laws
from time to time in effect which affect creditors' rights generally, and by
legal and equitable limitations on the enforceability of specific remedies, and
that no representation is made as to the enforceability of the indemnification
provisions contained in Paragraph 11 of this Agreement. All necessary corporate
action required to be taken by TA and Gemini for the consummation of the
transactions contemplated by this Agreement has been duly and validly taken.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(iii) No consent, approval or agreement of any person, party, court,
governmental authority or entity is required to be obtained by TA or Gemini in
connection with the execution and performance by TA or Gemini of this Agreement,
the Escrow Agreement or the Purchaser Guarantee.
(iv) The execution and filing of the Certificate of Designation has been
approved by all necessary corporate action.
(v) The Series A Preferred Stock to be issued pursuant to this Agreement
has been duly and validly authorized and, when issued pursuant to this
Agreement, will be validly issued, fully paid and non-assessable and subject to
no rights or claims of any third party. The shares of Gemini Common Stock
issuable upon conversion of the Series A Preferred Stock (the "Conversion
Shares") are duly and validly authorized and, when issued upon conversion of the
Series A Preferred Stock, will be validly issued, fully paid and non-assessable
and subject to no rights or claims of any third party.
(b)ab TA and Gemini jointly and severally covenant and agree that, without
the prior written consent of Consolidated, they will not take or permit to be
taken any action described in Paragraphs 6(b)(i), (ii) or (iii) of this
Agreement.
10. (a)Trans Global represents and warrants to Consolidated, Arc, TA and Gemini
that:
(i) Trans Global is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(ii) Trans Global owns the Arc Note.
(iii) Trans Global has full power and authority to enter into this
Agreement and the Escrow Agreement and to carry out the transactions provided
for in this Agreement, and this Agreement and the Escrow Agreement constitute,
the legal, valid and binding obligations of Trans Global, enforceable in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, moratorium, or similar laws from time to
time in effect which affect creditors' rights generally, and by legal and
equitable limitations on the enforceability of specific remedies, and that no
representation is made as to the enforceability of the indemnification
provisions contained in Paragraph 11 of this Agreement. All necessary corporate
action required to be taken by Trans Global for the consummation of the
transactions contemplated by this Agreement has been duly and validly taken.
(iv) No consent, approval or agreement of any person, party, court,
governmental authority or entity is required to be obtained by Trans Global
in connection with the execution and performance by Trans Global of this
Agreement or the Escrow Agreement.
(b) Trans Global agrees that, as long as the Consolidated Guarantee shall
remain in effect, it will not, without the written consent of Consolidated,
amend the terms of the Arc Note in a manner which would (i) increase the
interest rate, (ii) accelerate the payment schedule, (iii) reduce the time for
any notice or cure, (iv) create any other event of default or other event which,
by its terms, would result in the acceleration of the principal amount of the
Arc Note; provided, however, that this Paragraph 10(b) shall not apply to any
accelerated payment terms resulting from or following a default under the Arc
Note or an event which, with the passage of time of the giving of notice, would
result in a default under the Arc Note. In the event that Trans Global fails to
comply with its obligations pursuant to this Paragraph 10(b), the Consolidated
Guarantee shall become void, and Trans Global shall have no rights thereunder,
except to the extent of any obligations which may have accrued under the
Consolidated Guarantee prior to the date of such failure.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(c) Trans Global shall give Consolidated prompt notice of any amendment to
the Arc Note.
(d) Trans Global confirms that, as of the date of this Agreement, Arc is
not in default under the Arc Note.
11. (a) At any time during the period commencing on the IPO Date ending on the
Registration Termination Date, as hereinafter defined, Gemini shall advise Trans
Global or any Transferees, as hereinafter defined (Trans Global and its
Transferees being referred to herein collectively as the "holders" and each as a
"holder"), by written notice at least two (2) weeks prior to the filing of any
registration statement (other than a registration statement on a Form S-8 or S-4
or any subsequent form relating to employee benefit plans and mergers or
acquisitions) under the Securities Act covering securities of Gemini and will,
upon the request of any holder, include in any such registration statement such
information as may be required to permit a public offering of any or all of such
holder's Registrable Securities, as hereinafter defined; provided, however, that
Gemini shall not be required to include any Registrable Securities in a
registration statement relating solely to an offering by Gemini of securities
for its own account if the managing underwriter requests in writing that Gemini
exclude the Registrable Securities, provided that all other proposed selling
stockholders, if any, are treated in the same manner as the holder. In the event
that the managing underwriter shall permit the inclusion in any such
registration statement of a limited number of securities for sale by selling
stockholders, to the extent that the managing underwriter permits any such
shares to be included in the registration statement, Gemini shall include
securities to be sold by all persons (other than officers and directors of
Gemini or its affiliates) exercising piggyback or similar registration rights,
on a proportional basis, based on the number of shares of Gemini Common Stock
which each such person proposes to include in the registration statement. If
requested by the managing underwriter in writing, the holder will agree not to
sell any of the Registrable Securities included in such registration statement
without the consent of such managing underwriter during such period, not to
exceed six months, following the effective date of the registration statement,
as the managing underwriter may request (the "lock-up period"), and Gemini shall
not be required to include Registrable Securities in such registration statement
unless the holder agrees to such lock-up. Notwithstanding the foregoing, in no
event shall the holder be required to agree to a lock-up period longer than any
other selling stockholder whose shares are included in such registration
statement or any other underwritten registration statement being filed at or
about the same time as such registration statement. Gemini shall keep such
registration statement current until the earlier of the date the Registrable
Securities included in the registration statement shall have been sold or the
Registration Termination Date. It shall be a condition to Gemini's obligation to
include any holder's Registrable Securities in a registration statement pursuant
to this Paragraph 11(a) or to file a registration statement pursuant to
Paragraph 11(b) of this Agreement that the holder provide Gemini in writing with
such information as Gemini may reasonably request concerning the holder and the
holder's proposed plan of distribution and any other information requested by
the Commission, the National Association of Securities Dealers, Inc., NASD
Regulation, Inc., any stock exchange or market on which the Gemini Common Stock
is traded and any state securities commission. Gemini shall advise the holder in
writing of the extent to which a managing underwriter will permit the inclusion
of shares of Gemini Common Stock in a registration statement and shall provide
the holder with a copy of any requests by the managing underwriter relating to
the inclusion of any Registrable Securities in a registration statement.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(b) If the Registrable Securities shall not have been registered pursuant to
Paragraph 11(a) of this Agreement during the twelve month period commencing on
the IPO Date, then, if Trans Global or any other holder(s) who own 25% of the
Series A Preferred Stock issued pursuant to this Agreement shall give notice
(the "Registration Notice") to Gemini at any time during the period commencing
twelve months after the IPO Date and ending on the Registration Termination
Date, that such holders contemplate the sale of all or any portion of the
Registrable Securities under such circumstances that a public distribution
(within the meaning of the Securities Act) of such Registrable Securities will
be involved, then Gemini shall, within forty five (45) days after receipt of the
Registration Notice, time being of the essence, file a registration statement
pursuant to the Securities Act, to the end that all Registrable Securities may
be sold publicly under the Securities Act, and Gemini will use its best efforts
to cause such registration statement to become effective. If the Registration
Notice is not signed by all holders of the Registrable Securities, Gemini shall,
within five days of its receipt of the Registration Notice, give notice to the
other holders and, if they so request, include their Registrable Securities in
the registration statement. Gemini shall keep such registration statement
current and effective until the all of the Conversion Shares shall have been
sold pursuant to the registration statement or until the Registration
Termination Date. The holders shall be entitled to only one (1) demand
registration right pursuant to this Paragraph 11(b), except that, in the event
that such registration statement is filed and is either withdrawn or does not
become effective (other than upon the written request of all of the holders
whose Registrable Securities are to be included in such registration statement),
then the holders shall not be deemed to have exercised the demand registration
right pursuant to this Paragraph 11(b).
(c)ab The following provisions shall also be applicable to this Paragraph
11:
(i)ab As used in this Paragraph 11, the following terms shall have the
meanings set forth below:
(A)ab "Registration Termination Date" shall mean the date on which Trans Global
or its Transferees may sell all of the Conversion Shares that they then own or
would own on conversion of the Series A Preferred Stock pursuant to Paragraph
(k) of Rule 144 ("Rule 144") of the Commission pursuant to the Securities Act.
(B) "Registrable Securities" shall mean (I) the shares of Series A Preferred
Stock issued to Trans Global pursuant to this Agreement and held by Trans Global
and its Transferees and (II) the Conversion Shares issued or issuable upon
conversion of such shares of Series A Preferred Stock. Trans Global understands
that there will not be a public market in the Series A Preferred Stock.
(C) "Transferees" shall mean (I) the persons or entities to whom or to which
Trans Global or its transferees shall have transferred any Registrable
Securities in a transaction exempt from the registration requirements of the
Securities Act, other than Rule 144 or any subsequent similar rule.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(ii)ab Gemini shall bear the entire cost and expense of any
registration of securities pursuant to Paragraphs 11(a) and (b) of this
Agreement. Any holder whose Registrable Securities are included in any
registration statement pursuant to this Paragraph 11 shall, however, bear
the fees of his or its own counsel and accountants and any transfer taxes
or underwriting or brokers' discounts or commissions applicable to the
Registrable Securities sold by him or it pursuant thereto.
(iii)ab Following the effective date of a registration statement which
includes Registrable Securities pursuant to Paragraph 11(a) or (b) of this
Agreement, Gemini shall, upon the request of any holder, forthwith supply
the holder with such number of prospectuses meeting the requirements of the
Securities Act as shall be reasonably requested by the holder to permit the
holder to make a public distribution of all the registered Registrable
Securities from time to time offered or sold by the holder, provided that
the holder shall from time to time furnish Gemini with such appropriate
information (relating to the intentions of the holder) in connection
therewith as Gemini shall request in writing as provided in said Paragraphs
11(a) and (b). Gemini shall also use its best efforts to qualify the
registered shares for sale in such states as the securities being sold by
Gemini and other selling stockholders, if any, are otherwise being
registered or qualified and, in such other states as the holder shall
reasonably request; provided, however, that Gemini shall not, for any such
purpose, be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not, but for the
requirements of this Paragraph 11(c)(iii), be obligated to be so qualified,
to subject itself to taxation in such jurisdiction or to consent to general
service of process in any such jurisdiction.
(iv) Gemini shall prepare and file with the Commission such amendments
and supplements to such registration statement and any prospectus used
pursuant this Paragraph 11 as may be necessary to keep such registration
statement current and effective during the period when the holder may sell
Registrable Securities pursuant to the registration statement. Gemini will
notify each holder whose Registrable Securities are subject to the
registration statement at such time as, for any reason, the prospectus
relating to the sale of the Registrable Securities is no longer current and
effective, and the holder shall not sell any Registrable Securities
pursuant to such registration statement until such time as the holder is
advised by Gemini that the registration statement is current and effective.
In no event shall Gemini be required to keep any registration statement
which includes the Registrable Securities current and effective subsequent
to the Registration Termination Date.
(v) Gemini shall indemnify and hold harmless each holder, its officers
and directors, partners and members and each underwriter, within the
meaning of the Securities Act, who may purchase from or sell any
Registrable Securities for the holders and each person who controls any
holder and such underwriter within the meaning of the Securities Act, from
and against any and all losses, claims, damages and liabilities
(collectively, "Losses") caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement under
the Securities Act or any prospectus included therein required to be filed
or furnished by reason of this Paragraph 11 or any application or other
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
filing under any state securities law or by any omission or alleged
omissions to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, to which the
holder or any such underwriter or control person or other indemnified party
may become subject under the Securities Act, the Securities Exchange Act of
1934, as amended, or other Federal or state law, rule or regulation, at
common law or otherwise, except insofar as such Losses are caused by any
such untrue statement or alleged untrue statement or omission or alleged
omission which is based upon information furnished or required to be
furnished to Gemini by the holder or any such underwriter or other
indemnified party expressly for use therein, which indemnification shall
include each person, if any, who controls any such underwriter within the
meaning of the Securities Act; provided, however, that each holder and such
underwriter shall at the same time indemnify Gemini, its officers and
directors, each underwriter and each person, if any, who controls Gemini or
such underwriter within the meaning of the Securities Act and each other
person whose securities are being offered or sold pursuant to such
registration statement (the "other holders") and each person who controls
the other holders within the meaning of the Securities Act, from and
against any and all Losses caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or any
prospectus filed or furnished by reason of this Paragraph 11 or caused by
any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, insofar as such Losses are caused by any untrue statement or
alleged untrue statement or omission based upon information furnished to
Gemini in writing by the holder or such underwriter expressly for use
therein; provided, however, that the holder's liability to Gemini and such
underwriter or other indemnified party pursuant to this Paragraph 11(c)(v)
shall not exceed the gross sales price of all Registrable Securities sold
by the holder pursuant to such registration statement.
(vi) If any action or claim shall be brought or asserted by a person
or entity entitled to indemnification pursuant to Paragraph 11(c)(v) of
this Agreement (an "indemnified party") against Gemini or any underwriter
engaged by Gemini or any person controlling Gemini or such underwriter
within the meaning of the Securities Act or against the holder or any
underwriter engaged by the holder or any person controlling the holder or
such underwriter, within the meaning of the Securities Act in respect of
which indemnity may be sought pursuant to Paragraph 11(c)(v) of this
Agreement (an "indemnifying party"), the indemnified party shall promptly
notify the indemnifying party in writing of the basis for the claim of
indemnification and provide the indemnifying party with a copy of all legal
papers or other notices or communications served on it in connection
therewith, and the indemnifying party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all legal and other expenses in
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
connection therewith. The failure of the indemnified party to notify the
indemnifying party as provided in this Paragraph 11(c)(vi) will not relieve
the indemnifying party of any liability for indemnification which it may
have to the indemnified party pursuant to Paragraph 11(c)(v) of this
Agreement unless the failure to so notify the indemnifying party materially
prejudices the rights of the indemnifying party. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless (A) the
employment thereof has been specifically authorized by the indemnifying
party in writing and the indemnifying party shall have agreed in writing to
pay such fees and expenses, or (B) the indemnifying party has failed,
either (I) with reasonable promptness, to assume the defense and employ
counsel as provided in this Paragraph 11(c)(vi), or (II) to appoint counsel
to act or otherwise respond to any claim or action prior to the date a
response is due, after giving effect to any extensions obtained by or on
behalf of the indemnifying party, or (C) the named parties to any such
action (including any impleaded parties) include both an indemnified party
and an indemnifying party, and in the judgment of the counsel for the
indemnified party, it is advisable for the indemnified party or controlling
person to be represented by separate counsel because of actual or potential
conflicting interests between them (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of
the indemnified party or such controlling person, it being understood,
however, that the indemnifying party shall, in connection with any one such
action or separate but substantially similar or related actions arising out
of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate firm of attorneys at any
time in each jurisdiction for all indemnified parties (whether pursuant to
this Agreement or any other agreements granting registration rights), which
firm shall be designated in writing by all the indemnified parties, except
that if Trans Global is an indemnified party, such counsel shall be
designated by Trans Global). The indemnifying party shall not be liable for
any settlement of any such action effected by an indemnified party without
the written consent of the indemnifying party (which shall not be withheld
unreasonably in light of all factors of importance to such indemnifying
party and such indemnified party), but if settled with such written
consent, or if there be a final judgment or decree for the plaintiff in any
such action by a court of competent jurisdiction and the time to appeal
shall have expired or the last appeal shall have been denied, the
indemnifying party agrees to indemnify and hold harmless the indemnified
party from and against any Loss by reason of such settlement or judgment.
(vii)ab The making of any request for prospectuses hereunder shall not
impose on the holder any obligation to sell any Registrable Securities.
(viii)ab Gemini's obligations pursuant to this Paragraph 11 shall be
applicable to Trans Global and its Transferees.
(d) If either (i) any holders shall have exercised the demand registration
rights pursuant to Paragraph 11(b) of this Agreement and such registration
statement shall not have been declared effective within six months after the
date of the Registration Notice, or (ii) the Registrable Securities shall have
been registered pursuant to the Securities Act, but, for any reason, the
registration statement shall cease to be current and effective for a period of
more than thirty (30) days, then in either of such cases, any holder shall have
the right to require Gemini to redeem the Preferred Stock held by such holder as
set forth in the Certificate of Designation.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
12. Pursuant to the Purchase Agreement, this Agreement and the Purchaser
Guarantee will be held in escrow and will be delivered to Trans Global and an
executed copy of this Agreement shall be delivered to Consolidated, Arc and TA
at such times as the documents are released from escrow pursuant to a
Distribution Notice, as defined in the Escrow Agreement, all as provided in the
escrow agreement dated the date of this Agreement among Consolidated, SISC, Arc,
TA, Trans Global and Parker Chapin Flattau & Klimpl, LLP, as escrow agent (the
"Escrow Agreement"). In the event that the Escrow Property, as defined in the
Escrow Agreement, is distributed pursuant to Paragraph 5 of the Escrow Agreement
as a result of a Termination Notice, as defined in the Escrow Agreement, or the
failure of Arc to obtain the New York Regulatory Consent, as defined in and
pursuant to the Purchase Agreement, this Agreement shall, automatically and
without any action on the part of any Party, terminate and be of no force and
effect and no party shall have any right or obligation pursuant to this
Agreement or the Purchaser Guarantee. Nothing in this Paragraph 12 shall be
construed to modify or affect in any manner the rights and obligations of Trans
Global and Arc under the Arc Note and the rights and obligations of Trans Global
and Consolidated under the Consolidated Guarantee during the period when this
Agreement is held in escrow.
13.ab Gemini agrees that prior to the issuance of the Series A Preferred Stock
pursuant to this Agreement, it will not modify or amend the Certificate of
Designation.
14. Contemporaneously with the execution of this Agreement, each Party will
deliver to the other Parties the certificate of the secretary of such Party
certifying as to (a) the incumbency of the officers of such Party and (b) the
adoption by the Board of Directors of resolutions approving the execution of
this Agreement and the performance of its terms.
15. (a) Except for the waiver granted in Paragraph 1 of this Agreement and the
provisions of Paragraph 6 of this Agreement, the Arc Note shall remain in full
force and effect.
(b) Nothing in this Agreement shall be construed to modify or affect the
rights of Consolidated, SISC and Trans Global pursuant to a certain agreement
dated February 25, 1999, by and among Consolidated, SISC and Trans Global.
16. (a) This Agreement, including the Exhibits, which constitute integral parts
of this Agreement, constitutes the entire agreement of the parties with respect
to the subject matter thereof, superseding and terminating any and all prior or
contemporaneous oral and prior written agreements, understandings or letters of
intent between or among the parties with respect to the subject matter of this
Agreement. No part of this Agreement may be modified or amended, nor may any
right be waived, except by a written instrument which expressly refers to this
Agreement, states that it is a modification or amendment of this Agreement or a
waiver under this Agreement and is signed by the parties to this Agreement, or,
in the case of waiver, by the party granting the waiver. No course of conduct or
dealing or trade usage or custom and no course of performance shall be relied on
or referred to by any party to contradict, explain or supplement any provision
of this Agreement, it being acknowledged by the parties to this Agreement that
this Agreement is intended to be, and is, the complete and exclusive statement
of the agreement with respect to its subject matter. Any waiver shall be limited
to the express terms thereof and shall not be construed as a waiver of any other
provisions or the same provisions at any other time or under any other
circumstances.
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EXHIBIT 10.12
(b) If any section, term or provision of this Agreement shall to any extent
be held or determined to be invalid or unenforceable, the remaining sections,
terms and provisions shall nevertheless continue in full force and effect.
(c) All notices or other communications required or permitted by this
Agreement shall be in writing signed by the party giving such notice, and
delivered personally against receipt thereof or sent by overnight courier, mail
or messenger against receipt thereof or sent by registered or certified mail,
return receipt requested, or by facsimile transmission or similar means of
communication if receipt is confirmed or if transmission of such notice is
confirmed by mail as provided in this Paragraph 16. Notices shall be deemed to
have been received on the date of personal delivery or telecopy or, if sent by
certified or registered mail, return receipt requested, shall be deemed to be
delivered on the fifth (5th) business day after the date of mailing, except that
notice of change in the person, address or facsimile number shall be effective
on actual receipt. Notices shall be addressed to the party for whom intended at
his or its address set forth below or to the attention of such other person or
such other address or facsimile number as a party shall have designated by
notice in writing to the other parties given in the manner provided by this
Paragraph 16(c):
if to Trans Global to:
Trans Global Services, Inc.
1393 Veterans Memorial Highway
Hauppauge, New York 11788
Facsimile: (516) 724-0039
Attn: Joseph G. Sicinski, President and CEO
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10159
Facsimile: (212) 953-6899
Attn: Asher S. Levitsky P.C.
if to Arc, to:
Arc Networks, Inc.
1770 Motor Parkway
Hauppauge, New York 11788
Facsimile: (516) 582-1240
Attn: Peter F. Parrinello, President
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Facsimile: (212) 704-6288
Attention: Michael J. Shef, Esq.
68
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
if to Consolidated, to:
Consolidated Technology Group Ltd.
160 Broadway, Suite 901
New York, New York 10038
Facsimile: (212) 233-5023
Attn: Mr. Seymour Richter, President
and
Consolidated Technology Group Ltd.
2424 North Federal Highway, Suite 110
Boca Raton, Florida 33431
Facsimile: (561) 347-5352
Attn: George W. Mahoney, Chief Financial Officer
with a copy to:
Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, NY 10536
Facsimile: (914) 232-0647
If to TA or Gemini, to:
Technology Acquisitions, Ltd.
c/o Benchmark Equity Group, Inc.
700 Gemini Street
Houston, TX 77058
Facsimile: (281) 488-5353
Attn: Mr. Christopher H. Efird
with a copy to:
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Facsimile: (202) 659-1290
Attn: Ralph V. De Martino, Esq.
(d)ab This Agreement shall be governed and construed in accordance with the laws
of the State of New York applicable to agreements executed and to be performed
wholly within such State, without regard to any principles of conflicts of law.
Each of the Parties hereby (i) irrevocably consents and agrees that any legal or
equitable action or proceeding arising under or in connection with this
Agreement shall be brought in the Federal or state courts located in the County
of New York or Suffolk in the State of New York, (ii) by execution and delivery
of this Agreement, irrevocably submits to and accepts the jurisdiction of said
courts, (iii) waives any defense that such court is not a convenient forum, and
(iv) consents to any service of process made in the manner set forth in
69
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
Paragraph 16(c) of this Agreement (other than by telecopier), in addition to any
other method of service permitted by law. In any action brought pursuant to this
Agreement based on an alleged breach of this Agreement, the prevailing Party
shall be entitled to reimbursement of all costs incurred by it in connection
therewith to the extent, if at all, awarded or allowed by the court or other
tribunal in which the action or proceeding has been commenced; provided,
however, that nothing in this Paragraph 16(d) shall be construed to affect in
any manner the provisions of Paragraphs 11(c)(v) and (vi) of this Agreement.
(e)Each of the Parties to this Agreement shall be responsible and liable for its
own expenses incurred in connection with the preparation of this Agreement and
the consummation of the transactions contemplated by this Agreement and related
expenses, except as expressly provided in this Agreement.
(f) Each Party to this Agreement is relying on his or its own tax advisors as to
the tax consequences of this Agreement and the transactions contemplated by this
Agreement, and no party is making any representations or warranties of any kind
as to such tax consequences to any other Party.
(g) No Party shall make a public announcement concerning this Agreement without
the consent of the other Parties except to the extent that disclosure is
required under applicable laws.
(h) This Agreement shall be binding upon and inure to the benefit of the Parties
and their respective successors and permitted assigns; provided, however, that,
except as expressly provided in this Agreement, no Party may assign this
Agreement or any of its rights under this Agreement without the prior written
consent of the other Parties.
(i) Each Party agrees, without cost or expense to any other Party, to deliver or
cause to be delivered such other documents and instruments and to take such
other action as may be reasonably requested by any other party to this Agreement
in order to carry out more fully the provisions of, and to consummate the
transaction contemplated by, this Agreement.
(j) This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
[Signatures on Next Page]
70
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first
written above.
TRANS GLOBAL SERVICES, INC.
By:
Joseph G. Sicinski, President and CEO
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:
Seymour Richter, President:
ARC NETWORKS, INC.
By:
Peter F. Parrinello, President and CEO
TECHNOLOGY ACQUISITIONS LTD.
By:
Name:
Title:
GEMINI II, INC.
By:
Name:
Title:
71
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
Exhibit A
GUARANTEE
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Technology Acquisitions Ltd., a Bermuda corporation ("TA"), and
Gemini II, Inc., a Delaware corporation ("Gemini"), TA and Gemini being
collectively referred to as the "Guarantors" and each as a "Guarantor," hereby
unconditionally and irrevocably jointly and severally guarantee the payment and
performance by Arc Networks, Inc., a Delaware corporation (the "Payor"), of all
of the Payor's obligations pursuant to the Payor's 10% Installment Promissory
Note due August 31, 2003 in the principal amount of one million two hundred
sixteen thousand six hundred seventy three dollars ($1,216,673) (the "Note")
dated September 18, 1998 and payable to the order of Trans Global Services,
Inc., a Delaware corporation, and if the Payor fails to pay the Note in
accordance with its terms, the Guarantors jointly and severally agree promptly
to pay or perform the Payor's obligations under the Note.
The liability of the Guarantors shall be direct and immediate and not
conditional or contingent upon the pursuance by the holder of the Note of
whatever remedies it may have, at law or in equity, against the Payor or any
other party. The Guarantors hereby waive presentment for payment, demand,
protest and notice of protest and of nonpayment.
The obligations of the Guarantors shall not be impaired, diminished or
discharged, in whole or in part, by any extension of time granted by the holder
of the Note, by any course of dealing between the holder of the Note and the
Payor, by the unenforceability of the Note, in whole or in part, for any reason
whatsoever, by the release of any guarantor or other obligor or any collateral,
or by any other act, omission, event or circumstance which might operate to
discharge a guarantor in whole or in part or which might operate as a defense,
in whole or in part, to any obligation of a guarantor or which might invalidate,
in whole or in part, a guarantee.
The Guarantors acknowledge and agree that nothing shall discharge, satisfy
or release the obligations created under this Guarantee, except for payment in
full or satisfaction of the Payor's obligations with respect to the Note. Such
obligations shall not be considered fully paid unless and until all payments by
the Payor or any guarantor, including the Guarantors (or any other party who or
which is now or may hereafter be liable for any obligations under the Note) to
the holder of the Note are no longer subject to any right on the part of any
person whomsoever, including, without limitation, any trustee in bankruptcy, to
set aside such payments, or to seek to recoup the amount of such payments, or
any part thereof. The foregoing shall include, by way of example and not by
limitation, all rights to recover preferences voidable under the United States
Bankruptcy Code. In furtherance of the foregoing, the Guarantors jointly and
severally agree to pay on demand any amount which the holder of the Note is
required to pay under any bankruptcy, insolvency or other similar law on account
of any amount received by the holder of the Note under or with respect to the
Note or this guarantee.
In the event that the holder of this Note commences litigation against the
Guarantors or either of them or otherwise engages counsel in order to enforce
its rights under this Guarantee, the Guarantors shall be jointly and severally
liable for all reasonable costs and expenses of collection, including, without
limitation, reasonable attorneys' fees and expenses.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
The Guarantors hereby represent to any holder of the Note that (i) the
execution, delivery and performance of this Guarantee has been duly authorized
and approved by all required corporate action of each Guarantor, and (ii) this
Guarantee is a valid and binding obligation of Guarantor, enforceable against
Guarantor in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect.
This Guarantee shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State without regard to principles of conflicts of law.
Each Guarantor consents to the nonexclusive jurisdiction of the United States
District Court for the Southern or Eastern District of New York and the Supreme
Court of the State of New York in the County of New York or Suffolk in any
action relating to or arising out of this Guarantee and waives any claim that
any of such forums is not a convenient forum. IN ANY SUCH ACTION, EACH GUARANTOR
WAIVES ANY RIGHT TO A TRIAL BY JURY
This Guaranty shall be binding upon Guarantors and their respective
successors and assigns and inure to the benefit of the holder of the Note and
its successors and assigns.
IN WITNESS WHEREOF, the Guarantors have executed this Guarantee this th day of
March, 1999.
TECHNOLOGY ACQUISITIONS LTD.
By:
Name:
Title:
GEMINI II, INC.
By:
Name:
Title:
73
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
Exhibit B
CERTIFICATE OF DESIGNATION OF
GEMINI II, INC.
Series A 10% Convertible Redeemable Preferred Stock
Pursuant to Section 151(g) of the Delaware General Corporation Law, Gemini II,
Inc., a Delaware corporation (the "Corporation"), does hereby certify as
follows:
1. The following resolution was duly adopted by the Board of Directors of
the Corporation on March , 1999:
RESOLVED, that pursuant to Section Fourth of the Certificate of
Incorporation of this Corporation, there be created a series of the
Preferred Stock, par value $.0001 per share ("Preferred Stock"), of this
Corporation consisting of one million two hundred seventeen thousand
(1,217,000) shares, to be designated as the Series A 10% Convertible
Redeemable Preferred Stock ("Series A Preferred Stock"), and that the
holders of such shares shall have the rights, preferences and privileges
set forth in Statement of Designation set forth in Exhibit I to this
Resolution; and it was further
RESOLVED, that the officers of this Corporation be, and they hereby
are, authorized and empowered to execute and file with the Secretary of
State of the State of Delaware, a certificate of designation setting forth
the rights, preferences and privileges of the holders of the Series A
Preferred Stock.
2. Set forth as Exhibit I to this Certificate of Designation is a true and
correct copy of the rights, preferences and privileges of the holders of the
Series A Preferred Stock.
IN WITNESS WHEREOF, Gemini II, Inc. has caused this certificate to be signed by
the president and attested by its secretary this th day of March, 1999.
ATTEST:
By: , President
, Secretary
74
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
Statement of Designation
The designation of, the number of shares constituting, and the rights,
preferences, privileges and restrictions relating to, the Series A 10%
Convertible Preferred Stock are as follows:
1. Designation and Number of Shares. The designation of this series of one
million two hundred seventeen thousand (1,217,000) shares of preferred stock,
par value $.0001 per share ("Preferred Stock"), created by the Board of
Directors of the Corporation pursuant to the authority granted to it by the
certificate of incorporation of the Corporation is "Series A 10% Convertible
Redeemable Preferred Stock," which is hereinafter referred to as the "Series A
Preferred Stock." In the event of the conversion of shares of Series A Preferred
Stock into this Corporation's common stock, par value $.0001 per share ("Common
Stock"), pursuant to Paragraph 4 of this Statement of Designation, or in the
event that the Corporation shall redeem any shares of Series A Preferred Stock
pursuant to Paragraph 5 of this Statement of Designation or shall otherwise
acquire and cancel any shares of Series A Preferred Stock, the shares of Series
A Preferred Stock so converted, redeemed or otherwise acquired and canceled
shall have the status of authorized but unissued shares of Preferred Stock,
without designation as to series until such stock is once more designated as
part of a particular series by the Corporation's Board of Directors, and the
number of authorized shares of Series A Preferred Stock shall be reduced by the
number of shares so converted, redeemed or otherwise acquired and canceled. In
addition, if the Corporation shall not issue the maximum number of shares of
Series A Preferred Stock, the Corporation may, from time to time, by resolution
of the Board of Directors, reduce the number of shares of Series A Preferred
Stock authorized, provided, that no such reduction shall reduce the number of
authorized shares to a number which is less than the number of shares of Series
A Preferred Stock then issued or reserved for issuance. The number of shares by
which the Series A Preferred Stock is reduced shall have the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, until such stock is once more designated as part of a particular series
by the Corporation's Board of Directors. The Board of Directors shall cause to
be filed with the Secretary of State of the State of Delaware such certificate
as shall be necessary to reflect any reduction in the number of shares
constituting the Series A Preferred Stock.
2. Dividend Rights.
(a) The holders of the Series A Preferred Stock shall be entitled to
receive, out of funds of this Corporation legally available therefor, cash
dividends at an annual rate of ten cents ($.10) per share. Dividends shall be
payable in annual installments on the first day of March (the "dividend payment
date") in each year, commencing March 1, 2000, to holders of record of the
Series A Preferred Stock as follows. The holders of record of Series A Preferred
Stock on the 15th day of each calendar month, commencing with the first such day
which occurs after the initial issuance of the first share of Series A Preferred
Stock, shall be entitled to a dividend of five-sixth of one cent ($.008 1/3) per
share (the "monthly dividend accrual"). On each dividend payment date, the
Corporation shall pay the monthly dividend accruals for each month through the
monthly dividend accrual for the February immediately preceding the dividend
payment date, regardless of whether the shares of Series A Preferred Stock are
outstanding on the dividend payment date.
75
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(b) The amount of any dividends "accrued" on any share of Series A
Preferred Stock at any dividend payment date shall be deemed to be the amount of
any unpaid dividends accumulated thereon to and including such dividend payment
date, whether or not earned or declared, and the amount of dividends "accrued"
on any share of Series A Preferred Stock at any date other than a dividend
payment date shall be calculated as the amount of any unpaid dividends
accumulated thereon to and including the last preceding dividend payment date,
whether or not earned or declared, plus an amount calculated on the basis of the
monthly dividend accrual at the monthly rate of five-sixth of one cent ($.008
1/3) per share for the period after such last preceding dividend payment date to
and including the date as of which the calculation is made.
(c) Except as provided in this Statement of Designation, no dividends shall
be declared or paid or set aside for payment on any class or series of capital
stock ranking on a parity with or junior to the Series A Preferred Stock as to
dividends for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
payment thereof is set aside for such payment on the Series A Preferred Stock
for all dividend periods terminating on or prior to the dividend payment date of
such dividends on any such series or class. When dividends are not paid in full
upon the shares of Series A Preferred Stock and any other series of Preferred
Stock ranking on a parity as to dividends with the Series A Preferred Stock, all
dividends declared upon shares of Series A Preferred Stock and such other series
of Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on the Series A Preferred Stock shall in all cases bear to
each other the same ratio that the accrued dividends per share on the shares of
Series A Preferred Stock and such other series of Preferred Stock bear to each
other. Holders of shares of Series A Preferred Stock shall not be entitled to
dividends thereon, whether payable in cash, property or stock, in excess of the
full cumulative dividends thereon, as provided in this Statement of Designation.
No dividend on Series A Preferred Stock shall be declared or paid or set apart
for payment with respect to any dividend payment date unless full dividends,
including accumulated dividends, if any, on any series or class of capital stock
ranking, as to dividends, prior to Series A Preferred Stock which are to have
been paid on or prior to such dividend payment date have been or
contemporaneously are declared and paid or declared and a sum sufficient for
payment thereof has been set aside for all dividend periods for such series or
class terminating on or prior to such dividend payment date.
(d) As long as any shares of Series A Preferred Stock are outstanding, no
dividends (other than a dividend in any series or class of capital stock ranking
junior to Series A Preferred Stock as to both dividends and payments in the
event of voluntary or involuntary dissolution, liquidation or winding up), shall
be declared or paid or set aside for payment and no other distribution shall be
declared or made upon any such junior series or class of capital stock, and no
such junior series or class of capital stock or any series of Preferred Stock on
a parity with Series A Preferred Stock as to both dividends and payments in the
event of voluntary and involuntary dissolution, liquidation or winding up shall
be redeemed, purchased or otherwise acquired for any consideration by the
Corporation or by any subsidiary (which shall mean any corporation or entity,
the majority of voting power to elect directors of which is held directly or
indirectly by the Corporation), except by conversion into or exchange for any
such junior series or class of capital stock; unless, in each case, the full
cumulative dividends on all outstanding shares of Series A Preferred Stock shall
have been paid in full for all past dividend periods or unless the holders of a
majority of the Series A Preferred Stock then outstanding shall consent thereto.
76
TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
3. Voting Rights.
(a) Except as otherwise required by law, the holders of the Series A
Preferred Stock shall have no voting rights; provided, however, that, except as
provided in Paragraph 1 of this Statement of Designation, neither this Statement
of Designation nor the Certificate of Designation of which this Statement of
Designation is a part, may not be modified or amended without the consent of the
holders of a majority of the issued and outstanding shares of Series A Preferred
Stock. The consent of the holders of the Series A Preferred Stock may be given
at a meeting of the holders of the Series A Preferred Stock or by a written
consent of the holders of a majority of the outstanding shares of Series A
Preferred Stock.
(b) The Corporation may create other series of Preferred Stock which may be
senior or junior to or on a parity with the Series A Preferred Stock as to
dividends and/or on voluntary or involuntary dissolution, liquidation or winding
up without the consent of the holders of the Series A Preferred Stock.
4. Conversion into Common Stock.
(a)(i) Each holder of the Series A Preferred Stock will have the right, at
any time and from time to time, commencing ninety (90) days from the IPO Date,
as hereinafter defined, or earlier with the consent of both the Corporation and
the representative of the underwriters with respect to the Corporation's initial
public offering, to convert any shares of Series A Preferred Stock into shares
of Common Stock, together with, at the election of the holder thereof, accrued
dividends to the date of conversion, at the Conversion Rate, as hereinafter
defined.
(ii)ab In the event that shares of Series A Preferred Stock are redeemed by
the Corporation pursuant to Paragraph 5 of this Statement of Designation, the
right of the holders of the Series A Preferred Stock to convert such shares into
Common Stock shall, subject to Paragraph 5(e) of this Statement of Designation,
terminate at 5:30 P.M. on the day before the Redemption Date, as defined in
Paragraph 5(b) of this Statement of Designation; provided, that the Redemption
Price, as defined in Paragraph 5(a) of this Statement of is made on the
Redemption Date.
(b)(i) The "Conversion Rate" shall mean the number of shares of Common
Stock issuable upon conversion of one (1) share of Series A Preferred Stock. The
Conversion Rate shall be determined by dividing one dollar ($1.00) by the lesser
of (A) the IPO Price, as hereinafter defined, or (B) the Market Price, as
hereinafter defined, subject to adjustment as provided in Paragraph 4(e) of this
Statement of Designation; provided, however, that in no event shall the
Conversion Rate be less than one dollar ($1.00) divided by one-third (1/3) of
the IPO Price (as adjusted pursuant to Paragraph 4(e)(i), (ii) and (iii) of this
Statement of Designation).
(ii) The "IPO Date" shall man the date on which the first registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
relating to an offering by the Corporation of its securities is declared
effective by the Securities and Exchange Commission.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(iii) The "IPO Price" shall mean the price per share at which the
Corporation's Common Stock is sold to the public in its initial public offering.
In the event that the initial public offering consists of units, which include
both shares of Common Stock and warrants, each warrant shall be valued at 15% of
the initial public offering price of the units. The IPO Price shall be subject
to adjustment as provided in Paragraph 4(e) of this Statement of Designation.
(iv) The "Market Price" shall mean the average of the closing prices during
the five (5) day period ending on the trading day prior to the date of such
conversion, as reported by the principal stock exchange or market on which the
Common Stock is listed; provided, however, that if, on any of such days there
are no reported sales of the Common Stock, the closing low bid price shall be
used for such day. If the Common Stock is listed on the Nasdaq Stock Market and
a regional stock exchange, the Nasdaq Stock Market shall be the principal
market. If, during the five (5) day period referred to in this Paragraph
4(b)(iii) there shall be an event requiring an adjustment pursuant to Paragraph
4(e) of this Agreement, the closing or bid price, as the case may be, for each
day prior to such event (a "Pre-Transaction Market Price") shall be adjusted as
provided in said Paragraph 4(e).
(c) Conversion of the Series A Preferred Stock shall be effected by
surrender of the certificate representing the shares of Series A Preferred Stock
being converted to the transfer agent for the Series A Preferred Stock, or, if
none shall have been appointed, to the Corporation, together with the form of
notice of election to convert as may be provided from time to time by the
Corporation.
(d) Shares of Series A Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of the surrender
for conversion of the certificate therefor, together with the form of notice of
election provided by the Corporation duly signed by the holder thereof, and the
person or persons entitled to receive shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock as of such time. As promptly as practicable on or after the
conversion date, the Corporation or its transfer agent shall issue and shall
deliver a certificate or certificates for the number of shares of Common Stock
issuable upon such conversion to the person or persons entitled to receive the
same.
(e)ab The IPO Price and any Pre-Transaction Market Price (the "Applicable
Prices" and each, an "Applicable Price") shall be subject to adjustment as
follows:
(i)ab In case the Corporation shall, after the IPO Date, (A) pay a dividend
or make a distribution on its shares of Common Stock in shares of Common Stock,
(B) subdivide, split or reclassify its outstanding Common Stock into a greater
number of shares, (C) effect a reverse split or otherwise combine or reclassify
its outstanding Common Stock into a smaller number of shares, or (D) issue any
shares by reclassification of its shares of Common Stock, the Applicable Prices
in effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
proportionately adjusted to reflect, in accordance with generally accepted
accounting principles, such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed in this Paragraph4(e)(i) shall occur.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(ii)ab In case the Corporation shall, subsequent to the IPO Date, issue
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph 4(e)(iv) of
this Statement of Designation) on the record date mentioned below, the
Applicable Prices shall be adjusted so that the same shall equal the price
determined by multiplying the Applicable Prices in effect immediately prior to
the date of such issuance by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on the record date mentioned below
plus the number of shares determined by multiplying the price or the conversion
price at which additional shares of Common Stock are offered by the number of
shares of Common Stock being offered by the number of shares being issued,
including shares being issued upon conversion of any convertible securities, and
dividing the result so obtained by the current market price of the Common Stock,
and of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered for subscription or purchased (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock or securities convertible into Common Stock are not
delivered after the expiration of such rights or warrants, the Applicable Prices
shall be readjusted to the Applicable Prices which would then be in effect had
the adjustments made upon the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of Common Stock (or
securities convertible into Common Stock) actually
delivered.
(iii)ab In case the Corporation shall, subsequent to the IPO Date,
distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph 4(e)(i) of this
Statement of Designation) or subscription rights or warrants (excluding those
referred to in Paragraph 4(e)(ii) of this Statement of Designation), then in
each such case the Applicable Prices in effect thereafter shall be determined by
multiplying the Applicable Prices in effect immediately prior thereto by a
fraction, of which the numerator shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of Common
Stock (as defined in Paragraph 4(e)(iv) of this Statement of Designation), less
the fair market value (as determined in good faith by the Corporation's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and of which the denominator shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
distribution.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(iv)ab For the purpose of any computation under Paragraphs 4(e)(ii) and
(iii) of this Statement of Designation, the current market price per share of
Common Stock at any date shall be deemed to be the average of the daily closing
prices for five (5) consecutive trading days commencing twenty (20) trading days
before such date, as reported by the principal stock exchange or market on which
the Common Stock is listed; provided, however, that if, on any of such days
there are no reported sales of the Common Stock, the closing low bid price shall
be used for such day. If the Common Stock is not listed or admitted to listed on
any stock exchange or market, the closing low bid prices as reported by the
National Quotation Bureau, Inc. or other similar organization if Nasdaq is no
longer reporting such information, or if not so available, the fair market price
as determined by the Board of Directors.
(v)ab No increase or decrease in the Applicable Prices shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1%); provided, however, that any adjustments which, by reason of this
Paragraph 4(e)(v), are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Paragraph 4(e) shall be made to the nearest one-tenth (1/10) of a cent.
(vi)ab The Corporation may retain a firm of independent public accountants
of recognized standing selected by the Board of Directors (who may be the
regular accountants employed by the Corporation) to make any computation
required by this Paragraph 4(e), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(vii)ab In the event that at any time, as a result of an adjustment made
pursuant this Paragraph 4(e), the holder of shares of Series A Preferred Stock
thereafter shall become entitled to receive any shares of the Corporation, other
than Common Stock, thereafter the number of such other shares so receivable upon
conversion of shares of Series A Preferred Stock shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained in this Paragraph
4.
(viii)ab In addition to the adjustments provided for in this Paragraph
4(e), the Corporation may modify the Conversion Rate in a manner which will
increase the number of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock if the Corporation believes that such adjustment is
necessary or desirable in order to avoid adverse Federal income tax consequences
to the holders of the Common Stock.
(f) Whenever any adjustment is required by the provisions of Paragraph 4(e)
of this Statement of Designation, the Corporation shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjustment and the adjusted IPO Price, setting forth in reasonable detail the
facts requiring such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by any holder of shares of
Series A Preferred Stock, and the Corporation shall, forthwith after each such
adjustment, mail a copy of such certificate by first class mail to the holder of
Series A Preferred Stock at such holders' addresses set forth in the
Corporation's books and records.
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EXHIBIT 10.12
(g)In case:
(i)ab the Corporation shall pay any dividend or make any distribution upon
Common Stock (other than a regular cash dividend payable out of retained
earnings or cash surplus); or
(ii)ab the Corporation shall offer to the holders of Common Stock for
subscription or purchase by them any shares of any class or any other rights, or
(iii)ab any reclassification of the capital stock of the Corporation,
consolidation or merger of the Corporation with or into another corporation,
sale, lease or transfer of all or substantially all of the property and assets
of the Corporation to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Corporation shall be effected;
then in any such case, the Corporation shall cause to be mailed by first class
mail to the record holders of Series A Preferred Stock at least ten (10) days
prior to the date specified in (A) and (B) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (A) a record is to be taken for the purpose of such dividend, distribution
or rights, or (B) such reclassification, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(h)ab In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Corporation, or in case of
any consolidation or merger of the Corporation into another corporation (other
than a merger with a subsidiary in which merger the Corporation is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock or
the class issuable upon conversion of Series A Preferred Stock) or in case of
any sale, lease or conveyance to another corporation of the property of the
Corporation as an entirety, the Corporation shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the holder of
the Series A Preferred Stock shall have the right thereafter by converting the
Series A Preferred Stock, to receive the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been received
upon conversion of the Series A Preferred Stock immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Statement of Designation. The foregoing provisions of this Paragraph 4(h) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. The provisions of this Paragraph 4(h) shall not apply with
respect to any merger, consolidation, sale, conveyance or other transaction if
such transaction would be deemed a liquidation as provided in, and for the
purpose of, Paragraph 6 of this Statement of Designation.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(i) No fractional shares or script representing fractional shares shall be
issued upon the conversion of shares of Series A Preferred Stock. If, upon
conversion of any shares of Series A Preferred Stock, any holder would, except
for the provisions of this Paragraph 4(i), be entitled to receive a fractional
share of Common Stock, then the number of shares of Common Stock issuable upon
such conversion shall be rounded up to the next higher whole number of shares.
(j) The Corporation shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Stock the full
number of shares of Common Stock then issuable upon the conversion of all shares
of Series A Preferred Stock then outstanding.
(k) The Common Stock issuable upon conversion of the Series A Preferred
Stock shall, when so issued, be duly and validly authorized and issued, fully
paid and non-assessable.
5. Redemption.
(a) The Corporation may redeem the Series A Preferred Stock in whole at any
time or in part from time to time upon not less than five (5) nor more than
fifteen (15) days' prior written notice at the redemption price per share equal
to one and no/100 dollars ($1.00), plus accrued dividends to the date of
redemption (the "Redemption Price"). The Corporation is not required to provide
for the redemption of any shares of Series A Preferred Stock through the
operation of a sinking fund.
(b) The date on which the Corporation is to redeem any Series A Preferred
Stock pursuant to Paragraph 5(a) of this Statement of Designation is referred to
as the "Redemption Date" with respect to the shares of Series A Preferred Stock
to be redeemed on such date. From and after the close of business on the
business day immediately preceding the Redemption Date, any shares of Series A
Preferred Stock as to which the Corporation shall have exercised its right of
redemption shall cease to have any voting, dividend or other rights, and the
holder of such shares shall only have the right to receive payment of the
Redemption Price; provided, however, that this Paragraph 5(b) shall not apply if
the Corporation shall default in the payment of the Redemption Price.
(c) In the event that the Corporation redeems only a portion of the Series
A Preferred Stock, the Corporation shall redeem such shares in a manner which
approximates a prorata redemption of the holders of the Series A Preferred
Stock, and, in making such redemption, the Corporation may fully redeem holders
of Series A Preferred Stock whose holdings are insubstantial relative to the
number of Series A Preferred Stock being redeemed.
(d) (i) In the event that, for any period of five (5) consecutive trading
days (a "Low Price Period") commencing after the IPO Date, the average last
reported price of the Common Stock (or the low bid price for any day on which
there are no reported sales of Common Stock) is less than one-third (1/3) of the
IPO Price (as adjusted pursuant to Paragraph 4(e)(i), (ii) and (iii) of this
Statement of Designation), then either
(A) The Corporation may, within five (5) trading days after the
end of any Low Price Period, redeem all, and not less than all, of the
then outstanding shares of Series A Preferred Stock pursuant to
Paragraph 5(a) of this Statement of Designation, or
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(B)ab Any holder of Series A Preferred Stock may, on written
notice (the "Holder Notice") to the Corporation given within five (5)
trading days after the end of any Low Price Period, require the
Corporation to redeem all of such holder's shares of Series A
Preferred Stock at the Redemption Price.
(ii) If any holder of Series A Preferred Stock shall give the Holder Notice
pursuant to Paragraph 5(d)(i)(B) of this Statement of Designation, the
Corporation shall redeem all of such holder' shares of Series A Preferred Stock
not later than fifteen (15) days after the Holder Notice is given.
(iii)ab The right of the Corporation to redeem the Series A Preferred Stock
pursuant to Paragraph 5(d)(i)(A) of this Statement of Designation shall be in
addition to its right to redeem the Series A Preferred Stock pursuant to
Paragraph 5(a) of this Statement of Designation.
(iv)ab In the event that the Corporation redeems the Series A Preferred
Stock pursuant to this Paragraph 5(d), the right of the holders of the Series A
Preferred Stock to convert their shares of Series A Preferred Stock shall
terminate on the date the holders receive such notice of redemption. In the
event that any holder of Series A Preferred Stock shall give the Holder Notice,
such holder's right to convert the Series A Preferred Stock shall terminate on
the date the Holder Notice is given.
(v)ab In the event that the Corporation fails to pay the Redemption Price
with respect to any redemption pursuant to this Paragraph 5(d), the
Corporation's right to redeem the Series A Preferred Stock shall terminate;
however, the right of the holders of the Series A Preferred Stock and the
obligations of the Corporation to redeem shares of Series A Preferred Stock
following any Holder Notice shall continue as provided in this Paragraph 5(d).
Such right shall be in addition to any other right any holder may have,
including the right to enforce payment by the Corporation of the Redemption
Price.
(e) If (i) any holder of Series A Preferred Stock has demand registration
rights with respect to the shares of Series A Preferred Stock and/or the Common
Stock issued or issuable upon conversion thereof (the "Conversion Shares") and
the Corporation shall have failed to register such shares pursuant to an
effective registration statement under the Securities Act, within six (6) months
after a demand for registration has been made by the holder or (ii) the
Corporation shall have registered such shares of Series A Preferred Stock and/or
Conversion Shares pursuant to the Securities Act, but, for any reason, the
registration statement shall cease to be current and effective for a period of
more than thirty (30) days, then in either of such cases, any holder may, on
thirty (30) days written notice ("Redemption Demand Notice") to the Corporation,
require the Corporation to redeem the Series A Preferred Stock at the Redemption
Price. The Corporation shall pay the Redemption Price with respect to such
shares of Series A Preferred Stock within fifteen (15) days after the Redemption
Demand Notice is given.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(f) In the event that the Corporation fails to pay the Redemption Price
when due pursuant to this Paragraph 5, if any holder of Series A Preferred Stock
commences litigation against the Corporation or otherwise engages counsel in
order to enforce payment of the Redemption Price, the Corporation shall pay for
all reasonable costs and expenses of collection, including, without limitation,
reasonable attorneys' fees and expenses.
(g) If any dividends on Series A Preferred Stock are in arrears, no
purchase or redemption shall be made of any stock ranking junior to or on a
parity with Series A Preferred Stock as to dividends or upon liquidation (other
than a purchase or redemption made by issuance for delivery of such junior
stock); provided, however, that any monies theretofore deposited in any sinking
fund with respect to any Preferred Stock of the Corporation in compliance with
the provisions of such sinking fund thereafter may be applied to the purchase or
redemption of such Preferred Stock in accordance with the terms of such sinking
fund regardless of whether at the time of such application full cumulative
dividends upon shares of Series A Preferred Stock outstanding to the end of the
last completed dividend period shall have been paid or declared and set aside
for payment; and provided, further, however, that the foregoing shall not
prevent the purchase of shares of Preferred Stock ranking on a parity with
Series A Preferred Stock as to dividends and upon liquidation, dissolution or
winding up pursuant to a purchase or exchange offer made on the same terms to
the holders of all the outstanding Preferred Stock so ranking on a parity with
Series A Preferred Stock, including the holders of the Series A Preferred Stock,
as to dividends and upon liquidation, dissolution of winding up.
6. Liquidation Rights.
(a) In the event of the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, holders of the Series A Preferred
Stock shall be entitled to receive out of the assets of the Corporation an
amount per share equal to one and no/100 dollars ($1.00) per share, plus a sum
equal to all unpaid accrued dividends on the Series A Preferred Stock before any
payment or distribution upon dissolution, liquidation or winding up shall be
made on any series or class of capital stock ranking junior to Series A
Preferred Stock as to such payment or distribution, and after all such payments
or distributions have been made on any series or class of capital stock ranking
senior to the Series A Preferred Stock as to such payment or distribution.
(b) After payment of the preference set forth in Paragraph 6(a)(i) of this
Statement of Designation, the holders of the Series A Preferred Stock shall have
no right to any further payment with respect to their shares of Series A
Preferred Stock.
(c) The sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
and assets of the Corporation shall be deemed a voluntary dissolution,
liquidation or winding up of the Corporation for purposes of this Paragraph 6.
The merger of another corporation into the Corporation, where the Corporation is
the surviving corporation shall not be deemed a voluntary dissolution,
liquidation or winding up. The merger or consolidation of the Corporation into
any other corporation shall be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, for the purposes of this Paragraph 6
unless such merger or consolidation shall have been approved by the holders of a
majority of the then outstanding shares of Series A Preferred Stock.
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(d)ab In the event the assets of the Corporation available for distribution
to the holders of shares of Series A Preferred Stock upon dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Paragraph 6(a) of this Statement of Designation, no such
distribution shall be made on account of any shares of any other class or series
of capital stock of the Corporation ranking on a parity with the shares of
Series A Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
Series A Preferred Stock, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(e)ab Upon the dissolution, liquidation or winding up of the Corporation,
the holders of shares of Series A Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders all amounts to which such holders are entitled
pursuant to Paragraph 6(a)(i) of this Statement of Designation before any
payment shall be made to the holders of any class of capital stock of the
Corporation ranking junior upon liquidation to Series A Preferred Stock.
7. Notice. Each notice or other communication pursuant to this Statement of
Designation shall be in writing signed by the party giving such notice, and
delivered personally or sent by overnight courier, mail or messenger against
receipt thereof or sent by registered or certified mail, return receipt
requested, to the Corporation at its executive offices, presently c/o Benchmark
Equity Group, Inc., 700 Gemini, Houston, TX 77058, Attention: Chief Executive
Officer, or to such other address or person as the Corporation may advise the
holders of the Series A Preferred Stock by like notice, or to any holder at his
address set forth on the Corporation's records. Notices shall be deemed to have
been received on the date of personal delivery or, if sent by certified or
registered mail, return receipt requested, shall be deemed to be delivered on
the fifth (5th) business day after the date of mailing, except that notice of
change in the person or address shall be effective on actual receipt.
8. Rank of Series. For purposes of this Statement of Designation, any stock of
any series or class of the Corporation shall be deemed to rank:
(a)ab prior to the shares of Series A Preferred Stock, as to dividends or
upon liquidation, dissolution or winding up, as the case may be, if the holders
of such class or classes shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the holders of
shares of Series A Preferred Stock;
(b)ab on a parity with shares of Series A Preferred Stock, as to dividends
or upon liquidation, dissolution or winding up, as the case may be, whether or
not the dividend rates, dividend payment dates or redemption or liquidation
prices per share or sinking fund provisions, if any, be different from those of
Series A Preferred Stock, if the holders of such stock shall be entitled to the
receipt of dividends or of amounts distributable upon dissolution, liquidation
or winding up of the Corporation, as the case may be, in proportion to their
respective dividend rates or liquidation prices, without preference or priority,
one over the other, as between the holders of such stock and the holders of
shares of Series A Preferred Stock;
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TRANS GLOBAL SERVICES, INC.
EXHIBIT 10.12
(c)ab junior to shares of Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, as the case may be, if such class shall
be Common Stock or if the holders of shares of Series A Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the holders of shares of such class or classes.
9. Transfer Agent and Registrar. The Corporation may appoint a transfer agent
and registrar for the issuance, transfer and conversion of the Series A
Preferred Stock and for the payment of dividends to the holders of the Series A
Preferred Stock.
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TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE
Years ended December 31,
1998 1997 1996
Average shares outstanding 3,819,716 3,819,574 2,530,495
Dilutive effect of stock
options and warrants computed
by use of treasury stock
method 11,500 69,415 0
Computation of Earnings Per
Share=Net Income/Average
common and common share
equivalent shares 805,261 1,022,881 (681,252)
outstanding 3,831,216 3,888.989 2,530,495
--------- --------- ---------
Earnings Per Share 0.21 0.26 (0.27)