STOCK EXCHANGE AGREEMENT
THIS AGREEMENT is made this ___ day of November, 2004, by and between
AMERICAN FIRE RETARDANT CORP., a Nevada corporation ("AFRC") and PTS, INC., a
Nevada corporation ("PTS").
WHEREAS, AFRC owns 7,500,000 shares of the issued and outstanding shares of
the common stock, par value $0.001 per share, of GLOVE BOX, INC., a Nevada
corporation (the "GBI Common Stock"); and
WHEREAS, AFRC desires to transfer all of its right, title and interest in
the GBI Common Stock to PTS in exchange for shares of the Series C convertible
and redeemable preferred stock of PTS, par value $0.10 per share (the "PTS
Preferred Stock") as hereinafter provided; and
WHEREAS, PTS desires to acquire all of the shares of the GBI Common Stock
from AFRC;
NOW, THEREFORE, in consideration of the foregoing and the following mutual
covenants and agreements, the parties hereto agree as follows:
1. The Stock Exchange. Upon the terms and subject to the conditions
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set forth in this Agreement, AFRC shall exchange, sell, assign, and transfer to
PTS at the closing of this Agreement (the "Closing"), free and clear of all
liens and encumbrances, and PTS shall accept from AFRC at the Closing all shares
of the GBI Common Stock owned by AFRC. In consideration therefor, PTS shall
deliver to AFRC at the Closing, 7,500,000 shares of PTS Preferred Stock valued
at approximately $750,000.00. The PTS Preferred Stock is subject to the
Certificate of Designation Establishing Series C Preferred Stock of PTS, Inc.
described in Attachment A hereto.
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2. Restrictive Legend. All shares of the PTS Preferred Stock to be
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delivered to AFRC hereunder shall be issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), inasmuch as such shares to be issued to AFRC will be issued
for investment purposes without a view to distribution. In addition, at the
time of the Closing, AFRC will have had access to information concerning PTS and
its business prospects, as required by the Securities Act. Furthermore, AFRC
acknowledges that there has been no general solicitation or advertising for the
purchase of the shares of the PTS Preferred Stock covered by this Agreement.
The securities are to be issued to AFRC after thorough discussions that comprise
less than 35 Non-Accredited Investors as defined in the Securities Act.
Finally, PTS's stock transfer agent will be instructed not to transfer any of
such shares, unless such shares are registered for resale or there is an
exemption with respect to their transfer.
All shares of the PTS Preferred Stock to be delivered to AFRC
hereunder shall bear a restrictive legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT."
Notwithstanding anything herein contained to the contrary, in the
event that any shares of the PTS Preferred Stock are converted into shares of
the common stock of PTS, par value $0.001 per share (the "PTS Common Stock"),
such shares of the PTS Common Stock shall be subject to the registration rights
described in the Registration Rights Agreement described in Attachment B hereto.
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3. Representations and Warranties of AFRC. Where a representation
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contained in this Agreement is qualified by the phrase "to the best of AFRC's
knowledge" (or words of similar import), such expression means that, after
having conducted a due diligence review, AFRC believes the statement to be true,
accurate, and complete
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in all material respects. Knowledge shall not be imputed nor shall it include
any matters which such person should have known or should have been reasonably
expected to have known. AFRC represents and warrants to PTS as follows:
(a) Power and Authority. AFRC has full power and authority to
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execute, deliver, and perform this Agreement and all other agreements,
certificates or documents to be delivered in connection herewith, including,
without limitation, the other agreements, certificates and documents
contemplated hereby (collectively the "Other Agreements").
(b) Binding Effect. Upon execution and delivery by AFRC, this
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Agreement and the Other Agreements shall be and constitute the valid, binding
and legal obligations of AFRC, enforceable against AFRC in accordance with the
terms hereof and thereof, except as the enforceability hereof or thereof may be
subject to the effect of (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally, and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(c) Effect. Neither the execution and delivery of this Agreement
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or the Other Agreements nor full performance by AFRC of its obligations
hereunder or there under will violate or breach, or otherwise constitute or give
rise to a default under, the terms or provisions of the Articles of
Incorporation, or the Bylaws of GBI, or, subject to obtaining any and all
necessary consents, of any contract, commitment or other obligation of GBI or
necessary for the operation of the business of GBI (the "Business") following
the Closing or any other material contract, commitment, or other obligation to
which GBI is a party, or create or result in the creation of any encumbrance on
any of the property of GBI. GBI is not in violation of its Articles of
Incorporation, Bylaws, or of any indebtedness, mortgage, contract, lease, or
other agreement or commitment.
(d) No Contracts, Arrangements, etc. There are no contracts,
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arrangements, understandings or relationships (legal or otherwise) among any of
the parties to this Agreement, or any other person with respect to any other
securities of GBI, including but not limited to transfer or voting of any of
securities of GBI, finder's fees, joint ventures, loan or option arrangements,
puts or calls, guarantees of profits, division of profits or loss, or the giving
or withholding of proxies, naming the persons with whom such contracts,
arrangements, understandings or relationships have been entered into.
(e) No Consents. No consent, approval or authorization of, or
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registration, declaration or filing with any third party, including, but not
limited to, any governmental department, agency, commission or other
instrumentality, will, except such consents, if any, delivered or obtained on or
prior to the Closing, be obtained or made by AFRC prior to the Closing to
authorize the execution, delivery and performance by AFRC of this Agreement or
the Other Agreements.
(f) Capitalization. GBI is authorized by its Articles of
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Incorporation to issue 500 million shares of the GBI Common Stock. As of the
date of this Agreement, there are 10 million shares of the GBI Common Stock duly
and validly issued and outstanding, fully paid, and non-assessable. There are
no other classes of capital stock, outstanding options, contracts, commitments,
warrants, preemptive rights, agreements or any rights of any character affecting
or relating in any manner to the issuance of the GBI Common Stock or other
securities or entitling anyone to acquire the GBI Common Stock or other
securities of GBI.
(g) Stock Ownership. AFRC has good, absolute, and marketable
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title to 7,500,000 shares of the issued and outstanding GBI Common Stock. AFRC
has the complete and unrestricted right, power and authority to cause the
exchange, transfer, and assignment of the shares of the GBI Common Stock
pursuant to this Agreement. The delivery of the GBI Common Stock to PTS as
herein contemplated will vest in PTS good, absolute and marketable title to all
of the capital stock in GBI Common Stock as described herein, free and clear of
all liens, claims, encumbrances, and restrictions of every kind, except those
restrictions imposed by applicable securities laws or this Agreement.
(h) Organization and Standing of GBI. GBI is a duly organized and
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validly existing Nevada corporation in good standing, with all requisite
corporate power and authority to carry on the Business as presently conducted.
GBI has not qualified to do business in any other jurisdiction.
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(i) No Subsidiaries. GBI has no subsidiaries.
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(j) Liabilities. Except as set forth on Schedule 3(j) to this
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Agreement, GBI does not have any liabilities.
(k) Financial Statement. AFRC has furnished PTS an audited
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balance sheet of GBI as of December 31, 2003, and the related statement of
income and retained earnings for the period covered thereby (the "Financial
Statement"). The Financial Statement (i) is in accordance with the books and
records of GBI; (ii) fairly presents the financial condition of GBI at such date
and the results of its operations for the period therein specified; (iii) was
prepared in accordance with generally accepted accounting principles applied
upon a basis consistent with prior accounting periods; and (iv) with respect to
all contracts and commitments of GBI, reflects adequate reserves for all
reasonably anticipated losses and costs in excess of anticipated income.
Specifically, but not by way of limitation, the Financial Statement discloses
all of the debts, liabilities, and obligations of any nature (whether absolute,
accrued, contingent, or otherwise and whether due or to become due) of GBI on
the dates therein specified (except such debts, liabilities, and obligations as
are not required to be reflected therein in accordance with generally accepted
accounting principles).
(l) Present Status. Since the date reflected on the Financial
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Statement, GBI has not (i) incurred any material obligations or material
liabilities, absolute, accrued, contingent, or otherwise, except current trade
payables; (ii) discharged or satisfied any liens or encumbrances, or paid any
obligations or liabilities, except current Financial Statement liabilities and
current liabilities incurred since the dates reflected on the Financial
Statement, in each case, in the ordinary course of business; (iii) declared or
made any stockholder payment or distribution or purchased or redeemed any of its
securities or agreed to do so; (iv) mortgaged, pledged, or subjected to lien,
encumbrance, or charge any of its assets except as shall be removed prior to or
at the Closing; (v) canceled any debt or claim; (vi) sold or transferred any
assets of a material value except sales from inventory in the ordinary course of
business; (vii) suffered any damage, destruction, or loss (whether or not
covered by insurance) materially affecting its properties, business, or
prospects; (viii) waived any rights of a material value; (ix) entered into any
transaction other than in the ordinary course of business. Further, since the
date reflected on the Financial Statement, there has not been any change in or
any event or condition (financial or otherwise) affecting the property, assets,
liabilities, operations, or prospects of GBI, other than changes in the ordinary
course of its business, none of which has (either when taken by itself or taken
in conjunction with all other such changes) been materially adverse.
(m) Tax Returns and Audits. As of the date of this Agreement, GBI
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has duly filed all federal, state, and local tax returns as required to be filed
by it (including, but not limited to, all payroll or other employment related
tax returns), and has paid all federal, state and local taxes, including, but
not limited to all payroll and employment taxes, required to be paid with
respect to the periods covered by such returns. GBI has not been delinquent in
the payment of any tax, assessment, or governmental charge, and has not had any
tax deficiencies proposed or assessed against it and has not executed any waiver
of the statute of limitations on the assessment or collection of any tax.
(n) Litigation. Other than as reflected on Schedule 3(n) hereto,
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which is incorporated herein by reference for all purposes, there are no legal
actions, suits, arbitrations, or other legal, administrative or other
governmental proceedings pending or threatened against GBI, and AFRC is not
aware of any facts which to its knowledge may result in any such action, suit,
arbitration, or other proceeding.
(o) Employees. As of the date of this Agreement, GBI has no
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employees.
(p) Compliance with Laws and Regulations. Except as otherwise
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disclosed in Schedule 3(p) attached hereto, to the best of AFRC's knowledge, GBI
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is in material compliance with all laws, ordinances, codes, restrictions,
regulations (environmental and otherwise) and other legal requirements
applicable to the conduct of the Business, the noncompliance with which would be
likely to have a material adverse effect on the Business; and there are no
lawsuits or proceedings pending or, to its knowledge, threatened with respect to
the foregoing.
(q) No Defaults. Other than as reflected on Schedule 3(q)
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attached hereto, to the best of AFRC's knowledge, GBI is not in default under
any provision of any lease, contract, commitment, obligation, note, bond,
debenture, mortgage, indenture, security agreement, guaranty, or other
instrument of indebtedness, and no
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existing condition exists which, with the giving of notice or the passage of
time, or both, would constitute such a default, in either case, which default is
or would be likely to have a material adverse effect on the Business.
(r) Permits and Approvals. Except as otherwise disclosed on
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Schedule 3(r) attached hereto, to the best of AFRC's knowledge, GBI has all
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permits and approvals required for the conduct of the Business and is not in
material default under any permit, approval or qualification, which default is
likely to have a material adverse effect on GBI or the Business, nor is there
any existing condition which, with the giving of notice or the passage of time,
or both, would constitute such a material default; (ii) other than those items
listed on Schedule 3(r) attached hereto, no permit, approval or qualification of
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any government or governmental unit, agency, board, body or instrumentality,
whether federal, state or local, is necessary for the conduct of the Business as
same has been and is being conducted; and (iii) there is no lawsuit or
proceeding pending or threatened with respect to any of the foregoing.
(s) Properties. GBI has good and marketable title in fee simple
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absolute to all real properties and good title to all other properties and
assets used in its business or owned by it (except real and other properties and
assets as are held pursuant to leases or licenses), free and clear of all liens,
mortgages, security interests, pledges, charges, and encumbrances, other than as
shown on the Financial Statement, including, but not limited to a tax lien for
unpaid real estate taxes. Moreover:
(i) No real property owned, leased, licensed, or used by GBI
lies in an area which is, or to the best of AFRC's knowledge will be, subject to
zoning, use, or building code restrictions which would prohibit, and no state of
facts relating to the actions or inaction of another person or entity or its
ownership, leasing, licensing, or use of that real property in the business in
which GBI is now engaged or the business in which it contemplates engaging.
(ii) The real and other properties and assets owned, leased,
or licensed by GBI constitute all such properties and assets which are necessary
to the business of GBI as presently conducted or as it contemplates conducting.
(t) Patents and Trademarks. To best of AFRC's knowledge, GBI
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owns, possesses and has good title to all of the copyrights, trademarks,
trademark rights, patents, patent rights, and licenses necessary in the conduct
of the Business. To best of AFRC's knowledge, GBI is not infringing upon or
otherwise acting adversely to the rights of any person, under, or in respect to,
any copyrights, trademarks, trademark rights, patents, patent rights, or
licenses owned by any person or entity, and there is no claim or pending or
threatened action with respect thereto. GBI has the unrestricted right to use
(free and clear of any rights or claims of others) all trade secrets, customer
lists, manufacturing and other processes incident to the manufacture, use or
sale of any and all products presently sold by it.
(u) Compliance with Environmental Laws. Except as otherwise
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disclosed on Schedule 3(u) attached hereto, to the best of AFRC's knowledge, GBI
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has not violated and is not in violation of the Federal Clean Air Act (42 U.S.C.
7401, et seq.), Federal Water Pollution Control Act (33 U.S.C. 1251, et seq.),
the Federal Resource Conservation and Recovery Act of 1976 (42 U.S.C. 6901, et
seq.), the Federal Comprehensive Mountain Environmental Responsibility, Clean Up
and Liability Act of 1980 (42 U.S.C. 9601, et seq.), the Federal Toxic Substance
Control Act of 1976 (15 U.S.C. 2601, et seq.) or any state or local laws or
ordinances regulating the subjects covered by the federal statutes identified
above, including rules and regulations thereunder. Prior to the Closing, GBI
either directed, participated in and/or authorized that studies of the
environmental status of GBI's properties and operations of the Business be
prepared, which studies are listed or otherwise described in Schedule 3(u)
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hereto (collectively the "Studies"). The Studies, as well as those other
matters, correspondence, reports and the like disclosed in Schedule 3(u) hereto,
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have been delivered to PTS and PTS's counsel and environmental consultants and
are incorporated herein by reference as though set out herein. AFRC will hold
PTS harmless from any obligations, including fines or penalties, if any, which
may be assessed by any governmental agency, but excluding damages, (i) that
arose or may arise solely from operations by GBI through the Closing, (ii) that
arose or may arise solely from operations by GBI prior to the Closing at sites
other than at its locations, and (iii) with respect to all off site disposal by
GBI prior to the Closing.
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(v) Absence of Certain Changes or Events. Since September 30,
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2004, there has not been any change in or any event or condition (financial or
otherwise) affecting the property, assets (including cash and all accounts
receivable), liabilities, operations, or prospects of GBI, other than changes in
the ordinary course of its business, none of which has (either when taken by
itself or taken in conjunction with all other such changes) been materially
adverse.
(w) Purchase and Outstanding Bids. No purchase commitments of GBI
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are in excess of normal, ordinary, and usual requirements of its business, or
were made at any price in excess of the then current market price or contained
terms and conditions more onerous than those usual and customary in the
industry.
(x) Insurance Policies. There are in full force all policies of
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fire, liability, and other forms of insurance pertaining to the properties and
assets of GBI. Such policies are in an amount and against such losses and risks
as are generally maintained by comparable businesses.
(y) Compensation of Officers and Others. Since September 30,
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2004, there has not been any change in any compensation, commission, bonus, or
other remuneration payable to any officer, director, agent, employee, or
consultant of GBI, other than in the ordinary course of business.
(z) Inventory. The inventory of GBI which is reflected on the
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Financial Statement and all inventory items which have been acquired since
September 30, 2004, consists of goods of such quality and in such quantities as
are salable in the ordinary course of its business with normal markup at
prevailing market prices. Each item of the inventory was valued at the then
current cost, if possible, and if not, at the then current manufacturer's
regular cost sheet available to distributors. Since September 30, 0000, XXX has
continued to replenish its inventory in a normal and customary manner consistent
with the prior and prudent practice prevailing in the business of GBI.
(aa) Schedule of Assets. As disclosed on Schedule 3(aa) attached
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hereto, is a schedule of assets owned by GBI containing (i) a true and complete
listing of all property owned by GBI; (ii) a true and complete legal description
of all real properties in which GBI has a leasehold interest, together with a
description of each indenture, lease, sublease, or other instrument under which
GBI claims or holds such leasehold interest, each of which is a good and valid
leasehold interest, and all of which are in effect and enforceable according to
their respective terms; (iii) a true and complete list of all patents, patent
applications, patent licenses, trademarks, trademark registrations, and
applications therefor, trade names, copyrights, and copyright registrations and
applications therefor owned by GBI; and (iv) as of September 30, 2004, a true
and complete list of all accounts receivable of GBI, together with information
as to the aging of each such account receivable.
(bb) Status on the Closing. On the Closing, GBI shall have (i)
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cash balances, plus certificates of deposit, equal to not less than $4,500; (ii)
accounts receivable, plus inventory, less accounts payable, equal to not less
than $-0-; and (iii) a stockholders' equity of not less than $4,500. GBI shall
deliver to PTS on the Closing a schedule prepared by the Chief Financial Officer
of GBI stating the amount of the items described in this paragraph as of the
Closing.
(cc) Labor Matters. Except as disclosed in Schedule 3(cc) hereto,
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to the best of AFRC's knowledge, GBI is in material compliance with all
applicable laws, rules or regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours, and GBI has
not engaged in any unfair or illegal labor practice which has not been remedied
as of the date hereof. There is no unfair labor practices complaint or charge
of employment discrimination pending or, to the best of AFRC's knowledge,
threatened in writing against GBI with respect to any of the employees before
the National Labor Relations Board, if applicable, the Equal Employment
Opportunity Commission, or any other state, federal or local court or
governmental board, agency or commission. There is no labor strike, dispute,
work slowdown, work stoppage or other job action pending or, to the best of
AFRC's knowledge, threatened against GBI.
(dd) Employment Contracts. Except as disclosed in Schedule 3(dd)
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hereto, GBI has no employment contract, written or otherwise, with any employee
or former employee.
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(ee) Compliance with Law and Other Instruments. The business and
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operations of GBI have been and are being conducted in accordance with all
applicable laws, rules and regulations of all authorities, except those which do
not (either individually or in the aggregate) materially and adversely affect
GBI.
(ff) Contracts. Except as disclosed on Schedule 3(ff) attached
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hereto or on any other schedule attached to this Agreement, GBI is not a party
to, or otherwise bound by any (i) written or oral contract; (ii) employment or
consultant contract not terminable at will without cost or other liability;
(iii) labor union contracts; (iv) bonus, pension, profit sharing, retirement,
share purchase, stock option, hospitalization, group insurance, or similar
employee benefit plan; (v) any real or personal property lease, as lessor or
lessee; (vi) advertising or public relations contract; (vii) purchase, supply or
service contract, which cannot be terminated without cost or expense to GBI if
such termination occurs with less than 30 day's notice; (viii) deed of trust,
mortgage, conditional sales contract, security agreement, pledge agreement,
trust receipt, or any other agreement or arrangement whereby any of the assets
or property of GBI is subject to a lien, encumbrance, charge or other
restriction except such as shall be satisfied prior to the Closing; (ix) license
agreement, whether as licensee or licensor; (x) contract or agreement involving
any expenditure by GBI of more than $2,500.00 in the aggregate; (xi) contract or
agreement which GBI cannot terminate by giving less than 30 day's notice; and
(xii) contract to be performed in whole or in part more than 90 days from the
date thereof and which cannot be terminated without cost or liability to GBI.
Other than as disclosed on Schedule 3(ff) attached hereto, to the best of AFRC's
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knowledge, GBI has in all respects performed all obligations required to be
performed to date, and is not in material default in any respect under any of
the contracts, agreements, leases, documents, or other commitments to which it
is a party or otherwise bound or affected. All parties having material
contracts with GBI are in material compliance therewith, and are not in material
default thereunder.
(gg) Authority. No consent, authorization, approval, order,
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license, certificate, or permit of or from, or declaration of filing with, any
federal, state, local, or other governmental authority or any court or other
tribunal is required by GBI for the execution, delivery, or performance of this
Agreement by GBI. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which GBI is a
party, or to which any of its properties or assets are subject, is required for
the execution, delivery or performance of this Agreement; and the execution,
delivery, and performance of this Agreement will not violate, result in a breach
of, conflict with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default under any
contract, agreement, instrument, lease, license, arrangement, or understanding,
or violate or result in a breach of any term of the articles of incorporation
(or other charter document) or bylaws of GBI or violate, result in a breach of,
or conflict with any law, rule, regulation, order, judgment, or decree binding
on GBI or to which any of its operations, business, properties, or assets are
subject.
(hh) Records. The books of account and minute books of GBI are
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complete and correct, and reflect all those transactions involving its business
which properly should have been set forth in such books.
(ii) Representations and Warranties True and Complete. All
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representations and warranties of AFRC in this Agreement and the Other
Agreements are true, accurate and complete in all material respects as of the
Closing.
(jj) No Knowledge of Default. AFRC has no knowledge that any
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representations and warranties of PTS contained in this Agreement or the Other
Agreements are untrue, inaccurate or incomplete or that PTS is in default under
any term or provision of this Agreement or the Other Agreements.
(kk) No Untrue Statements. No representation or warranty by AFRC
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in this Agreement or in any writing furnished or to be furnished pursuant
hereto, contains or will contain any untrue statement of a material fact, or
omits, or will omit to state any material fact required to make the statements
herein or therein contained not misleading.
(ll) Reliance. The foregoing representations and warranties are
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made by AFRC with the knowledge and expectation that PTS is placing complete
reliance thereon.
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4. Representations and Warranties of PTS. Knowledge shall not be
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imputed nor shall it include any matters which such person should have known or
should have been reasonably expected to have known. PTS hereby represents and
warrants to AFRC as follows:
(a) Power and Authority. PTS has full power and authority to
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execute, deliver and perform this Agreement and the Other Agreements.
(b) Binding Effect. Upon execution and delivery by PTS, this
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Agreement and the Other Agreements shall be and constitute the valid, binding
and legal obligations of PTS enforceable against PTS in accordance with the
terms hereof or thereof, except as the enforceability hereof and thereof may be
subject to the effect of (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally, and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(c) No Consents. No consent, approval or authorization of, or
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registration, declaration or filing with any third party, including, but not
limited to, any governmental department, agency, commission or other
instrumentality, will, except such consents, if any, delivered or obtained on or
prior to the Closing, be obtained or made by PTS prior to the Closing to
authorize the execution, delivery and performance by PTS of this Agreement or
the Other Agreements.
(d) PTS's Representations and Warranties True and Complete. All
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representations and warranties of PTS in this Agreement and the Other Agreements
are true, accurate and complete in all material respects as of the Closing.
(e) No Knowledge of AFRC's Default. PTS has no knowledge that any
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of AFRC's representations and warranties contained in this Agreement is untrue,
inaccurate or incomplete in any respect or that AFRC is in default under any
term or provision of this Agreement or the Other Agreements.
(f) No Untrue Statements. No representation or warranty by PTS in
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this Agreement or in any writing furnished or to be furnished pursuant hereto,
contains or will contain any untrue statement of a material fact, or omits, or
will omit to state any material fact required to make the statements herein or
therein contained not misleading.
(g) Reliance. The foregoing representations and warranties are
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made by PTS with the knowledge and expectation that AFRC is placing complete
reliance thereon.
5. Actions of GBI Pending the Closing. AFRC agrees that from the date
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hereof through the Closing:
(a) Operations. AFRC will use its best efforts to cause GBI to
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(i) be operated in keeping with its customary practices and in compliance with
all applicable laws, rules and regulations; and (ii) not engage in any
transaction or make any commitment or expenditure except in the ordinary course
of business.
(b) No Change in Corporate Charter. No change will be made in the
------------------------------
Articles of Incorporation or the Bylaws of GBI, except as may be first approved
in writing by PTS.
(c) No Change in Capital Structure. No change will be made in the
------------------------------
authorized or issued capital stock of GBI, including the issuance of any bonds,
notes, or other securities, except as may be first approved in writing by PTS.
(d) No Default. GBI shall timely pay and/or not suffer any
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default with respect to any of its contracts, commitments or obligations. GBI
shall also continue to pay as they become due all accounts payable of GBI.
(e) No Contracts. No contract or commitment will be entered into
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by or on behalf of GBI.
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(f) No Liabilities. GBI shall not incur any obligation or
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liability, except as may be first approved in writing by PTS.
(g) Access to Records. AFRC shall cause GBI to afford PTS access,
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during normal business hours, to all of its business operations, properties,
books, files, and records, and will cooperate in PTS's examination thereof. No
such examination, however, shall constitute a waiver or relinquishment by PTS of
its right to rely upon AFRC's covenants, representations, and warranties made
herein or pursuant hereto. Until the Closing hereunder or the termination of
this Agreement, whichever shall occur first, and after the termination of this
Agreement in the event this Agreement does not close, PTS will hold in
confidence all information so obtained by PTS as a result of such examination.
(h) Compliance. AFRC shall cause GBI and its officers and
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employees to comply with all applicable provisions of this Agreement.
6. Conditions Precedent to Obligations of PTS. All obligations of PTS
-------------------------------------------
under this Agreement are subject to the fulfillment, prior to or at the Closing,
of the following conditions:
(a) Representations and Warranties True at the Closing. The
------------------------------------------------------
representations and warranties of AFRC herein shall be deemed to have been made
again as of the Closing, and then be true and correct, subject to any changes
contemplated by this Agreement. AFRC shall have performed all of the
obligations to be performed by it hereunder on or prior to the Closing.
(b) Proof of Authority. PTS's counsel shall have received
--------------------
evidence reasonably sufficient to such counsel that AFRC has all requisite
authorizations necessary for consummation by AFRC of the transactions
contemplated hereby, and there has not been issued, and there is not in effect,
any injunction or similar legal order prohibiting or restraining consummation of
any of the transactions herein contemplated, and no legal or governmental
action, proceeding or investigation which might reasonably be expected to result
in any such injunction or order is pending.
(c) Deliveries at the Closing. AFRC shall have delivered to PTS at
-------------------------
the Closing all of the documents required to be delivered hereunder.
(d) Certification. AFRC shall have delivered to PTS at the
-------------
Closing a certificate dated as of the applicable closing, executed by AFRC,
certifying that the conditions specified in subparagraphs (a), (b), and (c) of
this Paragraph 6 have been fulfilled.
(e) Resignations of Directors and Officers. AFRC shall have
------------------------------------------
delivered to PTS at the Closing, the written resignations of all of the
directors and officers of GBI.
(f) Status of Litigation. With respect to any matters affecting
----------------------
GBI and in litigation as described in Schedule 3(n), PTS shall have the right to
-------------
make an independent review of such matters. If PTS is not satisfied with such
review, then PTS shall have the option to terminate this Agreement.
(g) Corporate Records, etc. AFRC shall have delivered to PTS the
-----------------------
originals of the Articles of Incorporation, Bylaws, minute books, and other
corporate governance materials used since the inception of GBI.
(h) Other Matters. All corporate and other proceedings and
--------------
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned herein
or incident to any such transaction shall be satisfactory in form and substance
to PTS and its counsel, whose approval shall not be unreasonably withheld.
7. Conditions Precedent to Obligations of AFRC. All obligations of AFRC
-------------------------------------------
under this Agreement are subject to the fulfillment, prior to or at the Closing,
of the following conditions:
8
(a) Representations and Warranties True at Closing. The
-------------------------------------------------
representations and warranties of PTS herein shall be deemed to have been made
again at the Closing, and then be true and correct, subject to any changes
contemplated by this Agreement. PTS shall have performed all of the obligations
to be performed by PTS hereunder on or prior to the Closing.
(b) Proof of Authority. AFRC's counsel shall have received
--------------------
evidence reasonably sufficient to such counsel that PTS has all requisite
authorizations necessary for consummation by PTS of the transactions
contemplated hereby, and there has not been issued, and there is not in effect,
any injunction or similar legal order prohibiting or restraining consummation of
any of the transactions herein contemplated, and no legal or governmental
action, proceeding or investigation that might reasonably be expected to result
in any such injunction or order is pending.
(c) Certification. PTS shall have delivered to AFRC at the
-------------
Closing a certificate dated as of the applicable closing, executed by the
President and Secretary of PTS, certifying that the conditions specified in
subparagraphs (a) and (b) of this Paragraph 7 have been fulfilled.
(d) No Orders. There has not been issued, and there is not in
----------
effect, any injunction or similar legal order prohibiting or restraining
consummation of any of the transactions herein contemplated, and no legal or
governmental action, proceeding or investigation which might reasonably be
expected to result in any such injunction or order is pending.
(e) Other Matters. All corporate and other proceedings and
--------------
actions taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned herein
or incident to any such transaction shall be satisfactory in form and substance
to AFRC and its counsel, whose approval shall not be unreasonably withheld.
8. The Nature and Survival of Representations, Covenants and
----------------------------------------------------------------
Warranties. All statements and facts contained in any memorandum, certificate,
----------
instrument, or other document delivered by or on behalf of the parties hereto
for information or reliance pursuant to this Agreement, shall be deemed
representations, covenants and warranties by the parties hereto under this
Agreement. All representations, covenants and warranties of the parties shall
survive the Closing and all inspections, examinations, or audits on behalf of
the parties, shall expire one year following the Closing.
9. Indemnification by AFRC. AFRC agrees to indemnify and hold harmless
-----------------------
PTS against and in respect to all damages (as hereinafter defined) in excess of
$5,000.00. Damages, as used herein shall include any claim, salary, wage,
action, tax, demand, loss, cost, expense, liability (joint or several), penalty,
and other damage, including, without limitation, counsel fees and other costs
and expenses reasonably incurred in investigating or attempting to avoid same or
in opposition to the imposition thereof, or in enforcing this indemnity,
resulting to PTS from any inaccurate representation made by or on behalf of AFRC
in or pursuant to this Agreement, breach of any of the warranties made by or on
behalf of AFRC in or pursuant to this Agreement, or breach or default in the
performance by AFRC of any of the obligations to be performed by it hereunder.
Notwithstanding the scope of AFRC's representations and warranties
herein, or of any individual representation or warranty, or any disclosure to
PTS herein or pursuant hereto, or the definition of damages contained in the
preceding sentence, or PTS's knowledge of any fact or facts at or prior to the
Closing, damages shall also include all debts, liabilities, and obligations of
any nature whatsoever (whether absolute, accrued, contingent, or otherwise, and
whether due or to become due) of GBI, as of the date hereof not reflected in the
Financial Statement or any other exhibit furnished hereunder, whether known or
unknown by AFRC; all claims, actions, demands, losses, costs, expenses, and
liabilities resulting from any litigation from causes of action arising prior to
the Closing hereunder involving GBI or any owners thereof other than AFRC,
whether or not disclosed to PTS; all claims, actions, demands, losses, costs,
expenses, liabilities and penalties resulting from (i) GBI's infringement or
claimed infringement upon or acting adversely to the rights or claimed rights of
any person under or in respect to any copyrights, trademarks, trademark rights,
patents, patent rights or patent licenses; or (ii) any claim or pending or
threatened action with respect to the matters described in clause (i); all
claims, actions, demands, losses, costs, expenses, liabilities or penalties
resulting from GBI's failure in any respect to perform any obligation required
by it to be performed at or prior to the date hereof or at or prior to the
Closing, or by reason of any default
9
of GBI, at the date hereof or at the Closing, under any of the contracts,
agreements, leases, documents, or other commitments to which it is a party or
otherwise bound or affected; and all losses, costs, and expenses (including
without limitation all fees and disbursements of counsel) relating to damages.
Notwithstanding anything contained in this Agreement to the contrary,
the right to indemnification described in this paragraph shall expire one year
after the Closing hereunder, except in the case of the proven fraud by AFRC
hereunder as determined by a court of competent jurisdiction in connection with
any such claim for indemnification, in which event such right to indemnification
shall expire one year after the discovery of such fraud.
10. Records of GBI. For a period of five years following the Closing,
--------------
the books of account and records of GBI pertaining to all periods prior to the
Closing shall be available for inspection by AFRC for use in connection with tax
audits.
11. Default by PTS. If AFRC does not default hereunder and PTS defaults
-------------
hereunder, AFRC may elect to terminate this Agreement as well as any other
agreement executed by AFRC in connection with the transactions contemplated by
this Agreement, including but not limited to any independent nondisclosure
agreement or any other independent agreements, whereupon no party shall be
liable to the other hereunder, or AFRC may assert any remedy, including specific
performance, which AFRC may have by reason of any such default of PTS. From and
after the Closing, subject to the terms and provisions hereof, in the event of a
breach by any party of the terms of this Agreement or any obligation of a party
which survives the Closing hereunder, the non-defaulting party may assert any
remedy, either at law or in equity, to which such non-defaulting party may be
entitled.
12. Default by AFRC. If PTS does not default hereunder and AFRC
---------------
defaults hereunder, PTS may elect to terminate this Agreement as well as any
other agreement executed by PTS in connection with the transactions contemplated
by this Agreement, including but not limited to any independent nondisclosure
agreement or any other independent agreements, whereupon no party shall be
liable to the other hereunder, or PTS may assert any remedy, including specific
performance, which PTS may have by reason of any such default of AFRC. From and
after the Closing, subject to the terms and provisions hereof, in the event of a
breach by any party of the terms of this Agreement or any obligation of a party
which survives the Closing hereunder, the non-defaulting party may assert any
remedy, either at law or in equity, to which such non-defaulting party may be
entitled.
13. Cooperation. PTS and AFRC will each cooperate with the other, at
-----------
the other's request and expense, in furnishing information, testimony, and other
assistance in connection with any actions, proceedings, arrangements, disputes
with other persons or governmental inquiries or investigations involving AFRC's
or PTS's conduct of the Business or the transactions contemplated hereby.
14. Further Conveyances and Assurances. After the Closing, each party
-----------------------------------
will, without further cost or expense to, or consideration of any nature from
the other, execute and deliver, or cause to be executed and delivered, to the
other, such additional documentation and instruments of transfer and conveyance,
and will take such other and further actions, as the other may reasonably
request as more completely to sell, transfer and assign to consummate the
transactions contemplated hereby.
15. The Closing. The Closing of this Agreement shall be on or before
------------
November 30, 2004, subject to acceleration or postponement from time to time as
the parties hereto may mutually agree. The Closing shall be at 0000 Xxxxxxxxxx
Xxxx, Xxxxxx, Xxxxxxxxxx at 2:00 p.m. Pacific time, unless another hour or place
is mutually agreed upon by the parties hereto.
16. Deliveries at the Closing by AFRC. At the Closing, AFRC shall
------------------------------------
deliver to PTS:
(a) Certificates representing 7,500,000 shares of the GBI
Common Stock, which certificates represent all of the issued and outstanding GBI
Common Stock, duly endorsed in favor of PTS free and clear of all liens, claims,
encumbrances, and restrictions of every kind, except those imposed by the
Securities Act and other applicable securities laws.
(b) The proof of authority described in Paragraph 6(b) hereof.
10
(c) The certification described in Paragraph 6(d) hereof.
(d) The resignations of all of the directors and officers of GBI.
(e) The corporate records of GBI.
(f) Any other document which may be necessary to carry out the
intent of this Agreement.
All documents reflecting any actions taken, received or delivered by AFRC
pursuant to this Paragraph 16 shall be reasonably satisfactory in form and
substance to PTS and its counsel.
17. Deliveries at the Closing by PTS. At the Closing, PTS shall deliver
-------------------------------
to AFRC:
(a) Certificates representing 7,500,000 shares of the PTS
Preferred Stock duly endorsed in favor of AFRC free and clear of all liens,
claims, encumbrances, and restrictions of every kind, except those imposed by
the Securities Act and other applicable securities laws.
(b) The Registration Rights Agreement described in Attachment B
------------
hereto.
(c) The proof of authority described in Paragraph 7(b) hereof.
(d) The certification described in Paragraph 7(c) hereof.
(e) Any other document which may be necessary to carry out the
intent of this Agreement.
All documents reflecting any actions taken, received or delivered by PTS
pursuant to this Paragraph 17 shall be reasonably satisfactory in form and
substance to AFRC and its counsel.
18. No Assignment. This Agreement shall not be assignable by any party
-------------
without the prior written consent of the other parties, which consent shall be
subject to such parties' sole, absolute and unfettered discretion.
19. Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and delivered personally or sent by registered or
certified United States mail, return receipt requested with postage prepaid, by
facsimile, or by e-mail, if to AFRC, addressed to Xx. Xxxxxxx X. Xxxxx at 0000
Xxxxxxxxxx Xxxx, Xxxxxx, Xxxxxxxxxx 00000, telecopier (000) 000-0000, and e-mail
xxxxxxxxx@xxx.xxx, and if to PTS, addressed to Mr. Xxxxx Xxxx at 0000 Xxxxxx
Xxxxxxxx Xxxx, Xx. 00, Xxx Xxxxx, Xxxxxx 00000, telecopier (000) 000-0000, and
e-mail xxx0000@xxxxx.xxx. Any party may change its address for purposes of
receiving notices pursuant to this Agreement upon 10 days written notice.
20. Brokerage. AFRC and PTS agree to indemnify and hold harmless each
---------
other against, and in respect of, any claim for brokerage or other commissions
relative to this Agreement, or the transactions contemplated hereby, based in
any way on agreements, arrangements, understandings or contracts made by either
party with a third party or parties whatsoever.
21. Attorney's Fees. In the event that it should become necessary for
----------------
any party entitled hereunder to bring suit against any other party to this
Agreement for enforcement of the covenants contained in this Agreement, the
parties hereby covenant and agree that the party or parties who are found to be
in violation of said covenants shall also be liable for all reasonable
attorney's fees and costs of court incurred by the other party or parties that
bring suit.
22. Benefit. All the terms and provisions of this Agreement shall be
-------
binding upon and inure to the benefit of and be enforceable by the parties
hereto, and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns.
11
23. Construction. Words of any gender used in this Agreement shall be
------------
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise.
24. Waiver. No course of dealing on the part of any party hereto or
------
its agents, or any failure or delay by any such party with respect to exercising
any right, power or privilege of such party under this Agreement or any
instrument referred to herein shall operate as a waiver thereof, and any single
or partial exercise of any such right, power or privilege shall not preclude any
later exercise thereof or any exercise of any other right, power or privilege
hereunder or thereunder.
25. Cumulative Rights. The rights and remedies of any party under this
-----------------
Agreement and the instruments executed or to be executed in connection herewith,
or any of them, shall be cumulative and the exercise or partial exercise of any
such right or remedy shall not preclude the exercise of any other right or
remedy.
26. Invalidity. In the event any one or more of the provisions
----------
contained in this Agreement or in any instrument referred to herein or executed
in connection herewith shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect the other provisions of this Agreement or any such other
instrument.
27. Time of the Essence. Time is of the essence of this Agreement.
----------------------
28. Multiple Counterparts. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. A facsimile transmission
of this signed Agreement shall be legal and binding on all parties hereto.
29. Controlling Agreement. In the event of any conflict between the
----------------------
terms of this Agreement or any attachments or schedules referred to herein, the
terms of this Agreement shall control.
30. Governing law; Jurisdiction. This Agreement shall be governed by
-----------------------------
and construed in accordance with the laws of the State of California without
regard to any conflicts of laws provisions thereof. Each party hereby
irrevocably submits to the personal jurisdiction of the United States District
Court located in San Diego, California, as well as of the Superior Courts of the
State of California in San Diego County, California over any suit, action or
proceeding arising out of or relating to this Agreement. Each party hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such mediation,
arbitration, suit, action or proceeding brought in any such county and any claim
that any such mediation, arbitration, suit, action or proceeding brought in such
county has been brought in an inconvenient forum.
31. Entire Agreement. This instrument and the attachments hereto
-----------------
contain the entire understanding of the parties and may not be changed orally,
but only by an instrument in writing signed by the party against whom
enforcement of any waiver, change, modification, extension, or discharge is
sought.
IN WITNESS WHEREOF, this Agreement has been executed in multiple
counterparts on the date first written above.
AMERICAN FIRE RETARDANT CORP.
By
-----------------------------------
Xxxxxxx X. Xxxxx, President
12
PTS, INC.
By
-----------------------------------
Xxxxx Xxxx, President
Attachments:
-----------
Attachment A Certificate of Designation Establishing Series C Preferred
Stock of PTS, Inc.
Attachment B Registration Rights Agreement
Schedule 3(n) Litigation
Schedule 3(p) Compliance with Laws and Regulations
Schedule 3(q) Defaults
Schedule 3(u) Compliance with Environmental Laws
Schedule 3(aa) Assets
Schedule 3(cc) Labor Matters
Schedule 3(dd) Employment Contracts
Schedule 3(ff) Contracts
13
ATTACHMENT A
ARTICLES OF DESIGNATION
of
SERIES C PREFERRED STOCK
of
PTS, INC.
Pursuant to Section 78.195 of the
Revised Statutes of the State of Nevada
PTS, INC., a corporation organized and existing under the laws of the State
of Nevada (the "Corporation"), does hereby certify that, pursuant to the
authority conferred on its board of directors (the "Board of Directors") by its
articles of incorporation (the "Articles of Incorporation"), as amended, and in
accordance with Section 78.195 of the Revised Statutes of the State of Nevada,
the Board of Directors (or, as to certain matters allowed by law, a duly
authorized committee thereof) adopted the following resolution establishing a
series of 7,500,000 shares of Preferred Stock of the Corporation designated as
"Series C Preferred Stock."
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation (the "Corporation") by the Articles of
Incorporation, a series of Preferred Stock, $0.001par value, of the
Corporation be and hereby is established and created, and that the
designation and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of the
shares of such series and the qualifications, limitations and restrictions
thereof are as follows:
Convertible Preferred Stock
1. Designation and Amount. There shall be a series of Preferred Stock
------------------------
designated as "Series C Convertible and redeemable Preferred Stock," and
the number of shares constituting such series shall be 7,500,000. Such
series is referred to herein as the "Convertible and redeemable Preferred
Stock."
2. Stated Capital. The amount to be represented in stated capital at all times
---------------
for each share of Convertible and redeemable Preferred Stock shall be
$0.001
3. Rank. All shares of Convertible Preferred Stock shall rank prior to all of
----
the Corporation's Common Stock, par value $.001 per share (the "Common
Stock"), now or hereafter issued, both as to payment of dividends and as to
distributions of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
4. Dividends. No dividend is payable to the holders of shares of Convertible
---------
Preferred Stock.
5. Liquidation Preference.
-----------------------
(a) The liquidation value of shares of this Series, in case of the
voluntary or involuntary liquidation, dissolution or winding-up of the
Company, shall be $.001 per share.
2
(b) In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Company, the holders of shares of this Series
shall be entitled to receive the liquidation value of such shares held
by them until the liquidation value of all shares of Convertible
Preferred Stock shall have been paid in full. Upon payment in full of
the liquidation value to which the holders of shares of the shares of
Convertible Preferred Stock are entitled, the holders of shares of
this Series will not be entitled to any further participation in any
distribution of assets by the Company.
(c) Neither a consolidation or merger of the Company with or into any
other corporation, nor a merger of any other corporation with or into
the Company, nor a sale or transfer of all or any part of the
Company's assets for cash or securities or other property shall be
considered a liquidation, dissolution or winding-up of the Company
within the meaning of this Paragraph 5.
6. Voting Rights. Except as otherwise required by law, each share of
--------------
outstanding Series C Convertible Preferred Stock shall have no voting
right. And no voting rights after convert into common shares.
7. Redemption. The shares of Series C Convertible Preferred Stock are
----------
redeemable.
8. Conversion Provisions.
----------------------
(a) Conversion at Option of Holders. Provided that, and only to the extent
-------------------------------
that, the Corporation has a sufficient number of shares of authorized
but unissued and unreserved Common Stock available to issue upon
conversion, each share of Convertible Preferred Stock shall be
convertible at the option of the holder thereof, at any time, into
fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided, initially at the rate
of 10 shares of Common Stock for each full share of Series C
Convertible Preferred Stock ("Conversion Ratio").
For the purpose of these Articles of Designation, the term "Common
Stock" shall initially mean the class designated as Common Stock, par
value $.001 per share, of the Corporation as of July 8, 2004 subject
to adjustment as hereinafter provided.
(b) Automatic Conversion. Upon the occurrence of a Recapitalization Event,
--------------------
each outstanding share of Convertible Preferred Stock shall
automatically be converted, without cost, on the terms set forth in
this Section into the number of fully paid and non-assessable shares
of Common Stock as specified by the Conversion Ratio that is in effect
at the time of conversion. A "Recapitalization Event" shall be deemed
to occur upon either (i) effectiveness of a filing in the office of
the Secretary of State of Nevada, or such other state in which the
Corporation is legally domiciled, of an amendment to (or amendment and
restatement of) the Articles of Incorporation or other charter
document of the Corporation that increases the number of authorized
shares of Common Stock to a sufficient number (after taking into
account all shares reserved for issuance by the Board of Directors) so
as to enable the conversion of all outstanding shares of Convertible
Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as specified by the Conversion Ratio then in
effect, (ii) a
3
change in the number of authorized shares of capital stock that the
Corporation is authorized to issue by any means, including a reduction
in the number of outstanding shares, merger for the purpose of a
change of corporate domicile, or (iii) the effective date of any other
corporate action that enables the conversion of all outstanding shares
of Convertible Preferred Stock into such number of fully paid and
non-assessable shares of Common Stock as specified by the Conversion
Ratio then in effect.
(c) Mechanics of Conversion.
(i) Optional Conversion. Any holder of shares of Series C Convertible
-------------------
Preferred Stock desiring to convert such shares into Common Stock
shall surrender the certificate or certificates for such shares
of Series C Convertible Preferred Stock at the office of the
transfer agent for the Convertible Preferred Stock, which
certificate or certificates, if the Corporation shall so require,
shall be duly endorsed to the Corporation or in blank, or
accompanied by proper instruments of transfer to the Corporation
or in blank, accompanied by irrevocable written notice to the
Corporation that the holder elects so to convert such shares of
Convertible Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates for Common
Stock are to be issued.
(ii) Automatic Conversion. Upon the effectiveness of a
---------------------
Recapitalization Event, the conversion of such shares is
effective, each holder of shares so converted may surrender the
certificate therefore at the office of the Corporation or any
transfer agent for the Convertible Preferred Stock. Upon such
surrender, the Corporation shall issue and deliver to each holder
a certificate or certificates for the number of whole shares of
Common Stock to which such holder is entitled. In lieu of any
fractional shares to which the holder would otherwise be
entitled, the Corporation shall the next highest whole number of
shares of Common Stock.
The conversion of shares of Convertible Preferred Stock shall be
effective simultaneously with the effectiveness of a
Recapitalization Event, whether or not the certificates
representing such shares of Convertible Preferred Stock shall
have been surrendered or new certificates representing the shares
of Common Stock into which such shares have been converted shall
have been issued and the person or persons entitled to receive
the shares of Common Stock insurable upon such conversion shall
be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. Any dividends or
distributions declared but unpaid on the Common Stock to which
the Convertible Preferred Stock is entitled pursuant to Section 4
above, shall be paid on the payment date therefore.
(d) The Conversion Ratio shall be subject to adjustment as follows:
(i) In case the Company shall (A) pay a dividend or make a
distribution in Common Stock, or (B) subdivide or reclassify its
outstanding shares of Common Stock into a greater number (but not
smaller number) of shares, the Conversion Ratio in effect
immediately prior thereto shall be adjusted
4
retroactively as provided below so that the Conversion Ratio
thereafter shall be determined by multiplying the Conversion
Ratio at which such shares of this Series were theretofore
convertible by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding immediately
following such action and of which the denominator shall be the
number of shares of Common Stock outstanding immediately prior
thereto. Such adjustment shall be made whenever any event listed
above shall occur and shall become effective retroactively
immediately after the record date in the case of a dividend and
shall become effective immediately after the effective date in
the case of a subdivision or reclassification.
(ii) In case the Company shall issue rights or warrants to all holders
of its Common Stock entitling them (for a period expiring within
45 days after the record date therefore) to subscribe for or
purchase shares of Common Stock at a price per share less than
the current market price per share of Common Stock (as determined
in accordance with the provisions of sub clause (iv) of this
clause (d)) at the record date therefore (the "Current Market
Price"), or in case the Company shall issue other securities
convertible into or exchangeable for Common Stock for a
consideration per share of Common Stock deliverable upon
conversion or exchange thereof less than the Current Market
Price; then the Conversion Ratio in effect immediately prior
thereto shall be adjusted retroactively as provided below so that
the Conversion Ratio therefore shall be equal to the price
determined by multiplying the Conversion Ratio at which shares of
this Series were theretofore convertible by a fraction of which
the denominator shall be the number of shares of Common Stock
outstanding on the date of issuance of such convertible or
exchangeable securities, rights or warrants plus the number of
additional shares of Common Stock offered for subscription or
purchase and of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such
shares, convertible or exchangeable securities, rights or
warrants plus the number of additional shares of Common Stock
which the aggregate offering price of the number of shares of
Common Stock so offered would purchase at the Current Market
Price per share of Common Stock (as determined in accordance with
the provisions of sub clause (iv) of this clause (d). Such
adjustment shall be made whenever such convertible or
exchangeable securities rights or warrants are issued, and shall
become effective retroactively immediately after the record date
for the determination of stockholders entitled to receive such
securities. However upon the expiration of any right or warrant
to purchase Common Stock the issuance of which resulted in an
adjustment in the Conversion Ratio pursuant to this sub clause
(ii), if any such right or warrant shall expire and shall not
have been exercised, the Conversion Ratio shall be recomputed
immediately upon such expiration and effective immediately upon
such expiration shall be increased to the price it would have
been (but reflecting any other adjustments to the Conversion
Ratio made
5
pursuant to the provisions of this clause (d) after the issuance
of such rights or warrants) had the adjustment of the Conversion
Ratio made upon the issuance of such rights or warrants been made
on the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(iii) In case the Company shall distribute to all holders of its
Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the
continuing corporation) shares of capital stock (other than
Common Stock), evidences of its indebtedness or assets (excluding
cash dividends) or rights to subscribe (excluding those referred
to in sub clause (ii) of this clause (d)), then in each such case
the number of shares of Common Stock into which each share of
this Series shall thereafter be convertible shall be determined
by multiplying the number of shares of Common Stock into which
such share of this Series was theretofore convertible by a
fraction of which the numerator shall be the number of
outstanding shares of Common Stock multiplied by the Current
Market Price per share of Common Stock (as determined in
accordance with the provisions of sub clause (iv) of this clause
(d)) on the date of such distribution and of which the
denominator shall be the product of the number of outstanding
shares of Common Stock and the Current Market Price per share of
Common Stock, less the aggregate fair market value (as determined
by the Board of Directors of the Company, whose determination
shall be conclusive, and described in a statement filed with the
transfer agent for the shares of this Series) of the capital
stock, assets or evidences of indebtedness so distributed or of
such subscription rights. Such adjustment shall be made whenever
any such distribution is made, and shall become effective
retroactively immediately after the record date for the
determination of stockholders entitled to receive such
distribution.
6
(iv) For the purpose of any computation under sub clause (ii) and
(iii) of this clause (d), the Current Market Price per share of
Common Stock at any date shall be deemed to be the average Sale
Price for the thirty consecutive trading days commencing
forty-five trading days before the day in question. As used
herein, "Sale Price" means the closing sales price of the Common
Stock (or if no sale price is reported, the average of the high
and low bid prices) as reported by the principal national or
regional stock exchange on which the Common Stock is listed or,
if the Common Stock is not listed on a national or regional stock
exchange, as reported by national Association of Securities
Dealers Automated Quotation System and if not so reported then as
reported by the Electronic Bulletin Board or the National
Quotation Bureau Incorporated.
(v) No adjustment in the Conversion Ratio shall be required unless
such adjustment would require an increase or decrease of at least
1% in the price then in effect; provided, however, that any
adjustments which by reason of this sub clause (v) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
paragraph 8 shall be made to the nearest cent.
(vi) In the event that, at any time as a result of an adjustment made
pursuant to sub clause (i) or sub clause (iii) of this clause
(d), the holder of any share of this Series thereafter
surrendered for conversion shall become entitled to receive any
shares of the Company other than shares of the Common Stock,
thereafter the number of such other shares so receivable upon
conversion of any share of this Series shall be subject to
adjustment from time to time in a manner and on the terms as
nearly equivalent as practicable to the provisions with respect
to the Common Stock contained in sub clauses (i) through (v) of
this clause (d), and the other provisions of this clause (d) with
respect to the Common Stock shall apply on like terms to any such
other shares.
(vii) Whenever the conversion rate is adjusted, as herein provided,
the Company shall promptly file with the transfer agent for this
Series, a certificate of an officer of the Company setting forth
the conversion rate after such adjustment and setting forth a
brief statement of the facts requiring such adjustment and a
computation thereof. Such certificate shall be conclusive
evidence of the correctness of such adjustment. The Company shall
promptly cause a notice of the adjusted conversion rate to be
mailed to each registered holder of shares of this Series.
(e) If any of the following events occur, namely (i) any reclassification
or change (other than a combination of reclassification into a smaller
number of shares) of outstanding shares of Common Stock issuable upon
conversion of shares of this Series (other than a change in par value,
or from par value to no par value, or from no par value to par value,
or as a result of a subdivision) or (ii) any consolidation or merger
to which the Company is a party (other than a consolidation or merger
to which the Company is the continuing corporation and which does not
result in any classification of, or change (other than a change in
7
par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision) in, outstanding shares of
Common Stock); then the Company or such successor, as the case may be,
shall provide in its Certificate of Incorporation that each share of
this Series shall be convertible into the kind and amount of shares of
stock and other securities or property receivable upon such
reclassification, change, consolidation or merger by a holder of the
number of shares of Common Stock issuable upon conversion of each such
share of this Series immediately prior to such reclassification,
change, consolidation or merger. Such Certificate of Incorporation
shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in clause (d). The
Company shall cause notice of the execution of any such event
contemplated by this paragraph to be mailed to each holder of shares
of this Series as soon as practicable.
The above provisions of this clause (e) shall similarly apply to
successive reclassifications, consolidations and mergers.
(f) By duly adopted resolution of its board of directors, the Company at
any time may increase the Conversion Ratio, temporarily or otherwise,
by any amount, but in no event shall such Conversion Ratio require the
issuance of Common Stock for less than the par value of the Common
Stock at the time such reduction is made.
Whenever the Conversion Ratio is increased pursuant to this sub clause
(f), the Company shall mail to the holders a notice of the increased
Conversion Ratio. The notice shall state the increased Conversion
Ratio and the period it will be in effect.
An increase in the Conversion Ratio does not change or adjust the
Conversion Ratio otherwise in effect for purposes of sub clauses (d)
and (e) of this paragraph 8.
9. Protective Provisions.
----------------------
(a) Reservation of Shares; Transfer Taxes; Etc. The Corporation shall at
all times serve and keep available, out of its authorized and unissued
stock, solely for the purpose of effecting the conversion of the
Convertible Preferred Stock, such number of shares of its Common Stock
free of preemptive rights as shall from time to time be sufficient to
effect the conversion of all shares of Convertible Preferred Stock
from time to time outstanding. The Corporation shall from time to
time, in accordance with the laws of the State of Nevada, increase the
authorized number of shares of Common Stock if at any time the number
of shares of Common Stock not outstanding shall not be sufficient to
permit the conversion of all the then outstanding shares of
Convertible Preferred Stock.
If any shares of Common Stock required to be reserved for purposes of
conversion of the Convertible Preferred Stock hereunder require
registration with or approval of any governmental authority under any
Federal or State law before such shares may be issued upon conversion,
the Corporation will in good faith and as expeditiously as possible
endeavor to cause such shares to be duly registered or approved, as
the case may be. If the Common Stock is listed on the
8
New York Stock Exchange or any other national securities exchange, the
Corporation will, if permitted by the rules of such exchange, list and
keep listed on such exchange, upon official notice of issuance, all
shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock.
The Corporation will pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock
on conversion of the Convertible Preferred Stock. The Corporation
shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of Common
Stock (or other securities or assets) in a name other than that which
the shares of Convertible Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the
amount of such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(b) Class Voting Rights. So long as the Convertible Preferred Stock is
outstanding, the Corporation shall not, without the affirmative vote
or consent of the holders of at least a majority of all outstanding
Convertible Preferred Stock voting separately as a class, (i) Amend,
alter or repeal (by merger or otherwise) any provision of the Articles
of Incorporation or the By-Laws of the Corporation, as amended, so as
adversely to affect the relative rights, preferences, qualifications,
limitations or restrictions of the Convertible Preferred Stock, (ii)
authorize or issue, or increase the authorized amount of, any
additional class or series of stock, or any security convertible into
stock of such class or series, ranking prior to the Convertible
Preferred Stock in respect of the payment of dividends or upon
liquidation, dissolution or winding up of the Corporation or (iii)
effect any reclassification of the Convertible Preferred Stock. A
class vote on the part of the Convertible Preferred Stock shall,
without limitation, specifically not be deemed to be required (except
as otherwise required by law or resolution of the Corporation's Board
of Directors) in connection with: (a) the authorization, issuance or
increase in the authorized amount of any shares of any other class or
series of stock which ranks junior to, or on a parity with, the
Convertible Preferred Stock in respect of the payment of dividends and
distributions upon liquidation, dissolution or winding up of the
Corporation; or (b) the authorization, issuance or increase in the
amount of any bonds, mortgages, debentures or other obligations of the
Corporation.
The affirmative vote or consent of the holders of a majority of the outstanding
Convertible Preferred Stock, voting or consenting separately as a class, shall
be required to (a) authorize any sale, lease or conveyance of all or
substantially all of the assets of the Corporation, or (b) approve any merger,
consolidation or compulsory share exchange of the Corporation with or into any
other person unless (i) the terms of such merger, consolidation or compulsory
share exchange do not provide for a change in the terms of the Convertible
Preferred Stock and (ii) the Convertible Preferred Stock is, after such merger,
consolidation or compulsory share exchange on a parity with or prior to any
other class or series of capital stock authorized by the surviving corporation
as to dividends and upon liquidation, dissolution or winding up other than any
class or series of stock of the Corporation prior to the Convertible Preferred
Stock as may have been
9
created with the affirmative vote or consent of the holders of at least 66-2/3%
of the Convertible Preferred Stock (or other than a class or series into which
such prior stock is converted as a result of such merger, consolidation or share
exchange).
10. Outstanding Shares. For purposes of this Certificate of Designation, all
-------------------
shares of Convertible Preferred Stock shall be deemed outstanding except
(i) from the date of surrender of certificates representing shares of
Convertible Preferred Stock, all shares of Convertible Preferred Stock
converted into Common Stock; (ii) the effective date of a Recapitalization
Event defined in clause 8(b), and (iii) from the date of registration of
transfer, all shares of Convertible Preferred Stock held of record by the
Corporation or any subsidiary of the Corporation.
11. Certain Definitions. As used in this Certificate, the following terms
---------------------
shall have the following respective meanings:
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under common control with such
specified person. For purposes of this definition, "control" when used with
respect to any person means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of
voting securities or otherwise; and the term "controlling" and "controlled"
having meanings correlative to the foregoing.
"Common Shares" shall mean any stock of the Company which has no preference
in respect of dividends or of amounts payable in the event of any voluntary
or involuntary liquidation, dissolution or winding-up of the Company and
which is not subject to redemption by the Company. However, Common Shares
issuable upon conversion of shares of this series shall include only shares
of the class designated as common Shares as of the original date of
issuance of shares of this Series, or shares of the Company of any class or
classes resulting from any reclassification or reclassifications thereof
and which have no preference in respect of dividends or of amounts payable
in the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company and which are not subject to redemption by the
Company; provided that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such
class resulting from such reclassifications bears to the total number of
shares of all classes resulting from all such reclassifications.
12. Securities Not Registered Under the Securities Act of 1933. Neither the
--------------------------------------------------------------
shares of Convertible Preferred Stock nor the Common Stock issuable upon
conversion thereof has been registered under the Securities Act of 1933 or
the laws of any state of the United States and may not be transferred
without such registration or an exemption from registration. Each share of
Convertible Preferred Stock and certificate for Common Stock issued upon
the conversion of any shares of Convertible Preferred Stock, and each
preferred stock certificate issued upon the transfer of any such shares of
Convertible Preferred Stock or Common Stock (except as otherwise permitted
by this Section 12), shall be stamped or otherwise imprinted with a legend
in substantially the following form:
10
"The securities represented hereby have not been registered under the
Securities Act of 1933. Such securities may not be sold or transferred in
the absence of such registration or an exemption there from under said
Act."
13. Preemptive Rights. The Convertible Preferred is not entitled to any
------------------
preemptive or subscription rights in respect of any securities of the
Corporation.
14. Severability of Provisions. Whenever possible, each provision hereof shall
----------------------------
be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only the extent
of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of
competent jurisdiction should determine that a provision hereof would be
valid or enforceable if a period of time were extended or shortened or a
particular percentage were increased or decreased, then such court may make
such change as shall be necessary to render the provision in question
effective and valid under applicable law.
IN WITNESS WHEREOF, PTS, Inc. has caused this certificate to be signed by
its President as of the 5th November, 2004.
PTS, INC.
By:
--------------------------------
Xxxxx Xxxx, Chief Executive Officer
11
ACKNOWLEDGMENT
State of Nevada )
) ss.
County of ____________ )
This instrument was acknowledged before me on 5th November,, 2004 by Xxxxx Xxxx
as President of PTS, Inc.
Signature of notarial officer
Name:
(Seal)
My commission expires:
12
ATTACHMENT B
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is entered into as of October ___, 2004, by and between PTS,
INC., a Nevada corporation (the "Company") and AMERICAN FIRE RETARDANT CORP., a
Nevada corporation (the "Holder").
WHEREAS, on even date herewith the Company executed and delivered to the
Holder that certain Stock Exchange Agreement (the "Stock Exchange Agreement")
whereby the Company has agreed to issue to the Holder 7,500,000 shares of the
Company's Series C preferred stock, par value $0.001 per share (the "PTS
Preferred Stock"), as described in the Stock Exchange Agreement; and
WHEREAS, the Stock Exchange Agreement is incorporated herein by reference
for all purposes, and all capitalized terms herein shall have the same meaning
as defined in the Stock Exchange Agreement; and
WHEREAS, the PTS Preferred Stock is convertible into shares of the common
stock of the Company, $0.001 par value per share (the "PTS Common Stock") as
provided in the Certificate of Designation Establishing Series C Preferred Stock
of PTS, INC. described in Attachment A to the Stock Exchange Agreement;
-------------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Piggyback Registration Rights Available. Upon any conversion by the
---------------------------------------
Holder of the PTS Preferred Stock into shares of the PTS Common Stock, and
pursuant to the terms and conditions contained herein, and in the Stock Exchange
Agreement, the Company agrees to provide the Holder or any permitted assignee of
the Holder (collectively, the "Holder") with the right to "piggyback" (the
"Registration Rights") on a firm commitment underwritten offering (an
"Underwritten Public Offering") with respect to the PTS Common Stock and any
other securities issued or issuable at any time or from time to time in respect
of the PTS Common Stock as a result of a merger, consolidation, reorganization,
stock split, stock dividend, recapitalization or other similar event involving
the Company (collectively, the "Registrable Securities").
2. Registration Rights. With respect to the Registration Rights, the
--------------------
parties agree as follows:
(a) Subject to Paragraph 2(b), the Company will (i) promptly give to
the Holder written notice of any registration relating to an Underwritten Public
Offering, and (ii) include in such registration (and related qualification under
blue sky laws or other compliance) such of the Holder's Registrable Securities
as are specified in the Holder's written request or requests, mailed in
accordance with the terms of this Agreement within 30 days after the date of
such written notice from the Company.
(b) The right of the Holder to registration pursuant to the
Registration Rights shall be conditioned upon the Holder's participation in such
underwriting, and the inclusion of the Registrable Securities in the
underwriting shall be limited to the extent provided herein. The Holder shall
(together with the Company) enter into an underwriting agreement in customary
form with the managing underwriter selected for the Underwritten Public Offering
by the Company. Notwithstanding any other provision of this Agreement, if the
managing underwriter determines that marketing factors require a limitation of
the number of the Registrable Securities to be underwritten, the managing
underwriter may limit some or all of the Registrable Securities that may be
included in the registration and the Underwritten Public Offering as follows:
the number of the Registrable Securities that may be included in the
registration and the Underwritten Public Offering by the Holder shall be
determined by multiplying the number of the shares of the Registrable Securities
of all selling stockholders of the Company which the managing underwriter is
willing to include in such registration and the Underwritten Public Offering
times a fraction, the numerator of which is the number of the Registrable
Securities requested to be included in such registration and the Underwritten
Public Offering by the Holder, and the denominator of which is the total number
of the Registrable Securities which all selling stockholders of the Company have
requested to be included in such registration and the Underwritten Public
Offering. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocable to any such
person to the nearest 100
1
shares. If the Holder disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter, delivered not less than seven days before the effective date of the
Underwritten Public Offering. Any of the Registrable Securities excluded or
withdrawn from the Underwritten Public Offering shall be withdrawn from such
registration, and shall not be transferred in a public distribution prior to 60
days after the effective date of the Registration Statement relating thereto, or
such other shorter period of time as the underwriters may require.
3. Registration Procedure. With respect to the Registration Rights, the
-----------------------
following provisions shall apply:
(a) The Holder shall be obligated to furnish to the Company and the
underwriters such information regarding the Registrable Securities and the
proposed manner of distribution of the Registrable Securities as the Company and
the underwriters may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to herein and shall
otherwise cooperate with the Company and the underwriters in connection with
such registration, qualification or compliance.
(b) With a view to making available the benefits of certain rules and
regulations of the Securities and Exchange Commission (the "SEC") which may at
any time permit the sale of any Restricted Securities as defined in Rule 144
("Rule 144") promulgated under the Securities Act of 1933, as amended (the
"Securities Act") to the public without registration, the Company agrees to use
its best lawful efforts to:
(i) Make and keep public information available, as those terms
are understood and defined in Rule 144 at all times during which the Company is
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(ii) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at all times during which the Company is subject to such reporting
requirements); and
(iii) So long as the Holder owns any Restricted Securities, to
furnish to the Holder upon request a written statement from the Company as to
its compliance with the reporting requirements of Rule 144 and with regard to
the Securities Act and the Exchange Act (at all times during which the Company
is subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as the Holder may reasonably request in availing itself of any rule
or regulation of the SEC allowing the Holder to sell any Restricted Securities
without registration.
(c) The Company agrees that it will furnish to the Holder such number
of prospectuses meeting the requirements of Section 10(a)(3) of the Securities
Act, offering circulars or other documents incident to any registration,
qualification or compliance referred to herein as provided or, if not otherwise
provided, as the Holder from time to time may reasonably request.
(d) All expenses (except for any underwriting and selling discounts
and commissions and legal fees for the Holder's attorneys) of any registrations
permitted pursuant to this Agreement and of all other offerings by the Company
(including, but not limited to, the expenses of any qualifications under the
blue sky or other state securities laws and compliance with governmental
requirements of preparing and filing any post-effective amendments required for
the lawful distribution of the Registrable Securities to the public in
connection with such registration, of supplying prospectuses, offering circulars
or other documents) will be paid by the Company.
(e) In connection with the preparation and filing of any Registration
Statement under the Securities Act pursuant to this Agreement, the Company will
give the Holder and the Holder's attorneys and accountants, the opportunity to
participate in the preparation of any Registration Statement, each prospectus
included therein or filed with the SEC, and each amendment thereof or supplement
thereto, and will give each of them such access to its books and records and
opportunities to discuss the business of the Company with its officers
2
and the independent public accountants who have certified its financial
statements as shall be necessary to conduct a reasonable investigation within
the meaning of the Securities Act.
(f) The Company shall notify each Holder of Registrable Securities
covered by a Registration Statement, during the time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
4. Blackout Period. At any time after the effective date of the
----------------
Registration Statement, if the Company gives to the Holder a notice pursuant to
Paragraph 3(f) hereof and stating that the Company requires the suspension by
the Holder of the distribution of any of the Registrable Securities, then the
Holder shall cease distributing the Registrable Securities for such period of
time (the "Blackout Period"), not to exceed 120 days from the time notice is
sent until the Company informs the Holder that the Blackout Period has been
terminated. Upon notice by the Company to the Holder of such determination, the
Holder will (a) keep the fact of any such notice strictly confidential, (b)
promptly halt any offer, sale, trading or transfer of any of the Registrable
Securities for the duration of the Blackout Period, and (c) promptly halt any
use, publication, dissemination or distribution of each prospectus included
within the Registration Statement, and any amendment or supplement thereto by it
and any of its affiliates for the duration of the Blackout Period.
5. Lock-Up. In connection with any Underwritten Public Offering, the Holder
-------
agrees, if requested, to execute a lock-up letter addressed to the managing
underwriter in customary form agreeing not to sell or otherwise dispose of the
Registrable Securities owned by the Holder (other than any that may be included
in the offering) for a period not exceeding 180 days.
6. Delay of Registration. No Holder shall have any right to obtain or seek
---------------------
an injunction restraining or otherwise delaying any registration of the
Registrable Securities as the result of any controversy that might arise with
respect to the interpretation or implementation of this Agreement.
7. Indemnification by the Company. In the event of any registration of the
------------------------------
Registrable Securities of the Company under the Securities Act, pursuant to the
terms of this Agreement, the Company agrees to indemnity and hold harmless the
Holder and each other person who participates as an underwriter in the offering
or sale of the Registrable Securities against any and all claims, demands,
losses, costs, expenses, obligations, liabilities, joint or several, damages,
recoveries and deficiencies, including interest, penalties and attorneys' fees
(collectively the "Claims"), to which the Holder or any such underwriter may
become subject under the Securities Act or otherwise, insofar as the Claims or
actions or proceedings, whether commenced or threatened, in respect thereto
arise out of or are based on any untrue statement or alleged untrue statement of
any material fact contained in any Registration Statement under which the
Holder's Registrable Securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or 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, and the Company will
reimburse the Holder and each such underwriter for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
Claim or action or proceeding in respect thereto; provided that the Company
shall not be liable in any such case to the extent that any Claim or action or
proceeding in respect thereof or expense arises out of or is based on an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance on and in conformity
with written information furnished to the Company through an instrument duly
executed by the Holder specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Holder or any such
underwriter and survive the transfer of the Registrable Securities by the
Holder.
8. Indemnification by the Holder. The Company may require, as a
--------------------------------
condition to including the Registrable Securities in any Registration Statement
filed pursuant to this Agreement, that the Company shall have received an
undertaking satisfactory to it from the Holder, to indemnify and hold harmless
(in the same manner and to the same extent as set forth in Paragraph 7 hereof)
the Company, each director and officer of the Company and
3
each other person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement or alleged
statement in or omission or alleged omission from the Registration Statement,
any preliminary prospectus contained therein, or any amendment or supplement
thereto, if such statement or alleged statement or omission or alleged omission
was made in reliance on and in conformity with written information furnished to
the Company through an instrument duly executed by the Holder specifically
stating that it is for use in the preparation of the Registration Statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Notwithstanding the foregoing, the maximum liability hereunder which
the Holder shall be required to suffer shall be limited to the net proceeds to
the Holder from the Registrable Securities sold by the Holder in any such
offering. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of the Registrable
Securities by the Holder.
9. Notice of Claims. Promptly after receipt by an indemnified party of
------------------
notice of the commencement of any action or proceeding involving a Claim, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under this Agreement except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action is
brought against an indemnifying party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of a Claim the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of a Claim.
10. Indemnification Payments. The indemnification required by this
-------------------------
Agreement shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
11. Assignment of Registration Rights. The rights to cause the Company to
----------------------------------
register Registrable Securities pursuant to this Agreement may be assigned by
the Holder to a transferee or assignee of such securities who shall, upon such
transfer or assignment, be deemed a Holder under this Agreement; provided that
the Company is furnished with written notice of the name and address of such
transferee or assignee and the Registrable Securities with respect to which the
Registration Rights are being assigned; provided, further, that such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and that such transferee or assignee is either (a) a member
of the immediate family or a trust for the benefit of any Holder that is an
individual or (b) a transferee or assignee that after the transfer or assignment
holds all of the Registrable Securities.
12. Termination of this Agreement. This Agreement shall terminate with
--------------------------------
respect to the Holder when all of the Registrable Securities have been
registered as provided herein.
13. No Contracts, Arrangements, Understandings or Relationships with
----------------------------------------------------------------------
Respect to Securities. There are no contracts, arrangements, understandings or
-----------------------
relationships (legal or otherwise) by any party to this Agreement, or any other
person with respect to the PTS Common Stock, or any other securities of the
Company, including but not limited to transfer or voting of any of the PTS
Common Stock, or any other securities of the Company, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of profits,
division of profits or loss, or the giving or withholding of proxies.
14. Attorneys' Fees. In the event that it should become necessary for any
----------------
party entitled hereunder to bring suit against any other party for enforcement
of the covenants contained herein, the parties hereby covenant and agree that
the party who is found to be in violation of this Agreement shall also be liable
to the other parties for all reasonable attorneys' fees and costs of court
incurred by such other parties.
4
15. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach, termination, or validity thereof, shall be
settled by final and binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA Rules") in
effect as of the effective date of this Agreement. The American Arbitration
Association shall be responsible for (a) appointing a sole arbitrator, and (b)
administering the case in accordance with the AAA Rules. The situs of the
arbitration shall be San Diego, California. Upon the application of either party
to this Agreement, and whether or not an arbitration proceeding has yet been
initiated, all courts having jurisdiction hereby are authorized to: (x) issue
and enforce in any lawful manner, such temporary restraining orders, preliminary
injunctions and other interim measures of relief as may be necessary to prevent
harm to a party's interest or as otherwise may be appropriate pending the
conclusion of arbitration proceedings pursuant to this Agreement; and (y) enter
and enforce in any lawful manner such judgments for permanent equitable relief
as may be necessary to prevent harm to a party's interest or as otherwise may be
appropriate following the issuance of arbitral awards pursuant to this
Agreement. Any order or judgment rendered by the arbitrator may be entered and
enforced by any court having competent jurisdiction.
16. Benefit. All the terms and provisions of this Agreement shall be
-------
binding upon and inure to the benefit of and be enforceable by the parties
hereto, and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns. Notwithstanding anything
herein contained to the contrary, the Company shall have the right to assign
this Agreement to any party without the consent of the Holder.
17. Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and delivered personally or sent by registered or
certified United States mail, return receipt requested with postage prepaid, by
facsimile, or by e-mail, if to the Company, addressed to Mr. Xxxxx Xxxx at 0000
Xxxxxx Xxxxxxxx Xxxx, Xx. 00, Xxx Xxxxx, Xxxxxx 00000, telecopier (702)
878-0827, and e-mail xxx0000@xxxxx.xxx, and if to the Holder, addressed to Xx.
Xxxxxxx X. Xxxxx at 0000 Xxxxxxxxxx Xxxx, Xxxxxx, Xxxxxxxxxx 00000, telecopier
(000) 000-0000, and e-mail xxxxxxxxx@xxx.xxx. Any party may change its address
for purposes of receiving notices pursuant to this Agreement upon 10 days
written notice.
18. Construction. Words of any gender used in this Agreement shall be held
------------
and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise. In addition, the pronouns used in this Agreement shall be understood
and construed to apply whether the party referred to is an individual,
partnership, joint venture, corporation or an individual or individuals doing
business under a firm or trade name, and the masculine, feminine and neuter
pronouns shall each include the other and may be used interchangeably with the
same meaning.
19. Waiver. No course of dealing on the part of any party hereto or its
------
agents, or any failure or delay by any such party with respect to exercising any
right, power or privilege of such party under this Agreement or any instrument
referred to herein shall operate as a waiver thereof, and any single or partial
exercise of any such right, power or privilege shall not preclude any later
exercise thereof or any exercise of any other right, power or privilege
hereunder or thereunder.
20. Cumulative Rights. The rights and remedies contained in this Agreement
-----------------
shall be cumulative and the exercise or partial exercise of any such right or
remedy shall not preclude the exercise of any other right or remedy.
21. Invalidity. In the event any one or more of the provisions contained in
----------
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement or any such other
instrument.
22. General Assurances. The parties agree to execute, acknowledge, and
-------------------
deliver all such further instruments, and do all such other acts, as may be
necessary or appropriate in order to carry out the intent and purposes of this
Agreement.
23. Time of the Essence. Time is of the essence of this Agreement.
----------------------
5
24. Headings. The headings used in this Agreement are for convenience
--------
and reference only and in no way define, limit, amplify or describe the scope or
intent of this Agreement, and do not effect or constitute a part of this
Agreement.
25. Excusable Delay. The parties shall not be obligated to perform and
----------------
shall not be deemed to be in default hereunder, if the performance of a
non-monetary obligation required hereunder is prevented by the occurrence of any
of the following, other than as the result of the financial inability of the
party obligated to perform: acts of God, strikes, lock-outs, other industrial
disturbances, acts of a public enemy, war or war-like action (whether actual,
impending or expected and whether de jure or de facto), acts of terrorists,
arrest or other restraint of governmental (civil or military), blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
hurricanes, storms, floods, washouts, sink holes, civil disturbances,
explosions, breakage or accident to equipment or machinery, confiscation or
seizure by any government of public authority, nuclear reaction or radiation,
radioactive contamination or other causes, whether of the kind herein enumerated
or otherwise, that are not reasonably within the control of the party claiming
the right to delay performance on account of such occurrence.
26. No Third-Party Beneficiary. Any agreement to pay an amount and any
----------------------------
assumption of liability contained in this Agreement, express or implied, shall
be only for the benefit of the undersigned parties and their respective
successors and assigns (as herein expressly permitted), and such agreements and
assumptions shall not inure to the benefit of the obligees or any other party,
whomsoever, it being the intention of the parties hereto that no one shall be or
be deemed to be a third-party beneficiary of this Agreement.
27. Governing law; Jurisdiction. This Agreement shall be governed by and
-----------------------------
construed in accordance with the laws of the State of California without regard
to any conflicts of laws provisions thereof. Each party hereby irrevocably
submits to the personal jurisdiction of the United States District Court located
in San Diego, California, as well as of the Superior Courts of the State of
California in San Diego County, California over any suit, action or proceeding
arising out of or relating to this Agreement. Each party hereby irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such mediation, arbitration,
suit, action or proceeding brought in any such county and any claim that any
such mediation, arbitration, suit, action or proceeding brought in such county
has been brought in an inconvenient forum.
28. Controlling Agreement. In the event of any conflict between the terms
----------------------
of this Agreement or the Stock Exchange Agreement, the terms of the Stock
Exchange Agreement shall control.
29. Multiple Counterparts. This Agreement may be executed in one or more
----------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. A facsimile transmission
of this signed Agreement shall be legal and binding on all parties hereto.
30. Entire Agreement. This instrument contains the entire understanding of
----------------
the parties with respect to the subject matter hereof, and may not be changed
orally, but only by an instrument in writing signed by each of the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
PTS, INC.
By
-----------------------------------
Xxxxx Xxxx, President
AMERICAN FIRE RETARDANT CORP.
By
-----------------------------------
Xxxxxxx X. Xxxxx, President
6
SCHEDULE 3(N)
LITIGATION
SCHEDULE 3(P)
COMPLIANCE WITH LAWS AND REGULATIONS
SCHEDULE 3(Q)
DEFAULTS
SCHEDULE 3(U)
COMPLIANCE WITH ENVIRONMENTAL LAWS
SCHEDULE 3(AA)
ASSETS
SCHEDULE 3(CC)
LABOR MATTERS
SCHEDULE 3(FF)
CONTRACTS
