SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _____)
Filed by the Registrant X
Filed by a Party other than the Registrant __
Check the appropriate box:
__ Preliminary Proxy Statement
X Definitive Proxy Statement
__ Definitive Additional Materials
__ Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
__ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ALTERNATE MARKETING NETWORKS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
__ No fee required
__ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
X Fee paid previously with preliminary materials.
__ Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF ALTERNATE MARKETING NETWORKS, INC. FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JULY 23, 2002
The undersigned shareholder of Alternate Marketing Networks, Inc., a
Michigan corporation (the "Company"), hereby acknowledges receipt of the
Notice of Annual Meeting of Shareholders and Proxy Statement, each dated June
24, 2002, and hereby appoints Phillip D. Miller proxy and attorney-in-fact,
with full power of substitution, on behalf and in the name of the undersigned,
to represent the undersigned at the Annual Meeting of Shareholders of
Alternate Marketing Networks, Inc. to be held on Tuesday, July 23, 2002, at
11:00 a.m. local time, at the offices of PricewaterhouseCoopers, LLP, located
at 333 Bridge Street NW, Suite 505, Grand Rapids, Michigan, and at any
adjournment or postponement thereof, and to vote all shares of common stock
which the undersigned would be entitled to vote if personally present, on the
matters set forth below:
1. PROPOSAL TO APPROVE TRANSACTION PURSUANT TO AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION DATED MAY 31, 2002 AMONG THE COMPANY,
HENCIE, INC. AND THE MAJORITY HENCIE SHAREHOLDERS (THE "TRANSACTION"):
______ FOR ______ AGAINST _______ ABSTAIN
2. PROPOSAL TO AMEND AND RESTATE THE 1995 LONG-TERM INCENTIVE AND STOCK
OPTION PLAN:
______ FOR ______ AGAINST _______ ABSTAIN
3. IF THE TRANSACTION IS NOT APPROVED, PROPOSAL TO SET THE NUMBER OF
DIRECTORS OF THE COMPANY AT THREE AND TO ELECT THE THREE DIRECTORS LISTED
BELOW:
______ FOR all nominees listed ______ WITHHOLD authority to vote
below (except as indicated) all nominees listed below
Phillip D. Miller Thomas Hiatt Brad Moore
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST ABOVE:
PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED AS FOLLOWS: (1) FOR THE PROPOSAL TO APPROVE THE
TRANSACTION; (2) FOR THE PROPOSAL TO AMEND AND RESTATE THE 1995 LONG-TERM
INCENTIVE AND STOCK OPTION PLAN; AND (3) IF THE TRANSACTION IS NOT APPROVED,
FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR; AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
_____________________________________ Date: ______________________
Signature
_____________________________________ Date: ______________________
Signature
(This Proxy should be marked, dated, signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.)
ALTERNATE MARKETING NETWORKS, INC.
One Ionia SW, Suite 520
Grand Rapids, MI 49503
(616) 235-0698
June 24, 2002
Dear Shareholder:
You are cordially invited to attend the Company's Annual Meeting of
Shareholders to be held at 11:00 a.m., on Tuesday, July 23, 2002, at 333
Bridge Street NW, Suite 505, Grand Rapids, Michigan.
This year you are presented with proposals to (1) approve a transaction
pursuant to an Amended and Restated Agreement and Plan of Reorganization dated
May 31, 2002 among the Company, Hencie, Inc. and the Majority Hencie
Shareholders (the "Transaction"), (2) amend and restate the 1995 Long-Term
Incentive and Stock Option Plan, and (3) if the Transaction is not approved,
set the number of directors of the Company at three and to elect three
directors. Following the formal business of the meeting, I will report on the
affairs of the Company and respond to questions of general interest to
shareholders.
We look forward to greeting personally those of you who are able to be
present at the meeting. However, whether or not you plan to attend, it is
important that your shares be represented, regardless of the number of shares
which you hold. Accordingly, you are requested to sign and date the enclosed
proxy and mail it in the envelope provided at your earliest convenience.
Very truly yours,
/s/ Phillip D. Miller
Phillip D. Miller
Chairman and Chief Executive Officer
ALTERNATE MARKETING NETWORKS, INC.
One Ionia SW, Suite 520
Grand Rapids, MI 49503
(616) 235-0698
_________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 23, 2002
_________________________________________
To the shareholders of Alternate Marketing Networks, Inc.:
The annual meeting of shareholders of Alternate Marketing Networks, Inc.,
a Michigan corporation ("ALTM," "Alternate Marketing," or the "Company"), will
be held on July 23, 2002, at 11:00 a.m., Eastern Standard Time, at the offices
of PricewaterhouseCoopers LLP, located at 333 Bridge Street NW, Suite 505,
Grand Rapids, Michigan, for the following purposes:
(1) To approve a transaction pursuant to an Amended and Restated Agreement
and Plan of Reorganization (the "Transaction Agreement"), dated as of May 31,
2002, by and among Alternate Marketing, Hencie, Inc., a Delaware corporation
("Hencie"), Alternate Marketing Networks, Inc., a Delaware corporation which
is a wholly-owned subsidiary of Alternate Marketing ("New ALTM"), ALTM
Combination Co., a Delaware corporation which is a wholly-owned subsidiary of
Alternate Marketing ("Merger Sub"), Adil Khan, a principal shareholder and
founder of Hencie, and certain other principal shareholders of Hencie
(collectively with Adil Khan, the "Majority Hencie Shareholders"). Subject to
the approval of the shareholders of Alternate Marketing and the satisfaction
(or waiver, if permitted) of the other conditions contained in the Transaction
Agreement:
(a) Alternate Marketing will merge into New ALTM;
(b) New ALTM will issue shares of New ALTM common stock to the Majority
Hencie Shareholders in exchange for each outstanding share of Hencie held by
them;
(c) Each share of Alternate Marketing common stock will be automatically
converted into one share of New ALTM common stock; and
(d) Merger Sub will merge into Hencie and New ALTM will issue shares of
New ALTM common stock to the remaining Hencie shareholders (the "Minority
Hencie Shareholders"); provided, however, that New ALTM reserves the right to
effect the acquisition of Hencie stock from the Minority Hencie Shareholders
by means other than the subsidiary merger.
Items (a) through (d) are referred to in the proxy statement,
collectively, as the "Transaction." As a result of the Transaction, Hencie
will become a wholly-owned subsidiary of New ALTM.
(2) Whether or not the Transaction is approved, to amend the 1995 Long-Term
Incentive and Stock Option Plan.
(3) If the Transaction is not approved, to set the number of directors of
ALTM at three and to elect three directors.
(4) To transact such other business as may properly come before the meeting.
These matters are more fully described in the proxy statement
accompanying this notice.
Our board of directors has fixed the close of business on June 6, 2002 as
the record date for the determination of shareholders entitled to receive
notice of and to vote at the meeting and at any adjournment or postponement
thereof.
All shareholders are cordially invited to attend the meeting in person.
Whether you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible to ensure your
representation at the meeting. A return envelope (which is postage prepaid if
mailed in the United States) is enclosed for that purpose. Even if you have
given your proxy, you may still vote in person if you attend the meeting.
Please note, however, that if your shares are held of record by a broker, bank
or other nominee and you wish to vote at the meeting, you must obtain from the
record holder a proxy issued in your name.
By order of the board of directors
Grand Rapids, Michigan /s/ Phillip D. Miller
June 24, 2002 Phillip D. Miller, Chief Executive Officer
ALTERNATE MARKETING NETWORKS, INC.
One Ionia S.W., Suite 520
Grand Rapids, MI 49503
(616) 235-0698
___________________________________
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
JULY 23, 2002
__________________________________
The enclosed proxy is solicited on behalf of the board of directors of
Alternate Marketing Networks, Inc., a Michigan corporation ("ALTM", "Alternate
Marketing" or the "Company"), for use at the annual meeting of shareholders to
be held on July 23, 2002 at 11:00 a.m., Eastern Standard Time, at the offices
of PricewaterhouseCoopers LLP located at 333 Bridge Street NW, Suite 505,
Grand Rapids, Michigan. The date of this proxy statement is June 24, 2002,
and it is first being mailed to Alternate Marketing shareholders on or about
June 24, 2002.
At the meeting, you will be asked to act upon the following matters:
To approve a transaction pursuant to an Amended and Restated
Agreement and Plan of Reorganization (the "Transaction Agreement"), dated as
of May 31, 2002, by and among Alternate Marketing, Hencie, Inc., a Delaware
corporation ("Hencie"), Alternate Marketing Networks, Inc., a Delaware
corporation which is a wholly-owned subsidiary of Alternate Marketing ("New
ALTM"), ALTM Combination Co., a Delaware corporation which is a wholly-owned
subsidiary of Alternate Marketing ("Merger Sub"), Adil Khan, a principal
shareholder and founder of Hencie, and certain other principal shareholders of
Hencie (collectively, with Adil Khan, "Majority Hencie Shareholders").
Subject to the approval of the shareholders of Alternate Marketing and the
satisfaction (or waiver, if permitted) of the other conditions contained in
the Transaction Agreement:
(a) Alternate Marketing will merge into New ALTM (see "THE
TRANSACTION-Reincorporation Merger" beginning on page 34 of this proxy
statement);
(b) New ALTM will issue shares of New ALTM common stock to the
Majority Hencie Shareholders in exchange for each outstanding share of Hencie
held by them (see "CERTAIN TERMS OF THE TRANSACTION-Consideration to be
Received in the Transaction" beginning on page 48 of this proxy statement);
(c) Each share of Alternate Marketing common stock will be
automatically converted into one share of New ALTM common stock (see "THE
TRANSACTION" beginning on page 31 of this proxy statement); and
(d) Merger Sub will merge into Hencie and New ALTM will issue
shares of New ALTM common stock to the remaining Hencie shareholders (the
"Minority Hencie Shareholders"); provided, however, that New ALTM reserves the
right to acquire Hencie stock from the Minority Hencie Shareholders by means
other than the subsidiary merger (see "THE TRANSACTION" beginning on page 31
of this proxy statement).
Items (a) through (d) above are referred to in the proxy statement,
collectively, as the "Transaction." As a result of the Transaction, Hencie
will become a wholly-owned subsidiary of New ALTM. See "THE TRANSACTION"
beginning on page 31 of this proxy statement.
Whether or not the Transaction is approved, to amend the 1995 Long-
Term Incentive and Stock Option Plan. See "PROPOSAL TO AMEND 1995 OPTION
PLAN" beginning on page 78 of this proxy statement.
If the Transaction is not approved, to set the number of directors
of ALTM at three and to elect three directors. See "ELECTION OF DIRECTORS OF
ALTERNATE MARKETING" beginning on page 104 of this proxy statement.
Approval of the Transaction will also constitute: (i) approval of the
Amended and Restated Certificate of Incorporation of New ALTM and Bylaws of
New ALTM and (ii) election of a board of directors of New ALTM consisting of
Phillip D. Miller, Brad Moore, and Thomas Hiatt (all of whom are currently
members of the board of directors of Alternate Marketing), Adil Khan, and a
nominee of Adil Khan. These matters are conditions set forth in the
Transaction Agreement and are material, non-waivable terms of the acquisition.
If you oppose these actions and would vote against them if presented
separately, you should vote against adoption of the Transaction Agreement and
against the Transaction, as presented above. See "CERTAIN TERMS OF THE
AGREEMENT-Conditions to the Transaction" beginning on page 51 of this proxy
statement.
A copy of our annual report on Form 10-KSB for the fiscal year ended
December 31, 2001 is enclosed for your information. The annual report
describes the financial condition of the Company as of December 31, 2001.
Portions of the annual report are incorporated by reference in this proxy
statement.
We have asked brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to the beneficial owners of our
common stock and we will reimburse them for their expenses in so doing. To
ensure adequate representation of shares at the meeting, our officers, agents
and employees may communicate with shareholders, banks, brokerage houses and
others by telephone, facsimile, or in person to request that proxies be
furnished. We will bear all expenses incurred in connection with this
solicitation.
Alternate Marketing common stock is listed on the Nasdaq SmallCap Market
under the trading symbol "ALTM." Hencie is privately held. We intend to use
our best efforts to cause the stock of New ALTM to continue to be listed on
the Nasdaq SmallCap Market under the ALTM trading symbol after completion of
the Transaction. However, we cannot assure you that listing of the New ALTM
stock will be maintained. See "RISK FACTORS-Risks Related to the Transaction"
beginning on page 9 of this proxy statement.
The board of directors of Alternate Marketing has unanimously approved
the matters described in this document and recommends that the shareholders of
Alternate Marketing do the same. Your vote is very important. Please take
the time to complete and mail the enclosed proxy card to Alternate Marketing.
The board of directors of Hencie and the Majority Hencie Shareholders have
approved the Transaction. See "THE TRANSACTION-Background of the Transaction
and Recommendation of the Board of Directors" beginning on page 32 of this
proxy statement. The Majority Hencie Shareholders hold more than 80% of the
shares of voting common stock of Hencie. Accordingly, subject to satisfaction
of certain conditions set forth in the Transaction Agreement and approval by
the ALTM shareholders, both parties are committed to consummate the
Transaction.
We strongly urge you to read and carefully consider this proxy statement
in its entirety, including the matters referred to under "RISK FACTORS"
beginning on page 9 of this proxy statement.
You may vote on the matters described in this document if you own shares
of Alternate Marketing common stock as of the close of business on June 6,
2002.
The Securities and Exchange Commission (the "SEC") allows us to
"incorporate by reference," which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of
this proxy statement, except for any information superceded by information in
this proxy statement. You may obtain this information without charge from
Alternate Marketing by written or oral request as described under "WHERE YOU
CAN FIND MORE INFORMATION" on page 109. To obtain timely delivery of the
information, please make your request no later than July 15, 2002.
Neither the SEC nor any state securities regulators have approved the
Alternate Marketing common stock to be issued in the Transaction or determined
if this proxy statement is accurate or adequate. Any representation to the
contrary is a criminal offense.
The date of this proxy statement is June 24, 2002, and it is first being
mailed to Alternate Marketing shareholders on or about June 24, 2002.
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE ANNUAL MEETING 1
DEFINED TERMS 5
SUMMARY 6
RISK FACTORS 9
Risks Related to the Transaction 9
Risks Related to Failure to Complete the Transaction 12
Risks Related to the Business of New ALTM after the Transaction 13
MARKET PRICE INFORMATION 24
COMPARATIVE PER SHARE DATA 25
ALTERNATE MARKETING SELECTED FINANCIAL DATA 26
HENCIE SELECTED FINANCIAL DATA 27
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 27
THE TRANSACTION 31
Background of the Transaction 32
Recommendation of the Board of Directors; Reasons for the Transaction 32
The Transaction 33
Time of Closing 34
Reincorporation Merger 34
Treatment of Stock Options and Warrants 34
Interests of Certain Persons in the Transaction 34
Opinion of Financial Advisor to Alternate Marketing 35
Appraisal Rights 47
CERTAIN TERMS OF THE AGREEMENT 47
Consideration to be Received in the Transaction 48
Treatment of Hencie Options and Warrants 48
Covenants 48
Representations and Warranties 50
Conditions to the Transaction 51
Termination 52
Expenses 53
Registration Rights Agreement 53
Employment Agreements 54
Khan Option 55
Management of New ALTM After the Transaction 56
Indemnification and Escrow 59
OTHER MATTERS RELATED TO THE TRANSACTION 60
Federal Income Tax Consequences 60
Accounting Treatment 63
Certain Federal Securities Law Consequences 63
PROPOSAL TO CHANGE ALTERNATE MARKETING'S JURISDICTION OF INCORPORATION TO
DELAWARE 63
General 63
Principal Reasons for the Proposed Reincorporation 64
Certain Federal Income Tax Consequences 76
Securities Act Consequences 77
PROPOSAL TO AMEND 1995 OPTION PLAN 78
Proposed Increase in Number of Shares 78
Proposed Amendments to the Incentive Plan 78
Options Granted under the Incentive Plan 79
Equity Compensation Plan Information 79
Tax Rules 80
INFORMATION ABOUT HENCIE 81
HENCIE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 87
INFORMATION ABOUT ALTERNATE MARKETING 97
ALTERNATE MARKETING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 97
PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF MANAGEMENT OF ALTERNATE MARKETING 97
MANAGEMENT OF ALTERNATE MARKETING 99
ELECTION OF DIRECTORS OF ALTERNATE MARKETING 104
AUDIT COMMITTEE REPORT 106
INDEPENDENT AUDITORS 107
OTHER MATTERS AND PROPOSALS FOR THE MEETING 109
WHERE YOU CAN FIND MORE INFORMATION 109
PROPOSALS FOR FISCAL 2002 ANNUAL MEETING 110
FINANCIAL STATEMENTS OF HENCIE 111
Appendix A Amended and Restated Agreement and Plan of Reorganization dated
May 31, 2002*
Appendix B Fairness Opinion of Capitalink, L.C.
Appendix C Amended and Restated Certificate of Incorporation of New ALTM
Appendix D Bylaws of New ALTM
Appendix E Michigan Appraisal Rights
Appendix F Alternate Marketing Networks, Inc. Report on Form 10-QSB for the
Three Months Ending March 31, 2002
Appendix G Amended and Restated 1995 Long-Term Incentive Stock Option Plan
Proxy Card
*Certain exhibits to the Amended and Restated Agreement and Plan of
Reorganization are listed below and are available upon request to Phillip D.
Miller, CEO of Alternate Marketing Networks, at (616) 235-0698. These
exhibits will also be available for inspection at the meeting.
Form of Certificate of Merger (Reincorporation)
Form of Certificate of Incorporation of Hencie
Form of Khan Employment Agreement
Form of Miller Employment Agreement
Form of Smith Employment Agreement
Form of Registration Rights Agreement
Form of Indemnification Escrow Agreement
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
AND THE ANNUAL MEETING
Q. What are the proposals I will be voting on?
A. At the meeting, you will be asked to approve a transaction pursuant to an
Amended and Restated Agreement and Plan of Reorganization dated as of May 31,
2002 (the "Transaction Agreement") by and among Alternate Marketing, Hencie,
Inc., a Delaware corporation ("Hencie"), Alternate Marketing Networks, Inc., a
Delaware corporation which is a wholly-owned subsidiary of Alternate Marketing
("New ALTM"), ALTM Combination Co., a Delaware corporation which is a wholly-
owned subsidiary of Alternate Marketing ("Merger Sub"), Adil Khan, a principal
shareholder and founder of Hencie, and certain other principal shareholders of
Hencie (collectively, with Adil Khan, "Majority Hencie Shareholders"). As a
result of the Transaction, Alternate Marketing will merge into New ALTM; New
ALTM will issue shares of New ALTM common stock to the Majority Hencie
Shareholders in exchange for each outstanding share of Hencie held by them;
each share of Alternate Marketing common stock will be automatically converted
into one share of New ALTM common stock; and Merger Sub will merge into Hencie
and New ALTM will issue shares of New ALTM common stock to the remaining
Hencie shareholders (the "Minority Hencie Shareholders"); provided, however,
that New ALTM reserves the right to acquire Hencie stock from the Minority
Hencie Shareholders by means other than the subsidiary merger. Whether or not
the Transaction is approved, you will be asked to approve amendments to the
1995 Long-Term Incentive and Stock Option Plan. If the transaction is not
approved, you will be asked to set the number of directors of Alternate
Marketing at three and to elect three directors.
Q. Should I send in my stock certificates?
A. No. We will contact you by mail following completion of the Transaction
with instructions for exchange of your shares of Alternate Marketing for
shares of New ALTM.
Q. What do I need to do now?
A. After you read and carefully consider the information contained in these
proxy materials, please complete, sign, date and mail your proxy card as soon
as possible. You can also attend and vote at the meeting, even though you may
have previously returned your proxy card. If you do not return your proxy or
vote in person, it will have the effect of a vote against the Transaction.
The Alternate Marketing board of directors unanimously recommends voting in
favor of the Transaction, the amendments to the 1995 Long-Term Incentive and
Stock Option Plan and, if the Transaction is not approved, in favor of setting
the number of directors of Alternate Marketing at three and electing the
directors named on the proxy card.
Q. Who is Hencie?
A. Hencie is an information technology solutions and applications provider to
a broad range of clients and industry segments.
Q. Why is Alternate Marketing proposing to acquire Hencie?
A. Alternate Marketing believes that its current business has limited
potential for growth and that the acquisition of Hencie will significantly
improve the Company's prospects.
Q. What will I receive in the Transaction?
A. As part of the reincorporation, shares of common stock of Alternate
Marketing will be converted automatically to the same number of shares of
common stock of New ALTM.
Q. What will the Hencie shareholders receive in the Transaction?
A. New ALTM will issue one (1) share of New ALTM common stock for every 3.563
shares of Hencie common stock, subject to adjustment in certain circumstances
as provided in the Transaction Agreement. This exchange formula is referred
to as the "Common Stock Exchange Ratio."
Q. How will consummation of the Transaction impact overall common stock
ownership?
A. After acquisition of all of the Hencie common stock in exchange for New
ALTM common stock in accordance with the Common Stock Exchange Ratio, Hencie
shareholders will own 4,882,109 shares of common stock of New ALTM (49%) and
current Alternate Marketing shareholders will hold 5,086,005 shares (51%) of
the common stock of New ALTM on a fully diluted basis, assuming that no
shareholders of ALTM exercise their appraisal rights. "Fully diluted" means
that shares reserved for issuance upon exercise of options, warrants,
conversion of other securities (such as preferred stock, or exercise of other
stock purchase rights) are treated as issued and outstanding for purposes of
the calculation.
Q. What is the purpose of the merger of Alternate Marketing into New ALTM?
A. This merger will change the domicile of Alternate Marketing from Michigan
to Delaware and will increase the authorized capital stock of Alternate
Marketing. Management believes that Delaware corporate law offers more
flexibility in corporate structuring and procedures than Michigan law, and
that this increased flexibility will facilitate the Company's growth.
Q: Why is the ALTM board of directors recommending that I vote for the
Transaction?
A: Our board of directors believes that the Transaction offers greater
opportunity for value than other likely prospects for the Company's future and
is in the best interests of our shareholders. ACCORDINGLY, THE BOARD OF
DIRECTORS APPROVED THE TRANSACTION AGREEMENT. THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE TRANSACTION.
Q. Will the new Amended and Restated Certificate of Incorporation of New ALTM
be different from the current Restated Articles of Incorporation of Alternate
Marketing?
A. New ALTM's Amended and Restated Certificate of Incorporation is different
than ALTM's Restated Articles of Incorporation in several respects. New ALTM
will have significantly more authorized shares, shareholders will be more
limited in their ability to call special meetings; and directors will be
divided into classes, with only one-third of directors standing for election
in any year.
Q. Will the Transaction result in any changes in management?
A. Upon acquisition of the Hencie common stock from the Majority Hencie
Shareholders the New ALTM board will consist of Phillip D. Miller, Thomas
Hiatt and Brad Moore (who are all currently Alternate Marketing directors),
Adil Khan, and an additional director nominated by Mr. Khan.
Q: Will ALTM's business turn into Hencie's historical business?
A: Not as a result of the Transaction. After the Transaction, we will have
three operating subsidiaries: our two existing subsidiaries, National Home
Delivery, Inc. (also known as USSPI) and Alternate Postal Direct, Inc., and
our new subsidiary, Hencie, Inc. It is possible that Hencie will grow in
relation to our other businesses and become our principal business over time.
Q: What are the advantages of the Transaction to me?
A: The proposed Transaction with Hencie allows Alternate Marketing
shareholders to have equity participation in a company that appears to have
greater potential for growth and success than Alternate Marketing's current
business, which has experienced little growth and has not received significant
recognition in the equity marketplace.
Q: When do you expect the Transaction to be completed?
A: If the Transaction is approved by the shareholders of Alternate Marketing,
it is currently anticipated that the merger of Alternate Marketing into New
ALTM (the "reincorporation merger") and the acquisition of Hencie shares from
the Majority Hencie Shareholders (the "Hencie stock acquisition") will be
completed by August 1, 2002. After the reincorporation merger and the Hencie
stock acquisition, Hencie will be a majority owned (more than 80%) subsidiary
of New ALTM, a Delaware corporation. The acquisition of Hencie by merger of
Hencie into Merger Sub (the "subsidiary merger"), or other acquisition of
Hencie stock from the Minority Hencie Shareholders, will occur within one year
thereafter. Hencie will then be a wholly-owned subsidiary of New ALTM.
Q: Who is entitled to vote at the meeting?
A: Alternate Marketing shareholders of record as of the close of business on
June 6, 2002 are entitled to vote.
Q: How many shares need to be represented at the meeting?
A: The holders of a majority (2,293,003 shares) of the outstanding shares
entitled to vote at the meeting (4,586,005 shares) must be present in person
or represented by proxy to constitute a quorum for the transaction of
business. If you vote by proxy card or at the meeting, you will be considered
part of the quorum.
Q: How do I vote?
A: You can vote by signing and mailing your proxy card. You may also vote in
person at the meeting.
Q: If my broker holds my shares in "street name," will my broker vote my
shares for me?
A: Generally, your broker will not have the power to vote your shares. Your
broker will vote your shares ONLY if you provide the broker with instructions
on how to vote. Failure to instruct your broker on how to vote will have the
effect of a vote "against" the Transaction. You should follow the directions
provided by your broker on how to instruct your broker to vote your shares.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. The record holder of the shares may revoke the proxy any time before
the meeting by:
-Giving written notice of your revocation to our Secretary, Sandra J.
Smith, by fax (727-571-1422) or mail (12495 34th Street North, Unit C, St.
Petersburg, FL 33716);
-Filing a revoking instrument or a duly executed proxy bearing a later
date with the Secretary; or
-Attending the annual meeting and voting in person.
Q: How many votes are required to approve the Transaction?
A: Approval of the Transaction requires the affirmative vote of a majority of
the shares of our common stock outstanding as of June 6, 2002 (2,293,003 of
4,586,005 shares outstanding). Abstentions are counted as present and
entitled to vote for purposes of determining a quorum, and for purposes of
calculating the vote with respect to a particular matter, but will not be
deemed to have voted in favor of such matter. If a broker returns a "non-
vote" proxy, indicating a lack of discretionary authority on the part of the
broker to vote on a particular matter, then the shares covered by such non-
vote proxy shall be deemed present at the meeting for purposes of determining
a quorum but shall not be deemed to be represented for purposes of calculating
the vote required for approval of such matter and, therefore, will have the
same effect as a vote "against" the Transaction.
If there is not a quorum represented at the meeting, or if there are
insufficient votes to approve the Transaction at the meeting, proxies voted in
favor of the Transaction and proxies as to which no voting instructions are
given may be voted to adjourn the meeting in order to solicit additional
proxies in favor of the Transaction. If the meeting is adjourned for any
purpose, at any subsequent reconvening of the meeting, all proxies will be
voted in the same manner as such proxies would have been voted at the original
convening of the meeting (except for any proxies which have been revoked or
withdrawn), even though they may have been voted on the same or any other
matter at a previous meeting.
Q: If I sign and return my proxy, how will my shares be voted?
A: Subject to revocation, all shares represented by each properly executed
proxy will be voted by the person named as proxy (Phillip D. Miller, Chief
Executive Officer of Alternate Marketing) in accordance with your instructions
indicated on the proxy card. If no instructions are indicated, your shares
will be voted to approve the Transaction, and in such manner as Mr. Miller
determines, in his discretion, upon such other business as may properly come
before the meeting.
Q: Who is paying for this proxy solicitation?
A: We bear the cost of soliciting proxies. These costs include the
preparation, assembly and mailing of this proxy statement, the notice of
meeting of shareholders and the enclosed proxy card. Our directors, officers
and regular employees may, without compensation other than their regular
compensation, solicit proxies by telephone, e-mail, facsimile or in person.
Q: What rights do I have if I oppose the Transaction?
A: If (a) you do not vote in favor of the Transaction and (b) the Hencie
stock acquisition is completed, you may seek appraisal of, and obtain payment
of, the fair value of your shares under Michigan law. You must, however,
comply with all of the required procedures under applicable Michigan law,
which is included in this proxy statement as Appendix E.
Q. Do any members of Alternate Marketing's board of directors or management
have any special interest in the outcome of this vote?
A. As a condition to the completion of the Transaction, New ALTM is required
to enter into a registration rights agreement with its officers, directors and
ten percent shareholders. Under the registration rights agreement, these
individuals will be granted "piggyback" registration rights on any
registration initiated by New ALTM on its behalf or on behalf of others,
subject to certain additional terms and conditions. In addition, as a
condition to completion of the Transaction, New ALTM is required to enter into
amendments to the employment agreements of Phillip D. Miller, current chief
executive officer of ALTM, and Sandra J. Smith, current chief financial
officer of ALTM for their continued employment by New ALTM. The amendment to
Ms. Smith's agreement provides for an award of 50,000 shares of common stock
of New ALTM under the amended and restated Long Term Incentive and Stock
Option Plan, subject to completion of the Transaction.
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the merger or would like additional
copies of this proxy statement, you should contact:
Phillip D. Miller
Alternate Marketing Networks, Inc.
One Ionia SW, Suite 520
Grand Rapids, Michigan 49503
(616) 235-0698
DEFINED TERMS
Some of the defined terms (indicated by initial capital letters) used in
this proxy statement are not defined in the proxy statement. You can find
definitions of these terms in the Transaction Agreement which is attached as
Appendix A.
SUMMARY
This summary highlights selected information found in greater detail
elsewhere in this proxy statement. This summary does not contain all of the
information that is important to you. We urge you to read the entire proxy
statement (including the Transaction Agreement, which is attached as Appendix
A) before you decide how to vote on the proposals to be presented at the
special meeting. Unless the context requires otherwise, references to "we,"
"us," "our" and "Alternate Marketing" refer to Alternate Marketing Networks,
Inc. and references to "Hencie" refer to "Hencie, Inc."
The Companies
Alternate Marketing Networks, Inc.
One Ionia SW, Suite 520
Grand Rapids, MI 49503
(616) 235-0698
ALTM is a provider of highly targeted marketing services. ALTM was
founded on December 15, 1988 and acts as a single-source provider of
advertising, marketing and logistics services for national advertisers and
publishers throughout the United States. Currently, ALTM provides
comprehensive marketing solutions across multiple media platforms to more than
100 clients, primarily in the travel, automotive, e-commerce,
telecommunications, pharmaceutical and packaged-goods industries. These
clients rely on ALTM as a single-source provider of direct marketing services
that can deliver targeted sales and marketing materials to specific consumer
audiences.
Hencie, Inc.
13155 Noel Road, Suite 1001
Dallas, TX 75240
(972)671-0011
Hencie is an information technology solutions and applications provider
to a broad range of clients and industry segments. Hencie was founded in 1997
to provide information technology services consulting with a focus on Oracle
applications and database management.
Reasons for the Transaction
ALTM believes that its current business has limited potential for growth
and that the acquisition of Hencie will significantly improve the Company's
prospects. The board of directors has examined other alternatives and has
determined them to be too costly, too slow, less promising over the long term,
or impractical.
The Transaction Agreement allows ALTM to declare a $.10 per share cash
dividend to shareholders of record as of a date not to be later than the
Business Day immediately preceding the First Closing Date. However, as of the
date of this proxy statement, the board has not yet declared this dividend and
may determine not to do so, in its discretion.
Opinion of Financial Advisor to Alternate Marketing
The Alternate Marketing board of directors has received an opinion from
its financial advisor, Capitalink, L.C. On May 29, 2002, Capitalink delivered
its oral opinion, subsequently confirmed in writing, to the Alternate
Marketing board of directors that, as of that date and based on the
assumptions made, matters considered and limitations on the review undertaken
described in the written opinion, the exchange ratio of one share of Alternate
Marketing common stock for each 3.563 Hencie shares is fair from a financial
point of view to the shareholders of Alternate Marketing. See Appendix B for
a copy of the full opinion. Alternate Marketing encourages you to read this
opinion carefully in its entirety. The opinion of Capitalink is directed to
the Alternate Marketing board of directors and is not a recommendation to any
shareholder on how to vote with respect to the Transaction.
Conditions to the Transaction
Alternate Marketing and Hencie will complete the Transaction only if a
number of conditions set forth in the Transaction Agreement are either
satisfied or waived, some of which include:
-Each of the representations and warranties of ALTM and Hencie contained
in the Transaction Agreement shall be true and correct as of the date when
made and on and as of the First Closing.
-Each of ALTM and Hencie shall have fully performed and complied with all
covenants and conditions required by the Transaction Agreement to be performed
or complied with by them or it on or before the First Closing.
-The parties to the Related Agreements shall have executed and delivered
the Related Agreements to which each is a party.
-Holders of no more than 100,000 shares of ALTM common stock shall seek
dissenter's rights in connection with the reincorporation merger.
-The Transaction Agreement shall have been approved and adopted by the
requisite vote of the ALTM shareholders under applicable corporate law and
rules of the Nasdaq SmallCap Market.
-ALTM shall have entered into a new employment agreement with Mr. Khan,
and addenda to the existing employment agreements of Mr. Miller and Ms. Smith
and shall have been granted the Khan Option to Mr. Khan.
-Legal counsel shall have issued an opinion confirming that the issuance
and exchange of New ALTM common stock in the reincorporation merger and the
issuance of New ALTM common stock to the Majority Hencie Shareholders in
exchange for Hencie common stock shall qualify as a "tax free" reorganization
as contemplated by the applicable provisions of the Code.
-Immediately prior to the First Closing, ALTM, together with its
subsidiaries, shall have Total Assets of at least $6.2 million.
-Immediately prior to the First Closing, ALTM, together with its
subsidiaries, shall have Net Liquid Assets of at least $2.5 million.
-The Capitalink, L.C. fairness opinion shall not have been withdrawn or
modified to indicate that the value to be received by the ALTM Shareholders is
materially less than as originally indicated in the fairness opinion.
-New ALTM shall pay Hencie's IRS Obligation in full at the First Closing.
See "CERTAIN TERMS OF THE TRANSACTION AGREEMENT Conditions to the
Transaction."
Federal Income Tax Consequences
The Transaction is expected to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. No gain or loss will
be recognized for U.S. federal income tax purposes by Alternate Marketing,
Hencie or Alternate Marketing shareholders as a result of the Transaction.
See "OTHER MATTERS RELATED TO THE TRANSACTION Federal Income Tax
Consequences."
Tax matters can be complicated, and the tax consequences of the
Transaction to you will depend on the facts of your own situation. You should
consult your own tax advisors to fully understand the tax consequences of the
Transaction to you.
The discussion of tax matters in this proxy statement does not address
any tax consequences of payment or receipt of the ALTM cash dividend described
above.
Accounting Treatment
The Transaction will be accounted for as a business combination under the
purchase method of accounting. It is anticipated that the total consideration
paid to Hencie shareholders will be in common stock only, such that
immediately after the Transaction, Hencie shareholders will own 49% of the
outstanding common stock of New ALTM. The total purchase price is an amount
equal to the sum of the fair value of the 4,854,470 shares, valued at
$4,854,470, of New ALTM common stock issued to Hencie shareholders and direct
costs of the acquisition in the amount of $150,000. The resulting goodwill,
equal to the amount of the total purchase price in excess of the fair value of
net assets acquired, will not be subject to amortization expense upon New
ALTM's adoption of SFAS 142, "Goodwill and Other Intangible Assets", but will
be subject to periodic testing for impairment.
Certain Federal Securities Law Consequences
The New ALTM common stock to be issued to the Majority Hencie
Shareholders in the Transaction will not be registered under the Securities
Act of 1933, in reliance upon the exemption from registration provided in
Section 4(2) of the Securities Act. The New ALTM common stock to be issued to
the Minority Hencie Shareholders in the merger of Hencie into Merger Sub may
be registered under the Securities Act, if deemed necessary or appropriate by
counsel to New ALTM. If not so registered, those shares would be issued in
reliance upon the exemption from registration provided in Section 4(2) of the
Securities Act. The New ALTM common stock issued in exchange for ALTM shares
will have the free-trading or restricted status of the ALTM shares exchanged.
Registration Rights Agreement
Simultaneously with the closing of the Transaction, New ALTM will enter
into a registration rights agreement for the benefit of the Majority Hencie
Shareholders and certain affiliates of ALTM. Each shareholder who is a party
to the agreement will have rights, under certain circumstances, to cause New
ALTM to register its shares of New ALTM common stock received in the
Transaction for resale under the Securities Act of 1933. See "CERTAIN TERMS
OF THE AGREEMENT Registration Rights Agreement."
Forward-Looking Statements May Prove Inaccurate
This proxy statement includes forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include the
information concerning the possible future results of operations of Alternate
Marketing, Hencie, or the combined company. When used in this proxy
statement, the words, "may," "intend," "will," "should," "could," "potential,"
"expect," "anticipate," "believe," "estimate," "plan," "predict," "help,"
"attempt," "develop," "continue" or similar expressions are intended to
identify forward-looking statements, although not all forward-looking
statements contain these identifying words. You should note that the
ownership of Alternate Marketing common stock, whether or not the Transaction
is completed, involves certain risks and uncertainties that could affect the
future financial results of Alternate Marketing.
RISK FACTORS
In deciding whether to approve the Transaction you should consider the
risks related to the Transaction, risks related to your investment in
Alternate Marketing if the Transaction is not completed, and risks related to
your investment in New ALTM following the Transaction. This proxy statement
does not discuss all possible risks, but we have tried to describe those risks
that may be material. You should consider carefully these risks along with
other information in this proxy statement and the documents to which we have
referred.
Risks Related to the Transaction
When you vote on the Transaction, you will not know the market value of
the New ALTM common stock to be issued in the Transaction.
Upon acquisition of all of the Hencie common stock in exchange for New
ALTM common stock in accordance with the Common Stock Exchange Ratio, the
shareholders, option holders and warrant holders of Hencie will receive
4,882,109 shares of New ALTM common stock (approximately 49% of the combined
company). The Common Stock Exchange Ratio is a fixed exchange ratio. The
price of New ALTM common stock at the completion of the Transaction may vary
from the price of Alternate Marketing common stock on the date of this proxy
statement and on the date of the meeting. Accordingly, shareholders will not
know the specific value of the consideration to be given to the Hencie
shareholders in the Transaction when they vote on the Transaction. Even if
the market price of Alternate Marketing common stock changes, there will be no
change in the amount of securities to be issued to Hencie shareholders. There
is no right to terminate the Transaction Agreement based on a change in stock
price.
The Transaction will result in a large increase in shares eligible for
future sale.
The sale or the possibility of sale of substantial amounts of New ALTM
common stock in the public market could adversely affect the market price of
the New ALTM common stock. New ALTM will have 9,674,175 shares issued and
outstanding immediately after the Transaction compared to 4,586,005 shares
outstanding for Alternate Marketing immediately prior to the Transaction. Up
to 4,854,470 shares of New ALTM common stock will be issued to Hencie
shareholders as consideration pursuant to the Transaction, not including
shares of New ALTM common stock that may be issued to them after the
completion of the Transaction upon the exercise of options and warrants. In
general, the shares of New ALTM issued to current shareholders of Alternate
Marketing will be freely tradable. The shares of New ALTM to be issued to the
current shareholders of Hencie will be "restricted securities" and will not be
freely tradable upon issuance; however, the majority of these shares may
become freely tradable at any time pursuant to a registration rights agreement
between New ALTM and the Hencie shareholders. These shareholders, who might
otherwise be restricted from selling their shares due to the unregistered
status of the stock and/or their status as affiliates of New ALTM, have the
right, under certain circumstances, to cause New ALTM to register their shares
for resale. Once registered, those shares would be eligible for sale in the
public market without restriction.
The voting interests of Alternate Marketing shareholders will be
significantly diluted by the Transaction.
Existing holders of Alternate Marketing common stock will own in the
aggregate approximately 51% of the voting power of the outstanding shares of
New ALTM common stock immediately following completion of the Transaction on a
fully diluted basis (i.e. assuming the exercise of all outstanding Alternate
Marketing options and warrants and the exercise of all outstanding Hencie
options and warrants, and assuming no dissenters' rights) compared to 100%
prior to the Transaction.
Delaware law, which will govern New ALTM and its shareholders after the
Transaction, may afford fewer rights and protections to shareholders than
Michigan law.
Under Delaware law, the directors of New ALTM may have increased ability
to defeat a takeover bid, may have an increased range of indemnification, and
may not be as easily removed by shareholders as they would be under Michigan
law. In addition, the charter documents of New ALTM provide for:
-the ability of the board of directors to issue preferred stock and to
determine the price and other terms, including preferences and voting rights,
of those shares without shareholder approval;
-advance notice provisions for shareholder proposals and nominations to
the board of directors;
-a staggered board of directors, with three-year terms, which will
lengthen the time needed to gain control of the board of directors; and
-supermajority voting requirements for shareholders to amend provisions
of its charter documents.
The operation of New ALTM under Delaware law may provide the opportunity
for additional restrictions to be implemented in the future.
The success of New ALTM may depend in large part upon the current
business of Hencie and successful implementation of its business plan.
The success of New ALTM's proposed plan of operation may depend on the
successful implementation of Hencie's business plan and management of Hencie,
if the Transaction is consummated.
The ALTM shareholders may lose control of New ALTM after the Transaction.
It is possible that the initial 51% ownership of New ALTM by the former
ALTM shareholders will drop below 50% after the Transaction due to issuance of
shares in financing transactions; issuance of shares of New ALTM in
acquisitions, as contemplated by the Hencie business plan; exercise of options
by New ALTM employees; exercise of an option issued to Adil Khan in connection
with his employment agreement with New ALTM (the "Khan Option"); and exercise
of dissenters rights by ALTM shareholders. In general, stock issuances could
occur at any time after the Transaction. See "Interests of Certain Persons in
the Transaction and Related Agreements Employment Agreements."
As a result of certain provisions of New ALTM's Certificate of
Incorporation and Bylaws, certain shareholders will have the ability to
significantly influence the management and operation of New ALTM.
Nominees of the board of directors of Hencie will hold two of five seats
on the board of directors of New ALTM and will beneficially own approximately
26% of the outstanding common stock of New ALTM in 2002. As a result of
certain supermajority voting requirements in the Amended and Restated
Certificate of Incorporation and Bylaws of New ALTM, these former shareholders
of Hencie will have the ability to significantly influence the board of
directors, the appointment of officers, and management of the affairs of New
ALTM, including, but not limited to, all fundamental corporate transactions
such as acquisitions, mergers, consolidations and the sale of substantially
all of the company's assets. In addition, the Bylaws of New ALTM provide for
three classes of directors whose terms are initially staggered such that Class
I serves one year, Class II serves two years, and Class III serves three
years. The Hencie nominees are Class II and Class III directors and will not
have to stand for reelection in 2003. Brad Moore, one of the three ALTM
nominees, shall be a Class I director whose term expires in 2003. There can
be no assurances that an ALTM nominee will be nominated or elected in 2003.
New ALTM's board of directors will have the power to issue shares of
preferred stock and designate rights and preferences for such stock which may
restrict existing shareholders rights.
The Amended and Restated Certificate of Incorporation of New ALTM
provides 55,000,000 shares of capital stock, of which 50,000,000 shares are
designated as common stock and 5,000,000 are preferred shares undesignated as
to series. New ALTM currently has no outstanding shares of preferred stock,
and there are no current plans to designate or issue any shares of preferred
stock. Nevertheless, New ALTM's board of directors will have the power to
issue any or all of these shares of unissued stock, including the authority to
establish the rights and preferences of the unissued shares, without
shareholder approval. The power to issue additional shares and to establish
separate classes or series of common or preferred stock may, in certain
circumstances, deter or discourage take-over attempts and other changes in
control of New ALTM not approved by New ALTM's board of directors.
The common stock of New ALTM may be removed from Nasdaq as a result of
the Transaction.
Nasdaq may determine that New ALTM is a new company which must apply for
new listing. In this case, the New ALTM common stock would be removed from
Nasdaq as a result of the Transaction unless New ALTM was able to satisfy all
new listing standards. We cannot give you any assurance that the New ALTM
common stock will be included in the Nasdaq market or, if included, that it
will continue to be included for any period of time. If New ALTM's stock is
not listed on Nasdaq, its liquidity will decline greatly.
Risks Related to Failure to Complete the Transaction
Failure to complete the Transaction could negatively impact Alternate
Marketing's share price and future business operations.
If the Transaction is not completed for any reason, Alternate Marketing
may be subject to a number of material adverse consequences, including the
following:
-The price of Alternate Marketing common stock may decline;
-Costs related to the Transaction, such as legal, accounting and
financial advisor fees, must be paid even if the Transaction is not completed;
-Alternate Marketing may cease trading in the Nasdaq stock market; and
-Alternate Marketing will continue to incur costs in assessing means of
increasing the value of its business.
If the Transaction is not completed, Alternate Marketing's ability to
identify and participate in new business opportunities will be highly
dependent on current management.
The ability of Alternate Marketing to continue its current business or to
identify and evaluate suitable other business opportunities and consummate
another business combination transaction if the Transaction is not consummated
is substantially dependent upon certain key management personnel, particularly
Phillip D. Miller. The loss of such key management personnel could have a
material adverse effect on our ability to consummate the Transaction or to
identify and evaluate suitable other business opportunities and consummate
another business combination transaction.
If the Transaction is not consummated, management intends to seek
business combinations with entities having established operating histories.
There can be no assurance that we will be successful in locating candidates
meeting such criteria. In the event that Alternate Marketing completes a
business combination transaction, the success of the Company's operations may
be dependent upon management of the successor entity and numerous other
factors beyond Alternate Marketing's control.
Alternate Marketing may not be successful in identifying or participating
in favorable business opportunities if the Transaction is not completed.
There can be no assurance that Alternate Marketing will be successful in
identifying and evaluating other business opportunities or consummating
another business combination transaction if the Transaction is not
consummated. Alternate Marketing is an insignificant participant in the
business of seeking business combination transactions with other entities. A
large number of established and well financed entities, including venture
capital firms, are active in mergers and acquisitions of business entities
that may be desirable candidates for a strategic combination with Alternate
Marketing. Such competitors may have significantly greater financial
resources, technical expertise and managerial capabilities than Alternate
Marketing. Further, there is no assurance that the board of directors will be
able to negotiate a business combination on terms favorable to Alternate
Marketing. Consequently, Alternate Marketing may be at a competitive
disadvantage in identifying and completing a possible business combination
opportunity if the Transaction is not consummated.
Reporting requirements under the Exchange Act may require additional time
and expense in connection with future acquisitions and impair the company's
ability to complete these acquisitions.
The Exchange Act requires acquiring companies to provide certain
information about significant acquisitions, including, in most cases, audited
financial statements for the acquired company or entity, covering one or two
years depending on the size of the acquisition. The time and additional costs
that may be incurred by some target entities to prepare such statements may
significantly delay or preclude consummation of an otherwise desirable
combination with Alternate Marketing. Target prospects that do not have or
are unable to obtain the required audited financial statements may not be
appropriate for a business combination with Alternate Marketing so long as the
reporting requirements of the Exchange Act are applicable.
Risks Related to the Business of New ALTM after the Transaction
Hencie's business is very dependent on business referrals from its
software vendors.
Hencie currently has marketing relationships with a number of software
vendors, including Oracle. Historically, over 80% of Hencie's revenue has
come from business leads referred to Hencie by Oracle through joint marketing
and sales activities. Although Hencie has historically received a large
number of business leads from these software vendors to implement their
products, the vendors are not required to refer business to Hencie and they
may terminate these relationships at any time. If New ALTM loses
relationships with these software vendors, it may lose their client leads and
the ability to develop new clients could be negatively impacted. Any decrease
in the ability to obtain clients may cause a reduction in revenues.
The marketability of Hencie's business solutions is highly dependent upon
the use and integration of Oracle products.
Hencie currently has a significant relationship with Oracle as an
implementation partner. In the event Oracle's products become less desirable
or competitive in the marketplace, the need for Hencie's implementation
services would decrease and may cause a decline in Hencie's revenues and
financial condition.
A loss of New ALTM's Nasdaq listing could severely restrict
transferability of its stock.
New ALTM intends to continue listing of the New ALTM common stock on the
Nasdaq SmallCap Market effective upon consummation of the Transaction.
Although management believes that New ALTM will comply with the applicable
requirements for inclusion on The Nasdaq SmallCap Market, we cannot guaranty
that the New ALTM stock will meet the standards for continued listing in the
future.
Federal regulations promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), regulate the trading of so-called
"penny stocks" (the "Penny Stock Rules"), which are generally defined as any
security not listed on a national securities exchange or The Nasdaq Stock
Market, priced at less than $5.00 per share and offered by an issuer with
limited net tangible assets and revenues. In addition, equity securities
listed on Nasdaq that are priced less than $5.00 per share are deemed penny
stocks for the limited purpose of Section 15(b)(6) of the Exchange Act.
Therefore, if the common stock listed on The Nasdaq SmallCap Market is priced
below $5.00 per share, trading of the common stock will be subject to the
provisions of Section 15(b)(6) of the Exchange Act, which make it unlawful for
any broker-dealer to participate in a distribution of any penny stock without
the consent of the SEC if, in the exercise of reasonable care, the broker-
dealer is aware of or should have been aware of the participation of a
previously sanctioned person. These provisions may make it more difficult for
broker-dealers to sell the common stock, and purchasers of shares of common
stock may experience difficulty in selling such shares in the future in
secondary trading markets.
If the common stock is excluded from The Nasdaq SmallCap Market, trading,
if any, in shares of the common stock will be subject to the full range of the
Penny Stock Rules. Under Exchange Act Rule 15g-8, broker-dealers must take
certain steps prior to selling a penny stock, which steps include: (a)
obtaining financial and investment information from the investor; (b)
obtaining a written suitability questionnaire and purchase agreement signed by
the investor; (c) providing the investor with a written identification of the
shares being offered and in what quantity; and (d) delivering to the investor
a written statement setting forth the basis on which the broker-dealer
approved the investor's account for the transaction. If the Penny Stock Rules
are not followed by a broker-dealer, the investor has no obligation to
purchase the shares. Accordingly, the application of the comprehensive Penny
Stock Rules may make it more difficult for broker-dealers to sell the common
stock and purchasers of shares of common stock may have difficulty in selling
such shares in secondary trading markets.
In addition, if the common stock is excluded from the Nasdaq SmallCap
Market, New ALTM may be impaired in its ability to consummate business
acquisitions or raise capital through issuance of its stock because its shares
will be less attractive to potential acquirees and certain procedures under
federal securities laws which are intended to facilitate corporate financing
by "established issuers" may be unavailable to New ALTM.
New ALTM may need additional capital to support its growth.
New ALTM's operating plan may require additional financing within the
next year. New ALTM may be unable to obtain this financing when needed, on
favorable terms, or at all. The sale of equity or convertible debt securities
may be dilutive to shareholders, and debt financing arrangements may require
New ALTM to pledge certain assets and enter into covenants that restrict its
ability to incur further indebtedness. If New ALTM is unable to obtain
adequate funds on reasonable terms, it may be required to forego opportunities
for growth or even curtail operations, or to obtain funds by entering into
financing, supply or collaboration agreements on unattractive terms.
New ALTM's liquid assets will be significantly reduced upon the
completion of the Transaction and immediately thereafter due to certain
payments required by the Transaction Agreement.
The Transaction Agreement requires New ALTM to pay Hencie's obligation to
the Internal Revenue Service (the "IRS Obligation"), approximately $780,000 as
of March 31, 2002 and subject to monthly installment payments, at the First
Closing and to pay the amount resulting from the settlement of the litigation
involving the Edge Promissory Note (approximately $1.65 million, subject to
reduction to $1.2 million, plus interest, if certain conditions are met) at a
rate of $60,000 per month. New ALTM's cash will be significantly diminished
due to the payment of these obligations. This will reduce cash available for
on-going operations and will make it more difficult for New ALTM to respond to
unforeseen problems.
New ALTM may be unsuccessful in identifying and acquiring suitable
acquisition candidates, which could impede its growth and ability to remain
competitive.
New ALTM's strategic plan will include the regular and systematic
evaluation and acquisition of other information technology consulting firms in
new and existing markets. There can be no assurance, however, that New ALTM
will successfully identify suitable acquisition candidates. New ALTM is
unable to predict whether or when any prospective acquisition candidate will
become available or the likelihood that any acquisition will be completed once
negotiations have commenced. New ALTM will compete for acquisition and
expansion opportunities with entities that have substantially greater
resources than New ALTM and these entities may be able to outbid New ALTM for
these acquisition targets. If New ALTM fails to execute its acquisition
strategy, revenue growth is likely to suffer and it may be unable to remain
competitive.
New ALTM's growth will be partly based on its ability to acquire and
integrate additional consulting firms; and failure to integrate these
consulting firms successfully may have an adverse effect on results of
operations.
A significant element of New ALTM's strategy is to acquire additional
consulting firms. New ALTM cannot assure you that it will successfully
integrate consulting firms it may acquire. The integration of an acquisition
involves a number of factors that may adversely affect operations. These
factors include:
-diversion of management's attention;
-difficulties in the integration of acquired operations and retention of
personnel;
-entry into unfamiliar markets;
-unanticipated problems or legal liabilities; and
-tax and accounting issues.
A failure to integrate acquired businesses may be disruptive to New
ALTM's operations and negatively impact its revenue or increase its expenses.
Businesses that New ALTM acquires may have unknown liabilities, and such
firms may not be as profitable as New ALTM expects them to be.
Although New ALTM will conduct due diligence investigations of any
businesses it acquires, New ALTM cannot assure you that it will identify all
material facts concerning these businesses. Unanticipated events or
liabilities relating to acquired companies could have a material adverse
effect on results of operations and financial condition. Furthermore,
integrated businesses may not achieve levels of revenue, profitability, or
productivity comparable to existing operations, or otherwise perform as
expected. Failure to integrate one or more acquired businesses so that they
achieve New ALTM's performance goals may have a material adverse effect on
results of operations and financial condition.
Acquisitions, especially unsuccessful ones, could harm financial results.
Difficulties integrating these acquisitions may impose substantial costs and
delays and cause other problems.
The integration of acquisition targets is commonly subject to risks,
including, among others, loss of key personnel of the acquired company,
difficulties associated with assimilating the personnel and operations of the
acquired company, potential disruption of ongoing business, maintenance of
uniform standards, controls, procedures and policies, and impairment of the
acquired company's reputation and relationships with its employees and
clients. Any of these may result in the loss of clients. Further, the
integration process may require a disproportionate amount of time and
attention from management and may distract management from its day-to-day
responsibilities. It is also possible that New ALTM may not realize, either
at all or in a timely manner, any or all benefits from acquisitions, but may
incur significant costs in connection with these acquisitions. Failure to
successfully integrate acquisitions could adversely affect results of
operations.
New ALTM's growth cannot be assured. Even if New ALTM grows, it cannot
assure you that it will grow profitably.
Growth will depend, in part, upon the ability to attract and retain new
clients, offer and achieve market acceptance of new services and features and
expand in existing and new geographic markets. Failure to successfully
identify new geographic markets or to develop or introduce new products and
services could have a material adverse effect on growth prospects. Even if
New ALTM increases its service offerings and gains new clients, it may not
realize profits, and failure to do so would harm its financial condition and
results of operations.
New ALTM's success may depend on its ability to manage growing and
changing operations.
Any growth is expected to place significant demands on management,
systems, internal controls and financial and physical resources. In order to
meet such demands, New ALTM intends to hire and train new employees and
increase expenditures on systems. In addition, New ALTM will need to further
develop its financial and managerial controls and reporting systems to
accommodate any future growth. Inability to manage growth effectively could
have a material adverse effect on financial results. New ALTM's managerial
resources and infrastructure may be inadequate to handle growth. Its senior
management team has limited collective experience managing a business growing
by acquisition in addition to internal growth.
Hencie may be unable to compete effectively in the marketplace.
Hencie operates in a competitive, fragmented market, and will compete for
clients with a variety of organizations that offer similar services. The
market in which Hencie competes is also subject to rapid change and is
significantly affected by new service introductions and other market
activities of industry participants. Hencie will primarily compete with
several public and private service providers. Hencie also competes with
management consulting firms and, to a lesser extent, with information
technology outsourcing companies. Most of these companies have greater
financial, technical, marketing, name recognition and other resources and a
larger number of clients than will Hencie. In addition, some of these
companies offer more services or features than Hencie and will have more
processing facilities throughout the United States. Hencie expects to
experience competition from new entrants into the market. Increased
competition may result in pricing pressures, loss of market share or loss of
clients, any of which could harm Hencie's business. Hencie believes the
principal competitive factors affecting its market include the following:
-client service;
-knowledge, experience and productivity of employees;
-system functionality and performance;
-system and service flexibility;
-breadth of service offering;
-reputation and experience; and
-service cost.
The inability to compete successfully could harm New ALTM's business and
results of operations. A portion of Hencie's new clients have historically
come from competitors. If New ALTM does not have the same success in winning
clients from competitors, it would have to rely more on existing clients that
may need maintenance and support services at lower rates. This could decrease
profit margins and increase new client acquisition costs, which would
adversely affect New ALTM's financial condition and results of operations.
New ALTM may incur substantial costs in connection with establishing new
client relationships and expanding service offerings that it may not be able
to recoup.
Establishing new client relationships is a time-consuming and expensive
process. New ALTM will incur substantial costs in order to obtain each new
client. These costs consist primarily of sales and implementation expenses
and, to a lesser extent, marketing expenses. New ALTM will incur these costs
in advance of recognizing any revenue, and cannot guarantee that it will fully
recoup these costs. If New ALTM cannot maintain a high client retention rate,
its return on client acquisition costs will be significantly lower. In
addition, as New ALTM expands service offerings, it will incur substantial
operating costs associated with hiring and training new employees and building
an operational infrastructure. Failure to recoup costs associated with
establishing client relationships and expanding service offerings could harm
its financial condition and results of operations.
Hencie may make errors and omissions in performing services, which could
subject it to a loss of revenues and clients and harm its reputation.
The systems which Hencie implements are complex and may contain unknown
or undetected errors. Errors are frequently found during the period
immediately following implementation. Although Hencie attempts to create
systems that are error-free and to resolve promptly any errors that surface,
it is inevitable that problems will sometimes arise and that not all problems
will be resolved to the customer's satisfaction. Errors may result in delays
in customer acceptance, lost revenues, or in litigation, and could be
materially detrimental to Hencie's business. Although Hencie has errors and
omissions insurance, such insurance may not cover every instance of
malfunction and coverage, if available, may be insufficient to save Hencie
harmless from all loss. In addition, in almost all instances coverage will
require payment of a deductible that could be material in dollar amount.
New ALTM will face substantial competition in attracting and retaining
experienced personnel, and may be unable to grow its Hencie business if it
cannot attract and retain qualified employees.
Hencie's success will depend to a significant degree on its ability to
attract and retain highly qualified and experienced employees who possess the
skills and experience necessary to satisfy its needs. These employees are in
great demand, particularly in certain geographic areas, and are likely to
remain a limited resource for the foreseeable future. New ALTM's ability to
attract and retain employees with the requisite experience and skill depends
on several factors including, but not limited to, ability to offer competitive
wages, benefits and professional growth opportunities. To attract and retain
these individuals, New ALTM will be required to invest a significant amount of
time and money. Many of the companies with which it will compete for
experienced personnel have greater financial resources and name recognition
than New ALTM. In addition, an important component of overall compensation
for employees will be equity. If New ALTM's stock price does not increase
over time, it may be more difficult to retain employees who have been
compensated with stock options. Hencie has in the past experienced difficulty
in recruiting sufficient numbers of qualified information technology and sales
personnel. The inability to attract and retain experienced personnel could
have a material adverse effect on New ALTM's business.
The loss of senior management and key personnel would negatively affect
New ALTM's ability to conduct its business efficiently and could lead to loss
of clients and proprietary information.
The success of New ALTM will be largely dependent on the skills,
experience, effort and performance of senior management and other key
employees. The loss of the services of Adil Khan or one or more members of
senior management, could have a material adverse effect on New ALTM. If New
ALTM loses any key technical personnel, it may be unable to prevent the
unauthorized disclosure or use of technical knowledge, practices, procedures
or client lists by the former employee. Disclosure of this information could
harm New ALTM's business.
New ALTM may not be able to maintain or grow its market share if it fails
to adapt to advances in technology. Even if it is able to develop or acquire
new technologies in a timely manner, it may incur substantial costs in
developing or acquiring such technologies.
New ALTM's ability to satisfactorily provide core products and services
and to develop, or partner effectively to provide, ancillary products for its
clients is dependent on its ability to maintain up-to-date software and
systems technology. Its position in the market could be impaired if it does
not react appropriately to emerging technology trends. The technologies in
which Hencie has invested to date rapidly evolve and have short life cycles.
The introduction of services with new technologies and the emergence of new
industry standards and practices can render existing services obsolete and
unmarketable over time. The ability to expand into new markets will require
New ALTM to anticipate and efficiently adapt to technological changes. Future
success will depend, in part, on an ability to develop or acquire advanced
technologies, enhance existing services with new features, add new services in
order to meet the sophisticated, varied and changing needs of clients and
respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. If New ALTM cannot meet these
needs in a timely manner, its growth may suffer. Even if New ALTM is able to
develop or acquire new technologies in a timely manner, it may incur
substantial costs in developing or acquiring such technologies and in
deploying new services and features to its clients.
If New ALTM fails to identify and successfully transition to the latest
and most advanced solutions or keep up with an evolving industry, it will not
compete successfully for clients.
New ALTM intends to focus on providing its clients solutions that employ
the latest technologies. If it fails to identify the latest and most advanced
solutions, or if it identifies but fails to successfully transition to these
advanced solutions, its reputation and ability to compete for clients and the
best employees could suffer. If it cannot compete successfully for clients,
revenues may decrease. Also, if its projects do not involve the latest and
most advanced solutions, they will generate lower fees.
Because the information technology market changes rapidly, some of the
most important challenges facing New ALTM will be the need to:
-effectively use advanced technologies;
-continue to develop strategic and technical expertise;
-influence and respond to emerging industry standards and other
technological changes; and
-develop new services that meet changing customer needs.
All of these challenges must be met in a timely and cost-effective
manner. New ALTM may not succeed in effectively meeting these challenges.
New ALTM may be unable to accurately forecast revenue and to match
revenue and expenditures appropriately.
Recently, the level of spending by clients and potential clients on
information technology in the United States has become less certain. In some
cases the uncertainty has reduced the overall number of projects available for
bid. In other cases the uncertainty has resulted in project deferrals,
project scope reductions or limited follow-on projects at existing clients.
This environment adds greater risk and uncertainty to forecasts and to
business plans based upon such forecasts.
If Hencie is unable to rapidly integrate third-party software, it may not
deliver solutions to clients on a timely basis or defects or errors might
occur which will result in lost revenues and potential liability.
In providing client services, Hencie will recommend that clients use
software applications from a variety of third-party vendors. If it is unable
to implement and integrate this software in a fully functional manner, it may
experience difficulties that could delay or prevent the successful
development, introduction, or marketing of services. Software often contains
errors or defects, particularly when first introduced or when new versions or
enhancements are released. Despite internal testing and testing by current
and potential clients, current and future solutions may contain serious
defects due to third-party software or software developed or customized for
clients by Hencie. Serious defects or errors could result in liability for
damages, lost revenues, or a delay in implementation of solutions.
Hencie's revenues could be negatively affected by the loss of a large
client or failure to collect a large account receivable.
Hencie derives a significant portion of revenue from large projects for a
limited number of varying clients. In 2001, Hencie's largest client accounted
for 35% of revenue and its second largest client accounted for 13% of revenue.
In 2000, Hencie's largest client accounted for 26% of revenue and its second
largest client accounted for 8% of revenue. Revenues could be negatively
affected if New ALTM were to lose even one of these clients or if it failed to
collect a large account receivable.
Many of Hencie's contracts are short-term and provide that clients can
reduce or cancel services without incurring any penalty. If clients reduce or
terminate services, New ALTM would lose revenue and would have to reallocate
employees and resources to other projects to attempt to minimize the effects
of that reduction or termination. Accordingly, terminations, including any
termination by a major client, could adversely impact revenues.
If New ALTM estimates incorrectly the time required to complete projects,
New ALTM will lose money on fixed-price contracts.
Some of Hencie's contracts are fixed-price contracts, rather than
contracts in which the client pays on a time and materials basis. Hencie must
estimate the number of hours and the materials required before entering into a
fixed-price contract. Success depends on setting rates and fees accurately
and maintaining targeted rates of employee utilization and project quality.
If New ALTM fails to accurately estimate the time and the resources required
for a project, any required increase in the time and resources to complete the
project could cause profits to decline.
Fluctuations in revenues and operating results of New ALTM due to
cyclical client demand may lead to reduced or volatile prices for New ALTM
stock.
Hencie's revenues and operating results have fluctuated significantly in
the past and New ALTM expects them to continue to fluctuate significantly in
the future. Historically, Hencie has experienced its greatest sequential
growth during the first and second quarters and significantly lower sequential
growth in the third and fourth quarters. Hencie attributes this to the
budgeting cycles of customers, most of whom have calendar-based fiscal years
and as a result are more likely to incur the expense of its services during
the first half of the year. If New ALTM is unable to predict the cyclical
client demand in a slower growth or distressed economic environment, expenses
may be disproportionate to revenue and New ALTM's stock price may be adversely
affected.
Others could claim that Hencie infringes their intellectual property
rights, which may result in substantial costs, diversion of resources and
management attention, and harm to Hencie's reputation.
A portion of New ALTM's business will involve the development of software
applications for specific client engagements. This software may be the
subject of claims for infringement, which even if successfully defended could
be costly and time-consuming. An infringement claim could materially and
adversely affect the company in that New ALTM may:
-experience a diversion of financial resources and management attention;
-incur damages and litigation costs, including attorneys' fees;
-be enjoined from further use of the intellectual property;
-be required to obtain a license to use the intellectual property,
incurring licensing fees;
-need to develop a non-infringing alternative, which could be costly and
delay projects; and
-have to indemnify clients with respect to losses incurred as a result of
infringement of the intellectual property.
New ALTM may not have the resources to effectively compete, causing
revenues to decline.
Many of Hencie's competitors have longer operating histories, larger
client bases, longer relationships with clients, and greater brand or name
recognition than Hencie, and significantly greater financial, technical,
marketing, and public relations resources than New ALTM. Hencie may be unable
to compete with the full-service consulting companies entering the information
technology professional services market, including the consulting divisions of
the largest global accounting firms, who are able to offer their clients a
wider range of services. If clients decide to take their information
technology professional services projects to these companies, Hencie's and
therefore New ALTM's revenues may decline. In addition, new professional
services companies may provide similar services at a lower price, which could
cause revenues to decline.
If the rate of adoption of advanced information technology slows
substantially, revenues of Hencie and New ALTM may decrease.
Hencie markets its services primarily to firms that want to adopt
information technologies that provide an attractive return on investment or
help provide a sustainable competitive advantage. Hencie's, and therefore New
ALTM's revenues could decrease if companies decide not to integrate the latest
technologies into their businesses due to economic factors, governmental
regulations, financial constraints, or other reasons. Hencie expects
information technology spending and revenue to be highly dependent on the
health of the US economy.
Competition among information technology companies may adversely impact
the pricing of projects and Hencie's ability to win business.
Since late 2000, many firms in the industry experienced a decline in
demand for services that resulted in lower utilization rates of billable
personnel. Lower utilization rates increase the likelihood that a competitor
will reduce its prices to secure business in order to improve their
utilization rate. The extent to which pricing and ability to win business may
be impacted is a function of both the magnitude and duration of the supply and
demand imbalance in the industry.
New ALTM's stock price could be extremely volatile, like many technology
stocks.
Recently, the market prices of securities of technology companies,
particularly information technology services companies, have been highly
volatile. New ALTM expects continued high volatility in its stock price, with
prices at times bearing no relationship to its operating performance.
Volatility of New ALTM's stock price could result in expensive class
action litigation.
If New ALTM's common stock suffers from volatility like the securities of
other technology companies, it could be subject to securities class action
litigation similar to that which has been brought against companies following
periods of volatility in the market price of their common stock. Litigation
could result in substantial costs and could divert resources and senior
management's attention. This could harm productivity and profitability.
Dispute with Paul A. Tanner and legal fees and expenses incurred in
connection with such dispute could have a material and adverse affect on the
Company.
On January 9, 2001, Hencie received a demand letter from Hencie.Com, an
affiliate of Paul A. Tanner, claiming that (i) Hencie.Com is entitled to
1,500,000 shares of Hencie common stock in connection with an alleged stock
purchase agreement by and between Hencie and Hencie.Com and (ii) Hencie owes
Hencie.Com $1.9 million in connection with $1.4 million that was advanced to
Hencie by Hencie.Com (collectively, the "Claims"). Hencie has investigated
the Claims and concluded that the Claims are not valid as against Hencie.
Adil Khan has agreed, pursuant to that certain Indemnification Agreement,
dated as of September 15, 2000, by and between Hencie, Adil Khan, and certain
other parties, and pursuant to the Transaction Agreement, to indemnify ALTM,
New ATLM, and Hencie from and against any losses or liabilities arising out of
or relating to the Claims.
In the event litigation in connection with the Claims is pursued and Adil
Khan is, for any reason, unable to fulfill his indemnification obligations to
ALTM, New ALTM, and Hencie in connection with such Claims, Hencie intends to
vigorously contest the Claims and pursue any potential counterclaims that may
be available. Notwithstanding the foregoing, the business, financial
condition, and operations of New ALTM could be materially and adversely
affected by an outcome that is adverse to Hencie with respect to any of the
Claims, legal fees and expenses associated with investigating, contesting, and
defending against any of the Claims (whether or not the Claims are
successfully pursued by Mr. Tanner), and the diversion of management's time
and resources in connection with any such investigation, contest, or defense.
Officers and directors own a significant percentage of outstanding shares
and, as a group, control a vote of shareholders.
The executive officers and directors of New ALTM will own approximately
54% of the outstanding shares of common stock of New ALTM immediately after
the Transaction. If these shareholders act or vote together with other
employees who own significant shares of common stock they will have the
ability to control the election of directors and the approval of any other
action requiring the approval of shareholders, including any amendments to the
certificate of incorporation and mergers or sales of all or substantially all
assets, even if the other shareholders perceive that these actions are not in
their best interests.
The general condition of the U.S. economy may adversely affect New ALTM's
business as a whole.
The general condition of the U.S. economy and the current weakness in the
economy has affected and will continue to affect Hencie's business. These
conditions include declines in interest rates, client staff reductions, client
labor strikes and acquisitions of clients by other companies, among others.
In addition, potential clients and existing clients are also less likely to
switch service providers and in some cases are delaying or postponing
purchasing decisions. These factors could result in the reduction of the
aggregate amount of spending. In addition, the general condition of the U.S.
economy is affected by social, political and military conditions, including
terrorist threats and acts and any responses by the United States to such
threats and acts.
The authorization of preferred stock, a staggered board of directors,
supermajority voting requirements and certain provisions of Delaware law could
make a takeover attempt more difficult, even if the takeover would be
favorable for shareholders.
New ALTM's Amended and Restated Certificate of Incorporation and bylaws
may have the effect of deterring, delaying or preventing a change in control
of the company. For example, its charter documents provide for:
-the ability of the board of directors to issue preferred stock and to
determine the price and other terms, including preferences and voting rights,
of those shares without shareholder approval;
-advance notice provisions for shareholder proposals and nominations to
the board of directors;
-a staggered board of directors, with three-year terms, which will
lengthen the time needed to gain control of the board of directors; and
-supermajority voting requirements for shareholders to amend provisions
of its charter documents.
New ALTM will be subject to Delaware corporate law. Section 203 of the
Delaware General Corporation Law prohibits New ALTM from engaging in a
business combination with any significant shareholder for a period of three
years from the date the person became a significant shareholder unless, for
example, its board of directors approved the transaction that resulted in the
shareholder becoming an interested shareholder. Any of the above could have
the effect of delaying or preventing changes in control that a shareholder may
consider favorable.
MARKET PRICE INFORMATION
Alternate Marketing common stock has been listed on the Nasdaq SmallCap
Market since 1995 and currently trades under the ticker symbol "ALTM." The
table below sets forth, for the fiscal quarters indicated, the reported high
and low sale prices of Alternate Marketing common stock as reported by the
Nasdaq SmallCap Market. The stock of Hencie is not publicly traded.
Year Ended December 31, 2000
----------------------------
High Low
----------------------------
First quarter 3 5/16 2
Second quarter 3 1/2 0 7/8
Third quarter 2 1/4 1 5/16
Fourth quarter 2 1/2 0 1/4
Year Ending December 31, 2001
-----------------------------
High Low
-----------------------------
First quarter 1 5/8 1 1/16
Second quarter 1 7/32 0 15/16
Third quarter 1 3/16 0 29/32
Fourth quarter 1 9/16 0 19/32
At June 6, 2002, there were approximately 44 holders of record of
Alternate Marketing common stock.
On June 6, 2002, the last full trading day for which it was practicable
to obtain market data before the printing of this document, the closing sale
price reported on the Nasdaq SmallCap Market for Alternate Marketing's common
stock was $0.91 per share. On April 22, 2002, the last full trading day prior
to the announcement of the signing of the Transaction Agreement, the closing
sale price reported on the Nasdaq SmallCap Market for Alternate Marketing's
common stock was $0.88 per share.
On January 22, 2002, Alternate Marketing paid a cash dividend of $.50 per
share to shareholders of record on January 15, 2002. The Transaction allows
for payment of a $.10 cash dividend to ALTM shareholders of record immediately
prior to the reincorporation in Delaware. New ALTM intends to retain future
earnings to fund the development and growth of its business and does not
intend to pay any cash dividends in the foreseeable future.
COMPARATIVE PER SHARE DATA
The following table reflects (a) the historical net income and book value
per share of ALTM common stock in comparison with the pro forma net income and
book value per share after giving effect to the Transaction as a purchase of
Hencie; (b) the historical net income and book value per share of Hencie
common stock in comparison with the equivalent pro forma net income and book
value per share attributable to the 49% of the outstanding common stock of
ALTM received by Hencie shareholders in the Transaction and (c) the actual
cash dividends per share compared with equivalent pro forma dividends per
share of both ALTM and Hencie. The information presented in this table should
be read in conjunction with the pro forma combined financial statements and
the separate financial statements of ALTM and Hencie and the notes thereto
appearing elsewhere herein or incorporated herein by reference.
Alternate Marketing Three months ended March 31, 2002 Year ended December 31, 2001
Net Income (Loss)
Historical $ (0.02) $ (0.09)
Pro Forma $ (0.05) $ (0.05)
Dividends
Historical $ 0.00 $ 0.50
Pro Forma (1) $ 0.00 $ 0.00
Book Value
Historical $ 1.13
Pro Forma $ 1.06
Hencie Three months ended March 31, 2002 Year ended December 31, 2001
Net Income (Loss)
Historical $ (0.03) $ (0.02)
Equivalent Pro Forma (2) $ (0.03) $ (0.03)
Dividends
Historical $ 0.00 $ 0.00
Equivalent Pro Forma $ 0.00 $ 0.00
Book Value
Historical $ (0.22)
Equivalent Pro Forma (1) $ 0.52
(1) ALTM has no history of declaring dividends as a distribution of earnings.
The one-time dividend of $2,293,052 declared in 2001 was a return of capital
related to proceeds from ALTM's sale of its sampling business in 2000.
(2) Equivalent pro forma amounts were determined by multiplying combined pro
forma amounts by 49%, which is the interest in New ALTM to be received by
Hencie shareholders in the Transaction.
ALTERNATE MARKETING SELECTED FINANCIAL DATA
The following consolidated financial information is derived from the
Alternate Marketing consolidated financial statements and should be read
together with such financial statements and "Alternate Marketing Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Alternate Marketing's annual report on Form 10-KSB, which is
incorporated by reference in this proxy statement.
As of December 31,
---------------------------------------
2001 2000
------------------ ------------------
Total current assets $7,186,962 $7,198,771
Total assets $9,336,226 $9,540,375
Total current liabilities $4,089,942 $1,482,103
Total liabilities and shareholders' equity $9,336,226 $9,540,375
For the years ended December 31,
-------------------------------------
2001 2000
------------------ ----------------
Net sales $16,626,151 $21,838,653
Income (loss) from continuing
operations (1) $ (404,871) $ 2,281,991
Income (loss) per share from
continuing operations $ (0.09) $ 0.49
Cash dividends declared per share (2) $ 0.50 $ 0.00
(1) 2000 includes a pre-tax gain from the sale of the Company's sampling
division of approximately $3.4 million.
(2) The Company declared a one-time dividend of $2,293,052 in 2001 as a return
of capital related to proceeds from the sale of its sampling division in 2000.
HENCIE SELECTED FINANCIAL DATA
The following consolidated financial information is derived from the
Hencie consolidated financial statements included elsewhere in this proxy
statement and should be read together with such financial statements and the
"Hencie Management's Discussion and Analysis of Financial Condition and
Results of Operations."
As of December 31,
-------------------------------------
2001 2000
-------------------------------------
Total current assets $1,023,043 $2,150,620
Total assets $1,268,055 $2,605,841
Total current liabilities $4,832,622 $6,057,006
Long-term debt $ 90,798 $ 121,766
Total liabilities and shareholders' equity $1,268,055 $2,605,841
For the years ending December 31,
--------------------------------------
2001 2000
--------------------------------------
Net sales $11,937,462 $10,318,840
Loss from continuing operations $ (243,951) $(5,232,444)
Loss per share from continuing
operations $ (0.02) $ (0.50)
Cash dividends declared per share $ 0.00 $ 0.00
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
information gives effect to the Transaction using the purchase method of
accounting.
The unaudited pro forma combined condensed balance sheet as of March 31,
2002 is based on the individual historical balance sheets of Alternate
Marketing and Hencie and has been prepared to reflect the Transaction as if
the Transaction had occurred as of March 31, 2002.
December 31 is the fiscal year end of both Alternate Marketing and
Hencie. The unaudited pro forma combined condensed statement of operations
for the year ended December 31, 2001 is based on the individual historical
statements of operations of Alternate Marketing and Hencie and combines the
results of operations of Alternate Marketing for the year ended December 31,
2001 with the results of operations for Hencie for the year ended December 31,
2001 as if the Transaction had occurred as of January 1, 2001. The unaudited
pro forma combined condensed statement of operations for the three months
ended March 31, 2002 is based on the individual historical statements of
operations of Alternate Marketing and Hencie and combines the results of
operations for Alternate Marketing and Hencie for the three months ended March
31, 2002, as if the Transaction had occurred as of the beginning of the
period.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or operating results that would have been achieved if
the Transaction had been completed as of the beginning of the periods
presented, nor are they necessarily indicative of the future financial
position or operating results of Alternate Marketing. The unaudited pro forma
combined condensed financial information does not give effect to any cost
savings or restructuring and integration costs that may result from the
integration of Alternate Marketing's and Hencie's operations. The costs
related to restructuring and integration have not yet been determined.
The unaudited pro forma combined condensed financial information should
be read in conjunction with Alternate Marketing's annual report on Form 10-KSB
for the fiscal year ended December 31, 2001 (incorporated herein by reference)
and its quarterly report on Form 10-QSB for the first fiscal quarter ended
March 31, 2002 (Appendix F of this proxy statement) and with the audited
financial statements of Hencie included elsewhere in this proxy statement.
ALTERNATE MARKETING AND HENCIE
UNAUDITED PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET
as of March 31, 2002
Alternate Pro Forma Pro Forma
Marketing Hencie Adjustments Notes Combined
Assets
Cash and cash equivalents $ 1,297,384 $ 13,809 $ 1,311,193
Accounts receivable, net of allowance $ 2,867,707 $1,201,626 $ 4,069,333
Prepaid expenses $ 168,914 $ 8,823 $ 177,737
Refundable federal income tax $ 180,000 $ $ 180,000
Total current assets $ 4,514,005 $1,224,258 $ $ 5,738,263
Property and equipment, net of
accumulated depreciation $ 68,994 $ 193,049 $ 262,043
Computer software, net $ 56,238 $ - $ 56,238
Goodwill, net $ 2,004,947 $ - $ 8,811,874 (1) $10,448,821
$ (368,000) (2)
Total assets $ 6,644,184 $1,417,307 $ 8,443,874 $16,505,365
Liabilities
Debt to factor $ - $ 688,226 $ 688,226
Current portion of long-term debt and
notes payable $ - $1,457,848 $ (200,000) (2) $ 1,257,848
Accounts payable $ 1,263,020 $1,027,927 $ 2,290,947
Accrued liabilities $ 157,632 $1,701,649 $ (168,000) (2) $ 1,841,281
$ 150,000 (1)
Deferred revenue $ 62,076 $ 260,000 $ 322,076
Dividend payable $ - $ - $ --
Total current liabilities $ 1,482,728 $5,135,650 $ (218,000) $ 6,400,378
Long-term debt and notes payable, less
current portion $ - $ 89,061 $ 89,061
Shareholders' equity
Preferred stock $ - $ -- $ $ --
Common stock $10,417,243 $ 171,673 $ 4,854,470 (1) $15,271,713
$ (171,673) (1)
Additional paid-in capital $ - $ 3,776,373 $(3,776,373) (1) $ --
Deferred compensation $ - $ (364,922) $ 364,922 (1) $ --
Accumulated losses $(5,255,787) $(7,390,528) $ 7,390,528 (1) $(5,255,787)
Total shareholders' equity $ 5,161,456 $(3,807,404) $ 8,661,874 $10,015,926
Total liabilities and shareholders'
equity $ 6,644,184 $ 1,417,307 $ 8,443,874 $16,505,365
See accompanying notes to the unaudited pro forma combined condensed
financial statements.
ALTERNATE MARKETING AND HENCIE
UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENT OF OPERATIONS
for the year ended December 31, 2001
Alternate Pro Forma Notes Pro Forma
Marketing Hencie Adjustments Combined
Net sales $16,626,151 $11,937,462 $28,563,613
Cost of sales $12,837,911 $ 6,367,462 $19,205,373
Gross profit $ 3,788,240 $ 5,570,000 $ - $ 9,358,240
Selling, general and
administrative expenses $ 4,536,618 $ 5,178,016 $(150,000) (3) $ 9,564,634
Income (loss) from
operations $ (748,378) $ 391,984 $ 150,000 $ (206,394)
Other income (expense),
net $ 125,847 $ (635,935) $ (510,088)
Loss before income taxes $ (622,531) $ (243,951) $ 150,000 $ (716,482)
Income tax expense
(benefit) $ (217,660) $ - $ (217,660)
Net loss $ (404,871) $ (243,951) $ 150,000 $ (498,822)
EPS (Basic and Diluted) $ (0.09) $ - $ (0.05)
Weighted average shares 4,612,805 4,854,470 9,467,275
See accompanying notes to the unaudited pro forma combined condensed
financial statements.
ALTERNATE MARKETING AND HENCIE
UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENT OF OPERATIONS
for the three months ended March 31, 2002
Alternate Pro Forma Notes Pro Forma
Marketing Hencie Adjustments Combined
Net sales $ 4,081,545 $ 2,445,091 $ 6,526,636
Cost of sales $ 3,171,929 $ 1,365,463 $ 4,537,392
Gross profit $ 909,616 $ 1,079,628 $ - $ 1,989,244
Selling, general and
administrative expenses $ 1,002,258 $ 1,350,176 $ $ 2,352,434
Loss from operations $ ( 92,642) $ (270,548) $ -- $ (363,190)
Other income (expense),
net $ 7,814 $ (146,673) $ (138,859)
Net loss $ ( 84,828) $ (417,221) $ -- $ (502,049)
EPS (Basic and diluted) $ (0.02) -- $ -- $ (0.05)
Weighted average shares 4,586,005 4,854,470 9,440,475
See accompanying notes to the unaudited pro forma combined condensed
financial statements.
ALTERNATE MARKETING AND HENCIE
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS
Summary of the Transaction
Pursuant to the Transaction Agreement, New ALTM will issue 4,854,470 shares of
its common stock with a fair value of $4,854,470 to the shareholders of Hencie
in exchange for 100% ownership of Hencie. Fair value of the shares is
determined using an average of Alternate Marketing stock price as traded on
Nasdaq just prior to and just after the announcement of the Transaction. Upon
approval by the shareholders Alternate Marketing will acquire more than 80% of
Hencie's stock from the Majority Hencie Shareholders. Within one year
subsequent to the acquisition from the Majority Hencie Shareholders, Alternate
Marketing will acquire the remaining outstanding shares from the Minority
Hencie Shareholders. Upon completion of the acquisition of 100% of Hencie in
exchange for New ALTM common stock, the Hencie shareholders will own 49% of
New ALTM on a fully diluted basis. The acquisition has been accounted for
using the purchase method of accounting with the excess value of the sum of
the fair value of stock and transaction costs of $150,000 over the fair value
of the assets and being recorded as goodwill. Upon adoption of SFAS 142,
resulting goodwill will not be subject to amortization. Alternate Marketing
has not yet performed the transitional impairment testing required by SFAS
142.
(1) This pro forma adjustment eliminates the equity of Hencie. It also
records the issuance of 4,854,470 shares of common stock with a fair value of
$4,854,470 and the resulting goodwill of $8,443,874 including the transaction
costs of $150,000.
(2) This pro forma adjustment reflects a change in the amount due to
noteholders resulting from a contractually agreed settlement of the
obligation, incident to the transaction. This adjustment has been excluded
from the pro forma consolidated combined statement of operations due to its
non-recurring nature.
(3) This pro forma adjustment is to reflect Alternate Marketing's adoption of
SFAS 142 on January 1, 2002, which requires that goodwill not be amortized,
but will be subject to periodic testing for impairment.
(4) The following table illustrates the calculations of basic income per
share and diluted income per share. Diluted income (loss) per share has no
shares included for potential options and warrants as they are anti-dilutive.
December 31, 2001
Alternate Pro forma
Marketing Combined
Income (Numerator):
Net loss $ (404,871) $ (498,822)
Shares (Denominator):
Weighted shares outstanding 4,612,805 9,467,275
Basic and Diluted Loss per share:
Net loss per share $ (0.09) $ (0.05)
March 31, 2002
Alternate Pro forma
Marketing Combined
Income (Numerator):
Net loss $ ( 84,828) $ (502,049)
Shares (Denominator):
Weighted shares outstanding 4,586,005 9,440,475
Basic and Diluted Loss per share:
Net loss per share $ (0.02) $ (0.05)
(5) The Company has recorded no pro forma income tax benefits due to the
inability to currently utilize its deferred tax assets relating to net
operating losses.
THE TRANSACTION
This section of the proxy statement describes material aspects of the
proposed Transaction. While Alternate Marketing believes that the description
covers the material terms of the Transaction, this summary may not contain all
of the information that is important to you. You should read this entire
proxy statement and the other documents referred to herein for a more complete
understanding of the Transaction.
Background of the Transaction
The terms of the Transaction Agreement are the result of negotiations
between representatives of Alternate Marketing and Hencie. The following is a
brief discussion of the background of these negotiations and the proposed
Transaction.
After an initial exploratory meeting between the principals of both
organizations, the parties exchanged detailed written materials, completed
their preliminary due diligence, and commenced negotiations on a non-binding
letter of intent to memorialize their mutual understanding of the structure of
a proposed reorganization and merger. After several negotiations, and
following consultation with their respective boards and financial advisors,
the companies entered into a non-binding letter of intent regarding the
transaction on January 24, 2002.
Within days after the execution of the letter of intent, the parties
commenced a more detailed due diligence investigation of each other.
Simultaneously, representatives of Alternate Marketing, together with our
legal and financial advisors, and representatives of Hencie, together with its
legal and financial advisors, communicated by telephone and met in person to
discuss various aspects of the proposed transaction. During this time, drafts
of the Transaction Agreement and various ancillary agreements were
distributed, reviewed and negotiated. Among the matters negotiated were the
exchange ratio, the conditions on the parties' obligations to close the
Transaction, the right of the parties to terminate the Transaction Agreement,
the effect of termination, the amount of the termination or break-up fee, and
the circumstances under which the termination fee would be payable.
After several weeks of negotiation and revisions to the documentation,
and following detailed discussions of both companies' executive officers with
legal and financial advisors regarding the terms of the Transaction Agreement
and related documents, including a summary of the representations, warranties,
covenants, conditions, termination events and termination consequences, as
well as the structure of the proposed transaction, Alternate Marketing's board
of directors and Hencie's board of directors and shareholders approved the
Transaction and authorized the respective officers of both companies to
undertake all acts necessary or desirable to effect the Transaction. The
parties then executed the Transaction Agreement on April 9, 2002. After lapse
of several broad conditions which would have allowed either party to terminate
without liability, the Transaction was publicly announced before the opening
of trading on April 23, 2002. On May 31, 2002, the parties executed an
amended and restated Transaction Agreement.
Recommendation of the Board of Directors; Reasons for the Transaction
Our board of directors has determined that the terms of the Transaction
Agreement are fair to and in the best interests of our shareholders and
recommends that the shareholders vote in favor of the Transaction.
In reaching its determination, our board considered the benefits offered
by the Transaction and weighed them against the risks associated with the
Transaction. While the risks associated with the Transaction are substantial,
our board ultimately concluded that these risks are outweighed by the
potential benefits to shareholders. In reaching this determination, the board
relied on, among other things, the accuracy of the representations and
warranties of Hencie.
After review and evaluation of all information provided to the board for
its consideration, the board concluded that the Transaction was the best
transaction reasonably available to maximize shareholder value. The factors
reviewed by the board included, among others, the following:
-The board's knowledge of Alternate Marketing's business, operations,
properties, assets, financial condition, operating results and prospects;
-The board's knowledge of Hencie's business, operations, properties,
assets, financial condition, operating results and prospects, such knowledge
being based on written and oral information provided by Hencie's directors,
executive officers and legal and financial advisors;
-The condition that the Transaction be submitted to our shareholders for
approval, which allows for an informed vote of shareholders on the merits of
the Transaction;
-The history of negotiations that led to the current ratio of one (1)
share of New ALTM common stock for each 3.563 shares of Hencie common stock;
-The terms and conditions of the Transaction Agreement, including the
"fiduciary out" provision;
-The exploration of other offers;
-Michigan law entitling Company shareholders to appraisal rights if the
Transaction is completed; and
-The "fairness opinion" of Capitalink.
The foregoing discussion of the information and factors considered and
given weight by the board is not intended to be exhaustive.
The Transaction
The terms of the Transaction are set forth in the amended and restated
Transaction Agreement, dated as of May 31, 2002, by and among Alternate
Marketing, Hencie, Merger Sub, and the Majority Hencie Shareholders. Subject
to the approval of the shareholders of Alternate Marketing and the
satisfaction (or waiver, if permitted) of the other conditions contained in
the Transaction Agreement:
-Alternate Marketing will merge into New ALTM;
-Each share of Alternate Marketing common stock will be automatically
converted into one share of New ALTM common stock;
-The Majority Hencie Shareholders will receive one (1) share of New ALTM
common stock for each 3.563 shares of Hencie common stock;
-Merger Sub will merge into Hencie and New ALTM will issue shares of New
ALTM common stock to the Minority Hencie Shareholders, provided, however, that
we may acquire the remaining Hencie shares by means other than the subsidiary
merger, if deemed appropriate by the board of directors of New ALTM.
-The number of authorized shares of capital stock of New ALTM will be 55
million; and
-New ALTM will continue to operate the business currently conducted by
Hencie as well as the business currently conducted by Alternate Marketing.
Time of Closing
The reincorporation in Delaware and the acquisition of Hencie Stock from
the Majority Hencie Shareholders (representing ownership of more than 80% of
Hencie) will occur as soon as possible after satisfaction or waiver of the
conditions to the Transaction. To complete the Transaction, Merger Sub will
merge into Hencie, thereby eliminating the Hencie Minority Stockholders;
provided, however, that we may acquire the remaining Hencie shares by means
other than the subsidiary merger, if deemed appropriate by the board of
directors of New ALTM. For example, we may purchase Hencie shares from
individual Minority Hencie Shareholders for cash or New ALTM securities.
Alternate Marketing and Hencie will make certain filings with the Secretaries
of State of the States of Delaware and Michigan in connection with the
Transaction.
Reincorporation Merger
The Transaction requires Alternate Marketing to reincorporate in Delaware
so that New ALTM and its shareholders will be governed by Delaware law rather
than Michigan law. The reincorporation will be accomplished by merging
Alternate Marketing into New ALTM, its wholly-owned Delaware subsidiary. See
"REINCORPORATION MERGER" in this proxy statement for information about some of
the differences between Delaware and Michigan law and management's reasons for
reincorporation.
Cash Dividend to Alternate Marketing's Shareholders
The Transaction Agreement allows ALTM to declare a $.10 per share cash
dividend to shareholders of record as of a date not to be later than the
Business Day immediately preceding the First Closing Date. However, as of the
date of this proxy statement, the board has not yet declared this dividend and
may determine not to do so, in its discretion.
Treatment of Stock Options and Warrants
All outstanding options and warrants to purchase shares of ALTM common
stock will be assumed by New ALTM and will remain outstanding and continue to
be exercisable according to their terms for stock of New ALTM. Outstanding
stock options and warrants of Hencie will be assumed by New ALTM and will
remain exercisable, according to their original terms, for shares of New ALTM
in accordance with the Common Stock Exchange Ratio.
Interests of Certain Persons in the Transaction
Certain individuals who will serve as directors and executive officers of
New ALTM following the Transaction, upon consummation of the Transaction, will
have beneficial ownership of common stock (as a percentage of outstanding
shares) as follows:
Name Individual Percentage
Phillip D. Miller 9.04%
Thomas Hiatt 3.93%
Tribune Co. (1) 8.73%
Adil Khan (2)(3)(4)(5) 25.61%
William Warren 0.52%
Randall Reiners 1.54%
David Bender 0.72%
Brad Moore 0.10%
Frank O'Connell 0.28%
Sandra J. Smith 0.83%
David Bevins 3.21%
(1) Shares held beneficially and of record by Tribune Co. Brad Moore serves
on the board of directors of ALTM as a representative of Tribune Co. and may
be deemed to exercise voting control of the shares as a result of this
arrangement. Mr. Moore disclaims beneficial ownership of the Tribune Co.'s
shares.
(2) Does not include shares issuable upon exercise of Adil Khan's option to
purchase up to 3% of the issued and outstanding common stock of New ALTM on a
fully diluted basis. This option is exercisable only if Hencie's Adjusted
EBITA (as defined in the option) is greater in the fiscal year ended December
31, 2002 than in the fiscal year ended December 31, 2001.
(3) Includes shares of common stock owned by K2 VC, Ltd., a Texas
partnership, with K2 VC Management, LLC, as a general partner and Adil Khan
and Mehnaz Fatehdin, his wife, as limited partners. K2 VC Management, LLC, is
managed by Adil Khan and Mehnaz Fatehdin.
(4) Does not include shares owned by Hencie International, Inc., a Texas
corporation, controlled by Anwar Fatehdin, Adil Khan's father-in-law.
(5) Includes shares of New ALTM with a fair market value of $750,000, as
determined at the First Closing, which will be escrowed as security for Khan's
indemnification obligations in the Transaction Agreement. These shares may be
forfeited to New ALTM in whole or in part. Also includes shares of New ALTM
with a fair market value of $2,392,500, escrowed in connection with the
settlement of a dispute with Edge Technologies, Inc. In the event that Mr.
Khan has insufficient shares of New ALTM to fully fund both the New ALTM
indemnification escrow and the Edge settlement escrow, the New ALTM
indemnification escrow will bear the entire deficiency.
For more information, see "Approval of the Transaction Agreement The
Merger Interests of Certain Persons in the Merger."
Opinion of Financial Advisor to Alternate Marketing
OPINION OF CAPITALINK, L.C.
In connection with the Transaction, the Company engaged Capitalink to render
an opinion as to the fairness, from a financial point of view, to the
Company's shareholders, of the Common Stock Exchange Ratio as set forth in a
draft of the Transaction Agreement. The Transaction Agreement was
subsequently finalized and executed by the parties on May 31, 2002 without any
changes deemed material by Capitalink for purposes of the Capitalink fairness
opinion. On May 8, 2002, Capitalink made a presentation to the Alternate
Marketing board of directors regarding the Transaction and the Common Stock
Exchange Ratio. In addition, Capitalink advised the Board that it was
prepared to deliver a written opinion on such date; however, no written
opinion was delivered on May 8, 2002. Subsequently, the parties clarified
certain points and provided Capitalink with a draft amended and restated
agreement and plan of reorganization. On May 29, 2002, Capitalink made an
additional presentation to the Alternate Marketing board of directors and
rendered its oral opinion that, as of such date, based upon and subject to the
assumptions made, matters considered, and limitations on its review as set
forth in the opinion, the Common Stock Exchange Ratio is fair to the Company's
shareholders from a financial point of view. Subsequently, Capitalink
delivered its written fairness opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF CAPITALINK, DATED AS OF MAY 29, 2002,
IS ATTACHED AS APPENDIX B AND IS INCORPORATED BY REFERENCE. THE COMPANY'S
SHAREHOLDERS ARE URGED TO READ THE CAPITALINK OPINION CAREFULLY AND IN ITS
ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED,
PROCEDURES FOLLOWED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY CAPITALINK IN
RENDERING ITS OPINION. THE SUMMARY OF THE CAPITALINK OPINION SET FORTH IN
THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
No limitations were imposed by the Company on the scope of Capitalink's
investigation or the procedures to be followed by Capitalink in rendering its
opinion. The Capitalink opinion was for the use and benefit of the board in
connection with its consideration of the Transaction and was not intended to
be and does not constitute a recommendation to any shareholder of the Company
as to whether to accept the consideration in connection with the Transaction
or as to how such shareholder should vote with respect to the Transaction.
Capitalink was not requested to opine as to, and its opinion does not address,
the Company's underlying business decision to proceed with or effect the
Transaction. Further, Capitalink was not asked to consider, and its opinion
does not address, the relative merits of the Transaction as compared to any
alternative business strategy that might exist for the Company.
In arriving at its opinion, Capitalink took into account its assessment of
general economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuations generally and,
among other things, reviewed documents relating to the Transaction, including
the Transaction Agreement and the draft preliminary proxy statement.
Capitalink also:
(i) reviewed publicly available financial information and other data
with respect to the Company, including its annual report on Form 10-KSB for
the fiscal year ended December 2001, and its report on Form 10-QSB for the
quarter ended March 31, 2002,
(ii) reviewed information and data with respect to Hencie, including its
annual report for the period ending December 31, 2001, draft audited financial
statements for the years ended December 31, 2001 and 2000, business plan dated
December 31, 2001, business review dated March 1, 2002, and financial
information for the quarterly period ended March 31, 2002,
(iii) reviewed and analyzed certain financial characteristics of
companies that were deemed to have characteristics comparable to those of the
Company or those of Hencie,
(iv) reviewed and analyzed certain financial terms of transactions
involving target companies deemed to have characteristics comparable to the
Company or Hencie,
(v) reviewed and discussed with representatives of the management of
the Company and Hencie certain financial and operating information furnished
by them, including financial analyses and projections and related assumptions
with respect to the business, operations and prospects of the Company or
Hencie,
(vi) considered the historical financial results and present financial
condition of the Company and Hencie,
(vii) reviewed certain publicly available information concerning the
trading of, and the trading market for, the common stock of the Company, and
the companies deemed comparable to the Company and Hencie,
(viii)reviewed and analyzed the relative financial contributions of the
Company and Hencie to the combined enterprise,
(ix) reviewed and analyzed potential pro forma financial effects of the
Transaction on the Company's earnings per share,
(x) inquired about and discussed the Transaction and other matters
related thereto with Company management, Company legal counsel and Hencie
management, and
(xi) performed such other analyses and examinations as were deemed
appropriate.
In arriving at its opinion, Capitalink has relied upon and assumed the
accuracy and completeness of all of the financial and other information that
was used by it without assuming any responsibility for any independent
verification of any such information, and has further relied upon the
assurances of the Company's management that it is not aware of any facts or
circumstances that would make any such information inaccurate or misleading.
With respect to the financial projections utilized, Capitalink assumed that
such projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments, and that such projections provide
a reasonable basis upon which it could form an opinion. In arriving at its
opinion, Capitalink did not make a physical inspection of the properties and
facilities of the Company or Hencie, and has not made or obtained any
evaluations or appraisals of the assets and liabilities (contingent or
otherwise) of the Company or Hencie. Capitalink assumed that the Transaction
will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and all other applicable federal
and state statues, rules and regulations. In addition, based upon discussions
with the Company, it is assumed that the Transaction will not be a taxable
event to the Company's shareholders. Capitalink assumed, with the Company's
consent, that the Transaction will be consummated in accordance with the terms
described in the Transaction Agreements, without any further amendments
thereto, and without waiver by the Company of any of the conditions to any
obligations thereunder or that any such revisions or waivers thereto will not
be detrimental to the Company's shareholders. Capitalink's opinion is
necessarily based upon market, economic and other conditions as they existed
on, and could be evaluated as of, May 28, 2002. Accordingly, although
subsequent developments may affect its opinion, Capitalink has not assumed any
obligation to update, review or reaffirm its opinion.
The estimates contained in Capitalink's analyses and the ranges of valuations
resulting from any particular analysis are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than those suggested by its analyses. In addition, analyses relating
to the value of businesses or securities do not necessarily purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, Capitalink's analyses and estimates are inherently
subject to substantial uncertainty.
Each of the analyses conducted by Capitalink was carried out in order to
provide a different perspective on the Transaction, and to enhance the total
mix of information available. Capitalink did not form a conclusion as to
whether any individual analysis, considered in isolation, supported or failed
to support an opinion as to the fairness, from a financial point of view, of
the Common Stock Exchange Ratio to the Company 's shareholders. Capitalink
did not place any particular reliance or weight on any individual analysis,
but instead concluded that its analyses, taken as a whole, supported its
determination. Accordingly, Capitalink believes that its analyses must be
considered as a whole and that selecting portions of its analyses or the
factors it considered, without considering all analyses and factors
collectively, could create an incomplete and misleading view of the process
underlying the analyses performed by Capitalink in connection with the
preparation of its opinion.
The summary of Capitalink's analysis described below is not a complete
description of the analysis underlying Capitalink's opinion. The preparation
of a fairness opinion is a complex process involving various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore, a
fairness opinion is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, Capitalink made qualitative judgments
as to the relevance of each analysis and factor that it considered.
Accordingly, Capitalink believes that its analysis must be considered as a
whole and that selecting portions of its analysis and factors, or focusing on
information presented in tabular format, without considering all of the
analysis and factors contained in the narrative description that follows,
could result in an incomplete and misleading view of the processes underlying
its analysis and opinion.
Capitalink analyzed the fairness of the Common Stock Exchange Ratio using the
following methodologies:
Financial Data Analysis. Capitalink undertook analyses of the historical and
projected financial data of both the Company and Hencie in order to understand
and interpret their respective earnings power and financial strength.
Capitalink reviewed and analyzed certain financial information: (i) for ALTM,
as provided by the Company and as reported in its public filings, including
the historical audited financial data for the four years ended December 31,
2001, the draft unaudited financial statements for the quarter ended March 31,
2002, and the projections for the four fiscal years ending December 31, 2005;
and (ii) for Hencie, including the draft audited historical financial
statements for the two years ended December 31, 2001, the unaudited financial
statements for the quarter ended March 31, 2002, and projections for the four
years ending December 31, 2005.
Capitalink noted among other things that ALTM possesses a debt-free capital
structure, stable recent growth, and small and stable projected growth in
revenue and earnings. Hencie has relatively high debt levels, consistent
historical improvement in revenue and earnings, and strong anticipated future
growth in revenue and earnings.
Historical Stock Price Analysis. Capitalink utilized a historical stock price
analysis to review and compare the Company's stock performance to the general
market indices and selected peer groups. In addition, Capitalink reviewed the
liquidity of the Company's common stock in the public trading markets.
Capitalink reviewed the daily closing market price and trading volume of
ALTM's common stock over the period from April 23, 2001 through April 22, 2002
(one day prior to first public announcement of the Transaction). Capitalink
compared the daily closing market price performance of ALTM's common stock for
the respective period to each of the ALTM Marketing Comparable Companies and
ALTM Logistics Comparable Companies (each as defined below) and the Russell
3000 Index. Capitalink noted that during the period under review, ALTM's
common stock rose 18.9%, while the ALTM Marketing Comparable Companies fell
34.2%, the ALTM Logistics Comparable Companies rose 18.4%, and the Russell
3000 Index declined 7.5%. Capitalink also calculated total trading volumes at
various closing price ranges. In addition, the number of trading days, and
the respective percentages, at certain trading volume, were set forth.
Capitalink noted ALTM's common stock was highly illiquid with an average and
median daily number of shares traded of 1,812 and 250, respectively.
Capitalink also observed that the ALTM common stock price at May 28, 2002 and
April 22, 2002, was $1.10 and $0.88, respectively.
In addition, Capitalink compared the historical stock price performance of the
Hencie Comparable Companies (as defined below) to the Russell 3000 Index.
Capitalink noted that, although the Hencie Comparable Companies outperformed
the Russell 3000 Index, the relative movements of each of the indices were
highly correlated, indicating that the information technology consulting
industry exhibits high levels of market risk.
Transaction Consideration and Multiple Analysis. Capitalink utilized the
transaction consideration and multiple analysis for the purposes of reviewing
and comparing the Transaction's implied consideration and resulting multiples.
Capitalink estimated the implied consideration, by multiplying the closing
share price of ALTM common stock as of April 22, 2002 with the assumed
4,882,109 shares issuable to Hencie on a fully diluted basis. The implied
consideration of $4.3 million was utilized in calculating the implied
transaction multiples based on Hencie's (i) last twelve months ("LTM")
revenues, (ii) current fiscal year ("CFY") revenues, (iii) CFY earnings before
interest, tax, depreciation and amortization ("EBITDA"), and (iv) total
assets. Such multiples were based on (x) total invested capital (total common
shares outstanding multiplied by current market share price plus total
interest bearing debt) ("TIC"), and (y) enterprise value (TIC less cash and
marketable securities).
Implied Consideration ($000) $4,296
Implied Multiples:
TIC as a multiple of:
LTM Revenue 0.7x
CFY Revenue 0.4
CFY EBITDA 2.2
Total Assets 5.2
Enterprise Value as a multiple of:
LTM Revenue 0.7
CFY Revenue 0.4
CFY EBITDA 2.2
Total Assets 5.2
Capitalink also reviewed and calculated a sensitivity analysis on the above
information based upon the prior day closing and trailing five, ten, twenty,
thirty day, three month, six month and prior year average closing prices.
Selected Comparable Company Analysis. Capitalink utilized the selected
comparable company analysis, a market valuation approach, for the purposes of
compiling guideline or comparable company statistics. Such value measures are
developed based on trading prices of securities of companies with similar
business models to each of the Company and Hencie.
The selected comparable company analysis involved the review of publicly
traded companies deemed comparable to ALTM (the "ALTM Comparable Companies")
or Hencie (the "Hencie Comparable Companies", collectively, the "Comparable
Companies"). Capitalink reviewed certain financial information relating to
each of ALTM or Hencie in the context of the corresponding financial
information, ratios and public market multiples for the respective Comparable
Companies. No company used in Capitalink's analysis was deemed to be
identical or directly comparable to ALTM or Hencie, as the case may be;
accordingly, Capitalink considered the multiples for the Comparable Companies,
taken as a whole, to be more relevant than the multiples of any single
company.
Capitalink selected the ALTM Comparable Companies by examining companies that
were similar to that of ALTM's Marketing Advertising division (the "ALTM
Marketing Comparable Companies") and Logistics Advertising division (the "ALTM
Logistics Comparable Companies"). Capitalink believes that, although the
business model of ALTM is unique and different than that of the ALTM
Comparable Companies in that it acts as a broker, the underlying risk and
fortunes of the Company follows that of the corresponding industry sectors.
The ALTM Marketing Comparable Companies utilized were: Outlook Group Corp.,
24/7 Real Media, L90, Inc., Obie Media Corp., CoActive Marketing Group, and
BrandEra.Com, Inc. The ALTM Logistics Comparable Companies utilized were:
Dynamex, Inc., Smithway Motor Xpress Corp., CD&L, Inc., BOYD Bros.
Transportation, Cannon Express, Inc., and US 1 Industries, Inc.
The Hencie Comparable Companies utilized were: Ciber, Inc., Answerthink, Inc.,
Carreker Corp., Technology Solutions Co., RWD Technologies, Inc.,
Intelligroup, Inc., Braun Consulting, Inc., Inforte Corp., Zamba Corp., and
eLinear, Inc.
Based on publicly available information, Capitalink reviewed the following
financial information for each of the Comparable Companies: enterprise value,
market value, TIC, revenue, common equity, net tangible common equity, and
selected financial ratios. The review and analysis for ALTM and Hencie were
evaluated as of April 22, 2002. Subsequent to such review and based on the
respective market value, TIC or enterprise value as of April 22, 2002,
Capitalink calculated and compared the following multiples for each of the
Comparable Companies.
ALTM Marketing Comparable Companies
-----------------------------------
ALTM High Mean Median Low
-----------------------------------------
Market Value as Multiple of:
LTM Revenue 0.2x 0.7x 0.4x 0.3x 0.2x
Common Equity 0.8 1.9 1.1 1.1 0.3
Net Tangible Equity 1.2 4.1 2.0 1.8 0.4
TIC as Multiple of:
LTM Revenue 0.2 0.7 0.5 0.4 0.3
LTM EBITDA na 3.7 3.6 3.6 3.5
Total Assets 0.4 0.9 0.5 0.4 0.3
Enterprise Value as Multiple of:
LTM Revenue na 0.6 0.3 0.3 0.1
LTM EBITDA na 3.4 3.3 3.3 3.3
Total Assets na 0.9 0.4 0.4 0.1
ALTM Logistics Comparable Companies
-----------------------------------
ALTM High Mean Median Low
-----------------------------------------
Market Value as Multiple of:
LTM Revenue 0.2x 0.1x 0.1x 0.1x 0.0x
Common Equity 0.8 1.1 0.5 0.3 0.3
Net Tangible Equity 1.2 0.4 0.4 0.4 0.4
TIC as Multiple of:
LTM Revenue 0.2 0.6 0.3 0.3 0.2
LTM EBITDA na 9.1 6.0 5.5 3.3
Total Assets 0.4 1.0 0.7 0.6 0.5
Enterprise Value as Multiple of:
LTM Revenue na 0.6 0.3 0.3 0.1
LTM EBITDA na 8.9 5.8 5.3 3.1
Total Assets na 1.0 0.7 0.6 0.4
Capitalink noted that as of April 22, 2002, ALTM was trading at the low end of
both the multiples of the ALTM Marketing Comparable Companies and the ALTM
Logistics Comparable Companies with respect to revenues. Further, ALTM was
trading toward the mean with respect to equity and total assets. Capitalink
believes ALTM to be fairly priced relative the ALTM Comparable Companies,
given the Company's lower relative historical and projected profit margins and
expected growth. EBITDA multiples for ALTM could not be calculated as it was
negative for the LTM period.
Hencie Comparable Companies
---------------------------
Transaction High Mean Median Low
-------------------------------------------
TIC as Multiple of:
LTM Revenue 0.7x 2.8x 1.1x 1.0x 0.2x
CFY Revenue 0.4 3.6 1.6 1.5 0.5
LTM EBITDA na 20.9 15.2 18.1 3.8
Total Assets 5.2 4.2 1.5 1.3 0.4
Enterprise Value as Multiple of:
LTM Revenue 0.7 1.9 0.8 0.7 0.1
CFY Revenue 0.4 1.7 1.1 1.0 0.3
LTM EBITDA na 18.0 13.4 16.1 3.4
Total Assets 5.2 4.1 1.2 0.9 0.1
Capitalink noted that the multiples implied by the Transaction were between
the low and mean of the Hencie Comparable Companies multiples.
As noted above, none of the Comparable Companies are identical or directly
comparable to ALTM or Hencie, as the case may be. Accordingly, Capitalink
considered the multiples for such companies, taken as a whole, to be more
relevant than the multiples of any single company. Further, an analysis of
publicly traded comparable companies is not mathematical; rather, it involves
complex consideration and judgments concerning differences in financial and
operating characteristics of the Comparable Companies and other factors that
could affect the public trading of the Comparable Companies.
Selected Comparable Transaction Analysis. Capitalink utilized the selected
comparable transaction analysis, a market valuation approach that is based on
an examination of transactions involving companies, which are deemed similar
to the Company or Hencie, for the purpose of compiling guidelines and
statistics based on the pricing in such transactions.
The selected comparable transaction analysis involves a review of merger,
acquisition and asset purchase transactions involving companies that are in
related industries to either ALTM's Marketing division (the "ALTM Marketing
Comparable Transactions"), ALTM's Logistics division (the "ALTM Logistics
Comparable Transactions") or Hencie (the "Hencie Comparable Transactions")
(collectively the "Comparable Transactions"). Information is typically not
disclosed for transactions involving a private seller, even when the buyer is
a public company, unless the acquisition is deemed to be "material" for the
acquiror. As a result, the selected comparable transaction analysis is
limited to transactions involving the acquisition of a public company, or
substantially all of its assets, or the acquisition of a large private
company, or substantially all of its assets, by a public company.
The ALTM Marketing Comparable Transactions include twelve transactions since
January 2000, as follows:
Acquiror Target
TS&B holdings, Inc. Media Max, Inc.
iVillage, Inc. Promotions.Com
Cossette Communication Post & Partners
Cross Media Marketing Corp LifeMinders, Inc.
Warburg Pincus & Co. Cobalt Group, Inc.
UAL Corp My Points.com, Inc.
Kupper Parker Communications Christopher Thomas Associate Inc.
SEAT Pagine Gialle SpA NetCreations, Inc.
ValueClick, Inc. ClickAgents.Com
Schroder Venture Partners, Inc CTN Media Group, Inc.
Delyn Group PLC Publishers Communication Group
Greenstone Roberts Kupper Parker Communications
The ALTM Logistics Comparable Transactions include six transactions since
January 2000, as follows:
Acquiror Target
Corporate Vision, Inc. Stony's Trucking Co, Inc.
Union Pacific Corp. Motor Cargo Industries, Inc.
Advantage Management Group Kenan Transport Co.
Private Group KLLM Transport Services, Inc.
Professional Transportation Group Dedicated Transport Services, Inc.
Alternate Marketing Networks, Inc. Total Logistics, Inc.
The Hencie Comparable Transactions include nineteen transactions since January
2001, as follows:
Acquirer Target
Divine, Inc. Viant Corp
Creative Technology 3Dlabs, Inc.
MCSI, Inc. Zengine, Inc.
The Titan Corporation BTG, Inc.
Divine, Inc. Eprise Corporation
Cerner Corp Dynamic Healthcare Technologies
Aquient, Inc. Renaissance Worldwide
Scient Corp iXL Enterprises
SAP AG Commerce One, Inc.
Xcare Net, Inc. Healthcare.com Corp.
CIBER, Inc. ARIS Corp.
TRW, Inc. Network Six, Inc.
Burntsand, Inc. Primix Solutions, Inc.
CIBER, Inc. PSINET, Inc.
Keane, Inc. Metro Information Services
CasinoBuilders.com Computer Support Associates
eXcelon Corporation C-Bridge Internet Solutions
Dimension Data Proxicom
Based on the information disclosed in the each of the Comparable Transactions,
Capitalink calculated and compared (i) enterprise value and (ii) price paid as
multiples of (x) revenue, (y) total assets, and (z) net tangible equity. The
multiples were derived by dividing either the total enterprise value (price
paid for equity plus interest bearing debt less cash and marketable
securities), or the price paid, by items (x), (y), and (z) above.
ALTM Marketing Comparable Transactions
---------------------------------------
High Mean Median Low
---------------------------------------
Market Value as Multiple of:
Net Tangible Equity 19.7x 5.5x 1.9x 0.8x
Enterprise Value as Multiple of:
LTM Revenue 1.5 0.7 0.5 0.0
Total Assets 6.5 6.1 6.1 5.7
Net Tangible Equity 3.1 0.9 0.4 0.1
ALTM Logistics Comparable Transactions
--------------------------------------
High Mean Median Low
--------------------------------------
Market Value as Multiple of:
Net Tangible Equity 13.6x 4.1x 1.8x 0.5x
Enterprise Value as Multiple of:
LTM Revenue 0.7 0.4 0.4 0.1
Total Assets 5.6 3.8 3.9 2.3
Net Tangible Equity 1.8 1.0 0.8 0.5
Hencie Comparable Transactions
--------------------------------------
Transaction High Mean Median Low
---------------------------------------------------
Market Value as Multiple of:
Net Tangible Equity na 98.7x 31.3x 19.3x 0.8x
Enterprise Value as Multiple of:
LTM Revenue 0.7 2.0 0.9 0.7 0.1
LTM EBITDA na 56.3 18.5 10.9 5.6
Net Tangible Equity 5.2 2.2 1.0 0.9 0.2
Capitalink noted that the multiples implied by the Transaction were between
the low and mean of the Hencie Comparable Transactions multiples.
None of the Comparable Transactions are identical to the Transaction.
Accordingly, an analysis of comparable business combinations is not
mathematical; rather it involves complex considerations and judgements
concerning differences in financial and operating characteristics of the
Comparable Transactions and other factors that could affect the respective
acquisition values.
Discounted Cash Flow Analysis. Capitalink utilized the discounted cash flow
analysis, an income valuation approach, for the purposes of valuing both the
Company's and Hencie's equity based on the present value of their respective
future cash flow.
Capitalink performed several discounted cash flow analyses for both ALTM and
Hencie, aggregating (x) the present value of projected unlevered free cash
flows over a forecast period (the "Forecast Period"), with (y) the present
value of the terminal value at the end of such period. Unlevered free cash
flow represents the amount of cash generated and available for principal,
interest and dividend payments after providing for ongoing business
operations. The Forecast Period is comprised of the nine months ended December
31, 2002, and the fiscal years ending December 31, 2003 through 2005, and such
projections were derived from historical financial information and operating
data provided by ALTM and Hencie.
In determining the present value of ALTM's equity, Capitalink utilized
discount rates ranging from 8.5% to 21.0%. This range was based on a derived
weighted average cost of capital of 15.4%, based on the riskless and risk-
based rates, in addition to company-specific risks.
Capitalink determined a range of terminal values for ALTM by applying a range
of multiples to each of the Company's fiscal year 2005 projected revenue and
EBITDA, of which the average was 0.25x and 5.9x, respectively. In addition,
Capitalink presented a perpetual growth scenario whereby ranges of perpetual
growth rates (of which the average was 3.6%) were applied to the Company's
fiscal year 2005 free cash flows in order to determine a terminal value,
rather than multiples. In each of the scenarios discussed, ALTM's equity
value was derived by reducing the enterprise values by net debt of ($1.3)
million, consisting solely of cash.
Capitalink found that the midpoint of the ranges of equity values for ALTM
with respect to each scenario was $5.0 million using the revenue multiple,
$3.6 million using the EBITDA multiple, and $3.3 million under the perpetual
growth scenario.
In determining the present value of Hencie's equity, Capitalink utilized
discount rates ranging from 37.0% to 49.5%. This range was based on a derived
weighted average cost of capital of 43.3%, based on the riskless and risk-
based rates, in addition to company-specific risks.
Capitalink determined a range of terminal values for Hencie by applying a
range of multiples to each of Hencie's fiscal year 2005 projected revenue and
EBITDA, of which the average was 0.75x and 5.9x, respectively. In addition,
Capitalink presented a perpetual growth scenario whereby ranges of perpetual
growth rates (of which the average was 15.6%) were applied to Hencie's fiscal
year 2005 free cash flows in order to determine a terminal value, rather than
multiples. In each of the scenarios discussed, Hencie's equity value was
derived by reducing the enterprise values by estimated net debt of $2.2
million as of March 31, 2002 (consisting of $2.2 million in interest bearing
debt, and an approximately $132,000 bank overdraft).
Capitalink found that the midpoint of the ranges of equity values for Hencie
with respect to each scenario was $8.8 million using the revenue multiple,
$13.3 million using the EBITDA multiple, and $7.0 million under the perpetual
growth scenario. Capitalink noted that the equity values based on the
discounted cash flow analysis were higher than that of the implied
consideration in the Transaction based on ALTM's April 22, 2002 share price.
Pro Forma Contribution Analysis. Capitalink utilized the pro forma
contribution analysis to determine the relative historical and future
contributions to the combined entity.
Capitalink analyzed the contribution of each of the Company and Hencie to the
pro forma combined entity's revenue, EBITDA, total assets and net worth for
the historical years 2000 and 2001, and the projected fiscal years 2002 and
2003. Capitalink noted that although ALTM contributes the significant share
of revenue, total assets and net worth in 2000 and 2001, the contribution of
Hencie's EBITDA to the combined entity is projected to far exceed that of ALTM
in 2002 and 2003.
Accretion/Dilution Analysis. Capitalink undertook an accretion/dilution
analysis to determine whether the pro forma combined results would be
accretive to ALTM's earnings.
Capitalink analyzed the estimated pro forma results of the combined company
for 2002 and 2003, to determine whether the Transaction would be accretive to
the ALTM earnings. The analysis indicated that the Transaction will be
accretive to ALTM's earnings, yielding an increase in earnings per share of
$0.18 and $0.23 for the fiscal years 2002 and 2003, respectively.
Capitalink performed a variety of financial and comparative analyses for the
purpose of rendering its opinion. While the foregoing summary describes all
material analyses and factors reviewed by Capitalink, it does not purport to
be a complete description of the presentations by Capitalink to the Board of
Directors or the analyses performed by Capitalink in arriving at its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Capitalink believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create a misleading view
of the processes underlying the opinion. In addition, Capitalink may have
given various analyses more or less weight that other analyses, and may have
deemed various assumptions more or less probable than other assumptions, so
that the range of valuations resulting from any particular analysis described
above should not be taken to be Capitalink's view of the actual value of ALTM
or Hencie. In performing its analyses, Capitalink made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of ALTM and Hencie.
The analyses performed by Capitalink are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to
the value of businesses or assets do not purport to be appraisals or to
necessarily reflect the prices at which businesses or assets may actually be
sold. The analyses performed were prepared solely as part of Capitalink's
analysis of the fairness of the Common Stock Exchange Ratio, from a financial
point of view, to the shareholders of ALTM, and were provided to the Board
solely in connection with the delivery of the Capitalink opinion. Further,
Capitalink does not express any opinion as to the underlying valuation or
future performance of the Company or the price at which its securities would
trade at any time in the future.
Capitalink has received a fee in connection with the preparation and issuance
of the opinion. In addition, the Company has agreed to indemnify Capitalink
for certain liabilities that may arise out of the rendering this opinion.
Richard Salpeter, the father of Scott Salpeter, a principal of Capitalink, is
retained by Hencie and is the beneficial owner of shares of Hencie common
stock (which will be exchanged for shares of ALTM common stock pursuant to the
Common Stock Exchange Ratio). Further, Richard Salpeter will receive a fee in
connection with the closing of the Transaction. Scott Salpeter disclaims
ownership interest in both such shares of Hencie common stock and such fee to
be received by Richard Salpeter.
Appraisal Rights
Alternate Marketing shareholders who do not vote in favor of the
Transaction may exercise dissenter's rights under Michigan law and obtain the
fair market value of their shares instead of remaining as a shareholder in New
ALTM. You must comply with all terms of the statute to effectively exercise
your rights. Such compliance involves, among other things, written
notification to Alternate Marketing and certain further actions within
prescribed periods. A copy of the relevant statute is included in this proxy
statement as Appendix E.
CERTAIN TERMS OF THE AGREEMENT
The following is a summary of the material provisions of the Transaction
Agreement. The following is not a complete statement of all provisions of the
Transaction Agreement. Alternate Marketing urges you to read the entire
Transaction Agreement, which is attached as Appendix A to this proxy
statement. This summary is qualified in its entirety by reference to the full
text of the Transaction Agreement.
Consideration to be Received in the Transaction
Under the terms of the Transaction Agreement, New ALTM will issue shares
of common stock upon the completion of the Transaction to Hencie shareholders
on the day immediately preceding the completion of the Transaction. New ALTM
will issue one (1) share of New ALTM common stock for each 3.563 shares of
Hencie common stock.
No fraction of a share of New ALTM common stock will be issued pursuant
to the Transaction Agreement. Instead, Hencie and ALTM shareholders who would
otherwise be entitled to one-half or more of a share of New ALTM common stock
will receive a whole share.
If at any time during the period between April 9, 2002 and the completion
of the Transaction any change in the outstanding shares of capital stock of
Alternate Marketing or Hencie occurs as a result of any capital
reorganization, reclassification, stock split, readjustment of shares, or any
stock dividend with a record date during such period, the number of shares of
Alternate Marketing common stock to be issued in the Transaction will be
adjusted equitably.
The shares of New ALTM common stock to be issued in the Transaction will
be validly issued, fully paid, non-assessable and free of all encumbrances
(other than encumbrances created by Hencie shareholders) and will rank pari
passu in all respects with the Alternate Marketing common stock held by you.
Treatment of Hencie Options and Warrants
Hencie shares issued upon the exercise of options prior to the close of
business on the business day before the date of the First Closing will be
treated as outstanding for purposes of the exchange ratio. Hencie shares will
not be issued upon the exercise of options after that time. Instead, New ALTM
shares will be issued in accordance with the Common Stock Exchange Ratio.
Some of the outstanding options to purchase Hencie shares will accelerate
and become fully vested and will be exercisable for a limited period of time
after the First Closing.
New ALTM will replace unexpired unexercised Hencie options with
equivalent options to purchase shares of New ALTM common stock on the terms
contained in the applicable Hencie option plan, or, where no such terms are
provided, on a similar basis. The number of shares of New ALTM common stock
subject to a replacement option will be adjusted by the Common Stock Exchange
Ratio to equal one New ALTM share for each 3.563 Hencie shares to which the
replaced option related, rounding to the nearest whole number of shares of New
ALTM common stock. The exercise price of each replacement option will be
calculated by applying the Common Stock Exchange Ratio accordingly by
reference to the exercise price of the replaced option.
Covenants
Conduct of the Parties Prior to the Closing of the Transaction
Alternate Marketing and Hencie have agreed under the Transaction
Agreement that, until the completion of the Transaction, except as otherwise
contemplated by the Transaction Agreement, required by law, or with the
written consent of the other party, they will, and will cause their affiliates
to, conduct their respective businesses in the ordinary course of business in
accordance with past practices and in compliance with applicable law and their
respective material agreements, and to use all reasonable efforts to preserve
their respective business organizations and maintain all material third-party
relationships.
In addition, Alternate Marketing and Hencie have agreed that, until the
completion of the Transaction, they will:
-Provide the other and its representatives, during normal business hours,
or otherwise if reasonably requested, and upon reasonable advance notice,
access to all of the properties, assets, agreements, commitments, books,
records, accounts, tax returns, correspondence and documents.
-Give all notices to third parties which may be necessary in connection
with the Transaction Agreement, the Related Agreements and the consummation of
the Transaction; use commercially reasonable efforts to obtain all federal,
state and foreign governmental and quasi-governmental approvals, consents,
permits, authorizations and orders necessary for the consummation of the
Transaction; and use commercially reasonable efforts to obtain all consents
and authorizations of any governmental or quasi-governmental authorities or
other Persons necessary for the consummation of the Transaction.
-Not take (and cause their subsidiaries not to take), nor enter into any
agreements to take, any of the following actions except in each such case in
connection with the Transaction Agreement or in the ordinary course of
business (except for the ALTM Companies Permitted Transactions, including the
Return of Capital Distribution): (a) dispose of, or acquire, any material
assets, (b) incur any indebtedness for borrowed money, (c) pay any
discretionary bonuses (other than bonuses already accrued on the date hereof)
to, or alter the compensation or benefit of, any director, officer or
employee, (d) enter into any transaction or agreement with an affiliate or
associate of ALTM or Hencie, respectively, (e) institute any reduction in
force, (f) close any office, (g) take any action not in the ordinary course of
business that shall knowingly cause the ALTM's or Hencie's representations or
warranties contained in the Transaction Agreement to be untrue or incorrect in
any material respect, (h) omit any commercially reasonable action that ALTM
and/or Hencie would take in the ordinary course of business, which omission
shall knowingly cause ALTM's or Hencie's representations or warranties
contained in the Transaction Agreement to be untrue or incorrect in any
material respect, (i) declare or pay any dividends on, or make any
distribution or payment with respect to, or redeem or repurchase, any shares
of capital stock of ALTM or Hencie or take any other actions which would have
a similar effect or (j) issue any shares of capital stock of ALTM or Hencie or
its subsidiaries (other than pursuant to existing employee benefit plans) or
any securities, options, warrants, rights, calls, commitments, plans,
contracts or other agreements of any character whatsoever which provide for
the purchase, issuance or transfer of any shares of capital stock, or any
securities that are convertible into or exchangeable for any shares of capital
stock or increase or decrease, change into or exchange any such shares for a
different number or kind of shares or securities through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar change in capitalization.
In addition, Hencie shall use commercially reasonable efforts to minimize
any amounts owed to the Internal Revenue Service in connection with the IRS
Obligation, and at the First Closing, New ALTM shall pay any and all amounts
in connection with the IRS Obligation out of the funds of New ALTM.
In addition, Hencie shall use commercially reasonable efforts to arrange
for the payment of Hencie's ten (10) largest accounts payable.
ALTM has covenanted that except for the ALTM Companies Permitted
Transactions, it shall not solicit, discuss, negotiate or agree to (i) the
sale of any stock or other equity interest in any of the ALTM Companies,
except to Hencie, (ii) a merger, consolidation or combination of any material
asset or business, or any share exchange, of any of the ALTM Companies, except
to Hencie or (iii) a sale or disposition of any of the business or operating
assets of ALTM; provided however that ALTM may disclose the existence of any
competing transaction as required by applicable law and prior to the time of
the annual meeting, and may furnish information to, or enter into discussions
or negotiations with any person in connection with an unsolicited bona fide
written proposal from such person.
In the event ALTM receives a Superior Proposal, nothing contained in the
Transaction Agreement prohibits the board of directors of ALTM from
withdrawing its recommendation of the Transaction to ALTM shareholders and
recommending such Superior Proposal to the ALTM shareholders if ALTM provides
Hencie with at least four Business Days prior written notice of its intent to
withdraw its recommendation and in the event that during such four Business
Days Hencie makes a counter proposal to such Superior Proposal, the board of
directors of ALTM, in good faith, taking into account the advice of its
independent financial advisors, determines that such counter proposal is not
at least as favorable to the shareholders of Alternate Marketing as the
Superior Proposal.
In the event that, pursuant to the Transaction Agreement, Alternate
Marketing elects to engage in discussions or negotiations with, or furnish any
information to a third person in connection with and/or regarding a Superior
Proposal, Alternate Marketing must provide written notice to Hencie at least
two (2) Business Days prior to engaging in such discussions or negotiations or
furnishing such information.
Additional Covenants
Alternate Marketing and Hencie also have each agreed, subject to the
terms of the Transaction Agreement, to recommend to their respective
shareholders the approval of the Transaction Agreement and the Transaction,
and they have each agreed to use their reasonable efforts to solicit such
approval. The Majority Hencie Shareholders have approved the Transaction.
Tax-Free Transaction
Alternate Marketing and Hencie have each agreed to use their reasonable
efforts to cause the Transaction to qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, and not to
take any action or fail to take any action that would or would reasonably be
likely to adversely affect the treatment of the Transactions as such a tax-
free reorganization.
Representations and Warranties
The Transaction Agreement includes customary representations and
warranties made by Alternate Marketing and Hencie relating to the respective
businesses of the parties. The representations and warranties of Alternate
Marketing and Hencie expire upon the completion of the Transaction.
The representations made by each party include, among others,
representations relating to:
-its due organization, good standing and subsidiaries;
-its authority to own its assets and carry on its business;
-its capital structure;
-the accuracy of all its filings with the SEC in the case of Alternate
Marketing;
-the completeness, preparation and compliance of its financial statements
in accordance with generally accepted accounting principles;
-the absence of certain changes in its business since December 31, 2001;
-its intellectual property and other assets;
-tax, insurance, employee and environmental matters;
-the enforceability of its material contracts;
-absence of material litigation; and
-the authority to enter into the Transaction Agreement and to consummate
the Transaction.
Conditions to the Transaction
Neither Alternate Marketing nor Hencie will be obligated to complete the
Transaction unless the conditions set forth in the Transaction Agreement are
satisfied or waived. These conditions include, among other things:
-Each of the representations and warranties of ALTM and Hencie contained
in the Transaction Agreement shall be true and correct as of the date when
made and on and as of the First Closing.
-Each of ALTM and Hencie shall have fully performed and complied with all
covenants and conditions required by the Transaction Agreement to be performed
or complied with by them or it on or before the First Closing.
-The parties to the Related Agreements shall have executed and delivered
the Related Agreements to which each is a party.
-Holders of no more than 100,000 shares of ALTM common stock shall seek
dissenter's rights in connection with the reincorporation merger.
-The Transaction Agreement shall have been approved and adopted by the
requisite vote of the ALTM shareholders under applicable corporate law and
rules of the Nasdaq SmallCap Market.
-ALTM shall enter into a new employment agreement with Mr. Khan, and
addenda to the existing employment agreements of Mr. Miller and Ms. Smith and
shall grant the Khan Option to Mr. Khan.
-Legal counsel shall have confirmed that the issuance and exchange of New
ALTM common stock and the issuance of New ALTM common stock to the Majority
Hencie Shareholders in exchange for Hencie common stock shall qualify as a
"tax free" reorganization as contemplated by the applicable provisions of the
Code.
-Immediately prior to the First Closing, ALTM, when taken as a whole,
shall have Total Assets of at least $6.2 million.
-Immediately prior to the First Closing, ALTM, when taken as a whole,
shall have Net Liquid Assets of at least $2.5 million.
-The Capitalink fairness opinion shall not have been withdrawn or
modified to indicate that the value to be received by the ALTM Shareholders is
materially less than as originally indicated in the fairness opinion.
-New ALTM shall pay the IRS Obligation in full at the First Closing.
See "CERTAIN TERMS OF THE TRANSACTION AGREEMENT Conditions to the
Transaction."
Termination
The Transaction Agreement may be terminated as follows:
By the mutual consent of the parties to the Transaction Agreement:
-By Hencie, if:
(i) any of ALTM's representations or warranties contained in the
Transaction Agreement is untrue or incorrect and the basis for such untruth or
incorrectness has caused, or is reasonably likely to cause, ALTM, Hencie or
the Majority Hencie Shareholders to suffer a Material Adverse Effect,
(ii) ALTM fails to perform any of its covenants or agreements contained
in the Transaction Agreement and such breach has caused, or is reasonably
likely to cause, ALTM, Hencie or the Majority Hencie Shareholders to suffer a
Material Adverse Effect,
(iii) any of the conditions of the consummation by Hencie and the
Majority Hencie Shareholders of the Transaction in the Transaction Agreement
shall have become impossible to satisfy other than as a result of the action
or inaction of Hencie or the Majority Hencie Shareholders, or
(iv) for any reason ALTM fails to mail notice of the ALTM shareholders'
meeting on or before June 23, 2002 or hold such meeting on or before July 23,
2002.
-By ALTM, if:
(i) any of Hencie's representations or warranties contained in the
Transaction Agreement is untrue or incorrect and the basis for such untruth or
incorrectness has caused, or is reasonably likely to cause, ALTM or Hencie to
suffer a Material Adverse Effect,
(ii) Hencie fails to perform any of its covenants or agreement contained
in the Transaction Agreement and such breach has caused, or is reasonably
likely to cause, ALTM or Hencie to suffer a Material Adverse Effect,
(iii) any of the conditions to the consummation by ALTM of the
Transaction shall have become impossible to satisfy other than as a result of
the action or inaction of ALTM, or
(iv) ALTM accepts a Superior Proposal, after compliance with the
procedures set forth in the Transaction Agreement, and after ALTM reimburses
Hencie for actual attorneys fees and pays to Hencie liquidated damages of
$50,000 (collectively, the "Superior Proposal Breakup Fees"); provided,
however, that the Superior Proposal Breakup Fees shall not exceed $150,000.
-By ALTM or Hencie, if the First Closing shall not have occurred by
August 1, 2002, provided, however, that such date shall be extended by the
number of days, if any, to cure any matter that is the subject of a default
notice.
-By ALTM or Hencie if any permanent injunction or other order of a court
or other competent authority preventing the consummation of the Transaction
shall have become final and non-appealable.
If either party discovers that (i) any of other party's representations
or warranties is untrue or incorrect when made and the basis for such untruth
or incorrectness has caused, or is reasonably likely to cause, either party to
suffer a Material Adverse Effect, (ii) the other party has failed to perform
any of its covenants or agreements in any material respect, and such Breach
has caused, or is reasonably likely to cause either party to suffer a Material
Adverse Effect, (iii) any of the conditions to either party's obligations to
consummate the Transaction has become impossible to satisfy, then the non-
defaulting party may deliver a notice of such event to the defaulting party,
specifying the factual basis therefor in reasonable detail. The defaulting
party shall have the right to cure any matter referred to in clause (i) or
(ii) within fifteen (15) Business Days following the date of delivery of such
notice. Upon such notice, and in the case of clause (i) or (ii) above, upon
the failure of the defaulting party to cure such default, the non-defaulting
party may terminate the Transaction Agreement by giving written notice of
termination to the defaulting party.
Upon termination of the Transaction Agreement, no party shall have any
liability or continuing obligation to another party arising out of the
Transaction Agreement except out of actions taken in connection with the
Transaction Agreement, except that the indemnification provision shall survive
termination. Notwithstanding the foregoing, termination shall not relieve any
party from its liability for the Breach, prior to termination, of its
covenants or agreements or representations or warranties.
Expenses
Generally, each party will bear all legal, accounting and other costs and
expenses incurred by it in connection with the Transaction Agreement and the
consummation of the Transaction.
Registration Rights Agreement
As a condition to the completion of the Transaction, New ALTM is required
to enter into a registration rights agreement among New ALTM, the officers,
directors and ten percent shareholders of Alternate Marketing and certain
shareholders of Hencie. The form of the registration rights agreement is
attached as an exhibit to the Transaction Agreement.
Under the registration rights agreement, the officers, directors and ten
percent shareholders of Alternate Marketing and certain shareholders of Hencie
will be granted "piggyback" registration rights on any registration initiated
by New ALTM on its behalf or on behalf of others solely for cash.
In underwritten offerings, the managing underwriter may reduce the number
of shares proposed to be registered pro rata in the manner and with the
priority set forth in the registration rights agreements.
New ALTM will bear the registration expenses (other than underwriting
discounts, commissions and fees attributable to the sale of registrable
securities and expenses of counsel of the holders of registrable securities)
of all registrations under the registration rights agreement.
Employment Agreements
As a condition to the completion of the Transaction, New ALTM is required
to enter into a new employment agreement with Mr. Khan and addenda to the
existing employment agreements of Mr. Miller and Ms. Smith.
New ALTM will enter into an Employment Agreement with Adil Khan effective
upon the date of First Closing, to serve as Vice Chairman of the board of
directors and Chief Executive Officer of New ALTM at a base salary of $177,000
for the first year, $193,000 for the second year and $206,600 for the third
year. Until the settlement agreement with the Edge Technology Group, Inc. has
been fully satisfied, New ALTM shall defer any compensation, including but not
limited to the base salary and annual incentive payments, payable to Mr. Khan
in excess of Two Hundred Thousand Dollars ($200,000). Mr. Khan's salary is
subject to annual review by the Compensation Committee of the board of
directors. The term of the Agreement is for a period of three (3) years. In
accordance with the terms of the Agreement, Mr. Khan is also entitled to an
annual bonus payment in the discretion of the Compensation Committee. The
Agreement also provides for disability and life insurance and standard
employee benefits consistent with established benefit plans of New ALTM
(including retirement plans, life insurance plans, medical plans and dental
plans). In addition to the standard benefits provided by New ALTM, New ALTM
has agreed to provide Adil Khan with a term life insurance policy in the face
amount of $2,000,000 ($1,000,000 for the benefit of New ALTM and $1,000,000
for the benefit of Mr. Khan's designated beneficiaries). The Agreement is
terminable by New ALTM in the event Mr. Khan becomes disabled or for "cause",
including (i) commission of an act of material fraud, misappropriation, or
dishonesty or other material willful act of similar magnitude against the best
interests of New ALTM, (ii) intentional material falsification of a written
document delivered to New ALTM, or on behalf of New ALTM, (iii), habitual
insobriety, (iv) addiction to non-prescription drugs, or (v) continued gross
malfeasance in connection with Mr. Khan's duties for 30 days after written
notice describing such gross malfeasance. In addition, Mr. Khan may terminate
the Agreement within 12 months of a change of control (including any merger,
consolidation, sale of substantially all of the assets of New ALTM,
dissolution or liquidation of New ALTM, and similar events). If Mr. Khan is
terminated on account of a breach by New ALTM, Mr. Khan is entitled to a
severance payment equal to two times the amount of Mr. Khan's annual base
salary as of the date of termination plus the annual average bonus paid to Mr.
Khan in the most recent two years (or such shorter period as such bonus shall
have actually been paid).
New ALTM will enter into a second addendum to the employment agreement of
Phillip D. Miller to serve as Chairman of the Board of the board of directors
of New ALTM and as President of Alternate Postal Direct, Inc. and National
Home Delivery, Inc., wholly-owned subsidiaries of New ALTM (the "Subsidiary
Companies"). Mr. Miller's base salary is $195,000 per year, with annual
increases equal to the then existing salary multiplied by the average increase
in the cost of living index published by the United States Department of Labor
for the 12 month period preceding such date. Mr. Miller is also entitled to
bonuses up to 30% of his base salary based on attainment of performance
criteria specified by the compensation committee of the board of directors of
New ALTM. Mr. Miller will serve as President of the Subsidiary Companies
(which term will automatically renew for successive one year periods until New
ALTM gives Mr. Miller 6 months written notice of non-renewal prior to the end
of any applicable term) through December 31, 2002, as Chairman of the board of
directors of New ALTM through June 30, 2003, and will serve on the board of
directors of New ALTM through June 30, 2005. The agreement is terminable
without an expressed reason by either Mr. Miller or New ALTM by giving three
months prior written notice. In addition, New ALTM may terminate the
agreement effective immediately for "cause", including neglect of duty,
malfeasance or continued failure to perform specified duties within 30 days
after having received a written warning. If the agreement is terminated by
New ALTM without an expressed reason, New ALTM is required to pay Mr. Miller,
as severance, within 60 days of the effective termination date, an amount
equal to 12 months base salary at the salary rate then in effect, plus accrued
bonuses, if any. In the event of termination of the agreement by Mr. Miller,
New ALTM is required to pay salary accrued through the date of termination,
excluding any accrued bonuses. The agreement further provides that Mr. Miller
shall not, directly or indirectly, for a period of two years after termination
(or one year if terminated by New ALTM without cause), engage in any similar
business, solicit customers of New ALTM, or solicit employees of New ALTM in
competition with New ALTM in the United States. The agreement also provides
for disability and life insurance at New ALTM's expense. New ALTM also agrees
to pay for the cost of dependent coverage included in New ALTM's group health
insurance plan.
New ALTM will enter into a first addendum to the employment agreement of
Sandra J. Smith to serve as the Controller of New ALTM, the Chief Financial
Officer of each of New ALTM's subsidiaries, and as Vice President-Operations
of Alternate Postal Direct, Inc. Ms. Smith's agreement provides for a term
expiring in December 2003 at a base salary of $110,000 per year, with an
annual increase equal to the then-existing salary multiplied by the average
monthly increase in the cost of living index published by the United States
Department of Labor for the 12-month period preceding each anniversary date.
The agreement is terminable without an expressed reason by New ALTM provided
that it pay salary and benefits for the unexpired portion of the term. In
addition, New ALTM may terminate the agreement effective immediately for
"cause". The agreement further provides that Ms. Smith shall not, directly or
indirectly, for a period of one year after termination, directly or
indirectly, engage or be employed by, any business or entity that is in
competition with New ALTM, without the prior written consent of New ALTM's
CEO. Subject to the successful closing of the Transaction, the agreement
provides for the grant of 50,000 shares of New ALTM stock to Ms. Smith
pursuant to the amended and restated 1995 Long Term Incentive and Stock Option
Plan.
Khan Option
As a condition to the completion of the transaction, and as a condition
to Mr. Khan's acceptance of employment with New ALTM, New ALTM is required to
deliver to Adil Khan an option to purchase shares of New ALTM common stock,
which option shall provide, among other things:
-That Adil Khan shall have the option to purchase a number of shares of
New ALTM common stock equal to 3% of New ALTM's outstanding common stock on a
fully-diluted basis (as if the option shares had been exercised) at an
exercise price equal to the market price of New ALTM common stock as of the
First Closing.
-The option shall vest in the event Adjusted EBITDA of Hencie for the
fiscal year ended December 31, 2002, exceeds the Adjusted EBITDA of Hencie for
the fiscal year ended December 31, 2001.
-That the option shall become immediately vested and exercisable and all
conditions to its exercise shall be waived and terminated in the event (i)
Adil Khan shall be terminated or constructively terminated, in each case
without Cause (as defined in the Khan Employment Agreement), as Chief
Executive Officer of New ALTM, (ii) if Adil Khan shall become Disabled (as
defined in the Khan Employment Agreement), or (iii) upon a Change of Control
(as defined in the Khan Employment Agreement).
The Khan Option has been unanimously approved by our board of directors,
including all independent directors (as defined in the rules of the Nasdaq
Stock Market, Inc.)
Management of New ALTM After the Transaction
As of the effective date of the reincorporation in Delaware and
acquisition of the Hencie Stock from the Hencie Stockholders, all current
directors on the Alternate Marketing board as of the date of the Transaction
Agreement will resign. The New ALTM board will be classified into three (3)
classes, as nearly equal in number as possible. Class I will hold office
initially for a term expiring at the annual meeting of shareholders in 2003;
Class II will hold office initially for a term expiring at the annual meeting
of shareholders in 2004; and Class III will hold office initially for a term
expiring at the annual meeting of shareholders in 2005. At each annual
meeting following this initial classification and election, the successors to
the class of directors whose terms expire at that meeting will be elected for
a term of office to expire at the third succeeding annual meeting after their
election, and until their successors have been duly elected and qualified.
The New ALTM board will consist of the following persons:
Name Class Term Expires
Phillip D. Miller (Chairman) III 2005
Thomas Hiatt II 2004
Brad Moore I 2003
Adil Khan III 2005
Khan nominee II 2004
The executive officers of New ALTM will be elected by the New ALTM board.
It is currently anticipated that the following persons will serve as executive
officers of new ALTM:
Name Title
Phillip D. Miller Chairman of New ALTM and president of two subsidiaries
Alternate Postal Direct, Inc. and National Home
Delivery, Inc. dba USSPI.
Adil Khan CEO of New ALTM and president of new subsidiary Hencie,
Inc.
Randall Reiners CFO of New ALTM and CFO of new subsidiary Hencie, Inc.
Sandra J. Smith Controller of New ALTM and VP/CFO of two subsidiaries
Alternate Postal Direct, Inc. and National Home
Delivery, Inc. dba USSPI.
Frank O'Connell VP of National Home Delivery, Inc. dba USSPI.
David Bender COO of Hencie, Inc.
William Warren VP of Business Development of Hencie, Inc.
David Bevins VP of Technology of Hencie, Inc.
Biographical information about Messrs. Miller, Hiatt, and Moore, all of
whom are currently members of the board of directors of ALTM, is contained in
this proxy statement under the caption "ELECTION OF DIRECTORS." Biographical
information about Mr. Khan and the other executive officers of New ALTM is set
forth below.
Mr. Adil Khan
Mr. Khan, founder of Hencie, graduated from Virginia Tech University in 1986
with a degree in Computer Engineering. His professional experience includes
many different areas in the software services industry, including designing
software and technical infrastructure, marketing software services, building
strategic alliances, and managing day-to-day operations. He also attended an
Executive MBA program at the University of Texas at Dallas and completed his
education in marketing and management.
Mr. Khan started his career as a software engineer in 1986 designing mission-
critical software systems based on UNIX and Oracle databases. In 1989, he co-
founded Champ Computer Systems to create and market vertical software for the
healthcare and retail industries, including the popular product, Register-
Mate, to retail stores. In 1994, Champ Computer Systems was sold to Polyphase
Corporation.
In 1995, Mr. Khan entered the enterprise software market and provided senior
consulting services at MCI Systemhouse (now EDS) and Oracle Corporation.
President and CEO of New ALTM and President of Hencie Mr. Adil Khan See
biographical information above.
Chief Financial Officer of New ALTM and Hencie Mr. Randall Reiners
Mr. Reiners joined Hencie on May 1, 2000 as Chief Financial Officer. He brings
17 years of financial management experience with both large companies and
growth companies.
From 1984 to 1990, his positions with Malone and Hyde, parent of Auto Zone,
Inc., ranged from Group Financial Analyst to Assistant CFO and Head of
Strategic Planning. From 1991 to 1992, he served as head of B2B market
development for Ryder Systems Information Services; CEO Electronic Marketplace
Growth Group from 1992 to 1995; CEO of Online Telecommunications Services from
1995 to 1997; President, Vice President, Finance for Internet Pictures
Corporation from 1997 to 1998; Senior Vice President, CFO, Treasurer and
Director of Tempur-Pedic, Inc. from 1998 to 1999; and CFO of Cimtek Commerce,
parent of Medicalbuyer.com from 1999 to 2000.
Mr. Reiners completed his Masters of Management degree at the J.L. Kellogg
Graduate School of Management of Northwestern University in 1984 and received
his Bachelor of Science degree in Business Administration from the University
of Missouri in 1982.
Chief Operating Officer of Hencie Mr. David Bender
Mr. Bender was promoted to Chief Operating Officer of Hencie in 2001.
Previously, he directed Hencie's Delivery organization, managing client
relationships and upselling. Mr. Bender has more than 26 years of experience
in information technology, with more than 23 years of management experience.
During a 19-year tenure at Kerr-McGee from 1981 to 2000, Mr. Bender rose from
Assistant Controller to Manager of the Exploration and Production Information
Technology Division, a 30-person group. He delivered multiple projects
budgeted at more than $25 million that included more than 120 project
participants. Prior to Kerr-McGee, Mr. Bender worked for Gulf Oil Corporation
as Supervisor, Internal EDP Auditor, Project Manager, and Analyst/Programmer
from 1974 to 1981. Mr. Bender joined Hencie in May 2000.
Mr. Bender has a Bachelor of Science in Mathematics from Davidson College and
a Master of Business Administration, Accounting degree from the University of
Houston.
Controller of New ALTM, Chief Financial Officer of Alternate Postal Direct,
Inc., and National Home Delivery, Inc., and Vice President-Operations of
Alternate Postal Direct, Inc. - Sandra J. Smith. For biographical information
see "MANAGEMENT OF ALTERNATE MARKETING".
President of Alternate Postal Direct, Inc. and National Home Delivery, Inc. -
Phillip D. Miller. For biographical information see "ELECTION OF DIRECTORS"
Vice President - Business Development Mr. William Warren
Mr. Warren has 19 years of experience in the information technology industry,
including over 16 years in sales, sales management, business development, and
client relationship management roles. Mr. Warren began his career at IBM where
he held positions in sales and marketing in the National Accounts Division
with responsibility for accounts in the oil and gas industry from 1982 to
1989. He later served as I/S Business Manager for Legent Corporation from 1990
to 1992; Account Executive for 4th Dimension Software/EMC Corporation from
1992 to 1994; and Regional Account Executive/Team Leader for Aonix/Thomson
Software Products from 1994 to 1996. Most recently, Mr. Warren served as
Regional Director, Business Development for the Southwestern Region of
Cambridge Technology Partners, a major consulting and systems implementation
firm from 1996 to 2001. He was responsible for managing the sales, field
marketing and client management functions for this $40M region. Mr. Warren has
direct experience in a variety of practice areas including enterprise resource
planning (ERP), client relationship management (CRM), e-business and web
development, custom application development, strategy services, and business
process re-engineering.
Mr. Warren holds a Master of Business Administration degree in Marketing from
the University of North Texas with emphasis in strategic market planning. He
joined Hencie in April 2001.
Chief Technology Officer Mr. David Bevins
Mr. Bevins is a founding partner of Hencie. He has more than 25 years of
information technology experience as a project manager, consultant, and
instructor. Since 1996 he has consulted with Hencie and held the positions of
Vice-President and Chief Technology Officer. He has a master's degree in
Mathematics/Computer Science from the University of Toledo and a master's
degree in Management and Administrative Sciences from the University of Texas
at Dallas.
Since 1987, Mr. Bevins has built more than 15 years of business experience in
the energy industry doing projects for Phillips Petroleum, Phillips Coal,
Caltex Petroleum, David P. Cook and Associates' Oil and Gas Economics, Enron,
Texaco, Conoco, Kerr-McGee, Houston Lighting and Power, Arco Oil and Gas,
Kansas City Power and Light, Mobil, Hartford Lighting and Illuminating,
Schlumberger, Atlas Energy, and Cypress Minerals. Mr. Bevins was also a
Professor of Computer Science at Mount Vernon Nazarene College from 1989 to
1990.
Indemnification and Escrow
The Transaction Agreement provides that, for a period of 24 months from
the First Closing Date, Adil Khan ("Khan") shall indemnify and hold New ALTM
and its affiliates, and their respective officers, directors, employees,
agents and controlling persons (each an "Indemnified Party") harmless from any
losses and/or expenses incurred by an Indemnified Party arising out of (a) any
breach by Hencie or its Affiliates or any Majority Hencie Shareholders of any
representation or warranty of the Hencie Companies or any Majority Hencie
Shareholders, (b) any claim asserted by any third party that, assuming the
truth thereof, would constitute a breach by any of the Hencie Companies or any
Majority Hencie Shareholders of any representation or warranty of any of the
Hencie Companies or any Majority Hencie Shareholders, (c) liability for any
and all amounts owed by Hencie to the Internal Revenue Service in connection
with the IRS Obligation in excess of $978,158, or (d) any claim asserted by
Hencie.Com, Inc., a Delaware corporation, or Mr. Paul A. Tanner, an affiliate
of Hencie.Com, Inc.
Khan shall promptly pay to any Indemnified Party the amount of any and
all Established Losses in cash equal to the amount of such losses within
thirty Business Days after such losses have been established in accordance
with the Transaction Agreement. If such cash payment is not made by Khan
within such thirty day period, then the escrow agent under the Indemnification
Escrow Agreement shall pay to such Indemnified Party an amount of Escrow
Shares having the market value, determined as of the date such loss has been
established, equal to such established loss; provided, however, that if New
ALTM receives an opinion from its legal counsel to the effect that payment of
an established loss must be paid in New ALTM common stock in order to avoid
jeopardizing the status of the Transaction Agreement or the transactions
contemplated thereby as a "tax free" reorganization, then the payment of the
Established Losses shall be made with an amount of Escrow Shares having a
market value, determined as of the date such losses shall have been
established, equal to such established losses in lieu of cash.
Khan's indemnification obligations under the Transaction Agreement are
subject to the following limitations and/or requirements:
-Khan is not liable for any amount of losses until aggregate losses
exceed $150,000. At such time as the aggregate losses to be indemnified
exceed $150,000, the Indemnified Party shall be entitled to the full amount of
its established losses, including, without limitation the amount of the
$150,000 deductible.
-Khan is not liable to indemnify in excess of $750,000.
-In addition to the deductible on indemnification described above, the
duty and obligation of Khan to provide indemnification is limited to the net
amount of any losses actually sustained or paid. In determining the net
amount of any such losses, the actual amount of losses shall be the amount of
losses in excess of any insurance coverage and shall be reduced by the
aggregate value of any assets, properties and rights, including without
limitation, proceeds of insurance, claims, cross-claims, counter-claims and
the like which are received or reasonably expected to be received by any ALTM
Indemnified Party and the tax benefits realized or reasonably expected to be
realized by such party as a direct result of the losses. In addition,
determining the ALTM losses for which indemnification is required, the amount
of indemnification shall be increased to include any tax liability incurred or
reasonably expected to be incurred by a party as a result of such
indemnification. In the event that Mr. Khan has insufficient shares of New
ALTM to fully fund both the New ALTM indemnification escrow and the Edge
Settlement escrow, the New ALTM indemnification escrow will bear the entire
deficiency.
OTHER MATTERS RELATED TO THE TRANSACTION
Federal Income Tax Consequences
The Transaction is expected to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. No gain or loss will
be recognized for U.S. federal income tax purposes by Alternate Marketing,
Hencie or the Alternate Marketing shareholders as a result of the Transaction.
The holding period and basis for federal income tax purposes of New ALTM stock
received in the Transaction will be the same as the holding period and basis
for the Alternate Marketing or Hencie stock surrendered in the Transaction.
The discussion does not purport to be a complete analysis or description
of all potential federal income tax consequences of the Transaction. This
discussion does not address tax consequences with respect to individual
circumstances. This discussion does not address any non-income tax or any
foreign, state or local tax consequences of the Transaction. You should
consult with your tax advisor if you have any questions about the particular
United States federal, state, local or foreign income or other tax
consequences associated with the Transaction.
Alternate Marketing and Hencie expect that the Transaction will be
treated as a tax-free reorganization within the meaning of the Code, and that
no income, gain or loss will be recognized by Alternate Marketing or its
shareholders as a result of the consummation of the Transaction other than
shareholders exercising appraisal rights under Michigan law or receiving cash
for fractional shares. Such shareholders may be subject to state and federal
taxation as described below. It is a condition to the consummation of the
Transaction that Hencie and Alternate Marketing shall have received an opinion
of counsel to the effect that, among other things, the Transaction qualifies
as a reorganization under Section 368(a) of the Code (the "Federal Tax
Opinion"). Unlike a ruling from the Internal Revenue Service (the "Service"),
an opinion is not binding on the Service and there can be no assurance, and
none is hereby given, that the Service will not take a position contrary to
one or more of the positions reflected therein or that the Federal Tax Opinion
will be upheld by the courts if challenged by the Service.
Under currently existing provisions of the Code, the Treasury Regulations
promulgated thereunder, applicable judicial decisions and administrative
rulings, all of which are subject to change, the federal income tax
consequences described below are expected to arise in connection with the
exercise of dissenters' rights. Due to the complexity of the Code, the
following discussion is limited to the material federal income tax aspects of
the Transaction for a shareholder of Alternate Marketing who properly
exercises his or her appraisal rights under Michigan law, who is a citizen or
resident of the United States and who, on the date of disposition of such
holder's shares of common stock, holds such shares as a capital asset. The
general tax principles discussed below are subject to retroactive changes that
may result from subsequent amendments to the Code or subsequent judicial or
administrative decisions. The following discussion does not address the
material federal income tax aspects of the Transaction for any shareholder who
is not an individual who is a citizen or resident of the United States. The
following discussion does not address potential foreign, state, local and
other tax consequences, nor does it address taxpayers subject to special
treatment under the federal income tax laws, such as life insurance companies,
tax-exempt organizations, S corporations, trusts, and taxpayers subject to the
alternative minimum tax. In addition, the following discussion may not apply
to dissenting shareholders who acquired their shares upon exercise of employee
stock options or otherwise as compensation. Neither Alternate Marketing nor
Hencie has requested the Service to rule or issue an opinion on the federal
income tax consequences of the Transaction. ALL SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, FOREIGN, STATE, AND
LOCAL TAX CONSEQUENCES OF THE DISPOSITION OF THEIR SHARES IN THE MERGER.
For federal income tax purposes, the exchange of common stock for cash
pursuant to exercise of appraisal rights will be treated as a distribution in
redemption of common stock from the holder of the common stock, subject to the
provisions of Section 302 of the Code. Under the rules of Section 302, the
determination of whether the exchange of common stock for cash pursuant to the
exercise of appraisal rights has the effect of a distribution of a dividend
will be made, on a shareholder by shareholder basis, by comparing the
proportionate, percentage interest of a shareholder after the Transaction with
the proportionate, percentage interest of such shareholder before such
transaction. In making this comparison, there must be taken into account (a)
any other shares of common stock actually owned by such shareholder, and (b)
any such shares considered to be owned by such shareholder by reason of the
constructive ownership rules set forth in Section 318 of the Code. These
constructive ownership rules apply in certain specified circumstances to
attribute ownership of shares of a corporation from the shareholder actually
owning the shares, whether an individual, trust, partnership or corporation,
to certain members of such individual's family or to certain other
individuals, trusts, partnerships or corporations. Under these rules, a
shareholder is also considered to own any shares with respect to which the
shareholder holds stock options.
Under applicable Service guidelines, such a redemption involving a holder
of a minority interest in Alternate Marketing whose relative stock interest in
Alternate Marketing is minimal, who exercises no control over the affairs of
Alternate Marketing and who experiences a reduction in the shareholder's
proportionate interest in Alternate Marketing, both directly and by
application of the foregoing constructive ownership rules, generally will not
be deemed to have received a distribution treated as a dividend under the
rules set forth in Section 302(b)(1) of the Code. Accordingly, the federal
income tax consequences to shareholders who exercise appraisal rights will
generally be as follows:
(a) Assuming that the shares of common stock exchanged for cash are
capital assets in the hands of the shareholder at the effective date of the
Transaction (and the exchange does not result in a distribution of a dividend
under Section 302 of the Code), such shareholder may recognize a capital gain
or loss by reason of the consummation of the Transaction.
(b) The capital gain or loss, if any, will be long-term with respect to
the shares of common stock held for more than twelve (12) months, and short-
term with respect to such shares held for 12 months or less.
(c) The amount of capital gain or loss to be recognized by the
shareholder will be measured by the difference between the amount of cash
received in connection with the exercise of appraisal rights and such
shareholder's adjusted tax basis in the common stock.
(d) An individual's long-term capital gain is subject to federal income
tax at a maximum rate of 20% (or 10% for individuals in the 10% or 15% income
tax brackets). A maximum capital gain tax rate of 18% (or 8% for individuals
in the 10% or 15% income tax brackets) applies to individuals that acquire and
hold a capital asset for more than five years; provided, however, that the
lower 18% capital gain tax rate only applies to individuals that acquired the
capital asset after December 31, 2000. An individual's short-term capital
gain is subject to federal income tax up to the maximum federal individual tax
rate as provided in the Code, while any capital loss can be offset only
against other capital gain plus $3,000 of other income in any tax year ($1,500
in the case of a married individual filing a separate return). Capital losses
in excess of these limits can be carried forward to future years.
Cash payments will be reported to the extent required by the Code to
shareholders and the Service. Such amounts will ordinarily not be subject to
withholding of U.S. federal income tax. However, backup withholding of such
tax at a rate equal to the fourth lowest rate of tax applicable under Section
1(c) of the Code or 30% in calendar years 2002 and 2003 may apply to certain
dissenting shareholders by reason of the events specified in Section 3406 of
the Code and the Treasury Regulations promulgated thereunder, which include
failure of a shareholder to supply the Company or its agent with such
shareholder's taxpayer identification number. Accordingly, shareholders (or
other payees) will be asked to provide a taxpayer identification number
(social security number in the case of an individual, or employer
identification number in the case of other shareholders) on a Form W-9 and to
certify that such number is correct. Withholding may also apply to
shareholders who are otherwise exempt from such withholding, such as a foreign
person, if such person fails to properly document its status as an exempt
recipient. Each shareholder and, if applicable, each other payee, should
complete and sign a Form W-9 to provide the information and certification
necessary to avoid backup withholding, unless an applicable exemption exists
and is proved in a manner satisfactory to Alternate Marketing.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL
INFORMATION ONLY. EACH HOLDER OF SHARES OF COMMON STOCK IS URGED TO CONSULT
HIS OR HER OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
SUCH SHAREHOLDER OF THE TRANSACTION (INCLUDING THE APPLICABILITY AND EFFECT OF
FOREIGN, STATE, LOCAL AND OTHER TAX LAWS).
Accounting Treatment
The Transaction will be accounted for as a business combination under the
purchase method of accounting. The total consideration paid to Hencie
shareholders will be in common stock only, such that immediately after the
Transaction, Hencie shareholders will own 49% of the outstanding common stock
of New ALTM. The total purchase price is an amount equal to the sum of the
fair value of the 4,854,470 shares, valued at $4,854,470, of New ALTM common
stock issued to Hencie shareholders and direct costs of the acquisition in the
amount of $150,000. Fair value of the shares is determined using an average
of Alternate Marketing stock price as traded on Nasdaq just prior to and just
after the announcement of the Transaction. The resulting goodwill, equal to
the amount of the total purchase price in excess of the fair value of net
assets acquired, will not be subject to amortization expense upon New ALTM's
adoption of SFAS 142, "Goodwill and Other Intangible Assets", but will be
subject to periodic testing for impairment.
Certain Federal Securities Law Consequences
As a result, no registration statement concerning the issuance of New
ALTM common stock in the Transaction has been or will be filed with the SEC,
other than as may be required after the completion of the Transaction pursuant
to the registration rights agreements. Shares of Alternate Marketing common
stock issued to a New ALTM person deemed to be an "affiliate" (as the term is
defined in SEC Rule 144), will not be freely tradable under the Securities
Act. Those affiliates may not resell the shares of New ALTM common stock that
they acquire in the Transaction except pursuant to:
-an effective registration statement under the Securities Act covering
such shares;
-the resale provisions of SEC Rule 145; or
-any other applicable exemption from the registration requirements of the
Securities Act.
PROPOSAL TO CHANGE ALTERNATE MARKETING'S JURISDICTION OF
INCORPORATION TO DELAWARE
General
Subject to shareholder approval of the Transaction and the satisfaction
of the conditions to closing, our board of directors has recommended that
Alternate Marketing merge with and into New ALTM, our wholly owned subsidiary
recently organized solely for this purpose. In addition, to changing our
state of incorporation from Michigan to Delaware, the merger will also have
the effect of increasing our authorized capital stock from 14 million shares
of common stock and 2 million shares of preferred stock to 50 million shares
of common stock and 5 million shares of preferred stock.
Our corporate actions are currently governed by the Michigan Business
Corporations Act ("MBCA"), our Restated Articles of Incorporation of ALTM and
the Bylaws of ALTM. If the Transaction is approved by our shareholders and
all conditions to closing are satisfied or waived, Alternate Marketing will
merge with and into New ALTM. After the reincorporation merger, our corporate
affairs will be governed by the Delaware General Corporation Law ("DGCL"), the
Amended and Restated Certificate of Incorporation of New ALTM, which is
attached to this proxy statement as Appendix C, and the Bylaws of New ALTM,
which are attached to this proxy statement as Appendix D. Upon the effective
date of the reincorporation merger, New ALTM will own all of the assets and
will be responsible for all of the liabilities of Alternate Marketing.
Under the terms of the reincorporation merger, each outstanding share of
our common stock will be converted into one share of New ALTM common stock,
$.01 par value per share. Outstanding options, warrants and other rights to
purchase shares of our common stock will be converted into options, warrants
and other rights to purchase the same number of shares New ALTM common stock.
Each stock certificate representing issued and outstanding shares of our
common stock will continue to represent the same number of shares of common
stock of New ALTM. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO EXCHANGE
THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF NEW ALTM.
However, shareholders may exchange their certificates if they so choose.
Our common stock is currently listed for trading on the Nasdaq SmallCap
Market System. After the merger, subject to maintenance of Nasdaq listing
requirements, New ALTM common stock will continue to be traded on the Nasdaq
SmallCap System without interruption, under the symbol "ALTM."
The reincorporation merger has been unanimously approved by our board of
directors. Under Michigan law and in accordance with our Restated Articles of
Incorporation, the merger must also be approved by the affirmative vote of the
holders of a majority of the outstanding shares of common stock entitled to
vote at the annual meeting. Because the reincorporation merger is an integral
part of the Transaction (which also requires the approval of the board of
directors and the holders of the majority of outstanding common stock entitled
to vote at the annual meeting) we have not presented the reincorporation
merger as a separate proposal. If you object to the reincorporation merger,
you should vote against the Transaction.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED
TRANSACTION. A BROKER NON-VOTE IS THE SAME AS THAT OF A VOTE AGAINST THE
TRANSACTION.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED TRANSACTION WILL CONSTITUTE
APPROVAL OF THE REINCORPORATION MERGER, AND THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND BYLAWS OF NEW ALTM.
Principal Reasons for the Proposed Reincorporation
Prominence, Predictability and Flexibility of Delaware Law
For many years Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has been a
leader in adopting, construing and implementing comprehensive, flexible
corporate laws responsive to the legal and business needs of corporations
organized under its laws. Many corporations have chosen Delaware initially as
a state of incorporation or have subsequently changed corporate domicile to
Delaware in a manner similar to that proposed here. Because of Delaware's
prominence as the state of incorporation for many major corporations, both the
legislature and courts in Delaware have demonstrated an ability and a
willingness to act quickly and effectively to meet changing business needs.
The Delaware courts have developed considerable expertise in dealing with
corporate issues, and a substantial body of case law has developed construing
Delaware law and establishing public policies with respect to corporate legal
affairs.
Increased Ability to Attract and Retain Qualified Directors
Both Michigan and Delaware law permit a corporation to include a
provision in its certificate of incorporation which reduces or limits the
monetary liability of directors for breaches of fiduciary duty in certain
circumstances. The increasing frequency of claims and litigation directed
against directors and officers has greatly expanded the risks facing directors
and officers of corporations in exercising their respective duties. The
amount of time and money required to respond to such claims and to defend such
litigation can be substantial. It is our desire to reduce these risks to our
directors and officers and to limit situations in which monetary damages can
be recovered against directors so that we may continue to attract and retain
qualified directors who otherwise might be unwilling to serve because of the
risks involved. We believe that, in general, Delaware law provides greater
protection to directors than Michigan law and that Delaware case law regarding
a corporation's ability to limit director liability is more developed and
provides more guidance than Michigan law.
Well Established Principles of Corporate Governance
There is substantial judicial precedent in the Delaware courts as to the
legal principles applicable to measures that may be taken by a corporation and
as to the conduct of the board such as under the business judgment rule and
other standards. We believe that our shareholders will benefit from the well
established principles of corporate governance that Delaware law affords.
Interests of our Directors and Officers in this Proposal
Our directors may benefit from reincorporation in Delaware. Delaware law
may increase our directors' abilities to defeat a takeover bid, may increase
the range of permitted indemnification for directors, may limit the
shareholders' ability to remove directors, and may reduce directors' potential
personal liability, among other things. Our board, in approving the
transaction may have different interests than our shareholders. Our board,
our management and their affiliated shareholders may have different interests
than our unaffiliated shareholders.
Anti-takeover Implications
Delaware, like many other states, permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to unsolicited
takeover attempts through amendment of the corporate charter or bylaws or
otherwise. In the discharge of its fiduciary obligations to its shareholders,
the board has evaluated our vulnerability to potential unsolicited bidders.
In the course of such evaluation, the board has considered or may consider in
the future certain defensive strategies designed to enhance the board's
ability to negotiate with an unsolicited bidder. These strategies include,
but are not limited to, the adoption of a severance plan for its management
and key employees which becomes effective upon the occurrence of a change in
control, the establishment of a staggered board of directors, the elimination
of the right to remove a director other than for cause, and the authorization
of preferred stock, the rights and preferences of which may be determined by
the board. Several of these measures will be adopted as part of the
Transaction. It should also be noted that the establishment of a classified
board of directors also can be undertaken under MBCA.
Section 203 of the DGCL restricts certain "business combinations" with
"interested stockholders" for three years following the date that a person
becomes an "interested stockholder," unless the board approves the business
combination.
The Charters and Bylaws of Alternate Marketing and New ALTM
This discussion of the Amended and Restated Certificate of Incorporation
and Bylaws of New ALTM is qualified by reference to Appendices C and D to this
proxy statement, respectively.
Authorized Capital Stock
Our Restated Articles of Incorporation currently authorize us to issue up
to 14 million shares of common stock, no par value, and 2 million shares of
preferred stock, no par value. No shares of preferred stock have been issued.
The Amended and Restated Certificate of Incorporation of New ALTM
provides for 50 million authorized shares of common stock, par value $.01, and
5 million shares of preferred stock, par value $.01. The shares of New ALTM
common stock have all of the rights, preferences and limitations of shares of
common stock stated in the DGCL. The board of directors of New ALTM may
provide by resolution for series of preferred shares and with respect to each
such series to fix the number, rights and preferences of shares to be included
in such series.
Monetary Liability of Directors
The Restated Articles of Incorporation of Alternate Marketing and the
Amended and Restated Certificate of Incorporation of New ALTM both provide for
the elimination of personal monetary liability of directors to the fullest
extent permissible under the law of the respective states.
Power to Call Special Shareholders' Meetings
Under the MBCA, a special meeting of shareholders may be called by the
board, or by officers, directors or shareholders as provided in the bylaws.
Under the Bylaws of New ALTM, a special meeting of shareholders may be called
only by the President, the Chairman of the board of directors, by vote of a
majority of the authorized directors (i.e., all director positions authorized,
including vacant board seats), or by shareholders who hold at least 25% of the
voting power of the outstanding voting stock. New ALTM believes that limiting
the power to call a special meeting is a prudent corporate governance measure.
It is intended to prevent an inappropriately small number of shareholders from
prematurely forcing shareholder consideration of a proposal over the
opposition of the board of directors by calling a special shareholders'
meeting before the time that the Board believes such consideration to be
appropriate or the next annual meeting. Special meetings involve substantial
expense and diversion of board and management time which can be detrimental
for an enterprise the size of New ALTM.
Actions By Written Consent of Shareholders
Under Michigan and Delaware law, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Both Michigan and Delaware
law permit a corporation to eliminate such action by written consent in its
charter or bylaws. The Restated Articles of Alternate Marketing and the
Amended and Restated Certificate of Incorporation of New ALTM eliminate
shareholder action by written consent.
Approval of Certain Business Combinations
Delaware. Under Section 203 of the DGCL, a Delaware corporation is
prohibited from engaging in a "business combination" with an "interested
stockholder" for three years following the date that such person or entity
becomes an "interested stockholder." With certain exceptions, an "interested
stockholder" is a person or entity who or which owns, individually or with or
through certain other persons or entities, fifteen percent (15%) or more of
the corporation's outstanding voting stock (including any rights to acquire
stock pursuant to an option, warrant, agreement, arrangement or understanding,
or upon the exercise of conversion or exchange rights, and stock with respect
to which the person has voting rights only). The three-year moratorium
imposed by Section 203 on business combinations does not apply if (i) prior to
the date on which such stockholder becomes an interested stockholder the board
of directors of the subject corporation approves either the business
combination or the transaction that resulted in the person or entity becoming
an interested stockholder; (ii) upon consummation of the transaction that made
him or her an interested stockholder, the interested stockholder owns at least
eighty-five percent (85%) of the corporation's voting stock outstanding at the
time the transaction commenced (excluding for purposes of determining the
number of shares outstanding those shares owned by directors who are also
officers of the subject corporation and shares held by employee stock plans
that do not give employee participants the right to decide confidentially
whether to accept a tender or exchange offer); or (iii) on or after the date
such person or entity becomes an interested stockholder, the board of
directors approves the business combination and it is also approved at a
stockholder meeting by sixty-six and two-thirds percent (66 2/3%) of the
outstanding voting stock not owned by the interested stockholder. A Delaware
corporation to which Section 203 applies may elect not to be governed by
Section 203. New ALTM has not opted out of Section 203.
Michigan. Chapter 7A of the MBCA provides that business combinations
between a Michigan corporation which is subject to Chapter 7A and a beneficial
owner of 10% or more of the voting power of such corporation require an
advisory statement from the board of directors and the approval by an
affirmative vote of at least 90% of the votes of each class of stock entitled
to be cast and at least two-thirds of the votes of each class of stock
entitled to be cast other than shares owned by such 10% owner. Such
requirements will not apply if (i) the corporation's board of directors
approves the transaction prior to the time that the 10% owner becomes such, or
(ii) the transaction satisfies certain fairness standards, certain other
conditions are met and the 10% owner has been such for at least five years.
Chapter 7B of the MBCA provides that "control shares" of a corporation
subject to Chapter 7B that are acquired in a control share acquisition have no
voting rights except as granted by the corporation. "Control shares" are
shares that, when added to all shares previously owned by a shareholder,
increase such shareholder's voting stock to 20% or more, 33 1/3% or more, or a
majority of the outstanding voting power of the corporation. A control share
acquisition must be approved by a majority of the votes cast by the
corporation's shareholders entitled to vote, excluding shares owned by the
acquirer and certain officers and directors.
Classified Board of Directors
A classified board of directors is one on which a certain number, but not
all, of the directors are elected on a rotating basis each year.
Both Delaware and Michigan law permit, but do not require, a classified
board of directors, pursuant to which the directors can be divided into as
many as three classes with staggered terms of office, with only one class of
directors standing for election each year.
Michigan. Under the MBCA, a corporation generally may provide for a
classified board of directors by adopting amendments to its articles of
incorporation and bylaws, which amendments must be approved by the
shareholders. The Company's Articles of Incorporation and Bylaws do not
currently provide for a classified board.
Delaware. Delaware law permits, but does not require, a classified board
of directors, pursuant to which the directors can be divided into as many as
three (3) classes with staggered terms of office, with only one class of
directors standing for election each year. The New ALTM Amended and Restated
Certificate of Incorporation and Bylaws provide for a classified board of
directors with three (3) classes of directors.
The Amended and Restated Certificate of Incorporation of New ALTM
provides that directors will be classified into three (3) classes, as nearly
equal in number as possible. Class I will hold office initially for a term
expiring at the annual meeting of shareholders in 2003; Class II will hold
office initially for a term expiring at the annual meeting of shareholders in
2004; and Class III will hold office initially for a term expiring at the
annual meeting of shareholders in 2005. At each annual meeting following this
initial classification and election, the successors to the class of directors
whose terms expire at that meeting will be elected for a term of office to
expire at the third succeeding annual meeting after their election, and until
their successors have been duly elected and qualified. As a result, only one
class of directors will be elected at each annual meeting of shareholders,
with the remaining classes continuing their two-year and three-year terms
until the successors are duly elected and qualified or until earlier
resignation, removal from office or death.
The initial directors of New ALTM and their classes will be as follows:
Name Class Term Expires In
Phillip D. Miller III 2005
Thomas Hiatt II 2004
Brad Moore I 2003
Adil Khan III 2005
Khan nominee II 2004
Advantages. Classification of directors is likely to provide the board
of directors with greater continuity and experience, since normally at least
one member of the board of directors would be in such member's second year of
service and at least one member of the board of directors would be in such
member's third year of service.
Anti-Takeover Effects. A classified board may significantly extend the
time required to elect a new majority to the board of directors. With the
classified board provision, unless directors are removed, it will require at
least two annual meetings of shareholders for a majority of shareholders that
is less than a two-thirds majority to make a change in control of the board of
directors, since only a minority of the directors will be elected at each
meeting. A significant effect of a classified board of directors may be to
deter hostile takeover attempts because an acquirer would experience delay in
replacing a majority of the directors. However, a classified board of
directors will also make it more difficult for shareholders to effect a change
in control of the board of directors, even if such change in control is sought
due to dissatisfaction with the performance of the company's directors.
The existence of a classified board may deter so-called "creeping
acquisitions" which a person or group seeks to acquire: (i) a controlling
position without paying a normal control premium to the selling shareholders;
(ii) a position sufficient to exert control over the company through a proxy
contest or otherwise; or (iii) a block of stock with a view toward attempting
to promote a sale or liquidation or a repurchase by the company of the block
at a premium, or an exchange of the block for assets of the company. Faced
with a classified board of directors, such a person or group would have to
assess carefully its ability to control or influence the company. If free of
the necessity to act in response to an immediately threatened change in
control, the board of directors can act in a more careful and deliberate
manner to make and implement appropriate business judgments in response to a
creeping acquisition.
Certain tactics, including the accumulation of substantial stock
positions as a prelude to an attempted takeover or significant corporate
restructuring, have become relatively common in corporate takeover practice.
Such tactics can be highly disruptive to a company and can result in
dissimilar treatment of a company's shareholders. A classified board
preserves the control of the incumbent board of directors and protects the
interests of shareholders, assuming that the incumbent board acts in the best
interests of the shareholders. Making directors removable only for cause and
only upon 66-2/3% vote for removal will ensure that the purpose of having a
classified board as an anti-takeover measure will not be circumvented by
removing directors without cause. Although the board of New ALTM may review
other possible anti-takeover programs, it has no present intention of
proposing additional provisions that would affect the ability of a third party
to change control of New ALTM. The classified board is not intended as an
anti-takeover measure in response to any specific current or anticipated
threat.
Disadvantages. Because of the additional time required to change control
of the board of directors, and the requirement that directors be removed only
for cause and only upon 66-2/3% vote for removal, a classified board tends to
perpetuate incumbent management. A classified board also makes it more
difficult for shareholders to change the composition of the board of directors
even if the shareholders believe such a change would be desirable. In
addition, because the classified board increases the amount of time required
for a takeover bidder to obtain control without the cooperation of the board
of directors, even if the takeover bidder were to acquire a majority of the
outstanding stock, it will tend to discourage certain tender offers, including
some tender offers that shareholders may feel would be in their best
interests.
Removal of Directors. The MBCA and the Bylaws of the Company provide
that directors may be removed by shareholders with or without cause. The
Amended and Restated Certificate of Incorporation of New ALTM provides that
any director, or the entire board of directors, may be removed from office at
any time, but only for cause and only by the affirmative vote of the holders
of at least 66-2/3% of the voting stock, voting together as a single class.
Except as may otherwise be provided by law, cause for removal exists only if
the director whose removal is proposed:
-has been convicted of a felony by a court of competent jurisdiction and
such conviction is no longer subject to direct appeal;
-has been adjudged by a court of competent jurisdiction to be liable for
gross negligence or misconduct in the performance of such director's duties to
New ALTM, and such adjudication has become final and non-appealable; or
-has missed six consecutive meetings of the board of directors.
Nominations of Director Candidates and Introduction of Business at
Shareholder Meetings. Unlike the Bylaws of the Company, the Bylaws of New
ALTM include an advance notice procedure with regard to the nomination, other
than by or at the direction of the board of directors, of candidates for
election as directors (the "Nomination Procedure") and with regard to certain
matters to be brought before an annual meeting of shareholders (the "Business
Procedure").
The Nomination Procedure provides that only persons nominated by or at
the direction of the board of directors or by a shareholder who has given
timely written notice to New ALTM prior to the annual meeting will be eligible
for election as directors. The Business Procedure provides that at an annual
meeting or at a special meeting at which directors are to be elected, and
subject to any other applicable requirements, only such business may be
conducted as has been brought before the meeting by or at the direction of the
board of directors or by a shareholder who has given timely written notice to
New ALTM of such shareholder's intention to bring such business before the
meeting. To be timely, a shareholder's notice must be delivered to New ALTM
not less than 90 or more than 120 days prior to the anniversary of the date of
the last annual meeting of shareholders (the "Anniversary Date"); provided,
however, in the event the date of the annual meeting is more than 30 days
earlier or more than 60 days later than such Anniversary Date, notice, to be
timely, must be delivered to New ALTM no more than 120 days prior to the date
of the annual meeting and no later than the later of 90 days prior to the
annual meeting or the tenth (10th) day following the day on which public
announcement is first made of the annual meeting. With respect to an election
of directors to be held at a special meeting of shareholders, such notice, to
be timely, must be delivered to New ALTM no more than 90 days prior to the
date of the special meeting and no later than the later of 60 days prior to
the date of the special meeting or the tenth (10th) day following the date on
which public announcement is first made of the special meeting.
Notwithstanding the foregoing, shareholders may not bring any business before
a special meeting, except that shareholders may submit nominations for
election of Directors if the special meeting includes election of Directors.
Under the Nomination Procedure, a shareholder's notice to New ALTM must
contain certain information about the nominee, including name, address, the
consent to be nominated and such other information as would be required to be
included in a proxy statement soliciting proxies for the election of the
proposed nominee, and certain information about the shareholder proposing to
nominate that person, including name, address, representation that the
shareholder is a holder of record of stock entitled to vote at the meeting and
a description of all arrangements or understandings between the shareholder
and each nominee. Under the Business Procedure, notice relating to the
conduct of business at the annual meeting other than the nomination of
directors must contain certain information about the business and about the
shareholder who proposes to bring the business before the meeting. If the
chairman or other officer presiding at the meeting determines that a person
was not nominated in accordance with the Nomination Procedure, such person
will not be eligible for election as a director. Nothing in the Nomination
Procedure or the Business Procedure will preclude discussion by any
shareholder of any nomination or business properly made or brought before an
annual or special meeting in accordance with the above-described procedures.
By requiring advance notice of nominations by shareholders, the
Nomination Procedure affords the board of directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the board, to inform the shareholders about such
qualifications. By requiring advance notice of proposed business, the
Business Procedure provides the board with an opportunity to inform
shareholders of any business proposed to be conducted at a meeting and the
board's position on any such proposal, enabling shareholders to better
determine whether they desire to attend the meeting or grant a proxy to the
board of directors as to the disposition of such business. Although the New
ALTM Bylaws, like the Company Bylaws, do not give the board any power to
approve or disapprove shareholder nominations for the election of directors or
any other business desired by shareholders to be conducted at a meeting, the
New ALTM Bylaws may have the effect of precluding a nomination for the
election of directors or of precluding any other business at a particular
meeting if the proper procedures are not followed. In addition, the
procedures may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of New ALTM, even if the conduct of such business
or such attempt might be deemed to be beneficial to New ALTM and its
shareholders.
Filling Vacancies on the Board of Directors. Under the MBCA and the
Bylaws of the Company, any vacancy on the board of directors may be filled by
the Board. If the number of directors is less than a quorum, a vacancy may be
filled by the unanimous written consent of the directors then in office, by
the affirmative vote of a majority of the directors at a meeting held pursuant
to notice or waivers of notice, or by a sole remaining director. In contrast,
the Bylaws of New ALTM provide that subject to the rights of the holders of
any class or series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of
directors or any vacancies of the board of directors resulting from death,
resignation, retirement, disqualification, removal from office or other reason
shall be solely filled by a majority vote of the directors then in office,
though less than a quorum, or by a sole remaining director. Directors so
chosen shall hold office for a term expiring at the annual meeting of
shareholders at which the term of office of the class to which they have been
elected expires or upon election and qualification of their successors. No
decrease in the number of authorized directors constituting the entire board
of directors shall shorten the term of any incumbent director. Under no
circumstances shall New ALTM's shareholders fill any newly created
directorships.
Under the MBCA, directors chosen to fill vacancies on a classified board
would hold office until the next shareholders' meeting at which directors were
elected, even if a new director was filling an unexpired term in a class with
more than one year remaining in its term.
Amendments to the Amended and Restated Certificate of Incorporation and
Bylaws. In addition to any vote required by law or the Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting stock, voting
together as a single class, is required to adopt any provision inconsistent
with, or to amend or repeal the following Articles of the Amended and Restated
Certificate of Incorporation: Section 4.3 (Description of Preferred Stock),
ARTICLE V (Board of Directors), ARTICLE VI (Amendment of Certification of
Incorporation), ARTICLE VII (Amendment of Bylaws), ARTICLE IX (Meetings of
Stockholders), or ARTICLE X (Indemnification).
By the affirmative vote of a majority of the directors then serving, the
board of directors of New ALTM may make, adopt, alter, amend, and repeal from
time to time the Bylaws and make from time to time new Bylaws (subject to the
right of the shareholders to adopt, alter, amend, and repeal Bylaws made by
the Board or to make new Bylaws). The adoption, amendment or repeal of the
Bylaws in a manner that would make them inconsistent with the following
Articles of the Amended and Restated Certificate of Incorporation requires the
affirmative vote of the holders of at least 66 2/3% of the voting stock,
voting together as a single class: Section 4.3 (Description of Preferred
Stock), ARTICLE V (Board of Directors), ARTICLE VI (Amendment of Certification
of Incorporation), ARTICLE VII (Amendment of Bylaws), ARTICLE IX (Meetings of
Stockholders), or ARTICLE X (Indemnification).
Indemnification and Limitation of Liability
The DGCL and the MBCA have similar provisions respecting indemnification
by a corporation of its officers, directors, employees and other agents. The
laws of both states also permit, with certain exceptions, a corporation to
adopt charter provisions eliminating the liability of a director to the
corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty. There are nonetheless certain differences between
the laws of the two states respecting indemnification and limitation of
liability which are summarized below.
Delaware. The New ALTM Amended and Restated Certificate of Incorporation
eliminates the liability of directors to the corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director to the fullest
extent permissible under Delaware law, as such law exists currently and as it
may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for: (a) any breach of the
director's duty of loyalty to the corporation or its stockholders; (b) acts or
omissions not ill good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) any transactions in which the director
received an improper personal benefit. Such limitation of liability
provisions also may not limit a director's liability for violation of, or
otherwise relieve the corporation or its directors from the necessity of
complying with federal or state securities laws, or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
Michigan. Our Restated Articles of Incorporation currently limit the
liability of directors to the corporation or its shareholders to the fullest
extent permitted by Michigan law. Directors are not personally liable to
Alternate Marketing or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for: (a) the amount of a financial
benefit received by a director to which he or she is not entitled; (b)
intentional infliction of harm on the corporation or the shareholders; (c) the
payment of unlawful dividends or unlawful stock repurchases or redemptions or
loans to directors, officers or employees contrary to Michigan law; or (d) an
intentional criminal act.
Indemnification Compared and Contrasted
Michigan law requires indemnification when the individual has defended
successfully the action on the merits while Delaware law requires
indemnification whether there has been a successful or unsuccessful defense on
the merits or otherwise. Delaware law generally permits indemnification of
expenses, including attorneys' fees, actually and reasonably incurred in the
defense or settlement of a derivative or third-party action, provided there is
a determination by a majority vote of a disinterested quorum of the directors,
by independent legal counsel or by a majority of the shareholders that the
person seeking indemnification acted in good faith and in a manner reasonably
believed to be in the best interests of the corporation. Without court
approval, however, no indemnification may be made in respect of any derivative
action in which such person is adjudged liable for negligence or misconduct in
the performance of his or her duty to the corporation. Delaware law requires
indemnification of expenses when the individual being indemnified has
successfully defended any action, claim, issue or matter therein, on the
merits or otherwise.
Expenses incurred by an officer or director in defending an action may be
paid in advance under Delaware law and Michigan law if such director or
officer undertakes to repay such amounts if it is ultimately determined that
he or she is not entitled to indemnification. In addition, the laws of both
states authorize a corporation's purchase of indemnity insurance for the
benefit of' its officers, directors, employees and agents whether or not the
corporation would have the power to indemnify against the liability covered by
the policy.
Michigan law permits a Michigan corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's articles of incorporation.
Thus, if so authorized, rights to indemnification may be provided pursuant to
agreements or bylaw provisions which make mandatory the permissive
indemnification provided by Michigan law. Our Bylaws permit indemnification
to the fullest extent allowed under Michigan Law and limit director monetary
liability to the extent permitted by Michigan law.
Delaware law also permits a Delaware corporation to provide
indemnification in excess of that provided by statute. By contrast to
Michigan law, Delaware law does not require authorizing provisions in the
certificate of incorporation and does not contain express prohibitions on
indemnification in certain circumstances. Limitations on indemnification may
be imposed by a court, however, based on principles of public policy.
Inspection of Shareholder List
Both the DGCL and the MBCA allow any shareholder to inspect the
shareholder list for a purpose reasonably related to such person's interest as
a shareholder. Delaware law provides for inspection rights as to a list of
shareholders entitled to vote at a meeting within a ten day period preceding a
shareholders' meeting for any purpose germane to the meeting. Under Michigan
law, the shareholders' list need only be prepared in time for, and be
available for inspection at, the relevant shareholders meeting.
Dividends and Repurchases of Shares
The concepts of par value, capital and surplus exist under Delaware law.
Michigan law dispenses with the concepts of par value of shares as well as
statutory definitions of capital, surplus and the like.
Delaware. Delaware law permits a corporation to declare and pay
dividends out of surplus or, if there is no surplus, out of the net profits
for the fiscal year in which the dividend is declared and/or for the preceding
fiscal year as long as the amount of capital of the corporation following the
declaration and payment of the dividend is not less than the aggregate amount
of the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. In addition, Delaware
law generally provides that a corporation may redeem or repurchase its shares
only if the capital of the corporation is not impaired and such redemption or
repurchase would not impair the capital of the corporation.
Michigan. A Michigan corporation may not pay dividends or make any other
distribution to its shareholders if, after giving effect to the payment, the
corporation would not be able to pay its debts as they become due in the usual
course of business, or the corporation's assets would be less than its
liabilities plus, unless the articles of incorporation permit otherwise, the
amount required, if the corporation were to be dissolved at the time of
distribution, to satisfy preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the distribution.
Shareholder Voting
Both Delaware and Michigan law generally require that a majority of the
shareholders of both acquiring and target corporations approve statutory
mergers.
Delaware. Delaware law does not require a shareholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise
in its certificate of incorporation) if: (a) the transaction agreement does
not amend the existing certificate of incorporation; (b) each share of stock
of the surviving corporation outstanding immediately before the effective date
of the merger is an identical outstanding share after the merger; and (c)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or
shares of common stock of the surviving corporation to be issued or delivered
under the plan of merger plus those initially issuable upon conversion of any
other shares, securities or obligations to be issued or delivered under such
plan do not exceed twenty percent (20%) of the shares of common stock of such
constituent corporation outstanding immediately prior to the effective date of
the merger.
Michigan. Michigan law contains a similar exception to its voting
requirements for reorganizations. Unless required by the articles of
incorporation or the transfer of assets is not in the usual and regular course
of business as conducted by the corporation, action by shareholders of the
surviving corporation on a plan of merger is not required if: (a) the articles
of incorporation of the surviving corporation will not differ from its
articles of incorporation before the merger; and (b) each shareholder of the
surviving corporation whose shares were outstanding immediately before the
effective date of the merger will hold the same number of shares, with
identical designations, preferences, limitations, and relative rights,
immediately after the merger.
Appraisal Rights
Under both Delaware and Michigan law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in
the transaction.
Delaware. Under Delaware law, such fair market value is determined
exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, and such appraisal rights are not
available: (a) with respect to the sale, lease or exchange of all or
substantially all of the assets of a corporation; (b) with respect to a merger
or consolidation by a corporation the shares of which are either listed on a
national securities exchange or the Nasdaq National Market or are held of
record by more 2,000 holders if such shareholders receive only shares of the
surviving corporation or shares of any other corporation that are either
listed on a national securities exchange or the Nasdaq National Market or held
of record by more than 2,000 holders, plus cash in lieu of fractional shares
of such corporation; or (c) to shareholders of a corporation surviving a
merger if no vote of the shareholders of the surviving corporation is required
to approve the merger under Delaware law.
Michigan. Michigan law excludes appraisal rights for certain corporate
actions (a) where the shares are listed on a national securities exchange or
designated as national market system securities on an interdealer quotation
system by the National Association of Securities Dealers, Inc. and (b) in
certain transactions where shareholders receive cash or shares that satisfy
the requirements of clause (a).
Dissolution
Under Michigan law, upon recommendation of the board of directors,
shareholders holding fifty percent (50%) or more of the total voting power may
authorize a corporation's dissolution. Under Delaware law, unless the board
of directors approves the proposal to dissolve, the dissolution must be
unanimously approved by all the shareholders entitled to vote thereon. If the
dissolution is initially approved by the board of directors the dissolution
may be approved by a simple majority of the outstanding shares of the
corporation's stock entitled to vote (unless the corporation's certificate of
incorporation provides for a supermajority voting requirement on dissolution).
New ALTM's Amended and Restated Certificate of Incorporation contains no such
supermajority voting requirement.
Interested Director Transactions
Under both Delaware and Michigan law, certain contracts or transactions
in which one or more of a corporation's directors has an interest are not void
or voidable because of such interest, provided that certain conditions, such
as obtaining the required approval and fulfilling the requirements of good
faith and full disclosure, are met. With certain minor exceptions, the
conditions are similar under Delaware and Michigan law.
Shareholder Derivative Suits
Under both Delaware and Michigan law, a shareholder may bring a
derivative action on behalf of the corporation only if the shareholder was a
shareholder of the corporation at the time of the transaction in question or
if his or her stock thereafter devolved upon him or her by operation of law.
Certain Federal Income Tax Consequences
Following is a summary of the federal income tax consequences resulting
from the reincorporation merger. We have not requested a private letter
ruling from the Internal Revenue Service as to the federal income tax
consequences of the merger and, thus, there can be no assurance that it will
constitute a tax free exchange for federal income tax purposes. We have been
advised, however, that the merger would constitute a tax-free reorganization
under the Internal Revenue Code of 1986, as amended and, no gain or loss will
be recognized by the holders of our common stock upon conversion of their
shares into New ALTM common stock. The basis of New ALTM common stock
received by our shareholders will be the same as the basis of their shares of
our common stock. The holding period of New ALTM's common stock will include
the period during which our common stock was held, provided that our common
stock was held as a capital asset at the time of the merger.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS
INCLUDED HEREIN FOR INFORMATIONAL PURPOSES ONLY. THE DISCUSSION IS BASED ON
CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING OR PROPOSED TREASURY
REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS.
ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT
THE CONTINUING VALIDITY OF THIS DISCUSSION. EACH SHAREHOLDER SHOULD CONSULT
HIS OR HER TAX ADVISER REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL TAX LAWS.
Securities Act Consequences
The shares of New ALTM to be issued in exchange for our shares of common
stock are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"). In that respect, New ALTM is relying on Rule 145(a)(2)
under the 1933 Act, which provides that a merger which has as its sole purpose
a change in the domicile of the corporation does not involve the sale of the
securities for purposes of the 1933 Act. After the merger, New ALTM will be a
publicly held company, its common stock will be traded, and it will file with
the SEC and provide to its shareholders the same type of information that we
have previously filed and provided. Shareholders whose stock in Alternate
Marketing is freely tradable before the merger will continue to have freely
tradable shares of New ALTM. Shareholders holding restricted securities of
Alternate Marketing will be subject to the same restrictions on transfer as
those to which their present shares of stock in Alternate Marketing are
subject. In summary, New ALTM and its shareholders will be in the same
respective positions under the federal securities laws after the merger as
were Alternate Marketing and its shareholders prior to the merger.
PROPOSAL TO AMEND 1995 OPTION PLAN
Effective July 21,1995, the Company, by resolution of its Board of
Directors and shareholders, adopted the 1995 Long-Term Incentive and Stock
Option Plan, as subsequently amended (the "Incentive Plan"), which currently
provides for the issuance of up to 500,000 shares of the Company's common
stock. No preferred stock or other securities are authorized for issuance
under the Incentive Plan. The Incentive Plan will terminate on July 20, 2005,
unless sooner terminated by action of the Board. As a result of the
reincorporation merger, the Incentive Plan will be assumed by New ALTM.
All full-time and part-time employees (including officers and directors)
of the Company and its subsidiaries and non-employee directors, consultants
and independent contractors providing services to the Company (or any of its
subsidiaries) are eligible to receive options and awards under the Incentive
Plan. The Incentive Plan is not subject to the Employee Retirement Income
Security Act of 1974.
The Incentive Plan permits the granting of awards to employees and non-
employee officers, directors and agents of the Company in the form of stock
appreciation rights, restricted stock awards and stock options. As of
December 31, 2001, approximately 40 people were entitled to participate in the
Incentive Plan. We anticipate that approximately 95 people will be eligible
to participate immediately following the Transaction. As of April 30, 2002,
533,854 options have been granted and 123,800 are outstanding. The Incentive
Plan is currently administered by the Stock Option Committee. The Incentive
Plan gives broad powers to the Committee to administer and interpret the Plan,
including the authority to select the individuals to be granted options and
rights, and to prescribe the particular form and conditions of option or right
granted. Stock options granted under the Incentive Plan may be incentive
stock options ("ISO's"), meeting the requirements of Section 422 of the
Internal Revenue Code (the "Code"), or nonqualified stock options ("NQSO's")
which do not meet the requirements of Section 422 of the Code. Incentive
stock options, in order to receive favored tax treatment under the Code, must
be exercisable for not more than 10 years and at not less than the fair market
value of the Common Stock as of the date of the grant (not more than 5 years
and not less than 110% of fair market value if the optionee is a 10% or
greater shareholder) and may be granted only to employees. All incentive and
nonqualified options outstanding as of April 30, 2002, expire by their terms
one month after the optionee ceases to be an employee of the Company (except
that other provisions apply in the event of the employee's death or
disability).
The market value of the Company's Common Stock on June 13, 2002, was
$0.86 per share.
Proposed Increase in Number of Shares.
As of December 31, 2001, 500,000 shares reserved under the Incentive Plan
were subject to 123,800 outstanding options and 7,500 options granted under
the Incentive Plan have been exercised. In general, options become
exercisable in equal installments over several years commencing with the first
anniversary of grant.
The Board anticipates that it will continue to grant options to employees
as part of its incentive program. In addition, the Board anticipates that, if
the Transaction is approved, employees of Hencie who will become eligible to
participate in the Plan may choose to exercise their options by rendering
their Hencie Stock. See "Proposed Amendments to the Incentive Plan" below.
On May 21, 2002, the Board of Directors of the Company increased the number of
shares reserved and authorized for issuance under the Incentive Plan from
500,000 to 1,500,000, subject to shareholder approval. In order to have
sufficient shares available, the Board recommends approval of the increase.
Proposed Amendments to the Incentive Plan.
On May 21, 2002, the Board of Directors of the Company adopted two
amendments to the Incentive Plan, subject to shareholder approval. First, the
Board adopted an amendment to paragraph 3(b) which eliminated reference to the
establishment of a committee of the board to administer the Incentive Plan and
replaced it with provisions authorizing the Board to adopt resolutions which
would authorize one or more employees of the Company to (i) designate
recipients of options and awards under the Incentive Plan and (ii) determine
the number of options or awards to be received subject to a maximum
established by the resolutions. The Board of Directors may not authorize an
officer to designate himself as a recipient of any option or award.
Second, the Board adopted an amendment to paragraph 7(c) which permits an
optionee or grantee electing to exercise an option or award to pay for the
shares by delivering securities of any direct or indirect subsidiary of the
Company.
Options Granted under the Incentive Plan.
The following table sets forth as of December 31, 2001, the number of
stock options granted to the individuals or groups indicated:
Total Options Granted and
Outstanding Under the Incentive
Plan
Phillip D. Miller 25,000
Frank O'Connell 27,000
Sandra J. Smith 30,000
All executive officers as a group (3 persons) 82,000
All employees as group (excluding executive officers) 14,300
All directors who are not executive officers as a group (*) 17,500
Current nominees for election as director as a group None
Associates of directors, executives, officers, and
director nominees, as a group None
Each other person who has received or is to receive
5% or more of such options or other awards None
*Includes individuals no longer serving in such capacity.
Allocation of Additional Option Shares
New ALTM has not committed to any particular level of option grants or
awards to any person or groups of persons, except that Sandra J. Smith
(controller of New ALTM) will be awarded 50,000 shares effective with and
contingent upon the First Closing.
Equity Compensation Plan Information
The following table gives information about the Company's common stock
that may be issued upon the exercise of options, warrants and rights under all
of our existing equity compensation plans as of December 31, 2001. These
plans include the Incentive Plan. The table does not give effect to the
proposed amendments to the Incentive Plan and does not include any effects of
the Transaction.
Number of securities to Weighted-average price of Number of Securities
Be issued upon exercise outstanding options, remaining available for
Of outstanding options, warrants and rights future issuance under
Warrants and rights Equity compensation plans
(excluding securities
reflected in column (a))
------------------------ ------------------------ -------------------------
(a) (b) (c)
Equity
Compensation
Plans approved 191,300 $2.75 371,200
By security
Holders
Equity
Compensation
Plans not 258,500 (1) (2) $0.80 none
Approved by
Security holders
Total 404,800 $1.81 371,200
(1)In 1999, the Company issued warrants for purchase of 55,000 shares of
common stock to employees of a broker dealer who served as underwriter in
connection with the Company's initial public offering. These securities
replaced the warrants issued to the underwriter upon closing of the offering.
The Company recognized expense in the amount of $10,000 in connection with
services rendered by the warrant holders in consideration of the issuance.
These warrants are exercisable at $3.00 per share and expires on October 31,
2002.
(2) On May 3, 2000, the Company acquired certain assets and operations of
AdTrackMedia.com from GoldenGoose Software, Inc. As part of the purchase
price, GoldenGoose was issued stock options to acquire common stock. Options
to acquire 20,000 shares are outstanding. These options are exercisable at
$2.045 per share and expire on May 27, 2005. In addition, contingent
consideration of 183,500 shares of the Company's common stock will be issued
to GoldenGoose in January 2003 if certain goals are achieved.
Tax Rules.
The following is a brief summary of the federal income tax rules
currently applicable to stock options that may be granted under the Incentive
Plan.
The grant of a NQSO will have no immediate tax consequences to the
grantee or to the Company. Upon the exercise of a NQSO, the grantee will
recognize ordinary income (and the Company will generally be entitled to a
compensation deduction) in an amount equal to the excess of the fair market
value of the shares of Common Stock on the date of the exercise of the option
over the option exercise price. The grantee's tax basis in the shares will be
the exercise price plus the amount of ordinary income recognized by the
grantee, and the grantee's holding period will commence on the date the shares
are transferred.
Upon a subsequent sale of shares of Common Stock acquired pursuant to the
exercise of a NQSO, any difference between the grantee's tax basis in the
shares and the amount realized on the sale is treated as long-term or short-
term capital gain or loss, depending on the holding period of the shares.
The grant of an ISO will have no immediate tax consequences to the
grantee or to the Company. The exercise of an ISO by the payment of cash to
the Company will generally have no immediate tax consequences to the grantee
(except to the extent it is an adjustment in computing alternative minimum
taxable income) or to the Company. If a grantee holds the shares acquired
pursuant to the exercise of an ISO for the required holding period, the
grantee generally will realize long-term capital gain or long-term capital
loss upon a subsequent sale of the shares in the amount of the difference
between the amount realized upon the sale and the purchase price of the shares
(i.e., the exercise price). In such case, no compensation deduction will be
allowable to the Company in connection with the grant or exercise of the ISO
or the sale of shares of Common Stock acquired pursuant to such exercise.
If, however, a grantee disposes of the shares prior to the expiration of
the required holding period (a "disqualifying disposition"), the grantee will
recognize ordinary income (and the Company will generally be entitled to a
compensation deduction equal to the excess of the fair market value of the
shares of Common Stock on the date of exercise (or the proceeds of the
disposition, if less) over the exercise price.
Certain limitations apply to the Company's deduction of compensation
payable to the person serving as its chief executive officer or to any of its
four other most highly compensated executives in office as of the end of the
year in which such compensation would otherwise be deductible. In general,
the Company may not deduct compensation, other than "performance-based"
compensation, payable to such an executive in excess of $1 million for any
year. Income resulting from the exercise of a stock option may be included in
calculation of total income for purposes of determining whether the $1 million
limit has been exceeded.
INFORMATION ABOUT HENCIE
General
Overview
Hencie is an information technology system integration consulting solutions
provider to a broad range of middle market companies in the manufacturing,
distribution, energy, travel and hospitality and other industries. Hencie's
core line of business includes implementation of Oracle-based technology,
packaged applications and database management. As of December 31, 2001,
Hencie had approximately 68 employees.
History
Hencie is a holding company and the sole owner of Hencie Consulting Services,
Inc., a Texas corporation, and Hencie's only operating subsidiary. Hencie
Consulting Services, Inc. was co-founded by Mr. Adil Khan and Mr. David Bevins
in 1996 and began operations in 1997.
In December of 2000, Hencie initiated a new strategic plan in an effort to
adapt to changing markets and industry conditions and reorganized its
operations to focus on implementation of Oracle enterprise applications for
traditional and profitable "bricks and mortar" businesses rather than Internet
dot-coms and other technology-based businesses. All other lines of business
were discontinued. Hencie also hired a new Chief Financial Officer in 2000
and a new Chief Operating Officer in 2001.
Industry Background
The worldwide information technology services industry is large but highly
fragmented. It is composed of thousands of market niches segmented by
technology platforms, vertical industry, service offerings, and geographic
locations. The field is in transition, as regulation has forced many large
consulting divisions of audit firms to divest themselves of their consulting
practices and many smaller companies within the industry are consolidating to
gain a competitive advantage. The market segment served by Hencie, the
packaged application consulting, implementation, and maintenance segment of
the information technology services industry, is currently growing rapidly.
The Hencie Solution
Hencie provides a wide range of industry-specific solutions, including
Enterprise Resource Management, Client Relationship Management, Supply Chain
Management, and Enterprise Portal solutions, through business alliances with
leading technology vendors such as Oracle. Hencie strives to provide each of
its clients with a rapid return on the client's investment in Hencie's
solutions by improving the client's business through its unique solution
offerings.
Integrated Consulting Approach
Hencie's integrated services enable clients to increase revenues and margins,
reduce costs, and enhance their product and service offerings. Hencie
combines consulting expertise and technology applications to serve as a
single-source provider of fully integrated solutions.
Enterprise Resource Planning (ERP)
Hencie has diversified its customer base by expanding the scope of its systems
integration and custom development services to include Enterprise Resource
Planning (ERP) software. ERP software products are pre-packaged solutions for
a wide range of business areas, including, financial information,
manufacturing, and human resources. These pre-packaged solutions can be an
efficient and less costly alternative for a user who might otherwise face
customizing and developing its own applications. Hencie has grown
significantly by expanding its Oracle service offerings and capitalizing on
the business opportunity to provide implementation and customization services
to the expanding ERP market. Hencie also plans to expand its implementation
services to PeopleSoft applications, J.D. Edwards applications, and various
other business partnership applications.
Customer Relationship Management (CRM)
Hencie provides consulting and information technology services to implement
and support the Customer Relationship Management (CRM) offerings of Oracle
eBusiness products and enterprise applications of other business partners.
Hencie is an Oracle Certified Solutions Provider and one of the leading
service providers for Oracle Software in the Southwestern United States.
Supply Chain Management (SCM)
Hencie plans to expand its service offerings to include Supply Chain
Management (SCM) solutions where these services represent effective solutions
for Hencie's middle market clients.
Managed Service Providers Enterprise Monitoring Service (EMS)
Hencie offers a subscription-based service to monitor and manage a client's
Oracle enterprise system and provides the technical expertise, monitoring
system, and high-quality technical resources needed to properly manage client
systems.
Enterprise Portal
Hencie currently provides some Enterprise portal solutions and plans to expand
its service offering where these services represent effective solutions for
Hencie's middle market clients.
Application Service Provider (ASP)
Hencie is positioned to offer Application Service Provider (ASP) services with
hosting company partnerships.
Relationship with Oracle
Hencie is a certified Oracle partner and has achieved Oracle Service Provider
(OSP) status in the Dallas and Houston marketing regions of Oracle. This
relationship is based on written agreements between the two companies and is
nurtured through strong personal relationships among sales and management
teams of the two companies.
This relationship provides several benefits to Hencie. Oracle and Hencie
promote and market implementation services for Oracle Applications to
prospective general business market end-user customers (i.e. customers with
revenue equal to or less than $500 million per year). Hencie receives access
to the use of proprietary Oracle implementation methodologies including AIM
Advantage methodologies. Hencie receives training on Oracle products and
rights to access Oracle product demonstration centers to develop solutions
based on the latest technologies.
Almost all of Hencie's business depends on the success of the Oracle
relationship. If this relationship is terminated or weakened, Hencie's
survival will become very difficult. Also, Hencie's business may be directly
impacted by the new applications license sales, and any decline in such sales
due to economic cycles or product competitiveness will adversely affect
Hencie's sales.
Strategy
Hencie intends to sustain and successfully manage its rapid growth by focusing
on the provision of services to vertical middle market companies. Hencie
plans to expand and modify its service offerings to address changes in
customer demands and rapidly changing technology. In addition, Hencie is
seeking strategic alliances with select enterprise package software vendors to
stay at the leading edge of technology advances, to develop new business and
to generate additional revenue. Specifically, Hencie plans to expand into
other industries and expand its technology offerings and its service
offerings. The Hencie Consulting Services operating subsidiary will focus on
Oracle technology offerings and expand its services, targeted industries and
geographic reach. Hencie intends to acquire other technology companies
implementing PeopleSoft-based and J.D. Edwards-based application services. It
may also selectively acquire other IT focused companies in which Hencie's
client management approach may create better utilization and improve
profitability.
Hencie also plans to expand its client base and enter into other vertical
industry markets, including the healthcare industry, with acquisitions and
other business combinations. The success of this strategy depends not only
upon Hencie's ability to identify and acquire businesses on a cost-effective
basis, but also upon Hencie's ability to integrate acquired operations into
Hencie's organization effectively, to retain and motivate personnel and to
retain clients of acquired or merged companies. In reviewing potential
business combinations, Hencie intends to consider the target company's
geographic reach, cultural fit, capabilities in specific technical services,
client base, expected financial performance, valuation expectations, and the
abilities of management, sales, and recruiting personnel, among other factors.
Hencie has identified several potential acquisition candidates as of the date
of this proxy statement.
Clients
Hencie provides services to a broad range of middle market companies in the
manufacturing, distribution, energy, travel and hospitality and other
industries. In 2001, Hencie's approximate percentage of revenue by client
industry was:
Manufacturing 56%
Distribution 27%
Energy 6%
Travel and Hospitality 5%
Other 6%
Hencie derives a significant portion of its revenues from large projects
commissioned by a limited number of clients. In 2001, Hencie's largest client
accounted for approximately 35% of its revenues, and Hencie's second largest
client accounted for approximately 13% of its revenues. Likewise, in 2000,
Hencie's two largest clients accounted for approximately 34% of its total
revenues. Some of Hencie's clients include: Lone Star Steel Company,
Novation, Kerr-McGee, Laser Tech Color, Newgistics, Luminex, Oklahoma Fixture
Company, Olshan Foundation Repair, Smith-Blair, Inc., Honeywell, Kaiser,
Conoco, and Raytheon Corporation. If any significant client terminates its
relationship with Hencie or substantially decreases its use of Hencie's
services, it could adversely affect Hencie's business and financial condition.
Hencie seeks to develop long-term relationships with its clients. While a
typical client assignment ranges from 3 months to 12 months in duration, some
of Hencie's client relationships have continued for more than 3 years.
Property
Neither Hencie nor Hencie Consulting Services own any real property. Hencie
currently leases its main office at 13155 Noel Road, 10th floor, Dallas, Texas
75240. This is a three-year lease on a portion of the 10th floor in the south
office tower of the Galleria shopping and office complex. The Galleria is an
upscale mixed-use retail, office and hotel complex.
Intellectual Property
Hencie Consulting Services has certain methodologies, customer lists, and
other proprietary knowledge that it uses to service clients. Hencie uses its
Knowledge Bank repository ("Da Bank") to distribute this efficiently to its
consultant and project managers. This helps Hencie to efficiently service its
clients. Hencie also develops specialized pieces of software that are kept in
Da Bank that are used for implementing and joining various applications on its
projects. Hencie reuses this software to create better project
implementations.
Hencie's trademarks and service marks (none of which is registered with the
United States Patent and Trademark Office, or any similar foreign agency)
include:
Hencie.com
Hencie.net
Hencie.org
Hencie Consulting Services, Inc.
Hencie, Inc.
There is no threat of an intellectual property infraction from another party.
Hencie has discovered that some of its consultants have unlicensed software on
their computers. Hencie is currently bringing them into compliance as quickly
as practical after they are discovered. The total cost of such compliance is
expected to be less than $50,000.
Sales and Marketing
As of December 31, 2001, Hencie had a direct sales force of 3 employees who
market Hencie's services to senior business executives, chief information
officers, information systems managers, and others who purchase consulting and
information technology services. New client contacts are generated through a
variety of methods, including client referrals, Hencie's web site, service
handouts for each of Hencie's service offerings, product sales collateral,
"white papers," reproductions of articles and press releases, targeted user
conferences conducted exclusively for clients, participation in industry
conferences and trade shows, personal sales calls, customer newsletters,
informational listings in trade journals and direct mailings to targeted
clients.
Competition
The consulting and information technology services industry is extremely
competitive and characterized by continuous changes in customer requirements
and improvements in technologies. Hencie's competition varies significantly
from city to city as well as by the type of service provided.
Hencie's principal competitors include Grant Thornton/Experio and Arthur
Andersen. Many large accounting and consulting firms also offer services that
overlap with some of Hencie's services. In addition, Hencie must frequently
compete with a client's own internal information technology staff. Hencie
also competes with Internet professional services firms as well as the service
divisions of various software developers. There can be no assurance that
Hencie will be able to continue to compete successfully with existing or
future competitors or that competition will not have a material adverse effect
on Hencie's results of operations and financial condition. Many of Hencie's
competitors are larger than Hencie and have significantly greater financial,
technical, marketing, and other resources. However, Hencie believes that its
market position with respect to its competitors is enhanced by virtue of
Hencie's unique ability to deliver fully integrated consulting services and to
compete based on a number of other factors including the quality and scope of
solutions provided, industry expertise, and ease and speed of solutions
implementation.
Employees
As of December 31, 2001, Hencie had approximately 68 employees. Of these
employees, 47 provided consulting services, 9 performed sales and marketing,
customer relations, and business development functions, and 12 persons
performed corporate, finance, and administrative functions. None of Hencie's
employees are subject to a collective bargaining arrangement. Hencie has some
employment agreements with its executive officers. Hencie believes that its
relationship with its employees is good.
Hencie's future success depends in part on Hencie's ability to hire and retain
adequately trained personnel who can address the changing and increasingly
sophisticated technology needs of Hencie's clients. All of Hencie's employees
are bound by non-compete agreements. Historically, competition for personnel
in the information technology services industry has been significant. Hencie
has had in the past, and may have at some point in the future, difficulty
attracting and retaining an optimal level of qualified consultants. There can
be no assurance that Hencie will be successful in attracting and retaining the
personnel Hencie requires to conduct and expand Hencie's operations
successfully. Because of this, the recruitment of skilled consultants is a
critical element to Hencie's success. As of December 31, 2001, Hencie had 1
full-time recruiter.
Legal Proceedings
Hencie had contract disputes with Timepiece, and Navasota (an affiliate of
Paul Tanner, see below). These were settled for less than $12,000 in total.
These amounts have already been expensed on Hencie's financial statements.
K-Force had filed suit in a contract dispute. This has been settled with a
payment plan over time. These amounts have already been expensed and the
payment plan recorded as a liability on Hencie's financial statements.
Hencie discovered unpaid payroll taxes and settled with the IRS on a payment
plan. As part of the closing of the ALTM transaction this settlement will be
paid in full.
Dispute with Paul A. Tanner
On January 9, 2001, Hencie received a demand letter from Hencie.Com, an
affiliate of Paul A. Tanner, claiming that (i) Hencie.Com was entitled to
1,500,000 shares of Hencie common stock in connection with an alleged stock
purchase agreement by and between Hencie and Hencie.Com and (ii) Hencie owed
Hencie.Com $1,900,000.00 in connection with $1,400,000.00 that was advanced to
Hencie by Hencie.Com (collectively, the "Claims"). Hencie has investigated
the Claims and concluded that Hencie is not liable. Adil Khan has agreed,
pursuant to that certain Indemnification Agreement, dated as of September 15,
2000, by and between Hencie, Adil Khan, and certain other parties, and the
Transaction Agreement, to indemnify ALTM, New ALTM, and Hencie from and
against any losses or liabilities arising out of or relating to the Claims.
In the event litigation in connection with the Claims is pursued and Adil Khan
is, for any reason, unable to fulfill his indemnification obligations to ALTM,
New ALTM, and Hencie in connection with such Claims, Hencie intends to
vigorously contest the Claims and pursue any potential counterclaims that may
be available. Notwithstanding the foregoing, the business, financial
condition, and operations of the Company could be materially and adversely
affected by an outcome that is adverse to Hencie with respect to any of the
Claims, legal fees and expenses associated with investigating, contesting, and
defending against any of the Claims (whether or not the Claims are
successfully pursued by Mr. Tanner), and the diversion of management's time
and resources in connection with any such investigation, contest, or defense.
Threatened Litigation Involving Lane Gorman Trubitt, L.L.P.
On April 2, 2002, Hencie received a demand letter from Lane Gorman Trubitt,
L.L.P. ("Lane Gorman") claiming that (i) Lane Gorman was entitled to $3,106.64
in connection with services rendered and $225 in connection with related
attorneys' fees and expenses. The demand letter threatened to proceed with
litigation if payment had not been received within 30 days of receipt of such
letter.
On April 18, 2002, Hencie responded to the demand letter and requested
verification of the debt, a description of services rendered, invoices, and a
record of any payments made. To date Lane Gorman has not provided any
verification of the debt. Once Lane Gorman provides verification of the debt,
Hencie plans to settle the debt without litigation.
HENCIE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following description of Hencie's financial condition
and results of operations in conjunction with the Financial Statements of
Hencie and the Notes thereto and the Unaudited Pro Forma Combined Condensed
Financial Statements included elsewhere in this proxy statement. This
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties. Any statements contained herein that
are not statements of historical fact may be deemed to be forward-looking
statements. Hencie's actual results and the timing of certain events may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a discrepancy include, but are not
limited to, those discussed in "Risk Factors" and elsewhere in this proxy
statement.
Financial Overview
A majority of Hencie's revenues are attributable to professional
consulting services. Hencie recognizes revenue on a time and materials or
percentage-of-completion basis, depending upon the type of contract it has
with its customer. In limited circumstances, Hencie implements solutions
under fixed price contracts. In 2001, Hencie generated approximately 2.5% of
its net sales from fixed price contracts. Hencie recognizes revenues for
fixed-price contracts using the percentage of completion method as services
are performed over the life of the contract, based on the costs it incurs in
relation to the total estimated costs. Hencie recognizes, and makes
provisions for, any anticipated contract losses at the time it knows of, and
estimates the losses.
Hencie's most significant expense is cost of sales, which consists
primarily of costs directly attributable to client engagements, including the
cost of consultant time and travel expenses for personnel. Hencie's cost of
sales is directly attributable to the time consultants spend on client
projects. These costs are classified pursuant to a standard costing system
using four levels of consultant pay rates. The weighted average of these pay
rates gives Hencie's average cost per hour for its consulting time. These
costs are input, managed and monitored on a per project basis. The number of
consulting employees assigned to an engagement will vary according to the
size, complexity, duration and demands of the client project. Hencie enters
into contracts with its customers on a project-by-project basis.
Hencie derives a significant portion of its revenues from large projects
commissioned by a limited number of clients. In 2001, Hencie's largest client
accounted for approximately 35% of its revenues and its second largest client
accounted for 13% of its revenues. Likewise, in 2000, Hencie's two largest
clients accounted for a total of 34% of its revenues. Many of Hencie's
contracts are short-term and provide that clients can reduce or cancel
services without incurring any penalty. If clients reduce or terminate
services, Hencie would lose revenue and would have to reallocate employees and
resources to other projects to attempt to minimize the effect of such a
reduction or termination. Accordingly, reductions and terminations, even by a
single client, could adversely affect Hencie's revenues.
In 2001, Hencie's revenues by client industry were primarily
Manufacturing and Distribution, and to a lessor extent Energy, and Travel and
Hospitality.
Hencie's revenues and operating results have fluctuated significantly in
the past, with Hencie experiencing its greatest sequential growth during its
first and second fiscal quarters and significantly lower sequential growth in
the third and fourth fiscal quarters. Accordingly, period-to-period
comparisons of Hencie's operating results may not be meaningful.
Hencie attributes this fluctuation between quarters to the project cycles
of customers, most of whom have calendar-based fiscal years. The result is
that customers are more likely to start project cycles during the first half
of the year. Further, because most of Hencie's expenses, including expenses
associated with its employees, are relatively fixed in the short-term, several
other factors can cause significant variations in Hencie's quarterly operating
results, including:
- fluctuations in the number of customer projects it is awarded;
- cancellations or delays by its customers of planned projects;
- shifts in customer demand to delivery models that alter the timing of
revenue recognition;
- its employee utilization rate;
- consummation of potential acquisitions; and
- number of billable days in a given quarter.
Hencie believes that it will experience similar fluctuations in
operations in the future. If Hencie is unable to predict the cyclical client
demand in a slower growth or distressed economic environment, expenses may be
disproportionate to revenue and its stock price may be adversely affected.
Critical Accounting Policies and Estimates
Hencie's discussion and analysis of financial conditions and results of
operations is based on its consolidated financial statements, prepared in
accordance with generally accepted accounting principles in the United States.
Revenue Recognition. The majority of Hencie's revenue is generated from
consulting fees. The majority of Hencie's consulting contracts are on a time-
and-materials basis. Hencie's remaining consulting contracts are on a fixed-
price basis. Revenue is recognized using the percentage of completion method.
Consulting contracts generally vary in length from 1 to 36 months.
Earned revenue is based on the percentage that direct labor and other
contract costs incurred to date bear to total estimated costs, after giving
effect to the most recent estimates of total cost. The cumulative impact of
revisions in total cost estimates during the progress of work is reflected in
the period in which changes become known. Earned revenue reflects the
original contract price adjusted for agreed-upon and change order revenue, if
any. Losses expected to be incurred on jobs in process, after consideration
of estimated minimum recoveries from claims and change orders, are charged to
income as soon as such losses are known.
Accounts Receivable and Allowances for Doubtful Accounts. Hencie
maintains allowances for doubtful accounts for estimated losses resulting from
the inability of Hencie's clients to make required payments. Hencie's
management makes estimates of the uncollectibility of Hencie's accounts
receivables. On a quarterly basis management critically reviews accounts
receivable, and management continually analyzes historical bad debts, past-due
accounts, client credit-worthiness and current economic trends when evaluating
the adequacy of the allowance for doubtful accounts. If the financial
condition of Hencie's clients were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.
Litigation and Contingencies. Litigation and contingencies are reflected
in Hencie's consolidated financial statements based on management's
assessment, along with legal counsel, of the expected outcome from such
litigation. If the final outcome of such litigation and contingencies differs
adversely from that currently expected, it would result in a charge to
earnings when determined.
Finally, general weakness of the U.S. economy has also affected Hencie's
business and will, Hencie believes, continue to affect Hencie's business. The
conditions in the general economy that may impact Hencie's on-going business
include declines in interest rates, client staff reductions, client labor
strikes and acquisitions of clients by other companies. In addition, in some
cases, potential clients and existing clients have chosen to delay or postpone
certain purchasing decisions until the economy improves. The general
condition of the U.S. economy is affected by social, political and military
conditions, including terrorist threats and acts and any responses by the
United States to such threats and acts. Any or all of the above factors could
result in the reduction of the aggregate amount of client spending on Hencie's
future services.
Results of Operations
The following table sets forth certain financial information of Hencie
for the years ended December 31, 2001 and 2000:
Year Ended
December 31
------------------------------------
2001 2000
--------------- ----------------
Revenues $11,937,462 $10,318,840
Cost of Revenues 6,367,462 4,633,677
------------ -----------
Gross Profit 5,570,000 5,685,163
Stock-based Compensation and Other Costs 94,939 730,455
Other Operating Expenses 5,083,077 9,893,756
------------ -----------
Operating Income (Loss) 391,984 (4,939,048)
Interest (Expense) (635,935) (293,396)
------------ -----------
Net Loss $ (243,951) $(5,232,444)
============ ===========
The following table sets forth the percentage of revenues represented by
items in Hencie's combined statement of operations the years ended December
31, 2001 and 2000:
Year Ended
December 31
------------------------------------
2001 2000
--------------- ----------------
Revenues 100.0% 100.0%
Cost of Revenues 53.3 44.9
--------------- ----------------
Gross Profit 46.7 55.1
Stock-based Compensation and Other Costs 0.8 7.1
Other Operating Expenses 42.6 95.9
--------------- ----------------
Operating Income (Loss) 3.3 (47.9)
Interest (Expense) (5.3) (2.8)
--------------- ----------------
Net Loss (2.0)% (50.7)%
=============== ================
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues. Revenues increased $ 1,618,622, or 16%, from $10,318,840 in
2000 to $11,937,462 in 2001. This increase was primarily a result of an
increase in the number of Oracle-related consulting engagements Hencie was
awarded. Core employee consulting revenues increased $1,936,490, or 22%, from
$8,739,215 in 2000 to $10,675,705 in 2001 which was primarily responsible for
Hencie's overall increase in revenues. Subcontracting revenues, which offer
lower gross margins, decreased to $27,112 from $468,801 due to Hencie's
improved utilization and management of its consultant's time in 2001 and the
discontinuation of several unprofitable lines of business in December 2000,
including custom web development, I2 consulting services and Ariba software
consulting.
Gross Profit. Gross profit, or revenues after cost of sales, is
primarily a function of hours billed to clients, hourly billing rates, and
employee compensation. In 2001 gross profit decreased $115,163, or 2%, from
$5,685,163 in 2000 to $5,570,000. Gross profit as a percentage of net sales
also decreased 8.4% from 55.1% in 2000 to 46.7% in 2001. These decreases were
due to several factors, including:
- a lower effective billing rate on more recent engagements with
Hencie's largest client;
- market increases in the wages of consulting professionals for new
hires in 2000, particularly professionals with the advanced technology
skills necessary to perform the services Hencie offers; and
- Hencie's discontinuation of businesses that, while offering higher
gross margins than its Oracle-related business, have relatively high
operating expenses that prevent them from being profitable.
Stock-based Compensation and Other Costs. The Company has estimated the
fair value of its common stock from $0.03 in 1999 to $0.10 per share in 2000
and increasing to $0.20 per share reflecting the valuation increases from the
ALTM transaction in 2002. Non-cash charges to earnings from the amortization
of deferred compensation from stock option grants and restricted stock
issuance were $730,455 in 2000 with a deferred compensation balance of
$253,181 at 2000 year-end. Non-cash charges from the amortization of deferred
compensation from stock option grants and restricted stock issuance were
$94,939 in 2001 with a deferred compensation balance of $338,282 at the year-
end.
Other Operating Expenses. Other Operating expenses (excluding stock-
based compensation and other costs) primarily include salaries and wages,
professional services, communications, depreciation and amortization and
general and administrative expenses. In 2001 operating expenses decreased
$4,810,679, or 48.6%, from $9,893,756 in 2000 to $5,083,077. This decrease
occurred primarily as a result of (i) a decrease of $3,445,697, or 48%, in
compensation and benefits for non-billable time as a result of discontinuing
unprofitable consulting product lines, better utilization of consultants, and
reduced head count, (ii) a decrease of $168,675, or 46%, in professional
services from outside advisors and (iii) a decrease of $1,254,896, or 56%, in
general and administrative expense as a result of reducing its non-consultant
employee headcount. Additionally, depreciation and amortization expenses
increased $58,589, or 33%, from $178,441 in 2000 to $237,030 in 2001 due to
capitalized costs related to a move to a larger office.
Interest Expense. Interest expense increased $342,539, or 117%, from
$293,396 in 2000 to $635,935 in 2001, primarily due to (a) additional
borrowings in 2000 used to fund Hencie's losses, (b) indebtedness to Edge and
(c) Hencie's factoring lines of credit.
Selected Historical Quarterly Financial Data of Hencie (Unaudited)
The following table sets forth certain financial information of Hencie
for the three-month periods ended March 31, 2002 and 2001:
Periods Ended
March 31
------------------------------
2002 2001
-------------- ------------
Revenues $2,445,091 $3,686,416
Cost of Revenues 1,365,463 1,819,138
---------- ----------
Gross Profit 1,079,628 1,867,278
Stock-based Compensation and Other Costs 199,828 21,121
Legal and Other Professional Services 202,762 32,118
Other Operating Expenses 947,586 1,472,949
---------- ----------
Operating Income (Loss) (270,548) 341,090
Interest (Expense) (146,673) (200,084)
---------- ----------
Net Income (Loss) $(417,221) $141,006
========== ==========
The following table sets forth the percentage of revenues represented by
items in Hencie's combined statement of operations the three-month periods
ended March 31, 2002 and 2001:
Period Ended
March 31
------------------------------
2002 2001
-------------- ------------
Revenues 100.0% 100.0%
Cost of Revenues 55.8 49.3
-------------- ------------
Gross Profit 44.2 50.7
Stock-based Compensation and Other Costs 8.2 0.6
Legal and Professional Services 8.3 0.9
Other Operating Expenses 38.8 40.0
-------------- ------------
Operating Income (Loss) (11.1) 9.2
Interest (Expense) (6.0) (5.4)
-------------- ------------
Net Income (Loss) (17.1)% 3.8%
============== ============
Period Ended March 31, 2002 Compared to Period Ended March 31, 2001
Revenues. Hencie's top two customers accounted for 46% of revenue in
2002 and 44% of revenue in 2001. Revenues decreased $1,241,325, or 34%, from
$3,686,416 in the first quarter of 2001 to $2,445,091 in the same period of
2002. Core employee consulting revenues decreased $1,287,620, or 37%, from
$3,448,416 in the first quarter of 2001 to $2,160,796 in the same period of
2002, which was primarily responsible for Hencie's overall decrease in
revenues. Subcontracting revenues, which offer lower gross margins, were
eliminated in 2002 and decreased $27,112 due to Hencie's improved utilization
and management of its consultant's time in 2002. Revenue also decreased from
the phasing out of several unprofitable lines of business during the first
quarter of 2001. The business lines with final projects being completed
during the first quarter of 2001 included custom web development, I2
consulting services and Ariba software consulting. This decrease was
primarily a result of the following key factors:
- The slow down in the IT consulting business and Oracle-related
consulting engagements due to economic conditions in the first quarter
of 2002 has caused certain customers to be more aggressive in seeking
discounts or to delay IT projects.
- The first quarter of 2001 was a record revenue quarter for Hencie.
Hencie discontinued unprofitable business lines and finished these
projects using overtime labor to maintain good customer relationships
and a good industry reputation. Hencie Consulting Services, Inc. also
received $189,187 from Oracle in the first quarter of 2001 under a now
discontinued commission program.
- Hencie reduced hourly billing rates 20% for new work for a
significant existing customer in the first quarter of 2002. The
revenue decrease from this customer was $906,216 due to the discounted
billing rate and less work performed at the end of the project cycle
in 2002.
- Hencie entered a new vertical market of implementing Oracle systems in
call centers. While Hencie historically had less than 5% of revenue
from fixed price contracts, management chose to offer certain
concessions on its first customer in this vertical market to build its
expertise and market presence. These concessions reduced revenue by
$240,599 in the first quarter of 2002 without an offsetting reduction
in cost. Management may make similar selected investments for future
growth in desirable market segments in the future.
Gross Profit. In the first quarter of 2002 gross profit decreased
$787,650, or 42%, from $1,867,278 in the same period of 2001 to $1,079,628.
Gross profit as a percentage of net sales also decreased to 44.2% in first
quarter of 2002 from 50.7% in the same period of 2001. These decreases were
due to several factors, discussed in revenue above, including:
- A lower effective billing rate on more recent engagements with
Hencie's largest client;
- Market increases in the wages of consulting professionals hired in
2000 impacted costs in 2001 and in the first quarter of 2002,
particularly professionals with the advanced technology skills
necessary to perform the services Hencie offers. These wages have been
decreased in the second quarter of 2002,
- Hencie's discontinuation of the lines of businesses described above
that, while offering higher gross margins than its Oracle-related
business, have relatively high operating expenses that prevent them
being profitable.
Stock-based Compensation and Other Costs. Non-cash charges to earnings
were from the amortization of deferred compensation from stock option grants
and restricted stock issuance of $38,868, stock issued to a vendor valued at
$139,304, and stock issued to employees valued at $21,656 in the first quarter
of 2002 due to the effects of the ATLM transaction. This was an increase of
$178,707 dollars (846%) compared with expense of $21,121 in the first quarter
of 2001 for the amortization of deferred compensation from stock option grants
and restricted stock issuance.
Legal and Professional Services. These expenses increased by $170,644
in the first quarter of 2002 or 432% from $32,118 in the first quarter of
2001 to a total of $202,762 in the first quarter of 2002. This increase in
expenses was primarily due to legal fees related to the ALTM transaction. A
secondary source of increased fees was related to the multi-year audits
necessary for the ALTM transaction. While some legal fees were expended
related to settling the Edge note litigation, these legal fees were not a
primary source of the increase.
Other Operating Expenses In the first quarter of 2002, other operating
expenses decreased $525,363, or 36%, from $1,472,949 in the same period of
2001 to $947,586. This decrease occurred primarily as a result of (i) a
decrease of $288,680, or 28%, in compensation and benefits for non-billable
time as a result of discontinuing unprofitable consulting product lines,
better utilization of consultants and decrease in head count and (ii) a
decrease of $184,500, or 54%, in general and administrative expense.
Additionally, depreciation and amortization expenses decreased $52,183, or
50%, from $104,146 in the first quarter of 2001 to $51,963 in the same period
of 2002 due to lower capital expenditures in 2001 verses 2000. In 2000, the
company moved to a new building, purchased new equipment and made leasehold
improvements.
Interest Expense. Interest expense decreased $53,411, or 27%, from
$200,084 in the first quarter of 2001 to $146,673 in the same period of 2002,
primarily due to reduced borrowings in the first quarter of 2002 under
Hencie's factoring lines of credit and reduced interest expense on
indebtedness due to the IRS.
Liquidity and Capital Resources
Hencie has primarily used cash from operating activities, cash from
additional paid-in capital, and borrowings to fund its operations. Edge
provided a $1.4 million loan to Hencie in September 2000. Additional paid in
capital in 2000 was $1,425,000. Additionally, in 2000, Hencie's new
management discovered the IRS Obligation and immediately negotiated a
settlement with the IRS to repay accrued payroll taxes payable of $1,955,758
as of the end of 2000. As of December 31, 2001 accrued payroll taxes payable
had been reduced to $978,158, a reduction of $977,600. Additionally, during
2001, Hencie issued 1,552,642 shares of common stock upon the exercise of
employee stock options for an aggregate of $46,578 and 200,000 shares of its
common stock to a client valued at $20,000.
As of December 31, 2001 Hencie was in default on the Edge note of
$1,400,000. The IRS may cancel its repayment agreement with Hencie for any
reason. In addition, there is a dispute with Hencie.com and Paul Tanner over
a $1,425,000 capital contribution. Liabilities that exist or may arise under
any of these matters may eliminate the company's ability to operate as a going
concern. While management cannot give any assurances concerning the ultimate
resolution of these matters, Hencie has taken the following steps regarding
Edge, the IRS and Paul Tanner.
In May 2002, Hencie entered into a settlement agreement with Edge
Technology Group, Inc., a Delaware corporation ("Edge"), to resolve litigation
that had arisen with respect to a promissory note. Hencie paid to Edge
$55,000 upon the execution of the settlement agreement and will pay $60,000 in
equal monthly installments commencing in August 2002 until it pays to Edge a
total of $1,650,000 plus interest accruing at a fixed rate per annum equal to
8% percent. Hencie's aggregate payments to Edge under the settlement
agreement may be reduced by $450,000 (plus any interest accrued thereon) if
(a) either (x) the Transaction closes and Hencie or New ALTM has paid at least
three timely monthly installments to Edge or (y) Hencie has paid twelve timely
monthly installments to Edge; (b) shares of ALTM with a value equal to 150% of
the then outstanding debt have been pledged to Edge; and (c) no event of
default under the settlement agreement has occurred. Hencie has recorded the
original note principal of $1,400,000 plus interest on its balance sheet. The
IRS payroll tax liability will be paid out of the combined funds of New ALTM
and Hencie upon closing of the Transaction. Adil Khan, as described elsewhere
in this proxy, has agreed to indemnify Hencie from any liability to Hencie.com
and Paul Tanner.
Net accounts receivable totaled $676,979 at December 31, 2001 as compared
to $1,636,039 at December 31, 2000. Net days sales outstanding was 21 days
as of December 31, 2001 and 58 days as of December 31, 2000. The decrease in
accounts receivable and accrued revenues provided $1,129,813 in cash during
2001. Bad debt expense decreased to $126,893 as of December 31, 2001 from
$337,950 as of December 31, 2000. The improvement in accounts receivable and
bad debt expense was attributable to better credit management, revised billing
cycles and tighter management of client relationships.
Accounts payable increased to $845,970 at December 31, 2001 from $781,151
at December 31, 2000. Hencie is in active discussions with its creditors to
resolve its accounts payable delinquencies.
In 2001, net cash provided by operating activities was $612,958, compared
to a cash use of $ 2,879,162 in 2000. This change was largely attributable to
an improvement in income from operations to a profit of $391,984 in 2001 from
a loss of $4,939,048 in 2000. The unpaid payroll taxes in 2000 were
classified as a source of cash under accrued expenses which primarily accounts
for the difference between the loss of $4,939,048 and the use of cash of
$2,879,162 in 2000.
In 2001, net cash used in investing activities was $26,821 as compared to
$436,555 in 2000. Purchases of property and equipment in 2000 were due to one
time expenditures incurred as a result of Hencie's move to its new
headquarters and new computer equipment for consultants.
During 2001, Hencie repaid an aggregate of $27,765 in outstanding
principal on notes payable to its two commercial lenders, Bank of America
under the U.S. Small Business Administration loan program ("SBA Loan") and
Fleet Commercial Services. Hencie's SBA Loan is a 7 year note in the
principal amount of $150,000 bearing interest at 9.75% per year. As of March
31, 2002, Hencie owed $110,174.54 on the SBA Loan. Hencie's note with Fleet,
in the original principal amount of $136,474, provides for 12 quarterly
repayments of $14,161 each. As of March 31, 2002, Hencie owed $36,735 to
Fleet. As of March 31, 2002, Hencie was in arrears on the payment of these
notes.
Hencie also has a factoring line of credit with JTA Factors which had
$1,129,212 outstanding as of December 31, 2000 and $543,611 outstanding as of
December 31, 2001. As of March 31, 2002, the amount outstanding under the
factoring line of credit totaled $688,226. The terms of the line of credit
require Hencie to pay a 2% factoring fee on the factored amount at the time of
any borrowing and an interest rate of 2% over the prime rate on all amounts
outstanding. Hencie's effective interest rate on its indebtedness under its
line of credit is 35%.
At March 31, 2002, Hencie had $13,809 in cash and cash equivalents.
Hencie has entered into the Transaction to repay working capital deficits
generated in 2000. The IRS Obligation will be paid out of the combined funds
of New ALTM and Hencie upon closing of the Transaction. Hencie's management
expects this payoff of the IRS Obligation and the consummation of the
Transaction, together with cash flow with Hencie's operations, to result in
increased liquidity and be sufficient to provide adequate financing for the
next 12 months. Assuming consummation of the Transaction, Hencie has budgeted
capital expenditures of approximately $262,100 in 2002 and $694,490 in 2003.
Hencie's future capital requirements will depend on a variety of factors,
including market acceptance of its business solutions, the resources it
devotes to develop, market, sell and support its current and future product
and service offerings, consummation of business acquisitions and other
factors. Hencie expects to devote substantial capital resources:
- to its sales and marketing efforts;
- to hire and expand its consulting, sales and marketing and customer
support organizations;
- to further develop its solutions offerings; and
- for general corporate purposes.
Contractual Cash Obligations and Other Commercial Commitments
The following table reflects a summary of Hencie's contractual cash
obligations and other commercial commitments as of December 31, 2001.
Hencie is obligated to make future minimum rental payments under
operating leases that have initial or remaining terms in excess of one year at
December 31, 2001 as follows:
Year
2002 $296,648
2003 $323,616
2004 $323,616
2005 $53,936
--------
Total: $997,816
Effect of Recently Issued Accounting Pronouncements
Hencie does not believe that any recently issued accounting
pronouncements will have any material impact on its financial position,
results of operation or cash flows.
Qualitative and Quantitative Disclosures about Market Risk
Hencie has limited exposure to financial market risks, including changes
in interest rates. Approximately $2,000,000 of Hencie's obligations are
subject to a fluctuating interest rate. However, if market interest rates
were to increase immediately and uniformly by 1%, there would not be a
material impact on the results of operations or on Hencie's balance sheet.
If short-term interest rates would have averaged 1% higher during the year
ended December 31, 2001, Hencie's interest expense would have been
approximately $20,000. This amount was determined by applying the
hypothetical interest rate change of 1% to Hencie's outstanding obligations
under Hencie's factoring line of credit and the IRS Obligation.
Qualified Audit Opinion
The accompanying audited financial statements of Hencie for the fiscal
year ended December 31, 2001 disclose that Hencie's recurring losses from
operations, working capital deficiency and stockholders' deficiency, as well
as notes payable in default and other contingencies, raise substantial doubt
about its ability to continue as a going concern. While management of Hencie
cannot give any assurances concerning the ultimate resolution of this
condition, it believes that this condition will be substantially alleviated by
consummation of the Transaction.
INFORMATION ABOUT ALTERNATE MARKETING
See Alternate Marketing's annual report on Form 10-KSB, which is enclosed
with this proxy statement. The information contained in the annual report
under the caption "Item 1. Description of Business" is incorporated by
reference and made a part of this proxy statement.
ALTERNATE MARKETING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
See Alternate Marketing's annual report on Form 10-KSB, which is enclosed
with this proxy statement. The information contained in the annual report
under the caption "Item 6. Management Discussion and Analysis" is
incorporated by reference and made a part of this proxy statement. See also
Alternate Marketing's report on Form 10-QSB whichever is included in this
proxy statement as Appendix F.
PRINCIPAL SHAREHOLDERS AND OWNERSHIP OF MANAGEMENT OF ALTERNATE MARKETING
The following table sets forth as of June 6, 2002 the record and
beneficial ownership of common stock held by (i) each person who is known by
us to be the beneficial owner of more than 5% of our common stock; (ii) each
of the current directors; (iii) each nominee for election to the board of
directors (iv) each Named Executive Officer (as defined in "MANAGEMENT
Executive Compensation"); and (v) all of our executive officers and directors
as a group.
Securities reported as "beneficially owned" include (a) securities for
which the named person may exercise voting power or investment power, alone or
with others, and (b) the number of shares which the named person has the right
to acquire within sixty (60) days after June 6, 2002.
Name and Address Number of Shares Owned Percentage
Phillip D. Miller 875,953 (1)(2) 19.00%
One Ionia SW, Suite 520
Grand Rapids, MI 49503
Stan Henry 903,953 (2)(3) 19.63%
2137 Deer Park Avenue
Deer Park, NY 11729-1321
The Krieger Group 680,742 (4)(5) 14.77%
P.O. Box 7787
Princeton, NJ 08543
Thomas Hiatt 381,008 (6) 8.28%
Middlewest Ventures II, LP
10 West Market St., Suite 3030
Indianapolis, IN 46204
Louis Sito 10,000 (7) *
20 Fort Salonga Road
Fort Salonga, NY 11768
Brad Moore 10,000 (7) *
1240 W. Fullerton Ave.
Chicago, IL 60614
Sandra J. Smith 30,550 (1) *
3026 Partridge Point Trail
Valrico, FL 33594
Frank O'Connell 27,000 (1) *
21120 Highwood
Kildeer, IL 60047
Tribune Company 843,758 (8) 18.40%
435 N. Michigan Avenue
Chicago, IL 60611
All current executive officers 3,082,222 (1)(2)(3)(4)(5)(6)(7)65.23%
and current directors as
a group (7 persons)
* Indicates ownership of less than 1%.
(1)Includes 25,000 shares for Mr. Miller, 30,000 shares for Ms. Smith, and
27,000 shares for Mr. O'Connell which may be acquired upon exercise of options
granted under the Company's 1995 Long-Term Incentive and Stock Option Plan
(the "Incentive Plan").
(2)Includes 232,974 shares subject to options granted to The Krieger Group.
See Note (5), below.
(3)Includes 388,516 shares held for the benefit of family members. Includes
20,000 shares which may be purchased upon exercise of options granted under
the Outside Directors and Advisors Stock Option Plan (the "Directors Plan").
(4)Includes 5,000 shares which may be purchased by Dale B. Krieger, a former
director of the Company, upon exercise of an option granted under the
Directors Plan and 17,500 shares which may be purchased upon exercise of an
option granted under the Incentive Plan.
(5)Shares held of record as follows: (i) shares described in Note (4) above,
held of record by Dale B. Krieger, a former director of the Company, (ii)
533,058 shares held of record by The Krieger Family Limited Partnership, which
includes 396,058 shares which may be acquired upon exercise of options from
Phillip D. Miller and Stan Henry, each in the amount of 198,029 shares; (iii)
69,890 shares held of record by Richard A. Ruderman, which may be acquired
upon exercise of options from Phillip D. Miller and Stan Henry, each in the
amount of 34,945 shares; (iv) 22,294 shares held of record by Paul Ruderman;
and (v) 33,000 shares held in accounts managed by KR Financial, LLC, an
investment advisor. Mr. Krieger is the president and chief executive officer
of KR Financial, LLC.
(6)Includes all shares held of record by Middlewest Ventures II, LP and 17,500
shares which may be acquired by Middlewest Ventures II, LP upon exercise of
options granted under the Directors Plan. Mr. Hiatt is a general partner of
Middlewest Management Company, LP, the general of Middlewest Ventures II, LP.
(7)Includes 10,000 shares which may be acquired upon exercise of options
granted under the Directors Plan. Does not include shares held of record by
Tribune Company ("Tribune"). Messrs. Sito and Moore are affiliates of
Tribune.
(8)Does not include shares held of record by Messrs. Moore or Sito, who are
affiliates of Tribune.
MANAGEMENT OF ALTERNATE MARKETING
Directors and Officers
Our current directors or executive officers are as follows:
Name Age Position(s) Held with Company
Phillip D. Miller 50 Chief Executive Officer and Chairman
Thomas Hiatt 54 Director
Louis Sito 57 Director
Brad Moore 28 Director
Stan Henry 63 Director
Sandra J. Smith 43 Secretary, Treasurer and Chief Financial Officer
Frank O'Connell 59 Vice President
See "ELECTION OF DIRECTORS" for biographical information concerning
Messrs. Miller, Hiatt and Moore. Messrs. Sito and Henry are not standing for
re-election to the board. The following biographical information is furnished
with respect to non-director executive officers.
Sandra J. Smith. Ms. Smith has been the Chief Financial Officer of the
Company since July 1995. From 1989 until appointment as Chief Financial
Officer, Ms. Smith served as the Controller of the Company. From 1987 to
1989, Ms. Smith was Controller of United Delivery Systems, a private delivery
firm which was founded and operated by Phillip D. Miller prior to the
formation of the Company in 1989. Ms. Smith has been a licensed certified
public accountant since 1983. Ms. Smith holds a bachelors of business
administration degree from Grand Valley State University.
Frank O'Connell. Frank O'Connell has been Vice President and Sales
Manager USSPI Division of the Company since March 1996. From 1994 until
appointment as Vice President, Mr. O'Connell served as Vice President of Sales
for the USSPI Division of National Home Delivery, Inc. From 1979 through
1994, Mr. O'Connell served in various sales positions for U.S. Suburban Press,
Inc. Prior to 1979, Mr. O'Connell held sales positions at various companies,
including Media Networks, Inc., Redbook and Cosmopolitan magazine. Mr.
O'Connell holds a bachelors degree from Southern Illinois University.
Executive Compensation
The following table sets forth information about all compensation (cash
and non-cash) awarded to, earned by, or paid to the Company's Chief Executive
Officer and to each of the Company's four most highly compensated executive
officers (other than the Company's Chief Executive Officer) with compensation
in excess of $100,000 (the "Named Executive Officers") during fiscal years
ended December 31, 2001 and 2000.
Summary Compensation Table
Long Term
Annual Compensation Compensation
---------------------------------------------------
Name & Principal Other Annual
Position Year Salary Bonus Compensation Options
------------------ ---- ------ ----- ------------ -------
Phillip D. Miller 2001 $212,562 * $ 13,183(3)(4)(5) *
Chief Executive Officer 2000 $212,562 * $ 13,107(3)(4)(5) *
1999 $210,252 * $ 15,899(3)(4)(5) *
Sandra J. Smith 2001 $110,000 $3,000 $ 1,100(5) *
Chief Financial Officer 2000 $109,615 $2,500 $ 1,121(5) 5,000
Frank O'Connell 2001 $ 57,000 $5,000 $172,841 (1)(5) *
2000 $ 57,000 $5,000 $144,576 (1)(5) *
1999 $ 57,000 $3,500 $129,283 (1)(5) 20,000
* None.
(1) Sales commissions.
(2) Reimbursed moving expenses.
(3) Auto allowance.
(4) Insurance premiums.
(5) 401(k) employer contributions.
Summary of Option Grants
No stock options were granted to Named Executive Officers during fiscal
2001.
Summary of Option Exercises
The following table contains information concerning the ownership and
exercisability of options held by Named Executive Officers.
Aggregated Option Exercises and Fiscal Year-End Option Table
Number of Securities Underlying
Option Exercises Unexercised Options at FY-End
------------------------------------------------------------
Shares Acquired
Name on Exercise Value Realized Exercisable Unexercisable
----------------------------------------------------------------------------
Phillip D. Miller None None 25,000 None
Frank O'Connell None None 27,000 None
Sandra J. Smith None None 30,000 None
Executive Compensation and Employment Agreements
The Company has entered into an employment agreement and an addendum with
Phillip D. Miller, its Chief Executive Officer, which provides for a term of
five years expiring in September 2003 at a base salary of $195,000 per year,
with an annual increase equal to the then-existing salary multiplied by the
average monthly increase in the cost of living index published by the United
States Department of Labor for the 12-month period preceding such date. Mr.
Miller is also entitled to bonuses up to 30% of his base salary based on
attainment of performance criteria specified by the Compensation Committee.
The agreement is terminable without an expressed reason by either Mr. Miller
or the Company by three months' prior notice. In addition, the Company may
terminate the agreement effective immediately for "cause," including neglect
of duty, malfeasance, or continued failure to perform specified duties within
30 days after having received a written warning. If the agreement is
terminated by the Company without an expressed reason, the Company is required
to pay Mr. Miller as severance, within 60 days of the effective termination
date, an amount equal to 12 months' base salary at the salary rate then in
effect, plus accrued bonuses, if any. In the event of termination of the
agreement by Mr. Miller, the Company is required to pay salary accrued through
the date of termination, excluding any accrued bonus. The agreement further
provides that Mr. Miller shall not, directly or indirectly, for a period of
two years after termination (or one year if terminated by the Company without
cause), engage in any similar business, solicit customers of the Company, or
solicit employees of the Company in competition with the Company, in the
United States. The agreement also provides for disability and life insurance
at Company expense. The Company also agrees to pay for the cost of dependent
coverage included in the Company's group health insurance plan.
The Company has entered into an employment agreement with Sandra J.
Smith, as Chief Financial Officer, which provides for a term of two and one-
half years expiring in December 2003 at a base salary of $110,000 per year,
with an annual increase equal to the then-existing salary multiplied by the
average monthly increase in the cost of living index published by the United
States Department of Labor for the 12-month period preceding each anniversary
date. The agreement is terminable without an expressed reason by the Company
provided that it pay salary and benefits for the unexpired portion of the
term. In addition, the Company may terminate the agreement effective
immediately for "cause". The agreement further provides that Ms. Smith shall
not, directly or indirectly, for a period of one year after termination,
directly or indirectly engage or be employed by, any business or entity that
is in competition with the Company, without the prior written consent of the
Company's CEO. The agreement also provides for a cash fee (subject to
approval by the compensation committee) to be paid upon consummation of a
transaction whereby all of the stock or substantially all of the assets of the
Company or Alternate Postal Direct, Inc. are sold in a transaction which is
identified, negotiated, and consummated with the assistance of Ms. Smith.
See "CERTAIN TERMS OF THE AGREEMENT Employment Agreements" in this
proxy statement for a discussion of certain addenda to the employment
agreements of Mr. Miller and Ms. Smith to be entered into in connection with
the Transaction.
1995 Long-Term Incentive and Stock Option Plan
Effective July 21, 1995, the Company, by resolution of its board of
directors and shareholders, adopted the 1995 Long-Term Incentive and Stock
Option Plan (the "Incentive Plan"), which currently provides for the issuance
of up to 500,000 shares of the Company's Common Stock. No Preferred Stock or
other securities are authorized for issuance under the Incentive Plan. The
Incentive Plan will terminate on July 20, 2005, unless sooner terminated by
action of the Board.
All full or part-time employees (including officers and directors) of the
Company (and any subsidiaries, including Alternate Postal Direct, Inc.,
National Home Delivery, Inc. and others, if the Company acquires or forms any
additional subsidiaries) and non-employee directors, consultants and
independent contractors providing services to the Company (or any
subsidiaries) are eligible to receive options and awards under the Incentive
Plan. The Incentive Plan is not subject to the Employee Retirement Income
Security Act of 1974.
The Incentive Plan permits the granting of awards to employees and non-
employee officers, directors and agents of the Company in the form of stock
appreciation rights, restricted stock awards and stock options. Stock options
granted under the Incentive Plan may be "incentive stock options," meeting the
requirements of Section 422 of the Internal Revenue Code (the "Code"), or
nonqualified options which do not meet the requirements of Section 422. The
Incentive Plan is currently administered by the Stock Option Committee. The
Incentive Plan gives broad powers to the Committee to administer and interpret
the Plan, including the authority to select the individuals to be granted
options and rights, and to prescribe the particular form and conditions of
each option or right granted. Incentive stock options, in order to receive
favored tax treatment under the Code, must be exercisable for not more than 10
years and at not less than the fair market value of the Common Stock as of the
date of the grant (not more than 5 years and not less than 110% of the fair
market value if the optionee is a 10% or greater shareholder) and may be
granted only to employees. As of April 30, 2002, 533,854 options have been
granted and 123,800 are outstanding.
See "PROPOSAL TO AMEND 1995 OPTION PLAN" in this proxy statement for a
discussion of proposed amendments to the Incentive Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent (10%) of the Company's Common Stock, to file initial
reports of ownership and reports of changes in ownership with the Securities
and Exchange Commission (the "SEC"). Executive officers, directors and
greater than 10% beneficial owners are required by the SEC to furnish the
Company with copies of all Section 16(a) forms they file.
Based upon a review of the copies of such forms furnished to the Company,
the Company believes that during the fiscal year ended December 31, 2001 its
executive officers, directors and greater than 10% beneficial owners complied
with all Section 16(a) filing requirements applicable to them.
ELECTION OF DIRECTORS OF ALTERNATE MARKETING
In case the Transaction is not approved by the shareholders of Alternate
Marketing, shareholders are requested to vote for three directors for
Alternate Marketing for the ensuing year.
The Bylaws of the Company provide that the number of directors shall be
as fixed from time to time by resolution of the board of directors. The
current number of members of the board of directors is five, consisting of
Stan Henry, Phillip D. Miller, Thomas Hiatt, Louis Sito and Brad Moore. Only
Messrs. Miller, Hiatt and Moore are standing for re-election. The directors
elected at this meeting will serve a one-year term expiring upon the election
of their successors at the next annual meeting. Messrs. Sito and Moore were
appointed to the Board in connection with the investment in the Company by The
Times Mirror Company, which was merged with Tribune.
In the event any nominee is unavailable to stand for election at the time
of the Annual Meeting, the proxies may be voted for a substitute nominee
selected by the board of directors.
The following biographical information is furnished with respect to each
of the nominees.
Phillip D. Miller. Mr. Miller is the founder of the Company and has
served as its Chief Executive Officer and as a member of the board of
directors since inception in 1988. Mr. Miller has 25 years' experience as an
entrepreneur, primarily in the private delivery industry, where he is
recognized as a leader and spokesperson. In the course of his career, Mr.
Miller has founded and either merged or sold five companies, including
Promotional Media Management, American Field Marketing, and Discovery BIDCO (a
financial institution in the State of Michigan). Mr. Miller holds an
associate degree in business from Grand Rapids Junior College.
Thomas Hiatt. Mr. Hiatt has been a director of the Company since January
12, 1998. Mr. Hiatt is a co-founder and managing director since May 1998 of
Centerfield Capital Partners, L.P., one of Indiana's largest private capital
funds, and also serves since November 1989 as a general partner of Middlewest
Ventures II, LP, a venture capital fund which holds an ownership interest in
Alternate Marketing Networks, Inc. Mr. Hiatt currently serves as a director
of several other companies, including PowerWay, Inc. and Stratis Corporation.
Brad Moore. Mr. Moore has been a director of the Company since January
11, 2002 when he filled the vacancy created by the resignation of John McKeon.
Mr. Moore joined Tribune Company in 1997 and is currently a Manager focusing
on investment and partnership opportunities aligned with Tribune's publishing
and interactive business. Mr. Moore also sits on the Board of Directors of
MarketResearch.com. Prior to joining Tribune Company, Mr. Moore was at
PricewaterhouseCoopers LLP where he conducted financial reviews and merger and
acquisition due diligence for media and manufacturing clients. Mr. Moore
holds a B.S. in Business Administration from Michigan State University and is
a licensed certified public accountant.
The chairman of the board of directors (currently Phillip D. Miller) and
the officers of the Company are elected annually by the board of directors and
serve until their successors are elected and qualified, subject to earlier
removal by the board.
Board Committees
Audit Committee Compensation Committee Stock Option Committee
Stan Henry Thomas Hiatt Thomas Hiatt
Louis Sito John McKeon John McKeon
The purpose of the Audit Committee is to (1) annually select a firm of
independent public accountants as auditors of the books, records and accounts
of the Company; (2) review the scope of audits made by the independent public
accountants; and (3) receive and review the audit reports submitted by the
independent public accountants and take such action in respect of such reports
as the Audit Committee may deem appropriate to assure that the interests of
the Company are adequately protected. See "AUDIT COMMITTEE REPORT" in this
proxy statement.
The purpose of the Compensation Committee is to annually review and
approve management's overall compensation plan for the Company's employees,
excluding officers. The Committee also approves all incentive plans and sets
officer annual salaries and incentives, including cash and non-cash
remuneration. The Compensation Committee also makes recommendations to the
Stock Option Committee with respect to stock options and awards, which may be
included in the compensation set forth for each individual.
The purpose of the Stock Option Committee is to administer and interpret
the 1995 Long-Term Incentive and Stock Option Plan (the "Incentive Plan").
During the year ended December 31, 2001, the board of directors met
five times. The Audit Committee met two times and the Compensation and Stock
Option Committees each met two times. Louis Sito and John McKeon attended
less than 75% of the aggregate of the meetings of the board of directors and
the board committees on which they served.
Brad Moore has replaced John McKeon on the Compensation Committee and
Stock Option Committee in fiscal 2002.
Director Compensation
Non-employee directors do not receive any cash compensation but, pursuant
to the Outside Directors and Advisors Plan (the "Directors Plan"), each non-
employee director of the Company is granted stock options on an annual basis
when elected or re-elected to the board of directors. Non-employee directors
are reimbursed for expenses in accordance with Company policy.
1995 Outside Directors and Advisors Stock Option Plan
Effective July 21, 1995, the Company, by resolution of its board of
directors and shareholders, adopted the 1995 Outside Directors and Advisors
Stock Option Plan (the "Directors Plan") which provides for the issuance of up
to 75,000 shares of the Company's Common Stock to non-employee members of the
board of directors and non-employee members of the Company's Advisory Board
(which is currently inactive). No Preferred Stock or other securities are
authorized for issuance under the Directors Plan. The Directors Plan will
terminate on July 20, 2005, unless sooner terminated by action of the Board.
Only non-employee members of the board of directors of the Company and
non-employee advisors to the Company (of which there are currently none) are
eligible to receive grants under the Directors Plan. The Directors Plan is
not subject to the Employee Retirement Income Security Act of 1974. The
Directors Plan provides for a grant to non-employee directors and advisors of
options to purchase 5,000 shares upon initial election to the Board or 1,000
shares upon appointment as an advisor (an "Initial Option") and, in the case
of directors, for annual grants thereafter, upon re-election, of options to
purchase 2,500 shares (an "Annual Option"). Directors or advisors may choose
to waive such option grants, in their discretion. All options granted under
the Directors Plan are "non-qualified" options which do not meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
The Directors Plan is administered by the Chief Executive Officer and
Chief Financial Officer, but the administrators have no authority to select
recipients, select the date of grant of options, the number of option shares,
or the exercise price, or to otherwise prescribe the particular form or
conditions of any option granted. As of April 30, 2002, 77,500 options have
been granted and 67,500 are outstanding. Initial Options and Annual Options
are immediately exercisable for a period of 10 years from the date of grant.
Except for the Initial Options currently outstanding, all Initial Options and
Annual Options have an exercise price per share equal to 100% of the fair
market value of the Common Stock as of the date of grant. Each Annual Option
terminates three months after the termination of the optionee as a director of
the Company for any reason except a "change in control," in which case the
Option terminates after six months. An Initial Option remains exercisable,
notwithstanding the termination of the directorship of the optionee, unless
such termination is a result of death or a "change in control," in which case
the Initial Option terminates after six months. A "change in control" shall
be deemed to have occurred if (a) a person is or becomes the beneficial owner,
directly or indirectly, of 50% or more of the voting capital stock of the
Company, or (b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority of the Board unless the election or the
nomination for election by the Company shareholders of each new director was
approved by a vote of at least three-quarters of the directors then still in
office who were directors at the beginning of the period. A merger,
consolidation, or corporate reorganization in which the owners of the
Company's voting stock own 50% or more of the resulting entity's voting stock
shall not be considered a "change in control." Notwithstanding the foregoing,
a "change in control" shall not have been deemed to have occurred if the Board
otherwise directs by resolution adopted prior to the event which would
otherwise constitute a "change in control."
The Directors Plan will be terminated upon shareholder approval of the
amended and restated 1995 Long-Term Incentive and Stock Option Plan.
Termination of the Plan means that no additional options will be granted;
termination does not affect issued and outstanding options.
Indemnification of Directors and Officers
The Company's Restated Articles of Incorporation (the "Articles") limit
personal liability for breach of fiduciary duty by its directors to the
fullest extent permitted by the Michigan Business Corporation Act ("MBCA").
The Articles eliminate the personal liability of directors to the Company and
its shareholders for damages occasioned by breach of fiduciary duty, except
for liability based on breach of the director's duty of loyalty to the
Company, liability for acts or omissions not made in good faith, liability for
acts or omissions involving intentional misconduct, liability based on
payments of improper dividends, liability based on violation of state
securities laws, and liability for acts occurring prior to the date such
provision was added. Any amendment to or repeal of such provisions in the
Company's Articles shall not adversely affect any right or protection of a
director of the Company for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal. These provisions
eliminate the personal liability of directors in their capacity as directors
(but not in their capacity as officers) to the Company and to its shareholders
to the fullest extent permitted by Michigan law.
In addition, the Company's Bylaws provide that officers and directors of
the Company have the right to indemnification from the Company for liability
arising out of certain actions to the fullest extent permissible by law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers or persons
controlling the Company pursuant to such indemnification provisions, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
AUDIT COMMITTEE REPORT
The Audit Committee of our board of directors is comprised of two
directors (both of whom are "independent" under the listing standards of The
Nasdaq Stock Market) and operates under a written charter adopted and approved
by the Board in 2000. During the fiscal year ended December 31, 2001, the
members of the Committee were Stan Henry and Louis Sito. The Committee
recommends to the board of directors, subject to shareholder ratification, the
selection of the Company's independent accountants. Management is responsible
for the Company's internal controls and the financial process; the independent
accountants are responsible for performing an independent audit of the
Company's consolidated financial statements in accordance with generally
accepted auditing standards and for issuing a report thereon. The Committee's
responsibility is to monitor and oversee these processes. In this context,
the Committee has met and held discussions with management and the independent
accountants.
The Committee has reviewed and discussed with management the Company's
audited consolidated financial statements for the fiscal year ended December
31, 2001. The Committee has also discussed with PricewaterhouseCoopers LLP,
the Company's independent auditors, the matters required to be discussed by
the Auditing Standards Board Statement on Auditing Standards No. 61, as
amended.
Based on its review, the Committee has recommended to the board of
directors that the Company's audited consolidated financial statements for
fiscal year 2001 be included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2001.
Members of the Audit Committee:
Stan Henry
Louis Sito
INDEPENDENT AUDITORS
Alternate Marketing
PricewaterhouseCoopers LLP served as independent accountants for the
Company for the year ended December 31, 2001. It is anticipated that a
representative of PricewaterhouseCoopers LLP will be present at the meeting,
will have an opportunity to make a statement, and will respond to appropriate
questions. The Company's audited financial statements are included in the
Company's Form 10-KSB for the fiscal year ended December 31, 2001.
Audit Fees. The Company was billed a total of $56,500 by
PricewaterhouseCoopers LLP for professional services rendered in connection
with the audit of our financial statements for the 2001 fiscal year and the
reviews of our interim financial statements.
Financial Information Systems Design and Implementation Fees. No
professional services were rendered by PricewaterhouseCoopers LLP related to
the Company's financial information systems design and implementation during
the 2001 fiscal year.
All Other Fees. The Company was billed $57,195 for additional services
rendered by PricewaterhouseCoopers LLP other than those described above.
The Audit Committee has considered the provision of all non-audit
services performed by PricewaterhouseCoopers LLP with respect to maintaining
auditor independence.
Hencie
Deloitte & Touche LLP served as independent accountants for Hencie, Inc.
for the year ended December 31, 2001. We do not expect a representative of
Deloitte & Touche to be present at the meeting.
New ALTM
The board of directors of New ALTM will select an auditor for New ALTM
for its fiscal year ending December 31, 2002. The board will not seek
shareholder ratification of such appointment.
OTHER MATTERS AND PROPOSALS FOR THE MEETING
Management of ALTM is not aware of any other business to come before the
meeting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may inspect and copy such material at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street NW, Washington, D.C. 20549, as well as at the SEC's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You also can find our SEC filings at the SEC's website at
www.sec.gov.
The SEC allows us to incorporate by reference, which means that we can
disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is
deemed to be part of this proxy statement, except for any information
superseded by information in this proxy statement. This proxy statement
incorporates by reference the documents set forth below that we have
previously filed with the SEC. These documents contain important information
about Alternate Marketing and its finances.
1. Alternate Marketing's Annual Report on Form 10-KSB for the year ended
December 31, 2001.
2. Alternate Marketing's Current Report on Form 8-K dated April 24, 2002
concerning the Transaction.
3. The description of Alternate Marketing's common stock on Form 8-A,
filed August 14, 1995, including all amendments and reports filed for the
purpose of updating such description.
Alternate Marketing's Annual Report on Form 10-KSB is enclosed with this
Proxy Statement. Other documents specifically incorporated into this document
by reference are available without charge, excluding all exhibits unless an
exhibit has been specifically incorporated by reference into this document.
You may obtain documents incorporated into this document by reference by
requesting them in writing or by telephone from Alternate Marketing at the
following address:
Alternate Marketing Networks, Inc.
One Ionia SW, Suite 520
Grand Rapids, MI 49503
Attention: Phillip D. Miller
(616) 235-0698
In order to obtain timely delivery of this information, you should
request it no later than July 15, 2002.
PROPOSALS FOR FISCAL 2002 ANNUAL MEETING
We currently anticipate that the annual meeting, for the fiscal year
ending December 31, 2002 (the "2002 Annual Meeting"), will be held in mid-May,
2003. If you wish to submit a proposal for inclusion in the proxy statement
and proxy for shareholder action at the 2002 Annual Meeting, you must do so by
sending the proposal and supporting statements, if any, to us no later than
February 1, 2003.
In addition, pursuant to the rules of the Securities and Exchange
Commission, proxies solicited by our management for the 2002 Annual Meeting
may grant management the authority to vote in its discretion on any proposal
to be submitted by a shareholder otherwise than through inclusion in the proxy
statement for the 2002 Annual Meeting, unless we have received notice of the
shareholder proposal on or before April 1, 2003.
* * * * * * * * * * *
You should rely only on the information provided in this proxy statement
(including the Transaction Agreement attached as Appendix A of this proxy
statement) in considering how to vote your shares on the proposals discussed
herein. We have authorized no one to provide you with different information.
You should not assume that the information in this proxy statement is accurate
as of any date other than the date on the front of this document.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB IS ENCLOSED. AN
ADDITIONAL COPY (WITHOUT EXHIBITS) WILL BE SENT WITHOUT CHARGE TO ANY
SHAREHOLDER REQUESTING IT IN WRITING FROM: ALTERNATE MARKETING NETWORKS, INC.,
ATTENTION: PHILLIP D. MILLER, CHIEF EXECUTIVE OFFICER, ONE IONIA SW, SUITE
520, GRAND RAPIDS, MI 49503.
FINANCIAL STATEMENTS OF HENCIE
HENCIE, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
Page
INDEPENDENT AUDITORS' REPORT 112
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES:
Consolidated Balance Sheets as of December 31, 2000 and 2001, and
March 31, 2002 (unaudited) 113
Consolidated Statements of Operations for the years ended
December 31, 2000 and 2001, and the three months ended
March 31, 2001 and 2002 (unaudited) 114
Consolidated Statements of Stockholders' Equity (Deficiency) for
the years ended December 31, 2000 and 2001, and the three months
ended March 31, 2002 (unaudited) 115
Consolidated Statements of Cash Flows for the years ended
December 31, 2000 and 2001, and the three months ended
March 31, 2001 and 2002 (unaudited) 116
Notes to Consolidated Financial Statements 117-125
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Hencie, Inc.:
We have audited the accompanying consolidated balance sheets of Hencie, Inc.
and subsidiary (the "Company") as of December 31, 2000 and 2001, and the
related statements of operations, stockholders' equity (deficiency), and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2000
and 2001, and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements for the year ended December
31, 2001, have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the financial statements, the
Company's recurring losses from operations, working capital deficiency and
stockholders' deficiency, as well as notes payable in default and other
contingencies, raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Dallas, Texas
April 22, 2002
(May 22, 2002, as to second paragraph of Note 4)
HENCIE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001, AND MARCH 31, 2002 (UNAUDITED)
______________________________________________________________________________
December 31, March 31,
2000 2001 2002
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 167,926 $ 187,275 $ 13,809
Accounts receivable - Net 1,636,039 676,979 1,001,914
Accrued revenues for unbilled services 317,103 146,350 199,712
Prepaid expenses and other 29,552 12,439 8,823
---------- ---------- ----------
Total current assets 2,150,620 1,023,043 1,224,258
PROPERTY AND EQUIPMENT - NET 455,221 245,012 193,049
---------- ---------- ----------
TOTAL $2,605,841 $1,268,055 $1,417,307
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable to factor $1,129,212 $ 543,611 $ 688,226
Senior subordinated note payable 1,400,000 1,400,000 1,400,000
Current portion of long-term debt 67,627 70,830 57,848
Accounts payable 781,151 845,970 1,027,927
Accrued expenses 2,626,353 1,848,023 1,701,649
Deferred revenue 52,663 124,188 260,000
---------- ---------- ----------
Total current liabilities 6,057,006 4,832,622 5,135,650
LONG-TERM DEBT - Less current portion 121,766 90,798 89,061
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIENCY):
Series B junior, cumulative preferred stock,
$.01 par value; 50,000,000 shares authorized;
100,100 and 0 shares issued and outstanding,
respectively 1,000,000 1,000,000 -
Common stock, $.01 par value; 25,000,000
shares authorized; 10,511,509, 12,264,151
and 17,167,277 shares issued and outstanding,
respectively 105,115 122,641 171,673
Additional paid-in capital 2,304,491 2,533,583 3,776,373
Accumulated deficit (6,729,356) (6,973,307) (7,390,528)
Deferred compensation (253,181) (338,282) (364,922)
---------- ---------- ----------
Total stockholders' deficiency (3,572,931) (3,655,365) (3,807,404)
---------- ---------- ----------
TOTAL $2,605,841 $1,268,055 $1,417,307
========== ========== ==========
See notes to consolidated financial statements.
HENCIE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 2001, AND THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 (UNAUDITED)
______________________________________________________________________________
Three months ended
March 31,
------------------------
2000 2001 2001 2002
(unaudited)
REVENUES $10,318,840 $11,937,462 $3,686,416 $2,445,091
COST OF REVENUES 4,633,677 6,367,462 1,819,138 1,365,463
----------- ----------- ----------- ----------
GROSS PROFIT 5,685,163 5,570,000 1,867,278 1,079,628
OPERATING EXPENSES:
Compensation and benefits 7,119,721 3,674,024 1,026,813 738,133
Legal and other professional
services 366,917 198,242 32,118 202,762
General and administrative 2,228,677 973,781 341,990 157,490
Stock-based compensation and
other costs 730,455 94,939 21,121 199,828
Depreciation and amortization 178,441 237,030 104,146 51,963
----------- ----------- ----------- ----------
Total operating expenses 10,624,211 5,178,016 1,526,188 1,350,176
OPERATING INCOME (LOSS) (4,939,048) 391,984 341,090 (270,548)
OTHER INCOME (EXPENSE) -
Interest expense (293,396) (635,935) (200,084) (146,673)
----------- ----------- ----------- ----------
NET INCOME (LOSS) $(5,232,444) $ (243,951) $ 141,006 $ (417,221)
=========== =========== =========== ==========
See notes to consolidated financial statements.
HENCIE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 2000 AND 2001, AND THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
______________________________________________________________________________
Preferred Stock Common Stock
Shares Dollars Shares Dollars
BALANCE, JANUARY 1, 2000 - $ - 4,000,000 $ 800
Hencie Consulting Services, Inc.
("HCS", the predecessor):
Capital contribution
Common stock exchanged for preferred stock 100 1,000,000 (1,500,000) (300)
Common stock exchanged for Hencie, Inc.
common stock (shown below) (2,500,000) (500)
Hencie, Inc.:
Common stock issued for HCS common stock
(shown above) 1,500,000 15,000
Common stock issued to CEO 7,000,000 70,000
Restricted common stock issued to CEO 2,000,000 20,000
Stock-based compensation for option grants
Amortization of deferred compensation
Stock options exercised 11,509 115
Net loss
---- ---------- ---------- --------
BALANCE, DECEMBER 31, 2000 100 1,000,000 10,511,509 105,115
Stock options exercised 1,552,642 15,526
Common stock issued to customer 200,000 2,000
Stock-based compensation for option grants
Amortization of deferred compensation
Net loss
---- ---------- ---------- --------
BALANCE, DECEMBER 31, 2001 100 1,000,000 12,264,151 122,641
Preferred stock exchanged for common stock (100) (1,000,000) 1,919,857 19,199
Stock options exercised 2,178,468 21,785
Common stock issued to employees 108,279 1,083
Common stock issued to vendor 696,522 6,965
Amortization of deferred compensation
Net loss
---- ---------- ---------- --------
BALANCE, MARCH 31, 2002 (unaudited) -- $ -- 17,167,277 $171,673
==== ========== ========== ========
Total
Additional Stockholders'
Paid-In Deferred Accumulated Equity
Capital Compensation Deficit (Deficiency)
BALANCE, JANUARY 1, 2000 $ 200 $ - $ (497,287) $ (496,287)
Hencie Consulting Services, Inc.
("HCS", the predecessor):
Capital contribution 1,425,000 1,425,000
Common stock exchanged for preferred stock (75) (999,625) --
Common stock exchanged for Hencie, Inc.
common stock (shown below) (125) (625)
Hencie, Inc.:
Common stock issued for HCS common stock
(shown above) (14,375) 625
Common stock issued to CEO 630,000 700,000
Restricted common stock issued to CEO 180,000 (200,000) --
Stock-based compensation for option grants 83,636 (83,636) --
Amortization of deferred compensation 30,455 30,455
Stock options exercised 230 345
Net loss (5,232,444) (5,232,444)
---------- ---------- ------------ -----------
BALANCE, DECEMBER 31, 2000 2,304,491 (253,181) (6,729,356) (3,572,931)
Stock options exercised 31,052 46,578
Common stock issued to customer 18,000 20,000
Stock-based compensation for option grants 180,040 (180,040) --
Amortization of deferred compensation 94,939 94,939
Net loss (243,951) (243,951)
---------- ---------- ------------ -----------
BALANCE, DECEMBER 31, 2001 2,533,583 (338,282) (6,973,307) (3,655,365)
Preferred stock exchanged for common stock 980,801 --
Stock options exercised 109,077 (65,508) 65,354
Common stock issued to employees 20,573 21,656
Common stock issued to vendor 132,339 139,304
Amortization of deferred compensation 38,868 38,868
Net loss (417,221) (417,221)
---------- ---------- ------------ -----------
BALANCE, MARCH 31, 2002 (unaudited) $3,776,373 $ (364,922) $(7,390,528) $(3,807,404)
========== ========== ============ ===========
See notes to consolidated financial statements.
HENCIE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 2001, AND THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 (UNAUDITED)
______________________________________________________________________________
Three months ended
March 31,
-------------------
2000 2001 2001 2002
(unaudited)
OPERATING ACTIVITIES:
Net income (loss) $(5,232,444) $(243,951) $ 141,006 $ (417,221)
Noncash items in net income (loss):
Stock-based compensation and other
costs 730,455 94,939 21,121 199,828
Stock issued to customer (reduced
revenues) 20,000
Depreciation and amortization 178,441 237,030 104,146 51,963
Changes in operating assets and
liabilities:
Accounts receivable and accrued
revenues (1,087,938) 1,129,813 (599,776) (378,297)
Prepaid expenses and other (29,552) 17,113 (4,000) 3,616
Accounts payable 388,146 64,819 (106,722) 181,957
Accrued expenses 2,231,326 (778,330) (100,391) (146,374)
Deferred revenue (57,596) 71,525 107,886 135,812
---------- --------- ---------- ---------
Net cash provided by (used in)
operating activities (2,879,162) 612,958 (436,730) (368,716)
INVESTING ACTIVITIES - Purchases
of property and equipment (436,555) (26,821) (7,041) --
FINANCING ACTIVITIES:
Proceeds from common stock issuances
and capital contribution 1,425,345 46,578 7,772 65,354
Proceeds from notes payable 2,044,291 444,420 144,615
Payments on notes payable and
long-term debt (63,373) (613,366) (14,719)
---------- --------- ---------- ---------
Net cash provided by (used in)
financing activities 3,406,263 (566,788) 452,192 195,250
---------- --------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 90,546 19,349 8,421 (173,466)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 77,380 167,926 167,926 187,275
---------- --------- ---------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 167,926 $ 187,275 $ 176,347 $ 13,809
========== ========= ========== =========
SUPPLEMENTAL INFORMATION -
Interest paid $ 20,579 $ 14,019 $ 73,385 $ 43,761
========== ========= ========== =========
See notes to consolidated financial statements.
HENCIE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 2001, AND
THREE MONTHS ENDED MARCH 31, 2001 AND 2002 (UNAUDITED)
______________________________________________________________________________
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS - Hencie Consulting Services, Inc. was formed on
November 19, 1996, and became a wholly owned subsidiary of Hencie, Inc., a
Delaware corporation, which was formed on August 9, 2000 (collectively, "the
Company"). The Company provides e-Business solutions and applications to a
broad range of clients and industry segments.
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Hencie, Inc. and
Hencie Consulting Services, Inc. from the dates of their formation and have
been prepared in conformity with accounting principles generally accepted in
the United States of America. Significant intercompany balances and
transactions are eliminated in consolidation.
FINANCIAL STATEMENT PREPARATION requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the amounts of revenues and expenses
reported during the periods. Actual results could differ from these
estimates.
GOING CONCERN These financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred significant, recurring losses and has a significant working capital
deficiency and stockholders' deficiency at December 31, 2001. Notes payable
of $1,400,000 are past due and in default, and accrued payroll taxes of
$978,158 are due to the IRS (Notes 4 and 5) at December 31, 2001. Also,
disputes have arisen on a capital contribution of $1,425,000 in 2000, which
could require repayment by the Company if not resolved (Note 7). These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis, to obtain additional financing, and
ultimately to attain successful operations. The Company plans to continue to
raise additional capital as required. As indicated in Note 10, the Company
has entered into an agreement of reorganization with another company which is
subject to approval by the public stockholders of that company. However, the
Company cannot provide any assurances that these plans will be achieved and
sufficient funding will result.
REVENUES from implementation contracts are recognized on a time-and-materials
basis as services are performed. Revenues are accrued for services provided
that have not been billed at the reporting date. The percentage-of-completion
method is used to account for custom consulting contracts and fixed price
contracts, with revenues recognized as services are performed over the life of
the contract, based on the costs it incurs in relation to the total estimated
costs. Revenues from separately priced maintenance contracts are initially
deferred and recognized ratably over the term of the contract, which is
typically 12 months. Out-of-pocket expenses reimbursed by clients are
included in revenues, and the expenses incurred by the Company are included in
cost of revenues.
SOFTWARE DEVELOPMENT COSTS are expensed as incurred and totaled $140,000 and
$0 in 2000 and 2001, respectively, and $0 for the three months ended March 31,
2001 and 2002 (unaudited).
CASH AND CASH EQUIVALENTS consist of liquid investments with maturities of
three months or less at date of purchase.
ACCOUNTS RECEIVABLE are stated net of an allowance for doubtful accounts of
$316,532 and $197,844 at December 31, 2000 and 2001, respectively, and
$215,155 at March 31, 2002 (unaudited). The Company performs credit
evaluations of its customers and establishes credit limits, periodically
reviews accounts receivable for collectibility, and provides an allowance for
doubtful accounts as deemed necessary. Accounts receivable that are factored
to a lender with full recourse to the Company are $1,411,515 and $679,514 at
December 31, 2000 and 2001, respectively, and $860,283 at March 31, 2002
(unaudited). These transfers of receivables to the lender are accounted for
as secured borrowings.
PROPERTY AND EQUIPMENT are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight-line
basis over the estimated useful lives of the assets of primarily three years
or the related lease term, if shorter.
STOCK-BASED COMPENSATION arising from stock option grants is accounted for by
the intrinsic value method under APB Opinion No. 25. Statement of Financial
Accounting Standards ("SFAS") No. 123 encourages (but does not require) the
cost of stock-based compensation arrangements with employees to be measured
based on the fair value of the equity instrument awarded. As permitted by
SFAS No. 123, the Company applies APB Opinion No. 25 to its stock-based
compensation awards to employees and discloses in Note 8 the required pro
forma effect on operations.
UNAUDITED INTERIM FINANCIAL INFORMATION at March 31, 2002, and for the three
months ended March 31, 2001 and 2002, have been prepared on the same basis as
the audited financial statements presented. In the opinion of management,
such unaudited information include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of this interim
information. The results of these interim periods are not necessarily
indicative of future results.
2. ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS
Accounts receivable and revenues from significant customers represent the
following percentages of the Company's net accounts receivable and total
revenues:
Accounts Receivable at Revenues
December 31, March 31, Year Ended Quarter Ended
December 31, March 31,
2000 2001 2002 2000 2001 2001 2002
(unaudited) (unaudited)
Customer A 19% -% -% 26% 35% 38% 20%
Customer B 15 2 1 8 4 6 -
Customer C - 19 16 - 2 - 26
Customer D - 12 - - 8 1 -
Customer E 2 10 9 1 13 5 -
Customer F - 16 12 - 5 - 19
Customer G - - 29 - - - 13
Customer H 4 - - 1 5 10 -
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31, March 31,
2000 2001 2002
(unaudited)
Leasehold improvements $ 41,993 $ 41,993 $ 41,993
Furniture and fixtures 47,031 72,526 72,526
Computers and office equipment 609,774 610,612 610,612
-------- -------- --------
Total 698,798 725,131 725,131
Less accumulated depreciation
and amortization 243,577 480,119 532,082
-------- -------- --------
Property and equipment - net $455,221 $245,012 $193,049
======== ======== ========
4. NOTES PAYABLE AND DEBT
The Company has a factoring arrangement under which it can sell its accounts
receivable to a lender with full recourse to the Company in the event of
collection losses. Notes payable of $1,129,212 and $543,611 at December 31,
2000 and 2001, respectively, and $688,226 at March 31, 2002 (unaudited),
represents the outstanding borrowings under this arrangement. A major
stockholder of the Company guarantees 100% of the accounts receivable factored
by the Company.
Senior subordinated convertible note payable of $1,400,000, bears interest at
8%, and was due at the original maturity date of November 21, 2001. On May
22, 2002, the Company entered into a settlement agreement with Edge Technology
Group, Inc., a Delaware corporation ("Edge"), to resolve litigation that had
arisen with respect to the note. Pursuant to that agreement, the Company
initially paid to Edge $55,000 upon the execution of the settlement agreement
and, after August 15, 2002, or the closing of the agreement of reorganization
(the "Transaction Agreement") the Company has entered into with another
company (Note 10), is obligated to pay $60,000 in equal monthly installments
until it pays to Edge a total of $1,650,000 plus interest accruing at a fixed
rate per annum equal to 8% percent. The Company's aggregate payments to Edge
under the settlement agreement may be reduced by $450,000 (plus any interest
accrued thereon) if (a) either (x) the Transaction Agreement is closed and the
Company or the company mentioned in Note 10 has made at least three timely
monthly installments of principal and interest to Edge or (y) the Company
makes twelve timely monthly installments of principal and interest to Edge;
(b) shares of the Company mentioned in Note 10 with a value equal to 150% of
the then outstanding debt have been pledged to Edge; and (c) no event of
default pursuant to the settlement agreement has occurred.
The convertible feature of the note, which allowed the holder to convert the
note into 885,543 shares of Series A convertible preferred stock, expired in
November 2000.
Long-term debt consists of the following:
December 31, March 31,
2000 2001 2002
(unaudited)
Small Business Administration guaranteed
loan, interest payable monthly at 9.75%,
principal due in monthly installments of
$2,604 through March 2006 $ 132,698 $ 111,911 $ 110,174
Note payable, interest payable quarterly
at 8.89%, principal due in quarterly
installments of $14,161 through April 2002 56,695 49,717 36,735
--------- --------- ---------
Total 189,393 161,628 146,909
Less current portion 67,627 70,830 57,848
--------- --------- ---------
Long-term portion $ 121,766 $ 90,798 $ 89,061
========= ========= =========
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, March 31,
2000 2001 2002
(unaudited)
Payroll taxes payable to the IRS $1,955,758 $ 978,158 $ 788,891
Salaries and other incentive compensation 370,551 406,831 446,900
Vacation 151,358 199,658 230,777
Interest 28,000 140,000 168,000
Insurance 120,686 123,376 67,081
--------- ---------- ----------
Total $2,626,353 $1,848,023 $1,701,649
========== ========== ==========
Payroll taxes are payable under a payment plan with the IRS where the Company
pays $92,692 monthly, including interest at a floating rate (6% at December
31, 2001), beginning January 2001 and continuing until paid in full in
December 2002.
6. EMPLOYEE BENEFITS
The Company maintains a qualified cash or deferred compensation plan under
Section 401(k) of the Internal Revenue Code. Under the plan, domestic
employees may elect to defer up to 15% of their salary, subject to the
Internal Revenue Service limits. The Company, on an elective basis,
contributes a matching 50% of the first 6% of employee contributions. In 2000
and 2001, the Company's contributions were $143,325 and $150,444,
respectively, and were $39,140 and $0 for the three months ended March 31,
2001 and 2002, respectively (unaudited).
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases certain corporate office space in Dallas
and Houston, Texas under noncancelable operating lease agreements. Rent
expense under these leases was $465,106 and $347,826 in 2000 and 2001,
respectively, and $104,159 and $54,313 for the three months ended March 31,
2001 and 2002, respectively (unaudited). Future minimum rental commitments
under such leases at December 31, 2001, are as follows: $296,648 in 2002,
$323,616 in 2003, $323,616 in 2004, and $53,936 in 2005. The Dallas office
lease includes a renewal option of three years at similar terms and
conditions.
LEGAL PROCEEDINGS - The Company faces potential litigation related to a
capital contribution of $1,425,000 in 2000. On January 9, 2001, the Company
received a demand letter from Hencie.Com, an affiliate of Paul A. Tanner (see
Note 8, Formation), claiming that (i) Hencie.Com was entitled to 1,500,000
shares of the Company's common stock (the "Collateral") in connection with an
alleged stock purchase agreement by and between the Company and Hencie.Com and
(ii) the Company owed Hencie.Com $1,900,000 in connection with $1,400,000 that
was advanced to the Company by Hencie.Com (collectively, the "Claims"). The
Company has investigated the Claims and concluded that the Company's CEO, and
not the Company, is obligated to pay and deliver 1,176,000 shares of the
Company's common stock, issued in the name of the CEO, to Hencie.Com, upon
execution by Paul A. Tanner of certain releases, in connection with a
transaction consummated as of September 15, 2000, by and between the Company,
its CEO, and certain other parties (the "Equity Transaction"). The CEO has
agreed, pursuant to that Indemnification Agreement, dated September 15, 2000,
to indemnify the Company from and against any losses or liabilities arising
out of or relating to the Claims.
The Company believes that the indemnification agreement will be sufficient to
eliminate the risks to the Company. However, if the dispute is not resolved
and the Collateral is not sufficient, the resulting outcome could require the
Company to repay all or a portion of the capital contribution. In the event
litigation in connection with the Claims is pursued and the CEO is, for any
reason, unable to fulfill his indemnification obligations to the Company in
connection with such Claims, the Company intends to vigorously contend the
Claims and pursue any potential counterclaims that may be available. However,
the business, financial condition, and operations of the Company could be
materially and adversely affected by an outcome that is adverse to the Company
with respect to any of the Claims, legal fees and expenses associated with
investigating, contesting, and defending against any of the Claims, whether or
not the Claims are successfully pursued by Mr. Tanner, and the diversion of
management's time and resources in connection with any such investigation,
contest, or defense. Therefore, the dispute and legal fees and expenses
incurred in connection with such dispute could have a material and adverse
effect on the Company.
8. STOCKHOLDERS' EQUITY
FORMATION - Upon formation of Hencie, Inc. ("Hencie") in August 2000, Hencie
Consulting Services, Inc. ("HCS") had 4,000,000 shares of common stock
outstanding. A stockholder of HCS exchanged 1,500,000 shares of HCS common
stock for 100 shares of Series A junior preferred stock, which was later
exchanged for 100 shares of Hencie Series B junior preferred stock discussed
below. Other stockholders of HCS exchanged a total of 2,500,000 shares of HCS
common stock for 1,500,000 shares of Hencie common stock.
HCS also received a capital contribution of $1,425,000 from an individual as
part of his fund raising efforts for HCS. However, no shares were issued, and
there are disputes with this individual as discussed in Note 7, Legal
Proceedings.
COMMON STOCK - Upon formation, Hencie also issued 9,000,000 common shares to
the CEO, of which 7,000,000 were vested for past services and 2,000,000 were
restricted for future services and vest over four years. All of these shares
were recorded at $0.10 per share based on estimated fair value. Stock-based
compensation and costs of $700,000 was recorded in 2000 for the 7,000,000
shares and is included in operating expenses. Deferred compensation of
$200,000 was recorded in 2000 for the 2,000,000 shares, and amortization of
deferred compensation of $16,668 and $50,000 was recorded in 2000 and 2001,
respectively, and $12,500 for each of the three months ended March 31, 2001
and 2002 (unaudited), and is included in stock-based compensation and other
costs in operating expenses. The CEO has pledged 3,000,000 of the vested
shares as collateral under an indemnification agreement related to the
disputes discussed in Note 7, Legal Proceedings.
In 2001, the Company issued 200,000 common shares to a customer. These shares
were valued at $0.10 per share based on estimated fair value, and the total of
$20,000 was recorded as a reduction of revenues.
SERIES B JUNIOR PREFERRED STOCK - The Company has authorized 50 million shares
of $.01 par value junior, cumulative, nonvoting preferred stock. The
preferred stock has a liquidation value of $10,000 per share and accumulates
dividends at 8% per annum, when and if declared. At December 31, 2000 and
2001, there are 100 shares of preferred stock issued and outstanding. At
December 31, 2001, the shares have cumulative dividends in arrears of $80,000.
UNAUDITED INTERIM PERIOD IN 2002 - In March 2002, the Company redeemed the
100 outstanding shares of Senior B Junior Preferred Stock by issuing 1,919,857
shares of the Company's common stock. The Company also issued 696,522 shares
to a vendor and 108,279 shares to employees for services performed. These
shares were valued at $0.20 per share based on estimated fair value, and the
total of $160,960 was recorded as stock-based compensation and other costs in
operating expenses.
STOCK OPTION PLANS - The 1999 Stock Option Plan (the "1999 Plan"), as amended,
provides for the granting of incentive stock options and nonqualified options
for up to 2,250,000 common shares at an exercise price at least equal to the
fair value on the grant date. Options may be exercised in whole or in
installments and expire no later than ten years after the grant date. Options
generally vest over a period of four years.
On August 30, 2000, the Company adopted the 2000 Stock Option Plan (the "2000
Plan"). The 2000 Plan provides for the granting of incentive stock,
restricted stock, and nonqualified options for up to 3,698,712 shares of
common stock at an exercise price at least equal to the fair value on the
grant date. Options are exercisable beginning with the grant date and may be
exercised in whole or in installments and expire no later than ten years after
the grant date. The options or the related common stock issued from the
options exercised generally vest over a period of ten quarters.
Stock option activity in 2000 and 2001 and for the three months ended March
31, 2002 (unaudited), is as follows:
Number Exercise
of Shares Price
Outstanding options, January 1, 2000 1,082,584 $ 0.03
Granted 3,127,202 0.03
Canceled (373,149) 0.03
Exercised ( 11,509) 0.03
--------- ------
Outstanding options, December 31, 2000
(1,739,609 exercisable) 3,825,128 0.03
Granted 1,427,500 0.03
Canceled (1,422,703) 0.03
Exercised (1,552,642) 0.03
--------- ------
Outstanding options, December 31, 2001
(2,016,023 exercisable) 2,277,283 0.03
Exercised (2,178,468) 0.03
--------- ------
Outstanding options, March 31, 2002
(98,815 exercisable)-unaudited 98,815 $ 0.03
========= ======
The following table summarizes additional information about stock options
outstanding and exercisable at December 31, 2001:
Options Outstanding Options Exercisable
------------------------------------ ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number of Contractual Exercise Number of Exercise
Price Shares Life Price Shares Price
$ 0.03 2,277,283 8.70 years $ 0.03 2,016,023 $ 0.03
The Company applies APB No. 25 and related interpretations in accounting for
the plans. Deferred compensation of $83,636 and $180,040 was recorded in 2000
and 2001, respectively, for 1,194,800 and 1,427,500 options granted,
respectively, based on the excess of the estimated fair value of the common
stock on the grant dates over the exercise price of $0.03 per share.
Amortization of deferred compensation of $13,787 and $44,939 was recorded in
2000 and 2001, respectively, and $8,621 and $26,368 for the three months ended
March 31, 2001 and 2002, respectively (unaudited), and is included in stock-
based compensation and other costs in operating expenses. SFAS No. 123
prescribes a method to record compensation cost at the estimated fair value of
the options at the grant date. Had compensation cost been determined with the
method prescribed by SFAS No. 123, the Company's pro forma net loss would have
been as follows:
December 31,
2000 2001
Net Income (Loss) $ (5,232,444) $ (243,951)
Pro Forma Net Income (Loss) $ (5,236,766) $ (249,364)
In the pro forma calculations, the weighted average fair value of options
granted to employees in 2000 and 2001 was estimated at $.04 and $.13 per
share, respectively. The fair value of each option grant was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 2000 and 2001, respectively:
risk-free interest rate of 6.40% and 3.51%, no dividend yield, expected lives
of three years and no expected volatility (because the Company's stock is not
publicly traded).
UNAUDITED INTERIM PERIOD IN 2002 - In March 2002, options to purchase
2,195,468 common shares were exercised. These shares issued are restricted,
and the vesting schedule from the related options continues, except for
452,069 shares for which the vesting was accelerated due to the planned sale
of the Company (Note 10). This acceleration of vesting created a new
measurement date, and deferred compensation of $65,508 was recorded based on
the excess of the estimated fair value of the common stock on the date of the
acceleration of vesting over the exercise price of $0.03 per share, less the
deferred compensation recognized at the original measurement date. The
452,069 shares are also restricted for a period of six months following the
sale of the Company, and the deferred compensation will be amortized by the
Company and included in stock-based compensation and other costs in operating
expenses over this period of six months.
9. INCOME TAXES
The tax effects of significant items comprising the Company's net deferred
income tax assets (liabilities) at December 31 are as follows:
2000 2001
Net operating loss ("NOL") carryforwards - expiring
in 2012 to 2021 $ 526,133 $1,331,946
Timing differences 1,220,184 528,227
Valuation allowance (1,746,317) (1,860,173)
----------- ----------
$ -- $ --
=========== ==========
10. SUBSEQUENT SALE OF THE COMPANY
On April 9, 2002, the Company and certain of the Company's stockholders
entered into an agreement and plan of reorganization with Alternate Marketing
Networks, Inc. ("ALTM"), a public company, under section 368 of the Internal
Revenue Service ("IRS") Code. Subject to the approval of the ALTM
stockholders, the effect of this plan is to move ALTM into a new Delaware
Corporation ("New ALTM") and for New ALTM to acquire the Company. The plan is
for a first closing of accredited stockholders who own over 80% of the Company
and a second closing and registration for the remaining unaccredited
stockholders. At closing, certain liabilities of the Company will be paid
including all amounts owed to the IRS. New ALTM, post merger, is expected to
have positive working capital and active credit lines available.
******
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
by and among
ALTERNATE MARKETING NETWORKS, INC., a Michigan corporation,
ALTERNATE MARKETING NETWORKS, INC., a Delaware corporation,
ALTM COMBINATION CO., a Delaware corporation,
HENCIE, INC., a Delaware corporation,
ADIL KHAN
and
CERTAIN STOCKHOLDERS OF HENCIE, INC.
Dated as of May 31, 2002
AN APPENDIX OF DEFINED TERMS BEGINS ON PAGE (vii)
TABLE OF CONTENTS
Page
ARTICLE I REINCORPORATION, STOCK ACQUISITION AND COMBINATION 3
1.1 Definitions 3
1.2 The Transactions 3
(a) The Reincorporation 3
(b) The Stock Acquisition 3
(i) Issuance and Exchange 3
(ii) Exchange Ratio 4
(iii)Stock Acquisition Consideration 4
(c) The Combination 4
1.3 Effective Time of the Transactions 4
(a) The Reincorporation 4
(b) The Stock Acquisition 4
(c) The Combination 4
ARTICLE II THE CONSTITUENT AND SURVIVING CORPORATIONS 5
2.1 Constituent Corporations 5
(a) The Reincorporation 5
(b) The Stock Acquisition 5
(c) The Combination 5
2.2 Surviving Corporations 5
(a) The Reincorporation 5
(b) The Stock Acquisition 5
(c) The Combination 5
2.3 Bylaws of the Surviving Corporations 6
(a) The Reincorporation 6
(b) The Stock Acquisition 6
(c) The Combination 6
2.4 Board of Directors and Officers of the Surviving Corporations 6
(a) The Reincorporation 6
(b) The Stock Acquisition 6
(c) The Combination 6
2.5 Effects of Reincorporation, Stock Acquisition and Combination 6
(a) The Reincorporation 6
(b) The Stock Acquisition 6
(c) The Combination 7
2.6 Reincorporation Dissenting Shares 7
2.7 Combination Dissenting Shares 7
ARTICLE III CONVERSION OF SECURITIES 7
3.1 Consideration for Transactions 8
(a) The Reincorporation 8
(b) The Combination 8
(i)Assumption, Substitution & Conversion of Hencie Options 8
(ii)Fractional Shares 9
(iii)Combination Consideration 9
(c) Subsequent Events 9
3.2 First Closing 10
3.3 Exchange of Certificates in Reincorporation 10
(a) Exchange Procedure 10
(b) Distributions with Respect to Unexchanged Shares 11
(c) No Fractional Shares 11
(d) Lost Share Certificates 11
(e) No Further Ownership Rights 11
(f) Reincorporation Dissenting Shares 11
(g) Restricted Shares 12
3.4 Exchange of Certificates in Stock Acquisition 12
(a) Exchange Procedure 12
(b) Distributions with Respect to Unexchanged Shares 12
(c) No Fractional Shares 12
(d) Lost Share Certificates 13
(e) No Further Ownership Rights 13
3.5 Exchange of Hencie Certificates in Combination 13
(a) Exchange Procedure 13
(b) Distributions with Respect to Unexchanged Shares 13
(c) No Fractional Shares 14
(d) Lost Share Certificates 14
(e) No Further Ownership Rights 14
(f) Combination Dissenting Shares 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES 14
4.1 Representations and Warranties of the ALTM Companies 14
4.1.1 Corporate Existence and Authority 14
4.1.2 Capitalization of the ALTM Companies 15
4.1.3 Validity & Authorization; Corporate Power & Authority 15
4.1.4 Execution; No Violations 16
4.1.5 Governmental and Other Consents 16
4.1.6 Financial Statements 16
4.1.7 Absence of Certain Liabilities 17
4.1.8 Absence of Changes 17
4.1.9 Taxes 19
4.1.10 Disputes and Litigation 21
4.1.11 Compliance with Laws 21
4.1.12 Insurance 22
4.1.13 Title to Properties 22
4.1.14 Real Property and Real Property Leases 22
4.1.15 Equipment 23
4.1.16 Intellectual Property 23
4.1.17 Agreements 24
4.1.18 Indebtedness and Guaranties 24
4.1.19 Debts to and from Related Parties 24
4.1.20 Banking Arrangements and Powers of Attorney 24
4.1.21 Articles of Incorporation and Bylaws 25
4.1.22 Books and Records 25
4.1.23 ERISA 25
4.1.24 Employees 26
4.1.25 No Conflicts of Interest 27
4.1.26 Environmental Matters 28
4.1.27 No Solicitation or Negotiation 28
4.1.28 Letter from Tax Advisor 28
4.1.29 Receivables 28
4.1.30 SEC Documents 28
4.1.31 Proxy Statement 29
4.1.32 Vote Required 29
4.1.33 Board Approval 29
4.2 Additional Representations and Warranties of New ALTM 29
4.2.1 Authority; Good Standing 29
4.2.2 Capitalization of New ALTM 29
4.2.3 Validity & Authorization; Corporate Power & Authority 30
4.2.4 Execution; No Violations 30
4.2.5 Governmental and Other Consents 30
4.2.6 Reincorporation, Stock Acquisition & Combination
Consideration 30
4.2.7 Board Approval 30
4.3 Additional Representations and Warranties of Combination Sub 31
4.3.1 Authority; Good Standing 31
4.3.2 Capitalization of Combination Sub 31
4.3.3 Validity & Authorization; Corporate Power & Authority 31
4.3.4 Execution; No Violations 31
4.3.5 Governmental and Other Consents 32
4.3.6 Board Approval 32
4.4 Representations and Warranties of the Hencie Companies 32
4.4.1 Corporate Existence and Authority 32
4.4.2 Capitalization of the Hencie Companies 32
4.4.3 Validity & Authorization; Corporate Power & Authority 33
4.4.4 Execution; No Violations 33
4.4.5 Governmental and Other Consents 33
4.4.6 Hencie Financial Statements 34
4.4.7 Absence of Certain Liabilities 34
4.4.8 Absence of Changes 34
4.4.9 Taxes 37
4.4.10 Disputes and Litigation 38
4.4.11 Compliance with Laws 39
4.4.12 Insurance 39
4.4.13 Title to Properties 40
4.4.14 Real Property and Real Property Leases 40
4.4.15 Equipment 40
4.4.16 Intellectual Property 41
4.4.17 Agreements 41
4.4.18 Indebtedness and Guaranties 41
4.4.19 Debts to and from Related Parties 42
4.4.20 Banking Arrangements and Powers of Attorney 42
4.4.21 Articles of Incorporation and Bylaws 42
4.4.22 Books and Records 42
4.4.23 ERISA 42
4.4.24 Employees 43
4.4.25 No Conflicts of Interest 45
4.4.26 Environmental Matters 45
4.4.27 No Solicitation or Negotiation 45
4.4.28 Receivables 45
4.4.29 Board Approval 45
4.4.30 No Appraisal Rights 45
4.4.31 Information Supplied 46
4.5 Representations and Warranties of the Stockholders 46
4.5.1 Ownership of Stock 46
4.5.2 Authority to Execute and Perform Agreement; No Breach 46
4.5.3 Securities Matters 47
4.6 Disclosure Schedules 47
ARTICLE V COVENANTS 48
5.1 Mutual Covenants 48
5.1.1 Access and Information 48
5.1.2 Notices and Approvals 48
5.1.3 Conduct of Business 49
5.1.4 Proceedings 49
5.1.5 Reports and Returns 49
5.1.6 Insurance 50
5.1.7 Tax Treatment 50
5.1.8 IRS Obligation 50
5.1.9 Other Covenants 50
(a) Defending the Agreement 50
(b) Lifting Injunctions 50
(c) Other Actions 50
5.1.10 The Combination 50
5.2 The ALTM Companies' Covenants 50
5.2.1 Financial Statements 51
5.2.2 Restriction on Transfers 51
5.2.3 Securities and Blue Sky Laws 51
5.2.4 Stock Quotation 51
5.2.5 Board of Directors of New ALTM 51
5.2.6 No Solicitation or Negotiation 51
5.2.7 No Repurchase Rights 53
5.3 The Hencie Companies' Covenants 53
5.3.1 Information for ALTM's Statements, Reports, Applications
and Proxy Statements 53
5.3.2 IRS Obligation 53
5.3.3 Financial Statements 53
5.3.4 Restriction on Transfers 54
5.3.5 Accounts Payable 54
5.4 Covenants Regarding Shareholder or Stockholder Approval 54
5.4.1 ALTM Shareholders' Meeting 54
5.4.2 Proxy Statement 54
5.4.3 The Stockholders Covenants 55
5.4.4 Written Consent of Sole Stockholder of New ALTM 55
5.4.5 Written Consent of Sole Stockholder of Combination Sub 55
5.4.6 Written Consent of the Stockholders 55
ARTICLE VI CONDITIONS PRECEDENT TO FIRST CLOSING 55
6.1 Conditions Precedent to Obligations of Hencie and the
Stockholders 55
6.1.1 Representations and Warranties 55
6.1.2 Performance by the ALTM Companies 55
6.1.3 Regulatory Approvals and Consents 56
6.1.4 No Court Orders 56
6.1.5 Certificates of the ALTM Companies 56
6.1.6 Opinion of ALTM Companies' Counsel 56
6.1.7 Good Standing 56
6.1.8 Related Agreements 56
6.1.9 Proxy Statement 56
6.1.10 Dissenter's Rights 56
6.1.11 Approval by ALTM Shareholders 56
6.1.12 Khan Employment Agreement 57
6.1.13 Miller Employment Agreement 58
6.1.14 Smith Employment Agreement 58
6.1.15 Tax Opinion 58
6.1.16 Total Assets 58
6.1.17 Net Liquid Assets 58
6.1.18 Board of Directors and Officers of the Post-First Closing
Corporations 58
(a) New ALTM 58
(b) Hencie 59
6.1.19 Registration Rights Agreement 59
6.2 Conditions Precedent to Obligations of the ALTM Companies 59
6.2.1 Representations and Warranties 59
6.2.2 Performance by Hencie 59
6.2.3 Regulatory Approvals and Consents 60
6.2.4 No Court Orders 60
6.2.5 Certificate of Hencie 60
6.2.6 Opinion of Hencie's Counsel 60
6.2.7 Good Standing 60
6.2.8 Related Agreements 60
6.2.9 Approval by ALTM Shareholders 60
6.2.10 Miller Appointments 60
6.2.11 Fairness Opinion 60
6.2.12 Delivery of Certificates by Stockholders 61
6.2.13 Pay-off of IRS Obligation 61
ARTICLE VII CLOSING AND DELIVERY OF DOCUMENTS 61
7.1 Deliveries by the ALTM Companies 61
7.2 Delivery by Hencie 62
7.3 Related Agreements 62
7.4 Pay-off of IRS Obligation 63
ARTICLE VIII TERMINATION 63
8.1 Reasons for Termination 63
8.1.1 By Mutual Consent 63
8.1.2 By Hencie 63
8.1.3 By Any of the ALTM Companies 63
8.1.4 Drop-Dead Date 64
8.1.5 Injunction or Order 64
8.2 Notice of Problems 64
8.3 Hencie Termination Procedure 65
8.4 ALTM Termination Procedure 65
8.5 Effect of Termination 65
8.6 Expenses 65
ARTICLE IX POST-CLOSING AGREEMENTS 66
9.1 Cooperation 66
9.2 Certain Transfer and Similar Taxes of the ALTM Companies 66
9.3 Inspection of Records 66
9.4 The Combination 67
9.5 Additional Equity Funding 67
9.6 Indemnification of the ALTM Companies 67
9.7 Appointments of Adil Khan 70
9.8 Confirmation of Payment of IRS Obligation 70
ARTICLE X SURVIVAL 70
ARTICLE XI MISCELLANEOUS 71
11.1 Expenses 71
11.2 Notices 71
11.3 Entire Agreement 72
11.4 Headings 72
11.5 Incorporated by Reference 72
11.6 Number and Gender of Words 72
11.7 Execution of Additional Documents 72
11.8 Finders' and Related Fees 72
11.9 Interpretation 72
11.10 No Third Party Beneficiary, Etc. 72
11.11 Reformation 73
11.12 Binding Effect and Assignment 73
11.13 Public Announcements 73
11.14 Confidentiality 73
11.15 Time of the Essence 73
11.16 Specific Performance 73
11.17 Applicable Law 73
11.18 Forbearance; Waiver 74
11.19 Remedies 74
11.20 Amendment of Agreement 74
11.21 Counterparts 74
APPENDIX OF DEFINED TERMS
"Adjusted EBITDA" shall mean, for a fiscal period, net income calculated
in accordance with GAAP plus all taxes plus all interest payments plus all
depreciation, amortization and non-cash charges incurred during such period
applied in a manner consistent with prior periods plus the following items for
such period (i) any allocation of corporate overhead (including salaries and
marketing and advertising expenses incurred by New ALTM or its affiliates),
(ii) all expenses (including filing fees and legal and broker fees) associated
with transactions contemplated by this Agreement, (iii) all expenses
(including filing fees and legal and broker fees) associated with mergers and
acquisitions undertaken following the First Closing Date, (iv) unusual or non-
recurring expenses and (v) legal expenses associated with such unusual or non-
recurring expenses.
"Agreement" shall have the meaning ascribed to it in the Preamble to this
Agreement.
"Affiliate" shall have the meaning ascribed to it in Section 4.1.19.
"ALTM" shall have the meaning ascribed to it in the Preamble to this
Agreement.
"ALTM Business" shall mean, collectively, the operations of the ALTM
Companies as presently conducted and as presently proposed to be conducted.
"ALTM Certificate" shall have the meaning ascribed to it in Section
3.1(a).
"ALTM Companies" shall mean, collectively, ALTM and the ALTM Subsidiaries
and each may be referred to herein as an "ALTM Company."
"ALTM Companies Permitted Transactions" shall mean (a) the Return of
Capital Distribution, (b) the sale, transfer, exchange or other disposition of
a controlling interest in or all or substantially all of the assets, with
Hencie's prior knowledge and approval, of Alternate Postal Direct, Inc. and/or
National Home Delivery, Inc., (c) the transactions contemplated by this
Agreement and (d) any transactions between any of the ALTM Companies, on the
one hand, and Hencie, on the other hand.
"ALTM Common Stock" shall have the meaning ascribed to it in Section
4.1.2.
"ALTM Consents" shall have the meaning ascribed to it in Section 4.1.5.
"ALTM Contracts" shall have the meaning ascribed to it in Section 4.1.17.
"ALTM Established Loss" or "ALTM Established Losses" shall have the
meanings ascribed to them in Section 9.6.
"ALTM Indemnified Parties" or "ALTM Indemnified Party" shall have the
meaning ascribed to them in Section 9.6.
"ALTM IP Rights" shall have the meaning ascribed to it in Section
4.1.16(a).
"ALTM Shareholders" shall mean the holders of ALTM Common Stock as of the
record date specified in the Proxy Statement.
"ALTM Shareholders' Meeting" shall have the meaning ascribed to it in
Section 5.4.1.
"ALTM Subsidiaries" shall mean, collectively, New ALTM, Combination Sub,
Alternate Postal Direct, Inc., a Michigan corporation and National Home
Delivery, Inc., an Illinois corporation.
"American Arbitration Association" shall mean the American Arbitration
Association, Inc.
"Asserted Liability" shall mean a claim, whether or not involving a
third-party claim, for which an ALTM Indemnified Party may be entitled to
indemnification hereunder.
"Associate" shall have the meaning ascribed to it in Section 4.1.19.
"Breach" shall mean, with respect to a party hereto, any representation
or warranty of such party under this Agreement (including, without limitation,
in the tax representation letters referred to in Section 5.1.7) being untrue
when made by such party or any breach of any of such party's covenants or
agreements under this Agreement.
"Business Day" or "Business Days" shall mean a day or days other than a
Saturday or Sunday on which trading occurs on the Nasdaq SmallCap Market.
"Cap" shall have the meaning ascribed to it in Section 9.6(b).
"Cause" shall mean, for purposes of the Khan Employment Agreement only,
(i) commission of an act of material fraud, misappropriation or dishonesty to
New ALTM, or other material willful act of similar magnitude against the best
interests of New ALTM, (ii) intentional material falsification of a written
document delivered to New ALTM, or on behalf of New ALTM, (iii) habitual
insobriety, (iv) addiction to non-prescription drugs or (v) continued gross
malfeasance in connection with the duties set forth in the Khan Employment
Agreement for thirty (30) days after having received a written warning from
New ALTM that specifically describes the gross malfeasance in connection with
the duties set forth in the Khan Employment Agreement.
"Code" shall have the meaning ascribed to it in the Recitals of this
Agreement.
"Combination" shall have the meaning ascribed to it in the Recitals of
this Agreement.
"Combination Certificate" shall have the meaning ascribed to it in
Section 3.1(b).
"Combination Consideration" shall have the meaning ascribed to it in
Section 3.1(b)(iii).
"Combination Dissenting Shares" shall have the meaning ascribed to in it
Section 2.7.
"Combination Effective Time" shall have the meaning ascribed to it in
Section 1.3(c).
"Combination Shares" shall mean any and all issued and outstanding shares
of Hencie Common Stock owned and/or held by any of the Minority Stockholders.
"Combination Sub" shall have the meaning ascribed to it in the Preamble
to this Agreement.
"Combination Sub Common Stock" shall have the meaning ascribed to it in
Section 4.3.2.
"Common Stock Exchange Ratio" shall have the meaning ascribed to it in
Section 1.2(b)(ii).
"Confidential Information" shall have the meaning ascribed to it in
Section 11.14.
"Corporate Parties" or "Corporate Party" shall have the meanings ascribed
to them in Section 5.1.
"Counter Proposal" shall have the meaning ascribed to it in Section
5.2.6(e).
"Current Liabilities" shall have the meaning ascribed to such term in
accordance with GAAP.
"Deductible" shall have the meaning ascribed to it in Section 9.6(a).
"DGCL" shall have the meaning ascribed to it in the Recitals of this
Agreement.
"Disclosing Party" shall have the meaning ascribed to it in Section
11.14.
"Disclosure Schedule" shall mean (a) in the case of any ALTM Company, the
Disclosure Schedule delivered by ALTM to Hencie at or prior to the date of
this Agreement pursuant to Sections 4.1 through 4.3 and (b) in the case of any
Hencie Company, the Disclosure Schedule delivered by Hencie to ALTM at or
prior to the date of this Agreement pursuant to Section 4.4.
"EBITDA" shall mean, for a fiscal period, net income calculated in
accordance with GAAP plus all taxes plus all interest payments plus all
depreciation, amortization and non-cash charges incurred during such period.
"Employee Benefit Plan" shall have the meaning ascribed to it in Section
4.1.23(a).
"Employee Pension Benefit Plan" shall have the meaning ascribed to it in
Section 4.1.23(a).
"Environmental Claim" shall mean any and all actions, suits, demands,
demand letters, directives, claims, Liens, Proceedings or notices of
non-compliance or violation (or to the Knowledge of ALTM Management (or, in
the case of Section 4.4.26, the Knowledge of Hencie Management),
investigation) by any Person alleging liability or potential liability
(including, without limitation, potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (a) the
presence, or release or threatened release into the environment, of any
Hazardous Materials at any location, whether or not owned, operated, leased or
managed by ALTM (or in the case of Section 4.4.26, Hencie), (b) any violation,
or alleged violation, of any Environmental Law by ALTM (or in the case of
Section 4.4.26, Hencie), or (c) any and all written claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief in connection with the presence or release of any Hazardous
Materials.
"Environmental Law" shall mean any law or order relating to the
regulation or protection of human health, safety or the environment
(including, without limitation, ambient air, soil, surface water, ground
water, wetlands, land or subsurface strata), including, without limitation,
all laws and regulations relating to or establishing liability with respect to
releases or threatened releases (past, present or future) of Hazardous
Materials, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, recycling or handling of
Hazardous Materials.
"Equitable Defenses" shall have the meaning ascribed to it in Section
4.1.3.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" shall mean any person that, together with any of the
ALTM Companies, is or at any time within the six-year period preceding the
date of this Agreement would be treated as a single employer under Code
Section 414.
"Escrow Shares" shall have the meaning ascribed to it in Section 7.3(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fairness Opinion" shall mean the written opinion of ALTM's financial
advisor, that in such advisor's opinion, subject to the accuracy of the
assumptions and conditions set forth in such letter, the transactions
contemplated hereby are fair, from a financial point of view, to the ALTM
Shareholders.
"Family Member" shall mean, with respect to an individual, that
individual's spouse, natural or adopted sibling, ancestor or descendant of
that individual or any spouse or descendant of any such ancestor, descendant
or sibling.
"Financial Statements" shall have the meaning ascribed to it in Section
4.1.6.
"First Closing" shall mean the consummation of this Agreement and the
issuance and exchange of New ALTM Common Stock as contemplated by this
Agreement (except for the issuance and exchange of New ALTM Common Stock in
connection with the Combination).
"First Closing Date" shall mean the date and time upon which the First
Closing occurs.
"Fringe Benefits" shall have the meaning ascribed to it in Section
4.1.24(a).
"GAAP" shall mean those generally accepted accounting principles and
practices which are used in the United States and recognized as such by the
American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which are
consistently applied for all periods so as to properly reflect the financial
position, results of operations and operating cash flow on a consolidated
basis of the Person, except that any accounting principle or practice required
to be changed by the Accounting Principles Board or Financial Accounting
Standards Board (or other appropriate board or committee) in order to continue
as a generally accepted accounting principle or practice may be so changed.
"Hazardous Materials" shall mean any waste or other substance that is
listed, defined, designated or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution
thereof, and specifically including petroleum and all derivatives thereof or
synthetic substitutes therefore and asbestos or asbestos-containing materials.
"Hencie" shall have the meaning ascribed to it in the Preamble to this
Agreement.
"Hencie.Com" shall have the meaning ascribed to it in Section 9.6.
"Hencie Certificate" shall mean any certificate representing shares of
Hencie Common Stock.
"Hencie Common Stock" shall have the meaning ascribed to it in the
Recitals of this Agreement.
"Hencie Companies" shall mean, collectively, Hencie and Hencie
Consulting, and each may be referred to herein as a "Hencie Company."
"Hencie Consents" shall have the meaning ascribed to it in Section 4.4.5.
"Hencie Consulting" shall mean Hencie Consulting Services, Inc., a Texas
corporation.
"Hencie Contracts" shall have the meaning ascribed to it in Section
4.4.17.
"Hencie Financial Forecasts" shall have the meaning ascribed to it in
Section 4.4.6
"Hencie Financial Statements" shall have the meaning ascribed to it in
Section 4.4.6.
"Hencie IP Rights" shall have the meaning ascribed to it in Section
4.4.16.
"Hencie Option" or "Hencie Options" shall have the meanings ascribed to
them in the Recitals of this Agreement.
"Hencie Permitted Transactions" shall mean (a) the transactions
contemplated by this Agreement and (b) any transactions between Hencie, on the
one hand, and any of the ALTM Companies, on the other hand.
"Hencie Tax Returns" shall have the meaning ascribed to it in Section
4.4.9.
"Indemnification Escrow Agreement" shall have the meaning ascribed to it
in Section 7.3(b).
"Intellectual Property" shall mean, collectively, all worldwide
industrial and intellectual property rights, including patents, patent
applications, patent rights, trademarks, trademark registrations and
applications therefore, trade dress rights, trade names, service marks,
service mark registrations and applications therefore, Internet domain names,
Internet and World Wide Web URLs or addresses, copyrights, copyright
registrations and applications therefore, franchises, licenses, inventions,
trade secrets, know-how, customer lists, supplier lists, customer or user
information or data, whether or not personally identifiable, proprietary
processes and formulae, software source code and object code, algorithms, net
lists, architectures, structures, screen displays, photographs, images,
layouts, inventions, development tools, designs, blueprints, specifications,
technical drawings (or similar information in electronic format) and all
documentation and media constituting, describing or relating to the foregoing,
including manuals, programmers' notes, memoranda and records.
"Internal Revenue Service" shall mean the Internal Revenue Service of the
Department of the Treasury of the United States.
"IRS Obligation" shall mean the amount of back payroll taxes that Hencie
is obligated to pay the Internal Revenue Service under the terms of Hencie's
payment plan.
"K2VC" shall mean K2 VC, Ltd., a Texas limited partnership having K2 VC
Management, LLC as a general partner and Adil Khan and Mehnaz Fatehdin (Adil
Khan's wife) as limited partners. K2 VC Management, LLC is managed by Adil
Khan and Mehnaz Fatehdin.
"Khan Employment Agreement" shall have the meaning ascribed to it in
Section 6.1.12.
"Knowledge of ALTM Management" shall mean the actual (rather than
imputed) knowledge of Miller, Sandra J. Smith or Frank O'Connell and the
phrase "Known to ALTM Management" and similar phrases shall have a correlative
meaning thereto.
"Knowledge of Hencie Management" shall mean the actual (rather than
imputed) knowledge of Dave Bender, David Bevins, Adil Khan, David Rankin,
Randall Reiners, and William Warren and the phrase "Known to Hencie
Management" and similar phrases shall have a correlative meaning thereto.
"Lien" shall mean any mortgage, deed of trust, lien, pledge, adverse
claim, security interest or encumbrance of any nature whatsoever but shall
exclude ordinary utility and other similar easements of record that do not
materially interfere with the use of real property.
"Loss" or "Losses" shall have the meanings ascribed to them in Section
9.6.
"Material Adverse Effect" shall mean (a) with respect to any of the ALTM
Companies, a material adverse effect on (I) the business, results of
operations or financial condition of the ALTM Companies taken as a whole, (ii)
the ability of such ALTM Company to consummate the transactions contemplated
by this Agreement and by the Related Agreements or (iii) the enforceability of
this Agreement or the Related Agreements against any of ALTM, New ALTM or
Combination Sub, and (b) with respect to any of the Hencie Companies, a
material adverse effect on (I) the business, results of operations or
financial condition of the Hencie Companies taken as a whole, (ii) the ability
of such Hencie Company to consummate the transactions contemplated by this
Agreement and by the Related Agreements or (iii) the enforceability of this
Agreement or the Related Agreements against Hencie.
"MBCA" shall have the meaning ascribed to it in the Recitals of this
Agreement.
"Miller" shall mean Phillip D. Miller.
"Minority Stockholders" shall have the meaning ascribed to it in the
Recitals of this Agreement.
"Nasdaq SmallCap Market" shall mean The Nasdaq SmallCap Market.
"Nasdaq Stock Market" shall mean The Nasdaq Stock Market, Inc.
"Net Liquid Assets" shall mean (a) accounts receivable net of allowance
for bad debt plus (b) cash and marketable securities at fair market value less
(c) all Current Liabilities.
"New ALTM" shall have the meaning ascribed to it in the Preamble to this
Agreement.
"New ALTM Common Stock" shall have the meaning ascribed to it in the
Recitals of this Agreement.
"New ALTM Option" or "New ALTM Options" shall have the meanings ascribed
to them in the Recitals of this Agreement.
"Option Shares" shall have the meaning ascribed to it in Section
6.1.12(a).
"Permitted Lien" shall mean (a) any Lien for Taxes not yet due and
payable or contested in good faith by appropriate Proceedings, (b) any Lien
described as a "Permitted Lien" in a Disclosure Schedule, (c) any Lien of
mechanics, materialmen, laborers, warehousemen, carriers and other similar
common law or statutory liens which are not yet due and payable or are being
contested in good faith, (d) zoning, entitlement, land use, environmental and
other regulation by governmental agencies, (e) any Liens that may arise or be
created after the date of this Agreement that are incidental to the conduct of
the business of ALTM in the ordinary course of the business of ALTM, (f) any
Lien granted to any lenders prior to the date hereof for obligations set forth
in the Disclosure Schedule, (g) any Lien arising by virtue of this Agreement
or any Related Agreement or pursuant to an ALTM Companies Permitted
Transaction, and (h) other Liens and defects in title which do not,
individually or in the aggregate, materially interfere with the use of the
properties or materially detract from their value.
"Permitted Transactions" shall mean, collectively, the ALTM Companies
Permitted Transactions and the Hencie Permitted Transactions.
"Person" shall mean any individual, corporation, association,
partnership, proprietorship, joint venture, governmental or quasi-governmental
authority or body or other entity.
"Pledge Agreement" shall have the meaning ascribed to it in Section
7.3(b).
"Proceeding" or "Proceedings" shall have the meanings ascribed to them in
Section 4.1.10.
"Proposal" shall have the meaning ascribed to it in Section 5.4.2(b).
"Proxy Financial Statements" shall have the meaning ascribed to it in
Section 5.2.1.
"Proxy Statement" shall have the meaning ascribed to it in Section
4.1.31.
"PWC" shall mean PricewaterhouseCoopers LLP.
"Reincorporation" shall have the meaning ascribed to it in the Recitals
of this Agreement.
"Reincorporation Consideration" shall have the meaning ascribed to it in
Section 3.1(a).
"Reincorporation Dissenting Shares" shall have the meaning ascribed to in
it Section 2.6.
"Reincorporation Effective Time" shall have the meaning ascribed to it in
Section 1.3(a).
"Related Agreements" shall have the meaning ascribed to it in Section
7.3.
"Related Person" or "Related Persons" shall have the meanings ascribed to
them in Section 4.1.19.
"Representatives" shall have the meaning ascribed to it in Section 11.14.
"Return of Capital Distribution" shall mean a cash dividend, contingent
on the First Closing, by ALTM to the shareholders of record of ALTM as of a
date designated by the Board of Directors of ALTM (provided, however, that
such declaration date shall not be later than the Business Day immediately
preceding the First Closing Date) in the form of $0.10 per share of ALTM
Common Stock held of record on such date.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall have the meaning ascribed to it in Section 4.1.30.
"Second Closing" shall mean the consummation of the Combination and the
issuance and exchange of New ALTM Common Stock in connection therewith as
contemplated by this Agreement.
"Second Closing Date" shall mean the date and time upon which the Second
Closing occurs.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Acquisition" shall have the meaning ascribed to it in the Recitals
of this Agreement.
"Stock Acquisition Effective Time" shall have the meaning ascribed to it
in Section 1.3(b).
"Stock Acquisition Consideration" shall have the meaning ascribed to it
in Section 1.2(b)(iii).
"Stockholder" or "Stockholders" shall have the meanings ascribed to them
in the Preamble to this Agreement.
"Superior Proposal" shall have the meaning ascribed to it in Section
5.2.6(d).
"Superior Proposal Breakup Fees" shall have the meaning ascribed to it in
Section 8.1.3.
"Tanner" shall have the meaning ascribed to it in Section 9.6.
"Tax" or "Taxes" shall mean all federal, state, local, foreign and other
governmental or quasi-governmental net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, unemployment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other taxes, fees and assessments or charges of any kind whatever in
the nature of taxes, together with any interest and any penalties, additions
to tax or additional amounts with respect thereto.
"Tax Returns" shall have the meaning ascribed to it in Section 4.1.9(a).
"Total Assets" shall have the meaning ascribed to such term in accordance
with GAAP.
SCHEDULES AND EXHIBITS
Schedule A Stockholders' Ownership Information
Exhibit 1.3(a) Form of Certificate of Merger (Reincorporation)
Exhibit 1.3(c) Form of Certificate of Merger (Combination)
Exhibit 2.2(a) Form of Amended and Restated Certificate of Incorporation
of New ALTM
Exhibit 2.2(c) Form of Certificate of Incorporation of Hencie
Exhibit 2.3(a) Form of Bylaws of New ALTM
Exhibit 2.3(c) Form of Bylaws of Hencie
Exhibit 6.1.6 Form of Opinion of ALTM Companies' Counsel
Exhibit 6.1.12 Form of Khan Employment Agreement
Exhibit 6.1.13 Form of Miller Employment Agreement
Exhibit 6.1.14 Form of Smith Employment Agreement
Exhibit 6.2.6 Form of Opinion of Hencie's Counsel
Exhibit 7.3(a) Form of Registration Rights Agreement by and among New
ALTM, the Stockholders and the officers, directors and ten
percent stockholders of ALTM
Exhibit 7.3(b) Form of Indemnification Escrow Agreement
______________
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement"), dated as of May 31, 2002, is entered into by and among Alternate
Marketing Networks, Inc., a Michigan corporation ("ALTM"), Alternate Marketing
Networks, Inc., a Delaware corporation ("New ALTM"), ALTM Combination Co., a
Delaware corporation ("Combination Sub"), Hencie, Inc., a Delaware corporation
("Hencie"), Adil Khan, and the individuals and entities whose names appear on
the signature pages hereto, each being a stockholder (each a "Stockholder" and
collectively the "Stockholders") of Hencie.
RECITALS
WHEREAS, the parties hereto desire to effect the following
reincorporation merger (the "Reincorporation") of ALTM with and into New ALTM,
a newly formed and wholly owned subsidiary of ALTM, all with the effect that
ALTM shall be reincorporated in the State of Delaware, with New ALTM as the
surviving corporation of the Reincorporation. In connection with the
Reincorporation, New ALTM, Combination Sub, Hencie and the Stockholders shall
engage in certain related transactions more fully described herein; and
WHEREAS, the parties wish to maintain the NASDAQ SmallCap Market listing
of ALTM and have agreed to take reasonable steps to maintain such listing; and
WHEREAS, as of the date hereof, the Stockholders (a) collectively own,
beneficially and of record, not less than eighty percent (80%) of the issued
and outstanding shares of common stock, par value $0.01 per share, of Hencie
("Hencie Common Stock"), and (b) each own, beneficially and of record, the
number of shares of Hencie Common Stock and options exercisable for shares of
Hencie Common Stock (each a "Hencie Option" and collectively the "Hencie
Options") set forth opposite their respective names on Schedule A hereto; and
WHEREAS, New ALTM proposes to issue shares of common stock, $0.01 par
value, of New ALTM ("New ALTM Common Stock") at the First Closing to the
Stockholders in exchange for the number of issued and outstanding shares of
Hencie Common Stock owned by the Stockholders (the "Stock Acquisition"), after
which the Stockholders shall collectively hold shares of New ALTM Common Stock
representing in the aggregate 39.97% of the post-First Closing New ALTM Common
Stock on a fully-diluted basis (as if all of the New ALTM Options and any and
all other securities, options, warrants, rights, calls, commitments, plans,
contracts or other agreements of any character granted or issued by ALTM or
New ALTM which are convertible into or exchangeable or exercisable for any
share(s) of New ALTM Common Stock had been converted, exchanged and
exercised), on the terms and subject to the conditions set forth in this
Agreement all with the effect that Hencie shall become a majority owned
subsidiary of New ALTM; and
WHEREAS, New ALTM proposes to (a) effect in accordance with, and as
permitted by, the Delaware General Corporation Law ("DGCL"), no earlier than
six (6) months and one (1) Business Day following the Stock Acquisition
Effective Time and no later than twelve (12) months following the Stock
Acquisition Effective Time, a merger of Combination Sub, a newly formed and
wholly owned subsidiary of New ALTM, with and into Hencie and, in connection
therewith, (b) substitute options exercisable for shares of New ALTM Common
Stock (each a "New ALTM Option" and collectively the "New ALTM Options"), at
the Second Closing with the holders of outstanding Hencie Options by
delivering option assumption and substitution notices to the holders of
outstanding Hencie Options (the "Combination"), after which the former holders
of Hencie Common Stock and Hencie Options shall collectively hold shares of
New ALTM Common Stock and New ALTM Options representing in the aggregate 49%
of the post-Second Closing New ALTM Common Stock on a fully-diluted basis (as
if all of the New ALTM Options and any and all other securities, options,
warrants, rights, calls, commitments, plans, contracts or other agreements of
any character granted or issued by ALTM or New ALTM which are convertible into
or exchangeable or exercisable for any share(s) of New ALTM Common Stock had
been converted, exchanged and exercised), on the terms and subject to the
conditions set forth in this Agreement all with the effect that Hencie, as the
surviving corporation of the Combination, shall become a wholly owned
subsidiary of New ALTM; and
WHEREAS, the parties hereto acknowledge that the purpose of the Stock
Acquisition and the Combination is to effect the acquisition of one hundred
percent (100%) of the issued and outstanding shares of Hencie Common Stock,
including, without limitation, any and all issued and outstanding shares of
Hencie Common Stock owned and/or held by stockholders of Hencie that are not
parties to this Agreement (the "Minority Stockholders"); and
WHEREAS, the Board of Directors of ALTM has (a) determined it to be
advisable, in the best interests of, and on terms that are fair to, ALTM and
the shareholders of ALTM to consummate this Agreement, the Related Agreements,
the Reincorporation, the Stock Acquisition and the Combination upon the terms
and subject to the conditions set forth herein and therein, (b) in accordance
with the applicable provisions of the Michigan Business Corporation Act
("MBCA"), approved, authorized and adopted this Agreement, the Related
Agreements, the Reincorporation, the Stock Acquisition, the Combination and
the transactions contemplated hereby and thereby and (c) recommended approval
of this Agreement, the Related Agreements, the Reincorporation, the Stock
Acquisition, the Combination and the transactions contemplated hereby and
thereby to the shareholders of ALTM; and
WHEREAS, the Board of Directors of New ALTM has (a) determined it to be
advisable, in the best interests of and on terms that are fair to New ALTM and
the sole stockholder of New ALTM to consummate this Agreement, the Related
Agreements, the Reincorporation, the Stock Acquisition and the Combination
upon the terms and subject to the conditions set forth herein and therein, (b)
in accordance with the applicable provisions of the DGCL, approved, authorized
and adopted this Agreement, the Related Agreements, the Reincorporation, the
Stock Acquisition, the Combination and the transactions contemplated hereby
and thereby, including, without limitation, the issuance of New ALTM Common
Stock and New ALTM Options, and (c) recommended approval of this Agreement,
the Related Agreements, the Reincorporation, the Stock Acquisition, the
Combination and the issuance of New ALTM Common Stock and New ALTM Options
contemplated hereby and thereby to the sole stockholder of New ALTM; and
WHEREAS, the Board of Directors of Combination Sub has (a) determined it
to be advisable, in the best interests of and on terms that are fair to
Combination Sub and the sole stockholder of Combination Sub to consummate this
Agreement, the Related Agreements and the Combination upon the terms and
subject to the conditions set forth herein and therein, (b) in accordance with
the applicable provisions of the DGCL, approved, authorized and adopted this
Agreement, the Related Agreements, the Combination and the transactions
contemplated hereby and thereby, and (c) recommended approval of this
Agreement, the Related Agreements, the Combination and the transactions
contemplated hereby and thereby to the sole stockholder of Combination Sub;
and
WHEREAS, the Board of Directors of Hencie has (a) determined it to be
advisable, in the best interests of, and on terms that are fair to, Hencie and
the stockholders of Hencie to consummate this Agreement, the Related
Agreements and the Combination upon the terms and subject to the conditions
set forth herein and therein, (b) in accordance with the applicable provisions
of the DGCL, approved, authorized and adopted this Agreement, the Related
Agreements, the Combination and the transactions contemplated hereby and
thereby and (c) recommended approval of this Agreement, the Related
Agreements, the Combination and the transactions contemplated hereby and
thereby to the stockholders of Hencie; and
WHEREAS, each of the Board of Directors of ALTM, New ALTM, Combination
Sub and Hencie has determined it to be advisable, fair and in the best
interests of ALTM, New ALTM, Combination Sub, Hencie and their respective
shareholders and stockholders, as applicable, to effect a plan of
reorganization meeting the requirements of Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the parties hereto
intend that the issuance of New ALTM Common Stock and New ALTM Options and
exchange of New ALTM Common Stock and New ALTM Options for Hencie Common Stock
and Hencie Options, respectively, as contemplated hereby shall qualify as a
"tax free" reorganization as contemplated by the provisions of the Code; and
WHEREAS, the parties hereto are entering into this Agreement to set forth
the "plan of reorganization" with respect to the Reincorporation, the Stock
Acquisition, the Combination and the other transactions contemplated hereby in
accordance with the DGCL and the MBCA, to make certain representations,
warranties and covenants as to the Reincorporation, the Stock Acquisition, the
Combination and the other transactions contemplated hereby, and to prescribe
various conditions as to the Reincorporation, the Stock Acquisition, the
Combination and the other transactions contemplated hereby;
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements, representations, warranties and covenants contained herein, and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
REINCORPORATION, STOCK ACQUISITION AND COMBINATION
1.1 Definitions. Capitalized terms used herein but not otherwise
defined shall have the meanings ascribed thereto in the Appendix of Defined
Terms attached hereto beginning on page (vii) and incorporated herein by
reference.
1.2 The Transactions.
(a) The Reincorporation. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL and
the MBCA, at the Reincorporation Effective Time, ALTM shall be merged with and
into New ALTM. From and after the Reincorporation Effective Time, the
separate corporate existence of ALTM shall cease, and New ALTM shall continue
as the surviving corporation of the Reincorporation and shall be governed by
the laws of the State of Delaware and shall succeed to and assume all rights
and obligations of ALTM in accordance with the DGCL and the MBCA.
(b) The Stock Acquisition.
(i) Issuance and Exchange. Upon the terms and
subject to the conditions set forth in this Agreement, and in accordance with
the DGCL, at the Stock Acquisition Effective Time, New ALTM agrees to issue
and exchange the number of authorized shares of New ALTM Common Stock (as
determined in accordance with Section 1.2(b)(ii) hereof) to each Stockholder
who agrees, severally and not jointly, to exchange the number of shares of
Hencie Common Stock owned and/or held by such Stockholder for such number of
authorized and newly issued shares of New ALTM Common Stock. In consideration
for the shares of New ALTM Common Stock to be issued and exchanged hereunder,
each Stockholder shall transfer and deliver any and all stock certificates
(other than as provided in Section 3.4(a)), representing and evidencing each
such Stockholder's ownership of Hencie Common Stock, together with a duly
executed stock power and assignment, as necessary, to effectuate the transfer,
to New ALTM.
(ii) Exchange Ratio. At the Stock Acquisition
Effective Time, New ALTM shall issue and exchange one (1) share of New ALTM
Common Stock for 3.563 shares of Hencie Common Stock (the "Common Stock
Exchange Ratio") in accordance with this Article I and the distribution
contemplated by Schedule A hereto and as full consideration to the
Stockholders for all of the issued and outstanding shares of Hencie Common
Stock owned and/or held by the Stockholders.
(iii) Stock Acquisition Consideration. At the
Stock Acquisition Effective Time, New ALTM shall issue and exchange shares of
New ALTM Common Stock such that the Stockholders shall own 39.97% of New ALTM
on a fully-diluted basis (the "Stock Acquisition Consideration").
(c) The Combination. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL, at
the Combination Effective Time, Combination Sub shall be merged with and into
Hencie. From and after the Combination Effective Time, the separate corporate
existence of Combination Sub shall cease, and Hencie shall continue as the
surviving corporation of the Combination and shall be governed by the laws of
the State of Delaware and shall succeed to and assume all rights and
obligations of Combination Sub in accordance with the DGCL.
1.3 Effective Time of the Transactions.
(a) The Reincorporation. The Reincorporation shall become
effective at the date and time (the "Reincorporation Effective Time") when
properly executed certificates of merger in substantially the form attached
hereto as Exhibit 1.3(a) in such form as is required by and executed in
accordance with the DGCL and the MBCA, are duly filed with the Secretary of
State of the State of Delaware and the Secretary of State of the State of
Michigan or at such later time as the parties hereto shall have provided in
such certificates. The parties hereto shall cause such filings to occur on
the First Closing Date.
(b) The Stock Acquisition. The Stock Acquisition shall
become effective at the date and time (the "Stock Acquisition Effective Time")
immediately following the Reincorporation Effective Time.
(c) The Combination. The Combination shall become
effective at the date and time (the "Combination Effective Time") when a
properly executed certificate of merger in substantially the form attached
hereto as Exhibit 1.3(c) in such form as is required by and executed in
accordance with the DGCL, is duly filed with the Secretary of State of the
State of Delaware or at such later time as the parties hereto shall have
provided in such certificate. The parties hereto shall cause such filing to
occur on or as soon as practicable after the Second Closing Date and in any
event no earlier than six (6) months and one (1) Business Day following the
Stock Acquisition Effective Time and no later than twelve (12) months
following the Stock Acquisition Effective Time.
ARTICLE II
THE CONSTITUENT AND SURVIVING CORPORATIONS
2.1 Constituent Corporations.
(a) The Reincorporation. The names of the constituent
corporations and the designation and number of outstanding shares of each
class of shares of capital stock of each of the constituent corporations
entitled to vote on the Reincorporation are as follows:
Constituent Corporations Outstanding Shares Entitled to Vote
ALTM 4,586,005 shares of common stock
New ALTM 100 shares of common stock
(b) The Stock Acquisition. The holders of 4,586,005 issued
and outstanding shares of New ALTM Common Stock shall be entitled to vote on
the Stock Acquisition.
(c) The Combination. The names of the constituent
corporations and the designation and number of outstanding shares of each
class of shares of capital stock of each of the constituent corporations
entitled to vote on the Combination are as follows:
Constituent Corporations Outstanding Shares Entitled to Vote
Combination Sub 100 shares of common stock
Hencie 17,264,522 shares of common stock
2.2 Surviving Corporations.
(a) The Reincorporation. At the Reincorporation Effective
Time, the Amended and Restated Certificate of Incorporation of New ALTM in
substantially the form attached hereto as Exhibit 2.2(a) as it is in effect
immediately prior to the Reincorporation Effective Time, shall be the
Certificate of Incorporation of the surviving corporation resulting from the
Reincorporation until thereafter amended as provided by law.
(b) The Stock Acquisition. Without limiting the foregoing,
the corporate existences of New ALTM and Hencie, with all of their purposes,
powers and objects, shall continue unaffected and unimpaired by the Stock
Acquisition all with the effect that Hencie shall become a majority owned
subsidiary of New ALTM.
(c) The Combination. At the Combination Effective Time,
the Certificate of Incorporation of Hencie in substantially the form attached
hereto as Exhibit 2.2(c) as it is in effect immediately prior to the
Combination Effective Time, shall be the Certificate of Incorporation of the
surviving corporation resulting from the Combination until thereafter amended
as provided by law.
2.3 Bylaws of the Surviving Corporations.
(a) The Reincorporation. At the Reincorporation Effective
Time, the Restated Bylaws of New ALTM, in substantially the form attached
hereto as Exhibit 2.3(a) as they are in effect immediately prior to the
Reincorporation Effective Time, shall be the Bylaws of the surviving
corporation resulting from the Reincorporation until thereafter amended as
provided by law.
(b) The Stock Acquisition. At the Stock Acquisition
Effective Time, the respective Bylaws of New ALTM and Hencie, as they are in
effect immediately prior to the Stock Acquisition Effective Time, shall be the
Bylaws of New ALTM and Hencie, respectively, immediately after the Stock
Acquisition until thereafter amended as provided by law.
(c) The Combination. At the Combination Effective Time,
the Bylaws of Hencie, in substantially the form attached hereto as Exhibit
2.3(c) as they are in effect immediately prior to the Combination Effective
Time, shall be the Bylaws of the surviving corporation resulting from the
Combination until thereafter amended as provided by law.
2.4 Board of Directors and Officers of the Surviving Corporations.
(a) The Reincorporation. As of the First Closing, the
directors and officers of New ALTM shall remain as the directors and officers
of the surviving corporation resulting from the Reincorporation until their
respective successors shall be duly elected or appointed and qualified
(including, without limitation, as contemplated by Section 2.4(b)), or until
their earlier death, resignation or removal.
(b) The Stock Acquisition. As of the First Closing and
immediately following the Reincorporation, the directors and officers of New
ALTM shall be elected or appointed and qualified in accordance with Section
6.1.18 until their respective successors shall be duly elected or appointed
and qualified, or until their earlier death, resignation or removal. As of
the First Closing, the officers and directors of Hencie shall remain as the
officers and directors of Hencie until their respective successors shall be
duly elected or appointed and qualified or until their earlier death,
resignation or removal, except as contemplated by Section 9.8.
(c) The Combination. As of the Second Closing, the
directors and officers of Hencie shall remain as the directors and officers of
the surviving corporation resulting from the Combination until their
respective successors shall be duly elected or appointed and qualified or
until their earlier death, resignation or removal, except as contemplated by
Section 9.8.
2.5 Effects of Reincorporation, Stock Acquisition and Combination.
(a) The Reincorporation. The Reincorporation shall have
the effect set forth in Section 259 of the DGCL. Without limiting the
foregoing, the corporate existence of New ALTM, with all its purposes, powers
and objects, shall continue unaffected and unimpaired by the Reincorporation
and, as the surviving corporation of the Reincorporation, New ALTM shall be
governed by the laws of the State of Delaware and shall succeed to all rights,
assets, liabilities, properties, privileges, powers, franchises and
obligations of ALTM in accordance with the laws of the State of Delaware and
the State of Michigan.
(b) The Stock Acquisition. The corporate existences of New
ALTM and Hencie, with all of their purposes, powers and objects, shall
continue unaffected and unimpaired by the Stock Acquisition all with the
effect that Hencie shall become a majority owned subsidiary of New ALTM.
(c) The Combination. The Combination shall have the effect
set forth in Section 259 of the DGCL. Without limiting the foregoing, the
corporate existence of Hencie, with all its purposes, powers and objects,
shall continue unaffected and unimpaired by the Combination and, as the
surviving corporation of the Combination, Hencie shall be governed by the laws
of the State of Delaware and shall succeed to all rights, assets, liabilities,
properties, privileges, powers, franchises and obligations of Combination Sub
in accordance with the laws of the State of Delaware all with the effect that
Hencie shall become a wholly owned subsidiary of New ALTM.
2.6 Reincorporation Dissenting Shares. Notwithstanding anything to
the contrary in this Agreement, to the extent (if at all) that any of the ALTM
Shareholders are entitled to appraisal rights under Section 762 of the MBCA,
shares of ALTM Common Stock issued and outstanding immediately prior to the
Reincorporation Effective Time and owned and/or held by a holder who has
properly exercised and perfected his, her or its demand for appraisal rights
under Section 765 of the MBCA (the "Reincorporation Dissenting Shares"), shall
not be converted into the right to receive the Reincorporation Consideration,
but the holders of Reincorporation Dissenting Shares shall be entitled to
receive from New ALTM such consideration as shall be determined pursuant to
Section 769 of the MBCA; provided, however, that if any such holder shall have
failed to perfect or shall have effectively withdrawn or otherwise lost his,
her or its right to appraisal and payment under the MBCA, such holder's shares
of ALTM Common Stock shall thereupon be deemed to have been converted as of
the Reincorporation Effective Time into the right to receive the
Reincorporation Consideration, without any interest thereon, and such shares
shall not be deemed to be Reincorporation Dissenting Shares. ALTM shall give
New ALTM (i) prompt notice of any notices or demands for appraisal or payment
for shares of ALTM Common Stock received by ALTM and (ii) the opportunity to
participate and direct all negotiations and proceedings with respect to any
such notices or demands. ALTM shall not, without the prior written consent of
New ALTM, make any payment with respect to, or settle, offer to settle or
otherwise negotiate any such notices or demands.
2.7 Combination Dissenting Shares. Notwithstanding anything to the
contrary in this Agreement, to the extent (if at all) that any of the Minority
Stockholders are entitled to appraisal rights under Section 262 of the DGCL,
Combination Shares issued and outstanding immediately prior to the Combination
Effective Time and owned and/or held by a holder who has properly exercised
and perfected his, her or its demand for appraisal rights under Section 262 of
the DGCL (the "Combination Dissenting Shares"), shall not be converted into
the right to receive the Combination Consideration, but the holders of
Combination Dissenting Shares shall be entitled to receive from New ALTM such
consideration as shall be determined pursuant to Section 262 of the DGCL;
provided, however, that if any such holder shall have failed to perfect or
shall have effectively withdrawn or otherwise lost his, her or its right to
appraisal and payment under the DGCL, such holder's shares of Hencie Common
Stock shall thereupon be deemed to have been converted as of the Combination
Effective Time into the right to receive the Combination Consideration,
without any interest thereon, and such shares shall not be deemed to be
Combination Dissenting Shares. Hencie shall give New ALTM (i) prompt notice
of any notices or demands for appraisal or payment for shares of Hencie Common
Stock received by Hencie and (ii) the opportunity to participate and direct
all negotiations and proceedings with respect to any such notices or demands.
Hencie shall not, without the prior written consent of New ALTM, make any
payment with respect to, or settle, offer to settle or otherwise negotiate any
such notices or demands.
ARTICLE III
CONVERSION OF SECURITIES
3.1 Consideration for Transactions.
(a) The Reincorporation. At the Reincorporation Effective
Time, by virtue of the merger of ALTM with and into New ALTM and without any
action on the part of ALTM or New ALTM (other than the filing of the
certificates of merger referred to in Section 1.3(a) hereof) or their
respective shareholders or stockholders (i) each share of ALTM Common Stock,
issued and outstanding immediately prior to the Reincorporation Effective Time
(other than shares of ALTM Common Stock held in the treasury of ALTM) shall be
canceled and extinguished and be converted automatically into the right to
receive one (1) share of duly authorized, validly issued, fully paid and
nonassessable New ALTM Common Stock (the "Reincorporation Consideration"),
less any required withholding Taxes, upon surrender of the certificate(s)
formerly representing such share of ALTM Common Stock (each an "ALTM
Certificate"), (ii)each share of ALTM Common Stock then held in the treasury
of ALTM shall be canceled and retired without conversion thereof and without
payment of any consideration and shall cease to exist and (iii) each
outstanding ALTM option and warrant shall be assumed and converted into a
substitute New ALTM Option or New ALTM warrant. All of the other terms and
conditions of such substitute New ALTM Option or New ALTM warrant shall be
identical to the terms and conditions of such formerly outstanding ALTM option
or warrant as outstanding immediately prior to the Reincorporation Effective
Time. The parties hereto intend that New ALTM shall assume and convert any
and all of the outstanding ALTM options and warrants to the extent such ALTM
options and warrants are not exercised or canceled prior to the First Closing.
At the Reincorporation Effective Time, each share of New ALTM Common Stock
issued and outstanding immediately prior to the Reincorporation Effective Time
shall be canceled and retired without conversion thereof and without payment
of any consideration and shall cease to exist.
(b) The Combination. At the Combination Effective Time, by
virtue of the merger of Combination Sub with and into Hencie and without any
action on the part of Combination Sub or Hencie (other than the filing of the
certificate of merger referred to in Section 1.3(c) hereof) or their
respective stockholders any and all Combination Shares, issued and outstanding
immediately prior to the Combination Effective Time (other than shares of
Hencie Common Stock held in the treasury of Hencie) shall be canceled and
extinguished and be converted automatically into the right to receive
consideration equal to the number of shares of New ALTM Common Stock per share
of Hencie Common Stock (calculated using the Common Stock Exchange Ratio as
utilized to effectuate the exchange of Hencie Common Stock by the Stockholders
in connection with the Stock Acquisition and in accordance with the terms and
conditions of this Agreement) received as consideration by the Stockholders in
connection with the Stock Acquisition, as adjusted (if at all), less any
required withholding Taxes, upon surrender of the certificate(s) formerly
representing such Combination Shares (each a "Combination Certificate"), and
(ii) each share of Hencie Common Stock then held in the treasury of Hencie
shall be canceled and retired without conversion thereof and without payment
of any consideration and shall cease to exist such that New ALTM shall own one
hundred percent (100%) of Hencie on a fully-diluted basis and all with the
effect that Hencie shall become a wholly owned subsidiary of New ALTM. At the
Combination Effective Time, each share of Combination Sub Common Stock issued
and outstanding immediately prior to the Combination Effective Time shall be
canceled and retired without conversion thereof and without payment of any
consideration and shall cease to exist. At the Combination Effective Time, by
virtue of the Combination and without any action on the part any person or
entity, any and all outstanding Hencie Options immediately prior to the
Combination Effective Time shall be assumed and converted into a substitute
New ALTM Option as follows:
(i) Assumption, Substitution and Conversion of
Hencie Options. Each outstanding Hencie Option shall be assumed and converted
into a substitute New ALTM Option, to purchase the number of shares of New
ALTM Common Stock equal to the product of the number of shares of Hencie
Common Stock for which such Hencie Option was exercisable immediately prior to
the Combination Effective Time (without regard to vesting provisions, if any)
multiplied by the Common Stock Exchange Ratio, as adjusted (if at all). The
aggregate exercise price for any and all shares of New ALTM Common Stock
covered by each such substitute New ALTM Option shall be equal to the
aggregate exercise price for any and all shares of Hencie Common Stock covered
by such formerly outstanding Hencie Option. The per share exercise price for
each share of New ALTM Common Stock covered by each such substitute New ALTM
Option shall be equal to the aggregate exercise price of such substitute New
ALTM Option divided by the number of any and all shares of New ALTM Common
Stock issuable in connection with the exercise of such substitute New ALTM
Option. All of the other terms and conditions of such substitute New ALTM
Option shall be identical to the terms and conditions of such formerly
outstanding Hencie Option as outstanding immediately prior to the Stock
Acquisition Effective Time. The parties hereto intend that New ALTM shall
assume and convert any and all of the outstanding Hencie Options to the extent
such Hencie Options are not exercised or canceled prior to the Second Closing.
(ii) Fractional Shares. Notwithstanding the
foregoing, no New ALTM Option shall be exercisable for, or with respect to,
fractional shares of New ALTM Common Stock issuable upon the exercise of any
New ALTM Option. Accordingly, upon assumption and conversion of any Hencie
Option exercisable for any fractional share(s) of Hencie Common Stock, holders
of such Hencie Option who would otherwise be entitled to receive any
fractional share(s) of New ALTM Common Stock upon the exercise of a substitute
New ALTM Option shall receive (i) a New ALTM Option for one (1) full share of
New ALTM Common Stock if the fractional share of Hencie Common Stock to be
issued upon the exercise of the assumed and converted Hencie Option equals or
exceeds fifty percent (50%) of one (1) full share of Hencie Common Stock or
(ii) nothing if the fractional share of Hencie Common Stock to be issued upon
the exercise of the assumed and converted Hencie Option equals less than fifty
percent (50%) of one (1) full share of Hencie Common Stock, and, in each such
case, such fractional share(s) issuable upon the exercise of such Hencie
Option shall be canceled.
(iii) Combination Consideration. At the Combination
Effective Time, New ALTM shall issue and exchange shares of New ALTM Common
Stock and New ALTM Options such that the former holders of Hencie Common Stock
and Hencie Options that receive substitute New ALTM Options (including,
without limitation, the Stockholders, the Minority Stockholders, any other
former holder of Hencie Common Stock and any other former holder of Hencie
Options) shall own at least 49% of New ALTM on a fully-diluted basis (the
"Combination Consideration").
(c) Subsequent Events. In the event that, subsequent to
the date of this Agreement, but prior to the Reincorporation Effective Time,
the outstanding shares of ALTM Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares
or securities through a reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, or other similar change in
capitalization, or there shall have been proposed any such change with a
record date prior to the Reincorporation Effective Time, then an appropriate
and proportionate adjustment shall be made in the number of shares of New ALTM
Common Stock issued in the Reincorporation; provided, however, that no such
adjustment shall be made in connection with the Return of Capital Distribution
or the exercise of ALTM options or warrants outstanding on the date hereof.
In the event that, subsequent to the date of this Agreement,
but prior to the First Closing the outstanding shares of ALTM Common Stock
shall have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities through a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar change in capitalization, or there shall have been
proposed any such change with a record date prior to the Stock Acquisition
Effective Time, then an appropriate and proportionate adjustment shall be made
in the Stock Acquisition Consideration issued in the Stock Acquisition;
provided, however, that no such adjustment shall be made in connection with
the Return of Capital Distribution or the exercise of ALTM options or warrants
outstanding on the date hereof.
In the event that, subsequent to the date of this Agreement,
but prior to the Stock Acquisition Effective Time, the outstanding shares of
Hencie Common Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities through a
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, or other similar change in capitalization, or
there shall have been proposed any such change with a record date prior to the
Stock Acquisition Effective Time, then an appropriate and proportionate
adjustment shall be made in the Stock Acquisition Consideration issued in the
Stock Acquisition; provided, however, that no such adjustment shall be made in
connection with the exercise of Hencie Options outstanding on the date hereof.
In the event that, subsequent to the date of this Agreement,
but prior to the Combination Effective Time, except as expressly provided
herein, the outstanding shares of New ALTM Common Stock shall have been
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization, or there shall have been proposed any such
change with a record date prior to the Combination Effective Time, then an
appropriate and proportionate adjustment shall be made in the number of shares
of New ALTM Common Stock issued in the Combination.
In the event that, subsequent to the date of this Agreement,
but prior to the Combination Effective Time, except as expressly provided
herein, the outstanding shares of Hencie Common Stock shall have been
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization, or there shall have been proposed any such
change with a record date prior to the Combination Effective Time, then an
appropriate and proportionate adjustment shall be made in the number of shares
of New ALTM Common Stock issued in the Combination; provided, however, that no
such adjustment shall be made in connection with the exercise of Hencie
Options outstanding on the date hereof.
3.2 First Closing. Unless this Agreement is terminated and the
transactions contemplated herein abandoned pursuant to Article VIII and
subject to the satisfaction or, if permissible, waiver of the conditions set
forth in Article VI, the consummation of the First Closing shall take place
(a) at the offices of Haynes and Boone, LLP, Dallas, Texas, at 11:00 A.M.
local time on a date to be specified by Hencie and ALTM, but as soon as
practicable (and in any event within two (2) Business Days) after the day on
which the last of the conditions set forth in Article VI is fulfilled (other
than deliveries of instruments to be made at First Closing) or, if
permissible, waived by the relevant party or (b) at such other date, time and
place as Hencie and ALTM shall agree upon in writing.
3.3 Exchange of Certificates in Reincorporation.
(a) Exchange Procedure. Immediately after the First
Closing and upon surrender to New ALTM of an ALTM Certificate for exchange and
cancellation, together with any other documents reasonably required by New
ALTM, the holder of such ALTM Certificate shall be entitled to receive in
exchange therefore a stock certificate representing the appropriate number of
shares of New ALTM Common Stock as contemplated by Section 3.1(a) of this
Agreement, and each such surrendered ALTM Certificate shall forthwith be
canceled. Until surrendered as contemplated by this Section 3.3, each ALTM
Certificate shall be deemed at any time after the First Closing to represent
only the right to receive upon such surrender New ALTM Common Stock as
contemplated by Section 3.1(a) of this Agreement. Upon delivery of an ALTM
Certificate for exchange and cancellation, New ALTM shall as soon as
practicable deliver or cause to be delivered a stock certificate representing
the number of shares of New ALTM Common Stock that such holder is entitled to
receive as of such date.
(b) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to New ALTM Common Stock
declared or made after the First Closing with a record date after the First
Closing shall be paid to the holder of any unsurrendered ALTM Certificate
until such ALTM Certificate is surrendered. Subject to applicable law,
following the surrender of such ALTM Certificate, there shall be paid to the
record holder of such ALTM Certificate representing shares of New ALTM Common
Stock issued in exchange therefore, without interest, at the time of such
surrender, the amount of any such dividends or other distributions with a
record date after the First Closing, theretofore payable but for the
provisions of this Section 3.3.
(c) No Fractional Shares. No stock certificates or scrip
representing fractional shares of New ALTM Common Stock shall be issued upon
the surrender for exchange of any ALTM Certificate pursuant to this Article
III. Accordingly, upon surrender of any stock certificate representing any
fractional share(s) of ALTM Common Stock, ALTM Shareholders who would
otherwise be entitled to receive any fractional share(s) of New ALTM Common
Stock shall receive (i) one (1) full share of New ALTM Common Stock if the
fractional share of ALTM Common Stock represented equals or exceeds fifty
percent (50%) of one (1) full share of ALTM Common Stock or (ii) nothing if
the fractional share of ALTM Common Stock represented equals less than fifty
percent (50%) of one (1) full share of ALTM Common Stock, and, in each such
case, such fractional share(s) shall be canceled.
(d) Lost Share Certificates. If an ALTM Certificate shall
have been lost or destroyed, the holder of such ALTM Certificate may be
entitled to receive the share(s) of New ALTM Common Stock represented by such
lost or destroyed ALTM Certificate subject to such holder providing New ALTM
with a lost certificate affidavit and indemnification acceptable to New ALTM.
Any lost certificate affidavit representing an ALTM Certificate to be
delivered for exchange and cancellation shall be delivered to New ALTM before
or at the First Closing and no lost certificate affidavit delivered after the
First Closing shall be entitled to receive any share(s) of New ALTM Common
Stock.
(e) No Further Ownership Rights. All shares of New ALTM
Common Stock issued upon surrender to New ALTM of an ALTM Certificate for
exchange and cancellation in accordance with the terms of this Section 3.3
shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of ALTM Common Stock represented by such ALTM
Certificate and there shall be no further registration or transfers on the
records of New ALTM, the surviving corporation of the Reincorporation, of
shares of ALTM Common Stock outstanding immediately prior to the
Reincorporation Effective Time. If after the Reincorporation Effective Time
any ALTM Certificates are presented to New ALTM for any reason they shall be
cancelled as provided in this Section 3.3.
(f) Reincorporation Dissenting Shares. The provisions of
this Section 3.3 shall also apply to Reincorporation Dissenting Shares that
shall have lost, for any reason, their status as Reincorporation Dissenting
Shares, except that the obligations of New ALTM under this Section 3.3 shall
commence on the date of the loss of such status and the holder of such shares
shall be entitled to receive such number of shares of New ALTM Common Stock to
which such holder is entitled pursuant to Section 3.1(a).
(g) Restricted Shares. Each share of ALTM Common Stock
issued and outstanding immediately prior to the Reincorporation that is
restricted or not fully vested shall have, upon exchange and conversion in the
Reincorporation, the same restrictions and vesting limitations applicable to
such share as exchanged and converted.
3.4 Exchange of Certificates in Stock Acquisition.
(a) Exchange Procedure. Immediately after the First
Closing and upon surrender to New ALTM of a Hencie Certificate for exchange
and cancellation, together with any other documents reasonably required by New
ALTM, the holder of such Hencie Certificate shall be entitled to receive in
exchange therefore a stock certificate representing the appropriate number of
shares of New ALTM Common Stock as contemplated by Section 1.2(b) of this
Agreement, and each such surrendered Hencie Certificate shall forthwith be
canceled. Upon delivery of a Hencie Certificate for exchange and
cancellation, New ALTM shall as soon as practicable deliver or cause to be
delivered a stock certificate representing the number of shares of New ALTM
Common Stock that such holder is entitled to receive as of such date. Any
Hencie Certificate to be surrendered for exchange and cancellation shall be
delivered to New ALTM before or at the First Closing and no Hencie Certificate
representing shares of Hencie Common Stock delivered after the First Closing
shall be entitled to receive any share(s) of New ALTM Common Stock in
connection with the Stock Acquisition.
(b) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to New ALTM Common Stock
declared or made after the First Closing with a record date after the First
Closing shall be paid to the holder of any unsurrendered Hencie Certificate
until such Hencie Certificate is surrendered.
(c) No Fractional Shares. No stock certificates or scrip
representing fractional shares of New ALTM Common Stock shall be issued upon
the surrender for exchange of any Hencie Certificate pursuant to this Article
III. Accordingly, upon surrender of any stock certificate representing any
fractional share(s) of Hencie Common Stock, Stockholders who would otherwise
be entitled to receive any fractional share(s) of New ALTM Common Stock shall
receive (i) one (1) full share of New ALTM Common Stock if the fractional
share of Hencie Common Stock represented equals or exceeds fifty percent (50%)
of one (1) full share of Hencie Common Stock, or (ii) nothing if the
fractional share of Hencie Common Stock represented equals less than fifty
percent (50%) of one (1) full share of Hencie Common Stock, and, in each such
case, such fractional share(s) shall be canceled.
(d) Lost Share Certificates. If a Hencie Certificate shall
have been lost or destroyed, the holder of such Hencie Certificate may be
entitled to receive the share(s) of New ALTM Common Stock represented by such
lost or destroyed Hencie Certificate subject to such holder providing New ALTM
with a lost certificate affidavit and indemnification acceptable to New ALTM.
Any lost certificate affidavit representing a Hencie Certificate to be
delivered for exchange and cancellation shall be delivered to New ALTM before
or at the First Closing and no lost certificate affidavit delivered after the
First Closing shall be entitled to receive any share(s) of New ALTM Common
Stock in connection with the Stock Acquisition.
(e) No Further Ownership Rights. All shares of New ALTM
Common Stock issued upon surrender to New ALTM of a Hencie Certificate for
exchange and cancellation in accordance with the terms of this Section 3.4
shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of Hencie Common Stock represented by such Hencie
Certificate.
3.5 Exchange of Hencie Certificates in Combination.
(a) Exchange Procedure. Immediately after the Second
Closing and upon surrender to New ALTM of a Combination Certificate for
exchange and cancellation, together with any other documents reasonably
required by New ALTM, the holder of such Combination Certificate shall be
entitled to receive in exchange therefore a stock certificate representing the
appropriate number of shares of New ALTM Common Stock as contemplated by
Section 3.1(b) of this Agreement, and each such surrendered Combination
Certificate shall forthwith be canceled. Until surrendered as contemplated by
this Section 3.5, each Combination Certificate shall be deemed at any time
after the Second Closing to represent only the right to receive upon such
surrender New ALTM Common Stock as contemplated by Section 3.1(b) of this
Agreement. Upon delivery of a Combination Certificate for exchange and
cancellation, New ALTM shall as soon as practicable deliver or cause to be
delivered a stock certificate representing the number of shares of New ALTM
Common Stock that such holder is entitled to receive as of such date.
Shares of New ALTM Common Stock to be issued in connection with
the Combination shall be issued under an exemption pursuant the Securities Act
or New ALTM shall use commercially reasonable efforts to prepare and file a
registration statement for the shares of New ALTM Common Stock issued in
connection with the Combination as promptly as practicable and in any event
within thirty (30) Business Days following the First Closing.
(b) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to New ALTM Common Stock
declared or made after the Second Closing with a record date after the Second
Closing shall be paid to the holder of any unsurrendered Combination
Certificate until such Combination Certificate is surrendered. Subject to
applicable law, following the surrender of such Combination Certificate, there
shall be paid to the record holder of such Combination Certificate
representing shares of New ALTM Common Stock issued in exchange therefore,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Second Closing,
theretofore payable but for the provisions of this Section 3.5.
(c) No Fractional Shares. No stock certificates or scrip
representing fractional shares of New ALTM Common Stock shall be issued upon
the surrender for exchange of any Combination Certificate pursuant to this
Article III. Accordingly, upon surrender of any stock certificate
representing any fractional share(s) of Hencie Common Stock, Minority
Stockholders who, would otherwise be entitled to receive any fractional
share(s) of New ALTM Common Stock, shall receive (i) one (1) full share of New
ALTM Common Stock if the fractional share of Hencie Common Stock represented
equals or exceeds fifty percent (50%) of one (1) full share of Hencie Common
Stock or (ii) nothing if the fractional share of Hencie Common Stock
represented equals less than fifty percent (50%) of one (1) full share of
Hencie Common Stock, and, in each such case, such fractional share(s) shall be
canceled.
(d) Lost Share Certificates. If a Combination Certificate
shall have been lost or destroyed, the holder of such Combination Certificate
may be entitled to receive the share(s) of New ALTM Common Stock represented
by such lost or destroyed Combination Certificate subject to such holder
providing New ALTM with a lost certificate affidavit and indemnification
acceptable to New ALTM. Any lost certificate affidavit representing a
Combination Certificate to be delivered for exchange and cancellation shall be
delivered to New ALTM before or at the Second Closing and no lost certificate
affidavit delivered after the Second Closing shall be entitled to receive any
share(s) of New ALTM Common Stock.
(e) No Further Ownership Rights. All shares of New ALTM
Common Stock issued upon surrender to New ALTM of a Combination Certificate
for exchange and cancellation in accordance with the terms of this Section 3.5
shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of Hencie Common Stock represented by such
Combination Certificate and there shall be no further registration or
transfers on the records of New ALTM of shares of Hencie Common Stock
outstanding immediately prior to the Combination Effective Time. If after the
Combination Effective Time any Hencie Certificates are presented to New ALTM
for any reason they shall be cancelled as provided in this Section 3.5.
(f) Combination Dissenting Shares. The provisions of this
Section 3.5 shall also apply to Combination Dissenting Shares that shall have
lost, for any reason, their status as Combination Dissenting Shares, except
that the obligations of New ALTM under this Section 3.5 shall commence on the
date of the loss of such status and the holder of such shares shall be
entitled to receive such number of shares of New ALTM Common Stock to which
such holder is entitled pursuant to Section 3.1(b).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the ALTM Companies. To induce
Hencie and the Stockholders to enter into this Agreement and to consummate the
transactions contemplated hereby, ALTM, New ALTM and Combination Sub, for
themselves and on behalf of the other ALTM Subsidiaries, jointly and severally
represent and warrant to Hencie and the Stockholders as follows (each such
representation and warranty being qualified in its entirety by the disclosures
set forth in the Disclosure Schedule of the ALTM Companies):
4.1.1 Corporate Existence and Authority. Each of the ALTM
Companies is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation as indicated on
the Disclosure Schedule. Each of the ALTM Companies has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as it has been and is being conducted. Each of the ALTM
Companies is qualified to do business as a foreign corporation and is in good
standing in each state, nation or other jurisdiction listed on the Disclosure
Schedule, being each state, nation or other jurisdiction wherein the character
of the properties owned or held under lease by it or the nature of the
business transacted by it makes such qualification necessary, except for any
state, nation or other jurisdiction where the failure to be so qualified would
not reasonably be expected to have a Material Adverse Effect on ALTM or the
ALTM Companies taken as a whole.
4.1.2 Capitalization of the ALTM Companies. The authorized
capital stock of ALTM consists solely of 14,000,000 shares of common stock, no
par value per share, of ALTM ("ALTM Common Stock") of which 4,586,005 shares
are issued and outstanding and 2,000,000 shares of preferred stock, no par
value, of which no shares are issued and outstanding. The authorized capital
stock of Alternate Postal Direct, Inc. consists solely of 60,000 shares of
common stock, par value $1.00 per share, of which 50,000 shares are issued and
outstanding. The authorized capital stock of National Home Delivery, Inc.
consists solely of 250,000 shares of common stock, par value $0.01 per share,
of which 100,500 shares are issued and outstanding. No other shares of
capital stock of the ALTM Companies are issued and outstanding, except for the
capital stock of New ALTM and Combination Sub referred to in Sections 4.2.2
and 4.3.2 respectively. On the date hereof, all the issued and outstanding
shares of capital stock of the ALTM Subsidiaries are owned and held solely by
ALTM free and clear of any Lien and ALTM is the record and beneficial owner of
such shares. All of the issued and outstanding shares of capital stock of the
ALTM Companies have been duly authorized and validly issued in accordance and
compliance with all applicable laws, rules and regulations and are fully paid
and nonassessable. There are no securities, options, warrants, rights, calls,
commitments, plans, contracts or other agreements of any character granted or
issued by any of the ALTM Companies which provide for the purchase, issuance
or transfer of any shares of the capital stock of any of the ALTM Companies,
nor are there any outstanding securities granted or issued by any of the ALTM
Companies that are convertible into or exchangeable for any shares of the
capital stock of any of the ALTM Companies, and none are authorized except
pursuant to this Agreement and employee benefit plans of ALTM. None of the
ALTM Companies are obligated or committed to purchase, redeem or otherwise
acquire any shares of capital stock of the ALTM Companies. All presently
exercisable voting rights in the ALTM Companies are vested exclusively in
outstanding shares of ALTM Common Stock, each share of which is entitled to
one vote on every matter to come before the ALTM Shareholders. There are no
voting trusts or other voting arrangements with respect to any shares of
capital stock of the ALTM Companies except as contemplated by this Agreement.
ALTM's only subsidiaries are the ALTM Subsidiaries.
4.1.3 Validity and Authorization; Corporate Power and
Authority. Each of the ALTM Companies has full corporate power and authority
to execute, deliver and perform this Agreement, the Related Agreements and the
other instruments called for by this Agreement to which it is or is to be a
party. This Agreement has been duly authorized, executed and delivered by
ALTM and constitutes the legal, valid and binding obligation of ALTM,
enforceable against the ALTM Companies in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting enforcement of creditors' rights
generally or by general principles of equity (whether applied in a proceeding
at law or in equity) (the "Equitable Defenses").
When the Related Agreements and the other instruments called
for by this Agreement to which any of the ALTM Companies is a party are
executed and delivered at the First Closing, such Related Agreements and
instruments shall have been duly authorized, executed and delivered by each
such ALTM Company, enforceable against each such ALTM Company in accordance
with their terms, except as such enforcement may be limited by the Equitable
Defenses.
4.1.4 Execution; No Violations. The execution and delivery
of this Agreement and each of the Related Agreements by each of the ALTM
Companies does not, and the consummation by the ALTM Companies of the
transactions contemplated hereby and thereby shall not: (a) violate, conflict
with, modify, result in the incurrence of any prepayment penalties or cause
any default under or acceleration of (or give any party any right to declare
any default or acceleration upon notice or passage of time or both), in whole
or in part, any articles or certificate of incorporation, bylaw, Lien,
indenture, lease, agreement, instrument, order, injunction, decree, or
judgment to which any of the ALTM Companies are a party or by which any of
them or any of their properties are bound; (b) result in the creation of any
Lien on any property or asset (whether real, personal, mixed, tangible or
intangible) of any of the ALTM Companies; (c) violate any law, rule or
regulation applicable to any of the ALTM Companies; or (d) permit any federal
or state regulatory agency to impose any restrictions or limitations of any
nature on any of the ALTM Companies or any of their respective activities,
except in each case as would not reasonably be expected to have a Material
Adverse Effect on ALTM or the ALTM Companies taken as a whole.
4.1.5 Governmental and Other Consents. Except for the
filing of the certificates of merger contemplated by Section 1.3, approval by
state securities regulators, the filing with the SEC and the Nasdaq Stock
Market of the Proxy Statement relating to the ALTM Shareholders' Meeting, the
filing of any notification or listing application with the Nasdaq SmallCap
Market, such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state securities
laws and the securities laws of any foreign country, any Form 8-K to be filed
with the SEC by ALTM with respect to the transactions contemplated hereby, no
consent, approval or authorization of, or designation, declaration or filing
with, any governmental authority is required on the part of ALTM or any ALTM
Company in connection with the execution or delivery of this Agreement, the
Related Agreements or the consummation by them of the transactions
contemplated hereby and thereby, except as would not reasonably be expected to
have a Material Adverse Effect on ALTM or the ALTM Companies taken as a whole.
The Disclosure Schedule lists all consents, approvals or
authorizations of third Persons, required in connection with ALTM's valid
execution, delivery or performance of this Agreement and the Related
Agreements to which it is a party or the consummation of any of the
transactions contemplated hereby or thereby on the part of any of them
(collectively the "ALTM Consents"), including, without limitation, the
consents required under the ALTM Contracts, except, in each case, as would not
reasonably be expected to have a Material Adverse Effect on ALTM or the ALTM
Companies taken as a whole.
4.1.6 Financial Statements. The SEC Documents contain true
and correct copies of the audited combined balance sheets for the ALTM
Companies at December 31, 2001, 2000 and 1999 and the related statements of
profit and loss and cash flows for each of the one-year periods then ended.
When delivered pursuant to this Agreement, the similar financial statements
for each additional month after December 31, 2001 and ending more than thirty
(30) Business Days before the First Closing shall be true and correct copies
(collectively with the financial statements referenced in the preceding
sentence of this Section 4.1.6, the "Financial Statements").
The Financial Statements present fairly the financial position
of the ALTM Companies as of the dates thereof and the results of the ALTM
Companies' operations and cash flows for the periods then ended, in accordance
with GAAP, except that the non-year end Financial Statements described above
are also subject to recurring year end adjustments, if any, that are normal in
nature and amount. The ALTM Companies maintain systems of accounting,
including, without limitation, systems of internal controls, which permit them
to prepare financial statements that present fairly their respective financial
positions and results of operations.
4.1.7 Absence of Certain Liabilities. Other than
liabilities and obligations covered by another representation and warranty of
the ALTM Companies in Section 4.1 (such as Taxes, Environmental Matters and
Compliance with Laws), it being the intention of the parties that any such
liabilities and obligations shall be governed, if at all, by such other
representations and warranties, none of the ALTM Companies have any material
liabilities or obligations of any nature (whether absolute, accrued,
contingent, due or to become due) except as set forth on the Disclosure
Schedule or as and to the extent reflected and fully reserved against in the
Financial Statements (including general reserves), none of the ALTM Companies
has incurred any such liabilities or obligations of any nature other than
those (i) reflected or reserved against in ALTM's Financial Statements, (ii)
incurred in the ordinary course of business since the date thereof and not
exceeding $100,000 individually, or (iii) as set forth on the Disclosure
Schedule of the ALTM Companies.
4.1.8 Absence of Changes. Except as expressly disclosed in
the SEC Documents or as disclosed on the Disclosure Schedule in alphabetical
order corresponding to the following subsections, since December 31, 2001
there has not been:
(a) Any change or aggregate of changes in the
condition (financial or otherwise), business, assets, or liabilities of any of
the ALTM Companies that would reasonably be expected to result in a Material
Adverse Effect on any of the ALTM Companies;
(b) Any change in the capitalization of any of
the ALTM Companies, including, without limitation, the issuance by any of the
ALTM Companies of any shares of stock of any class, any subscriptions,
options, warrants, convertible securities, rights, calls, agreements,
commitments or rights affecting or relating in any manner whatsoever to any
equitable interests in any of the ALTM Companies;
(c) Any purchase, redemption or other
acquisition by any of the ALTM Companies, or any commitment, plan or agreement
by any of the ALTM Companies to purchase, redeem or otherwise acquire any
shares of their capital stock or other equitable interests;
(d) Any merger or consolidation or agreement
to merge or consolidate by any of the ALTM Companies with another Person, or
any purchase of or investment in or agreement to purchase or invest by any of
the ALTM Companies in the business of another Person except as provided for by
this Agreement;
(e) Any declaration, payment or setting aside
by any of the ALTM Companies of any dividends or other distributions of any
assets of any kind whatsoever to any of their shareholders or stockholders, as
applicable, or other equitable owners, except for ordinary salary payments for
services actually rendered and except for the Return of Capital Distribution
by ALTM;
(f) Any amendment to the articles of
incorporation or bylaws of any of the ALTM Companies;
(g) Any increase in or modification of the
base compensation or rate of compensation, or commission, salaries or bonuses
payable or to become payable by any of the ALTM Companies to any of their
directors, officers, salaried employees earning more than $200,000 per annum,
salesmen or agents;
(h) Any change in any existing, or adoption of
or entering into any new, benefit plan or arrangement (whether written or
oral) affecting any of the officers, directors, employees, salesmen or agents
of any of the ALTM Companies, including, without limitation, any bonus,
profit-sharing, pension, deferred compensation, severance or termination pay
benefit, stock option, group life or health insurance or other similar plans,
agreements or arrangements;
(i) Any release, cancellation, modification or
waiver of any obligation, indebtedness, liability or Lien held by any of the
ALTM Companies, unless such obligation, indebtedness, liability or Lien has
been paid in full at the time of release;
(j) Any waivers, compromises or settlements by
any of the ALTM Companies of any right or claim of any of the ALTM Companies
in excess of $50,000 in the aggregate; or any institution or settlement of, or
agreement to settle, any litigation, action or proceeding before any court or
governmental body relating to any of the ALTM Companies or any of their
properties;
(k) Any mortgage, pledge or other subjection
to any Lien or option of any property, asset, right or business of any of the
ALTM Companies, other than Permitted Liens and those incurred in the ordinary
course of business;
(l) Any assumptions or guarantees (except
endorsements of negotiable instruments in the ordinary course of business) by
any of the ALTM Companies of the obligations of any Person, except in the
ordinary course of business and consistent with past practice, but in no event
in excess of $100,000 when all such assumptions, guarantees and endorsements
are aggregated;
(m) Any payment or satisfaction by any of the
ALTM Companies of any liability, obligation or indebtedness, other than (i)
those reflected on the Financial Statements, (ii) those incurred in the
ordinary course of business and consistent with past practice, or (iii) any
reasonable attorneys' or accountants' fees incurred in connection with the
transactions contemplated by this Agreement;
(n) Any loan or advance, any commitment to
loan or advance, or any renewal, refunding or extension of any existing loan,
made by any of the ALTM Companies to any Person, except in the ordinary course
of business and consistent with past practice, but in no event any loan or
advance, any commitment to loan or advance, or any renewal, refunding or
extension of any existing loan, by any of the ALTM Companies to ALTM or any of
their officers or directors or to any Affiliate of ALTM or any such officer or
director;
(o) Any actions taken or transactions entered
into by any of the ALTM Companies involving more than $100,000 in the
aggregate, other than the ALTM Companies Permitted Transactions or in the
ordinary course of business and consistent with past practice, or any capital
expenditures or commitments therefore in excess of $100,000 in the aggregate,
other than in the ordinary course of business;
(p) Any creations, renewals, changes or
terminations, or any notice of any proposed renewal, change or termination of
any contract, agreement, commitment, obligation, lease or license involving
more than $100,000 in the aggregate or extending beyond three months from the
date of this Agreement, to which any of the ALTM Companies is a party or by
which any of the ALTM Companies or their property is bound, other than in the
ordinary course of business;
(q) Any sale, assignment, lease, abandonment
or other disposition by any of the ALTM Companies of any real property, or any
sale, assignment, transfer, license, lapse, or other disposition by any of the
ALTM Companies of any trademark, trade name, copyright (or pending application
for any material trademark or copyright), or other intangible asset;
(r) Any sale, assignment or transfer of any
contract, agreement, lease, or asset by any of the ALTM Companies, except the
ALTM Companies Permitted Transactions or in the ordinary course of business
and consistent with past practice;
(s) Any general labor dispute, or threat of a
general labor dispute, or any attempt or threat of any attempt by a union to
organize any employees of any of the ALTM Companies who are not now covered
under an existing union or collective bargaining agreement;
(t) Any lapse of any insurance policy or
coverage of any of the ALTM Companies, except for normal renewals and/or
replacements;
(u) Any damage, destruction or loss to the
business or properties of any of the ALTM Companies, whether or not covered by
insurance, including, without limitation, any damage, destruction or loss as a
result of fire, explosion, accident, earthquake, lightning, aircraft, vehicle,
smoke, hail, flood, drought, storm, strike, work stoppage, lockout, sabotage,
embargo, condemnation, riot, civil disturbance, vandalism or act of God or
public enemy the result of which is a Material Adverse Effect on any of the
ALTM Companies;
(v) Any granting of powers of attorney by any
of the ALTM Companies; any change in their banking or safe deposit
arrangements; any writing up or writing down of the carrying value of any of
their assets; any change in their depreciation or amortization policies or
rates heretofore adopted; or any change in any basic policy or practice by any
of the ALTM Companies with respect to liquidity management and cash flow
planning, lending, budgeting, pricing, profit and tax planning, personnel
practices and accounting practices; or
(w) Any other action taken or transaction
entered into by any of the ALTM Companies other than in the ordinary course of
business, except as contemplated by this Agreement.
4.1.9 Taxes.
(a) Each of the ALTM Companies has duly and
timely filed all required federal, state, local and other tax returns,
information returns, notices and reports (including, without limitation,
income, property, sales, use, franchise, capital stock, excise, value added,
employees' income withholding, social security and unemployment tax returns,
notices and reports) (collectively the "Tax Returns") related to such ALTM
Company heretofore due, and all such Tax Returns are correct, accurate and
complete in all material respects;
(b) All deposits required to be made by any of
the ALTM Companies with respect to any Tax (including, without limitation,
estimated income, franchise and employee withholding Taxes) have been duly and
timely made;
(c) There has not been during the past five
(5) years any audits or examinations of any Tax Returns filed by any of the
ALTM Companies, no audits or examinations of any Tax Returns of any of the
ALTM Companies are in progress, and none of the ALTM Companies has been
notified by any tax authority that any such audits or examinations are
contemplated or pending;
(d) All Taxes with respect to the ALTM
Companies that have become due and payable on or before December 31, 2001 have
been timely paid in full or adequately reserved against on the Financial
Statements, and all Taxes which have become due and payable subsequent to
December 31, 2001 have been paid in full or adequately reserved against on
their books of account and the amounts reflected on the Financial Statements
and such books are sufficient for the payment of all unpaid Taxes with respect
to the periods then ended and for all periods prior thereto. There are no
Liens on any of the assets of any of the ALTM Companies that arose in
connection with any failure (or alleged failure) to pay any Tax, except those
that are not yet due and payable or are being contested in good faith by
appropriate proceedings;
(e) There are no agreements, waivers or other
arrangements providing for an extension of time with respect to the assessment
or collection of any Tax against any of the ALTM Companies, nor are there any
Proceedings now pending against any of the ALTM Companies in respect of any
Tax, or any matters under discussion with any federal, state, local or foreign
authority, or any claims for refund by the ALTM Companies for overpaid Taxes
relating to any Taxes, or any claims for additional Taxes asserted by any such
authority, and there is no basis for the assertion of any additional Taxes
against any of the ALTM Companies;
(f) None of the ALTM Companies has ever filed
a consent pursuant to Section 341(f) of the Code. None of the ALTM Companies
has entered into a closing agreement pursuant to Section 7121 of the Code.
None of the ALTM Companies are parties to any tax sharing or similar
agreement;
(g) To the Knowledge of ALTM Management, the
consummation of the transactions contemplated by this Agreement shall not
result in the imposition of any additional Taxes on any of the ALTM Companies,
except for Taxes relating to the consummation of the ALTM Companies Permitted
Transactions;
(h) None of the ALTM Companies has made any
payments, is obligated to make any payments, or is a party to any agreement
that under certain circumstances could obligate it to make any payments that
shall not be deductible under Section 280G of the Code;
(i) Each of the ALTM Companies has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party;
(j) None of the assets of any of the ALTM
Companies constitutes Tax-exempt bond financed property or Tax-exempt use
property within the meaning of Section 168 of the Code;
(k) None of the ALTM Companies is a party to
any "safe harbor lease" that is subject to the provisions of Section 168(f)(8)
of the Code as in effect prior to the Tax Reform Act of 1986, or to any "long-
term contract" within the meaning of Section 460 of the Code;
(l) There are no accounting method changes or
proposed or threatened accounting method changes of any of the ALTM Companies
that could give rise to an adjustment under Section 481 of the Code for
periods after the First Closing Date;
(m) Each of the ALTM Companies has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6662(d) of the Code; and
(n) For purposes of this Agreement, all
references to sections of the Code shall include any predecessor provisions to
such sections and any similar provisions of state, local or foreign law.
4.1.10 Disputes and Litigation.
(a) There is no material suit, arbitration,
action, litigation, proceeding, investigation, claim, complaint or accusation
pending (each a "Proceeding" and collectively the "Proceedings") of which any
of the ALTM Companies has received written notice or, to the Knowledge of ALTM
Management, threatened against or affecting any of the ALTM Companies, or any
of their properties, assets or business or to which any of the ALTM Companies,
is a party, in any court or before any arbitrator of any kind or before or by
any governmental agency (including, without limitation, any federal, state,
local, foreign or other governmental department, commission, board, bureau,
agency or instrumentality), and no facts are Known to ALTM Management which
are reasonably likely to give rise to any such Proceeding, the result of which
would reasonably be expected to result in a Material Adverse Effect on any of
the ALTM Companies;
(b) To the Knowledge of ALTM Management, there
is no pending or threatened change in any environmental, zoning or building
laws, regulations or ordinances the result of which would reasonably be
expected to result in a Material Adverse Effect on any of the ALTM Companies;
and
(c) There is no outstanding order, writ,
injunction, decree, judgment or award by any court, arbitrator or governmental
body against or affecting any of the ALTM Companies or any of their
properties, assets or business. None of the items nor aggregate of items
listed in the Disclosure Schedule would, if adversely determined, reasonably
be expected to have a Material Adverse Effect on any of the ALTM Companies.
To the Knowledge of ALTM Management, there is no Proceeding, formal or
informal, pending or threatened which would give rise to any right of
indemnification on the part of any director or officer of any of the ALTM
Companies or any such person's heirs, executors or administrators as against
any of the ALTM Companies.
4.1.11 Compliance with Laws. Except for any noncompliance to
be covered by any other representation and warranty of the ALTM Companies
contained in Section 4.1 (for example, Taxes or Employees), it being the
intention of the parties that such noncompliance shall be governed, if at all,
by such other representations and warranties, the ALTM Companies presently are
and have at all times since inception been in full compliance with any
applicable federal, state, local, foreign and other laws, rules and
regulations other than those where noncompliance would not reasonably be
expected to have a Material Adverse Effect on the ALTM Companies, and the ALTM
Companies have not received any written or, to the Knowledge of ALTM
Management, oral notice of any claimed violation of any such law, rule or
regulation which would reasonably be expected to have a Material Adverse
Effect on the ALTM Companies. The ALTM Companies have filed all returns,
reports and other documents and furnished all information required or
requested by any federal, state, local or foreign governmental or quasi-
governmental agency, including the SEC, and all such returns, reports,
documents and information are true and complete in all respects except where
such failure to file or inaccuracies would not be reasonably expected to
result in a Material Adverse Effect on the ALTM Companies. All permits,
licenses, orders, franchises and approvals of all federal, state, local and
foreign governmental or quasi-governmental or regulatory bodies required of
the ALTM Companies for the conduct of their businesses have been obtained,
other than those where noncompliance would not reasonably be expected to have
a Material Adverse Effect on the ALTM Companies, no violations are or have
been recorded in respect of any such permits, licenses, orders, franchises and
approvals, and there is no Proceeding, formal or informal, pending or, to the
Knowledge of ALTM Management, threatened, which may revoke, limit, or question
the validity, sufficiency or continuance of any such permit, license, order,
franchise or approval, except in each case where the same would not reasonably
be expected to have a Material Adverse Effect on the ALTM Companies. Such
permits, licenses, orders, franchises and approvals are valid and sufficient
for all activities presently carried on by the ALTM Companies, except in each
case where the same would not reasonably be expected to have a Material
Adverse Effect on the ALTM Companies. Neither the ALTM Companies, nor any
officer, director, employee, shareholder or agent of the ALTM Companies has
made any offer, payment, promise to pay, or authorization of the payment of
any money, offer, gift, promise to give, or authorization of anything of value
to any Person named or identified in Section 30A of the Exchange Act for any
unlawful purpose described in Section 30A of the Exchange Act.
4.1.12 Insurance. The Disclosure Schedule sets forth a true
and complete list of all insurance policies (including the policy number, the
name of the insurer, the amounts of coverage, the premium rate, the cash
value, if any, the expiration date and the risks and losses insured against)
maintained by any of the ALTM Companies on their properties, assets, products,
businesses and personnel, and the ALTM Companies shall deliver copies of all
such policies, agreements, studies and analyses to Hencie not later than
fourteen (14) days after the date of this Agreement. All of the foregoing
insurance policies are in full force and effect and are fully paid as to all
premiums heretofore due. None of the ALTM Companies has failed to give any
notice or present any material claim under such insurance policies in timely
fashion, nor has any of the ALTM Companies received any written notification
of the cancellation of any of such policies or that any of them shall not be
renewed.
4.1.13 Title to Properties. The properties and assets of the
ALTM Companies consist of (a) all of the properties and assets reflected on
the Financial Statements as owned by such ALTM Company and (b) all other
properties and assets presently carried on the ALTM Companies' books as owned
by such ALTM Company or used in their businesses at any time since December
31, 2001, except, in each case, properties and assets licensed, leased or as
to which an ALTM Company otherwise has the right to use and assets
subsequently disposed of, or are disposed of pursuant to the ALTM Companies
Permitted Transactions. Except as set forth in the Disclosure Schedule, the
ALTM Companies have good and marketable title to all of their respective
properties and assets (whether real, personal, mixed, tangible or intangible)
owned by them free and clear of all Liens, except Permitted Liens, if any.
4.1.14 Real Property and Real Property Leases. The
Disclosure Schedule contains a true and complete list of (a) all real property
owned by the ALTM Companies, (b) all real estate leases to which any of the
ALTM Companies is a party, and (c) all other material interests, if any, in
real property owned or claimed by the ALTM Companies. To the Knowledge of
ALTM Management, the ALTM Companies have all material easements and rights,
including parking rights and easements for power lines, water lines, roadways
and other access, necessary to conduct the businesses they now conduct and
enjoy peaceful and undisturbed possession of all properties occupied by them.
To the Knowledge of ALTM Management, neither the whole nor any portion of any
real property owned, occupied or leased to or by the ALTM Companies has been
rezoned or condemned or otherwise taken by any public authority and, to the
Knowledge of ALTM Management, no such rezoning, condemnation or other taking
is threatened or contemplated. None of the real properties owned, occupied or
leased to or by the ALTM Companies, or the occupancy or operation thereof,
constitutes a nuisance or violation of any law or any building, zoning or
other ordinance, code or regulation or a violation of any private or public
covenant or restriction, and no written notice from any governmental body or
other Person has been served upon the ALTM Companies claiming any outstanding
violation of any such law, ordinance, code, regulation, covenant or
restriction, or requiring or calling attention to the need for any material
amount of work, repairs, construction, alterations or installations on or in
connection with any of such properties which has not been complied with. All
leases of real property to which any of the ALTM Companies is a party are
valid, binding and in full force and effect, and there exists no material
default thereunder by the ALTM Companies or, to the Knowledge of ALTM
Management, any other party thereto, nor has any events occurred which, with
notice or lapse of time, or both, would constitute a material default by the
ALTM Companies thereunder, and all rents heretofore payable under such leases
have been paid in full. The ALTM Companies shall deliver to Hencie not later
than fourteen (14) days after the date of this Agreement, true, correct and
complete copies of all deeds to, and to the extent available, policies of
title insurance with respect to, the real property listed on the Disclosure
Schedule and true, correct and complete copies of all real estate leases
listed on the Disclosure Schedule, including all amendments, modifications,
letter agreements and assignments relating thereto.
4.1.15 Equipment. The Disclosure Schedule contains a true
and complete list of all equipment (including, without limitation, trade
fixtures and motor vehicles) leased by the ALTM Companies with annual lease
payments of $36,000 or more, including the name and address of each lessor and
lessee, the expiration date of each lease, the monthly rent and any additional
rent payable under each such lease. None of the ALTM Companies are in default
under any such lease and to the Knowledge of ALTM Management, each such lease
is valid, binding and in full force and effect. The ALTM Companies shall
deliver to Hencie not later than fourteen (14) days after the date of this
Agreement, true, correct and complete copies of all such leases, including all
amendments, modifications, letter agreements and assignments relating thereto.
4.1.16 Intellectual Property.
(a) The ALTM Companies own or have the valid
right to use all Intellectual Property used in the conduct of the ALTM
Business (the "ALTM IP Rights").
(b) The Disclosure Schedule contains a true
and complete list of all registrations and applications made by or on behalf
of the ALTM Companies of any patents, copyrights, trademarks, service marks,
Internet domain names or Internet or World Wide Web URLs or addresses with any
governmental or quasi-governmental authority.
(c) There are no royalties, honoraria, fees or
other payments payable by the ALTM Companies to any third Person (other than
salaries payable to employees and independent contractors not contingent on or
related to use of their work product) as a result of the ownership, use,
possession, license, sale, marketing, advertising or disposition of any ALTM
IP Rights by the ALTM Companies and none shall become payable as a result of
the consummation of the transactions contemplated by this Agreement.
(d)Neither the operation of ALTM Companies'
businesses, nor the sale or other exploitation of their products or services
has resulted in the infringement or misappropriation of any Intellectual
Property right of any other party; and there is no pending or, to the
Knowledge of ALTM Management, threatened, claim or litigation alleging that
the operation of ALTM Companies' businesses, or the sale or other exploitation
of their products or services conflicts or shall conflict with the rights of
any other party; nor, to the Knowledge of ALTM Management, is there any
legitimate basis for any such assertion.
4.1.17 Agreements. All of the contracts listed or required
to be listed in Item 10 of the SEC Documents, other than those contracts which
have been terminated or which have expired (collectively the "ALTM
Contracts"), are valid and binding and in full force and effect against ALTM
or any of the ALTM Companies that are parties thereto, and there exists no
Breach or default by ALTM, or any event which, with notice or lapse of time or
both, would constitute a material Breach or default by ALTM thereunder. The
ALTM Companies shall deliver to Hencie not later than fourteen (14) days after
the date of this Agreement, true and complete copies, including all
amendments, modifications, letter agreements and assignments relating thereto,
of all of the aforesaid written agreements and true and correct summaries of
all such oral agreements.
4.1.18 Indebtedness and Guaranties. The Disclosure Schedule
sets forth a true and complete list of all promissory notes, loan agreements,
security agreements and guarantees relating to indebtedness for borrowed money
or money loaned to others to which any of the ALTM Companies is a party or
obligor. None of the ALTM Companies have guaranteed any dividend, obligation
or indebtedness of any Person (except for the endorsement of negotiable
instruments in the ordinary course of business). All of the items of
indebtedness set forth in the Disclosure Schedule or on the Financial
Statements contained in the Quarterly Report of ALTM on Form 10-QSB for the
quarter ended December 31, 2001 are valid and binding and in full force and
effect as against ALTM and any ALTM Company (as applicable) and there exists
no Breach or default by the ALTM Companies, or any event which with notice or
lapse of time or both, would constitute a Breach or default by the ALTM
Companies or, to the Knowledge of ALTM Management, any other parties thereto.
4.1.19 Debts to and from Related Parties. There presently is
no indebtedness owing to any of the ALTM Companies by, or any contractual
agreements between any of the ALTM Companies and any shareholder, director, or
officer of the ALTM Companies (each a "Related Person" and collectively the
"Related Persons"), any Family Member of any of the Related Persons, or to the
Knowledge of ALTM Management, any "Affiliate" or "Associate" (as such terms
are defined in Rule 405 of the Securities Act) of any of the Related Persons,
and none of the Related Persons or any Affiliate or Associate of any of the
Related Persons owns any material property or rights, tangible or intangible
(other than an equitable interest), used in any of the ALTM Companies'
businesses. Except as set forth on the Financial Statements, none of the ALTM
Companies is indebted to any of the Related Persons, or to the Knowledge of
ALTM Management, to any Affiliate or Associate of any of the Related Persons,
in any amount whatsoever, other than, to the Knowledge of ALTM Management, for
payment of salaries, normal Fringe Benefits and compensation for services
actually rendered to the ALTM Companies in the ordinary course of their
businesses. Neither ALTM, any of the Related Persons nor any Affiliate or
Associate of any of the Related Persons has any material claim or right
against the ALTM Companies.
4.1.20 Banking Arrangements and Powers of Attorney. The
Disclosure Schedule sets forth a true and complete list of the name of each
bank in or with which any of the ALTM Companies has an account, credit line or
safety deposit box, and a brief description of each such account, credit line
or safety deposit box, including the names of all persons authorized to draw
thereon or having access thereto; and the names of all persons, if any, now
holding powers of attorney from the ALTM Companies and a summary statement of
the terms thereof.
4.1.21 Articles of Incorporation and Bylaws. Not later than
fourteen (14) days after the date of this Agreement, each ALTM Company shall
deliver to Hencie true and complete copies of its articles of incorporation
and bylaws. All such articles of incorporation and bylaws were duly adopted
and are in full force and effect, and there are no amendments or modifications
thereto except as included in said articles of incorporation and bylaws.
4.1.22 Books and Records. The minute books of the ALTM
Companies contain accurate records of all actions taken by the shareholders or
stockholders, as applicable, and directors of the ALTM Companies. The books,
records and accounts of the ALTM Companies, all of which have been made
available to Hencie, have been maintained in accordance with the requirements
of Section 13(b)(2) of the Exchange Act, including the maintenance of an
adequate system of internal controls. The stock certificate books and stock
transfer ledgers of the ALTM Companies are correct and complete and reflect
accurately the number of shares of stock owned and/or held by the shareholders
or stockholders of the ALTM Companies, as applicable.
4.1.23 ERISA.
(a) The Disclosure Schedule lists each
employee benefit plan, program, arrangement and contract (including each
"employee benefit plan" as defined in ERISA Section 3(3)), and any bonus,
deferred compensation, stock bonus, stock, purchase, restricted stock, stock
option, employment, termination, stay agreement or bonus, value appreciation,
change in control and severance plan, program, arrangement or contract that
any ALTM Company maintains or ever has maintained, or to which any of the ALTM
Companies contributes, ever has contributed or ever has been required to
contribute (each an "Employee Benefit Plan"). Each Employee Benefit Plan (and
each related trust, insurance contract or fund) complies in form and in
operation in all respects with the applicable requirements of all laws, rules
and regulations governing or applying to such Employee Benefit Plan,
including, without limitation, ERISA and the Code, and each such Employee
Benefit Plan has been operated in accordance with its terms, except as shall
not have a Material Adverse Effect on any of the ALTM Companies. No liability
has been incurred and there exists no condition or circumstance which could
result in any liability to any of the ALTM Companies under ERISA, the Code or
any other applicable law, other than liability for benefits due under the
appropriate Employee Benefit Plan. All contributions (including all employer
and employee salary reduction contributions) which are due have been paid in a
timely manner to each such Employee Benefit Plan which is an "employee pension
benefit plan" (as defined in ERISA Section 3(2) (hereinafter, an "Employee
Pension Benefit Plan")) or otherwise is an "employee benefit plan" (as defined
in ERISA Section 3(3)). None of the ALTM Companies has engaged in or
permitted to occur and, to the Knowledge of ALTM Management, no other party
has engaged in or permitted to occur, any transaction prohibited by ERISA
Section 406 or "prohibited transaction" under Code Section 4975(c) or any
breach of fiduciary duty under ERISA with respect to any Employee Benefit
Plan, except for any transactions which are exempt under ERISA Section 408 or
Code Section 4975. All filings required by ERISA and the Code as to each
Employee Benefit Plan have been timely filed, and all notices and disclosures
to participants required by either ERISA or the Code, including all notices
required under ERISA Section 601 et seq. and Code Section 4980B, have been
timely provided. Each of the ALTM Companies has complied with all of the
provisions of Parts 6 and 7 of Title I of ERISA and Code Section 4980B. Each
of the ALTM Companies has delivered or made available to Hencie correct and
complete copies of the plan documents or contracts and summary plan
descriptions, the most recent determination letter received from the Internal
Revenue Service, where applicable, the most recent Form 5500 Annual Report,
where applicable, all related trust agreements, insurance contracts and other
funding agreements which implement each Employee Benefit Plan, and such other
documents requested by Hencie with respect to each Employee Benefit Plan.
(b) No action, suit, proceeding, hearing or
investigation with respect to the administration or the investment of the
assets of any Employee Benefit Plan is pending or, to the Knowledge of ALTM
Management, threatened, except for routine claims for benefits under such
plans.
(c) The Disclosure Schedule lists all
contracts with third-party administrators, insurers, actuaries, investment
managers, consultants and other independent contractors that relate to any
Employee Benefit Plan.
(d) None of the ALTM Companies has or has ever
had any ERISA Affiliate other than the ALTM Companies. No Employee Pension
Benefit Plan is or has ever been subject to Title IV of ERISA or Code Section
412.
(e) No employee of any ALTM Company shall be
entitled to any additional benefits or any acceleration of the time of payment
or vesting of any benefits under any Employee Benefit Plan as a result of the
transactions contemplated by this Agreement. No Person is entitled to receive
any additional payment from any of the ALTM Companies or any other party in
the event that the excise tax of Code Section 4999 is imposed on that Person.
4.1.24 Employees.
(a) The Disclosure Schedule sets forth a true
and complete list of: (i) all collective bargaining agreements to which any of
the ALTM Companies is a party; (ii) all employment, profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retainer,
consultant, retirement, welfare and incentive plans, agreements or contracts,
written or, to the Knowledge of ALTM Management, oral, to which any of the
ALTM Companies is a party; (iii) all written and, to the Knowledge of ALTM
Management, oral agreements and plans to which any of the ALTM Companies is a
party and which constitute "Fringe Benefits" to their employees or salesmen,
including, without limitation, group life and health insurance, vacation plans
or programs, sick leave plans or programs, termination or severance pay
programs and employee discounts; and (iv) the name and current annual
compensation of each director and each officer of the ALTM Companies, and of
each employee thereof whose current annual salary and/or estimated current
annual commission is $50,000 or more, together with such person's job title
and amounts and forms of compensation and Fringe Benefits. The ALTM Companies
shall deliver to Hencie not later than fourteen (14) days after the date of
this Agreement, true and complete copies of all written, and correct summaries
of all oral, contracts, agreements, plans and programs set forth in the
Disclosure Schedule.
(b) To the Knowledge of ALTM Management, all
of the aforesaid contracts, agreements, plans and programs are in full
compliance with all applicable federal, state and local laws, and the ALTM
Companies are in full compliance with all federal, state and local laws
respecting employment, wages and hours in each case except to the extent as
would not reasonably be expected to have a Material Adverse Effect on the ALTM
Companies. To the Knowledge of ALTM Management, the ALTM Companies are in
full compliance with all applicable federal and state laws and regulations
respecting occupational safety and health standards other than those where
noncompliance would not reasonably be expected to have a Material Adverse
Effect on the ALTM Companies and the ALTM Companies have received no written
complaints from any federal or state agency or regulatory body alleging
outstanding violations of any such laws and regulations.
(c) The ALTM Companies are in full compliance
in all material respects with the terms of all contracts, agreements, plans
and programs described above. To the Knowledge of ALTM Management, and except
as provided for in an employment contract, agreement, plan or program which
has been provided to Hencie prior to the First Closing, the employment of all
persons and officers employed by the ALTM Companies is terminable at will,
without any penalty or severance obligation of any kind on the part of the
employer, and the consummation of the transactions contemplated by this
Agreement shall not by themselves trigger any payments to any officers,
directors or employees of the ALTM Companies. All sums due for employee
compensation and benefits and all vacation time owing to any employees have
been duly and adequately accrued on the books of the ALTM Companies pursuant
to past practice. To the Knowledge of ALTM Management, all employees of the
ALTM Companies located in the United States are either United States citizens
or are authorized to be employed in the United States in accordance with all
applicable laws. To the Knowledge of ALTM Management, the ALTM Companies have
not been informed that any key employee or material consultant, distributor,
representative, advisor, salesman, agent, customer or supplier of the ALTM
Companies shall terminate his or her employment or cease to do business with
the ALTM Companies after the First Closing Date.
(d) None of the ALTM Companies has experienced
since December 31, 2001, any general labor troubles or strife, work stoppages,
slowdowns by their employees. To the Knowledge of ALTM Management, none of
the ALTM Companies has experienced since December 31, 2001 any union or
collective bargaining organization efforts or negotiations, or requests for
negotiations, for any representation or any labor contract relating to any
employees of the ALTM Companies not covered by a union or collective
bargaining agreement as of December 31, 2001.
(e) The ALTM Companies with employees in the
States of Florida, Illinois, Massachusetts, Michigan and Minnesota;
respectively, subscribe to, or are otherwise insured under, the worker's
compensation or similar statute in the States of Florida, Illinois,
Massachusetts, Michigan and Minnesota with respect to such employees. The
Disclosure Schedule describes all claims filed by employees of the ALTM
Companies in respect of employment-related injury or illness from January 1,
1997 through the date hereof. None of the ALTM Companies has received any
report or notice from the Occupational Safety and Health Administration.
4.1.25 No Conflicts of Interest. The Disclosure Schedule
sets forth a list of all agreements which the ALTM Companies have with their
Representatives, consultants, distributors, and salesmen that prohibit or
restrain such individuals from competing with the ALTM Companies in their
respective businesses. None of the ALTM Companies or ALTM, owns, directly or
indirectly, a controlling interest in, or is an employee of, any Person which
is a customer, supplier, competitor or potential competitor of any of the ALTM
Companies; neither does any of the ALTM Companies nor to the Knowledge of ALTM
Management, any of the aforesaid individuals control the management or
policies of any Person which is a customer, supplier, competitor or potential
competitor of any of the ALTM Companies by means of a management contract or
otherwise.
4.1.26 Environmental Matters.
(a) To the Knowledge of ALTM Management, the
ALTM Companies are in compliance with all applicable Environmental Laws and
none of the ALTM Companies has received any written communication from any
Person that alleges that any of the ALTM Companies are not in compliance with
applicable Environmental Laws. No underground storage tanks are now or, to
the Knowledge of ALTM Management, have ever been, located on any of the real
property owned by any ALTM Company.
(b) There is no Environmental Claim pending
or, to the Knowledge of ALTM Management, overtly threatened (i) against any of
the ALTM Companies, (ii) against any Person whose liability for any
Environmental Claim any of the ALTM Companies have retained or assumed either
contractually or, to the Knowledge of ALTM Management, by operation of law, or
(iii) against any real or personal property or operations which is now or, to
the Knowledge of ALTM Management, has been previously owned, leased, operated
or managed, in whole or in part, based on activities conducted by any of the
ALTM Companies.
4.1.27 No Solicitation or Negotiation. ALTM has not made any
agreement to sell the stock, business or any material asset of any of the ALTM
Companies to another Person, or to merge, consolidate or combine the assets or
the business of any of the ALTM Companies with another Person, except for the
ALTM Companies Permitted Transactions, and none of the ALTM Companies are
currently engaged in negotiations or discussions concerning any other sale of
the stock, or the sale, merger or combination of any material asset or
business of any of the ALTM Companies to or with another (except for the ALTM
Companies Permitted Transactions).
4.1.28 Letter from Tax Advisor. The ALTM Companies have
received a letter from PWC dated the date hereof to the effect that, as of
such date, the Return of Capital Distribution shall be characterized
substantially as a return of capital rather than a taxable dividend for tax
purposes, subject to the accuracy of the assumptions and conditions set forth
in such letter. A copy of such letter has been delivered to Hencie.
4.1.29 Receivables. To the Knowledge of ALTM Management, all
notes and accounts receivable in amounts in excess of $50,000 of any of the
ALTM Companies reflected in the Financial Statements and all those arising
since December 31, 2001 have arisen in the ordinary course of business and
are, or shall be, fully collectible, net of applicable reserves, when due
after collection efforts in the aggregate face amounts thereof.
4.1.30 SEC Documents. ALTM has heretofore delivered or made
available to Hencie true and complete copies of all registration statements
filed under the Securities Act and reports, statements (including definitive
proxy statements) and other filings filed under Sections 13(a), 14(a), 14(c)
and 15(d) of the Exchange Act with the SEC (collectively the "SEC Documents")
which are all the documents (other than preliminary material and reports
required pursuant to Section 13(d) or 13(g) of the Exchange Act) that ALTM was
required to file with the SEC since January 1, 1998. As of their respective
dates, each of the SEC Documents complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such SEC Documents, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Financial
Statements of ALTM included in the SEC Documents comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP during the periods involved (except as may be indicated
in the notes thereto or, in the case of the unaudited statements, as permitted
by the SEC) and fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount) the
consolidated financial position of ALTM as at the dates thereof and the
consolidated results of its operations and cash flows or changes in financial
position for the periods then ended.
4.1.31 Proxy Statement. The proxy statement filed by ALTM
with the SEC related to the transactions contemplated hereby (the "Proxy
Statement") shall comply in all material respects as to form with the
provisions of the Securities Act and the rules and regulations thereunder.
The Proxy Statement shall not on the date the Proxy Statement is first mailed
to the ALTM Shareholders, nor at the date of the ALTM Shareholders' Meeting
nor at the First Closing Date, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the ALTM Shareholders' Meeting which has
become false or misleading; provided, however, that notwithstanding anything
in this Agreement to the contrary, no representation or warranty is made in
this Agreement by ALTM with respect to information provided by, or portions of
the Proxy Statement based upon or derived from information provided by Hencie
expressly for use in the Proxy Statement.
4.1.32 Vote Required. The affirmative vote of the holders of
a majority of the ALTM Common Stock outstanding on the record date set for the
ALTM Shareholders' Meeting is the only vote of the holders of any of ALTM's
capital stock necessary to approve this Agreement and the transactions
contemplated hereby, including, without limitation, the issuance of New ALTM
Common Stock.
4.1.33 Board Approval. The Board of Directors of ALTM has
(i) approved this Agreement and the transactions contemplated hereby, (ii)
determined that this Agreement and the transactions contemplated hereby are
advisable and in the best interests of and on terms that are fair to the ALTM
Shareholders and (iii) recommended that the ALTM Shareholders approve this
Agreement and the consummation of the transactions contemplated hereby.
4.2 Additional Representations and Warranties of New ALTM. To induce
Hencie and the Stockholders to enter into this Agreement and to consummate the
transactions contemplated hereby, New ALTM represents and warrants as follows
(each such representation and warranty being qualified in its entirety by the
disclosures set forth in the Disclosure Schedule of the ALTM Companies):
4.2.1 Authority; Good Standing. New ALTM is a corporation
validly existing and in good standing under the laws of the State of Delaware.
4.2.2 Capitalization of New ALTM. The authorized capital
stock of New ALTM consists solely of 50,000,000 shares of New ALTM Common
Stock, of which 100 shares are issued and outstanding, and 5,000,000 shares of
preferred stock, par value $0.01 per share, of New ALTM, of which no shares
are issued and outstanding. No other shares of capital stock of New ALTM are
issued and outstanding. On the date hereof, all the issued and outstanding
shares of capital stock of New ALTM are owned and held solely by ALTM, free
and clear of any Lien. All of the issued and outstanding shares have been
duly and validly issued in accordance and compliance with all applicable laws,
rules and regulations and are fully paid and nonassessable. There are no
securities, options, warrants, rights, calls, commitments, plans, contracts or
other agreements of any character granted or issued by New ALTM which provide
for the purchase, issuance or transfer of any shares of the capital stock of
New ALTM, nor are there any outstanding securities granted or issued by New
ALTM that are convertible into or exchangeable for any shares of the capital
stock of New ALTM, and none are authorized.
4.2.3 Validity and Authorization; Corporate Power and
Authority.
(a) New ALTM has full corporate power and
authority to execute, deliver and perform this Agreement, the Related
Agreements and the other instruments called for by this Agreement to which it
is or is to be a party. This Agreement has been duly authorized, executed and
delivered by New ALTM and shall constitute a legal, valid and binding
obligation of New ALTM, enforceable against New ALTM in accordance with its
terms, except as such enforcement may be limited by the Equitable Defenses.
(b) When the Related Agreements and the other
instruments called for by this Agreement to which New ALTM is a party are
executed and delivered at the First Closing, such Related Agreements and
instruments shall have been duly authorized, executed and delivered by New
ALTM, and shall constitute the legal and binding obligations of New ALTM,
enforceable against New ALTM in accordance with their terms, except as such
enforcement may be limited by the Equitable Defenses.
4.2.4 Execution; No Violations. The execution and delivery
of this Agreement and each of the Related Agreements by New ALTM does not, and
the consummation by New ALTM of the transactions contemplated hereby and
thereby shall not: (a) violate, conflict with, modify, result in the
incurrence of any prepayment penalties or cause any default under or
acceleration of (or give any party any right to declare any default or
acceleration upon notice or passage of time or both), in whole or in part, any
certificate of incorporation, bylaw, Lien, indenture, lease, agreement,
instrument, order, injunction, decree, or judgment to which New ALTM is a
party or by which New ALTM or any of its property is bound; (b) result in the
creation of any Lien on any property or asset (whether real, personal, mixed,
tangible or intangible) of New ALTM; (c) violate any law, rule or regulation
applicable to New ALTM; or (d) permit any federal or state regulatory agency
to impose any restrictions or limitations of any nature on New ALTM or any of
its activities, except in each case as would not reasonably be expected to
have a Material Adverse Effect on New ALTM.
4.2.5 Governmental and Other Consents. Except for the
filing of the certificates of merger contemplated by Sections 1.3(a) and (b),
no consent, approval or authorization of, or designation, declaration or
filing with, any governmental authority is required on the part of New ALTM in
connection with the execution or delivery of this Agreement, the Related
Agreements or the consummation by New ALTM of the transactions contemplated
hereby and thereby, except as would not reasonably be expected to have a
Material Adverse Effect on New ALTM.
4.2.6 Reincorporation, Stock Acquisition and Combination
Consideration. The Reincorporation Consideration, Stock Acquisition
Consideration and Combination Consideration when issued and delivered in
accordance with the terms hereof shall be duly authorized and validly issued,
fully paid and nonassessable and free and clear of any preemptive rights or
Liens through New ALTM.
4.2.7 Board Approval. The Board of Directors of New ALTM
has (i) approved this Agreement, the Related Agreements, the Reincorporation,
the Stock Acquisition and the other transactions contemplated hereby and
thereby, including, without limitation, the issuance of New ALTM Common Stock
and New ALTM Options, (ii) determined that this Agreement, the Related
Agreements, the Reincorporation, the Stock Acquisition and the other
transactions contemplated hereby and thereby are advisable and in the best
interests of and are on terms that are fair to the sole stockholder of New
ALTM and (iii) recommended that the sole stockholder of New ALTM approve this
Agreement, the Related Agreements, and the consummation of the
Reincorporation, the Stock Acquisition and the other transactions contemplated
hereby and thereby.
4.3 Additional Representations and Warranties of Combination Sub. To
induce Hencie and the Stockholders to enter into this Agreement and to
consummate the transactions contemplated hereby, Combination Sub represents
and warrants as follows (each such representation and warranty being qualified
in its entirety by the disclosures set forth in the Disclosure Schedule of the
ALTM Companies):
4.3.1 Authority; Good Standing. Combination Sub is a
corporation validly existing and in good standing under the laws of the State
of Delaware.
4.3.2 Capitalization of Combination Sub. The authorized
capital stock of Combination Sub consists solely of 100 shares, no par value
per share, of common stock of Combination Sub ("Combination Sub Common
Stock"), of which 100 shares are issued and outstanding. No other shares of
capital stock of Combination Sub are issued and outstanding. On the date
hereof, all the issued and outstanding shares of capital stock of Combination
Sub are owned and held solely by New ALTM, free and clear of any Lien. All of
the issued and outstanding shares have been duly and validly issued in
accordance and compliance with all applicable laws, rules and regulations and
are fully paid and nonassessable. There are no securities, options, warrants,
rights, calls, commitments, plans, contracts or other agreements of any
character granted or issued by Combination Sub which provide for the purchase,
issuance or transfer of any shares of the capital stock of Combination Sub,
nor are there any outstanding securities granted or issued by Combination Sub
that are convertible into or exchangeable for any shares of the capital stock
of Combination Sub, and none are authorized.
4.3.3 Validity and Authorization; Corporate Power and
Authority.
(a) Combination Sub has full corporate power
and authority to execute, deliver and perform this Agreement, the Related
Agreements and the other instruments called for by this Agreement to which it
is or is to be a party. This Agreement has been duly authorized, executed and
delivered by Combination Sub and shall constitute a legal, valid and binding
obligation of Combination Sub, enforceable against Combination Sub in
accordance with its terms, except as such enforcement may be limited by the
Equitable Defenses.
(b) When the Related Agreements and the other
instruments called for by this Agreement to which Combination Sub is a party
are executed and delivered at the First Closing, such Related Agreements and
instruments shall have been duly authorized, executed and delivered by
Combination Sub, and shall constitute the legal and binding obligations of
Combination Sub, enforceable against Combination Sub in accordance with their
terms, except as such enforcement may be limited by the Equitable Defenses.
4.3.4 Execution; No Violations. The execution and delivery
of this Agreement and each of the Related Agreements by Combination Sub does
not, and the consummation by Combination Sub of the transactions contemplated
hereby and thereby shall not: (a) violate, conflict with, modify, result in
the incurrence of any prepayment penalties or cause any default under or
acceleration of (or give any party any right to declare any default or
acceleration upon notice or passage of time or both), in whole or in part, any
certificate of incorporation, bylaw, Lien, indenture, lease, agreement,
instrument, order, injunction, decree, or judgment to which Combination Sub is
a party or by which Combination Sub or any of its property is bound; (b)
result in the creation of any Lien on any property or asset (whether real,
personal, mixed, tangible or intangible) of Combination Sub; (c) violate any
law, rule or regulation applicable to Combination Sub; or (d) permit any
federal or state regulatory agency to impose any restrictions or limitations
of any nature on Combination Sub or any of its activities, except in each case
as would not reasonably be expected to have a Material Adverse Effect on
Combination Sub.
4.3.5 Governmental and Other Consents. Except for the
filing of the certificate of merger contemplated by Section 1.3(c), no
consent, approval or authorization of, or designation, declaration or filing
with, any governmental authority is required on the part of Combination Sub in
connection with the execution or delivery of this Agreement, the Related
Agreements or the consummation by Combination Sub of the transactions
contemplated hereby and thereby, except as would not reasonably be expected to
have a Material Adverse Effect on Combination Sub.
4.3.6 Board Approval. The Board of Directors of
Combination Sub has (i) approved this Agreement, the Combination and the other
transactions contemplated hereby, (ii) determined that this Agreement, the
Combination and the other transactions contemplated hereby are advisable and
in the best interests of and are on terms that are fair to the sole
stockholder of Combination Sub and (iii) recommended that the sole stockholder
of Combination Sub approve this Agreement and the consummation of the
Combination and the other transactions contemplated hereby.
4.4 Representations and Warranties of the Hencie Companies. To
induce the ALTM Companies to enter into this Agreement and to consummate the
transactions contemplated hereby, Hencie, on behalf of itself and Hencie
Consulting, represents and warrants to the ALTM Companies as follows (each
such representation and warranty being qualified in its entirety by the
disclosures set forth in the Disclosure Schedule of the Hencie Companies):
4.4.1 Corporate Existence and Authority. Each of the
Hencie Companies is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation as indicated on
the Disclosure Schedule. Each of the Hencie Companies has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as it has been and is being conducted. Each of the Hencie
Companies is qualified to do business as a foreign corporation and is in good
standing in each state, nation or other jurisdiction listed on the Disclosure
Schedule, being each state, nation or other jurisdiction wherein the character
of the properties owned or held under lease by it or the nature of the
business transacted by it makes such qualification necessary, except for any
state, nation or other jurisdiction where the failure to be so qualified would
not reasonably be expected to have a Material Adverse Effect on Hencie or the
Hencie Companies taken as a whole.
4.4.2 Capitalization of the Hencie Companies. The
authorized capital stock of Hencie consists solely of 25,000,000 shares of
Hencie Common Stock, of which 17,264,522 shares are issued and outstanding and
50,000,000 shares of preferred stock, par value $0.01 per share, of which no
shares are issued and outstanding. The authorized capital stock of Hencie
Consulting consists solely of 10,000,000 shares of common stock, no par value
per share, of which 2,500,000 shares are issued and outstanding and 5,000
shares of junior preferred stock, par value $0.01 per share, of which 100
shares are issued and outstanding and designated as Series A Junior Preferred
Stock. No other shares of capital stock of the Hencie Companies are issued
and outstanding. On the date hereof, all the issued and outstanding shares of
capital stock of Hencie Consulting are owned and held solely by Hencie free
and clear of any Lien and Hencie is the record and beneficial owner of such
shares. All of the issued and outstanding shares of capital stock of the
Hencie Companies have been duly authorized and validly issued in accordance
and compliance with all applicable laws, rules and regulations and are fully
paid and nonassessable. There are no securities, options, warrants, rights,
calls, commitments, plans, contracts or other agreements of any character
granted or issued by any of the Hencie Companies which provide for the
purchase, issuance or transfer of any shares of the capital stock of any of
the Hencie Companies, nor are there any outstanding securities granted or
issued by any of the Hencie Companies that are convertible into or
exchangeable for any shares of the capital stock of any of the Hencie
Companies, and none are authorized except pursuant to this Agreement and
employee benefit plans of Hencie. None of the Hencie Companies are obligated
or committed to purchase, redeem or otherwise acquire any shares of capital
stock of the Hencie Companies. All presently exercisable voting rights in the
Hencie Companies are vested exclusively in outstanding shares of Hencie Common
Stock, each share of which is entitled to one vote on every matter to come
before the stockholders. There are no voting trusts or other voting
arrangements with respect to any shares of capital stock of the Hencie
Companies except as contemplated by this Agreement. Hencie's only subsidiary
is Hencie Consulting.
4.4.3 Validity and Authorization; Corporate Power and
Authority. Each of the Hencie Companies has full corporate power and
authority to execute, deliver and perform this Agreement, the Related
Agreements and the other instruments called for by this Agreement to which it
is or is to be a party. This Agreement has been duly authorized, executed and
delivered by Hencie and constitutes the legal, valid and binding obligation of
Hencie, enforceable against the Hencie Companies in accordance with its terms,
except as such enforcement may be limited by the Equitable Defenses.
When the Related Agreements and the other instruments called
for by this Agreement to which any of the Hencie Companies is a party are
executed and delivered at the First Closing, such Related Agreements and
instruments shall have been duly authorized, executed and delivered by each
such Hencie Company, enforceable against each such Hencie Company in
accordance with their terms, except as such enforcement may be limited by the
Equitable Defenses.
4.4.4 Execution; No Violations. The execution and delivery
of this Agreement and each of the Related Agreements by each of the Hencie
Companies does not, and the consummation by the Hencie Companies of the
transactions contemplated hereby and thereby shall not: (a) violate, conflict
with, modify, result in the incurrence of any prepayment penalties or cause
any default under or acceleration of (or give any party any right to declare
any default or acceleration upon notice or passage of time or both), in whole
or in part, any articles or certificate of incorporation, bylaw, Lien,
indenture, lease, agreement, instrument, order, injunction, decree, or
judgment to which any of the Hencie Companies are a party or by which any of
them or any of their properties are bound; (b) result in the creation of any
Lien on any property or asset (whether real, personal, mixed, tangible or
intangible) of any of the Hencie Companies; (c) violate any law, rule or
regulation applicable to any of the Hencie Companies; or (d) permit any
federal or state regulatory agency to impose any restrictions or limitations
of any nature on any of the Hencie Companies or any of their respective
activities, except in each case as would not reasonably be expected to have a
Material Adverse Effect on Hencie or the Hencie Companies taken as a whole.
4.4.5 Governmental and Other Consents. Except for the
filing of the certificates of merger contemplated by Section 1.3, no consent,
approval or authorization of, or designation, declaration or filing with, any
governmental authority is required on the part of Hencie or any Hencie Company
in connection with the execution or delivery of this Agreement, the Related
Agreements or the consummation by them of the transactions contemplated hereby
and thereby, except as would not reasonably be expected to have a Material
Adverse Effect on Hencie or the Hencie Companies taken as a whole.
The Disclosure Schedule lists all consents, approvals or
authorizations of third Persons, required in connection with Hencie's valid
execution, delivery or performance of this Agreement and the Related
Agreements to which it is a party or the consummation of any of the
transactions contemplated hereby or thereby on the part of any of them
(collectively the "Hencie Consents"), including, without limitation, the
consents required under the Hencie Contracts, except, in each case, as would
not reasonably be expected to have a Material Adverse Effect on Hencie or the
Hencie Companies taken as a whole.
4.4.6 Hencie Financial Statements. The audited combined
balance sheet for the Hencie Companies at December 31, 2001 and the related
statement of profit and loss and cash flows for the one-year period then ended
and to be delivered to ALTM by Hencie are true and correct copies. When
delivered pursuant to this Agreement, the similar financial statements for
each additional month after December 31, 2001 and ending more than thirty (30)
Business Days before the First Closing shall be true and correct copies
(collectively with the financial statements referenced in the preceding
sentence of this Section 4.4.6, the "Hencie Financial Statements").
The Hencie Financial Statements present fairly the financial
position of the Hencie Companies as of the dates thereof and the results of
the Hencie Companies' operations and cash flows for the periods then ended, in
accordance with GAAP, except that the non-year end Hencie Financial Statements
described above are also subject to recurring year end adjustments, if any,
that are normal in nature and amount. The Hencie Companies maintain systems
of accounting, including, without limitation, systems of internal controls,
which permit them to prepare financial statements that present fairly their
respective financial positions and results of operations.
The financial forecasts (the "Hencie Financial Forecasts")
prepared by the management of Hencie and delivered to ALTM dated as of
December 31, 2001 have been prepared by the management of Hencie in good faith
and reflect Hencie's best estimate of the future results of operations and
financial conditions for the periods and as of the date specified in such
forecasts. All material assumptions underlying the forecasts have been set
forth in writing as a part of such forecasts and the management of Hencie
believes that all assumptions underlying the forecasts are reasonable.
4.4.7 Absence of Certain Liabilities. Other than
liabilities and obligations covered by another representation and warranty of
the Hencie Companies in Section 4.4 (such as Taxes, Environmental Matters and
Compliance with Laws), it being the intention of the parties that any such
liabilities and obligations shall be governed, if at all, by such other
representations and warranties, none of the Hencie Companies have any material
liabilities or obligations of any nature (whether absolute, accrued,
contingent, due or to become due) except as set forth on the Disclosure
Schedule or as and to the extent reflected and fully reserved against in the
Hencie Financial Statements (including general reserves), none of the Hencie
Companies has incurred any such liabilities or obligations of any nature other
than those (i) reflected or reserved against in the Hencie Financial
Statements, (ii) incurred in the ordinary course of business since the date
thereof and not exceeding $100,000 individually, or (iii) as set forth on the
Disclosure Schedule of the Hencie Companies.
4.4.8 Absence of Changes. Except as expressly disclosed on
the Disclosure Schedule in alphabetical order corresponding to the following
subsections, since December 31, 2001 there has not been:
(a) Any change or aggregate of changes in the
condition (financial or otherwise), business, assets, or liabilities of any of
the Hencie Companies that would reasonably be expected to result in a Material
Adverse Effect on any of the Hencie Companies;
(b) Any change in the capitalization of any of
the Hencie Companies, including, without limitation, the issuance by any of
the Hencie Companies of any shares of stock of any class, any subscriptions,
options, warrants, convertible securities, rights, calls, agreements,
commitments or rights affecting or relating in any manner whatsoever to any
equitable interests in any of the Hencie Companies;
(c) Any purchase, redemption or other
acquisition by any of the Hencie Companies, or any commitment, plan or
agreement by any of the Hencie Companies to purchase, redeem or otherwise
acquire any shares of their capital stock or other equitable interests;
(d) Any merger or consolidation or agreement
to merge or consolidate by any of the Hencie Companies with another Person, or
any purchase of or investment in or agreement to purchase or invest by any of
the Hencie Companies in the business of another Person except as provided for
by this Agreement;
(e) Any declaration, payment or setting aside
by any of the Hencie Companies of any dividends or other distributions of any
assets of any kind whatsoever to any of their stockholders or shareholders, as
applicable, or other equitable owners, except for ordinary salary or other
employment payments for services actually rendered;
(f) Any amendment to the articles of
incorporation or bylaws of any of the Hencie Companies;
(g) Any increase in or modification of the
base compensation or rate of compensation, or commission, salaries or bonuses
payable or to become payable by any of the Hencie Companies to any of their
directors, officers, salaried employees earning more than $200,000 per annum,
salesmen or agents;
(h) Any change in any existing, or adoption of
or entering into any new, benefit plan or arrangement (whether written or
oral) affecting any of the officers, directors, employees, salesmen or agents
of any of the Hencie Companies, including, without limitation, any bonus,
profit-sharing, pension, deferred compensation, severance or termination pay
benefit, stock option, group life or health insurance or other similar plans,
agreements or arrangements;
(i) Any release, cancellation, modification or
waiver of any obligation, indebtedness, liability or Lien held by any of the
Hencie Companies, unless such obligation, indebtedness, liability or Lien has
been paid in full at the time of release;
(j) Any waivers, compromises or settlements by
any of the Hencie Companies of any right or claim of any of the Hencie
Companies in excess of $50,000 in the aggregate; or any institution or
settlement of, or agreement to settle, any litigation, action or proceeding
before any court or governmental body relating to any of the Hencie Companies
or any of their properties;
(k) Any mortgage, pledge or other subjection
to any Lien or option of any property, asset, right or business of any of the
Hencie Companies, other than Permitted Liens and those incurred in the
ordinary course of business;
(l) Any assumptions or guarantees (except
endorsements of negotiable instruments in the ordinary course of business) by
any of the Hencie Companies of the obligations of any Person, except in the
ordinary course of business and consistent with past practice, but in no event
in excess of $100,000 when all such assumptions, guarantees and endorsements
are aggregated;
(m) Any payment or satisfaction by any of the
Hencie Companies of any liability, obligation or indebtedness, other than (i)
those reflected on the Hencie Financial Statements, (ii) those incurred in the
ordinary course of business and consistent with past practice, or (iii) any
reasonable attorneys' or accountants' fees incurred in connection with the
transactions contemplated by this Agreement;
(n) Any loan or advance, any commitment to
loan or advance, or any renewal, refunding or extension of any existing loan,
made by any of the Hencie Companies to any Person, except in the ordinary
course of business and consistent with past practice, but in no event any loan
or advance, any commitment to loan or advance, or any renewal, refunding or
extension of any existing loan, by any of the Hencie Companies to Hencie or
any of their officers or directors or to any Affiliate of Hencie or any such
officer or director;
(o) Any actions taken or transactions entered
into by any of the Hencie Companies involving more than $100,000 in the
aggregate, other than the Hencie Permitted Transactions or in the ordinary
course of business and consistent with past practice, or any capital
expenditures or commitments therefore in excess of $100,000 in the aggregate,
other than in the ordinary course of business;
(p) Any creations, renewals, changes or
terminations, or any notice of any proposed renewal, change or termination of
any contract, agreement, commitment, obligation, lease or license involving
more than $100,000 in the aggregate or extending beyond three months from the
date of this Agreement, to which any of the Hencie Companies is a party or by
which any of the Hencie Companies or their property is bound, other than in
the ordinary course of business;
(q) Any sale, assignment, lease, abandonment
or other disposition by any of the Hencie Companies of any real property, or
any sale, assignment, transfer, license, lapse, or other disposition by any of
the Hencie Companies of any trademark, trade name, copyright (or pending
application for any material trademark or copyright), or other intangible
asset;
(r) Any sale, assignment or transfer of any
contract, agreement, lease, or asset by any of the Hencie Companies, except
the Hencie Permitted Transactions or in the ordinary course of business and
consistent with past practice;
(s) Any general labor dispute, or threat of a
general labor dispute, or any attempt or threat of any attempt by a union to
organize any employees of any of the Hencie Companies who are not now covered
under an existing union or collective bargaining agreement;
(t) Any lapse of any insurance policy or
coverage of any of the Hencie Companies, except for normal renewals and/or
replacements;
(u) Any damage, destruction or loss to the
business or properties of any of the Hencie Companies, whether or not covered
by insurance, including, without limitation, any damage, destruction or loss
as a result of fire, explosion, accident, earthquake, lightning, aircraft,
vehicle, smoke, hail, flood, drought, storm, strike, work stoppage, lockout,
sabotage, embargo, condemnation, riot, civil disturbance, vandalism or act of
God or public enemy the result of which is a Material Adverse Effect on any of
the Hencie Companies;
(v) Any granting of powers of attorney by any
of the Hencie Companies; any change in their banking or safe deposit
arrangements; any writing up or writing down of the carrying value of any of
their assets; any change in their depreciation or amortization policies or
rates heretofore adopted; or any change in any basic policy or practice by any
of the Hencie Companies with respect to liquidity management and cash flow
planning, lending, budgeting, pricing, profit and tax planning, personnel
practices and accounting practices; or
(w) Any other action taken or transaction
entered into by any of the Hencie Companies other than in the ordinary course
of business, except as contemplated by this Agreement.
4.4.9 Taxes.
(a) Each of the Hencie Companies has duly and
timely filed all required federal, state, local and other tax returns,
information returns, notices and reports (including, without limitation,
income, property, sales, use, franchise, capital stock, excise, value added,
employees' income withholding, social security and unemployment tax returns,
notices and reports) (collectively the "Hencie Tax Returns") related to such
Hencie Company heretofore due, and all such Hencie Tax Returns are correct,
accurate and complete in all material respects;
(b) All deposits required to be made by any of
the Hencie Companies with respect to any Tax (including, without limitation,
estimated income, franchise and employee withholding Taxes) have been duly and
timely made;
(c) There has not been during the past five
(5) years any audits or examinations of any Hencie Tax Returns filed by any of
the Hencie Companies, no audits or examinations of any Hencie Tax Returns of
any of the Hencie Companies are in progress, and none of the Hencie Companies
has been notified by any tax authority that any such audits or examinations
are contemplated or pending;
(d) All Taxes with respect to the Hencie
Companies that have become due and payable on or before December 31, 2001 have
been timely paid in full or adequately reserved against on the Hencie
Financial Statements, and all Taxes which have become due and payable
subsequent to December 31, 2001 have been paid in full or adequately reserved
against on their books of account and the amounts reflected on the Hencie
Financial Statements and such books are sufficient for the payment of all
unpaid Taxes with respect to the periods then ended and for all periods prior
thereto. There are no Liens on any of the assets of any of the Hencie
Companies that arose in connection with any failure (or alleged failure) to
pay any Tax, except those that are not yet due and payable or are being
contested in good faith by appropriate proceedings;
(e) There are no agreements, waivers or other
arrangements providing for an extension of time with respect to the assessment
or collection of any Tax against any of the Hencie Companies, nor are there
any Proceedings now pending against any of the Hencie Companies in respect of
any Tax, or any matters under discussion with any federal, state, local or
foreign authority, or any claims for refund by the Hencie Companies for
overpaid Taxes relating to any Taxes, or any claims for additional Taxes
asserted by any such authority, and there is no basis for the assertion of any
additional Taxes against any of the Hencie Companies;
(f) None of the Hencie Companies has ever
filed a consent pursuant to Section 341(f) of the Code. None of the Hencie
Companies has entered into a closing agreement pursuant to Section 7121 of the
Code. None of the Hencie Companies are parties to any tax sharing or similar
agreement;
(g) To the Knowledge of Hencie Management, the
consummation of the transactions contemplated by this Agreement shall not
result in the imposition of any additional Taxes on any of the Hencie
Companies, except for Taxes relating to the consummation of the Hencie
Permitted Transactions;
(h) None of the Hencie Companies has made any
payments, is obligated to make any payments, or is a party to any agreement
that under certain circumstances could obligate it to make any payments that
shall not be deductible under Section 280G of the Code;
(i) Each of the Hencie Companies has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party;
(j) None of the assets of any of the Hencie
Companies constitutes Tax-exempt bond financed property or Tax-exempt use
property within the meaning of Section 168 of the Code;
(k) None of the Hencie Companies is a party to
any "safe harbor lease" that is subject to the provisions of Section 168(f)(8)
of the Code as in effect prior to the Tax Reform Act of 1986, or to any "long-
term contract" within the meaning of Section 460 of the Code;
(l) There are no accounting method changes or
proposed or threatened accounting method changes of any of the Hencie
Companies that could give rise to an adjustment under Section 481 of the Code
for periods after the First Closing Date;
(m) Each of the Hencie Companies has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Hencie Tax Returns all positions taken therein that could give rise to
a substantial understatement of federal income tax within the meaning of
Section 6662(d) of the Code; and
(n) For purposes of this Agreement, all
references to sections of the Code shall include any predecessor provisions to
such sections and any similar provisions of state, local or foreign law.
4.4.10 Disputes and Litigation.
(a) There is no Proceeding of which any of the
Hencie Companies has received written notice or, to the Knowledge of Hencie
Management, threatened against or affecting any of the Hencie Companies, or
any of their properties, assets or business or to which any of the Hencie
Companies, is a party, in any court or before any arbitrator of any kind or
before or by any governmental agency (including, without limitation, any
federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality), and no facts are Known to Hencie
Management which are reasonably likely to give rise to any such Proceeding,
the result of which would reasonably be expected to result in a Material
Adverse Effect on any of the Hencie Companies;
(b) To the Knowledge of Hencie Management,
there is no pending or threatened change in any environmental, zoning or
building laws, regulations or ordinances the result of which would reasonably
be expected to result in a Material Adverse Effect on any of the Hencie
Companies; and
(c) There is no outstanding order, writ,
injunction, decree, judgment or award by any court, arbitrator or governmental
body against or affecting any of the Hencie Companies or any of their
properties, assets or business. None of the items nor aggregate of items
listed in the Disclosure Schedule would, if adversely determined, reasonably
be expected to have a Material Adverse Effect on any of the Hencie Companies.
To the Knowledge of Hencie Management, there is no Proceeding, formal or
informal, pending or threatened which would give rise to any right of
indemnification on the part of any director or officer of any of the Hencie
Companies or any such person's heirs, executors or administrators as against
any of the Hencie Companies.
4.4.11 Compliance with Laws. Except for any noncompliance to
be covered by any other representation and warranty of the Hencie Companies
contained in Section 4.4 (for example, Taxes or Employees), it being the
intention of the parties that such noncompliance shall be governed, if at all,
by such other representations and warranties, the Hencie Companies presently
are and have at all times since inception been in full compliance with any
applicable federal, state, local, foreign and other laws, rules and
regulations other than those where noncompliance would not reasonably be
expected to have a Material Adverse Effect on the Hencie Companies, and the
Hencie Companies have not received any written or, to the Knowledge of Hencie
Management, oral notice of any claimed violation of any such law, rule or
regulation which would reasonably be expected to have a Material Adverse
Effect on the Hencie Companies. The Hencie Companies have filed all returns,
reports and other documents and furnished all information required or
requested by any federal, state, local or foreign governmental or quasi-
governmental agency, including the SEC, and all such returns, reports,
documents and information are true and complete in all respects except where
such failure to file or inaccuracies would not be reasonably expected to
result in a Material Adverse Effect on the Hencie Companies. All permits,
licenses, orders, franchises and approvals of all federal, state, local and
foreign governmental or quasi-governmental or regulatory bodies required of
the Hencie Companies for the conduct of their businesses have been obtained,
other than those where noncompliance would not reasonably be expected to have
a Material Adverse Effect on the Hencie Companies, no violations are or have
been recorded in respect of any such permits, licenses, orders, franchises and
approvals, and there is no Proceeding, formal or informal, pending or, to the
Knowledge of Hencie Management, threatened, which may revoke, limit, or
question the validity, sufficiency or continuance of any such permit, license,
order, franchise or approval, except in each case where the same would not
reasonably be expected to have a Material Adverse Effect on the Hencie
Companies. Such permits, licenses, orders, franchises and approvals are valid
and sufficient for all activities presently carried on by the Hencie
Companies, except in each case where the same would not reasonably be expected
to have a Material Adverse Effect on the Hencie Companies. Neither the Hencie
Companies, nor any officer, director, employee, shareholder or agent of the
Hencie Companies has made any offer, payment, promise to pay, or authorization
of the payment of any money, offer, gift, promise to give, or authorization of
anything of value to any Person named or identified in Section 30A of the
Exchange Act for any unlawful purpose described in Section 30A of the Exchange
Act.
4.4.12 Insurance. The Disclosure Schedule sets forth a true
and complete list of all insurance policies (including the policy number, the
name of the insurer, the amounts of coverage, the premium rate, the cash
value, if any, the expiration date and the risks and losses insured against)
maintained by any of the Hencie Companies on their properties, assets,
products, businesses and personnel, and the Hencie Companies shall deliver
copies of all such policies, agreements, studies and analyses to Hencie not
later than fourteen (14) days after the date of this Agreement. All of the
foregoing insurance policies are in full force and effect and are fully paid
as to all premiums heretofore due. None of the Hencie Companies has failed to
give any notice or present any material claim under such insurance policies in
timely fashion, nor has any of the Hencie Companies received any written
notification of the cancellation of any of such policies or that any of them
shall not be renewed.
4.4.13 Title to Properties. The properties and assets of the
Hencie Companies consist of (a) all of the properties and assets reflected on
the Hencie Financial Statements as owned by such Hencie Company and (b) all
other properties and assets presently carried on the Hencie Companies' books
as owned by such Hencie Company or used in their businesses at any time since
December 31, 2001, except, in each case, properties and assets licensed,
leased or as to which an Hencie Company otherwise has the right to use and
assets subsequently disposed of, or are disposed of pursuant to the Hencie
Permitted Transactions. Except as set forth in the Disclosure Schedule, the
Hencie Companies have good and marketable title to all of their respective
properties and assets (whether real, personal, mixed, tangible or intangible)
owned by them free and clear of all Liens, except Permitted Liens, if any.
4.4.14 Real Property and Real Property Leases. The
Disclosure Schedule contains a true and complete list of (a) all real property
owned by the Hencie Companies, (b) all real estate leases to which any of the
Hencie Companies is a party, and (c) all other material interests, if any, in
real property owned or claimed by the Hencie Companies. To the Knowledge of
Hencie Management, the Hencie Companies have all material easements and
rights, including parking rights and easements for power lines, water lines,
roadways and other access, necessary to conduct the businesses they now
conduct and enjoy peaceful and undisturbed possession of all properties
occupied by them. To the Knowledge of Hencie Management, neither the whole
nor any portion of any real property owned, occupied or leased to or by the
Hencie Companies has been rezoned or condemned or otherwise taken by any
public authority and, to the Knowledge of Hencie Management, no such rezoning,
condemnation or other taking is threatened or contemplated. None of the real
properties owned, occupied or leased to or by the Hencie Companies, or the
occupancy or operation thereof, constitutes a nuisance or violation of any law
or any building, zoning or other ordinance, code or regulation or a violation
of any private or public covenant or restriction, and no written notice from
any governmental body or other Person has been served upon the Hencie
Companies claiming any outstanding violation of any such law, ordinance, code,
regulation, covenant or restriction, or requiring or calling attention to the
need for any material amount of work, repairs, construction, alterations or
installations on or in connection with any of such properties which has not
been complied with. All leases of real property to which any of the Hencie
Companies is a party are valid, binding and in full force and effect, and
there exists no material default thereunder by the Hencie Companies or, to the
Knowledge of Hencie Management, any other party thereto, nor has any events
occurred which, with notice or lapse of time, or both, would constitute a
material default by the Hencie Companies thereunder, and all rents heretofore
payable under such leases have been paid in full. The Hencie Companies shall
deliver to ALTM not later than fourteen (14) days after the date of this
Agreement, true, correct and complete copies of all deeds to, and to the
extent available, policies of title insurance with respect to, the real
property listed on the Disclosure Schedule and true, correct and complete
copies of all real estate leases listed on the Disclosure Schedule, including
all amendments, modifications, letter agreements and assignments relating
thereto.
4.4.15 Equipment. The Disclosure Schedule contains a true
and complete list of all equipment (including, without limitation, trade
fixtures and motor vehicles) leased by the Hencie Companies with annual lease
payments of $36,000 or more, including the name and address of each lessor and
lessee, the expiration date of each lease, the monthly rent and any additional
rent payable under each such lease. None of the Hencie Companies are in
default under any such lease and to the Knowledge of Hencie Management, each
such lease is valid, binding and in full force and effect. The Hencie
Companies shall deliver to ALTM not later than fourteen (14) days after the
date of this Agreement, true, correct and complete copies of all such leases,
including all amendments, modifications, letter agreements and assignments
relating thereto.
4.4.16 Intellectual Property.
(a) The Hencie Companies own or have the valid
right to use all Intellectual Property used in the conduct of the Hencie
Business (the "Hencie IP Rights").
(b) The Disclosure Schedule contains a true
and complete list of all registrations and applications made by or on behalf
of the Hencie Companies of any patents, copyrights, trademarks, service marks,
Internet domain names or Internet or World Wide Web URLs or addresses with any
governmental or quasi-governmental authority.
(c) There are no royalties, honoraria, fees or
other payments payable by the Hencie Companies to any third Person (other than
salaries payable to employees and independent contractors not contingent on or
related to use of their work product) as a result of the ownership, use,
possession, license, sale, marketing, advertising or disposition of any Hencie
IP Rights by the Hencie Companies and none shall become payable as a result of
the consummation of the transactions contemplated by this Agreement.
(d) Neither the operation of Hencie Companies'
businesses, nor the sale or other exploitation of their products or services
has resulted in the infringement or misappropriation of any Intellectual
Property right of any other party; and there is no pending or, to the
Knowledge of Hencie Management, threatened, claim or litigation alleging that
the operation of Hencie Companies' businesses, or the sale or other
exploitation of their products or services conflicts or shall conflict with
the rights of any other party; nor, to the Knowledge of Hencie Management, is
there any legitimate basis for any such assertion.
4.4.17 Agreements. All contracts and licenses the breach of
which would result in a Material Adverse Effect on the Hencie Companies and
contracts and licenses in each case to which any of the Hencie Companies is a
party or by which any of them or their properties may be bound and which
involve obligations by any party thereto in excess of $200,000, other than
those contracts which have been terminated or which have expired (collectively
the "Hencie Contracts"), are valid and binding and in full force and effect
against Hencie or any of the Hencie Companies that are parties thereto, and
there exists no Breach or default by Hencie, or any event which, with notice
or lapse of time or both, would constitute a material Breach or default by
Hencie thereunder. The Hencie Companies shall deliver to ALTM not later than
fourteen (14) days after the date of this Agreement, true and complete copies,
including all amendments, modifications, letter agreements and assignments
relating thereto, of all of the aforesaid written agreements and true and
correct summaries of all such oral agreements.
4.4.18 Indebtedness and Guaranties. The Disclosure Schedule
sets forth a true and complete list of all promissory notes, loan agreements,
security agreements and guarantees relating to indebtedness for borrowed money
or money loaned to others to which any of the Hencie Companies is a party or
obligor. None of the Hencie Companies have guaranteed any dividend,
obligation or indebtedness of any Person (except for the endorsement of
negotiable instruments in the ordinary course of business). All of the items
of indebtedness set forth in the Disclosure Schedule or on the Hencie
Financial Statements for the quarter ended December 31, 2001 are valid and
binding and in full force and effect as against Hencie and any Hencie Company
(as applicable) and there exists no Breach or default by the Hencie Companies,
or any event which with notice or lapse of time or both, would constitute a
Breach or default by the Hencie Companies or, to the Knowledge of Hencie
Management, any other parties thereto.
4.4.19 Debts to and from Related Parties. There presently is
no indebtedness owing to any of the Hencie Companies by, or any contractual
agreements between any of the Hencie Companies and any Related Person, any
Family Member of any of the Related Persons, or to the Knowledge of Hencie
Management, any "Affiliate" or "Associate" (as such terms are defined in Rule
405 of the Securities Act) of any of the Related Persons, and none of the
Related Persons or any Affiliate or Associate of any of the Related Persons
owns any material property or rights, tangible or intangible (other than an
equitable interest), used in any of the Hencie Companies' businesses. Except
as set forth on the Hencie Financial Statements, none of the Hencie Companies
is indebted to any of the Related Persons, or to the Knowledge of Hencie
Management, to any Affiliate or Associate of any of the Related Persons, in
any amount whatsoever, other than, to the Knowledge of Hencie Management, for
payment of salaries, normal Fringe Benefits and compensation for services
actually rendered to the Hencie Companies in the ordinary course of their
businesses. Neither Hencie, any of the Related Persons nor any Affiliate or
Associate of any of the Related Persons has any material claim or right
against the Hencie Companies.
4.4.20 Banking Arrangements and Powers of Attorney. The
Disclosure Schedule sets forth a true and complete list of the name of each
bank in or with which any of the Hencie Companies has an account, credit line
or safety deposit box, and a brief description of each such account, credit
line or safety deposit box, including the names of all persons authorized to
draw thereon or having access thereto; and the names of all persons, if any,
now holding powers of attorney from the Hencie Companies and a summary
statement of the terms thereof.
4.4.21 Articles of Incorporation and Bylaws. Not later than
fourteen (14) days after the date of this Agreement, each Hencie Company shall
deliver to ALTM true and complete copies of its articles of incorporation and
bylaws. All such articles of incorporation and bylaws were duly adopted and
are in full force and effect, and there are no amendments or modifications
thereto except as included in said articles of incorporation and bylaws.
4.4.22 Books and Records. The minute books of the Hencie
Companies contain accurate records of all actions taken by the shareholders or
stockholders, as applicable, and directors of the Hencie Companies. The
books, records and accounts of the Hencie Companies have been made available
to ALTM. The stock certificate books and stock transfer ledgers of the Hencie
Companies are correct and complete and reflect accurately the number of shares
of stock owned and/or held by the shareholders or stockholders of the Hencie
Companies, as applicable.
4.4.23 ERISA.
(a) The Disclosure Schedule lists each
Employee Benefit Plan that any Hencie Company maintains or ever has
maintained, or to which any of the Hencie Companies contributes, ever has
contributed or ever has been required to contribute. Each Employee Benefit
Plan (and each related trust, insurance contract or fund) complies in form and
in operation in all respects with the applicable requirements of all laws,
rules and regulations governing or applying to such Employee Benefit Plan,
including, without limitation, ERISA and the Code, and each such Employee
Benefit Plan has been operated in accordance with its terms, except as shall
not have a Material Adverse Effect on any of the Hencie Companies. No
liability has been incurred and there exists no condition or circumstance
which could result in any liability to any of the Hencie Companies under
ERISA, the Code or any other applicable law, other than liability for benefits
due under the appropriate Employee Benefit Plan. All contributions (including
all employer and employee salary reduction contributions) which are due have
been paid in a timely manner to each Employee Pension Benefit Plan or Employee
Benefit Plan that otherwise is an "employee benefit plan" (as defined in ERISA
Section 3(3)). None of the Hencie Companies has engaged in or permitted to
occur and, to the Knowledge of Hencie Management, no other party has engaged
in or permitted to occur, any transaction prohibited by ERISA Section 406 or
"prohibited transaction" under Code Section 4975(c) or any breach of fiduciary
duty under ERISA with respect to any Employee Benefit Plan, except for any
transactions which are exempt under ERISA Section 408 or Code Section 4975.
All filings required by ERISA and the Code as to each Employee Benefit Plan
have been timely filed, and all notices and disclosures to participants
required by either ERISA or the Code, including all notices required under
ERISA Section 601 et seq. and Code Section4980B, have been timely provided.
Each of the Hencie Companies has complied with all of the provisions of Parts
6 and 7 of Title I of ERISA and Code Section 4980B. Each of the Hencie
Companies has delivered or made available to Hencie correct and complete
copies of the plan documents or contracts and summary plan descriptions, the
most recent determination letter received from the Internal Revenue Service,
where applicable, the most recent Form 5500 Annual Report, where applicable,
all related trust agreements, insurance contracts and other funding agreements
which implement each Employee Benefit Plan, and such other documents requested
by Hencie with respect to each Employee Benefit Plan.
(b) No action, suit, proceeding, hearing or
investigation with respect to the administration or the investment of the
assets of any Employee Benefit Plan is pending or, to the Knowledge of Hencie
Management, threatened, except for routine claims for benefits under such
plans.
(c) The Disclosure Schedule lists all
contracts with third-party administrators, insurers, actuaries, investment
managers, consultants and other independent contractors that relate to any
Employee Benefit Plan.
(d) None of the Hencie Companies has or has
ever had any ERISA Affiliate other than the Hencie Companies. No Employee
Pension Benefit Plan is or has ever been subject to Title IV of ERISA or Code
Section 412.
(e) No employee of any Hencie Company shall be
entitled to any additional benefits or any acceleration of the time of payment
or vesting of any benefits under any Employee Benefit Plan as a result of the
transactions contemplated by this Agreement. No Person is entitled to receive
any additional payment from any of the Hencie Companies or any other party in
the event that the excise tax of Code Section 4999 is imposed on that Person.
4.4.24 Employees.
(a) The Disclosure Schedule sets forth a true
and complete list of: (i) all collective bargaining agreements to which any of
the Hencie Companies is a party; (ii) all employment, profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retainer,
consultant, retirement, welfare and incentive plans, agreements or contracts,
written or, to the Knowledge of Hencie Management, oral, to which any of the
Hencie Companies is a party; (iii) all written and, to the Knowledge of Hencie
Management, oral agreements and plans to which any of the Hencie Companies is
a party and which constitute Fringe Benefits to their employees or salesmen;
and (iv) the name and current annual compensation of each director and each
officer of the Hencie Companies, and of each employee thereof whose current
annual salary and/or estimated current annual commission is $50,000 or more,
together with such person's job title and amounts and forms of compensation
and Fringe Benefits. The Hencie Companies shall deliver to ALTM not later
than fourteen (14) days after the date of this Agreement, true and complete
copies of all written, and correct summaries of all oral, contracts,
agreements, plans and programs set forth in the Disclosure Schedule.
(b) To the Knowledge of Hencie Management, all
of the aforesaid contracts, agreements, plans and programs are in full
compliance with all applicable federal, state and local laws, and the Hencie
Companies are in full compliance with all federal, state and local laws
respecting employment, wages and hours in each case except to the extent as
would not reasonably be expected to have a Material Adverse Effect on the
Hencie Companies. To the Knowledge of Hencie Management, the Hencie Companies
are in full compliance with all applicable federal and state laws and
regulations respecting occupational safety and health standards other than
those where noncompliance would not reasonably be expected to have a Material
Adverse Effect on the Hencie Companies and the Hencie Companies have received
no written complaints from any federal or state agency or regulatory body
alleging outstanding violations of any such laws and regulations.
(c) The Hencie Companies are in full
compliance in all material respects with the terms of all contracts,
agreements, plans and programs described above. To the Knowledge of Hencie
Management, and except as provided for in an employment contract, agreement,
plan or program which has been provided to Hencie prior to the First Closing,
the employment of all persons and officers employed by the Hencie Companies is
terminable at will, without any penalty or severance obligation of any kind on
the part of the employer, and the consummation of the transactions
contemplated by this Agreement shall not by themselves trigger any payments to
any officers, directors or employees of the Hencie Companies. All sums due
for employee compensation and benefits and all vacation time owing to any
employees have been duly and adequately accrued on the books of the Hencie
Companies pursuant to past practice. To the Knowledge of Hencie Management,
all employees of the Hencie Companies located in the United States are either
United States citizens or are authorized to be employed in the United States
in accordance with all applicable laws. To the Knowledge of Hencie
Management, the Hencie Companies have not been informed that any key employee
or material consultant, distributor, representative, advisor, salesman, agent,
customer or supplier of the Hencie Companies shall terminate his or her
employment or cease to do business with the Hencie Companies after the First
Closing Date.
(d) None of the Hencie Companies has
experienced since December 31, 2001, any general labor troubles or strife,
work stoppages, slowdowns by their employees. To the Knowledge of Hencie
Management, none of the Hencie Companies has experienced since December 31,
2001 any union or collective bargaining organization efforts or negotiations,
or requests for negotiations, for any representation or any labor contract
relating to any employees of the Hencie Companies not covered by a union or
collective bargaining agreement as of December 31, 2001.
(e) The Disclosure Schedule describes all of
the states in which the Hencie Companies have employees that subscribe to, or
are otherwise insured under, the worker's compensation or similar statute with
respect to such employees. The Disclosure Schedule describes all claims filed
by employees of the Hencie Companies in respect of employment-related injury
or illness from January 1, 1997 through the date hereof. None of the Hencie
Companies has received any report or notice from the Occupational Safety and
Health Administration.
4.4.25 No Conflicts of Interest. The Disclosure Schedule
sets forth a list of all agreements which the Hencie Companies have with their
Representatives, consultants, distributors, and salesmen that prohibit or
restrain such individuals from competing with the Hencie Companies in their
respective businesses. None of the Hencie Companies owns, directly or
indirectly, a controlling interest in, or is an employee of, any Person which
is a customer, supplier, competitor or potential competitor of any of the
Hencie Companies; neither does any Hencie Company nor to the Knowledge of
Hencie Management, any of the aforesaid individuals control the management or
policies of any Person which is a customer, supplier, competitor or potential
competitor of any of the Hencie Companies by means of a management contract or
otherwise.
4.4.26 Environmental Matters.
(a) To the Knowledge of Hencie Management, the
Hencie Companies are in compliance with all applicable Environmental Laws and
none of the Hencie Companies has received any written communication from any
Person that alleges that any of the Hencie Companies are not in compliance
with applicable Environmental Laws. No underground storage tanks are now or,
to the Knowledge of Hencie Management, have ever been, located on any of the
real property owned by any Hencie Company.
(b) There is no Environmental Claim pending
or, to the Knowledge of Hencie Management, overtly threatened (i) against any
of the Hencie Companies, (ii) against any Person whose liability for any
Environmental Claim any of the Hencie Companies have retained or assumed
either contractually or, to the Knowledge of Hencie Management, by operation
of law, or (iii) against any real or personal property or operations which is
now or, to the Knowledge of Hencie Management, has been previously owned,
leased, operated or managed, in whole or in part, based on activities
conducted by any of the Hencie Companies.
4.4.27 No Solicitation or Negotiation. Hencie has not made
any agreement to sell the stock, business or any material asset of any of the
Hencie Companies to another Person, or to merge, consolidate or combine the
assets or the business of any of the Hencie Companies with another Person,
except for the Hencie Permitted Transactions, and none of the Hencie Companies
are currently engaged in negotiations or discussions concerning any other sale
of the stock, or the sale, merger or combination of any material asset or
business of any of the Hencie Companies to or with another (except for the
Hencie Permitted Transactions).
4.4.28 Receivables. To the Knowledge of Hencie Management,
all notes and accounts receivable in amounts in excess of $50,000 of any of
the Hencie Companies reflected in the Hencie Financial Statements and all
those arising since December 31, 2001 have arisen in the ordinary course of
business and are, or shall be, fully collectible, net of applicable reserves,
when due after collection efforts in the aggregate face amounts thereof.
4.4.29 Board Approval. The Board of Directors of Hencie has
(i) approved this Agreement and the transactions contemplated hereby, (ii)
determined that this Agreement and the transactions contemplated hereby are
advisable and in the best interests of and on terms that are fair to the
stockholders of Hencie and (iii) recommended that the stockholders of Hencie
approve this Agreement and the consummation of the transactions contemplated
hereby.
4.4.30 No Appraisal Rights. The stockholders of Hencie shall
not be entitled to exercise appraisal rights in connection with, or as a
result of, the Reincorporation or the Stock Acquisition.
4.4.31 Information Supplied. None of the information
supplied by Hencie to the ALTM Companies expressly for inclusion in the Proxy
Statement (as identified pursuant to Section 5.4.2) shall, at the time such
SEC Filing is declared effective by the SEC, respectively, contain any untrue
statement of material fact or omit a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.5 Representations and Warranties of the Stockholders. To induce
each of the ALTM Companies to enter into this Agreement and to consummate the
transactions contemplated hereby, each of the Stockholders hereby represents
and warrants, severally and not jointly, to ALTM as follows:
4.5.1 Ownership of Stock. Except for any shares of Hencie
Common Stock acquired or received pursuant to that certain Hencie, Inc. 1999
Stock Option Plan or that certain Hencie, Inc. 2000 Stock Option Plan, in each
case, that may be subject to repurchase rights such Stockholder is the lawful
owner of the shares of Hencie Common Stock to be transferred to ALTM free and
clear of all preemptive or similar rights, liens, encumbrances, restrictions
and claims of every kind, and the delivery to ALTM of the Hencie Common Stock
pursuant to the provisions of this Agreement shall transfer to ALTM valid
title thereto, free and clear of all liens, encumbrances, restrictions and
claims of every kind. All of the shares of Hencie Common Stock to be
exchanged herein by such Stockholder have been duly authorized and validly
issued and are fully paid and nonassessable.
4.5.2 Authority to Execute and Perform Agreement; No
Breach. Such Stockholder has the full legal right and power and all authority
and approval required to enter into, execute and deliver this Agreement, and
to sell, assign, transfer and convey the Hencie Common Stock and to perform
fully such Stockholder's obligations hereunder. This Agreement has been duly
executed and delivered by such Stockholder and, assuming due execution and
delivery by, and enforceability against, ALTM, constitutes the valid and
binding obligation of such Stockholder enforceable against such Stockholder in
accordance with its terms, except as such enforcement may be limited by the
Equitable Defenses. No approval or consent of, or filing with, any
governmental or regulatory body, and no approval or consent of, or filing
with, any other person is required to be obtained by such Stockholder or in
connection with the execution and delivery by such Stockholder of this
Agreement and consummation and performance by such Stockholder of the
transactions contemplated hereby.
The execution, delivery and performance of this Agreement by
such Stockholder and the consummation of the transactions contemplated hereby
in accordance with the terms and conditions hereof by such Stockholder shall
not:
(a) violate, conflict with or result in the
breach of any of the terms of, or constitute (or with notice or lapse of time
or both would constitute) a default under, any contract, lease, agreement or
other instrument or obligation to which such Stockholder is a party or by or
to which any of the properties and assets of such Stockholder may be bound or
subject;
(b) violate any order, judgment, injunction,
award or decree of any court, arbitrator, governmental or regulatory body, by
which such Stockholder or the securities, assets, properties or business of
such Stockholder are bound; or
(c) violate any statute, law or regulation.
4.5.3 Securities Matters.
(a) Such Stockholder has been advised that the
New ALTM Common Stock has not been registered under the Securities Act or any
state securities law in reliance on exemptions therefrom;
(b) The New ALTM Common Stock is being
acquired solely for such Stockholder's own account, for investment and is not
being acquired with a view to or for the resale, distribution, subdivision or
fractionalization thereof, such Stockholder has no present plans to enter into
any such contract, undertaking, agreement or arrangement and such Stockholder
further understands that the New ALTM Common Stock may only be resold pursuant
to a registration statement under the Securities Act or pursuant to some other
available exemption;
(c) Such Stockholder acknowledges, in
connection with the exchange of the New ALTM Common Stock, that no
representation has been made by any representative of any of the ALTM
Companies regarding its business, assets or prospects other than those set
forth herein and that such Stockholder is relying upon the information set
forth in the filings made by ALTM pursuant to Section 13 of the Exchange Act
and such other representations and warranties as set forth in this Agreement;
(d) Such Stockholder acknowledges that such
Stockholder is an "accredited investor" within the meaning of Regulation D
under the Securities Act and that such Stockholder is able to bear the
economic risk of the transactions contemplated hereby; and
(e) Such Stockholder agrees that the
certificate or certificates representing the New ALTM Common Stock shall be
inscribed with substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR THE SECURITIES ACTS OF ANY STATE. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE ACT OR SUCH
STATE SECURITIES ACTS OR AN OPINION SATISFACTORY TO THE COMPANY'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR SUCH STATE SECURITIES ACTS."
4.6 Disclosure Schedules. Disclosure of any fact or item in any
Disclosure Schedule referred by a particular Section shall, should the
existence of the fact or item or its contents be relevant to any other
Section, be deemed to be disclosed with respect to such other Section(s)
whether or not an explicit cross reference appears and whether or not the
Section(s) make reference to any Schedule. The disclosure of any particular
fact or item in any Disclosure Schedule shall not be deemed any admission as
to whether the fact or item is "material" or would constitute a Material
Adverse Effect.
ARTICLE V
COVENANTS
5.1 Mutual Covenants. To induce the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, and without
limiting any covenant, agreement, representation or warranty made elsewhere in
this Agreement, Hencie and each of the ALTM Companies (each a "Corporate
Party" and collectively the "Corporate Parties") and each of the Stockholders
agrees, that between the date of this Agreement and the earlier of the Second
Closing or the termination of this Agreement pursuant to Article VIII, except
as may be consented to by the other parties or as otherwise contemplated by
this Agreement (including the Permitted Transactions), as follows:
5.1.1 Access and Information. Each Corporate Party shall
(a) provide the other Corporate Parties and their Representatives, during
normal business hours, or otherwise if another Corporate Party or their
Representative reasonably requests, and upon reasonable advance notice, access
to all of the properties, assets, agreements, commitments, books, records,
accounts, Tax Returns, correspondence and documents of such Corporate Party
and permit the other Corporate Parties and their Representatives to make
copies thereof; (b) furnish the other Corporate Parties and their
Representatives with all information concerning the business, properties and
affairs of such Corporate Party; (c) use commercially reasonable efforts to
cause its accountants to make available to the other Corporate Parties and
their Representatives all financial information relating to such Corporate
Party, including all working papers pertaining to audits and reviews made
heretofore by such auditors; (d) furnish the other Corporate Parties true and
complete copies of all financial and operating statements of such Corporate
Party; (e) permit access to customers and suppliers for consultation or
verification of any information; and (f) cause its employees, and use
commercially reasonable efforts to cause its accountants, to cooperate fully
with any audit, review, investigation or examination made by the other
Corporate Parties and their Representatives, including, without limitation,
with respect to:
(a) The books and records of such Corporate
Party;
(b) The reports of state and federal
regulatory examinations;
(c) Leases, contracts and commitments between
such Corporate Party and any other Person;
(d) Physical examination of any real
properties owned by, or leased to or by such Corporate Party; and
(e) Physical examination of any furniture,
fixtures, equipment or other personal property owned by or leased to or by
such Corporate Party.
5.1.2 Notices and Approvals. Each party agrees: (a) to
give all notices to third parties which may be necessary in connection with
this Agreement, the Related Agreements and the consummation of the
transactions contemplated hereby and thereby; (b) to use such party's
commercially reasonable efforts to obtain all federal, state and foreign
governmental and quasi-governmental approvals, consents, permits,
authorizations and orders necessary for the consummation by such party of the
transactions contemplated hereby; and (c) to use such party's commercially
reasonable efforts to obtain all consents and authorizations of any
governmental or quasi-governmental authorities or other Persons necessary for
the consummation by such party of the transactions contemplated hereby. At
least five (5) Business Days prior to the submission of any application with
respect to any of the foregoing approvals, consents, permits, authorizations
and orders, such party shall deliver a copy thereof to the other parties. In
the event another party shall reasonably request any change or modification in
the form or content of any such application, such submitting party shall make
such change or modification and submit the application as modified or changed.
5.1.3 Conduct of Business. Unless otherwise expressly
contemplated hereby (including the Permitted Transactions) or approved in
writing by ALTM and Hencie, ALTM and Hencie agree that the businesses and
operations of ALTM and Hencie shall be conducted only in, and ALTM and Hencie
shall not take (and each shall cause their subsidiaries not to take) any
material action, except in, the ordinary course of business and consistent
with past practice. Without limitation, ALTM and Hencie shall not take (and
each shall cause their subsidiaries not to take), nor enter into any
agreements to take, any of the following actions except in each such case in
connection with this Agreement (including the Permitted Transactions) or, in
the case of actions described in clauses (a) - (c) of this Section 5.1.3, in
the ordinary course of business: (a) dispose of, or acquire, any material
assets, other than the Permitted Transactions, (b) incur any indebtedness for
borrowed money, (c) pay any discretionary bonuses (other than bonuses already
accrued on the date hereof) to, or alter the compensation or benefit of, any
director, officer or employee, (d) enter into any transaction or agreement
with any Affiliate or Associate of ALTM or Hencie, respectively, (e) institute
any reduction in force, (f) close any office, (g) take any action not in the
ordinary course of business that shall knowingly cause any of the ALTM
Companies' or Hencie's representations or warranties to be untrue or incorrect
in any material respect, (h) omit any commercially reasonable action that ALTM
and/or Hencie would take in the ordinary course of business, which omission
shall knowingly cause any of the ALTM Companies' or Hencie's representations
or warranties to be untrue or incorrect in any material respect, (I) declare
or pay any dividends on, or make any distribution or payment with respect to,
or redeem or repurchase, any shares of capital stock of ALTM or Hencie or take
any other actions which would have a similar effect or (j) issue any shares of
capital stock of ALTM or Hencie or its subsidiaries (other than pursuant to
existing employee benefit plans) or any securities, options, warrants, rights,
calls, commitments, plans, contracts or other agreements of any character
whatsoever which provide for the purchase, issuance or transfer of any shares
of capital stock, or any securities that are convertible into or exchangeable
for any shares of capital stock or increase or decrease, change into or
exchange any such shares for a different number or kind of shares or
securities through a reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other similar change in
capitalization.
5.1.4 Proceedings. Each party shall promptly notify the
other parties of any material Proceedings that are threatened in writing or
commenced against such party, or, as applicable, such party's employees,
consultants, officers or directors which may relate to, or affect, the
transactions contemplated hereby or, in the case of a Corporate Party, the
business, assets or liabilities of such Corporate Party. Each Corporate Party
shall not knowingly fail to comply in any material respect with any laws,
regulations, ordinances, orders, injunctions and decrees applicable to it, its
properties, and the conduct of its respective business.
5.1.5 Reports and Returns. Each Corporate Party shall duly
and timely file all reports and returns required to be filed with federal,
state, local and other authorities prior to First Closing, including, without
limitation, any Tax Returns, which reports and returns shall be prepared in
accordance with all regulatory requirements in all material respects. Each
Corporate Party shall promptly pay all Taxes and other quasi-governmental
charges levied or assessed upon such Corporate Party, or their respective
properties prior to the date on which penalties attach thereto and all lawful
claims which, if unpaid when due and payable, might become a Lien upon
property of such Corporate Party, except Permitted Liens. Each Corporate
Party shall duly and timely make all deposits required of such Corporate
Party, with respect to any Taxes (including, without limitation, employee
withholding Taxes).
5.1.6 Insurance. Each of the ALTM Companies and Hencie
shall continue in force all existing insurance now carried by such Corporate
Parties.
5.1.7 Tax Treatment. Each party shall use his, her or its
commercially reasonable efforts to cause the transactions contemplated hereby
to qualify as a reorganization under the provisions of Section 368 of the Code
and to deliver, in connection with the opinion referred to in Section 6.1.15,
letters of representation reasonable under the circumstances as to its
intentions and knowledge.
5.1.8 IRS Obligation. Each Corporate Party shall use its
commercially reasonable efforts to minimize any amounts owed to the Internal
Revenue Service in connection with the IRS Obligation. At the First Closing,
Hencie shall have arranged to pay and New ALTM shall have paid any and all
amounts owed by Hencie to the Internal Revenue Service in connection with the
IRS Obligation and such payment(s) shall be made out of the combined funds of
Hencie and the ALTM Companies.
5.1.9 Other Covenants. Each party shall use his, her or
its commercially reasonable efforts to satisfy the conditions to the
obligations of the parties hereunder within such party's reasonable control,
and to consummate and make effective as promptly as practicable the
transactions provided for herein. With respect to the Corporate Parties,
these efforts shall include, without limitation, the following:
(a) Defending the Agreement. Defending
Proceedings challenging this Agreement or any Related Agreement or the
consummation of the transactions provided for in this Agreement or any Related
Agreement;
(b) Lifting Injunctions. Using commercially
reasonable efforts to lift or rescind any injunction, restraining order or
other order adversely affecting the ability of the parties to consummate the
transactions provided for in this Agreement or any Related Agreement; and
(c) Other Actions. Taking such other
reasonable actions that are necessary, appropriate or advisable.
5.1.10 The Combination. The Corporate Parties shall
cooperate fully, as and to the extent reasonably requested by each other, in
connection with the consummation of the Combination.
5.2 The ALTM Companies' Covenants. To induce the other parties to
enter into this Agreement and to consummate the transactions contemplated
hereby, and without limiting any covenant, agreement, representation or
warranty made elsewhere in this Agreement, the ALTM Companies agree that
between the date of this Agreement and the earlier of the Stock Acquisition
Effective Time or termination of this Agreement pursuant to Article VIII,
except as may be consented to by the other parties or as otherwise
contemplated by this Agreement, as follows:
5.2.1 Financial Statements. The ALTM Companies shall
obtain from PWC and deliver as promptly as practicable to Hencie for its
review such audited and unaudited balance sheets, statements of income,
statements of shareholder's equity and statements of cash flows as ALTM may be
required to file with the SEC in connection with the Proxy Statement (the
"Proxy Financial Statements") and PWC's consent to the use of the PWC opinion
accompanying such Proxy Financial Statements in the Proxy Statement. In
addition, the ALTM Companies shall deliver to Hencie not later than the 45th
day after the end of each month, financial statements of the kind described in
Section 4.1.6 (Financial Statements) for the month ended January 31, 2002 and
each subsequent month before the First Closing.
5.2.2 Restriction on Transfers. No ALTM Company shall
enter into any agreement to sell, transfer, pledge, hypothecate, or dispose of
any share of capital stock of any ALTM Company.
5.2.3 Securities and Blue Sky Laws. New ALTM shall take
such steps as are necessary to issue or cause to be issued the New ALTM Common
Stock in compliance with the exemption under Section 506 of the Securities Act
and shall take such steps as may be necessary to comply with the securities
and blue sky laws of all jurisdictions applicable to the issuance of the New
ALTM Common Stock.
5.2.4 Stock Quotation. The ALTM Companies shall continue
to list and quote the ALTM Common Stock and New ALTM Common Stock, as
applicable, on the Nasdaq SmallCap Market under the symbol "ALTM" prior to the
Stock Acquisition Effective Time and shall file any notification or
supplemental or new listing application with respect to the New ALTM Common
Stock issued hereunder. ALTM and New ALTM shall use all commercially
reasonable efforts to maintain the listing and quotation on the Nasdaq
SmallCap Market.
5.2.5 Board of Directors of New ALTM. New ALTM shall take
such steps as are necessary or appropriate to cause the Board of Directors of
New ALTM to be constituted as contemplated by Section 6.1.18 as of the First
Closing and to cause all such designees to have been duly appointed and
qualified in accordance with Section 6.1.18 as of the First Closing.
5.2.6 No Solicitation or Negotiation.
(a) Except for the ALTM Companies Permitted
Transactions, none of the ALTM Companies shall solicit, discuss, negotiate or
agree to (i) the sale of any stock or other equity interest in any of the ALTM
Companies, except to Hencie, (ii) a merger, consolidation or combination of
any material asset or business, or any share exchange, of any of the ALTM
Companies, except to Hencie or (iii) a sale or disposition of any of the
business or operating assets of any of the ALTM Companies.
(b) The ALTM Companies shall give prompt
notice to Hencie if any of them receives any communication from any Person not
a party to this Agreement that proposes any discussion, negotiation or
agreement prohibited under Section 5.2.6(a). The notice shall include the
identity of the Person making any such inquiry or proposal and, if in writing,
ALTM shall promptly deliver or cause to be delivered to Hencie a copy of such
inquiry or proposal, along with all other documentation and related
correspondence. Moreover, ALTM shall keep Hencie informed, on a current
basis, of the nature of any such inquiries and the status of any such proposal
including amendments thereto.
(c) Except for ALTM Companies Permitted
Transactions, ALTM shall not agree to any acquisition of any material equity
interest in any business entity or any operating segment of any business
entity.
(d) Notwithstanding anything to the contrary
set forth in subsections (a), (b) and (c) above or elsewhere in this
Agreement, nothing contained in this Agreement shall prohibit (i) ALTM from
complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act or
publicly disclosing the existence of any competing transaction as required by
applicable law or (ii) the Board of Directors of ALTM, prior to the time of
the ALTM Shareholders' Meeting, from furnishing information to, or entering
into discussions or negotiations with, any Person in connection with an
unsolicited bona fide written proposal from such Person relating to (i) any
direct or indirect acquisition or purchase of more than 34% of the assets of
the ALTM Companies, taken as a whole or more than 34% of the voting power of
the ALTM Common Stock then outstanding or (ii) any merger, consolidation,
business combination, share exchange, recapitalization, liquidation,
dissolution or similar transaction (including, without limitation, any sale of
all or substantially all of the assets) involving ALTM, other than the
transactions contemplated by this Agreement, if before doing so: (A) ALTM
enters into with such Person a confidentiality agreement in reasonably
customary terms not more favorable to such Person than the terms contained in
Section 11.14; (B) the Board of Directors of ALTM, after consultation with
independent financial advisors, reasonably determines in good faith that such
proposal, if consummated, is reasonably likely to result in a transaction more
favorable to the ALTM Shareholders than the Reincorporation and Combination
(any such more favorable proposal being referred to in this Agreement as a
"Superior Proposal"); (C) the Board of Directors of ALTM, after consultation
with independent financial advisors, reasonably determines in good faith that
such Person has the financial ability to consummate such Superior Proposal;
(D) the Board of Directors of ALTM, after consultation with and having
received the advice of independent legal counsel determines in good faith that
such action is necessary for such Board of Directors to comply with its
fiduciary duties to the ALTM Shareholders under applicable law; and (E) ALTM
shall have otherwise complied with the terms of this Section 5.2.6.
(e) Notwithstanding anything to the contrary
set forth in this Agreement, in the event ALTM receives a Superior Proposal,
nothing contained in this Agreement shall prohibit the Board of Directors of
ALTM from withdrawing its recommendation described in Section 4.1.33 and
recommending such Superior Proposal to the ALTM Shareholders: (i) if, and only
if, ALTM (A) complies fully with this Section 5.2.6 and (B) provides Hencie
with at least four (4) Business Days prior written notice of the intent of the
Board of Directors to withdraw its recommendation and (ii) if, and only if, in
the event that during such four (4) Business Days Hencie makes a counter
proposal to such Superior Proposal (any such counter proposal being referred
to in this Agreement as a "Counter Proposal"), the Board of Directors of ALTM,
in good faith, taking into account the advice of its independent financial
advisors, determines that such Counter Proposal is not at least as favorable
to the ALTM Shareholders as the Superior Proposal.
(f) In the event that, pursuant to Section
5.2.6(d) of this Agreement, ALTM elects to engage in discussions or
negotiations with, or furnish any information to a third Person in connection
with and/or regarding a Superior Proposal, ALTM must, at least two (2)
Business Days prior to engaging in such discussions or negotiations or
furnishing such information, provide written notice to Hencie.
(g) Nothing in this Section 5.2.6 shall permit
ALTM to terminate this Agreement (except as specifically provided in Article
VIII hereof) or affect any other obligation of ALTM under this Agreement.
5.2.7 No Repurchase Rights. No ALTM Company shall exercise
(or cause Hencie to exercise) any repurchase right(s) that any ALTM Company
(or Hencie) may have pursuant to that certain Restricted Stock Award Agreement
dated as of August 31, 2000 by and between Hencie and Adil Khan.
5.3 The Hencie Companies' Covenants. To induce the other parties to
enter into this Agreement and to consummate the transactions contemplated
hereby, and without limiting any covenant, agreement, representation or
warranty made elsewhere in this Agreement, the Hencie Companies agree that
between the date of this Agreement and the earlier of the Stock Acquisition
Effective Time or termination of this Agreement pursuant to Article VIII,
except as may be consented to by the other parties or as otherwise
contemplated by this Agreement, as follows:
5.3.1 Information for ALTM's Statements, Reports,
Applications and Proxy Statements. The Hencie Companies shall use their
commercially reasonable efforts to cause the employees, accountants and
attorneys of the Hencie Companies to cooperate fully with ALTM and its
employees, accountants and attorneys in the preparation and filing of (i) any
statements, reports and applications and (ii) the Proxy Statement, in each
case, made by ALTM with any federal, state or foreign governmental regulatory
agency or quasi-governmental authority in connection with this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby, and
to furnish ALTM with all information concerning the Hencie Companies necessary
or reasonably deemed desirable by ALTM for inclusion in such statements,
reports, applications, and the Proxy Statement, including, without limitation,
all requisite financial statements, schedules and related accountants'
consents. At the time any such statement, report, application or the Proxy
Statement is filed and the Proxy Statement is cleared for mailing by the SEC
(through lapse of time or otherwise), respectively, the Hencie Companies shall
provide ALTM with a certificate executed by the Hencie Companies (a)
confirming the accuracy in all material respects of the information concerning
the Hencie Companies that is contained in such statement, report, or
application, (b) acknowledging that such information is supplied by the Hencie
Companies to ALTM expressly for inclusion in such statement, report,
application and in the case of the Proxy Statement, identifying the
information expressly provided for inclusion in the Proxy Statement. In
furtherance thereof, the Hencie Companies shall actively participate at their
expense in the drafting of all sections of the Proxy Statement, and all
supplements thereto, relating to the business, financial condition, management
and all related disclosures concerning the Hencie Companies, as shall be
required pursuant to all rules and regulations, including, without limitation,
Schedule 14A of the Exchange Act, Regulation S-K or S-B (as applicable),
Regulation M-A, Regulation C and Regulation S-X, as promulgated under the
Securities Act, or as may be requested by the SEC in any comment letters
received by ALTM (one copy of which shall be promptly furnished by ALTM to
Hencie).
5.3.2 IRS Obligation. The Hencie Companies shall provide
ALTM with all documentation received from the Internal Revenue Service
regarding the total amount(s) owed by the Hencie Companies to the Internal
Revenue Service in connection with the IRS Obligation.
5.3.3 Financial Statements. The Hencie Companies shall
obtain from Deloitte & Touche LLP and deliver as promptly as practicable to
ALTM for its review such information and financial statements to be supplied
by Hencie for inclusion or incorporation by reference in the Proxy Statement
and Deloitte & Touche LLP's consent to the use of the Deloitte & Touche LLP
opinion accompanying such information and financial statements in the Proxy
Statement. In addition, the Hencie Companies shall deliver to ALTM not later
than the 45th day after the end of each month, financial statements of the
kind described in Section 4.4.6 (Financial Statements) for the month ended
January 31, 2002 and each subsequent month before the First Closing.
5.3.4 Restriction on Transfers. No Hencie Company shall
enter into any agreement to sell, transfer, pledge, hypothecate, or dispose of
any share of capital stock of any Hencie Company.
5.3.5 Accounts Payable. Hencie shall use commercially
reasonable efforts to arrange for payment of the ten (10) largest accounts
payable of Hencie.
5.4 Covenants Regarding Shareholder or Stockholder Approval.
5.4.1 ALTM Shareholders' Meeting. ALTM shall call and hold
a meeting of the ALTM Shareholders (the "ALTM Shareholders' Meeting") as soon
as practicable after the date hereof for the purpose of voting upon the
approval of the Proposal as outlined in the Proxy Statement. Except as
otherwise contemplated by this Agreement, and subject to applicable law, ALTM
shall use all commercially reasonable efforts to solicit from the ALTM
Shareholders proxies in favor of the Proposal pursuant to the Proxy Statement
and shall take all other action necessary or advisable to secure the vote or
consent of the ALTM Shareholders required by the rules and regulations of the
Nasdaq SmallCap Market and the MBCA to approve the Proposal and the
transactions contemplated hereby.
5.4.2 Proxy Statement.
(a) As promptly as reasonably practicable
after the execution of this Agreement, ALTM shall prepare the Proxy Statement,
which shall comply with the rules and regulations promulgated by the SEC.
(b) The Proxy Statement prepared by ALTM shall
contain the Fairness Opinion and shall solicit proxies in favor of (i) the
issuance of New ALTM Common Stock and New ALTM Options pursuant to this
Agreement, (ii) the Related Agreements, (iii) the Reincorporation, (iv) the
Stock Acquisition, (v) the Combination and (vi) such other matters ancillary
thereto requiring approval of the ALTM Shareholders (collectively the
"Proposal").
(c) None of the information supplied by Hencie
for inclusion or incorporation by reference in the Proxy Statement shall, at
the date it or any amendments or supplements thereto are mailed to the ALTM
Shareholders, at the time of the ALTM Shareholders' Meeting and at the Stock
Acquisition Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading. If at any time prior to the Stock
Acquisition Effective Time, any event or circumstance relating to Hencie, or
its officers or directors, should be discovered by Hencie that should be set
forth in an amendment or a supplement to the Proxy Statement, Hencie shall
promptly inform ALTM.
(d) ALTM shall use its commercially reasonable
efforts to timely mail the Proxy Statement to the ALTM Shareholders as
promptly as practicable following the approval of the Proxy Statement by the
SEC.
(e) ALTM shall promptly notify Hencie of the
receipt of any comments from the SEC or its staff and shall supply Hencie with
copies of all correspondence between ALTM, its Representatives and the SEC or
its staff. No amendment or supplement to the Proxy Statement shall be made
without the approval of each of Hencie and ALTM, which approval shall not be
unreasonably withheld or delayed.
5.4.3 The Stockholders Covenants. The Stockholders shall
not sell, transfer or permit any Lien to exist with respect to their Hencie
Common Stock except the Permitted Liens or the liens disclosed on the
Disclosure Schedule.
5.4.4 Written Consent of Sole Stockholder of New ALTM.
Simultaneous with the execution of this Agreement, ALTM, as the sole
shareholder of New ALTM, shall duly adopt and approve this Agreement, the
Related Agreements, the Reincorporation, the Stock Acquisition, the
Combination and the transactions contemplated by this Agreement, the Related
Agreements, the Reincorporation, the Stock Acquisition and the Combination by
written consent. ALTM, as the sole stockholder of New ALTM, shall not amend,
rescind or withdraw its adoption and approval of this Agreement, the Related
Agreements, the Reincorporation, the Stock Acquisition, the Combination or the
transactions contemplated by this Agreement, the Related Agreements, the
Reincorporation, the Stock Acquisition or the Combination.
5.4.5 Written Consent of Sole Stockholder of Combination
Sub. Simultaneous with the execution of this Agreement, New ALTM, as the sole
stockholder of Combination Sub, shall duly adopt and approve this Agreement,
the Related Agreements, the Combination, and the transactions contemplated by
this Agreement, the Related Agreements and the Combination by written consent.
New ALTM, as the sole stockholder of Combination Sub, shall not amend, rescind
or withdraw its adoption and approval of this Agreement, the Related
Agreements, the Combination or the transactions contemplated by this
Agreement, the Related Agreements or the Combination.
5.4.6 Written Consent of the Stockholders. Simultaneous
with the execution of this Agreement, Hencie shall cause each of the
Stockholders to execute a written consent to duly adopt and approve this
Agreement, the Related Agreements, the Stock Acquisition, the Combination and
the transactions contemplated by this Agreement, the Related Agreements, the
Stock Acquisition and the Combination by written consent. Each of the
Stockholders shall not amend, rescind or withdraw his, her or its adoption and
approval of this Agreement, the Related Agreements, the Stock Acquisition, the
Combination or the transactions contemplated by this Agreement, the Related
Agreements, the Stock Acquisition or the Combination.
ARTICLE VI
CONDITIONS PRECEDENT TO FIRST CLOSING
6.1 Conditions Precedent to Obligations of Hencie and the
Stockholders. The obligations of Hencie and the Stockholders under this
Agreement shall be subject to the fulfillment of each and all of the following
conditions at or before the First Closing (unless an earlier time is specified
in this Agreement, in which case on or before such earlier time), each of
which is individually hereby deemed material, and any one or more of which may
be waived in writing by the Stockholder(s) owning a majority of the issued and
outstanding shares of Hencie Common Stock.
6.1.1 Representations and Warranties. Each of the
representations and warranties of each of the ALTM Companies contained in this
Agreement shall be true and correct as of the date when made and (except for
changes contemplated by this Agreement and except to the extent any such
representation and warranty that speaks of an earlier date, in which case such
representation or warranty shall have been true and correct as of such date)
shall be true and correct on and as of the First Closing to the same extent
and with the same effect as if made on and as of the First Closing.
6.1.2 Performance by the ALTM Companies. Each of the ALTM
Companies shall have fully performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or
complied with by them or it on or before the First Closing (unless an earlier
time is specified in this Agreement, in which case on or before such earlier
time), including, without limitation, the execution and delivery by them of
all documents and instruments required under the terms of Article VII of this
Agreement.
6.1.3 Regulatory Approvals and Consents. There shall have
been duly and validly obtained all consents, approvals, authorizations,
permits and orders of all federal, state, foreign and other governmental
regulatory agencies required in connection with this Agreement and the
consummation of the transactions contemplated hereby (including, without
limitation, the certificates of merger contemplated by Section 1.3, the ALTM
Consents and the Hencie Consents), and all such consents, approvals,
authorizations, permits and orders shall be in full force and effect as of the
First Closing, except in each case where the failure to have obtained such
consent, approval, authorization, permit or order would not reasonably be
expected to have a Material Adverse Effect on any of the ALTM Companies or
Hencie.
6.1.4 No Court Orders. On the First Closing Date, there
shall be no effective injunction, writ, preliminary restraining order or any
order of any nature issued by any court or governmental regulatory agency of
competent jurisdiction directing that the transactions contemplated herein or
any of them not be consummated as herein provided, or awarding damages or any
other remedy to any Person with respect to any of the transactions
contemplated hereby.
6.1.5 Certificates of the ALTM Companies. Each of the ALTM
Companies shall have provided to Hencie a certificate, dated the First Closing
Date, executed by such ALTM Company confirming that the conditions in Section
6.1.1 and Section 6.1.2 as to each ALTM Company including itself have been
satisfied.
6.1.6 Opinion of ALTM Companies' Counsel. The ALTM
Companies shall have delivered to Hencie at the First Closing the opinion of
the ALTM Companies' counsel, Moss & Barnett, which opinion shall be dated the
Stock Acquisition Effective Time and addressed to Hencie in substantially the
form attached hereto as Exhibit 6.1.6.
6.1.7 Good Standing. Each ALTM Company shall have
furnished to Hencie at the First Closing certificates of the appropriate
governmental officials, dated within thirty (30) days of the Stock Acquisition
Effective Time, confirming that such ALTM Company is in good standing and is
duly qualified to transact business in its state of incorporation and in each
jurisdiction listed on the Disclosure Schedule.
6.1.8 Related Agreements. The parties to the Related
Agreements (other than Hencie and any Stockholder) shall have executed and
delivered the Related Agreements to which each is a party.
6.1.9 Proxy Statement. No proceeding for the purpose of
challenging the validity of the Proxy Statement shall have been initiated or,
to the Knowledge of ALTM Management or to the Knowledge of Hencie Management,
threatened by the SEC or any other Person.
6.1.10 Dissenter's Rights. No more than the holders of
100,000 shares of ALTM Common Stock shall seek dissenter's rights in
connection with the Reincorporation.
6.1.11 Approval by ALTM Shareholders. The Proposal shall
have been approved and adopted by the requisite vote of the ALTM Shareholders
under applicable corporate law and the rules of the Nasdaq SmallCap Market.
6.1.12 Khan Employment Agreement. The ALTM Companies shall,
within ten (10) Business Days of execution of this Agreement, have delivered
to Adil Khan (i) a three-year employment agreement dated as of the First
Closing Date and contingent upon the consummation of the First Closing,
executed by New ALTM, appointing Adil Khan as the Chief Executive Officer of
New ALTM (with all of the authority and duties customarily concomitant with
such title and at least at the same annual rate of compensation and
prerequisites as Adil Khan received as of January 1, 2001) in substantially
the form attached hereto as Exhibit 6.1.12 (the "Khan Employment Agreement")
and (ii) an option to purchase shares of New ALTM Common Stock on the terms
and conditions set forth below.
The option shall:
(a) Provide for the purchase of a number of
shares (the "Option Shares") of New ALTM Common Stock equal to three percent
(3%) of the outstanding shares of New ALTM Common Stock on a fully-diluted
basis (as if the Option Shares had been exercised) at an exercise price equal
to the market price of New ALTM Common Stock as of the First Closing Date;
(b) Vest if the Adjusted EBITDA of Hencie for
the fiscal year ended December 31, 2002 exceeds the Adjusted EBITDA of Hencie
for the fiscal year ended December 31, 2001;
(c) Provide that the option shall become
immediately vested and exercisable and that all conditions to its exercise
shall be waived and terminated (i) if Adil Khan shall be terminated or
constructively terminated, in each case without Cause, as Chief Executive
Officer of New ALTM, (ii) if Adil Khan shall become Disabled (as defined in
the Khan Employment Agreement) or (iii) upon a Change of Control (as defined
in the Khan Employment Agreement).
6.1.13 Miller Employment Agreement. The ALTM Companies
shall, within ten (10) Business Days of execution of this Agreement, have
delivered to Miller an employment agreement dated as of the First Closing Date
and contingent upon the consummation of the First Closing, executed by New
ALTM, in substantially the form attached hereto as Exhibit 6.1.13.
6.1.14 Smith Employment Agreement. The ALTM Companies shall,
within ten (10) Business Days of execution of this Agreement, have delivered
to Sandra J. Smith an employment agreement dated as of the First Closing Date
and contingent upon the consummation of the First Closing, executed by New
ALTM, in substantially the form attached hereto as Exhibit 6.1.14.
6.1.15 Tax Opinion. Hencie shall have received an opinion
from Moss & Barnett, a professional association, in form and substance
reasonably acceptable to Hencie, confirming that the issuance and exchange of
New ALTM Common Stock shall have the effect of a plan of reorganization
meeting the requirements of Section 368(a)(2)(E) of the Code and the issuance
of New ALTM Common Stock and exchange of New ALTM Common Stock for Hencie
Common Stock and all other transactions contemplated hereby shall qualify as a
"tax free" reorganization as contemplated by the provisions of the Code.
6.1.16 Total Assets. Immediately prior to First Closing, the
ALTM Companies when taken as a whole shall have Total Assets of at least $6.2
million.
6.1.17 Net Liquid Assets. Immediately prior to First
Closing, the ALTM Companies when taken as a whole shall have Net Liquid Assets
of at least $2.5 million.
6.1.18 Board of Directors and Officers of the Post-First
Closing Corporations.
(a) New ALTM. As of the First Closing, the
Board of Directors of New ALTM shall consist of five (5) total directors and
shall be divided into three (3) classes, designated as Class I, Class II, and
Class III (which at all times shall be as nearly equal in number as possible),
with the term of office of Class I directors to expire at the 2003 annual
meeting of stockholders, the term of office of Class II directors to expire at
the 2004 annual meeting of stockholders, and the term of office of Class III
directors to expire at the 2005 annual meeting of stockholders, upon election
and qualification of their successors. The Board of Directors of New ALTM
shall initially be comprised as follows:
Class Name of Director
I Brad Moore
II Thomas Hiatt
II Nominee of Adil Khan, which shall in no case be a relative of Adil Khan
III Adil Khan
III Miller
As of the First Closing, the Chairman of the Board
of Directors of New ALTM shall be Miller and the Vice Chairman of the Board of
Directors and Chief Executive Officer of New ALTM shall be Adil Khan. The
other officers of New ALTM immediately prior to the First Closing shall be
appointed by the Board of Directors as designated and appointed in accordance
with this Section 6.1.18(a).
(b) Hencie. As of the First Closing, the
directors and officers of Hencie shall remain the directors and officers of
Hencie until their respective successors shall be duly elected or appointed
and qualified, or until their earlier death, resignation or removal.
6.1.19 Registration Rights Agreement. New ALTM, the
Stockholders, and the officers, directors and ten percent (10%) stockholders
of ALTM shall have executed a Registration Rights Agreement effective as of
the First Closing in substantially the form attached hereto as Exhibit 7.3(a).
6.2 Conditions Precedent to Obligations of the ALTM Companies. The
obligations of the ALTM Companies under this Agreement shall be subject to the
fulfillment of each and all of the following conditions at or before the First
Closing (unless an earlier time is specified in this Agreement, in which case
on or before such specified time), each of which is individually hereby deemed
material, and any one or more of which may be waived in writing by ALTM:
6.2.1 Representations and Warranties. Each of the
representations and warranties made by Hencie contained in this Agreement
shall be true and correct as of the date when made and (except for changes
contemplated by this Agreement and except to the extent that any such
representation and warranty that speaks of an earlier date, in which case such
representation or warranty shall have been true and correct as of such date)
shall be true and correct on and as of the First Closing to the same extent
and with the same effect as if made on and as of the First Closing.
6.2.2 Performance by Hencie. Hencie shall have fully
performed and complied with all covenants, agreements and conditions required
by this Agreement to be performed or complied with by them on or before the
First Closing (unless an earlier time is specified in this Agreement, in which
case on or before such earlier time), including, without limitation, the
execution and delivery by them of all documents and instruments required under
the terms of Article VII of this Agreement.
6.2.3 Regulatory Approvals and Consents. There shall have
been duly and validly obtained all consents, approvals, authorizations,
permits and orders of all federal, state, foreign and other governmental
regulatory agencies required in connection with this Agreement and the
consummation of the transactions contemplated hereby (including, without
limitation, the certificates of merger contemplated by Section 1.3, the ALTM
Consents and the Hencie Consents), and all such consents, approvals,
authorizations, permits and orders shall be in full force and effect as of the
First Closing, except in each case where the failure to have obtained such
consent, approval, authorization, permit or order would not reasonably be
expected to have a Material Adverse Effect on any of the ALTM Companies or
Hencie.
6.2.4 No Court Orders. As of the First Closing, there
shall be no effective injunction, writ, preliminary restraining order or any
order of any nature issued by any court or governmental regulatory agency of
competent jurisdiction directing that the transactions contemplated herein or
any of them not be consummated as herein provided, or awarding damages or any
other remedy to any Person with respect to any of the transactions
contemplated hereby.
6.2.5 Certificate of Hencie. Hencie shall have furnished
to the ALTM Companies a certificate, dated the First Closing Date, executed by
Hencie confirming that the conditions in Section 6.2.1 and Section 6.2.2 have
been satisfied.
6.2.6 Opinion of Hencie's Counsel. Hencie shall have
delivered to ALTM, at the First Closing, the opinion of Hencie's counsel,
Haynes and Boone, LLP, which opinion shall be dated the First Closing Date and
addressed to ALTM, in substantially the form attached hereto as Exhibit 6.2.6.
6.2.7 Good Standing. Hencie shall have furnished to ALTM,
at the First Closing, certificates of the appropriate governmental officials,
dated within fifteen (15) days of the First Closing Date, confirming that
Hencie is in good standing and duly qualified to transact business in the
State of Delaware, and, as applicable, in each jurisdiction listed on in the
Disclosure Schedule.
6.2.8 Related Agreements. The parties to the Related
Agreements (other than the ALTM Companies) shall have executed and delivered
the Related Agreements to which each is a party.
6.2.9 Approval by ALTM Shareholders. The Proposal shall
have been approved and adopted by the requisite vote of the ALTM Shareholders
under applicable corporate law and the rules of the Nasdaq SmallCap Market.
6.2.10 Miller Appointments. Miller shall have been
designated and appointed to serve as (a) a member of the Board of Directors of
New ALTM and (b) Chairman of the Board of Directors of New ALTM, each as
contemplated by Section 6.1.18, effective as of the First Closing Date for
terms ending at the 2005 annual meeting of stockholders of New ALTM.
6.2.11 Fairness Opinion. ALTM shall have received the
Fairness Opinion in form and substance reasonably satisfactory to ALTM, and it
shall not have been withdrawn or modified to indicate that the value to be
received by the ALTM Shareholders is materially less than as originally
indicated in the Fairness Opinion.
6.2.12 Delivery of Certificates by Stockholders. Hencie
Certificates or lost certificate affidavits representing all of the issued and
outstanding Hencie Common Stock held by the Stockholders shall be delivered by
the Stockholders to New ALTM at the First Closing.
6.2.13 Pay-off of IRS Obligation. Hencie shall have provided
to New ALTM written instructions and confirmation of the amount(s) owed by
Hencie to the Internal Revenue Service in connection with the wire transfer or
other mutually agreed disbursement of funds to the Internal Revenue Service
and the payment of the IRS Obligation.
ARTICLE VII
CLOSING AND DELIVERY OF DOCUMENTS
At the First Closing, the following shall occur as a single integrated
transaction:
7.1 Deliveries by the ALTM Companies. At the First Closing, each of
the ALTM Companies shall deliver or cause to be delivered to ALTM, New ALTM,
Hencie and/or the Stockholders, as appropriate, the following items:
(a) Immediately following the consummation of the
Reincorporation, at First Closing, New ALTM shall deliver or cause to be
delivered the Reincorporation Consideration and the Stock Acquisition
Consideration in accordance with Articles I and III;
(b) The opinion of the ALTM Companies' counsel described in
Section 6.1.6;
(c) Copies of the ALTM Consents;
(d) The certificates identified in Section 6.1.5 hereof;
(e) The good standing certificates identified in Section
6.1.7 hereof;
(f) Copies, certified or otherwise identified to Hencie's
satisfaction, of all corporate documents that Hencie shall reasonably request,
including, without limitation, written consents of the Board of Directors
(including, without limitation, the disinterested directors) of each of the
ALTM Companies, dated on or before the date hereof to authorize this
Agreement, the Related Agreements and the transactions and other acts
contemplated either by this Agreement or the Related Agreements, including,
without limitation, the preparation and filing of the Proxy Statement and the
calling of the ALTM Shareholders' Meeting;
(g) A copy of the Fairness Opinion; and
(h) Copies of the written consents of the sole stockholder
of New ALTM and the sole stockholder of Combination Sub as identified in, and
contemplated by, Sections 5.4.4 and 5.4.5 respectively.
(i) The executed employment agreement with Adil Khan as
identified in, and contemplated by, Section 6.1.12.
7.2 Delivery by Hencie. At the First Closing, Hencie shall deliver
or cause to be delivered to ALTM the following items:
(a) The Hencie Certificates representing the shares held by
the Stockholders;
(b) The opinion of Hencie's counsel as described in Section
6.2.6;
(c) Copies of the written consents of the stockholders of
Hencie, including, without limitation, copies of the written consent of the
Stockholders as identified in, and contemplated by, Section 5.4.6;
(d) The certificate identified in Section 6.2.5 hereof;
(e) The good standing certificates identified in Section
6.2.7 hereof;
(f) Copies, certified or otherwise identified to ALTM's
satisfaction, of all corporate documents that ALTM shall reasonably request,
including, without limitation resolutions of the Board of Directors (or
written consents in lieu thereof) of Hencie dated on or before the date hereof
to authorize this Agreement, the Related Agreements and the transactions and
other acts contemplated either by this Agreement or the Related Agreements;
and
(g) A certificate executed by Hencie (i) confirming the
accuracy in all material respects of the information concerning Hencie that is
contained in any statements, reports, applications, in each case, made by ALTM
with any federal, state or foreign governmental regulatory agency or quasi-
governmental authority in connection with this Agreement, the Related
Agreements and the transactions contemplated hereby and thereby, (ii)
acknowledging that such information is supplied by Hencie to ALTM expressly
for inclusion in such statement, report, application, and (iii) in the case of
the Proxy Statement, identifying the information expressly provided for
inclusion in the Proxy Statement.
7.3 Related Agreements. At the First Closing, the parties, as
appropriate, shall execute and deliver at First Closing the following
documents (the "Related Agreements"):
(a) A Registration Rights Agreement by and among New ALTM,
the Stockholders, and the officers, directors and ten percent (10%)
stockholders of ALTM, effective as of the First Closing, executed by New ALTM,
the Stockholders, and the officers, directors and ten percent (10%)
stockholders of ALTM, in substantially the form attached hereto as Exhibit
7.3(a); and
(b) Adil Khan and K2VC shall execute and deliver an Escrow
Agreement in substantially the form attached hereto as Exhibit 7.3(b) (the
"Indemnification Escrow Agreement") (with such changes as are necessary to
obtain a mutually acceptable escrow agent or reasonably requested by the
mutually acceptable escrow agent). In order to provide indemnification in
accordance with Section 9.6 of this Agreement, K2VC shall deliver to the
escrow agent named in the Indemnification Escrow Agreement stock certificates
representing those certain shares of New ALTM Common Stock which are subject
to that certain Pledge Agreement (as defined in that certain Settlement
Agreement and Release, dated as of May 22, 2002, by and between Edge
Technology Group, Inc., Hencie, Hencie Consulting, and Adil Khan) if, and only
if, and promptly after, such shares shall have been released from and are no
longer subject to the Pledge Agreement until the amount of such shares
delivered to such escrow agent shall have an aggregate market value of
$750,000 (the "Escrow Shares"). Pursuant to the terms of the Indemnification
Escrow Agreement, if on the last business day of any month in which the
Indemnification Escrow Agreement remains in effect the market value of the
shares delivered pursuant to it exceeds $750,000, then shares with a market
value representing such excess shall be released and delivered to K2VC. For
purposes of this Section 7.3(b) and Section 9.6, the market value of the
Escrow Shares shall be calculated based on the average market price of New
ALTM Common Stock for the thirty (30) days prior to the date on which the
market value is determined. The terms of the Indemnification Escrow Agreement
shall provide that K2VC retains its voting rights with respect to the Escrow
Shares.
7.4 Pay-off of IRS Obligation. At or before the First Closing, New
ALTM shall pay the IRS Obligation via wire transfer or other mutually agreed
disbursement of funds to the Internal Revenue Service pursuant to written
instructions provided by Hencie and such payment(s) shall be made out of the
combined funds of Hencie and the ALTM Companies.
ARTICLE VIII
TERMINATION
8.1 Reasons for Termination. Regardless of whether the ALTM
Shareholders' approval for the Proposal has been obtained, this Agreement may
be terminated and the transactions contemplated hereby abandoned before the
First Closing as follows:
8.1.1 By Mutual Consent. By the mutual consent of the
parties hereto;
8.1.2 By Hencie. By Hencie, after compliance with the
procedure set forth in this Article, if (i) any of the ALTM Companies'
representations or warranties contained herein is untrue or incorrect and the
basis for such untruth or incorrectness has caused, or is reasonably likely to
cause, any of the ALTM Companies, Hencie or the Stockholders to suffer a
Material Adverse Effect, (ii) any of the ALTM Companies fails to perform any
of its covenants or agreements contained herein and such Breach has caused, or
is reasonably likely to cause, any of the ALTM Companies, Hencie or the
Stockholders to suffer a Material Adverse Effect, (iii) any of the conditions
to the consummation by Hencie and the Stockholders of the transactions
provided for herein shall have become impossible to satisfy other than as a
result of the action or inaction of Hencie or the Stockholders or (iv) for any
reason ALTM fails to mail notice of the ALTM Shareholders' Meeting on or
before June 23, 2002 or hold such meeting on or before July 23, 2002;
provided, however, that a willful material Breach of this Agreement by ALTM
shall be deemed to cause such conditions to be impossible of being satisfied
for purposes of Section 8.1.2(iii).
8.1.3 By Any of the ALTM Companies. By any of the ALTM
Companies, after compliance with the procedure set forth in this Article, if
(i) any of Hencie's representations or warranties contained herein is untrue
or incorrect and the basis for such untruth or incorrectness has caused, or is
reasonably likely to cause, the ALTM Companies or Hencie to suffer a Material
Adverse Effect, (ii) Hencie fails to perform any of its covenants or
agreements contained herein and such Breach has caused, or is reasonably
likely to cause, the ALTM Companies or Hencie to suffer a Material Adverse
Effect, (iii) any of the conditions to the consummation by any of the ALTM
Companies of the transactions provided for herein shall have become impossible
to satisfy other than as a result of the action or inaction of any of the ALTM
Companies, (iv) ALTM elects not to proceed with the transactions contemplated
by this Agreement based on PWC's review of the draft financial audit of Hencie
performed by Deloitte & Touche LLP at any time prior to the date and time at
which the preliminary Proxy Statement shall have been filed, or (v) ATLM
accepts a Superior Proposal, after compliance with the procedure set forth in
Section 5.2.6, and after ALTM reimburses Hencie for actual attorneys fees and
pays to Hencie liquidated damages of $50,000 (collectively, the "Superior
Proposal Breakup Fees"); provided, however, that, notwithstanding anything
herein to the contrary, the Superior Proposal Breakup Fees shall not exceed
$150,000; provided, however, that a willful material Breach of this Agreement
by Hencie shall be deemed to cause such conditions to be impossible of being
satisfied for purposes of Section 8.1.3(iii).
8.1.4 Drop-Dead Date. By ALTM or Hencie, if the First
Closing shall not have occurred by August 1, 2002; provided, however, that
such date shall be extended by the number of days, if any, to cure any matter
that is the subject of a notice under Section 8.3 (Hencie Termination
Procedure) or Section 8.4 (ALTM Termination Procedure).
8.1.5 Injunction or Order. By ALTM or Hencie if any
permanent injunction or other order of a court or other competent authority
preventing the consummation of any of the transactions contemplated hereby
shall have become final and non-appealable.
8.2 Notice of Problems. Each party shall promptly give written
notice to the other parties when any of them becomes aware of the occurrence
or failure to occur, or the impending or threatened occurrence or failure to
occur, of any fact or event that would cause or constitute, or would be likely
to cause or constitute (i) any of its representations or warranties contained
herein to be untrue or incorrect and the basis for such untruth or
incorrectness has caused or is reasonably likely to cause, it or any other
party to suffer a Material Adverse Effect, (ii) its failure to perform any of
its covenants or agreements contained herein and such Breach has caused or is
reasonably likely to cause it or any other party to suffer a Material Adverse
Effect or (iii) any of the conditions to First Closing set forth in Article VI
it must satisfy to be or becoming impossible to satisfy. No such notice shall
affect the representations, warranties, covenants, agreements or conditions of
the parties hereunder or their liability therefore, or prevent any party from
relying on the representations and warranties contained herein.
8.3 Hencie Termination Procedure. If Hencie discovers, by reason of
a notice given pursuant to this Agreement or otherwise, that (i) any of ALTM's
or the other ALTM Companies' representations or warranties is untrue or
incorrect when made and the basis for such untruth or incorrectness has
caused, or is reasonably likely to cause, the ALTM Companies or Hencie to
suffer a Material Adverse Effect, (ii) any of the ALTM Companies has failed to
perform any of its covenants or agreements contained herein in any material
respect, and such Breach has caused, or is reasonably likely to cause, the
ALTM Companies or Hencie to suffer a Material Adverse Effect, (iii) any of the
conditions to ALTM's or Hencie's obligations to consummate the transactions
provided for herein has become impossible to satisfy or (iv) for any reason
ALTM fails to mail notice of the ALTM Shareholders' Meeting on or before June
23, 2002 or hold such meeting on or before July 23, 2002, then Hencie may
deliver a notice to ALTM of such event, specifying the factual basis therefore
in reasonable detail. The ALTM Companies shall have the right to cure any
matter referred to in clause (i) or (ii) of this Section within fifteen (15)
Business Days following the date of delivery of such notice. Upon such notice
and, in the case of clause (i) or (ii), upon ALTM's or the other ALTM
Companies' failure to timely cure, Hencie may terminate this Agreement by
giving a notice of termination to ALTM.
8.4 ALTM Termination Procedure. If ALTM discovers, by reason of a
notice given pursuant to this Agreement or otherwise, that (i) any of Hencie's
representations or warranties is untrue or incorrect when made and the basis
for such untruth or incorrectness has caused, or is reasonably likely to
cause, Hencie or the ALTM Companies to suffer a Material Adverse Effect, (ii)
Hencie has failed to perform any of its covenants or agreements contained
herein in any material respect and such Breach has caused, or is reasonably
likely to cause, the ALTM Companies or Hencie to suffer a Material Adverse
Effect or (iii) any of the conditions to the ALTM Companies' obligations to
consummate the transactions provided for herein has become impossible to
satisfy, then ALTM may deliver a notice to Hencie of such event, specifying
the factual basis therefore in reasonable detail. Hencie shall have the right
to cure any matter referred to in clause (i) or (ii) of this Section within
fifteen (15) Business Days following the date of delivery of such notice.
Upon such notice and, in the case of clause (i) or (ii), upon Hencie's failure
to timely cure, ALTM may terminate this Agreement by giving a notice of
termination to Hencie.
8.5 Effect of Termination. Upon termination of this Agreement
pursuant to this Article, no party shall have any liability or continuing
obligation to another party arising out of this Agreement except out of
actions taken in connection with this Agreement, except that this Section 8.5
and Article IX shall survive termination of this Agreement. Notwithstanding
the foregoing, termination of this Agreement shall not relieve any party from
its liability for the Breach, prior to termination, of its (i) covenants or
agreements or (ii) representations or warranties.
8.6 Expenses. Except as set forth in Section 8.1.3, whether or not
the transactions contemplated hereby are consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, the fees and expenses of any advisers,
accountants and legal counsel) shall be paid by the party incurring such cost
or expense.
ARTICLE IX
POST-CLOSING AGREEMENTS
After the First Closing, the ALTM Companies, Hencie and the Stockholders
covenant and agree as follows:
9.1 Cooperation.
(a) ALTM shall at the reasonable request and sole cost of
Hencie use commercially reasonable efforts to aid the Stockholders in
establishing themselves as the owners of the shares of New ALTM Common Stock
and the New ALTM Options to be issued hereunder and, in connection therewith,
shall use commercially reasonable efforts to maintain the ALTM Companies'
goodwill and reputation with material suppliers, customers, distributors,
creditors and others having business relations with the ALTM Companies and in
the business community generally.
(b) Each of the Corporate Parties shall cooperate fully, as
and to the extent reasonably requested by the other, in connection with the
filing of Tax Returns by any such party after the First Closing Date and any
audit or other Proceeding with respect to Taxes for periods ending prior to
the first anniversary of the First Closing Date. Such cooperation shall
include the retention and (upon the other's request) the provision of records
and information which are reasonably relevant to any such audit or other
Proceeding. The ALTM Companies agree (i) to retain all books and records with
respect to Tax matters pertinent to the ALTM Companies relating to any taxable
period beginning before the First Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Hencie, any extensions
thereof) of the respective taxable periods and to abide by all record
retention agreements entered into with any Taxing authority, and (ii) to give
Hencie reasonable written notice prior to destroying or discarding any such
books and records and, if Hencie so requests, the ALTM Companies shall allow
Hencie to take possession of such books and records if the ALTM Companies
determine to destroy or discard such books and records.
(c) Each of the Corporate Parties further agrees, upon
request by any of the others, to use their commercially reasonable efforts to
obtain any certificate or other document from any governmental authority or
any other Person as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed (including, without limitation, with respect to the
transactions contemplated by this Agreement).
9.2 Certain Transfer and Similar Taxes of the ALTM Companies. All
transfer, documentary, sales, use, stamp, and registration Taxes incurred in
connection with this Agreement (excluding any shareholder, stockholder and/or
corporate-level gains Tax triggered by any of the transactions contemplated
hereby), shall be paid by Hencie when due, and Hencie shall, at its own
expense, file all such necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration
Taxes, and, if required by applicable law, any or all of the ALTM Companies
shall join in the execution of any such Tax Returns and other documentation.
9.3 Inspection of Records. The ALTM Companies shall each retain and
make their respective books and records (including, without limitation, work
papers in the possession of their respective accountants) available for
inspection and copying by Hencie and its Representatives and the Stockholders
and each of their Representatives, for reasonable business purposes at all
reasonable times during normal business hours, for a seven-year period plus
any applicable tolling periods after the First Closing Date, with respect to
all transactions of the ALTM Companies relating to the Reincorporation, Stock
Acquisition and the Combination and those relating to the First Closing, and
the historical financial condition, assets, liabilities, operations, Taxes and
cash flows of the ALTM Companies for such periods.
9.4 The Combination. Each of the Corporate Parties shall use their
commercially reasonable efforts, subject to applicable federal and state law,
to acquire any and all issued and outstanding shares of Hencie Common Stock
owned and/or held by the Minority Stockholders by issuing shares of New ALTM
Common Stock for the shares of Hencie Common Stock owned and/or held by the
Minority Stockholders pursuant to the terms and conditions of the Combination
as contemplated hereby. Notwithstanding anything herein to the contrary, the
Combination Consideration shall be calculated using the Common Stock Exchange
Ratio as utilized to effectuate the exchange of Hencie Common Stock by the
Stockholders pursuant to the Stock Acquisition and in accordance with the
terms and conditions of this Agreement. Each of the Corporate Parties shall
use their commercially reasonable efforts to effectuate the Combination no
earlier than six (6) months and one (1) Business Day following the Stock
Acquisition Effective Time and no later than twelve (12) months following the
Stock Acquisition Effective Time.
9.5 Additional Equity Funding. Each of the Corporate Parties shall
use their commercially reasonable efforts to obtain any and all additional
equity funding deemed necessary or desirable by the Board of Directors of New
ALTM.
9.6 Indemnification of the ALTM Companies. For a period of twenty-
four (24) months from the First Closing Date and subject to the other
provisions of this Section 9.6, Adil Khan shall defend, indemnify and hold the
ALTM Companies and their respective officers, directors, employees, agents and
controlling persons (each an "ALTM Indemnified Party" and collectively, the
"ALTM Indemnified Parties") harmless from and against, and promptly reimburse
each ALTM Indemnified Party for, any loss, damage, deficiency, liability,
judgment, claim or expense, including, without limitation, reasonable
investigative costs, costs of defense, settlement costs (subject to approval
as provided below), costs of cleanup, containment or other remediation and
including, without limitation, reasonable attorneys' and accountants' fees,
whether or not involving a third-party claim (each a "Loss" and collectively,
"Losses"), that any ALTM Indemnified Party actually incurs or to which such
ALTM Indemnified Party becomes subject, which Loss(es), whether or not
involving a third-party claim, arise, either directly or indirectly, out of
(i) any Breach by any of the Hencie Companies or any Stockholder of any
representation or warranty of any of the Hencie Companies or any Stockholder,
(ii) any claim asserted by any third party that, assuming the truth thereof,
would constitute a Breach by any of the Hencie Companies or any Stockholder of
any representation or warranty of any of the Hencie Companies or any
Stockholder, (iii) liability for any and all amounts owed by Hencie to the
Internal Revenue Service in connection with the IRS Obligation in excess of
$978,158, or (iv) any claim asserted by Hencie.Com, Inc., a Delaware
corporation ("Hencie.Com"), or Mr. Paul A. Tanner, an affiliate of Hencie.Com
("Tanner"); provided, however, that Adil Khan shall also defend, indemnify and
hold Hencie and Hencie Consulting and their respective officers, directors,
employees, agents and controlling persons harmless from and against, and
promptly reimburse each such party for, any Loss, that any such party actually
incurs or to which such party becomes subject, which Loss(es), whether or not
involving a third party claim, arise, either directly or indirectly, out of
any claim(s) referred to in Section 9.6(iv) and that, for purposes of this
Section 9.6 and with respect to any Loss(es) arising out of or relating to any
claim(s) referred to in Section 9.6(iv) only, the term ALTM Indemnified
Parties shall include, without limitation, Hencie and Hencie Consulting and
their respective officers, directors, employees, agents and controlling
persons; provided, however, that any claim for indemnification of Hencie,
Hencie Consulting, or any of their respective officers, directors, employees,
agents or controlling persons pursuant to this Section 9.6 shall be
subordinate to any and all claims for indemnification of the ALTM Indemnified
Parties and shall be paid only to the extent of the remaining Escrow Shares in
the escrow fund after payment of any and all claims for indemnification, if
any, of the ALTM Indemnified Parties.
Subject to the other provisions of this Section 9.6, Adil Khan shall
promptly pay to any ALTM Indemnified Party the amount of any and all Loss(es)
after the amount of any such Loss(es) and Adil Khan's liability therefore is
established by (x) a written agreement between an ALTM Indemnified Party and
Adil Khan, (y) with respect to an Asserted Liability not involving a third-
party claim, a binding decision rendered in arbitration, or (z) with respect
to an Asserted Liability involving a third-party claim, a final, binding and
non-appealable decision, judgment or other order of a court of competent
jurisdiction, an administrative agency or other competent authority (any
Loss(es) so established shall be referred to herein as an "ALTM Established
Loss" and collectively, as "ALTM Established Losses"); provided, however, that
Adil Khan shall not have any liability for any claims for indemnification
hereunder unless (xx) an ALTM Indemnified Party and Adil Khan shall agree in
writing that Adil Khan shall have liability for a Loss related to a Breach,
(yy) with respect to an Asserted Liability not involving a third-party claim,
a demand for arbitration conducted in accordance with the Arbitration Rules
and the Supplementary Procedures for Large, Complex Disputes of the American
Arbitration Association is made, or (zz) with respect to an Asserted Liability
involving a third-party claim, a claim by a third party with a court of
competent jurisdiction, an administrative agency or other competent authority
is filed prior to the twenty-four (24) month anniversary of the First Closing
Date and any such liability shall be deemed waived, and no Person shall have
any remedy for any such Loss(es); it being the intention of the parties that
all claims relating to such Loss(es) shall thereafter be forever barred. Any
demand for arbitration seeking indemnification hereunder or third-party claim
in connection with liability for a Loss related to a Breach made during such
twenty-four (24) month period shall remain valid and the representations and
warranties relating thereto shall remain in effect for purposes of such
indemnification notwithstanding that the amount or validity of such claim(s)
may not be established or resolved within such twenty-four (24) month period.
Subject to the legal opinion referred to below in this Section 9.6 and
except as limited by the Deductible and the Cap, Adil Khan shall promptly pay
to any ALTM Indemnified Party, the amount of any and all ALTM Established
Loss(es) in cash equal to the amount of such ALTM Established Loss(es) within
thirty (30) Business Days after such ALTM Established Loss(es) have been
established in accordance with this Section 9.6; provided, however, that if
such cash payment is not made by Adil Khan within such thirty (30) Business
Day period then the escrow agent under the Indemnification Escrow Agreement
shall pay to such ALTM Indemnified Party an amount of Escrow Shares having a
market value, determined as of the date such ALTM Established Loss(es) shall
have been established, equal to such ALTM Established Loss(es); provided,
however, that, if New ALTM receives an opinion from its legal counsel to the
effect that payment of an ALTM Established Loss must be paid in New ALTM
Common Stock in order to avoid jeopardizing the status of this Agreement or
the transactions contemplated hereby as a "tax free" reorganization, then the
payment of the ALTM Established Loss(es) shall be made with an amount of
Escrow Shares having a market value, determined as of the date such ALTM
Established Loss(es) shall have been established, equal to such ALTM
Established Loss(es) in lieu of cash; provided, however, that Adil Khan shall
be given a reasonable time to register such Escrow Shares under the Securities
Act if Adil Khan, in his sole and absolute discretion, shall determine that
such registration is necessary or appropriate. The parties hereto acknowledge
and agree that Adil Khan's indemnification obligations under this Section 9.6
are for the exclusive benefit of the ALTM Indemnified Parties and enforceable
only by the ALTM Indemnified Parties.
(a) Deductible. Adil Khan shall not be liable for, and
shall not be obligated to pay, any amount until the party or parties to be
indemnified has or have incurred aggregate ALTM Established Losses, as
applicable, in excess of $150,000 (the "Deductible"). At such time as the
aggregate ALTM Established Loss(es) incurred by the party or parties to be
indemnified shall exceed the Deductible, the claimant shall be entitled to the
full amount of such ALTM Established Loss(es), including, without limitation,
the amount of the Deductible, subject to the other provisions of this Section
9.6.
(b) Cap. Adil Khan shall not be liable for, and shall not
be obligated to pay, for any reason, in connection with this Section 9.6, any
amount in excess of the applicable Cap; provided, however, that the Cap shall
not apply to any ALTM Established Loss(es) arising out of or relating to any
claims(s) referred to in Section 9.6(iv). For purposes hereof, the applicable
"Cap" shall be $750,000.
(c) Arbitration. Subject to the other provisions of this
Section 9.6, any claims for indemnification hereunder not involving a third-
party claim, shall be resolved and/or settled by arbitration conducted in
accordance with the Arbitration Rules and the Supplementary Procedures for
Large, Complex Disputes of the American Arbitration Association. Any
arbitration hearing to be held in connection with this Section 9.6 shall be
held in Dallas, Texas before a panel of three (3) neutral arbitrators mutually
selected by the applicable ALTM Indemnified Party and Adil Khan which panel
shall be comprised of licensed attorneys. If within twenty (20) Business
Days, such parties are not able to mutually agree upon all three (3) neutral
arbitrators the number of arbitrators needed to complete the panel shall be
appointed in accordance with the rules of the American Arbitration
Association. Any judgment on the award or decision rendered by the
arbitration panel may be entered in any court having jurisdiction thereof.
Any and all costs of arbitration, including, without limitation, legal fees
incurred in connection with arbitration, shall be awarded to the prevailing
parties as determined by arbitration and the arbitration panel shall have
authority to and must award such costs and legal fees.
(d) Notice and Opportunity to Defend. Whenever an Asserted
Liability involving a third-party claim shall arise for which any ALTM
Indemnified Party may be entitled to indemnification hereunder, including,
without limitation, receipt of notice of any third-party claim or commencement
of any third-party Proceeding, and Adil Khan is obligated to provide
indemnification pursuant to this Section 9.6, such ALTM Indemnified Party
shall promptly give Adil Khan notice thereof. The ALTM Indemnified Party's
failure to so notify Adil Khan shall not cause the ALTM Indemnified Party to
lose his, her or its right to indemnification under this Section 9.6, except
to the extent that such failure materially prejudices Adil Khan's ability to
defend against an Asserted Liability involving a third-party claim that such
ALTM Indemnified Party has the right to defend against hereunder (and except
as otherwise set forth in this Section 9.6). Such notice shall describe the
Asserted Liability in reasonable detail, and if practicable shall indicate the
amount (which may be estimated) of the Loss(es) that have been or may be
asserted by the ALTM Indemnified Party. Notwithstanding anything in this
Section 9.6 to the contrary, Adil Khan may defend against an Asserted
Liability involving a third-party claim on behalf of such ALTM Indemnified
Party utilizing counsel reasonably acceptable to such ALTM Indemnified Party,
unless (a) such ALTM Indemnified Party reasonably objects to such assumption
on the grounds that counsel for Adil Khan cannot represent both Adil Khan and
such ALTM Indemnified Party where such representation would be reasonably
likely to result in a conflict of interest or because there may be defenses
available to such ALTM Indemnified Party that are not available to Adil Khan,
(b) Adil Khan is not capable (by reason of disability, death, insufficient
financial capacity, bankruptcy, receivership, liquidation, managerial
deadlock, managerial neglect or similar events) of maintaining a reasonable
defense of such action or proceeding, or (c) the action or proceeding seeks
injunctive or other equitable relief against such ALTM Indemnified Party. If
Adil Khan defends against an Asserted Liability involving a third-party claim,
he shall do so vigorously and in good faith at his own expense and shall not
be responsible for the costs of defense, investigative costs, attorney's fees
or other expenses incurred by the ALTM Indemnified Party to defend such
Asserted Liability involving the third-party claim (as such ALTM Indemnified
Party may continue to defend using separate counsel, at his, her or its own
expense). If the ALTM Indemnified Party assumes the defense of an Asserted
Liability involving a third-party claim because Adil Khan has not elected to
assume the defense, then he, she or it shall do so vigorously and in good
faith and Adil Khan shall indemnify the ALTM Indemnified Party for his, her or
its legal fees only to the extent that such legal fees are established as an
ALTM Established Loss; provided, however, that Adil Khan shall not be liable
for the legal fees of more than one (1) legal counsel for any and all ALTM
Indemnified Parties in any one (1) jurisdiction nothwithstanding the
possibility that such legal fees may be included in the ALTM Established
Loss(es). An ALTM Indemnifed Party and Adil Khan may only settle or otherwise
resolve without litigation any Asserted Liability involving a third-party
claim with the consent of the other party, which consent shall not be
unreasonably withheld.
(e) Third-Party Claims. The parties shall cooperate with
each other with respect to the defense of any claims or litigation made or
commenced by third-parties subsequent to the First Closing Date whether or not
indemnification is available (for any reason) under this Section 9.6;
provided, however, that the party requesting cooperation shall reimburse the
other party for the other party's reasonable out-of-pocket costs and expenses
of furnishing such cooperation.
(f) Indemnification Based Upon Net Losses. In addition to
the Deductible and the Cap limitations on indemnification, the duty and
obligation of Adil Khan to provide indemnification for ALTM Established Losses
hereunder shall be limited to the net amount of any Loss(es) actually
sustained or paid. In determining the amount of any ALTM Established
Loss(es), the actual amount of Loss(es) shall be the amount in excess of any
insurance coverage and shall be reduced by the aggregate value of any assets,
properties and rights, including, without limitation, proceeds of insurance,
claims, cross-claims, counterclaims and the like which are received or
reasonably expected to be received by any ALTM Indemnified Party and the Tax
benefits realized or reasonably expected to be realized by such party as a
direct result of the Loss(es). In such connection, an ALTM Indemnified Party
shall use its commercially reasonable efforts to pursue, and shall fully
cooperate with Adil Khan in pursuing by all appropriate action, any and all
amounts which reasonably may be available from any third party. In addition,
in determining the ALTM Established Loss(es) for which indemnification is
required, the amount of indemnification shall be increased to include any Tax
liability incurred or reasonably expected to be incurred by a party as a
direct result of such indemnification. If any Tax benefit expected to be
realized is in fact not realized, or any Tax liability expected to be incurred
is not in fact incurred, then an adjustment shall be made promptly to
compensate the disadvantaged party.
9.7 Appointments of Adil Khan. New ALTM shall take such steps as are
necessary to cause Adil Khan (or appointee of Adil Khan) to have been duly
appointed and qualified as the sole director of Hencie to serve as the sole
member of the Board of Directors of Hencie and as the Chief Executive Officer
of Hencie to serve as the Chief Executive Officer of Hencie, each for as long
as Adil Khan shall continue to be employed by New ALTM pursuant to the Khan
Employment Agreement or any successor employment agreement thereto.
9.8 Confirmation of Payment of IRS Obligation. Hencie shall take
such steps as are necessary to provide, or cause to be provided to, New ALTM
confirmation that any and all amounts owed by Hencie to the Internal Revenue
Service in connection with the IRS Obligation have been paid.
ARTICLE X
SURVIVAL
The agreements, representations, warranties and covenants of Hencie, the
Stockholders and each of the ALTM Companies made in this Agreement shall
survive the First Closing for a period of two (2) years, except for (a) this
Article X and (b) those agreements, representations, warranties, covenants and
other provisions contained herein (i) that by their terms apply or are to be
performed in whole or in part before the Second Closing Date and (ii) which
shall be governed by the terms of survival set forth in the applicable
Section(s) of this Agreement with respect to such agreements, representations,
warranties, covenants and other provisions.
ARTICLE XI
MISCELLANEOUS
11.1 Expenses. Except as otherwise specifically provided for herein,
whether or not the transactions contemplated hereby are consummated, each of
the parties hereto shall bear all fees and expenses relating to or arising
from his, her or its compliance with the various provisions of this Agreement
and such party's covenants to be performed hereunder, and except as otherwise
specifically provided for herein, each of the parties hereto agrees to pay all
of his, her or its own expenses (including, without limitation, attorneys and
accountants' fees and printing expenses) incurred in connection with this
Agreement, the transactions contemplated hereby, the negotiations leading to
the same and the preparations made for carrying the same into effect, and, to
the extent practical, all such fees and expenses of the parties hereto shall
be paid prior to First Closing. Notwithstanding the foregoing, the prevailing
party in an arbitration conducted pursuant to Section 9.6 shall be entitled to
recovery of his, her or its attorney's fees incurred in connection with such
arbitration in accordance with Section 9.6.
11.2 Notices. Any notice, request, instruction or other document
required by the terms of this Agreement, or deemed by any of the parties
hereto to be desirable, to be given to any other party hereto shall be in
writing and shall be given by prepaid telex or telecopy or delivered or mailed
by certified mail, postage prepaid, with return receipt requested, to the
following addresses:
If to any of the Alternate Marketing Networks, Inc
ALTM Companies: One Ionia, S.W., Suite 520
Grand Rapids, Michigan 49503
With a copy prior to Janna R. Severance
First Closing to: Moss & Barnett, PA
4800 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4129
With a copy after Greg R. Samuel, Esq.
First Closing to: Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
If to Hencie or Adil Khan: Hencie, Inc.
13155 Noel Road, Suite 1001
Dallas, Texas 75240
With a copy to: Greg R. Samuel, Esq.
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
If to any Stockholder: To the address set forth below such
Stockholder's name on the Signature
Page(s) hereto.
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by delivery in
accordance with the provisions of this Section, said notice shall be
conclusively deemed given at the time of such delivery. If notice is given by
mail in accordance with the provisions of this Section, such notice shall be
conclusively deemed given upon the second Business Day following deposit
thereof in the United States mail. If notice is given by telex or telecopy in
accordance with the provisions of this Section, such notice shall be
conclusively deemed given upon receipt.
11.3 Entire Agreement. This Agreement (together with the Schedule(s)
and Exhibits hereto), the Related Agreements, the other documents delivered
pursuant hereto and referenced herein set forth the entire agreement and
understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersede all other prior agreements, arrangements
and understandings related to the subject matter hereof. This Agreement
supersedes in its entirety that certain Agreement and Plan of Reorganization,
dated as of April 9, 2002, by and among the parties hereto, and that certain
Letter of Intent, accepted as of January 24, 2002, by and among certain of the
parties hereto, as amended, that certain Agreement and Plan of Reorganization,
dated as of April 9, 2002, by and among the parties hereto, and that certain
letter, dated as of April 22, 2002, by and among ALTM, Hencie, and Adil Khan.
No understanding, promise, inducement, statement of intention, representation,
warranty, covenant or condition, written or oral, express or implied, whether
by statute or otherwise, has been made by any party hereto with respect to the
subject matter hereof which is not embodied in this Agreement or in connection
with the transactions contemplated hereby, and no party hereto shall be bound
by or liable for any alleged understanding, promise, inducement, statement,
representation, warranty, covenant or condition not so set forth with respect
to the subject matter hereof.
11.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.5 Incorporated by Reference. The Disclosure Schedules are
incorporated as a part of this Agreement by reference.
11.6 Number and Gender of Words. When the context so requires in
this Agreement, words of any gender shall include either or both of the other
genders and the singular number shall include the plural.
11.7 Execution of Additional Documents. Each party hereto shall
make, execute, acknowledge and deliver such other instruments and documents,
and take all such other actions as may be reasonably required in order to
effectuate the purposes of this Agreement and to consummate the transactions
contemplated hereby.
11.8 Finders' and Related Fees. Each of the parties hereto is
responsible for, and shall indemnify the other parties against, any claim by
any third party to a fee, commission, bonus or other remuneration arising by
reason of any services alleged to have been rendered to or at the instance of
said party to this Agreement with respect to this Agreement or to any of the
transactions contemplated hereby. For purposes of clarification, it is agreed
by the parties that all fees and expenses relating to any of the transactions
contemplated hereby that may be incurred by ALTM prior to the First Closing
Date shall be paid and/or reimbursed by ALTM.
11.9 Interpretation. References to "Sections" herein are references
to sections of this Agreement. The words "herein," "hereof," "hereto" and
"hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
11.10 No Third Party Beneficiary, Etc. Except as otherwise expressly
provided for herein, there shall be no third party beneficiary of this
Agreement and this Agreement shall not inure to the benefit of, be enforceable
by, or create any right or cause of action in any Person other than the
parties hereto and their heirs, executors, administrators, legal
representatives, successors and permitted assigns. Neither the availability
of, nor any limit on, any remedy hereunder shall limit the remedies of any
party hereto against third parties except as provided in Article X.
11.11 Reformation. In case any provision hereof shall be invalid,
illegal or unenforceable, such provision shall be reformed to best effectuate
the intent of the parties and permit enforcement thereof, and the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
11.12 Binding Effect and Assignment. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective
heirs, executors, administrators, legal representatives and permitted assigns.
This Agreement, and the rights and obligations created hereunder, may not be
transferred or assigned by any party without the prior consent of the other
parties.
11.13 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement shall be issued, if at all, at such
time and in such manner as ALTM determines; provided, however, that Hencie
shall be given a copy in advance of such proposed press release. Unless
consented to by ALTM in advance or required by legal requirements, prior to
the First Closing, Hencie shall keep this Agreement strictly confidential and
may not make any disclosure of this Agreement to any Person.
11.14 Confidentiality. Between the date of this Agreement and for the
three-year period following (i) the termination of this Agreement pursuant to
Article VIII or (ii) the Second Closing Date, each of the Corporate Parties
shall maintain in confidence, and shall cause their respective directors,
officers, employees, agents and advisors (the "Representatives") to maintain
in confidence, any written, oral, electronic, or other information of every
kind, including all analyses, compilations, forecasts, studies or other
documents prepared by a receiving party that contain or in any way reflect
such information that has been or may be furnished by any such party or its
Representatives obtained in confidence (collectively the "Confidential
Information") from another party to this Agreement (the "Disclosing Party"),
and shall not use, and shall cause their respective Representatives not to
use, any such information except for the purpose of this Agreement or in
connection with any Proceedings between any of the parties, unless (a)such
information is already known to such party and such party is not bound by a
duty of confidentiality or such information becomes publicly available through
no fault of such party, (b) the use of such information is necessary in making
any release, report, filing (including filings with the SEC or, if required by
applicable law, release required by the Nasdaq Stock Market) or obtaining any
consent or approval required for the consummation of the transactions
contemplated by the Agreement, or (c) the furnishing or use of such
information is required by Proceedings. Each party shall only reveal
Confidential Information of the Disclosing Party to the receiving party's
Representatives (a) who reasonably need to have the Confidential Information
for purposes of evaluating the potential transactions contemplated hereby and
(b) who are aware of the confidential nature of the Confidential Information
and of this Section 11.14. Each Corporate Party shall cause its
Representatives to observe the restrictions of this Section 11.14 and shall be
responsible and liable for any Breach of this Section 11.14 by its
Representatives. If this Agreement is terminated for any reason, each party
must promptly return to the Disclosing Party all Confidential Information
obtained from the Disclosing Party that is by nature returnable, and each
receiving party shall thereafter continue to comply with its obligations under
this Section 11.14.
11.15 Time of the Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
11.16 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
11.17 Applicable Law. This Agreement is made pursuant to, shall be
construed under, and shall be conclusively deemed for all purposes to have
been executed and delivered under the laws of the State of Delaware without
reference to conflicts of laws.
11.18 Forbearance; Waiver. Forbearance or failure to pursue any legal
or equitable remedy or right available to a party upon default under, or upon
a Breach of, this Agreement shall not constitute waiver of such right, nor
shall any such forbearance, failure or actual waiver imply or constitute
waiver of a subsequent default or Breach.
11.19 Remedies. All rights and remedies under this Agreement are
cumulative, not exclusive, and shall be in addition to all rights and remedies
available to either party at law or in equity.
11.20 Amendment of Agreement.
(a) Except as limited by the provisions of Sections 11.20(b),
this Agreement may only be amended or modified by written instrument duly
executed by each of the parties hereto in accordance with the MBCA and DGCL;
provided, however, that, notwithstanding the foregoing and except as limited
by the provisions of Section 11.20(b), any and all provisions of this
Agreement regarding the Combination and the merger of Combination Sub with and
into Hencie may be amended or modified by written instrument duly executed by
each of the Corporate Parties in accordance with the MBCA and DGCL.
(b) No amendment or modification of this Agreement or any
provision hereof pursuant to Section 11.20(a) shall disqualify the
transactions contemplated by this Agreement as or otherwise cause the
transactions contemplated by this Agreement to constitute anything other than
a "tax free" reorganization as contemplated by the provisions of the Code.
11.21 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Remainder of Page Intentionally Left Blank.
Signature Page(s) To Follow.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Agreement and Plan of Reorganization, effective as of the date first
above written.
ALTERNATE MARKETING NETWORKS, INC.,
a Michigan corporation
By: /s/ Phillip D. Miller
Name: Phillip D. Miller
Title: Chief Executive Officer
ALTERNATE MARKETING NETWORKS, INC.,
a Delaware corporation
By: /s/ Phillip D. Miller
Name: Phillip D. Miller
Title: Chief Executive Officer
ALTM COMBINATION CO.,
a Delaware corporation
By: /s/ Phillip D. Miller
Name: Phillip D. Miller
Title: Chief Executive Officer
HENCIE, INC., a Delaware corporation
By: /s/ Adil Khan
Name: Adil Khan
Title: Chief Executive Officer
/s/ Adil Khan
Adil Khan
STOCKHOLDERS:
K2 VC, Ltd., a Texas limited partnership
By: K2 VC Management, LLC, its General
Partner
By: /s/ Adil Khan
Name: Adil Khan
Title: President
Address: 3913 Cornwall Street
Plano, TX 75093
HENCIE INTERNATIONAL, INC.,
a Texas corporation
By: /s/ M. Anwar Fatehdin
Name: M. Anwar Fatehdin
Title: President
Address: 17304 Calla Drive
Dallas, TX 75252
LONE STAR STEEL COMPANY,
a Delaware corporation
By: /s/ Steven L. Jaggers
Name: Steven L. Jaggers
Title: Vice President - Finance and
Information Technology
Address: P.O. Box 1000
Highway 259 South
Lone Star, TX 75668
/s/ David Bender
Name: David Bender
Address: 1425 Balcones
Plano, TX 75093
/s/ David Bevins
Name: David Bevins
Address: 6912 Taylor Lane
Wylie, TX 75098
/s/ Jamal Rabani
Name: Jamal Rabani
Address: 4423 Bush Circle
Fremont, CA 94538
/s/ Randall Reiners
Name: Randall Reiners
Address: 4701 Charles Place
Apt. 1313
Plano, TX 75093
/s/ Richard Salpeter
Name: Richard Salpeter
Address: 3 Grove Isle Drive
Coconut Grove, FL 33133
SCHEDULE A
Stockholders' Ownership Information
APPENDIX B
FAIRNESS OPINION OF CAPITALINK, L.C.
May 29, 2002
Board of Directors
Alternate Marketing Networks, Inc.
One Ionia, SW
Suite 520
Grand Rapids, MI 49503
Gentlemen:
We have been advised that, pursuant to (a) an agreement dated as of April 9,
2002, by and among Alternate Marketing Networks, Inc., a Michigan corporation
(the "Company"), Hencie, Inc. ("Hencie"), Alternate Marketing Networks, Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company ("New
ALTM"), ALTM Combination Co., a wholly-owned subsidiary of the Company, Adil
Khan and certain other shareholders of Hencie, and (b) the draft amended and
restated agreement by and among the same parties (the "Transaction
Agreements"), among other things, (i) shares of the Company's common stock
will be converted automatically to the same number of shares of New ALTM, and
(ii) New ALTM shall issue one share of New ALTM common stock for every 3.563
shares of Hencie common stock, subject to adjustment under certain
circumstances as provided in the Transaction Agreements (the "Common Stock
Exchange Ratio") (the "Proposed Transaction"). We have been retained to
render an opinion as to whether, on the date of such opinion, the Common Stock
Exchange Ratio is fair, from a financial point of view, to the shareholders of
the Company.
We have not been requested to opine as to, and our opinion does not in any
manner address, the underlying business decision of the Company to proceed
with or affect the Proposed Transaction. In addition, we have not been
requested to explore any alternatives to the Proposed Transaction.
In arriving at our opinion, we took into account the assessment of general
economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuations generally and,
among other things, reviewed documents relating to the Proposed Transaction,
including the Transaction Agreements, and the draft preliminary proxy
statement on Schedule 14A. In addition, we (i) reviewed publicly available
financial information and other data with respect to the Company, including
the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001,
(ii) reviewed the Company's report on Form 10-QSB for the quarterly period
ended March 31, 2002, (iii) reviewed information and data with respect to
Hencie, including the Annual Report for the period ending December 31, 2001,
Hencie's draft audited financial statement for the years ended December 31,
2001 and 2000, the Business Plan dated December 31, 2001, and the Business
Review dated March 1, 2002, (iv) reviewed Hencie's financial information for
the quarterly period ended March 31, 2002, (v) reviewed and analyzed certain
financial characteristics of companies that were deemed to have
characteristics comparable to those of the Company or those of Hencie, (vi)
reviewed and analyzed certain financial terms of transactions involving target
companies deemed to have characteristics comparable to the Company or Hencie,
(vii) reviewed and discussed with representatives of the management of the
Company and Hencie certain financial and operating information furnished by
them, including financial analyses and projections and related assumptions
with respect to the business, operations and prospects of the Company or
Hencie, (viii) considered the historical financial results and present
financial condition of the Company and Hencie, (ix) reviewed certain publicly
available information concerning the trading of, and the trading market for,
the common stock of the Company and companies deemed comparable to the
Company, (x) reviewed and analyzed the relative financial contributions of
ALTM and Hencie, (xi) reviewed and analyzed potential pro forma financial
effects of the Proposed Transaction on the Company's earnings per share (xii)
inquired about and discussed the Proposed Transaction and other matters
related thereto with Company management, Company legal counsel and Hencie
management, and (xiii) performed such other analyses and examinations as were
deemed appropriate.
In arriving at our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was used
without assuming any responsibility for any independent verification of any
such information and have further relied upon the assurances of the Company
and Hencie management that they are not aware of any facts or circumstances
that would make any such information inaccurate or misleading. With respect
to the financial projections utilized, we assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments, and that such projections provide a reasonable basis
upon which we could form an opinion. In arriving at our opinion, we did not
make a physical inspection of the properties and facilities of the Company or
Hencie, and we have not made or obtained any evaluations or appraisals of the
assets and liabilities (contingent or otherwise) of the Company or Hencie. We
assumed that the Proposed Transaction will be consummated in a manner that
complies in all respects with the applicable provisions of the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all
other applicable federal and state statues, rules and regulations. In
addition, based upon discussions with the Company, it is assumed that the
Proposed Transaction will not be a taxable event to the Company's
shareholders. We have also assumed, with your consent, that the Proposed
Transaction will be consummated in accordance with the terms described in the
Transaction Agreements, without any further amendments thereto, and without
waiver by the Company of any of the conditions to any obligations thereunder
or that any such revisions or waivers thereto will not be detrimental to the
Company's shareholders.
Our opinion is necessarily based upon market, economic and other conditions as
they existed on, and could be evaluated as of, May 29, 2002. Accordingly,
although subsequent developments may affect our opinion, we have not assumed
any obligation to update, review or reaffirm our opinion.
Our opinion is for the use and benefit of the Board of Directors in connection
with its consideration of the Proposed Transaction and is not intended to be
and does not constitute a recommendation to any shareholder of the Company as
to how such shareholder should vote with respect to the Proposed Transaction.
We do not express any opinion as to the underlying valuation or future
performance of the Company or New ALTM or the price at which the Company or
New ALTM common stock would trade at any time in the future.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Common Stock Exchange Ratio is fair to the Company's
shareholders from a financial point of view.
In connection with our services, we have previously received a retainer and
will receive the balance of our fee upon the rendering of this opinion. In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering this opinion. Richard Salpeter, the father of
Scott Salpeter, a principal of Capitalink, is retained by Hencie and is the
beneficial owner of shares of Hencie common stock (which will be exchanged for
shares of New ALTM common stock pursuant to the Common Stock Exchange Ratio).
Further, Richard Salpeter will receive a fee in connection with the closing of
the Proposed Transaction. Scott Salpeter disclaims ownership interest in both
such shares of Hencie common stock and such fee to be received by Richard
Salpeter.
Our opinion is for the use and benefit of the Board of Directors and is
rendered to the Board of Directors in connection with its consideration of the
Proposed Transaction and may not be used by the Company for any other purpose
or reproduced, disseminated, quoted or referred to by the Company at any time,
in any manner or for any purpose, without the prior written consent of
Capitalink, except that this opinion may be reproduced in full in, and
references to the opinion and to Capitalink and its relationship with the
Company may be included in, any proxy materials, registration statements or
other materials relating to the Proposed Transaction that the Company files
with the U.S. Securities and Exchange Commission.
Very truly yours,
CAPITALINK, L.C.
APPENDIX C
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ALTERNATE MARKETING NETWORKS, INC.
This Amended and Restated Certificate of Incorporation has been duly
adopted by Alternate Marketing Networks, Inc. (the "Corporation"), in
accordance with Sections 242 and 245 of the General Corporation Law of the
State of Delaware (the "DGCL"). The date of filing of the original
certificate of incorporation of the Corporation was April 8, 2002.
ARTICLE I
NAME
The name of the Corporation is Alternate Marketing Networks, Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Delaware is 1201 N. Market St., 18th Floor, P.O. Box 1347 (19899), Wilmington,
County of New Castle, Delaware 19801, and the name of the registered agent of
the Corporation at such address is Delaware Corporation Organizers, Inc.
ARTICLE III
PURPOSE AND DURATION OF EXISTENCE
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the DGCL and the Corporation is
to have perpetual existence.
ARTICLE IV
AUTHORIZATION AND DESCRIPTION OF STOCK
4.1 Authorization of Stock. The total number of shares of all classes
of stock which the Corporation shall have authority to issue is 55,000,000
shares of stock, which shall consist of (a) 50,000,000 shares of common stock,
par value $0.01 per share ("Common Stock") and (b) 5,000,000 shares of
preferred stock, par value $0.01 per share ("Preferred Stock").
Unless otherwise provided in any resolution(s) adopted by the board of
directors of the Corporation (the "Board of Directors") pursuant to Section
4.3 (Description of Preferred Stock) which provide(s) for any series of
Preferred Stock, the number of authorized shares of Common Stock or Preferred
Stock may be increased or decreased (but not below the number of shares of
Common Stock or Preferred Stock then outstanding) by the affirmative vote of
the holders of a majority of the shares of Common Stock, irrespective of the
provisions of Section 242(b)(2) of the DGCL (or any successor provision
thereto) and without a vote, including, without limitation, a separate class
or series vote, of the holders of any Preferred Stock or series of Preferred
Stock, unless a vote, including, without limitation, a separate class or
series vote, of any such holders is required pursuant to this Amended and
Restated Certificate of Incorporation (this "Certificate of Incorporation"),
the resolution(s) providing for such Preferred Stock or series of Preferred
Stock, or any provision of the DGCL, other than the provisions of Section
242(b)(2) (or any successor thereto).
4.2 Description of Common Stock.
(a) Voting Powers and Rights. Except as otherwise required by
applicable law or provided by this Certificate of Incorporation, each holder
of Common Stock, as such, shall be entitled to one (1) vote for each share of
Common Stock held of record by such holder on any and all matters on which
stockholders of the Corporation shall be entitled to vote, including, without
limitation, the election of directors of the Corporation; provided, however,
that, except as otherwise required by applicable law, the holders of Common
Stock, as such, shall not be entitled to vote on any amendment to this
Certificate of Incorporation (including, without limitation, any
certificate(s) of designations that relate(s) to any series of Preferred
Stock) that affects the terms of one (1) or more outstanding series of
Preferred Stock if the holders of such affected series are entitled, either
separately or together with the holders of one (1) or more other such series,
to vote on such amendment pursuant to this Certificate of Incorporation
(including, without limitation, any certificate(s) of designations providing
for any series of Preferred Stock) or pursuant to the DGCL. The holders of
Common Stock shall not have cumulative voting rights.
(b) Dividends. Subject to applicable law and the preferences and
relative, participating, optional, or other special rights, if any, and the
qualifications, limitations, or restrictions thereof, if any, of the holders
of any outstanding Preferred Stock and any other shares of stock of the
Corporation with respect to the payment of dividends, dividends may be
declared and paid on the Common Stock at such times and in such amounts as and
if the Board of Directors in its discretion shall determine. The holders of
Common Stock, as such, shall be entitled to share in any such dividend(s)
ratably in proportion to the number of shares of Common Stock held by each
such holder.
(c) Liquidation. Upon any liquidation, dissolution, or winding up
of the Corporation, subject to applicable law and the preferences and
relative, participating, optional, or other special rights, if any, and the
qualifications, limitations, or restrictions thereof, if any, of the holders
of any outstanding Preferred Stock and any other shares of stock of the
Corporation with respect to the distribution of assets of the Corporation upon
such liquidation, dissolution, or winding up of the Corporation, the holders
of Common Stock, as such, shall be entitled to receive the assets of the
Corporation available for distribution to the stockholders of the Corporation
ratably in proportion to the number of shares of Common Stock held by each
such holder.
Neither the merger or consolidation of the Corporation with or into
another corporation or other corporations, the sale or transfer by the
Corporation of any or all of the assets of the Corporation, nor the reduction
of the stock of the Corporation, shall be deemed to be a liquidation,
dissolution, or winding up of the Corporation for purposes of this Section
4.2(c) (Liquidation).
4.3 Description of Preferred Stock.
(a) Series of Preferred Stock. The Board of Directors is hereby
expressly authorized to provide, by resolution(s), out of the unissued shares
of Preferred Stock, for series of Preferred Stock and, with respect to each
such series, to fix the number of shares to be included in such series, the
voting powers, if any, of the shares of such series, and the preferences and
relative, participating, optional, or other special rights, if any, and the
qualifications, limitations, or restrictions thereof, if any, of such series;
and, in connection with the foregoing, to file a certificate of designations
in accordance with the DGCL. The powers, preferences, and relative,
participating, optional, and other special rights, if any, and the
qualifications, limitations, or restrictions thereof, if any, of each series
of Preferred Stock, may differ from those of any and all other series of
Preferred Stock at any time outstanding.
(b) Increases and Decreases in Series of Preferred Stock. Unless
otherwise provided in any resolution(s) adopted by the Board of Directors
which provide(s) for any series of Preferred Stock, the Board of Directors may
(i) increase the number of shares (but not above the number of authorized
shares of Preferred Stock) of any such series of Preferred Stock to which such
resolution(s) apply by resolution(s) adopted by the Board of Directors which
add(s) authorized and unissued shares of Preferred Stock not designated for
any other series of Preferred Stock to such series of Preferred Stock or (ii)
decrease the number of shares (but not below the number of shares of the class
of Preferred Stock then outstanding) of any such series of Preferred Stock to
which such resolution(s) apply by resolution(s) adopted by the Board of
Directors which subtract(s) unissued shares of such series of Preferred Stock
designated for such series of Preferred Stock; and, in connection with the
foregoing, file a certificate of designations in accordance with the DGCL. In
case the number of shares of any series of Preferred Stock shall be decreased
pursuant to this Section 4.3(b) (Increases and Decreases in Series of
Preferred Stock), the number of shares so subtracted from any such series of
Preferred Stock in the certificate(s) of designations shall become authorized,
unissued, and undesignated shares of Preferred Stock.
ARTICLE V
BOARD OF DIRECTORS
5.1 Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, except as
otherwise provided by applicable law or this Certificate of Incorporation,
which may exercise all powers of the Corporation and perform all such lawful
acts and do all such lawful things that are not, by applicable law or this
Certificate of Incorporation, directed or required to be exercised, performed,
or done by the stockholders of the Corporation.
5.2 Number. Except as otherwise provided by or fixed pursuant to the
provisions of Section 4.3 (Description of Preferred Stock) with respect to the
right(s) of holders of any Preferred Stock or series of Preferred Stock to
elect any additional director(s), the number of directors which shall
constitute the "whole" (as defined below) Board of Directors shall be not less
than five (5) and shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by the Board of Directors. For
purposes of this Section 5.2 (Number), "whole" shall mean the total number of
authorized directors, whether or not there exist any vacancies on the Board of
Directors or unfilled previously authorized directorships, at the time such
resolution is presented to the Board of Directors for adoption.
5.3 Staggered Board and Election. Except as otherwise provided by or
fixed pursuant to the provisions of Section 4.3 (Description of Preferred
Stock) of this Certificate of Incorporation with respect to the right(s) of
holders of any Preferred Stock or series of Preferred Stock to elect any
additional director(s), the directors shall be divided into three (3) classes,
designated as Class I, Class II, and Class III (which at all times shall be as
nearly equal in number as possible), with the term of office of Class I
directors to expire at the 2003 Annual Meeting of Stockholders, the term of
office of Class II directors to expire at the 2004 Annual Meeting of
Stockholders, and the term of office of Class III directors to expire at the
2005 Annual Meeting of Stockholders, upon election and qualification of their
successors. At each annual meeting of stockholders after such classification
and election, directors elected to succeed those directors whose terms shall
have expired shall be elected for a full term of office, as applicable, to
expire at the third ensuing annual meeting of stockholders after their
election, upon election and qualification of their successors. The directors
of the Corporation, except for any director(s) who may be elected as otherwise
provided by or fixed pursuant to the provisions of Section 4.3 (Description of
Preferred Stock) of this Certificate of Incorporation with respect to the
right(s) of holders of any Preferred Stock or series of Preferred Stock to
elect any additional director(s), shall be elected in accordance with this
Section 5.3 (Staggered Board and Election) by the stockholders of the
Corporation entitled to vote thereon at each annual meeting of stockholders.
5.4 Removal. Subject to the right of the holders of any Preferred Stock
or series of Preferred Stock then outstanding, any director, or the entire
Board of Directors, may be removed from office at any time, but only for
"cause" (as defined below) and only by the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66 2/3) of the voting power of the
Voting Stock (as defined below), voting together as a single class. Except as
may otherwise be provided by law, "cause" for removal shall exist only if any
director whose removal has been proposed:
(a) has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal,
(b) has been adjudged by a court of competent jurisdiction to be
liable for gross negligence or misconduct in the performance of the duties of
such director to the Corporation in connection with a matter of substantial
importance to the Corporation, and such adjudication has become final and non-
appealable, or
(c) has missed six (6) consecutive meetings of the Board of
Directors.
For purposes of this Certificate of Incorporation, the term "Voting
Stock" shall mean all issued and outstanding shares of stock of the
Corporation entitled to vote generally in the election of directors or that
otherwise are entitled to vote with such stock on the specific matter in
question.
5.5 Vacancies. Subject to the rights of the holders of any Preferred
Stock or series of Preferred Stock then outstanding, any newly-created
directorship(s) resulting from any increase(s) in the authorized number of
directors or any vacancy on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office, or other
reason, shall only be filled by a majority vote of the directors then in
office, even though less than a quorum of the Board of Directors, or by a sole
remaining director, as applicable. Under no circumstances shall the
stockholders of the Corporation fill any such newly-created directorship(s) or
vacancy on the Board of Directors. Any director(s) chosen in accordance with
this Section 5.5 (Vacancies) shall hold office (a) for a term expiring at the
annual meeting of stockholders at which the term of office of the class to
which they have been elected expires, upon election and qualification of their
successors, (b) until the successor of such director shall have been otherwise
elected and qualified, (c) or until the earlier death, resignation,
retirement, disqualification, or removal from office of such director, as
applicable. No decrease in the number of authorized directors constituting
the whole Board of Directors shall shorten the term of any incumbent
director(s).
5.6 Nominations, Ballots, and Cumulative Voting. Advance notice of
nominations for the election of directors of the Corporation shall be given in
accordance with the bylaws of the Corporation (the "Bylaws"). Election of
directors need not be by written ballot unless the Bylaws shall so provide.
No holders of shares of stock of the Corporation shall have any right(s) to
cumulate votes in the election of directors of the Corporation.
5.7 Preferred Stock Directors. Notwithstanding the foregoing, whenever
the holders of any Preferred Stock or series of Preferred Stock shall be
entitled to elect any additional director(s) at an annual or special meeting
of stockholders, the election, term of office, filling of vacancies, and other
terms and features of such directorship(s) shall be governed by the terms and
features of the resolution(s) adopted pursuant to Article IV (Authorization
and Description of Stock) of this Certificate of Incorporation and applicable
thereto, and the director(s) so elected shall not be divided into classes
pursuant to this Article V (Board of Directors) unless expressly provided by
such terms and features.
5.8 Limitation of Liability. No director of the Corporation shall be
personally liable to the Corporation or the stockholders of the Corporation
for monetary damages for breach of fiduciary duty as a director, except for
the liability of a director (I) for any breach of the director's duty of
loyalty to the Corporation or the stockholders of the Corporation, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, (iv) for any
transaction from which the director derived an improper personal benefit, or
(v) for any act or omission occurring prior to the date when this Section 5.8
(Limitation of Liability) becomes effective. If the DGCL is hereafter amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation, in addition to
the limitation of personal liability provided herein, shall be limited to the
fullest extent permitted by the amended DGCL. Any repeal or modification of
this Section 5.7 (Limitation of Liability) by the stockholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation of the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
ARTICLE VI
AMENDMENT OF CERTIFICATE OF INCORPORATION
In addition to any provisions of applicable law, any other provisions of
this Certificate of Incorporation, and any resolution(s) of the Board of
Directors adopted pursuant to Article IV (Authorization and Description of
Stock) of this Certificate of Incorporation (and notwithstanding the fact that
a lesser vote or no vote may be permitted by applicable law, any other
provisions of this Certificate of Incorporation, or any resolution(s) of the
Board of Directors adopted pursuant to Article IV (Authorization and
Description of Stock) of this Certificate of Incorporation), the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of
the voting power of the Voting Stock, voting together as a single class, shall
be required to adopt any term or provision of the certificate of incorporation
of the Corporation that would make the certificate of incorporation of the
Corporation inconsistent or conflict with, amend, alter, or repeal Section 4.3
(Description of Preferred Stock), Article V (Board of Directors), this Article
VI (Amendment of Certificate of Incorporation), Article VII (Amendment of
Bylaws), Article IX (Meetings of Stockholders), or Article X (Indemnification)
of this Certificate of Incorporation.
Subject to the foregoing provisions of this Article VI (Amendment of
Certificate of Incorporation), the Corporation reserves the right to amend,
alter, change, or repeal any term or provision contained in this Certificate
of Incorporation, in any manner now or hereafter provided by applicable law,
and all rights conferred upon stockholders of the Corporation in this
Certificate of Incorporation are granted subject to this reservation.
ARTICLE VII
AMENDMENT OF BYLAWS
In furtherance, and not in limitation, of the powers conferred upon the
Corporation by applicable law, the Board of Directors is hereby expressly
authorized to adopt, amend, alter, or repeal the Bylaws or adopt new Bylaws,
without any action on the part of the stockholders of the Corporation, by the
vote of a majority of the whole Board of Directors.
In addition to any provisions of applicable law, any other provisions of
this Certificate of Incorporation, and any resolution(s) of the Board of
Directors adopted pursuant to Article IV (Authorization and Description of
Stock) of this Certificate of Incorporation (and notwithstanding the fact that
a lesser vote or no vote may be permitted by applicable law, any other
provisions of this Certificate of Incorporation, or any resolution(s) of the
Board of Directors adopted pursuant to Article IV (Authorization and
Description of Stock) of this Certificate of Incorporation), the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of
the voting power of the Voting Stock, voting together as a single class, shall
be required to adopt, amend, alter, or repeal any term or provision of the
Bylaws that would make the Bylaws inconsistent or conflict with Section 4.3
(Description of Preferred Stock), Article V (Board of Directors), Article VI
(Amendment of Certificate of Incorporation), this Article VII (Amendment of
Bylaws), Article IX (Meetings of Stockholders), or Article X (Indemnification)
of this Certificate of Incorporation.
In the event that any term or provision of the Bylaws is inconsistent, or
conflicts, with the terms or provisions of this Certificate of Incorporation,
this Certificate of Incorporation shall control.
ARTICLE VIII
RIGHTS OF STOCKHOLDERS
No holder of shares of stock of the Corporation shall have any preemptive
or other similar right, except as expressly provided by contract or by
resolution(s) adopted by the Board of Directors which create a series of
Preferred Stock, to purchase or subscribe for or receive any shares of any
class, or series thereof, of stock of the Corporation, whether now or
hereafter authorized, or any warrants, options, bonds, debentures, or other
securities convertible into, exchangeable for, or carrying any right to
purchase any shares of any class, or series thereof, of stock of the
Corporation; provided, however, that any shares of any class, or series
thereof, of stock of the Corporation and any warrants, options, bonds,
debentures, or other securities convertible into, exchangeable for, or
carrying any right to purchase any shares of any class, or series thereof, of
stock of the Corporation may be issued or disposed of by the Board of
Directors to any person or entity, and on such terms and for such lawful
consideration, as the Board of Directors, in its sole discretion, shall deem
advisable, or as to which the Corporation shall have by binding contract
agreed.
ARTICLE IX
MEETINGS OF STOCKHOLDERS
Subject to the rights of the holders of any Preferred Stock or series of
Preferred Stock then outstanding, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders. Except as otherwise
required by applicable law and subject to the rights of the holders of any
Preferred Stock or series of Preferred Stock then outstanding special meetings
of stockholders of the Corporation may be called only by the chairman of the
Board of Directors, if any, the President, if any, the Board of Directors
pursuant to a resolution adopted by a majority of the whole Board of
Directors, or holders of at least twenty-five percent (25%) of the voting
power of the Voting Stock, voting together as a single class.
ARTICLE X
INDEMNIFICATION
10.1 Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(each, a "Proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Corporation or is or was serving at the request
of the Corporation as a director, officer, or trustee of another corporation
or of a partnership, joint venture, trust, or other enterprise, including,
without limitation, service with respect to an employee benefit plan (an
"Indemnitee"), whether the basis of such Proceeding is alleged action in an
official capacity as a director, officer, or trustee or in any other capacity
while serving as a director, officer, or trustee, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the DGCL,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment), against all expense, liability, and loss
(including, without limitation, attorneys' fees, judgments, fines, Employee
Retirement Income Security Act of 1974, as amended, excise taxes, or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
Indemnitee in connection therewith; provided, however, that, except as
provided in Section 10.3 (Right of Indemnitee to Bring Suit) with respect to
Proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such Indemnitee in connection with a Proceeding (or part
thereof) initiated by such Indemnitee only if such Proceeding (or part
thereof) was authorized by the Board of Directors.
10.2 Right to Advancement of Expenses. In addition to the right to
indemnification conferred in Section 10.1 (Right to Indemnification), an
Indemnitee shall also have the right to be paid by the Corporation the
expenses (including, without limitation, attorney's fees) incurred in
defending any such Proceeding in advance of its final disposition (an
"Advancement of Expenses"); provided, however, that, if required by the DGCL,
an Advancement of Expenses incurred by an Indemnitee in his or her capacity as
a director or officer (and not in any other capacity in which service was or
is rendered by such Indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking (an "Undertaking"), by or on behalf of such Indemnitee, to
repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (a "Final
Adjudication") that such Indemnitee is not entitled to be indemnified for such
expenses under this Section 10.2 (Right to Advancement of Expenses) or
otherwise.
10.3 Right of Indemnitee to Bring Suit. If a claim under Section 10.1
(Right to Indemnification) or 10.2 (Right to Advancement of Expenses) is not
paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, except in the case of a claim for an
Advancement of Expenses, in which case the applicable period shall be twenty
(20) days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to
recover an Advancement of Expenses pursuant to the terms of an Undertaking,
the Indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the Indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
Indemnitee to enforce a right to an Advancement of Expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the Indemnitee has not met any applicable standard for
indemnification set forth in the DGCL. Neither the failure of the Corporation
(including its directors who are not parties to such action, a committee of
such directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of
the Indemnitee is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct set forth in the DGCL nor an actual
determination by the Corporation (including its directors who are not parties
to such action, a committee of such directors, independent legal counsel, or
its stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee
to enforce a right to indemnification or to an Advancement of Expenses
hereunder, or brought by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking, the burden of proving that the
Indemnitee is not entitled to be indemnified, or to such Advancement of
Expenses, under this Article X (Indemnification) or otherwise shall be on the
Corporation.
10.4 Non-Exclusivity of Rights. The rights to indemnification and to the
Advancement of Expenses conferred in this Article X (Indemnification) shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statute, the certificate of incorporation or bylaws of the
Corporation, agreement, vote of stockholders or directors, or otherwise.
10.5 Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee, or agent of the
Corporation or another corporation, partnership, joint venture, trust, or
other enterprise against any expense, liability, or loss, whether or not the
Corporation would have the power to indemnify such person or entity, as
applicable, against such expense, liability, or loss under the DGCL.
10.6 Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the Advancement of Expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article X (Indemnification) with respect to the
indemnification and Advancement of Expenses of directors and officers of the
Corporation.
10.7 Nature of Rights. The rights conferred upon any Indemnitee in this
Article X (Indemnification) shall be contract rights and such rights shall
continue as to an Indemnitee who has ceased to be a director, officer, or
trustee and shall inure to the benefit of the Indemnitee's heirs, executors,
and administrators. Any amendment, alteration, or repeal of this Article X
(Indemnification) that adversely affects any right(s) of an Indemnitee or his,
her, or its successor(s) shall be prospective only and shall not limit or
eliminate any such right with respect to any Proceeding involving any
occurrence or alleged occurrence of any action or omission to act that took
place prior to such amendment, alteration, or repeal.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, Alternate Marketing Networks, Inc. has caused this
Amended and Restated Certificate of Incorporation to be signed by Phillip D.
Miller, its Chairman of the Board of Directors, as of [__________ ___], 2002.
ALTERNATE MARKETING NETWORKS, INC.,
a Delaware corporation
By: /s/ Phillip D. Miller
Name: Phillip D. Miller
Title: Chairman of the Board of Directors
APPENDIX D
FORM OF
BYLAWS
OF
ALTERNATE MARKETING NETWORKS, INC.
ARTICLE I
OFFICE(S) AND AGENT
1.1 Registered Office and Agent. Alternate Marketing Networks, Inc., a
Delaware corporation (the "Corporation") shall have and maintain in the State
of Delaware (a) a registered office which may, but need not be, the same as
the place of business of the Corporation, and (b) a registered agent. The
Corporation may, by resolution of the board of directors of the Corporation
(the "Board of Directors"), change (a) the location of the registered office
of the Corporation in the State of Delaware to any place in the State of
Delaware and (b) the registered agent of the Corporation to any other person
or corporation, including, without limitation, the Corporation.
1.2 Other Office(s). Except as otherwise required by law, the
Corporation may have also have an office or offices, and keep the books and
records of the Corporation, at such other place or places, either within or
without the State of Delaware, as the Board of Directors may, from time to
time, determine or as the business of the Corporation may, from time to time,
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. Meetings of stockholders of the Corporation may
be held at such place, either within or without the State of Delaware, as
determined by the Board of Directors. The Board of Directors may, in its sole
discretion, determine that any meeting of stockholders of the Corporation
shall not be held at any place, but may instead be held solely by means of
remote communication pursuant to Section 211(a)(2) of the General Corporation
Law of the State of Delaware (the "DGCL").
2.2 Annual Meetings. Unless directors are elected by written consent in
lieu of an annual meeting of stockholders of the Corporation as permitted by
these bylaws of the Corporation (as adopted and including, without limitation,
any and all subsequent amendment(s) or successor(s) thereto, these "Bylaws"),
annual meetings of stockholders of the Corporation shall be held for the
election of directors and for the transaction of such other business as may
properly come before such meetings on such date and at such time as the Board
of Directors shall, from time to time, determine. Any previously scheduled
annual meeting of stockholders of the Corporation may be postponed by the
Board of Directors prior to the time previously scheduled for such meeting.
2.3 Special Meetings. Except as otherwise required by applicable law or
the certificate of incorporation of the Corporation (as filed with the
Secretary of State of the State of Delaware and including, without limitation,
any and all subsequent amendment(s) or successor(s) thereto, the "Certificate
of Incorporation") and subject to the rights of the holders of any preferred
stock of the Corporation ("Preferred Stock") or series of Preferred Stock then
outstanding, special meetings of stockholders of the Corporation may be called
only by the chairman of the Board of Directors (the "Chairman"), if any, the
president of the Corporation (the "President"), if any, the Board of Directors
pursuant to a resolution adopted by a majority of the whole (as defined below)
Board of Directors, or holders of at least twenty-five percent (25%) of the
voting power of the Voting Stock (as defined below), voting together as a
single class. Only such business as is specified in the notice of any special
meeting of stockholders of the Corporation shall come before such meeting.
For purposes of these Bylaws, "whole" shall mean the total number of
authorized directors, whether or not there exist any vacancies on the Board of
Directors or unfilled previously authorized directorships, at the time such
resolution is presented to the Board of Directors for adoption. For purposes
of these Bylaws, the term "Voting Stock" shall mean all issued and outstanding
shares of stock of the Corporation entitled to vote generally in the election
of directors or that otherwise are entitled to vote with such stock on the
specific matter in question.
2.4 Notice of Meetings. Except as otherwise provided by law, notice of
each meeting of stockholders of the Corporation, whether annual or special,
shall be given not less than ten (10) days nor more than sixty (60) days
before the date of the meeting to each stockholder of record entitled to
notice of the meeting. If mailed, such notice shall be deemed given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date, and hour of the
meeting, and, in the case of any special meeting, the purpose(s) for which the
meeting is called; provided further, that, if the Corporation shall maintain
the list of stockholders entitled to vote at the meeting at a place other than
where the meeting shall take place, such notice shall specify where the
Corporation shall maintain the list. Notice of any meeting of stockholders of
the Corporation shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy without protesting, prior to or at
the commencement of the meeting, the lack of proper notice to such
stockholder, or who shall waive notice thereof as provided in Section 9.2 of
these Bylaws. Notice of adjournment of a meeting of stockholders need not be
given if the time and place to which it is adjourned are announced at such
meeting, unless the adjournment is for more than thirty (30) days or, after
adjournment, a new record date is fixed for the adjourned meeting.
2.5 Quorum. Except as otherwise provided by law or by the Certificate
of Incorporation, the holders of a majority of the votes entitled to be cast
by the stockholders entitled to vote generally, present in person or by proxy,
shall constitute a quorum at any meeting of the stockholders; provided,
however, that in the case of any vote to be taken by classes or series, the
holders of a majority of the votes entitled to be cast by the stockholders of
a particular class or series, present in person or by proxy, shall constitute
a quorum of such class or series.
2.6 Adjournment of Meetings. The chairman of the meeting or the holders
of a majority of the votes entitled to be cast by the stockholders who are
present in person or by proxy may adjourn the meeting from time to time
whether or not a quorum is present. In the event that a quorum does not exist
with respect to any vote to be taken by a particular class or series, the
chairman of the meeting or the holders of a majority of the votes entitled to
be cast by the stockholders of such class or series who are present in person
or by proxy may adjourn the meeting with respect to the votes to be taken by
such class or series. At any such adjourned meeting at which a quorum may be
present, any business may be transacted which may have been transacted at the
meeting as originally called.
2.7 Order of Business. The chairman of any meeting of stockholders of
the Corporation shall determine the order of business and the procedure at the
meeting, including, without limitation, such regulations of the manner of
voting and the conduct of discussion as he or she deems in order.
At each meeting of stockholders of the Corporation, the Chairman or, in
the absence of the Chairman, the Chief Executive Officer or, in the absence of
the Chairman and the Chief Executive Officer, such person as shall be selected
by the Board of Directors shall act as chairman of the meeting. The order of
business at each such meeting shall be as determined by the chairman of the
meeting. The chairman of the meeting shall have the right and authority to
prescribe such rules, regulations, and procedures and to do all such acts and
things as are necessary or desirable for the proper conduct of the meeting,
including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the Corporation, restrictions on entry to such
meeting after the time prescribed for the commencement thereof, and the
opening and closing of the voting polls.
At any annual meeting of stockholders of the Corporation, only such
business shall be conducted as shall have been brought before such annual
meeting (i) by or at the direction of the chairman of the meeting or (ii) by
any stockholder who is a holder of record at the time of the giving of the
notice provided for in this Section 2.7, who is entitled to vote at the
meeting and who complies with the procedures set forth in this Section 2.7.
For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the secretary of the Corporation (the "Secretary"). To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than ninety (90)
days nor more than one hundred twenty (120) days prior to the first
anniversary of the date of the immediately preceding annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
thirty (30) days earlier or more than sixty (60) days later than such
anniversary date, notice by the stockholder to be timely must be so delivered
or received not earlier than the one hundred twentieth (120th) day prior to
such annual meeting and not later than the close of business on the later of
the ninetieth (90th) day prior to such annual meeting or the tenth (l0th) day
following the day on which public announcement (as defined below) of the date
of such meeting is first made. To be in proper written form, a stockholder's
notice to the Secretary shall set forth in writing as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business, and (v) if the
stockholder intends to solicit proxies in support of such stockholder's
proposal, a representation to that effect. The foregoing notice requirements
shall be deemed satisfied by a stockholder if the stockholder has notified the
Corporation of his, her, or its intention to present a proposal at an annual
meeting and such stockholder's proposal has been included in a proxy statement
that has been prepared by management of the Corporation to solicit proxies for
such annual meeting; provided, however, that if such stockholder does not
appear or send a qualified representative to present such proposal at such
annual meeting, the Corporation need not present such proposal for a vote at
such meeting, notwithstanding that proxies in respect of such vote may have
been received by the Corporation. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 2.7. The chairman of
an annual meeting may refuse to permit any business to be brought before an
annual meeting which fails to comply with the foregoing procedures or, in the
case of a stockholder proposal, if the stockholder solicits proxies in support
of such stockholder's proposal without having made the representation required
by clause (v) of the third preceding sentence.
2.8 List of Stockholders. It shall be the duty of the Secretary or
other officer who has charge of the stock ledger to prepare and make, at least
ten (10) days before each meeting of stockholders of the Corporation, a
complete list of the stockholders of the Corporation entitled to vote thereat,
arranged in alphabetical order, and showing the address of each such
stockholder and the number of shares registered in such stockholder's name.
Such list shall be produced and kept available at the times and places
required by law. A determination of stockholders entitled to vote at any
meeting of stockholders of the Corporation pursuant to this Section 2.8 shall
apply to any adjournment thereof.
2.9 Fixing Date for Determination of Stockholders of Record. In order
that the Corporation may determine the stockholders of the Corporation
entitled to notice of or to vote at any meeting of stockholders of the
Corporation or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment or any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) days nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action. A determination of stockholders entitled
to notice of or to vote at a meeting of the stockholders of the Corporation
shall apply to any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the adjourned meeting.
2.10 Voting. Except as otherwise provided by law or by the Certificate
of Incorporation, each stockholder of record of any series of Preferred Stock
shall be entitled at each meeting of the stockholders to such number of votes,
if any, for each share of such stock as may be fixed in the Certificate of
Incorporation or in the resolution(s) adopted by the Board of Directors
providing for the issuance of such stock, and each stockholder of record of
common stock of the Corporation ("Common Stock") shall be entitled at each
meeting of the stockholders to one (1) vote for each share of such stock, in
each case, registered in such stockholder's name on the books of the
Corporation:
(a) on the date fixed pursuant to Section 2.9 of these Bylaws as
the record date for the determination of stockholders of the Corporation
entitled to notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice of such
meeting is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
Each stockholder of the Corporation entitled to vote at any meeting of
stockholders of the Corporation may authorize not in excess of three (3)
persons to act for such stockholder by proxy. Any such proxy shall be
delivered to the secretary of such meeting at or prior to the time designated
for holding such meeting, but in any event not later than the time designated
in the order of business for so delivering such proxies. No such proxy shall
be voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period.
At each meeting of stockholders of the Corporation, all corporate actions
to be taken by vote of the stockholders of the Corporation (except as
otherwise required by law and except as otherwise provided in the Certificate
of Incorporation or these Bylaws) shall be authorized by a majority of the
votes cast by the stockholders entitled to vote thereon who are present in
person or represented by proxy, and where a separate vote by class or series
is required, a majority of the votes cast by the stockholders of such class or
series who are present in person or represented by proxy shall be the act of
such class or series.
Unless required by law or determined by the chairman of the meeting to be
advisable, the vote on any matter, including the election of directors, need
not be by written ballot.
2.11 Inspectors. The chairman of the meeting shall appoint two (2) or
more inspectors to act at any meeting of stockholders of the Corporation.
Such inspectors shall perform such duties as shall be required by law or
specified by the chairman of the meeting. Inspectors need not be
stockholders. No director or nominee for the office of director shall be
appointed such inspector.
2.12 Public Announcements. For the purpose of Sections 2.7 and 3.3 of
these Bylaws, "public announcement" shall mean disclosure (a) in a press
release reported by the Dow Jones News Service, Reuters Information Service,
or any similar or successor news wire service or (b) in a communication
distributed generally to stockholders and in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections
l3, 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor provision(s) thereto.
2.13 Consent of Stockholders in Lieu of Meeting. Subject to the rights
of the holders of any Preferred Stock or series of Preferred Stock then
outstanding, any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
3.1 Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, except as
otherwise provided by applicable law or the Certificate of Incorporation,
which may exercise all powers of the Corporation and perform all such lawful
acts and do all such lawful things that are not, by applicable law or the
Certificate of Incorporation, directed or required to be exercised, performed,
or done by the stockholders of the Corporation.
3.2 Number, Qualification, and Election. Except as otherwise provided
by or fixed pursuant to the provisions of the Certificate of Incorporation
with respect to the right(s) of holders of any Preferred Stock or series of
Preferred Stock to elect any additional director(s), the number of directors
which shall constitute the "whole" (as defined below) Board of Directors shall
be not less than five (5) and shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by the Board of
Directors.
Except as otherwise fixed by or pursuant to the provisions of Section 4.3
(Description of Preferred Stock) of the Certificate of Incorporation relating
to the rights of the holders of any series of Preferred Stock, subject to
Section 3.15 of this Article III, the number of directors constituting the
whole Board of Directors shall be determined from time to time by the Board of
Directors and shall initially be five (5).
The directors, other than those who may be elected by the holders of
shares of any series of Preferred Stock pursuant to the provisions of Section
4.3 (Description of Preferred Stock) of the Certificate of Incorporation or
any resolution(s) providing for the issuance of such stock adopted by the
Board of Directors, shall be elected by the stockholders of the Corporation
entitled to vote thereon at each annual meeting of stockholders of the
Corporation, and shall hold office until the next annual meeting of
stockholders of the Corporation and until each of their successors shall have
been duly elected and qualified.
Each director shall be at least 21 years of age. Directors need not be
stockholders of the Corporation.
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election,
shall be deemed elected.
3.3 Notification of Nominations. Subject to the rights of the holders
of any series of Preferred Stock, nominations for the election of directors
may be made by the Board of Directors or by any stockholder of the
Corporation who is a stockholder of record at the time of giving of the
notice of nomination provided for in this Section 3.3 and who is entitled to
vote for the election of directors. Any stockholder of record entitled to
vote for the election of directors at a meeting may nominate persons for
election as directors only if timely written notice of such stockholder's
intent to make such nomination is given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation (i) with respect to an
election to be held at an annual meeting of stockholders of the Corporation,
not less than ninety (90) days nor more than one hundred twenty (120) days
prior to the first anniversary of the date of the immediately preceding
annual meeting; provided, however, that in the event that the date of the
annual meeting is more than thirty (30) days earlier or more than sixty (60)
days later than such anniversary date, notice by the stockholder to be
timely must be so delivered or received not earlier than the one hundred
twentieth (120th) day prior to such annual meeting and not later than the
close of business on the later of the ninetieth (90th) day prior to such
annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made and (ii) with respect
to an election to be held at a special meeting of stockholders of the
Corporation for the election of directors, not earlier than the ninetieth
(90th) day prior to such special meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such special
meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees to be elected at such meeting. Each such notice shall set forth
(a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated, (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person(s) specified in the
notice, (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such
person(s)) pursuant to which the nomination or nominations are to be made by
the stockholder, (d) such other information regarding each nominee proposed
by such stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by
the Board of Directors, (e) the consent of each nominee to serve as a
director of the Corporation if so elected, and (f) if the stockholder
intends to solicit proxies in support of such stockholder's nominee(s), a
representation to that effect. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure or if the stockholder solicits proxies in favor of such
stockholder's nominees without having made the representation required by
the immediately preceding sentence. Only such persons who are nominated in
accordance with the procedures set forth in this Section 3.3 shall be
eligible to serve as directors of the Corporation.
Notwithstanding anything in the immediately preceding paragraph of this
Section 3.3 to the contrary, in the event that the number of directors to be
elected to the Board of Directors at an annual meeting of stockholders of
the Corporation is increased and there is no public announcement naming all
of the nominees for directors or specifying the size of the increased Board
of Directors made by the Corporation at least ninety (90) days prior to the
first anniversary of the date of the immediately preceding annual meeting, a
stockholder's notice required by this Section 3.3 shall also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to or mailed to and received by the
Secretary at the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following the day on
which such public announcement is first made by the Corporation.
3.4 Quorum and Manner of Acting. Except as otherwise provided by law,
the Certificate of Incorporation, or these Bylaws, a majority of the whole
Board of Directors shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, and, except as so provided, the
vote of a majority of the directors present at any meeting at which a quorum
is present shall be the act of the Board of Directors. The chairman of the
meeting or a majority of the directors present may adjourn the meeting to
another time and place whether or not a quorum is present. At any adjourned
meeting at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally called.
3.5 Place of Meeting. Subject to Sections 3.6 and 3.7 of these
Bylaws, the Board of Directors may hold its meetings at such place or places
within or without the State of Delaware as the Board of Directors may from
time to time determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
3.6 Regular Meetings. No fewer than four (4) regular meetings per
year of the Board of Directors shall be held at such times as the Board of
Directors shall from time to time by resolution determine. If any day fixed
for a regular meeting shall be a legal holiday under the laws of the place
where the meeting is to be held, the meeting which would otherwise be held
on that day shall be held at the same hour on the next succeeding business
day.
3.7 Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman, the Chief Executive Officer,
or by a majority of the directors, and shall be held at such place, on such
date and at such time as he, she, or they, as applicable, shall fix.
3.8 Notice of Meetings. Notice of regular meetings of the Board of
Directors or of any adjourned meeting thereof need not be given. Notice of
each special meeting of the Board of Directors shall be given by overnight
delivery service or mailed to each director, in either case addressed to
such director at such director's residence or usual place of business, at
least two (2) days before the day on which the meeting is to be held or
shall be sent to such director at such place by telecopy or by electronic
transmission or be given personally or by telephone, not later than the day
before the meeting is to be held, but notice need not be given to any
director who shall, either before or after the meeting, submit a waiver of
such notice or who shall attend such meeting without protesting, prior to or
at its commencement, the lack of notice to such director. Every such notice
shall state the time and place but need not state the purpose of the
meeting.
3.9 Rules and Regulations. The Board of Directors may adopt such
rules and regulations not inconsistent with the provisions of law, the
Certificate of Incorporation, or these Bylaws for the conduct of its
meetings and management of the affairs of the Corporation as the Board of
Directors may deem proper.
3.10 Participation in Meeting by Means of Communications Equipment.
Any one (1) or more members of the Board of Directors or any committee
thereof may participate in any meeting of the Board of Directors or of any
such committee by means of conference telephone or other communications
equipment by means of which all persons participating in the meeting can
hear each other or as otherwise permitted by law, and such participation in
a meeting shall constitute presence in person at such meeting.
3.11 Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if all of the members of the Board of Directors
or of any such committee consent thereto in writing or as otherwise
permitted by law and, if required by law, the writing or writings are filed
with the minutes or proceedings of the Board of Directors or of such
committee.
3.12 Resignations. Any director of the Corporation may resign at any
time by giving written notice to the Board of Directors, the Chairman, the
Chief Executive Officer, or the secretary of the Corporation (the
"Secretary"). Such resignation shall take effect at the time specified
therein or, if the time be not specified therein, upon receipt thereof; and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
3.13 Subject to the rights of the holders of any Preferred Stock or
series of Preferred Stock then outstanding, any newly-created
directorship(s) resulting from any increase(s) in the authorized number of
directors or any vacancy on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office, or other
reason, shall only be filled by a majority vote of the directors then in
office, even though less than a quorum of the Board of Directors, or by a
sole remaining director, as applicable. Under no circumstances shall the
stockholders of the Corporation fill any such newly-created directorship(s)
or vacancy on the Board of Directors. Any director(s) chosen in accordance
with Section 5.5 (Vacancies) of the Certificate of Incorporation shall hold
office (a) for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected
expires, upon election and qualification of their successors, (b) until the
successor of such director shall have been otherwise elected and qualified,
(c) or until the earlier death, resignation, retirement, disqualification,
or removal from office of such director, as applicable. No decrease in the
number of authorized directors constituting the whole Board of Directors
shall shorten the term of any incumbent director(s).
Subject to the rights of the holders of any series of Preferred Stock,
any vacancies on the Board of Directors resulting from death, resignation,
removal, or other cause shall only be filled by the Board of Directors, and
not by the stockholders of the Corporation, by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director, and newly
created directorships resulting from any increase in the number of
directors. which increase shall be subject to Section 3.l5 of these Bylaws,
shall only be filled by the Board of Directors, or if not so filled, by the
stockholders of the Corporation at the next annual meeting thereof or at a
special meeting called for that purpose in accordance with Section 2.3 of
these Bylaws. Any director elected in accordance with the preceding
sentence of this Section 3.13 shall hold office until the next annual
meeting of the stockholders and until such director's successor shall have
been elected and qualified.
3.14 Compensation. Each director, in consideration of such person
serving as a director. shall be entitled to receive from the Corporation
such amount per annum and such fees (payable in cash or stock) for
attendance at meetings of the Board of Directors or of committees of the
Board of Directors, or both, as the Board of Directors shall from time to
time determine. In addition, each director shall be entitled to receive
from the Corporation reimbursement for the reasonable expenses incurred by
such person in connection with the performance of such person's duties as a
director. Nothing contained in this Section 3.14 shall preclude any
director from serving the Corporation or any of its subsidiaries in any
other capacity and receiving proper compensation therefor.
3.15 Certain Modifications. Notwithstanding anything to the contrary
contained in these Bylaws, the following actions taken either directly or
indirectly by the Board of Directors shall require the affirmative vote of
not less than seventy-five percent (75%) of the whole Board of Directors:
(i) any change in the size of the Board of Directors and (ii) any proposal
to amend these Bylaws to be submitted to the stockholders of the Corporation
by the Board of Directors.
3.16 Removal. Subject to the right of the holders of any Preferred
Stock or series of Preferred Stock then outstanding, any director, or the
entire Board of Directors, may be removed from office at any time, but only
for "cause" (as defined below) and only by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3) of the voting
power of the Voting Stock, voting together as a single class. Except as may
otherwise be provided by law, "cause" for removal shall exist only if any
director whose removal has been proposed:
(a) has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal,
(b) has been adjudged by a court of competent jurisdiction to be
liable for gross negligence or misconduct in the performance of the duties
of such director to the Corporation in connection with a matter of
substantial importance to the Corporation, and such adjudication has become
final and non-appealable, or
(c) has missed six (6) consecutive meetings of the Board of
Directors.
3.17 Reliance upon Records. Every director, and every member of any
committee of the Board of Directors of Directors, shall, in the performance
of his or her duties, be fully protected in relying in good faith upon the
records of the Corporation and upon such information, opinions, reports, or
statements presented to the Corporation by any of its officers or employees,
or committees of the Board of Directors, or by any other person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Corporation, including, without limitation, such
records, information, opinions, reports, or statements as to the value and
amount of the assets, liabilities, and/or net profits of the Corporation, or
any other facts pertinent to the existence and amount of surplus or other
funds from which dividends might properly be declared and paid, and with
which the stock of the Corporation might properly be purchased or redeemed.
3.18 Interested Directors. A director who is directly or indirectly a
party to a contract or transaction with the Corporation, or is a director or
officer of or has a financial interest in any other corporation,
partnership, association, or other organization which is a party to a
contact or transaction with the Corporation, may be counted in determining
whether a quorum is present at any meeting of the Board of Directors or a
committee thereof at which such contract or transaction is considered or
authorized, and such director may participate in such meeting and vote on
such authorization to the extent permitted by Section 144 of the DGCL.
3.19 Presumption of Assent. Unless otherwise provided by law, a
director who is present at a meeting of the Board of Directors or a
committee thereof at which action is taken on any matter shall be presumed
to have assented to the action taken unless his dissent shall be entered in
the minutes of such meeting or unless he or she shall file his or her
written dissent to such action with the person acting as secretary of such
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary immediately after the adjournment of such
meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
4.1 Establishment of Committees of the Board of Directors; Election of
Members of Committees of the Board of Directors; Functions of Committees of
the Board of Directors.
(a) The Corporation shall have two (2) standing committees: the
audit and finance committee and the compensation committee.
(b) The audit and finance committee shall have the following
powers and authority: (i) employing independent public accountants to audit
the books of account, accounting procedures and financial statements of the
Corporation and to perform such other duties from time to time as the audit
committee may prescribe, (ii) receiving the reports and comments of the
Corporation's internal auditors and of the independent public accountants
employed by the committee and taking such action with respect thereto as it
deems appropriate, (iii) requesting the Corporation's consolidated
subsidiaries and affiliated companies to employ independent public
accountants to audit their respective books of account, accounting
procedures, and financial statements, (iv) requesting the independent public
accountants to furnish to the compensation committee the certifications
required under any present or future stock option, incentive compensation,
or employee benefit plan of the Corporation, (v) reviewing the adequacy of
internal financial controls, (vi) approving the accounting principles
employed in financial reporting, (vii) approving the appointment or removal
of the Corporation's general auditor, (viii) reviewing the accounting
principles employed in financial reporting, (ix) reviewing and making
recommendations to the Board of Directors concerning the financial structure
and financial condition of the Corporation and its subsidiaries, including,
without limitation, annual budgets, long-term financial plans, corporate
borrowings, investments, capital expenditures, long-term commitments, and
the issuance of stock, and (x) approving such matters that are consistent
with the general financial policies and direction from time to time
determined by the Board of Directors. None of the members of the audit and
finance committee shall be an officer or full-time employee of the
Corporation or of any subsidiary or affiliate of the Corporation.
(c) The compensation committee shall have the following powers and
authority: (i) determining and fixing the compensation for all senior
officers of the Corporation and its subsidiaries and divisions that the
compensation committee shall from time to time consider appropriate, as well
as all employees of the Corporation compensated at a rate in excess of such
amount per annum as may be fixed or determined from time to time by the
Board of Directors, (ii) performing the duties of the committees of the
Board of Directors provided for in any present or future stock option,
incentive compensation, or employee benefit plan of the Corporation, and
(iii) reviewing the operations of and policies pertaining to any present or
future stock option, incentive compensation, or employee benefit plan of the
Corporation that the compensation committee shall from time to time consider
appropriate. None of the members of the compensation committee shall be an
officer or full-time employee of the Corporation or of any subsidiary or
affiliate of the Corporation.
(d) Any modification to the power and authority of any committee shall
require the affirmative vote of not less than seventy-five percent (75%) of
the whole Board of Directors.
(e) In addition, the Board of Directors may, with the affirmative vote
of not less than seventy-five percent (75%) of the whole Board of Directors
and in accordance with and subject to the DGCL, from time to time establish
additional committees of the Board of Directors to exercise such powers and
authorities of the Board of Directors, and to perform such other functions,
as the Board of Directors may from time to time determine.
(f) The Board of Directors may remove a director from a committee,
change the size of any committee or terminate any committee or change the
chairmanship of a committee only with the affirmative vote of not less than
seventy-five percent (75%) of the whole Board of Directors.
(g) The Board of Directors may designate one or more directors as new
members of any committee to fill any vacancy on a committee and to fill a
vacant chairmanship of a committee occurring as a result of a member or
chairman leaving the committee, whether through death, resignation, removal,
or otherwise; provided, however, that any such designation or any
designation by the Board of Directors of a director as an alternate member
of any committee in accordance with Section 141(c)(2) of the DGCL may only
be made with the affirmative vote of not less than seventy-five percent
(75%) of the whole Board of Directors.
4.2 Procedure; Meetings; Quorum. Regular meetings of committees of
the Board of Directors, of which no notice shall be necessary, may be held
at such times and places as shall be fixed by resolution adopted by a
majority of the authorized members thereof. Special meetings of any
committee of the Board of Directors shall be called at the request of any
member thereof. Notice of each special meeting of any committee of the
Board of Directors shall be sent by overnight delivery service, or mailed to
each member thereof, in either case addressed to such member at such
member's residence or usual place of business, at least two (2) days before
the day on which the meeting is to be held or shall be sent to such member
at such place by telecopy or by electronic transmission or be given
personally or by telephone, not later than the day before the meeting is to
be held, but notice need not be given to any member who shall, either before
or after the meeting, submit a waiver of such notice or who shall attend
such meeting without protesting, prior to or at its commencement, the lack
of such notice to such member. Any special meeting of any committee of the
Board of Directors shall be a legal meeting without any notice thereof
having been given, if all the members thereof shall be present thereat and
no member shall protest the lack of notice to such member. Notice of any
adjourned meeting of any committee of the Board of Directors need not be
given. Any committee of the Board of Directors may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate of
Incorporation, or these Bylaws for the conduct of its meetings as such
committee of the Board of Directors may deem proper. A majority of the
authorized members of any committee of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting, and the
vote of a majority of the members thereof present at any meeting at which a
quorum is present shall be the act of such committee. Each committee of the
Board of Directors shall keep written minutes of its proceedings and shall
report on such proceedings to the Board of Directors.
ARTICLE V
OFFICERS
5.1 Number; Term of Office. The officers of the Corporation shall be
elected by the Board of Directors and shall consist of a Chairman, a Chief
Executive Officer, a Chief Operating Officer, a Chief Financial Officer, a
Vice Chairman, and one (1) or more Vice President(s) (including, without
limitation, Assistant, Executive, Senior, and Group Vice Presidents) and a
Treasurer, Secretary and Controller and such other officers or agents with
such titles and such duties as the Board of Directors may from time to time
determine, each to have such authority, functions, or duties as in these
Bylaws provided or as the Board of Directors may from time to time
determine, and each to hold office for such term as may be prescribed by the
Board of Directors and until such person's successor shall have been chosen
and shall qualify, or until such person's death or resignation, or until
such person's removal in the manner hereinafter provided. The title of an
office refers to the person or persons who at any given time perform the
duties of that particular office for the Corporation. The Chairman, the
Chief Executive Officer, and the Vice Chairmen shall be elected from among
the directors. One (1) person may hold the offices and perform the duties
of any two or more of said officers; provided, however, that no officer
shall execute, acknowledge, or verify any instrument in more than one (1)
capacity if such instrument is required by law, the Certificate of
Incorporation, or these Bylaws to be executed, acknowledged, or verified by
two (2) or more officers. The Board of Directors may require any officer,
agent, or employee of the Corporation to give security for the faithful
performance of such person's duties. The Board of Directors may also
require any officer, agent, or employee to comply with such other conditions
as the Board of Directors may require from time to time.
5.2 Removal. Subject to Section 5.14 of these Bylaws, any officer may
be removed, either with or without cause, by the Board of Directors at any
meeting thereof called for the purpose or, except in the case of any officer
elected by the Board of Directors, by any superior officer upon whom such
power may be conferred by the Board of Directors.
5.3 Resignation. Any officer may resign at any time by giving notice
to the Board of Directors, the Chief Executive Officer, or the Secretary.
Any such resignation shall take effect at the date of receipt of such notice
or at any later date specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective.
5.4 Chairman. The Chairman shall be an officer of the Corporation,
subject to the control of the Board of Directors, and shall report directly
to the Board of Directors. The Chairman shall have supervisory
responsibility over the functional areas of [global public policy,
technology policy, and future innovation, venture-type investments, and
philanthropy], shall play an active role in helping to build and lead the
Corporation, working closely with the Chief Executive Officer to set the
strategy of the Corporation, and shall be the co-spokesman for the
Corporation along with the Chief Executive Officer. The Chairman shall
preside at all meetings of the Board of Directors and shall perform such
other duties as the Board of Directors may direct.
5.5 Chief Executive Officer. The Chief Executive Officer shall have
general supervision and direction of the business and affairs of the
Corporation, subject to the control of the Board of Directors and the
provisions of Section 5.4 of these Bylaws, and shall report directly to the
Board of Directors. The Chief Executive Officer shall, if present and in
the absence of the Chairman, preside at meetings of the stockholders and of
the Board of Directors.
5.6 Chief Operating Officer. The Chief Operating Officer shall
perform such senior duties in connection with the operations of the
Corporation as the Board of Directors or the Chief Executive Officer shall
from time to time determine, and shall report directly to the Chief
Executive Officer. The Chief Operating Officer, shall, when requested,
counsel with and advise the other officers of the Corporation and shall
perform such other duties as may be agreed with the Chief Executive Officer
or as the Board of Directors may from time to time determine.
5.7 Vice Chairman. The Vice Chairman shall, when requested, counsel
with and advise the other officers of the Corporation and shall perform such
other duties as he or she may agree with the Chief Executive Officer or as
the Board of Directors may from time to time determine.
5.8 Chief Financial Officer. The Chief Financial Officer shall
perform all the powers and duties of the office of the chief financial
officer and in general have overall supervision of the financial operations
of the Corporation. The Chief Financial Officer shall, when requested,
counsel with and advise the other officers of the Corporation and shall
perform such other duties as he or she may agree with the Chief Executive
Officer or as the Board of Directors may from time to time determine. The
Chief Financial Officer shall report directly to the Chief Executive
Officer.
5.9 Vice Presidents. Any Vice President shall have such powers and
duties as shall be prescribed by his or her superior officer or the Board of
Directors. A Vice President shall, when requested, counsel with and advise
the other officers of the Corporation and shall perform such other duties as
he or she may agree with the Chief Executive Officer or as the Board of
Directors may from time to time determine. A Vice President need not be an
officer of the Corporation.
5.10 Treasurer. The Treasurer, if one shall have been elected, shall
supervise and be responsible for all the funds and securities of the
Corporation, the deposit of all moneys and other valuables to the credit of
the Corporation in depositories of the Corporation, borrowings and
compliance with the provisions of all indentures, agreements and instruments
governing such borrowings to which the Corporation is a party, the
disbursement of funds of the Corporation and the investment of its funds,
and in general shall perform all of the duties incident to the office of the
Treasurer. The Treasurer shall, when requested, counsel with and advise the
other officers of the Corporation and shall perform such other duties as he
or she may agree with the Chief Executive Officer or as the Board of
Directors may from time to time determine.
5.11 Controller. The Controller shall be the chief accounting officer
of the Corporation. The Controller shall, when requested, counsel with and
advise the other officers of the Corporation and shall perform such other
duties as he or she may agree with the Chief Executive Officer or the Chief
Financial Officer or as the Board of Directors may from time to time
determine.
5.12 Secretary. It shall be the duty of the Secretary to act as
secretary at all meetings of the Board of Directors, of the committees of
the Board of Directors, and of the stockholders of the Corporation and to
record the proceedings of such meetings in a book or books to be kept for
that purpose. The Secretary shall see that all notices required to be given
by the Corporation are duly given and served. The Secretary shall be
custodian of the seal of the Corporation and shall affix the seal or cause
it to be affixed to all certificates of stock of the Corporation (unless the
seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and to all documents, the execution of which on behalf
of the Corporation under its seal is duly authorized in accordance with the
provisions of these Bylaws. The Secretary shall have charge of the books,
records, and papers of the Corporation and shall see that the reports,
statements, and other documents required by law to be kept and filed are
properly kept and filed, and in general shall perform all of the duties
incident to the office of Secretary. The Secretary shall, when requested,
counsel with and advise the other officers of the Corporation and shall
perform such other duties as he or she may agree with the Chief Executive
Officer or as the Board of Directors may from time to time determine.
5.13 Assistant Treasurers and Assistant Secretaries. Any Assistant
Treasurers and Assistant Secretaries shall perform such duties as shall be
assigned to them by the Board of Directors. Any Assistant Treasurer or
Assistant Secretary shall perform such duties as shall be assigned to them
by the Treasurer or Secretary, respectively, or by the Chief Executive
Officer.
5.14 Certain Actions. Notwithstanding anything to the contrary
contained in these Bylaws, until July 31, 2005, (i) the removal of Phillip
D. Miller from the office of Chairman, any modification to the provisions of
his employment contract which provide for his term of office or any
modification to the role, duties, authority, or reporting line of the
Chairman and (ii) the removal of Adil Khan from the office of Chief
Executive Officer, any modification to the role, duties, authority, or
reporting line of the Chief Executive Officer, each shall require the
unanimous vote of all of the whole Board of Directors. From and after the
end of the period set forth in the preceding sentence, any of the actions
set forth in the immediately preceding sentence may be taken upon the
affirmative vote of the number of directors which shall constitute, under
the terms of these Bylaws, the action of the Board of Directors.
5.15 Compensation of Officers. The Board of Directors or any duly
empowered committee of the Board of Directors shall fix the compensation of
all officers of the Corporation. No officer shall serve the Corporation in
any other capacity and receive compensation, unless the Board of Directors
authorizes the additional compensation.
5.16 Delegation of Authority. Notwithstanding any provision of these
Bylaws to the contrary, the Board may delegate the powers or duties of any
officer to any other officer or agent.
5.17 Vacancies. The Board of Directors may fill any vacancy in any
office because of death, resignation, removal, disqualification, or any
other cause in the manner which these Bylaws prescribe for the regular
appointment to such office.
ARTICLE VI
INDEMNIFICATION
6.1 Right to Indemnification. The Corporation, to the fullest extent
permitted or required by the DGCL or other applicable law, as the same
exists or may hereafter be amended (but, in the case of any such amendment
and unless applicable law otherwise requires, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment),
shall indemnify and hold harmless any person who is or was a director or
officer of the Corporation and who is or was involved in any manner
(including, without limitation, as a party or a witness) or is threatened to
be made so involved in any threatened, pending, or completed investigation,
claim, action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (including, without limitation, any action, suit, or
proceedings by or in the right of the Corporation to procure a judgment in
its favor) (each, a "Proceeding") by reason of the fact that such person is
or was a director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise (including, without limitation, any employee
benefit plan) (each, a "Covered Entity") against all expenses (including,
without limitation, attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such Proceeding; provided, however, that the foregoing shall not apply
to a director or officer of the Corporation with respect to a Proceeding
that was commenced by such director or officer unless the proceeding was
commenced after a Change in Control (as defined below) (with any director or
officer of the Corporation entitled to indemnification as provided in this
Section 6.1 being referred to hereinafter as an "Indemnitee"). Any right of
an Indemnitee to indemnification shall be a contract right and shall include
the right to receive, prior to the conclusion of any Proceeding, payment of
any expenses incurred by the Indemnitee in connection with such Proceeding,
consistent with the provisions of applicable law as then in effect and the
other provisions of this Article VI.
6.2 Insurance, Contracts, and Funding. The Corporation may purchase
and maintain insurance to protect itself and any director, officer,
employee, or agent of the Corporation or of any Covered Entity against any
expenses, judgments, fines, and amounts paid in settlement as specified in
Section 6.l of these Bylaws or incurred by any such director, officer,
employee, or agent in connection with any Proceeding referred to in Section
6.1 of these Bylaws, whether or not the Corporation would have the power to
indemnify such person against such expense, liability, or loss under the
DGCL. The Corporation may enter into contracts with any director, officer,
employee, or agent of the Corporation or of any Covered Entity in
furtherance of the provisions of this Article VI and may create a trust
fund, grant a security interest, or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may
be necessary to effect indemnification as provided or authorized in this
Article VI.
6.3 Indemnification Not Exclusive Right. The right of indemnification
provided in this Article VI shall not be exclusive of any other rights to
which an Indemnitee may otherwise be entitled, and the provisions of this
Article VI shall inure to the benefit of the heirs and legal representatives
of any Indemnitee under this Article VI and shall be applicable to
Proceedings commenced or continuing after the adoption of this Article VI,
whether arising from acts or omissions occurring before or after such
adoption.
6.4 Advancement of Expenses; Procedures; Presumptions and Effect of
Certain Proceedings; Remedies. In furtherance, but not in limitation of the
foregoing provisions, the following procedures, presumptions, and remedies
shall apply with respect to advancement of expenses and the right to
indemnification under this Article VI:
(a) Advancement of Expenses. All reasonable expenses (including,
without limitation, attorneys' fees) incurred by or on behalf of the
Indemnitee in connection with any Proceeding shall be advanced to the
Indemnitee by the Corporation within twenty (20) days after the receipt by
the Corporation of a statement or statements from the Indemnitee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement(s) shall reasonably evidence
the expenses incurred by the Indemnitee and, if required by law at the time
of such advance, shall include or be accompanied by an undertaking by or on
behalf of the Indemnitee to repay the amounts advanced if ultimately it
should be determined that the Indemnitee is not entitled to be indemnified
against such expenses pursuant to this Article VI.
(b) Procedure for Determination of Entitlement to
Indemnification.
(i) To obtain indemnification under this Article VI, an
Indemnitee shall submit to the Secretary a written request, including,
without limitation, such documentation and information as is reasonably
available to the Indemnitee and reasonably necessary to determine whether
and to what extent the Indemnitee is entitled to indemnification (the
"Supporting Documentation"). The determination of the Indemnitee's
entitlement to indemnification shall be made not later than sixty (60) days
after receipt by the Corporation of the written request for indemnification
together with the Supporting Documentation. The Secretary shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under
this Article VI shall be determined in one of the following ways: (A) by a
majority vote of the Disinterested Directors (as defined below), whether or
not they constitute a quorum of the Board of Directors, or by a committee of
Disinterested Directors designated by a majority vote of the Disinterested
Directors, (B) by a written opinion of Independent Counsel (as defined
below) if (x) a Change in Control shall have occurred and the Indemnitee so
requests or (y) there are no Disinterested Directors or a majority of such
Disinterested Directors so directs, (C) by the stockholders of the
Corporation, or (D) as provided in Section 6.4(c) of these Bylaws.
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section
6.4(b)(ii) of these Bylaws, a majority of the Disinterested Directors shall
select the Independent Counsel, but only an Independent Counsel to which the
Indemnitee does not reasonably object; provided, however, that if a Change
in Control shall have occurred, the Indemnitee shall select such Independent
Counsel, but only an Independent Counsel to which a majority of the
Disinterested Directors does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as
otherwise expressly provided in this Article VI, if a Change in Control
shall have occurred, the Indemnitee shall be presumed to be entitled to
indemnification under this Article VI (with respect to actions or omissions
occurring prior to such Change in Control) upon submission of a request for
indemnification together with the Supporting Documentation in accordance
with Section 6.4(b)(i) of these Bylaws, and thereafter the Corporation shall
have the burden of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person(s) empowered under Section
6.4(b) of these Bylaws to determine entitlement to indemnification shall not
have been appointed or shall not have made a determination within sixty (60)
days after receipt by the Corporation of the request therefor, together with
the Supporting Documentation, the Indemnitee shall be deemed to be, and
shall be, entitled to indemnification unless (i) the Indemnitee
misrepresented or failed to disclose a material fact in making the request
for indemnification or in the Supporting Documentation or (ii) such
indemnification is prohibited by law. The termination of any Proceeding
described in Section 6.l of these Bylaws or of any claim, issue, or matter
therein, by judgment, order, settlement, or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, adversely affect
the right of the Indemnitee to indemnification or create a presumption that
the Indemnitee did not act in good faith and in a manner which the
Indemnitee reasonably believed to be in or not opposed to the best interests
of the Corporation or, with respect to any criminal proceeding, that the
Indemnitee had reasonable cause to believe that such conduct was unlawful.
(d) Remedies of Indemnitee.
(i) In the event that a determination is made pursuant to
Section 6.4(b) of these Bylaws that the Indemnitee is not entitled to
indemnification under this Article VI, (A) the Indemnitee shall be entitled
to seek an adjudication of entitlement to such indemnification either, at
the Indemnitee's sole option, in (x) an appropriate court of the State of
Delaware or any other court of competent jurisdiction or (y) an arbitration
to be conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association, (B) any such judicial proceeding or arbitration
shall be de novo and the Indemnitee shall not be prejudiced by reason of
such adverse determination, and (C) if a Change in Control shall have
occurred, in any such judicial proceeding or arbitration, the Corporation
shall have the burden of proving that the Indemnitee is not entitled to
indemnification under this Article VI (with respect to actions or omissions
occurring prior to such Change in Control).
(ii) If a determination shall have been made or deemed to
have been made, pursuant to Sections 6.4(b) or (c) of these Bylaws, that the
Indemnitee is entitled to indemnification, the Corporation shall be
obligated to pay the amounts constituting such indemnification within five
(5) days after such determination has been made or deemed to have been made
and shall be conclusively bound by such determination unless (A) the
Indemnitee misrepresented or failed to disclose a material fact in making
the request for indemnification or in the Supporting Documentation or (B)
such indemnification is prohibited by law. In the event that (X)
advancement of expenses is not timely made pursuant to Section 6.4(a) of
these Bylaws or (Y) payment of indemnification is not made within five (5)
days after a determination of entitlement to indemnification has been made
or deemed to have been made pursuant to Sections 6.4(b) or (c) of these
Bylaws, the Indemnitee shall be entitled to seek judicial enforcement of the
Corporation's obligation to pay to the Indemnitee such advancement of
expenses or indemnification. Notwithstanding the foregoing, the Corporation
may bring an action, in an appropriate court in the State of Delaware or any
other court of competent jurisdiction, contesting the right of the
Indemnitee to receive indemnification hereunder due to the occurrence of an
event described in sub-clause (A) or (B) of this clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the
Corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Section
6.4(d) that the procedures and presumptions of this Article VI are not
valid, binding, and enforceable and shall stipulate in any such court or
before any such arbitrator that the Corporation is bound by all the
provisions of this Article VI.
(iv) In the event that the Indemnitee, pursuant to this
Section 6.4(d), seeks a judicial adjudication of or an award in arbitration
to enforce rights under, or to recover damages for breach of, this Article
VI, the Indemnitee shall be entitled to recover from the Corporation, and
shall be indemnified by the Corporation against, any expenses actually and
reasonably incurred by the Indemnitee if the Indemnitee prevails in such
judicial adjudication or arbitration. If it shall be determined in such
judicial adjudication or arbitration that the Indemnitee is entitled to
receive part but not all of the indemnification or advancement of expenses
sought, the expenses incurred by the Indemnitee in connection with such
judicial adjudication or arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Section 6.4:
(i) "Authorized Officer" shall mean any one (1) of the Chief
Executive Officer, the Chief Operating Officer, the Chief Financial Officer,
any Vice President, or the Secretary of the Corporation.
(ii) "Change in Control" shall mean the occurrence of any of
the following (A) any merger or consolidation of the Corporation in which
the Corporation is not the continuing or surviving corporation or pursuant
to which shares of the Corporation's Common Stock would be converted into
cash, securities or other property, other than a merger of the Corporation
in which the holders of Common Stock immediately prior to the merger have
the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, (B) any sale, lease, exchange, or
other transfer (in one (1) transaction or a series of related transactions)
of all or substantially all, of the assets of the Corporation, or the
liquidation or dissolution of the Corporation, or (C) individuals who would
constitute a majority of the members of the Board of Directors elected at
any meeting of stockholders of the Corporation [or by written consent]
(without regard to any members of the Board of Directors elected pursuant to
the terms of any series of Preferred Stock) shall be elected to the Board of
Directors and the election or the nomination for election by the
stockholders of the Corporation of such directors was not approved by a vote
of at least two-thirds (2/3) of the directors in office immediately prior to
such election.
(iii) "Disinterested Director" shall mean a director of the
Corporation who is not or was not a party to the Proceeding in respect of
which indemnification is sought by the Indemnitee.
(iv) "Independent Counsel" shall mean a law firm or a member
of a law firm that neither presently is, nor in the past five (5) years has
been, retained to represent (A) the Corporation or the Indemnitee in any
matter material to either such party or (B) any other party to the
Proceeding giving rise to a claim for indemnification under this Article VI.
Notwithstanding the foregoing, the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing under the law of the State of Delaware, would have a
conflict of interest in representing either the Corporation or the
Indemnitee in an action to determine the Indemnitee's rights under this
Article VI.
6.5 Severability. If any provision or provisions of this Article VI
shall be held to be invalid, illegal, or unenforceable for any reason
whatsoever (a) the validity, legality, and enforceability of the remaining
provisions of this Article VI (including, without limitation, all portions
of any paragraph of this Article VI containing any such provision held to be
invalid, illegal, or unenforceable, that are not themselves invalid,
illegal, or unenforceable) shall not in any way be affected or impaired
thereby and (b) to the fullest extent possible, the provisions of this
Article VI (including, without limitation, all portions of any paragraph of
this Article VI containing any such provision held to be invalid, illegal,
or unenforceable, that are not themselves invalid, illegal, or enforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal, or unenforceable.
6.6 Indemnification of Employees Serving as Directors. The
Corporation, to the fullest extent of the provisions of this Article VI with
respect to the indemnification of directors and officers of the Corporation,
shall indemnify any person who is or was an employee of the Corporation and
who is or was involved in any manner (including, without limitation, as a
party or a witness) or is threatened to be made so involved in any
threatened, pending, or completed Proceeding by reason of the fact that such
employee is or was serving (a) as a director of a corporation in which the
Corporation had at the time of such service, directly or indirectly, a fifty
percent (50%) or greater equity interest (a "Subsidiary Director") and (b)
at the written request of an Authorized Officer, as a director of another
corporation in which the Corporation had at the time of such service,
directly or indirectly, a less than fifty percent (50%) equity interest (or
no equity interest at all) or in a capacity equivalent to that of a director
for any partnership, joint venture, trust, or other enterprise (including,
without limitation, any employee benefit plan) in which the Corporation has
an interest (a "Requested Employee"), against all expenses (including,
without limitation, attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by such Subsidiary Director or
Requested Employee in connection with such Proceeding. The Corporation may
also advance expenses incurred by any such Subsidiary Director or Requested
Employee in connection with any such Proceeding, consistent with the
provisions of this Article VI with respect to the advancement of expenses of
directors and officers of the Corporation.
6.7 Indemnification of Employees and Agents. Notwithstanding any
other provision or provisions of this Article VI, the Corporation, to the
fullest extent of the provisions of this Article VI with respect to the
indemnification of directors and officers of the Corporation, may indemnify
any person other than a director or officer of the Corporation, a Subsidiary
Director or a Requested Employee, who is or was an employee or agent of the
Corporation and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved
in any threatened, pending, or completed Proceeding by reason of the fact
that such person is or was a director, officer, employee, or agent of the
Corporation or of a Covered Entity against all expenses (including, without
limitation, attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such Proceeding. The Corporation may also advance expenses incurred by
such employee or agent in connection with any such Proceeding, consistent
with the provisions of this Article VI with respect to the advancement of
expenses of directors and officers of the Corporation.
ARTICLE VII
CERTIFICATES FOR SHARES AND TRANSFER OF SHARES
7.1 Certificates for Shares. The shares of stock of the Corporation
shall be represented by certificates, or shall be uncertificated shares that
may be evidenced by a book-entry system maintained by the registrar of such
stock, or a combination of both. To the extent that shares are represented
by certificates, such certificates whenever authorized by the Board of
Directors, shall be in such form as shall be approved by the Board of
Directors. The certificates representing shares of stock of each class
shall be signed by, or in the name of, the Corporation by the Chairman and
the Chief Executive Officer, or by any Vice President and by the Secretary
or any Assistant Secretary or the Treasurer or any Assistant Treasurer of
the Corporation, and sealed with the seal of the Corporation, which may be a
facsimile thereof. Any or all such signatures may be facsimiles if
countersigned by a transfer agent or registrar. Although any officer,
transfer agent, or registrar whose manual or facsimile signature is affixed
to such a certificate ceases to be such officer, transfer agent, or
registrar before such certificate has been issued, it may nevertheless be
issued by the Corporation with the same effect as if such officer, transfer
agent, or registrar were still such at the date of its issue.
The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any other officer
or agent designated by the Board of Directors.
7.2 Transfer of Shares. Transfers of shares of stock of each class of
the Corporation shall be made only on the books of the Corporation upon
authorization by the registered holder thereof, or by such holder's attorney
thereunto authorized by a power of attorney duly executed and filed with the
Secretary or a transfer agent for such stock, if any, and if such shares are
represented by a certificate, upon surrender of the certificate(s) for such
shares properly endorsed or accompanied by a duly executed stock transfer
power (or by proper evidence of succession, assignment, or authority to
transfer) and the payment of any taxes thereon; provided, however, that the
Corporation shall be entitled to recognize and enforce any lawful
restriction on transfer. The person or entity in whose name shares are
registered on the books of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation; provided, however, that
whenever any transfer of shares shall be made for collateral security and
not absolutely, and written notice thereof shall be given to the Secretary
or to such transfer agent, such fact shall be stated in the entry of the
transfer. No transfer of shares shall be valid as against the Corporation,
its stockholders, and creditors for any purpose, except to render the
transferee liable for the debts of the Corporation to the extent provided by
law, until it shall have been entered in the stock records of the
Corporation by an entry showing from and to whom transferred.
7.3 Registered Stockholders and Addresses of Stockholders. The
Corporation shall be entitled to recognize the exclusive right of a person
registered on its records as the owner of shares of stock to receive
dividends and to vote as such owner, shall be entitled to hold liable for
calls and assessments a person registered on its records as the owner of
shares of stock, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares of stock on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of Delaware.
Each stockholder shall designate to the Secretary or transfer agent of the
Corporation an address at which notices of meetings and all other corporate
notices may be given to such person, and, if any stockholder shall fail to
designate such address, corporate notices may be given to such person by
mail directed to such person at such person's post office address, if any,
as the same appears on the stock record books of the Corporation or at such
person's last known post office address.
7.4 Lost, Stolen, Destroyed, and Mutilated Certificates. The holder
of any certificate representing any shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction, or
mutilation of such certificate. The Corporation may issue to such holder a
new certificate or certificates for shares, upon the surrender of the
mutilated certificate or, in the case of loss, theft, or destruction of the
certificate, upon satisfactory proof of such loss, theft, or destruction.
The Board of Directors, or a committee designated thereby, or the transfer
agents and registrars for the stock, may, in their discretion, require the
owner of the lost, stolen, or destroyed certificate, or such person's or
entity's legal representative, to give the Corporation a bond in such sum
and with such surety or sureties as they may direct to indemnify the
Corporation and said transfer agents and registrars against any claim that
may be made on account of the alleged loss, theft, or destruction of any
such certificate or the issuance of such new certificate.
7.5 Regulations. The Board of Directors may make such additional
rules and regulations as it may deem expedient concerning the issue,
transfer, and registration of certificated or uncertificated shares of stock
of each class and series of the Corporation and may make such rules and take
such action as it may deem expedient concerning the issue of certificates in
lieu of certificates claimed to have been lost, destroyed, stolen, or
mutilated.
7.6 Fixing Date for Determination of Stockholders of Record. In order
that the Corporation may determine the stockholders entitled to notice of or
to vote at any meeting of stockholders of the Corporation or any adjournment
thereof, or entitled to receive payment of any dividend or other
distribution or allotment or any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders entitled to notice of or to
vote at a meeting of stockholders of the Corporation shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
7.7 Transfer Agents and Registrars. The Board of Directors may
appoint or authorize any officer or officers to appoint, one (1) or more
transfer agents and one (1) or more registrars.
7.8 Treasury Shares. Treasury shares of the Corporation shall consist
of shares which the Corporation has issued and thereafter acquired by not
canceled. Treasury shares shall not carry voting or dividend rights.
ARTICLE VIII
AMENDMENTS
In furtherance, and not in limitation, of the powers conferred upon the
Corporation by applicable law, the Board of Directors is hereby expressly
authorized to adopt, amend, alter, or repeal these Bylaws or adopt new
Bylaws, without any action on the part of the stockholders of the
Corporation, by the vote of a majority of the whole Board of Directors.
In addition to any provisions of applicable law, any provisions of the
Certificate of Incorporation, and any resolution(s) of the Board of
Directors adopted pursuant to Article IV (Authorization and Description of
Stock) of the Certificate of Incorporation (and notwithstanding the fact
that a lesser vote or no vote may be permitted by applicable law), the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of the Voting Stock, voting together as a
single class, shall be required to adopt, amend, alter, or repeal any term
or provision of these Bylaws that would make these Bylaws inconsistent or
conflict with Section 4.3 (Description of Preferred Stock), Article V (Board
of Directors), Article VI (Amendment of Certificate of Incorporation), this
Article VII (Amendment of Bylaws), Article IX (Meetings of Stockholders), or
Article X (Indemnification) of the Certificate of Incorporation.
ARTICLE IX
NOTICES
9.1 General. Whenever these Bylaws require notice to any Stockholder,
director, officer or agent, such notice does not mean personal notice. A
person may give effective notice under these Bylaws in every case by
depositing a writing in a post office or letter box in a postpaid, sealed
wrapper, or by dispatching a prepaid telegram addressed to such Stockholder,
director, officer or agent at his address on the books of the Corporation.
Unless these Bylaws expressly provide to the contrary, the time when the
person sends notice shall constitute the time of the giving of notice.
9.2 Waiver of Notice. Whenever any notice whatsoever is required to
be given by these Bylaws, the Certificate of Incorporation, or law, the
person entitled thereto may, either before or after the meeting or other
matter in respect of which such notice is to be given, waive such notice in
writing or as otherwise permitted by law, which shall be filed with or
entered upon the records of the meeting or the records kept with respect to
such other matter, as the case may be, and in such event such notice need
not be given to such person and such waiver shall be deemed equivalent to
such notice. Attendance of a person at any meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called
or convened.
ARTICLE X
MISCELLANEOUS
10.1 Seal. The Board of Directors shall provide a suitable corporate
seal, which shall be in the form of a circle and shall bear the full name of
the Corporation and shall be in the charge of the Secretary. The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
10.2 Fiscal Year. The Board of Directors shall have the authority to
fix and change the fiscal year of the Corporation.
10.3 Execution of Documents. The Board of Directors or any committee
thereof shall designate the officers, employees, and agents of the
Corporation who shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, notes, checks, drags, and other orders for the
payment of money, and other documents for and in the name of the Corporation
and may authorize (including, without limitation, authority to redelegate)
by written instrument to other officers, employees, or agents of the
Corporation. Such delegation may be by resolution or otherwise and the
authority granted shall be general or confined to specific matters, all as
the Board of Directors or any such committee may determine. In the absence
of such designation referred to in the first sentence of this Section, the
officers of the Corporation shall have such power so referred to, to the
extent incident to the normal performance of their duties; provided,
however, that no loans shall be contracts on behalf of the Corporation and
no evidences of indebtedness shall be issued in the corporate name unless
authorized by a resolution of the Board of Directors.
10.4 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board of Directors or any committee thereof or any officer
of the Corporation to whom power in respect of financial operations shall
have been delegated by the Board of Directors or any such committee or in
these Bylaws shall select.
10.5 Checks. All checks, drafts, and other orders for the payment of
money out of the funds of the Corporation, and all notes or other evidences
of indebtedness of the Corporation, shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board of Directors or of any committee thereof or by any
officer of the Corporation to whom power in respect of financial operations
shall have been delegated by the Board or any such committee thereof or as
set forth in these Bylaws.
10.6 Proxies in Respect of Stock or Other Securities of Other
Entities. The Board of Directors or any committee thereof shall designate
the officers of the Corporation who shall have authority from time to time
to appoint an agent or agents of the Corporation to exercise in the name and
on behalf of the Corporation the powers and rights which the Corporation may
have as the holder of stock or other securities in any other corporation or
other entity, and to vote or consent in respect of such stock or securities.
Such designated officers may instruct the person(s) so appointed as to the
manner of exercising such powers and rights and such designated officers may
execute or cause to be executed in the name and on behalf of the Corporation
and under its corporate seal, or otherwise, such written proxies, powers of
attorney or other instruments as they may deem necessary or proper in order
that the Corporation may exercise its said powers and rights.
10.7 Facsimile Signatures. In addition to the use of facsimile
signatures which these Bylaws specifically authorize, the Corporation may
use such facsimile signatures of any officer(s) or agent(s) of the
Corporation as the Board of Directors may authorize.
10.8 Subject to Law and Certificate of Incorporation. All powers,
duties, and responsibilities provided for in these Bylaws, whether or not
explicitly so qualified, are qualified by applicable law and the provisions
of the Certificate of Incorporation.
Remainder of Page Intentionally Left Blank.
Signature Page To Follow.
IN WITNESS WHEREOF, the undersigned director hereby certifies that the
foregoing constitutes a true and correct copy of the bylaws of Alternate
Marketing Networks, Inc., a Delaware corporation, as adopted by the board of
directors of the corporation on the ___ day of __________, 2002.
Executed as of this ____ day of __________, 2002.
By: /s/ Phillip D. Miller
Name: Phillip D. Miller
Title: Director
APPENDIX E
BUSINESS CORPORATION ACT (EXCERPTS)
Act 284 of 1972
450.1761 Definitions. [M.S.A. 21.200(761)]
Sec. 761. As used in sections 762 to 774:
(a) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving corporation by merger of that
issuer.
(c) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 762 and who exercises that right when and in
the manner required by sections 764 through 772.
(d) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporation
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.
(e) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(f) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(g) "Shareholder" means the record or beneficial shareholder.
450.1762 Right of shareholder to dissent and obtain payment for shares.
Sec. 762. (1) A shareholder is entitled to dissent from, and obtain payment
of the fair value of his or her shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if shareholder approval is required for the merger by section 703a or
736(5) or the articles of incorporation and the shareholder is entitled to
vote on the merger, or the corporation is a subsidiary that is merged with
its parent under section 711.
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution but not including a sale pursuant
to court order.
(d) An amendment of the articles of incorporation giving rise to a
right to dissent pursuant to section 621.
(e) A transaction giving rise to a right to dissent pursuant to
section 754.
(f) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(g) The approval of a control share acquisition giving rise to a right
to dissent pursuant to section 799.
(2) Unless otherwise provided in the articles of incorporation, bylaws, or
a resolution of the board, a shareholder may not dissent from any of the
following:
(a) Any corporate action set forth in subsection (1)(a) to (e) as to
shares that are listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
national association of securities dealers, on the record date fixed to vote
on the corporate action or on the date the resolution of the parent
corporation's board is adopted in the case of a merger under section 711 not
requiring shareholder vote under section 713.
(b) A transaction described in subsection (1)(a) in which shareholders
receive cash or shares that satisfy the requirements of subdivision (a) on
the effective date of the merger or any combination thereof.
(c) A transaction described in subsection (1)(b) in which shareholders
receive cash or shares that satisfy the requirements of subdivision (a) on
the effective date of the share exchange or any combination thereof.
(d) A transaction described in subsection (1)(c) that is conducted
pursuant to a plan of dissolution providing for distribution of
substantially all of the corporation's net assets to shareholders in
accordance with their respective interests within one year after the date of
closing of the transaction, where the transaction is for cash or shares that
satisfy the requirements of subdivision (a) on the date of closing or any
combination thereof.
(3) A shareholder entitled to dissent and obtain payment for his or her
shares pursuant to subsection 1(a) to (e) may not challenge the corporate
action creating his or her entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(4) A shareholder who exercises his or her right to dissent and seek
payment for his or her shares pursuant to subsection (1)(f) may not
challenge the corporate action creating his or her entitlement unless the
action is unlawful or fraudulent with respect to the shareholder or the
corporation.
450.1763 Rights of partial dissenter; assertion of dissenters' rights by
beneficial shareholder. [M.S.A. 21.200(763)]
Section 763. (1) A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in his or her name only if he or she
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person
on whose behalf he or she asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as
to which he or she dissents and his or her other shares were registered in
the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if all of the following apply:
(a) He or she submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights.
(b) He or she does so with respect to all shares of which he or she is
the beneficial shareholder or over which he or she has power to direct the
vote.
450.1764 Corporate action creating dissenters' rights; vote of
shareholders; notice. [M.S.A. 21.200(764)]
Sec. 764. (1) If proposed corporate action creating dissenters' rights
under section 762 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this act and shall be accompanied by a copy of
sections 761 to 774.
(2) If corporate action creating dissenters' rights under section 762 is
taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in section
766. A shareholder who consents to the corporate action is not entitled to
assert dissenters' rights.
450.1765 Notice of intent to demand payment for shares. [M.S.A.
21.200(765)]
Section 765. (1) If proposed corporate action creating dissenters' rights
under section 762 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights must deliver to the
corporation before the vote is taken written notice of his or her intent to
demand payment for his or her shares if the proposed action is effectuated
and must not vote his or her shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
is not entitled to payment for his or her shares under this act.
450.1766 Dissenters' notice; delivery to shareholders; contents. [M.S.A.
21.200(766)]
Sec. 766. (1) If proposed corporate action creating dissenters' rights
under section 762 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of section 765.
(2) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must provide all of the following:
(a) State where the payment demand must be sent and where and when
certificates for shares represented by certificates must be deposited.
(b) Inform holders of shares without certificates to what extent
transfer of the shares will be restricted after the payment demand is
received.
(c) Supply a form for the payment demand that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether he or she acquired beneficial ownership of the shares
before the date.
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the subsection (1) notice is delivered.
450.1767 Duties of shareholder sent dissenter's notice; retention of
rights; failure to demand payment or deposit share certificates. [M.S.A.
21.200(767)]
Sec. 767. (1) A shareholder sent a dissenter's notice described in section
766 must demand payment, certify whether he or she acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to section 766(2)(c), and deposit his or her
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his or her share
certificates under subsection (1) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(3) A shareholder who does not demand payment or deposit his or her share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his or her shares under this act.
450.1768 Restriction on transfer of shares without certificates; retention
of rights. [M.S.A. 21.200(768)]
Sec. 768. (1) The corporation may restrict the transfer of shares without
certificates from the date the demand for their payment is received until
the proposed corporate action is taken or the restrictions released under
section 770.
(2) The person for whom dissenters' rights are asserted as to shares
without certificates retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
450.1769 Payment by corporation to dissenter; accompanying documents.
[M.S.A. 21.200(769)]
Sec. 769. (1) Except as provided in section 771, within 7 days after the
proposed corporate action is taken or a payment demand is received,
whichever occurs later, the corporation shall pay each dissenter who
complied with section 767 the amount the corporation estimates to be the
fair value of his or her shares, plus accrued interest.
(2) The payment must be accompanied by all of the following:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and if available the latest interim financial statements.
(b) A statement of the corporation's estimate of the fair value of the
shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's rights to demand payment under
section 772.
450.1770 Return of deposited certificates and release of transfer
restrictions; effect of corporation taking proposed action. [M.S.A.
21.200(770)]
Sec. 770. (1) If the corporation does not take the proposed action within
60 days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on shares without certificates.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 766 and repeat the payment demand
procedure.
450.1771 Election to withhold payment from dissenter; offer to pay
estimated fair value of shares, plus accrued interest; statements;
explanation. [M.S.A. 21.200(771)]
Sec. 771. (1) A corporation may elect to withhold payment required by
section 769 from a dissenter unless he or she was the beneficial owner of
the shares before the date set forth in the dissenters' notice pursuant to
section 766(2)(c).
(2) To the extent the corporation elects to withhold payment under
subsection (1), after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who shall agree to accept it in
full satisfaction of his or her demand. The corporation shall send with its
offer a statement of its estimate of the fair value of the shares, an
explanation of how the interest was calculated, and a statement of the
dissenter's right to demand payment under section 772.
450.1772 Demand for payment of dissenter's estimate or rejection of
corporation's offer and demand for payment of fair value and interest due;
waiver. [M.S.A. 21.200(772)]
Sec. 772. (1) A dissenter may notify the corporation in writing of his or
her own estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment
under section 769, or reject the corporation's offer under section 771 and
demand payment of the fair value of his or her shares and interest due, if
any, one of the following applies:
(a) The dissenter believes that the amount paid under section 769 or
offered under section 771 is less than the fair value of his or her shares
or that the interest due is incorrectly calculated.
(b) The corporation fails to make payment under section 769 within 60
days after the date set for demanding payment.
(c) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on shares without certificates within 60 days after the date set for
demanding payment.
(2) A dissenter waives his or her right to demand payment under this
section unless he or she notifies the corporation of his or her demand in
writing under subsection (1) within 30 days after the corporation made or
offered payment for his or her shares.
450.1773 Petitioning court to determine fair value of shares and accrued
interest; failure of corporation to commence proceeding; venue; parties;
service; jurisdiction; appraisers; discovery rights; judgment. [M.S.A.
21.200(773)]
Sec. 773. (1) If a demand for payment under section 772 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the 60-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court of
the county in which the corporation's principal place of business or
registered office is located. If the corporation is a foreign corporation
without a registered office or principal place of business in this state, it
shall commence the proceeding in the county in this state where the
principal place of business or registered office of the domestic corporation
whose shares are to be valued was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in
an action against their shares and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail
or by publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or for
the fair value, plus accrued interest, of his or her after-acquired shares
for which the corporation elected to withhold payment under section 771.
450.1773a Referee; appointment; powers; compensation; duties; objections to
report; application to court for action; adoption, modification, or
recommitment of report; further evidence; judgment; review. [M.S.A.
21.200(773a)]
Sec. 773a. (1) In a proceeding brought pursuant to section 773, the court
may, pursuant to the agreement of the parties, appoint a referee selected by
the parties and subject to the approval of the court. The referee may
conduct proceedings within the state, or outside the state by stipulation of
the parties with the referee's consent, and pursuant to the Michigan court
rules. The referee shall have powers that include, but are not limited to,
the following:
(a) To hear all pretrial motions and submit proposed orders to the
court. In ruling on the pretrial motion and proposed orders, the court
shall consider only those documents, pleadings, and arguments that were
presented to the referee.
(b) To require the production of evidence, including the production of
all books, papers, documents, and writings applicable to the proceeding, and
to permit entry upon designated land or other property in the possession or
control of the corporation.
(c) To rule upon the admissibility of evidence pursuant to the
Michigan rules of evidence.
(d) To place witnesses under oath and to examine witnesses.
(e) To provide for the taking of testimony by deposition.
(f) To regulate the course of the proceeding.
(g) To issue subpoenas, when a written request is made by any of the
parties, requiring the attendance and testimony of any witness and the
production of evidence including books, records, correspondence, and
documents in the possession of the witness or under his or her control, at a
hearing before the referee or at a deposition convened pursuant to
subdivision (e). In case of a refusal to comply with a subpoena, the party
on whose behalf the subpoena was issued may file a petition in the court for
an order requiring compliance.
(2) The amount and manner of payment of the referee's compensation shall be
determined by agreement between the referee and the parties, subject to the
court's allocation of compensation between the parties at the end of the
proceeding pursuant to equitable principles, notwithstanding section 774.
(3) The referee shall do all of the following:
(a) Make a record and reporter's transcript of the proceeding.
(b) Prepare a report, including proposed findings of fact and
conclusions of law, and a recommended judgment.
(c) File the report with the court, together with all original
exhibits and the reporter's transcript of the proceeding.
(4) Unless the court provides for a longer period, not more than 45 days
after being served with notice of the filing of the report described in
subsection (3), any party may serve written objections to the report upon
the other party. Application to the court for action upon the report and
objections to the report shall be made by motion upon notice. The court,
after hearing, may adopt the report, may receive further evidence, may
modify the report, or may recommit the report to the referee with
instructions. Upon adoption of the report, judgment shall be entered in the
same manner as if the action had been tried by the court and shall be
subject to review in the same manner as any other judgment of the court.
450.1774 Cost of appraisal proceeding. [M.S.A. 21.200(774)]
Sec. 774. (1) The court in an appraisal proceeding commenced under section
773 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
section 772.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable in the
following manner:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 764 through 772.
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this act.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to those counsel reasonable fees paid out of the amounts
awarded the dissenters who were benefitted.
APPENDIX F
ALTERNATE MARKETING NETWORKS, INC. REPORT ON FORM 10-QSB FOR THE
THREE MONTHS MARCH 31, 2002
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-26624
ALTERNATE MARKETING NETWORKS, INC.
(Exact name of small business issuer as specified in its charter)
Michigan 38-2841197
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Ionia, SW, Suite 520, Grand Rapids, Michigan 49503
(Address of principal executive offices) (Zip Code)
616-235-0698 FAX 616-235-3405
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes (X) No ( )
As of May 5, 2002, 4,586,005 shares of the issuer's common stock were
outstanding.
This report contains 15 pages.
ALTERNATE MARKETING NETWORKS, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information: No.
Condensed Consolidated Balance Sheets - March 31, 2002,
and December 31, 2001 . . . . . . . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Operations - three
months ended March 31, 2002 and 2001 . . . . . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows - three
months ended March 31, 2002 and 2001. . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . .7-10
Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . . . .11-13
PART II. Other Information:
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . .15
Part I. Financial Information
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
ASSETS
March 31, December 31,
2002 2001
(unaudited)
------------ ------------
Current assets:
Cash and cash equivalents $ 1,297,384 $ 3,783,082
Accounts receivable, trade, less
allowance of $100,000 at March 31
and December 31 2,867,707 3,063,875
Prepaid expenses and other assets 168,914 160,005
Refundable federal income tax 180,000 180,000
------------ ------------
Total current assets 4,514,005 7,186,962
Property and equipment:
Computer equipment 272,637 272,637
Furniture and fixtures 150,292 150,292
------------ ------------
422,929 422,929
Accumulated depreciation and
amortization (353,935) (345,603)
------------ ------------
68,994 77,326
Computer software, net 56,238 66,991
Goodwill, net 2,004,947 2,004,947
------------ ------------
$ 6,644,184 $ 9,336,226
============ ============
Continued
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
LIABILITIES
March 31, December 31,
2002 2001
(unaudited)
------------ ------------
Current liabilities:
Accounts payable $ 1,263,020 $1,596,613
Accrued liabilities 157,632 184,652
Deferred revenue 62,076 15,625
Dividend payable 2,293,052
------------ ------------
Total current liabilities 1,482,728 4,089,942
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock-no par value, 2,000,000
authorized, no shares issued and outstanding
Common stock-no par value, voting, 14,000,000
authorized shares; 4,586,005 shares issued
and outstanding at March 31, 2002 and
December 31, 2001 11,708,282 11,708,282
Accumulated losses, through September 30, 1993
(Note 4) (1,291,039) (1,291,039)
------------ ------------
Total common stock 10,417,243 10,417,243
Accumulated losses, since October 1, 1993
(Note 4) (5,255,787) (5,170,959)
------------ ------------
Total shareholders' equity 5,161,456 5,246,284
------------ ------------
$ 6,644,184 $ 9,336,226
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended
March 31,
----------------------------
2002 2001
------------- -------------
(unaudited)
Net sales $4,081,545 $3,560,097
Cost of sales 3,171,929 2,750,919
------------ ------------
Gross profit 909,616 809,178
Selling, general and administrative expenses 1,002,258 1,075,662
------------ ------------
Loss from operations ( 92,642) ( 266,484)
Other income (expense), net 7,814 45,596
------------ ------------
Net loss ($ 84,828) ($ 220,888)
============ ============
Net loss per share: (Note 3)
Basic ($ .02) ($ .05)
============ ============
Diluted ($ .02) ($ .05)
============ ============
Weighted average number of shares
outstanding: (Note 3)
Basic 4,586,005 4,679,018
============ ============
Diluted 4,586,005 4,679,018
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three months ended
March 31,
--------------------------
2002 2001
------------ ------------
(unaudited)
Net cash flows from (used in)operating
activities ($ 192,696) $ 202,078
------------ ------------
Net cash flows used in investing activities ( 787)
------------ ------------
Net cash flows used in financing activities ( 2,293,002) ( 34,144)
------------ ------------
Net increase (decrease) in cash and
cash equivalents ( 2,485,698) 167,147
Cash and cash equivalents, beginning
of period 3,783,082 3,196,179
------------ ------------
Cash and cash equivalents, end of
period $1,297,384 $ 3,363,326
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies:
The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the
results of operations for the interim periods. The financial statements
included herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures included herein are adequate to make
the information presented not misleading. The results of operations for the
three months ended March 31, 2002 are not necessarily indicative of the
results of operations expected for the year ending December 31, 2002.
Certain prior year amounts have been reclassified to conform with
current year classifications.
The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The organization and business of
the Company, accounting policies followed by the Company and other
information are contained in the notes to the Company's financial statements
filed as part of the Company's Form 10-KSB for the fiscal year ended
December 31, 2001. This quarterly report should be read in conjunction with
the Form 10-KSB.
2. Income Taxes:
At March 31, 2002, the Company had net operating loss carryforwards of
approximately $2,480,000, which are available to reduce future taxable
income. Related deferred tax assets are fully reserved for. These
carryforwards expire in 2006 to 2013. Net operating loss carryforwards
related to the operations of National Home Delivery, Inc. prior to the
pooling of interest are subject to certain annual limitations. The Company
does not recognize any income tax benefit based upon managements' estimate
of the realizability of deferred tax assets.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
3. Net Loss Per Share Calculations:
The following tables illustrate the calculations of basic loss per
share and diluted loss per share.
Three months ended
March 31,
---------------------------
2002 2001
------------ ------------
Income (Numerator):
Net loss: ($ 84,828) ($ 220,888)
============= ============
Shares (Denominator):
Basic loss per share:
Actual weighted average shares outstanding 4,586,005 4,679,018
============ ===========
Basic loss per share:
Net loss per share ($ .02) ($ .05)
============ ============
Diluted loss per share:
Actual weighted average shares
outstanding 4,586,005 4,679,018
Shares upon conversion of warrants and
options * *
------------ ------------
Adjusted shares outstanding 4,586,005 4,679,018
============ ============
Diluted loss per share:
Net loss per share ($ .02) ($ .05)
============ ============
*The incremental shares are not included in the computation as they are
anti-dilutive.
4. Accumulated Losses:
Accumulated losses, through September 30, 1993, represent the losses
and capital of the Company during the period of time it was a subchapter S
corporation. All subsequent losses of the combined entities are presented
under Accumulated losses, since October 1, 1993.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
5. Segment Information:
The Company evaluates profitability and allocates assets and resources
by dividing its business into two operating segments by product areas:
* Advertising and Marketing - includes newspaper advertising and online
marketing;
* Logistics Marketing - includes the delivery and marketing of
telephone directories, as well as, tracking, verification and transportation
services.
Management evaluates segment profitability by reviewing gross profits.
Substantially all of the Company's revenues are generated in the United
States.
Segment analysis is provided in the tables below.
Three months ended
March 31,
---------------------------
2002 2001
------------ ------------
Revenues:
Advertising and marketing $ 3,292,609 $ 2,320,996
Logistics marketing 788,936 1,239,101
----------- -----------
Total revenues $ 4,081,545 $ 3,560,097
=========== ===========
Gross Profits:
Advertising and marketing $ 571,905 $ 443,726
Logistics marketing 337,711 365,452
----------- -----------
Total gross profit 909,616 809,178
Selling, general & administrative expenses 1,002,258 1,075,662
Other income, net 7,814 45,596
----------- -----------
Income (loss) before income taxes ($ 84,828) ($ 220,888)
=========== ===========
Gross Profit Percentages:
Advertising and marketing 17.4% 19.1%
Logistics marketing 42.8% 29.5%
----------- -----------
Total Gross Profit 22.3% 22.7%
=========== ===========
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
6. Recent Accounting Pronouncements:
In July 2001, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 141 "Business Combinations" and SFAS No. 142 "Goodwill
and Other Intangible Assets." Both of these Standards provide guidance on
how companies account for acquired businesses and related disclosure issues.
Chief among the provisions of these standards are 1) elimination of the
"pooling of interest" method for transactions initiated after June 30, 2001,
2) elimination of amortization of goodwill and "indefinite-lived" intangible
assets effective for the Company on January 1, 2002, and 3) annual
impairment testing and potential loss recognition for goodwill and non-
amortized intangible assets, also effective for the Company on January 1,
2002.
Regarding the elimination of goodwill and indefinite-lived intangible
amortization, this change has been made prospectively upon adoption of the
new standard as of January 1, 2002. Earnings information for prior periods
is disclosed, exclusive of comparable amortization expense that is
eliminated in post-2001 periods as follows:
Three months ended March 31, 2001
Reported Earnings
Numbers Per Share
Reported income (loss) ($220,888) ($0.05)
Add back amortization expense 37,391 $0.01
Comparable net income (loss) ($183,497) ($0.04)
Management is in the process of performing the transitional impairment
testing of goodwill under the provisions of SFAS No. 142. Management has
not yet determined the impact of such transitional impairment testing on the
carrying value of goodwill.
The Company continues to amortize intangible assets consisting of
software over three to five years. As of March 31, 2002, the unamortized
balance of software consisted of $115,205 less accumulated amortization of
$58,967. Amortization expense for the period ending March 31, 2002 was
$10,753.
7. Subsequent Events:
On April 9, 2002, the Company entered into an Agreement and Plan of
Reorganization pursuant to which it will acquire Hencie, Inc. Hencie, Inc.
is an information technology company offering solutions and applications for
a broad range of clients and industry segments. The Company will issue one
share of its common stock for 3.563 shares of Hencie common stock to the
Hencie shareholders in an all stock transaction. The acquisition is subject
to shareholder ratification at the annual shareholders meeting which is
currently scheduled to be held July 17, 2002, with an effective date of
August 1, 2002.
ALTERNATE MARKETING NETWORKS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview and Plan of Operation
Alternate Marketing Networks is a single-source provider of marketing
services. The Company serves the newspaper, consumer packaged goods,
telecommunications, automotive, tourism and e-commerce industries with both
short-term and long-term contracts. The Company offers comprehensive
services in two primary areas: Advertising and Marketing, and Logistics
Marketing.
* Advertising and Marketing Group. This product group consists of U.S.
Suburban Press ("USSPI") and ilikesamples.com. Services provided by this
group include suburban newspaper advertising, Hispanic newspaper
advertising, and deliveries of product samples to targeted consumers via the
Internet.
* Logistics Marketing Group. This product group consists of Alternate
Postal Direct and Total Logistics. Services include the delivery of
telephone directories for regional and national companies, as well as
tracking, verification and transportation of other goods.
During the quarter ended March 31, 2002, the Company continued to focus
on improving the efficiency and profitability of the two segments through
cost controls, time management, and technological improvements. In
addition, the Company continued to seek alliances and acquisitions which
could improve shareholder value and paid out a special one-time cash
dividend of $0.50 per share to shareholders in January 2002.
Results of Operation
Net sales: Net sales increased approximately 15% for the quarter ending
March 31, 2002 as compared to last year. The advertising and marketing
group recognized an increase of approximately 42%, or $972,000, over the
previous year attributable to new clients and increased sales to existing
automotive industry clients. The logistics marketing group recognized a
decrease of approximately 36% over the previous year of which approximately
$155,000 was from the telephone directory delivery area and approximately
$295,000 was attributable to the transportation logistics area.
Gross margin: The gross margin of the total company remained
approximately the same, 22.3% in 2002 as compared to 22.7% 2001. However,
the advertising and marketing group realized a decrease from 19.1% in 2001
to 17.4% in 2002 due to competitive forces from clients and newspapers. The
logistics marketing group recognized a significant increase of margins from
29.5% in 2001 to 42.8% in 2002 due to cost containment, planning, and
improved economic factors such as an improved supply of labor.
Selling, general and administrative expenses: These expenses decreased
approximately 7% over the quarter from the previous year. This was
primarily due to the Company continuing to closely monitor overhead items
and search for potential additional reductions. The current year quarter
also included approximately $15,000 of expenses associated with acquisition
and merger initiatives.
Other income: Interest income for the quarter ending March 31, 2002 was
$7,814 as compared to $45,596 in the previous year's quarter. This
reduction was largely due to the reduced cash balance after the dividend
payment in January 2002 of $2,293,002.
Income taxes: The Company does not recognize any income tax benefit
based upon managements' estimate of the realizability of deferred tax
assets.
Liquidity and Capital Resources
During the first quarter of 2002, the Company recognized a decrease in
cash of $2,485,698. During the same quarter of 2001, the Company recognized
an increase in cash of $167,147.
The net losses for 2002 and 2001 included non-cash expenses for
depreciation and amortization of $8,332 and $10,753, respectively, for the
2002 quarter, compared to non-cash expenses for depreciation and
amortization of $12,244 and $41,591, respectively, for the 2001 quarter.
The amortization expense for the 2001 quarter included $37,391 for goodwill
amortization. Other changes to cash were working capital fluctuations.
Cash flow used in financing activities for the period ending March 31,
2002 represents the cash dividend announced in December 2001 and paid in
January 2002 of $2,293,002.
In addition, during the 2001 quarter cash was used for additions to
property and equipment totaling $787. Also, during the 2001 quarter the
Company used cash to repurchase 25,600 shares of common stock for $34,144.
The Company has a $1,000,000 bank line of credit for its subsidiary,
National Home Delivery, Inc. and a $500,000 line of credit for its
subsidiary, Alternate Postal Direct, Inc. Available borrowings are based
upon 65% of eligible accounts receivable, not more than 90 days old. The
agreements were executed on March 12, 2002 and expire May 1, 2003, bear
interest payable monthly at the bank's prime rate. The agreements are
collateralized by all accounts receivable and equipment and are subject to
certain restrictive financial covenants relating to working capital and
tangible net worth. There were no borrowings outstanding as of March 31,
2002.
The Company believes that these credit facilities along with its
current cash balance will be sufficient to fund its current growth plans as
well as meet its presently anticipated capital requirements for the
foreseeable future.
Outlook for the Future
The Company will continue in 2002 to work toward completion of its
recently announced strategic acquisition as well as focus on its core
groups.
The Advertising and Marketing Group, US Suburban Press (USSPI), will
continue to expand its newspaper advertiser capabilities by using recently
developed proprietary software to handle contracts and orders and to
streamline its ad placement process. This expansion should make USSPI more
attractive to national advertisers, who prefer to work with a single party.
This initiative should also mitigate the negative impact on gross margins
from national advertisers who seek to lower advertising rates while
newspapers seek increases.
In 2002 the Logistics Marketing Group expects to maintain recent gains
in gross margins by controlling direct costs.
The Company plans to closely monitor overhead to better reflect its
current operational needs while maintaining strong support for all core
business functions and growth objectives.
On April 9, 2002, the Company entered into an agreement for the
acquisition of Hencie, Inc., a Texas-based information technology solutions
provider, in an all-stock transaction. The agreement is subject to
shareholder ratification at the annual shareholders meeting to be held July
23, 2002 and will be effective on August 1, 2002. The Company expects the
Hencie business to offer a third segment of services to its existing
customers.
Forward-looking Statements
Except for historical information contained herein, the matters set
forth in this management discussion and analysis are forward-looking
statements based on current expectations. Actual results may differ
materially. These forward-looking statements involve a number of risks and
uncertainties including, but not limited to, competition, the timing of
receipt and fulfillment of orders, the implementation of the Company's
reorientation as a marketing services company (including continuing
strategic acquisitions and in-house development of products and services),
the effectiveness of the Company's marketing programs, the integration of
acquired companies, and the Company's success in developing and capitalizing
on strategic alliances.
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K.
During the period of this report, there were no filings on Form 8-K.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ALTERNATE MARKETING NETWORKS, INC.
Date: May 14, 2002 By: /s/Phillip D. Miller
Phillip D. Miller
Chief Executive Officer
By: /s/Sandra J. Smith
Sandra J. Smith
Chief Financial Officer
APPENDIX G
ALTERNATE MARKETING NETWORKS, INC.
AMENDED AND RESTATED 1995 LONG-TERM INCENTIVE
AND
STOCK OPTION PLAN
Table of Contents
1. Purpose of Plan 1
2. Stock Subject to Plan 1
3. Administration of Plan 1
4. Eligibility 2
5. Price 2
6. Term 3
7. Exercise of Option or Award 3
8. Additional Restrictions 3
9. Alternative Stock Appreciation Rights 4
10. Ten Percent Shareholder Rule 4
11. Non-Transferability 4
12. Restricted Stock Awards 4
13. Performance Awards 5
14. Dilution or Other Adjustments 6
15. Amendment or Discontinuance of Plan 6
16. Income Tax Withholding and Tax Bonuses 6
17. Effective Date and Termination of Plan 6
AMENDED AND RESTATED 1995 LONG-TERM INCENTIVE AND
STOCK OPTION PLAN
1. Purpose of Plan
This Plan shall be known as the "Alternate Marketing Networks, Inc.
1995 LONG-TERM INCENTIVE AND STOCK OPTION PLAN" and is hereinafter referred
to as the "Plan." The purpose of the Plan is to aid in maintaining and
developing personnel capable of assuring the future success of Alternate
Marketing Networks, Inc., a Delaware corporation (the "Company"), to offer
such personnel additional incentives to put forth maximum efforts for the
success of the business, and to afford them an opportunity to acquire a
proprietary interest in the Company through stock options and other long-
term incentive awards as provided herein. Options granted under this Plan
may be either incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), or
options which do not qualify as Incentive Stock Options. Awards granted
under this Plan shall be stock appreciation rights ("SARs"), restricted
stock or performance awards as hereinafter described.
2. Stock Subject to Plan
Subject to the provisions of Section 14 hereof, the stock to be
subject to options or other awards under the Plan shall be the Company's
authorized Common Stock, no par value (the "Common Shares"). Such shares
may be either authorized but unissued shares, or issued shares which have
been reacquired by the Company. Subject to adjustment as provided in
Section 14 hereof, the maximum number of shares on which options may be
exercised or other award issued under this Plan shall be 1,500,000 Common
Shares. If an option or award under the Plan expires, or for any reason is
terminated or unexercised with respect to any shares, such shares shall
again be available for options or awards thereafter granted during the term
of the Plan.
3. Administration of Plan
(a) Except as provided in Section 3(b) hereof, the Plan shall be
administered by the Board of Directors of the Company or a committee
thereof. The members of any such committee shall be appointed by and serve
at the pleasure of the Board of Directors. If no committee is appointed by
the Board, the committee shall be comprised of all of the members of the
Board of Directors. (The group administering the Plan shall hereinafter be
referred to as the "Committee.")
(b) The Board of Directors may, by a resolution adopted by the
Board, authorize one or more officers of the Company to do one or both of
the following: (i) designate officers and employees of the Company or of
any of its subsidiaries to be recipients of such options or other awards
under the Plan, and (ii) determine the number of such options or other
awards under the Plan to be received by such officers and employees;
provided, however, that the resolution so authorizing such officer or
officers shall specify the total number of common shares subject to such
officer or officers may so award. The Board of Directors may not authorize
an officer to designate himself or herself as a recipient of any such
options or other awards.
(c) The Committee shall have plenary authority in its discretion,
but subject to the express provisions of the Plan: (i) to determine the
purchase price of the Common Stock covered by each option or award, (ii) to
determine the persons to whom and the time or times at which such options
and awards shall be granted and the number of shares to be subject to each,
(iii) to determine the form of payment to be made upon the exercise of an
SAR or in connection with performance awards, either cash, Common Shares of
the Company or a combination thereof, (iv) to determine the terms of
exercise of each option and award, (v) to accelerate the time at which all
or any part of an option or award may be exercised, (vi) to amend or modify
the terms of any option or award with the consent of the optionee, (vii) to
interpret the Plan, (viii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (ix) to determine the terms and provisions
of each option and award agreement under the Plan (which agreements need not
be identical), including the designation of those options intended to be
Incentive Stock Options, and (x) to make all other determinations necessary
or advisable for the administration of the Plan, subject to the exclusive
authority of the Board of Directors under Section 15 herein to amend or
terminate the Plan. The Committee's determinations on the foregoing
matters, unless otherwise disapproved by the Board of Directors of the
Company, shall be final and conclusive.
(d) The Committee may select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of
the Committee shall be made by not less than a majority of its members. Any
decision or determination reduced to writing and signed by all of the
members of the Committee shall be fully effective as if it had been made by
a majority vote at a meeting duly called and held. The grant of an option
or award shall be effective only if a written agreement shall have been duly
executed and delivered by and on behalf of the Company following such grant.
The Committee may appoint a Secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable.
4. Eligibility
Incentive Stock Options may only be granted under this Plan to any
full or part-time employee (which term as used herein includes, but is not
limited to, officers and directors who are also employees) of the Company
and of its present and future subsidiary corporations (herein called
"subsidiaries"). Full or part-time employees, non-employee members of the
Board of Directors, and non-employee consultants, agents or independent
contractors to the Company or one of its subsidiaries shall be eligible to
receive options which do not qualify as Incentive Stock Options and awards.
In determining the persons to whom options and awards shall be granted and
the number of shares subject to each, the Committee may take into account
the nature of the services rendered by the respective employees or
consultants, their present and potential contributions to the success of the
Company and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option or award under this Plan
may be granted additional options or awards under the Plan if the Committee
shall so determine; provided, however, that for Incentive Stock Options, to
the extent the aggregate fair market value (determined at the time the
Incentive Stock Option is granted) of the Common Shares with respect to
which all Incentive Stock Options are exercisable for the first time by an
employee during any calendar year (under all plans described in subsection
(d) of Section 422 of the Code of his employer corporation and its parent
and subsidiary corporations) exceeds $100,000, such options shall be treated
as options which do not qualify as Incentive Stock Options. Nothing in the
Plan or in any agreement thereunder shall confer on any employee any right
to continue in the employ of the Company or any of its subsidiaries or
affect, in any way, the right of the Company or any of its subsidiaries to
terminate his or her employment at the time.
5. Price
The option price for all Incentive Stock Options granted under the
Plan shall be determined by the Committee but shall not be less than 100% of
the fair market value of the Common Shares at the date of grant of such
option. The option price for options granted under the Plan which do not
qualify as Incentive Stock Options and, if applicable, the price for all
awards shall also be determined by the Committee and may be other than 100%
of the fair market value of the Common Shares. For purposes of the
preceding sentence and for all other valuation purposes under the Plan, the
fair market value of the Common Shares shall be as reasonably determined by
the Committee. If on the date of grant of any option or award hereunder the
Common Shares are not traded on an established securities market, the
Committee shall make a good faith attempt to satisfy the requirements of
this Section 5 and in connection therewith shall take such action as it
deems necessary or advisable.
6. Term
Each option and award and all rights and obligations thereunder shall
expire on the date determined by the Committee and specified in the option
or award agreement. The Committee shall be under no duty to provide terms
of like duration for options or awards granted under the Plan, but the term
of an Incentive Stock Option may not extend more than ten (10) years from
the date of grant of such option and the term of options granted under the
Plan which do not qualify as Incentive Stock Options may not extend more
than fifteen (15) years from the date of granting of such option.
7. Exercise of Option or Award
(a) The Committee shall have full and complete authority to
determine whether an option or award will be exercisable in full at any time
or from time to time during the term thereof, or to provide for the exercise
thereof in such installments, upon the occurrence of such events (such as
termination of employment for any reason) and at such times during the term
of the option as the Committee may determine and specify in the option or
award agreement.
(b) The exercise of any option or award granted hereunder shall only
be effective at such time that the sale of Common Shares pursuant to such
exercise will not violate any state or federal securities or other laws.
(c) An optionee or grantee electing to exercise an option or award
shall give written notice to the Company of such election and of the number
of shares subject to such exercise. The full purchase price of such shares
shall be tendered with such notice of exercise. Payment shall be made to
the Company in cash (including bank check, certified check, personal check,
or money order), or, at the discretion of the Committee and as specified by
the Committee, (i) by delivering certificates for the Company's Common
Shares, or securities of any subsidiary (direct or indirect) of the Company,
already owned by the optionee or grantee having a fair market value as of
the date of grant equal to the full purchase price of the shares or (ii) a
combination of cash and such shares. The fair market value of such tendered
shares shall be determined as provided in Section 5 herein. Until such
person has been issued the shares subject to such exercise, he or she shall
possess no rights as a shareholder with respect to such shares.
8. Additional Restrictions
The Committee shall have full and complete authority to determine
whether all or any part of the Common Shares of the Company acquired upon
exercise of any of the options or awards granted under the Plan shall be
subject to restrictions on the transferability thereof or any other
restrictions affecting in any manner the optionee's or grantee's rights with
respect thereto, but any such restriction shall be contained in the
agreement relating to such options or awards.
9. Alternative Stock Appreciation Rights
(a) Grant. At the time of grant of an option or award under the
Plan (or at any other time), the Committee, in its discretion, may grant a
Stock Appreciation Right ("SAR") evidenced by an agreement in such form as
the Committee shall from time to time approve. Any such SAR may be subject
to restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR which agreement shall comply with and be subject to
the following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.
(b) Exercise. An SAR shall be exercised by the delivery to the
Company of a written notice which shall state that the holder thereof elects
to exercise his or her SAR as to the number of shares specified in the
notice and which shall further state what portion, if any, of the SAR
exercise amount (hereinafter defined) the holder thereof requests to be paid
to in cash and what portion, if any, is to be paid in Common Shares of the
Company. The Committee promptly shall cause to be paid to such holder the
SAR exercise amount either in cash, in Common Shares of the Company, or any
combination of cash and shares as the Committee may determine. Such
determination may be either in accordance with the request made by the
holder of the SAR or in the sole and absolute discretion of the Committee.
The SAR exercise amount is the excess of the fair market value of one share
of the Company's Common Shares on the date of exercise over the per share
exercise price in respect of which the SAR was granted, multiplied by the
number of shares as to which the SAR is exercised. For the purposes hereof,
the fair market value of the Company's shares shall be determined as
provided in Section 5 herein.
10. Ten Percent Shareholder Rule
Notwithstanding any other provision in the Plan, if at the time an
option is granted pursuant to the Plan the optionee owns directly or
indirectly (within the meaning of Section 425(d) of the Code) Common Shares
of the Company possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or its parent or
subsidiary corporations, if any (within the meaning of Section 422(b)(6) of
the Code), then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of Section 422(c)(6) of
the Code, and the option price shall be not less than 110% of the fair
market value of the Common Shares of the Company determined as described
herein, and such option by its terms shall not be exercisable after the
expiration of five (5) years from the date such option is granted.
11. Non-Transferability
Except as otherwise provided in an option or award agreement, no
option or award granted under the Plan shall be transferable by an optionee
or grantee, otherwise than by will or the laws of descent or distribution,
and during the lifetime of an optionee or grantee, the option shall be
exercisable only by such optionee or grantee.
12. Restricted Stock Awards
Awards of Common Shares subject to forfeiture and transfer
restrictions may be granted by the Committee. Any restricted stock award
shall be evidenced by an agreement in such form as the Committee shall from
time to time approve, which agreement shall comply with and be subject to
the following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted stock award
made under the Plan shall be for such number of Common Shares as shall be
determined by the Committee and set forth in the agreement containing the
terms of such restricted stock award. Such agreement shall set forth a
period of time during which the grantee must remain in the continuous
employment of the Company in order for the forfeiture and transfer
restrictions to lapse. If the Committee so determines, the restrictions may
lapse during such restricted period in installments with respect to
specified portions of the shares covered by the restricted stock award. The
agreement may also, in the discretion of the Committee, set forth
performance or other conditions that will subject the Common Shares to
forfeiture and transfer restrictions. The Committee may, at its discretion,
waive all or any part of the restrictions applicable to any or all
outstanding restricted stock awards.
(b) Delivery of Common Shares and Restrictions. At the time of a
restricted stock award, a certificate representing the number of Common
Shares awarded thereunder shall be registered in the name of the grantee.
Such certificate shall be held by the Company or any custodian appointed by
the Company for the account of the grantee subject to the terms and
conditions of the Plan, and shall bear such a legend setting forth the
restrictions imposed thereon as the Committee, in its discretion, may
determine. The grantee shall have all rights of a shareholder with respect
to the Common Shares, including the right to receive dividends and the right
to vote such shares, subject to the following restrictions: (i) the grantee
shall not be entitled to delivery of the stock certificates until the
expiration of the restricted period and the fulfillment of any other
restrictive conditions set forth in the restricted stock agreement with
respect to such Common Shares; (ii) none of the Common Shares may be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or
disposed of during such restricted period or until after the fulfillment of
any such other restrictive conditions; and (iii) except as otherwise
determined by the Committee, all of the Common Shares shall be forfeited and
all rights of the grantee to such Common Shares shall terminate, without
further obligation on the part of the Company, unless the grantee remains in
the continuous employment of the Company for the entire restricted period in
relation to which such Common Shares were granted and unless any other
restrictive conditions relating to the restricted stock award are met. Any
Common Shares, any other securities of the Company and any other property
(except for cash dividends) distributed with respect to the Common Shares
subject to restricted stock awards shall be subject to the same
restrictions, terms and conditions as such restricted Common Shares.
(c) Termination of Restrictions. At the end of the restricted
period and provided that any other restrictive conditions of the restricted
stock award are met, or at such earlier time as otherwise determined by the
Committee, all restrictions set forth in the agreement relating to the
restricted stock award or in the Plan shall lapse as to the restricted
Common Shares subject thereto, and a stock certificate for the appropriate
number of Common Shares, free of the restrictions and the restricted stock
legend, shall be delivered to the grantee or his beneficiary or estate, as
the case may be.
13. Performance Awards
The Committee is further authorized to grant Performance awards.
Subject to the terms of this Plan and any applicable award agreement, a
Performance award granted under the Plan (i) may be denominated or payable
in cash, Common Shares (including, without limitation, restricted stock),
other securities, other awards, or other property and (ii) shall confer on
the holder thereof rights valued as determined by the Committee, in its
discretion, and payable to, or exercisable by, the holder of the Performance
awards, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee, in its discretion, shall
establish. Subject to the terms of this Plan and any applicable award
agreement, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any Performance
award granted, and the amount of any payment or transfer to be made by the
granter and by the Company under any Performance award shall be determined
by the Committee.
14. Dilution or Other Adjustments
If there shall be any change in the Common Shares through merger,
consolidation, reorganization, recapitalization, dividend in the form of
stock (of whatever amount), stock split or other change in the corporate
structure, appropriate adjustments in the Plan and outstanding options and
awards shall be made by the Committee. In the event of any such changes,
adjustments shall include, where appropriate, changes in the aggregate
number of shares subject to the Plan, the number of shares and the price per
share subject to outstanding options and awards and the amount payable upon
exercise of outstanding awards, in order to prevent dilution or enlargement
of option or award rights.
15. Amendment or Discontinuance of Plan
The Board of Directors may amend or discontinue at any time.
Subject to the provisions of Section 14 no amendment of the Plan, however,
shall without shareholder approval: (i) increase the maximum number of
shares under the Plan as provided in Section 2 herein, (ii) decrease the
minimum price provided in Section 5 herein, (iii) extend the maximum term
under Section 6, or (iv) modify the eligibility requirements for
participation in the Plan. The Board of Directors shall not alter or impair
any option or award theretofore granted under the Plan without the consent
of the holder of the option or award.
16. Income Tax Withholding and Tax Bonuses
(a) In order to comply with all applicable federal or state income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of an optionee or grantee under the Plan, are withheld or
collected from such optionee or grantee. In order to assist an optionee or
grantee in paying all federal and state taxes to be withheld or collected
upon exercise of an option or award which does not qualify as an Incentive
Stock Option hereunder, the Committee, in its absolute discretion and
subject to such additional terms and conditions as it may adopt, shall
permit the optionee or grantee to satisfy such tax obligation by (i)
electing to have the Company withhold a portion of the shares otherwise to
be delivered upon exercise of such option or award with a fair market value,
determined in accordance with Section 5 herein, equal to such taxes or (ii)
delivering to the Company Common Shares other than the shares issuable upon
exercise of such option or award with a fair market value, determined in
accordance with Section 5, equal to such taxes.
(b) The Committee shall have the authority, at the time of grant of
an option under the Plan or at any time thereafter, to approve tax bonuses
to designated optionees or grantees to be paid upon their exercise of
options or awards granted hereunder. The amount of any such payment shall
be determined by the Committee. The Committee shall have full authority in
its absolute discretion to determine the amount of any such tax bonus and
the terms and conditions affecting the vesting and payment thereafter.
17. Effective Date and Termination of Plan
(a) The Plan was approved by the Board of Directors by unanimous
action in writing, effective July 21, 1995 and by the shareholders of the
Company by unanimous action in writing, effective July 21, 1995.
(b) Unless the Plan shall have been discontinued as provided in
Section 14 hereof, the Plan shall terminate July 20, 2005. No option or
award may be granted after such termination, but termination of the Plan
shall not, without the consent of the optionee or grantee, alter or impair
any rights or obligations under any option or award theretofore granted.