As filed with the Securities and Exchange Commission on May 7, 2003
Registration No. 333-104704
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_______________
Alternate Marketing Networks, Inc.
(name of small business issuer in its charter)
Delaware 7310 38-2841197
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number)Identification No.)
13155 Noel Road, 10th Floor
Dallas, TX 75240
(972) 720-3500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Adil Khan
Chief Executive Officer
Alternate Marketing Networks, Inc.
13155 Noel Road, 10th Floor
Dallas, TX 75240
(972) 720-3500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_______________
Copies to:
Greg R. Samuel
Haynes and Boone, LLP
901 Main Street
Suite 3100
Dallas, TX 75202
(214) 651-5000
_______________
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
_____________________________________________________________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
_____________________________________________________________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
_____________________________________________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
_____________________________________________________________________________
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
Title of each Number of Units/Shares Proposed Proposed Amount of
class of securities to be registered maximum offering maximum aggregate registration fee2
to be registered price per unit offering price
Common stock, par value 2,474,039 $0.25 $618,509.75 $50.04
$0.01 per share
Estimated under Rule 457(c) under the Securities Act of 1933 solely for
the purpose of calculating the registration fee based on the average of
the bid and asked price of our common stock on April 17, 2003.
2 Previously paid in connection with our original filing on April 23,
2003.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 7, 2003
PROSPECTUS
ALTERNATE MARKETING NETWORKS, INC.
2,474,039 Shares
Common Stock
_____________________________________________________________________________
Alternate Marketing Networks, Inc. is selling no shares of common stock and
the selling stockholder identified in this prospectus is selling 2,474,039
shares. We will not receive any of the proceeds from the sale of the shares
sold by the selling stockholder.
Our common stock is listed on the Over the Counter Bulletin Board under the
symbol "ALTM.OB." The last reported bid price on May 5, 2003 was $0.21 per
share and the last reported ask price was $0.29 per share.
_____________________________________________________________________________
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
_____________________________________________________________________________
Per Share Total
Public Offering Price $ $
Proceeds, before expenses, to Alternate Marketing $ $
Proceeds, before expenses, to the selling stockholder $ $
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
_____________________________________________________________________________
The date of this prospectus is _____, 2003.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 6
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . 12
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . 12
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . 13
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . 14
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS . . 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . 17
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . 19
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 20
DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION. . . . . . . . . . . . . . . 22
DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . 30
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . 31
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . 32
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 32
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . 32
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 32
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . 33
_______________
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from
that contained in this prospectus. This prospectus is offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in the
prospectus. It does not contain all the information you should consider. You
should also read the more detailed information set out in this prospectus
including the "Risk Factors" section and the Consolidated Financial
Statements and Notes before making an investment.
Our Company
Alternate Marketing Networks, Inc. is a business services company
serving Fortune 500 and middle market companies, through three complementary
lines of business services: software implementation and support services;
logistics process management; and advertising and marketing process
management. We were originally organized with the mission to be a single
source provider of marketing solutions. In 2000, we began expanding our
services to take advantage of the wide use of internet technologies through
building and acquiring online marketing businesses. In 2002, we
significantly increased our technology service capabilities by acquiring
Hencie, Inc., a Dallas-based information technology company specializing in
enterprise software implementation and support services. With the completion
of this acquisition in August 2002, we adopted a plan to leverage the core
competencies of Hencie and its management with the existing infrastructure of
Alternate Marketing. In 2002, we also reincorporated in Delaware. We
currently have three operating segments based on our service offerings.
As used in this prospectus, unless the context requires otherwise, the
terms we, us, our, and Alternate Marketing refer to the consolidated
operations of Alternate Marketing Networks, Inc. and its direct and indirect
wholly and majority owned subsidiaries, including Alternate Postal Direct,
Inc., a Michigan corporation, Hencie, Inc., a Delaware corporation, Hencie
Consulting Services, Inc., a Texas corporation, and National Home Delivery,
Inc., an Illinois corporation, which also does business as USSPI.
Our Services
Technology
The technology segment provides software consulting,
implementation, and support services related to Oracle Corporation's
suite of enterprise business applications to help its customers improve
their business performance by applying direct industry experience,
expertise in Oracle technology, and our in-depth knowledge of business
processes to create mission-critical business solutions for these
companies. This segment also provides enterprise resource planning,
supply chain management, customer relationship management, application
integration, and enterprise portal services.
Logistics
The logistics segment delivers and tracks and verifies the
delivery of various products, including telephone directories, and
provides brokered transportation of various goods for national and
regional companies. This segment's internet-based itrackdirectoriesSM
system allows it to electronically monitor and update its customers on
the delivery status of their products.
Advertising and Marketing
The advertising and marketing segment forms newspaper advertising
networks and sells and places print advertising and advertising inserts
in suburban newspapers for national advertisers. Customers of this
segment are able to choose from approximately 1,100 newspapers in over
50 markets nationwide and may focus advertising on specific regions and
demographic segments.
The Offering
Common stock offered by Alternate Marketing . . . . . . 0 shares
Common stock offered by the selling
Stockholders . . . . . . . . . . . . . . . . . . . . . 2,474,039 shares
Common stock to be outstanding after
this offering . . . . . . . . . . . . . . . . . . . . . 9,895,878 shares
Use of proceeds . . . . . . . . . . . . . . . . . . . . We will not receive
any proceeds from the sale of common stock offered by the selling
stockholders.
Over the Counter Bulletin Board symbol . . . . . . . . ALTM.OB
The common stock to be outstanding after this offering is based on
9,895,878 shares outstanding as of April 17, 2003, which excludes:
- 1,540,000 shares of common stock issuable upon the exercise of
outstanding stock options as of March 5, 2003 issued under our 1995
Long-Term Incentive and Stock Option Plan at a weighted average exercise
price of $0.76 per share; and
- 1,474,039 shares held in the treasury.
Other Information
We were formed as a Michigan corporation in 1988. Our executive
offices are located at 13155 Noel Road, 10th Floor Dallas, TX 75240 and our
telephone number is (972) 720-3500. Our main website address is
http://www.altmarknet.com. The information contained in our website is not a
part of this prospectus.
Our logos are our registered service marks. Other service marks,
trademarks and trade names referred to in this prospectus are the property of
their respective owners.
RISK FACTORS
This prospectus contains forward-looking statements within the meaning
of the securities laws. Actual results and performance and the timing of
certain events and circumstances may differ materially from those described
by the forward-looking statements as a result of certain risks and
uncertainties set forth below and elsewhere in this prospectus. You should
carefully consider the following factors, the discussion under the caption
"Cautionary Note on Forward-Looking Statements," and the other information in
this prospectus before buying or selling any shares of our common stock. Our
business, financial condition, and operating results could be materially
adversely affected by any one or more of the following risk factors.
Although we have attempted to include a discussion of the material risks
known to us as of the date of this prospectus, there may be additional risks
that we do not presently know of or that we currently believe are immaterial
that could also materially adversely affect Alternate Marketing. Alternate
Marketing disclaims any obligation to update these factors or to announce
publicly the results of any revisions to any of the risk factors or forward-
looking statements contained in this prospectus to reflect any new
information or future events or circumstances or otherwise.
We may not be able to fund our existing capital needs and may require
additional funding sooner than anticipated.
Our existing and anticipated capital needs are significant. Although
we believe that our existing financing arrangements and estimated operating
cash flows will be sufficient to fund our operations and working capital
needs for at least the next 12 months, there can be no assurance that we will
be able to fund our existing capital needs under our existing credit
facilities or otherwise secure additional funding if necessary. In addition,
changes in our operating plans, the acceleration or modification of our
existing expansion plans, lower than anticipated revenues, increased
expenses, potential acquisitions, or other events may cause us to seek
additional financing sooner than anticipated, prevent us from achieving the
goals of our business plan or expansion strategy, or prevent our newly
acquired businesses, if any, from operating profitably. If we are unable to
fund our existing capital needs under our existing credit facilities or
otherwise unable to secure additional financing if necessary, our business
could be materially adversely affected. See Management's Discussion and
Analysis of Financial Condition and Results of Operation - Liquidity and
Capital Resources.
Our operating results could be materially adversely affected by a failure to
perform under any one or more significant contracts or a failure to collect
any one or more significant accounts receivable because we are dependent upon
a small number of total clients and contracts at any given time.
We derive a significant portion of revenue from large contracts for a
limited number of clients at any given time. During fiscal year 2002, our
largest client accounted for approximately 17% of net revenue, our second
largest client accounted for approximately 17% of net revenue, and our largest
five clients accounted for approximately 65% of net revenue. Our revenues
could be materially adversely affected if we are unable to perform our
obligations under any significant contract or fail to collect a significant
account receivable, even if the failure to perform or collect is not our fault
or due to circumstances beyond our control. We may not be able to perform our
obligations under a contract because of software flaws, inaccurate project
time or resource estimates, or issues related to the business or personnel of
a client. Software often contains flaws, particularly when first introduced
or when new versions, features, or enhancements are released. Despite our own
internal testing and additional testing by clients, there can be no guarantee
that third-party software or software developed or customized by us for
clients will not contain serious defects or errors. Serious defects or errors
could result in liability for damages, lost revenues, and delay or prevent us
from performing our obligations under a contract.
In addition, many of our contracts are short-term and allow clients to
reduce or terminate services without notice or incurring any penalty. If
clients reduce or terminate services, our revenues may decrease and we could
have to reallocate employees and resources to other projects in order to
minimize the effects of the reduction or termination.
We are dependent on our relationships with software vendors.
Although we currently have marketing relationships and engage in joint
marketing and sales activities with a number of software vendors, there can be
no guarantee that we will be able to maintain these relationships or continue
to engage in these activities with these software vendors. Software vendors
may terminate these relationships and activities at any time. If we are
unable to maintain marketing relationships or otherwise cease to enjoy the
benefits of joint marketing and sales activities with our current software
vendors or other software vendors, our ability to develop business and
generate revenues could be materially adversely affected and our business,
financial condition, and operating results could suffer.
We are also certified, accredited, licensed, or otherwise qualified by a
number of software vendors to service their software products. A failure to
maintain our existing certifications or qualifications with these software
vendors or an inability to obtain new certifications or accreditations could
exert a material adverse affect on our ability to develop business and
generate revenues.
We also receive business leads and client referrals from a number of
software vendors. However, software vendors are not required to refer
business or clients to us and there can be no guarantee that we will continue
to receive business leads or client referrals from these software vendors. If
we cease to receive business leads or client referrals from our current
software vendors or other software vendors, our business could be materially
adversely affected.
We may not be successful in identifying and acquiring suitable acquisition
candidates, which could impede our growth and our ability to compete.
Our business plan includes the regular and systematic evaluation and
acquisition of other information technology consulting companies in new and
existing markets. There can be no assurance, however, that we will
successfully identify suitable acquisition candidates or that we will
successfully consummate any acquisitions. We may not be able to predict
whether or when any prospective acquisition candidates will become available
or the likelihood that any acquisition will be completed once negotiations
have commenced. We will also have to compete for acquisition and expansion
opportunities with companies that have substantially greater resources and
these companies may be able to outbid us for or otherwise be more attractive
to these acquisition candidates. If we fail to execute our acquisition
strategy, our revenues are likely to suffer and we may be unable to remain
competitive.
We will need additional capital to support our growth.
Our business plan and acquisition strategies will require us to obtain
additional financing within the next 12 months. We may not be able to obtain
this financing when needed, on favorable terms, or at all. If we are unable
to obtain adequate financing, we may be required to forego opportunities for
growth or obtain funds by entering into financing agreements on undesirable
terms, including agreements requiring us to pledge all of our assets or
containing covenants that restrict our operations and our ability to incur
further indebtedness. An inability to obtain adequate funding may also force
us to curtail or close operations or sell some or all of our assets including
our technology, logistics, and advertising and marketing operations.
Quarterly fluctuations and seasonality in our revenues attributable to the
budget-driven demand cycles of clients may adversely affect our operating
results and could lead to lower or volatile prices for our common stock.
Our revenues and operating results have fluctuated significantly from
period to period in the past and we expect them to continue to fluctuate
significantly from period to period in the future. Historically, our
technology segment has experienced higher revenues during the first and
second quarters and significantly lower revenues in the third and fourth
quarters. As a result, the results for one period may not be indicative of
results for other periods. We believe that this seasonality can be
attributed to the timing of contracts and orders, technology spending
conditions, major software deployments, and the budget restrictions and
cycles of clients, most of whom have calendar-based fiscal years and as a
result are more likely to incur the expenses related to software systems and
our implementation services during the first half of the year. The timing of
contracts and orders results in significant fluctuations in our quarterly
results as a result of the revenues and expenses associated with each client
or contract. We expect this seasonality to continue to be a factor in our
results of operations. If we are unable to predict the cyclical client
demand in a slower growth or distressed economic environment, expenses may be
disproportionate to revenues and our stock price may be adversely affected.
These quarterly fluctuations and seasonality may also cause our operating
results to fall below the expectations of securities analysts and investors,
which could cause our stock price to fall.
Our operating results may also fluctuate significantly because of
several other factors, including successful and unsuccessful acquisitions, if
any, profitability of newly acquired businesses, if any, increases or
decreases in revenues, general economic conditions, consumer confidence in
the economy, changes in consumer preferences, and competitive factors. See
Management's Discussion and Analysis of Financial Condition and Results of
Operation - Seasonality and Other Business Fluctuations.
We may be unable to accurately forecast revenue and to match revenue and
expenditures appropriately.
Information technology spending levels cannot be predicted with
certainty and are subject to general economic conditions, consumer confidence
in the economy, changes in consumer preferences, and competitive factors
beyond our control. This uncertainty may reduce the overall number of
projects available for bid and result in project deferrals, project scope
reductions, or limited follow-on projects for existing clients. This
environment adds greater risk and uncertainty to our revenue forecasts and to
our business plans that are based upon these forecasts. If we are unable to
predict the client demand cycles or plan accordingly in a slower growth or
distressed economic environment, expenses may be disproportionate to revenues
and our stock price may be adversely affected.
The loss of one or more members of management or key personnel could
adversely affect our operations and could lead to loss of clients and
proprietary information.
Our business, success, growth, operating results, and profitability are
dependent upon the skills, experience, efforts, performance, and abilities of
members of management and other key personnel. We depend upon members of
management and key personnel, including key sales personnel, to generate new
business and service new and existing clients. Most members of management
and key personnel are employed by us pursuant to employment agreements and
are subject to non-competition, confidentiality, and non-solicitation
agreements with us. However, if any members of management or key personnel
were to leave us or we were unable to enforce our existing agreements with
these personnel, our business, success, growth, operating results, and
profitability could suffer. If we lose any key personnel, we may also be
unable to prevent the unauthorized disclosure or use of our technical
knowledge, practices, procedures, or client lists by the former personnel.
Disclosure or use of this information could harm our business.
We may face substantial competition in attracting and retaining qualified
personnel, and may be unable to grow our business if we cannot attract and
retain qualified personnel.
Our success will depend to a significant degree upon our ability to
attract and retain highly qualified and experienced personnel who possess the
skills and experience necessary to satisfy our business and client service
needs. These personnel may be in great demand, particularly in certain
geographic areas, and are likely to remain a limited resource for the
foreseeable future. Our ability to attract and retain employees with the
requisite experience and skill depends on several factors including, our
ability to offer competitive wages, benefits, and professional growth
opportunities. To attract and retain these individuals, we will be required
to invest a significant amount of time and money. Many of the companies with
which we will compete for experienced personnel have greater financial
resources and name recognition than us. In addition, an important component
of overall compensation for our personnel will be equity. If our stock price
does not increase over time, it may be more difficult to retain personnel who
have been compensated with stock awards or options. We have in the past
experienced difficulty in recruiting sufficient numbers of qualified
information technology and sales personnel. The inability to attract, train,
and retain experienced personnel could have a material adverse effect on our
business.
Because we are significantly smaller and less established than a majority of
our competitors, we may lack the financial resources necessary to compete
effectively and sustain profitability.
We operate in competitive, fragmented industries and compete for clients
with a variety of larger and smaller companies that offer similar services.
These industries are subject to rapid technology changes and are significantly
affected by new products and services and the marketing activities of industry
participants, which may often be beyond our control. Due to the nature of our
business, we compete with companies in the technology consulting and
advertising and marketing industries. Although we primarily compete directly
with management consulting firms and, to a lesser extent, with information
technology outsourcing companies, we also compete directly and indirectly with
a great number of other consulting and advertising and marketing companies.
Many of these competitors are more established, offer more services and
features, and have a greater number of clients, locations, and employees and
significantly greater financial (based on total assets and annual revenues),
technical, marketing, public relations, name recognition, and other resources
than us.
We also expect to experience increased competition from new entrants
into the market. We may be unable to compete with full-service consulting
companies, including the consulting divisions of large international
accounting firms, if these companies decide to enter into the information
technology professional services market, because these companies may be able
to offer clients a wider range of services than us. This increased
competition may result in pricing pressures, loss of market share or loss of
clients, any of which could have an adverse effect on our business, financial
condition, operating results, and cash flows. See Description of Business -
Competition.
The legal dispute with Hencie.Com, Inc. and Paul A. Tanner and the legal fees
and expenses incurred in connection with this dispute could materially
adversely affect Alternate Marketing.
Although we intend to vigorously contest the claims of Hencie.Com and
Mr. Tanner totaling $2 million and pursue any counterclaims that may be
available, the business, financial condition, and operations of Alternate
Marketing could be materially adversely affected by an outcome that is
adverse to Alternate Marketing, including any subsidiary of Alternate
Marketing, with respect to any of these claims, the legal fees and expenses
associated with investigating, contesting, and defending against these claims
(whether or not these claims are successfully pursued by Hencie.Com or Mr.
Tanner), and the diversion of management's time and resources in connection
with any such investigation, contest, or defense. See discussion of Legal
Proceedings.
Our insurance policies may not be adequate.
The systems which we implement are complex and may contain unknown or
undetected flaws or errors. Errors are frequently found during the period
immediately following implementation. Although we attempt to create systems
that are error-free and to resolve promptly any errors that are discovered,
there can be no assurance that problems will not arise or that problems will
be resolved in a timely manner, to the client's satisfaction, or at all.
Errors may result in delays in client acceptance, lost revenues, or in
litigation, and could be materially detrimental to our business reputation.
Although we have errors and omissions insurance, such insurance may not cover
every event or circumstance or instance of malfunction and coverage, if
available, may be insufficient to save us harmless from all loss. In
addition, in almost all instances coverage will require payment of a
deductible that could be material in dollar amount.
If we are unable to master and rapidly implement third-party software, our
business could suffer.
Our clients use software from a variety of third-party software vendors.
If we are unable to master and rapidly implement this software in a fully
functional manner, we may experience delays or other difficulties that could
prevent us from developing, introducing, and marketing services related to
this software and in some cases prevent us from performing under our
contracts.
If we fail to identify and successfully integrate the latest technologies into
our service offerings or otherwise keep up with an evolving industry, we may
not be able to compete successfully for clients.
We intend to provide services that employ the latest technologies. If
we fail to identify the latest technologies or fail to successfully integrate
these technologies into our service offerings, our reputation and ability to
compete for clients could suffer. If we cannot compete successfully for
clients, revenues may decrease. In addition, projects do not involve the
latest and most advanced technologies typically generate lower fees and
revenues. Because the information technology market changes rapidly, some of
the most important challenges facing us 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 client needs.
All of these challenges must be met in a timely and cost-effective
manner. If we do not succeed in effectively meeting these challenges, our
business could suffer.
Changes in technology spending or the rate of adoption of advanced
information technologies could negatively impact our operating results.
The success of our business and operating results is dependent upon
technology spending by consumers, including information technology companies
in the regions in which we operate. We market our services primarily to
companies that want to adopt information technologies in order to provide or
improve return on investment or help provide a sustainable competitive
advantage. If software products become less desirable or competitive in the
marketplace and companies decide not to integrate the latest technologies into
their businesses, or technology spending otherwise decreases, the demand for
our implementation services could decrease and our business, financial
condition, operating results, and cash flows could be materially adversely
affected. Our business could also be materially adversely affected by general
economic conditions, terrorist attacks, or the resulting cancellation or delay
of software product offerings, technology adoption or implementation,
demographic trends, consumer confidence in the economy, and changes in the
overall technology and software industries.
The price of our common stock has been highly volatile and may continue to be
highly volatile, which may adversely affect your ability to sell your shares
and our ability to raise additional capital.
A public market for our common stock has existed since 1995. The price
of our common stock has been highly volatile and may continue to be highly
volatile. For instance, from October 3, 2002 through December 31, 2002, our
common stock traded from a low of $0.26 to a high of $0.75 per share. The
price of our common stock has experienced and may continue to experience
significant volatility in response to many factors, some of which are beyond
our control and may not even be directly related to us, including:
- Changes in financial estimates or recommendations by securities analysts
regarding us or our common stock;
- Our performance and the performance of our competitors and other
companies in the technology or marketing sectors;
- Quarterly fluctuations in our operating results or the operating results
of other companies in the technology or marketing sectors;
- Additions or departures of key personnel;
- The trading volume of our common stock;
- General economic conditions and their effect on the technology or
advertising and marketing sectors in general; and
- Competition, natural disasters, acts of war or terrorism or other
developments affecting us or our competitors.
In addition, in recent years the stock market has experienced extreme
price and volume fluctuations, which have often been unrelated or
disproportionate to the operating performance of particular companies. This
volatility has significantly affected, and may continue to affect, the price
of our common stock and may adversely affect your ability to sell your shares
and our ability to raise additional capital. See Market for Common Equity and
Related Stockholder Matters.
There may be sales of substantial amounts of our common stock in the near
future, which could cause our stock price to fall and could impair our
ability to raise additional capital, even if our business is doing well.
As of April 15, 2003, approximately 2,474,039 shares (or 25%) of our
outstanding common stock were held by a single stockholder. We are
obligated, subject to exceptions and limitations, under an agreement with
this stockholder to identify persons willing to purchase blocks of these
shares at a 15% discount from the current market price and to help this
stockholder sell these shares until this stockholder has sold all of these
shares or other conditions have been satisfied. This stockholder is not
subject to a lock-up agreement and the shares owned by this stockholder are
eligible for sale in the public market, subject to compliance with the volume
limitations and other restrictions of Rule 144 under the Securities Act. The
resulting sales, if any, of some or all of these shares, or the perception
that these sales may occur, could cause our stock price to fall and could
impair our ability to raise additional capital, even if our business is doing
well.
We may not be able to issue common stock or sell common stock in the future.
The terms of our agreement with this stockholder prohibit us from
issuing or selling common stock, subject to exceptions, without the consent
of this stockholder. If this stockholder refuses to allow us to issue or
sell common stock, our ability to raise additional capital could be impaired
and our financial condition could suffer.
Our directors and executive officers and a specific stockholder may exercise
considerable control over Alternate Marketing, which may lead to conflicts
with other stockholders over corporate governance matters.
As of April 15, 2003, our directors and executive officers and a single
stockholder beneficially own collectively approximately 51% of our
outstanding common stock. As a result, these persons, acting alone or
together, may be able to significantly influence all matters requiring
stockholder approval, including the election of directors, amendments to our
certificate of incorporation or bylaws, and the approval of mergers and
acquisitions and other business combination transactions. These persons may
have interests that are different from other stockholders and may exercise
this ability in a manner that advances their best interests and not
necessarily those of other stockholders. See Directors, Executive Officers,
Promoters and Control Persons and Selling Security Holders.
Our common stock may be subject to penny stock rules and regulations.
Federal rules and regulations under the Exchange Act regulate the
trading of so-called penny stocks, which generally refers to low-priced
(below $5.00), speculative securities of very small companies traded on the
OTC Bulletin Board or in the Pink Sheets. Trading, if any, in shares of our
common stock may be subject to the full range of penny stock rules. Before a
broker-dealer can sell a penny stock, these rules require the broker-dealer
to first approve the investor for the transaction and obtain from the
investor a written agreement regarding the transaction. The broker-dealer
must also furnish the investor with a document describing the risks of
investing in penny stocks. The broker-dealer must also tell the investor the
current market quotation, if any, for the penny stock and the compensation
the broker-dealer will receive for the trade. Finally, the broker-dealer
must send monthly account statements showing the market value of each penny
stock held in the investor's account. If these rules are not followed by the
broker-dealer, the investor may have no obligation to purchase the shares.
Accordingly, these rules and regulations may make it more expensive and
difficult for broker-dealers to sell shares of our common stock and
purchasers of our common stock may experience difficulty in selling such
shares in secondary trading markets.
The authorization of preferred stock, a classified board of directors,
supermajority voting requirements, and certain provisions of Delaware law
could make a takeover attempt more difficult or impossible, even if the
takeover may be beneficial to our stockholders.
Provisions of our certificate of incorporation and bylaws and Delaware
law may have the effect of deterring, delaying, or preventing a change in
control of Alternate Marketing, including:
- a staggered board of directors, with three-year terms, which will
lengthen the time needed to gain control of the board of directors;
- the ability of the board of directors to issue "blank check" preferred
stock to facilitate implementation of a poison pill or change the balance
of voting control and thwart a takeover attempt and to determine the price
and other terms, including preferences and voting rights, of those shares
without stockholder approval;
- the prohibition of cumulative voting in the election of directors, which
would otherwise allow less than a majority of our stockholders to elect
director candidates;
- supermajority voting requirements for stockholders to amend provisions
of our certificate of incorporation or bylaws
- limits on the ability of our stockholders to call special meetings of
our stockholders; and
- advance notice provisions for stockholder proposals and director
nominations.
In addition, Section 203 of the General Corporation Law of the State of
Delaware and the terms of our employment agreements and stock option plans
may discourage, delay, or prevent a change in control that may be beneficial
to stockholders.
Our operating results could be materially adversely affected by a potential
goodwill impairment charge if Hencie's operations do not improve.
In connection with the adoption of SFAS No. 142, Alternate Marketing
allocated goodwill of $2,004,447 to each of its reporting units and tested
this goodwill for impairment as of January 1, 2002. Alternate Marketing
completed the testing during the second quarter ending June 30, 2002. As a
result, a charge of $1,204,058 was recorded for the goodwill assigned to the
logistics reporting unit. The remaining goodwill of $800,889 at June 30,
2002 was assigned to the advertising and marketing reporting unit. The fair
market value of the reporting units was estimated using a combination of
valuation techniques including the discounted present value of future cash
flows and management's estimated values to a third party buyer. Alternate
Marketing has concluded that no impairment has occurred for the advertising
and marketing reporting unit as of December 31, 2002.
The goodwill of approximately $7 million that arose from the Hencie
acquisition will be tested for impairment at least annually beginning in
2003. Hencie has been experiencing losses since the acquisition and further
improvements in operations are required. However, Alternate Marketing
believes that the estimated fair value of the Hencie reporting unit has not
decreased significantly since the acquisition; therefore, no adjustment
should be made to goodwill as of December 31, 2002.
USE OF PROCEEDS
We will not register any shares in connection with this registration
statement and will not receive any proceeds from Drawbridge Investment
Partners sale of Alternate Marketing common stock in this offering.
DILUTION
The common stock to be sold by the selling stockholder is common stock
that is currently issued and outstanding. Accordingly, there will be no
dilution to our existing stockholders.
SELLING STOCKHOLDERS
Drawbridge Investment Partners, LLC owns 2,474,039 shares of Alternate
Marketing Common Stock. Pursuant to this prospectus, Drawbridge Investment
Partners will offer for sale 2,474,039 shares of Alternate Marketing Common
Stock. If the offering is consummated Drawbridge Investment Partners will
own no shares of Alternate Marketing Common Stock.
At the closing of the Hencie acquisition, Alternate Marketing made
payments to Edge Technology Group, Inc. to satisfy amounts owed by Hencie to
Edge pursuant to a settlement agreement between Hencie and Edge, which was
included in the net liabilities assumed in the Hencie acquisition. The note
was subsequently sold by Edge to Drawbridge Investment Partners. The
settlement agreement included an original obligation in the aggregate amount
of $1,650,000 and required monthly payments of $60,000 in principal with
interest at 8%. After the closing of the Hencie acquisition, Alternate
Marketing was notified by Edge of a potential event of default under the
settlement agreement. Alternate Marketing negotiated a Waiver and
Forbearance Agreement with Edge to provide for a waiver of the potential
event of default and in order to obtain a credit against the amount
outstanding under the settlement agreement. On September 6, 2002, after
certain additional payments were made and certain conditions were satisfied,
a credit of $450,000, plus a related interest credit of $10,455, were applied
to reduce the amount outstanding under the settlement agreement. Included in
the net liabilities assumed as of August 1, 2002, was the net obligation of
$1,145,000 reduced for the credit negotiated in September 2002. As of
December 31, 2002, the outstanding principal balance under the settlement
agreement was $991,734, with related accrued interest of $11,956.
On February 18, 2003, Alternate Marketing entered into the Release
Agreement by and among Alternate Marketing, Hencie, Inc., Hencie Consulting
Services, Inc., K2VC LTD, Adil Khan, Drawbridge Investment Partners, LLC.,
and certain directors and stockholders of Alternate Marketing. The agreement
provided for settlement of the Drawbridge note payable of Hencie for a cash
payment of $120,000, issuance of 2,474,039 shares of Alternate Marketing
Common Stock, registration rights for such shares, and a contingent
obligation for Alternate Marketing to repurchase $100,000 of Alternate
Marketing common stock from Drawbridge Investment Partners annually for three
years beginning February 18, 2004. In the subsequent accounting for this
debt settlement in 2003, management estimates that the total cash and fair
value of the equity consideration given was approximately equal to the amount
of the note payable and accrued interest, which was $991,734 and $11,956,
respectively, at December 31, 2002.
PLAN OF DISTRIBUTION
We are registering all the shares of common stock offered by this
prospectus on behalf of the selling stockholder who may sell the shares from
time to time, or who may also decide not to sell all the shares that may be
sold under this prospectus.
The selling stockholder or its successors may sell all of the shares of
our common stock offered by this prospectus from time to time in transactions
in the over-the-counter market, on one or more other securities markets and
exchanges, or in privately negotiated transactions. They may sell the shares
offered by this prospectus at fixed prices, at market prices prevailing at
the time of sale, or at negotiated prices. The selling stockholder may use
any one or more of the following methods when selling the
shares offered by this prospectus:
- block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by such broker-
dealer for its account;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
- privately negotiated transactions;
- short sales;
- transactions in which broker-dealers may agree with the selling
stockholder to sell a specified number of the shares at a stipulated
price per share;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The selling stockholder has advised us that it has not entered into any
agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of its shares. It has also advised us that no
underwriter or coordinating broker is now acting in connection with the
proposed sale of shares.
The selling stockholder also may lend or pledge shares to a broker-
dealer. The broker-dealer may sell the shares so loaned or, upon a default,
the broker-dealer may sell the shares so pledged, pursuant to this
prospectus. Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholder. Broker-
dealers or agents may also receive compensation from the purchasers of shares
for whom they act as agents or to whom they sell as principals, or both.
Compensation to a particular broker-dealer might be in excess of
customary commissions and will be in amounts to be negotiated in connection
with transactions involving shares. Broker-dealers or agents and any other
participating broker-dealers or the selling stockholder may be deemed to be
an underwriter within the meaning of Section 2(11) of the Securities Act of
1933 in connection with sales of shares. Accordingly, any such commission,
discount or concession received by them and any profit on the resale of
shares purchased by them may be deemed to be underwriting discounts or
commissions under the Securities Act of 1933. Because the selling stockholder
may be deemed to be underwriters within the meaning of Section 2(11) of the
Securities Act of 1933, the selling stockholder will be subject to the
prospectus delivery requirements of the Securities Act of 1933.
The shares may be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act
of 1934, any person engaged in the distribution of shares may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days before the commencement of such
distribution. In addition, the selling stockholder will be subject to
applicable provisions of the Securities Exchange Act of 1934 and the
associated rules and regulations under the Securities Exchange Act of 1934,
including Regulation M, which provisions may limit the timing of purchases
and sales of shares of our common stock by the selling stockholder. We will
make copies of this prospectus available to the selling stockholder and have
informed it of the need for delivery of copies of this prospectus to
purchasers at or prior to the time of any sale of the shares.
To the extent required, we may amend or supplement this prospectus from
time to time to describe a specific plan of distribution. In effecting
sales, broker-dealers engaged by the selling stockholder may arrange for
other broker-dealers to participate in the resales.
We will file a supplement to this prospectus, if required, pursuant to
Rule 424 under the Securities Act of 1933 upon being notified by the selling
stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. Such supplement will disclose:
- the name of each selling stockholder and of the participating broker-
dealer(s);
- the number of shares involved;
- the price at which such shares were sold;
- the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
- that such broker-dealer did not conduct any investigation to verify
the information set out or incorporated by reference in this prospectus;
and
- other facts material to the transaction.
LEGAL PROCEEDINGS
On October 30, 2002, Hencie.com, Inc., a Delaware corporation, and Paul
A. Tanner initiated a legal proceeding in the County Court of Dallas County,
Texas against Hencie Consulting, a wholly-owned subsidiary of Hencie, Inc.,
certain current and former employees of Hencie Consulting, and certain other
parties. Hencie.com and Mr. Tanner are seeking approximately $2.0 million,
exemplary damages, interest, and legal fees in connection with claims
regarding an alleged equity investment in Hencie Consulting prior to
acquisition of Hencie by Alternate Marketing. On February 18, 2003,
Alternate Marketing executed a Mutual Release Agreement with Alternate
Marketing's CEO which provides for Alternate Marketing's CEO to contribute a
number of shares of common stock to Alternate Marketing if Alternate
Marketing requests the transfer to be used for any settlement of this
litigation. Alternate Marketing intends to vigorously defend against and
contest the claims and pursue any potential counterclaims that may be
available to Hencie Consulting. Alternate Marketing believes that the shares
provided for in the Mutual Release Agreement would be sufficient to cover its
portion, if any, of a settlement amount. Therefore, Alternate Marketing
believes that the resolution of this matter will not have a material adverse
effect on its financial position, results of operations or cash flows.
However, no assurance can be given that Alternate Marketing would not be
materially adversely affected by an adverse outcome with respect to these
claims or legal fees or expenses related to investigating, contesting, and
defending against these claims (whether or not Alternate Marketing is
successful in defending against these claims), and the diversion of the time
and resources of Alternate Marketing management in connection with these
claims.
On August 22, 2002, a former officer of Hencie initiated a legal
proceeding in the District Court of Dallas County, Texas against Hencie
seeking approximately $380,000 in damages in connection with claims regarding
an alleged breach of the employment agreement between Hencie and the former
officer. The former officer was terminated by Hencie for cause prior to the
acquisition of Hencie by Alternate Marketing. Alternate Marketing intends to
vigorously defend against and contest the claims and pursue any potential
counterclaims that may be available to Hencie on behalf of Hencie. Alternate
Marketing believes that it is unlikely that this matter will have a material
adverse effect on its financial position, results of operations or cash
flows.
On July 3, 2002, Alternate Marketing initiated a legal proceeding in
the Superior Court of Essex County, Massachusetts against a customer of
Alternate Postal Direct seeking damages, interest, and legal fees in
connection with claims regarding a breach of contract by the customer and
non-payment of an outstanding account receivable. On August 12, 2002, the
customer filed an answering statement and counterclaims seeking judgment and
unspecified damages. Alternate Marketing intends to vigorously pursue its
claims against the customer and defend against and contest the counterclaims.
We are not aware of any other pending or contemplated legal proceeding
to which Alternate Marketing is or may be a party or any assets of Alternate
Marketing that are or may be subject to such a proceeding other than (i) the
legal proceedings described in this prospectus, (ii) routine litigation
incidental to the business of Alternate Marketing, and (iii) legal
proceedings involving claims for damages involving amounts (exclusive of
interest and costs) not exceeding 10% of the current assets of Alternate
Marketing, if any.
From time to time, Alternate Marketing may be subject to routine
litigation and other legal proceedings incidental to its business. The
business, financial condition, and operations of Alternate Marketing could be
materially adversely affected by an outcome that is adverse to Alternate
Marketing with respect to any such litigation or legal proceedings or legal
fees or by expenses related to investigating, contesting, and defending
against the claims related to such litigation or legal proceedings (whether
or not Alternate Marketing is successful in defending against such claims),
and the diversion of the time and resources of management of Alternate
Marketing in connection with such litigation or legal proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The current directors and executive officers of Alternate Marketing
are:
Present Year
Term First Elected
Name/Position(s) and Office(s) with Alternate Marketing Age Expires Director
Phillip D. Miller 51 2005 1988
President and Chairman of the Board
Adil Khan 37 2005 2002
Director and Chief Executive Office
Thomas Hiatt 55 2004 1998
Director
R. Phillip Baker 55 2004 2002
Director
J. Robert Routt 49 2003 2002
Director
Sandra J. Smith 44 N/A N/A
Secretary, Treasurer, and Chief Financial Officer
Frank O'Connell 60 N/A N/A
Vice President-Sales/USSPI Division
David Bender 50 N/A N/A
Chief Operating Officer
William Warren 44 N/A N/A
Vice President-Business Development/Hencie Division
The following biographical information is furnished with respect to
each of the current directors and executive officers.
Phillip D. Miller. Mr. Miller is the founder of Alternate Marketing
and has served as its Chief Executive Officer (CEO) and as a member of the
Board since inception in 1988. He became Alternate Marketing's President in
August 2002, when Alternate Marketing acquired Hencie and he was replaced as
the Alternate Marketing's CEO. 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 Alternate Marketing
since January 12, 1998. Mr. Hiatt is a general partner of Middlewest
Management Co., LP, which serves as the general partner of Middlewest
Ventures II, LP, a venture capital fund. He is also a managing director of
MWV Capital Partners, a private equity fund. Mr. Hiatt currently serves as a
director of several companies, including PackageNet, Inc., PowerWay, Inc. and
Stratis Corporation.
Adil Khan. Mr. Khan has been the Chief Executive Officer of Alternate
Marketing and a director since August 2002, when Alternate Marketing acquired
Hencie. 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.
R. Phillip Baker. Mr. Baker has been a director of Alternate Marketing
since August 2002. Mr. Baker is a certified public accountant. He graduated
form the University of Texas at Austin in 1969, with a major in accounting.
He practiced public accounting for 22 years while building the largest local
public accounting firm during that period in the Dallas/Ft, Worth, Texas
area. From 1971 to the time he sold his interest in the firm, Mr. Baker
concentrated his practice in the rent-to-own industry as it was being formed
and expanded. In addition, he advised and assisted clients in business sales
and acquisitions and significant financings. In 1991, he sold his practice
and joined Chickasaw Holding Company, a telecommunications company in
Oklahoma, as Executive Vice President, becoming Chief Executive Officer in
1996. Since retiring in the spring of 2000, he has been assisting a private
group of which he is a principal in the acquisition of a chain of consumer
small loan stores.
J. Robert Routt. Mr. Routt has been a director of Alternate Marketing
since December 2002. Mr. Routt retired in May 2002 from E.W. Scripps Company
where he served as vice president and controller. E.W. Scripps is a New York
Stock Exchange-traded media company with revenues in excess of $1 billion.
Mr. Routt was an auditor with Deloitte & Touche from 1976 through 1980, when
he joined E.W. Scripps.
Sandra J. Smith. Ms. Smith has been the Chief Financial Officer of
Alternate Marketing since July 1995. From 1989 until appointment as Chief
Financial Officer, Ms. Smith served as the Controller of Alternate Marketing.
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 Alternate Marketing in 1989. Ms. Smith has been a
licensed certified public accountant since 1983. Ms. Smith holds a bachelor
of business administration degree from Grand Valley State University.
Frank O'Connell. Mr. O'Connell has been Vice President and Sales
Manager - USSPI Division of Alternate Marketing 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 bachelor's degree from Southern Illinois
University.
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, Mr. Bender
served as Assistant Controller-Systems and Director of System Development
managing a team of over 100 IT professionals and Manager of the Exploration
and Production Information Technology Division, responsible for worldwide oil
& gas IT. He managed and delivered multiple enterprise resource planning
(ERP) and energy projects budgeted at more than $25 million that included
more than 120 project participants. 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 University of
Houston.
William Warren. Mr. Warren has 20 years of experience in the
consulting and information technology industries, including over 17 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. 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. 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 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. Mr. Warren joined
Hencie in April 2001 as Vice President-Business Development.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of April 15, 2003, as to
the name, address, and shares of each class of equity securities of Alternate
Marketing or any of its parents or subsidiaries other than directors'
qualifying shares, beneficially owned (as determined in accordance with Rule
13d-3 under the Exchange Act) by all directors, nominees, and "named
executive officers" (as defined in Item 402(a)(2) of Regulation S-B) of
Alternate Marketing, directors and executive officers of Alternate Marketing
as a group, and any person who is known to us to be the beneficial owner of
more than five percent (5%) of any class of Alternate Marketing's voting
securities.
Title Amount and Nature of Percent Amount and Nature of
of Name and Address Beneficial Ownership of Beneficial Ownership
Class(1) of Beneficial Owner(2) Pre-Offering(3) Class(4) Post-Offering(3)
Individual Directors, Nominees,
and Named Executive Officers:
Adil Khan
Director and Chief
Executive Officer 1,000,000(5) 10.1 1,000,000(5)
Phillip D. Miller
Director, President, and
Chairman of the Board 886,553(6) 9.9 886,553(6)
Thomas Hiatt
Director 381,008(7) 4.3 381,008(7)
J. Robert Routt
Director 252,710 2.8 252,710
Sandra J. Smith
Secretary, Treasurer, and
Chief Financial Officer 80,550(8) * 80,550(8)
David Bender
Chief Operating Officer 68,199(9) * 68,199(9)
Frank O'Connell
Vice President-Sales/
USSPI Division 27,000(10) * 27,000(10)
R. Phillip Baker
Director 6,000 * 6,000
William Warren
Vice President-Business
Development/
Hencie Division 6,000 0.0% 6,000
Directors and Executive Officers
as a Group:
9 persons 2,702,020 27.0 2,702,020
Other 5% Beneficial Owners:
Drawbridge Investment Partners LLC
c/o Fortress Investment Group
1251 Avenue of the Americas, Suite 1600
New York, NY 10020 2,474,039 25.0 0
Stan Henry
2137 Deer Park Avenue
Deer Park, NY 11729-1321 888,953(12) 10.0 888,953(12)
Tribune Company
435 N. Michigan Avenue
Chicago, Illinois 60611 843,758(13) 9.5 843,758(13)
The Krieger Group
P.O. Box 7787
Princeton, New Jersey 08543 675,992(14) 7.6 675,992(14)
__________
(1) Unless otherwise indicated, the title of each class of securities
included in this table is common stock, par value $0.01 per share.
(2) Unless otherwise indicated, the address for each beneficial owner
included in this table is c/o Alternate Marketing Networks, Inc., 13155
Noel Road, 10th Floor, Dallas, Texas 75240.
(3) Unless otherwise indicated, each beneficial owner included in this
table has sole voting and investment power with respect to the
securities beneficially owned, subject to applicable community property
laws, unless otherwise indicated.
(4) The beneficial ownership percentages in this table have been calculated
on the basis of the amount of outstanding securities, excluding
securities held by or for the account of Alternate Marketing or its
subsidiaries, plus securities deemed outstanding pursuant to Rule 13d-
3(d)(1) under the Exchange Act.
(5) Does not include 4,428 shares of the 17,300,904 diluted outstanding
shares of common stock, par value $0.01 per share, of Hencie, Inc., a
Delaware corporation and a majority owned subsidiary of Alternate
Marketing, which Mr. Khan has the right to acquire within 60 days of
April 15, 2003 pursuant to options granted by Hencie to Mr. Khan under
the Hencie 2000 Stock Option Plan.
(6) Includes 25,000 shares which Mr. Miller has the right to acquire within
60 days of March 24, 2003 pursuant to options granted by Alternate
Marketing to Mr. Miller under the Stock Option Plan and 232,975 shares
which The Krieger Group has the right to acquire within 60 days of
March 24, 2003 pursuant to an option granted by Mr. Miller to The
Krieger Group. See also Note 13 below.
(7) Includes 363,508 shares held of record by Middlewest Ventures II, LP,
of which Mr. Hiatt is a general partner, and 17,500 shares which
Middlewest has the right to acquire within 60 days of March 24, 2003
pursuant to an option granted by the Alternate Marketing to Middlewest
under the Outside Directors and Advisors Stock Option Plan.
(8) Includes 30,000 shares which Ms. Smith has the right to acquire within
60 days of March 24, 2003 pursuant to options granted by Alternate
Marketing to Ms. Smith under the Stock Option Plan.
(9) Does not include 3,998 shares of the 17,296,476 outstanding shares of
common stock, par value $0.01 per share, of Hencie, Inc., a Delaware
corporation and a majority owned subsidiary of Alternate Marketing,
owned and held of record by Mr. Bender.
(10) Includes 30,000 shares which Mr. O'Connell has the right to acquire
within 60 days of March 24, 2003 pursuant to options granted by
Alternate Marketing to Mr. O'Connell under the Stock Option Plan.
(11) Does not include 180,000 shares of the 17,296,476 outstanding shares of
common stock, par value $0.01 per share, of Hencie, Inc., a Delaware
corporation and a majority owned subsidiary of Alternate Marketing,
owned and held of record by Mr. Warren.
(12) Includes 388,516 shares held for the benefit of family members, 5,000
shares which Mr. Henry has the right to acquire within 60 days of March
24, 2003 pursuant to options granted by Alternate Marketing to Mr.
Henry under the Outside Directors and Advisors Stock Option Plan, and
232,975 shares which The Krieger Group has the right to acquire within
60 days of March 24, 2003 pursuant to an option granted by Mr. Henry to
The Krieger Group. See also Note 13 below.
(13) Does not include shares held of record by Messrs. McKeon and Sito, who
are affiliates of Tribune and former directors of Alternate Marketing.
(14) Includes 5,500 shares, which may be purchased by Dale B. Krieger, a
former director of Alternate Marketing, upon exercise of an option
granted under the Outside Directors and Advisors Stock Option Plan and
19,250 shares, which may be purchased upon exercise of an option
granted under the Stock Option Plan. Shares held of record as follows:
(i) shares described in Note (4) above, held of record by Dale B.
Krieger, a former director of Alternate Marketing, (ii) 496,057 shares
held of record by The Krieger Family Limited Partnership, which
includes 396,057 shares which may be acquired upon exercise of options
from Phillip D. Miller and Stan Henry; (iii) 69,891 shares held of
record by Richard A. Ruderman, which may be acquired upon exercise of
options from Phillip D. Miller and Stan Henry; (iv) 20,294 shares held
of record by Paula Ruderman; (v) 32,000 shares held of record by The
Dale and Veronica Krieger Foundation, and (vi) 33,000 shares held in
accounts managed by KR Financial Investment Advisory Clients, an
investment advisor.
* Less than 1.0%.
Change in Control
To the knowledge of Alternate Marketing, no change in control of
Alternate Marketing has occurred since January 1, 2002.
DESCRIPTION OF SECURITIES
On August 1, 2002, Alternate Marketing reincorporated in Delaware and
exchanged its common stock, no par value, for common stock, $.01 par value.
The Amended and Restated Certificate of Incorporation of Alternate Marketing
provides for fifty million (50,000,000) authorized shares of common stock,
par value $.01, and five million (5,000,000) shares of preferred stock, par
value $.01.
Common Stock
As of April 15, 2003, there were 9,895,878 shares of common stock
outstanding held by approximately 56 stockholders of record. Immediately
following this offering, there will be 9,895,878 shares of common stock
outstanding. Holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders.
Subject to preferences that may be applicable to any then outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefore. See Dividend Policy. If we are subject to a liquidation,
dissolution, or winding up, holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding preferred stock. Holders of
common stock have no right to convert their common stock into any other
securities. The common stock has no preemptive or other subscription right.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and the shares of common
stock to be issued in this offering will be, fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without further action by our
stockholders, to issue up to 5,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms
of redemption, liquidation preferences and the number of shares constituting
any series or the designation of such series. The issuance of preferred stock
could adversely affect the voting power of holders of common stock and could
have the effect of delaying or preventing a change in our control. We have no
present plan to issue any shares of preferred stock.
Certain Anti-Takeover Provisions
The board of directors may change the number of directors by a majority
vote. The certificate of incorporation provides that the board of directors
shall be divided into three classes, with the classes to be as nearly equal
in number as possible, and that one class shall be elected each year and
serve for a three-year term. Our certificate of incorporation does not
provide for cumulative voting in the election of directors. The certificate
of incorporation provides that a director may be removed only for "cause" by
the affirmative vote of at least sixty-six and two-thirds percent (66 2/3) of
the outstanding shares of our common stock.
The classification of directors and the provisions of the certificate
of incorporation that limit the ability of stockholders to change the size of
the board of directors will have the effect of making it more difficult for
stockholders to change the composition of the board of directors. As a
result, at least two annual meetings of our stockholders may be required for
our stockholders to change a majority of the directors, whether or not a
change in the board of directors would be beneficial to us and our
stockholders and whether or not a majority of our stockholders believes that
such change would be desirable.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Continental
Stock Transfer & Trust Company. Their address is 17 Battery Place New York,
New York 10004.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
DESCRIPTION OF BUSINESS
Overview
Alternate Marketing Networks, Inc. is a business services company
serving Fortune 500 and middle market companies, through three complementary
lines of business services: software implementation and support services;
logistics process management; and advertising and marketing process
management. Our services are provided throughout the United States to
clients such as General Motors, Verizon, Raytheon, and Lone Star Steel.
Our History
We were originally organized in 1988 as a Michigan corporation with the
mission to be a single source provider of marketing solutions. In 2000, we
began expanding our services to take advantage of the wide use of internet
technologies through building and acquiring online marketing businesses. In
2002, we significantly increased our technology service capabilities by
acquiring Hencie, Inc., a Dallas-based information technology company
specializing in enterprise software implementation and support services.
With the completion of this acquisition in August 2002, we adopted a plan to
leverage the core competencies of Hencie and its management with the existing
infrastructure of Alternate Marketing. In 2002, we also reincorporated in
Delaware. We currently have three operating segments based on our service
offerings.
Our Services
Technology
The technology segment provides software consulting,
implementation, and support services related to Oracle Corporation's
suite of enterprise business applications to help its customers improve
their business performance by applying direct industry experience,
expertise in Oracle technology, and our in-depth knowledge of business
processes to create mission-critical business solutions for these
companies. This segment also provides enterprise resource planning,
supply chain management, customer relationship management, application
integration, and enterprise portal services. Customers of the
technology segment include companies in the manufacturing, energy, and
distribution industries. A majority of these customers are middle
market companies with annual revenues greater than $100 million. The
technology segment generates a majority of its revenue on a time and
materials fee basis in connection with the implementation of Oracle
software applications. The balance of its revenues are derived from
providing pre-implementation consulting services and post-
implementation support services. Revenues are recognized as services
are performed, primarily on a time and materials basis.
Logistics
The logistics segment delivers and tracks and verifies the
delivery of various products, including telephone directories, and
provides brokered transportation of various goods for national and
regional companies. This segment's internet-based itrackdirectories SM
system allows it to electronically monitor and update its customers on
the delivery status of their products. Customers of the logistics
segment include companies in the telecommunications, publishing and
packaged goods industries. Logistics segment revenues are recognized
primarily as distribution services and verification services are
completed.
Advertising and Marketing
The advertising and marketing segment forms newspaper advertising
networks and sells and places print advertising and advertising inserts
in suburban newspapers for national advertisers. This segment has been
placing advertising in suburban newspapers for over 30 years, and has
long-term relationships with its customers as well as the newspapers in
which the advertising is placed. Customers of this segment are able to
choose from approximately 1,100 newspapers in over 50 markets
nationwide and may focus advertising on specific regions and
demographic segments. This segment handles all of the customary back
room advertising functions ensuring that the ads run correctly and
provides customers with a "one-order one-bill" service. Customers in
the advertising and marketing segment include companies in the
telecommunications, automotive, travel and hospitality industries.
Revenues for this segment are recognized primarily as the print
advertising and advertising inserts are distributed with the
newspapers.
The Fulcrum Strategy
Alternate Marketing has crafted the Fulcrum Strategy, to build a
sustainable, differentiated position based on its expanded capabilities as a
result of the Hencie acquisition. This strategy has been specifically
designed to achieve growth and profitability by leveraging Alternate
Marketing's core strengths in business processing and enterprise software to
expand into adjacent market areas. Under this strategy, Alternate Marketing
intends to build a collaborative network of solution providers centered
around a common mission and brought into this network through asset-based
acquisitions and strategic alliances. Alternate Marketing intends to develop
clients for life through a commitment to delivering business results by
applying technology to mission-critical business processes and building brand
equity by consistently earning highest client satisfaction through exceeding
expectations.
The strategy calls for creating front-end services to position
Alternate Marketing as a specialist in selected industries and back-end
services for the ongoing support and management of systems and processes that
have already been implemented. This PLAN-BUILD-OPERATE approach represents
the full lifecycle of services that a client is likely to purchase. PLAN
services will include IT strategic consulting services for discrete
manufacturing, logistics, energy and other industries. BUILD services include
enterprise software consulting and implementation services to support the
PLAN layer, and OPERATE services include outsourced support offerings for the
ongoing management of processes, applications and hosting services.
We see opportunities for acquisitions of privately held, regional, IT
boutique firms that can strategically fulfill our plan. We are targeting
firms that can bring a sustainable revenue stream of backlog and booking
opportunities with the ability to retain key clients. We expect to achieve
costs savings through operational efficiencies. We may enter into strategic
alliances with key members of the marketplace, because acquisition is not
always practicable or advantageous. We have two significant alliances we
expect to contribute significantly to our success in 2003. The first is the
Hencie's relationship with Oracle as a certified partner. The second is
USSPI's sales alliance with Papel Media to access a nationwide network of
Hispanic newspapers.
Competition
Technology
The primary competitors of the technology segment and for Oracle
solutions implementation include large accounting and consulting firms,
such as Bearing Point Consulting (formerly KPMG Consulting) and CSC,
and the service divisions of various software developers, such as
Oracle Consulting. In addition, the technology segment may compete
with its customers' own internal information technology staff and
service providers. We believe our competitive advantages include
offering a broad scope of fully integrated consulting services,
industry expertise, and our focus on developing user-friendly solutions
in a timely and cost-efficient manner.
Logistics
The primary competitors for distribution of telephone directories
in Alternate Marketing's logistics segment include two large national
private companies who each have been delivering directories for
regional Bell Operating Companies for many years. Product Development
Corporation (PDC) is the largest and best example of this group. For
transportation services, Alternate Marketing competes with trucking
companies. Alternate Marketing competes with these types of
competitors by focusing on a more regional basis and integrating a web-
based tracking system and an easy to use trucking system with its
efficient direct-to-door delivery capabilities. We believe our
competitive advantages include value added services and reasonable
pricing.
Advertising and Marketing
The primary competitors for placement of national newspaper
advertising in Alternate Marketing's advertising and marketing segment
are national advertising representation firms. They usually receive a
fixed fee plus a sales commission from newspapers. Landon and
Associates is an example of this type of rep firm. Alternate Marketing
competes with these types of companies by being resellers of newspaper
space. USSPI bills the clients and pays the newspapers. Newspapers do
not pay USSPI a fee and clients can be assured of receiving the best
newspaper rates offered. We believe our competitive advantages include
our marketing services, such as targeting, and cost-efficient pricing.
Employees
As of December 31, 2002, Alternate Marketing employed approximately 91
total persons in the following capacities:
Employment Capacity Approximate Number of
Employees
Full Time Employees:
Operations and IT consulting 50
General and Administrative Support 15
Sales and Sales Support 11
Total Full Time Employees 76
Part Time Employees(1):
Operations 15
Total Part Time Employees 15
Total Employees 91
(1) The number of part time employees varies from month to month.
No employees of Alternate Marketing are subject to collective
bargaining agreements. Alternate Marketing does not have employment
agreements with all of its employees. We believe our employee relations are
satisfactory.
Intellectual Property
We utilize the following service marks: Hencie Consulting, USSPI,
Alternate Postal Direct, APD, SMART System, itrackdirectories.com,
ilikesamples.com, iquotefreight.com, and Knowledge Bank. We believe that our
service marks have value and are an important factor in the marketing of our
business services. We intend to oppose vigorously any infringement upon our
service marks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Cautionary Note On Forward-Looking Statements
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, including, without
limitation, in the discussions under the captions Business, Risk Factors,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and elsewhere in this prospectus. Any and all statements
contained in this prospectus that are not statements of historical fact may
be deemed forward-looking statements. Terms such as may, might, will, would,
should, could, project, estimate, pro forma, predict, potential, strategy,
anticipate, attempt, develop, plan, help, believe, continue, intend, expect,
future, and similar terms and terms of similar import (including the negative
of any of the foregoing) may be intended to identify forward-looking
statements. However, not all forward-looking statements may contain one or
more of these identifying terms. Forward-looking statements in this
prospectus may include, without limitation, statements regarding (i) a
projection of revenues, income (including income/loss), earnings (including
earnings/loss) per share, capital expenditures, dividends, capital structure,
or other financial items, (ii) the plans and objectives of management for
future operations, including plans or objectives relating to our products or
services, (iii) our future economic performance, including any such statement
contained in a discussion and analysis of financial condition by management
or in the results of operations included pursuant to the rules and
regulations of the Securities and Exchange Commission, (iv) the assumptions
underlying or relating to any statement described in subparagraphs (i), (ii),
or (iii).
The forward-looking statements are not meant to predict or guarantee
actual results, performance, events, or circumstances and may not be realized
because they are based upon our current projections, plans, objectives,
beliefs, expectations, estimates, and assumptions and are subject to a number
of risks and uncertainties and other influences, many of which we have no
control over. Actual results and the timing of certain events and
circumstances may differ materially from those described by the forward-
looking statements as a result of these risks and uncertainties. Factors
that may influence or contribute to the inaccuracy of the forward-looking
statements or cause actual results to differ materially from expected or
desired results may include, without limitation, inability to obtain adequate
financing, insufficient cash flows and resulting illiquidity, dependence upon
software vendors or significant customers, inability to expand our business,
lack of diversification, sales volatility or seasonality, increased
competition, changing customer preferences, results of arbitration and
litigation, stock volatility and illiquidity, failure to successfully
reorient Alternate Marketing as a technology/marketing services company,
failure to implement our business plans or strategies, failure to attract
acquisition targets, or ineffectiveness of our marketing program to develop
and capitalize on strategic alliances. A description of some of the risks
and uncertainties that could cause our actual results to differ materially
from those described by the forward-looking statements in this prospectus
appears under the caption Risk Factors and elsewhere in this prospectus.
Because of the risks and uncertainties related to these factors and the
forward-looking statements, readers of this prospectus are cautioned not to
place undue reliance on the forward-looking statements. Alternate Marketing
disclaims any obligation to update these forward-looking statements or to
announce publicly the results of any revisions to any of the forward-looking
statements contained in this prospectus to reflect any new information or
future events or circumstances or otherwise.
Readers should read this prospectus and the following discussion and
analysis in conjunction with the discussion under the caption Risk Factors in
this prospectus, our financial statements and the related notes thereto
incorporated by reference into this prospectus, and other documents filed by
Alternate Marketing from time to time with the Commission.
Year in Review
During 2002, we focused on improving the efficiency, profitability and
revenue stability of our two existing business segments while we searched for
an acquisition to complement the current base of business with higher gross
margins and greater growth potential. We also paid two special cash
dividends for which a significant portion would be treated for stockholders'
income tax purposes as a return of capital.
In early 2002, in connection with our efforts to improve efficiency of
the existing segments, we implemented a proprietary software system for the
advertising and marketing segment, referred to as the SMART System SM, to
maintain this segment's unique database, to produce and track insertion
orders, and to produce invoices for the customers. We also negotiated an
extension to provide additional services in the logistics segment under a
contract with a major telephone directory publisher until 2006.
In late 2002, we negotiated an amendment to an agreement to eliminate
unnecessary fixed monthly consulting fees and expenses in connection with our
efforts to improve the efficiency and profitability of the logistics segment.
On April 9, 2002 we entered into an agreement to acquire Hencie and
consummated the acquisition on August 1, 2002. Five months of operating
results of Hencie are included in the financial statements for fiscal 2002.
Immediately after the acquisition, we began an integration and cost savings
plan between the newly acquired technology segment and the other existing
business segments. Alternate Marketing also began The Fulcrum Strategy which
calls for future growth and potential additional acquisitions in 2003.
Results of Operations
Fiscal Year Ended December 31, 2002 Compared to Fiscal Year Ended December
31, 2001.
Results of operations for the fiscal years ended December 31, 2002 and
2001 are as follows:
2002 2001
------ ------
Net revenues. . . . . . . . . . . . . $20,296,838 16,626,151
Cost of revenues. . . . . . . . . . . 14,986,673 12,837,911
----------- ----------
Gross profit. . . . . . . . . . . . . 5,310,165 3,788,240
----------- ----------
Selling, general and
administrative expenses. . . . . . . 5,672,350 4,536,618
----------- ----------
Loss from operations. . . . . . . . . (362,185) (748,378)
----------- ----------
Loss before accounting change . . . . (339,888) (404,871)
----------- ----------
Cumulative effect of accounting
change . . . . . . . . . . . . . . . (1,204,058) --
----------- ----------
Net loss. . . . . . . . . . . . . . . $(1,543,946) $404,871)
=========== ==========
Per share - basic and diluted:
Loss before accounting change $ (0.05) $ (0.09)
=========== ==========
Net loss $ (0.24) $ (0.09)
=========== ==========
Weighted average number of shares
outstanding-basic and diluted. . . . 6,380,082 4,612,805
The following table sets forth select consolidated operating data of
Alternate Marketing expressed as a percentage of net revenues for the years
ended December 31, 2002 and 2001:
2002 2001
-------- --------
Net revenues. . . . . . . . . . . . . 100.0 % 100.0 %
Gross profit. . . . . . . . . . . . . 26.2 % 22.8 %
Operating expenses. . . . . . . . . . 28.0 % 27.3 %
Operating loss. . . . . . . . . . . . (1.8)% (4.5)%
Net loss. . . . . . . . . . . . . . . (7.6)% (2.4)%
======== ========
NET REVENUES:
For the years ending
December 31,
----------------------
2002 2001 % change
----------- ---------- --------
Technology $ 3,073,881 $ -- --
Advertising and Marketing 13,322,883 10,893,681 22.3 %
Logistics 3,900,074 5,732,470 (32.0)%
----------- ---------- --------
Total Net Revenues $20,296,838 $16,626,151 22.1 %
=========== ========== ========
The net revenues increase of $3,670,687 for 2002 as compared to 2001
was primarily due to the addition of the technology segment through the
acquisition of Hencie, Inc., which accounted for revenues of $3,073,881 from
August 1, 2002 to December 31, 2002. The advertising and marketing revenues
increased $2,429,202 in 2002 as Alternate Marketing added new customers. The
logistics revenues decreased by $1,832,396 in both the transportation and the
directory distribution areas as Alternate Marketing focused its efforts on
its larger and more profitable customers. While revenues declined due to
this focus, profitability in this segment is expected to remain at
approximately the same level.
GROSS PROFIT:
For the years ending
December 31,
----------------------
2002 2001 % change
----------- ----------- --------
Technology $ 1,380,497 $ -- -- %
Advertising and Marketing 2,123,280 1,757,166 20.8 %
Logistics 1,806,388 2,031,074 (11.1)%
----------- ----------- --------
Total Gross Profit $ 5,310,165 $ 3,788,240 40.2 %
=========== =========== ========
GROSS PROFIT %:
For the years ending
December 31,
----------------------
2002 2001 change
----------- ----------- --------
Technology 44.9 % -- --
Advertising and Marketing 15.9 % 16.1 % (0.2)%
Logistics 46.3 % 35.4 % 10.9 %
----------- ----------- --------
Total Gross Profit % 26.2 % 22.8 % 3.4 %
=========== =========== ========
The gross profit increase of $1,521,925 was primarily due to the
addition of the technology segment, which generated gross profits of
$1,380,497 from August 1, 2002 through December 31, 2002, and led to the
overall increase in gross profit percentage for Alternate Marketing. In
addition, as Alternate Marketing focused in its logistics segment on its
primary customers through its decision to reduce the number of smaller
deliveries it performs, and selected specific geographic areas to cover, it
was able to generate efficiencies, which enabled it to increase the gross
profit percentage in this segment. In addition, higher unemployment levels
provided for an increased availability of labor, thereby keeping the costs
down in the logistics segment. While revenues in the logistics segment
decreased by 32%, gross profits percentage increased by 10.9%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
For the years ending
December 31,
----------------------
2002 2001 % change
----------- ----------- --------
Total S,G&A Expenses $ 5,672,350 $ 4,536,618 25.0 %
=========== =========== ========
Selling, general and administrative expenses increased in 2002
primarily due the addition of the technology segment. Total selling, general
and administrative expenses increased $1,135,732, with approximately $1.4
million attributable to the technology segment for the period August 1, 2002
to December 31, 2002. While Alternate Marketing continues to hold down most
of its overhead costs, costs (such as legal, accounting, and directors and
officers liability insurance) attributable to being a public company continue
to rise significantly. The increase in this area in 2002 was approximately
$128,000. After excluding the increase from the technology segment of $1.4
million and the increase of public company costs of $128,000, other costs
decreased approximately $380,000. In addition, Alternate Marketing
recognized goodwill amortization expense in 2001 of approximately $150,000,
compared to no goodwill amortization expense in 2002 due to the accounting
change for adopting SFAS No. 142, which eliminates goodwill amortization.
OTHER INCOME (EXPENSE), NET:
For the years ending
December 31,
----------------------
2002 2001 % change
----------- ----------- --------
Interest income $15,352 $125,847 (87.8)%
Interest expense (110,069) -- -- %
Gain on asset disposal 292 -- -- %
----------- ----------- --------
Total Other Income (Expense), Net $(94,425) $125,847 (175.0)%
=========== =========== ========
Interest income decreased $110,495 and interest expense increased
$110,069 during 2002 as compared to 2001, due to the decrease in cash
available for investing and the borrowings made on Alternate Marketing's
financing arrangements, including those obtained in the Hencie acquisition.
Interest income was higher in 2001 due to temporary investment of proceeds
from the sale of the offline sampling division, which was sold at the end of
2000. The change in cash availability for investing was largely attributable
to the dividends paid during 2002. In addition, the increase in interest
expense was largely attributable to the debt assumed as part of the Hencie
acquisition (technology segment).
INCOME TAXES:
During 2002 Alternate Marketing recorded a federal income tax benefit of
$128,282 and state income tax expense of $11,560. During 2001 Alternate
Marketing recorded a federal income tax benefit of $220,032 and state income
tax expense of $2,372.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
In connection with the adoption of SFAS No. 142, Alternate Marketing
allocated goodwill of $2,004,947 to each of its reporting units and tested
this goodwill for impairment as of January 1, 2002. Alternate Marketing
completed the testing during the second quarter ending June 30, 2002. As a
result, a charge of $1,204,058 was recorded to goodwill assigned to the
logistics reporting unit. The fair market value of the reporting units was
estimated using a combination of valuation techniques including the
discounted present value of future cash flows and management's estimated
values to a third party buyer.
INFLATION
Alternate Marketing believes that inflation has not had a material
impact on its operations or liquidity to date.
SEASONALITY AND OTHER BUSINESS FLUCTUATIONS
Although the logistics segment and the advertising and marketing segment
experience some seasonality in operations corresponding with holiday
advertising, such variations have not been material to the overall results of
operations of Alternate Marketing. Revenues from the delivery of telephone
directories also fluctuate quarterly with the contractual delivery schedules
of Alternate Marketing's customers and vary during the course of the year.
Revenues and operating results from the technology segment have
fluctuated significantly in the past. The technology segment has
historically experienced greater revenues during its first and second fiscal
quarters, and significantly lower revenues in its third and fourth fiscal
quarters. Accordingly, although a comparison of any given fiscal quarter to
the same fiscal quarter of a previous year may be meaningful, other period-
to-period comparisons, including comparisons of fiscal quarters in the same
fiscal year may not be meaningful.
This fluctuation between quarters is attributable to the project cycles
of customers of the technology segment, most of whom have calendar-based
fiscal years and are more likely to start project cycles during the first
half of the year. Further, most of the technology segment's expenses,
including expenses associated with its employees, are relatively fixed in the
short-term, several other factors can cause significant variations in the
quarterly operating results, including:
- fluctuations in the number of customer projects it is awarded;
- cancellations or delays by its customers of planned projects;
- its employee utilization rate; and
- number of billable days in a given quarter.
Alternate Marketing believes that the technology segment will
experience similar fluctuations in operations in the future. If Alternate
Marketing is unable to predict the cyclical customer demand in a slower
growth or distressed economic environment, expenses may be disproportionate
to and/or exceed revenues.
LIQUIDITY AND CAPITAL RESOURCES
Alternate Marketing has historically funded its operations and working
capital needs from operating cash flows. However, during the year ended
December 31, 2002, Alternate Marketing's cash decreased $3,232,959. This
decrease was primarily attributable to the payments of two dividends totaling
$2,751,663 and the payments of certain liabilities assumed by Alternate
Marketing in connection with the Hencie acquisition. Alternate Marketing
currently has no plans to pay dividends. We currently fund our operations
and working capital needs from operating cash flows and borrowings under
financing agreements between our subsidiaries and lenders.
Net cash used in financing activities of $3,222,617 for the year ended
December 31, 2002 included payments of dividends of $2,751,663. In addition,
Alternate Marketing had net bank borrowings of $1,125,000. Alternate
Marketing also made net payments on notes payable assumed with the Hencie
acquisition totaling $1,595,954 during the five-month period subsequent to
the acquisition (August 1, 2002 through December 31, 2002).
Net cash provided by operating activities was $244,528 for the year
ended December 31, 2002. This was largely attributable to the increase in
accounts payable. This made cash available to finance other operating
activities such as paying liabilities assumed with the Hencie acquisition,
including a payment to the Internal Revenue Service of approximately
$609,000.
National Home Delivery, Inc., an Illinois corporation and a wholly owned
subsidiary of Alternate Marketing, amended its existing financing agreements
with Fifth Third Bank (the "NHD Credit Facility") on April 29, 2003 to extend
the maturity date under the NHD Credit Facility from May 1, 2003 to May 1,
2004. The NHD Credit Facility provides for borrowings up to $1,000,000.
Borrowings under the NHD Credit Facility accrue interest at Fifth Third's
prime rate (4.25% as of April 21, 2003) plus 100 basis points. Available
borrowings under the NHD Credit Facility are subject to conditions and
restrictions, including, without limitation, eligible accounts receivable
restrictions and other restrictive financial covenants and performance ratios
applicable to National Home Delivery. The NHD Credit Facility is secured by
substantially all of the assets of Alternate Marketing and National Home
Delivery. As of April 30, 2003, borrowings in the amount of approximately
$700,000 were outstanding and credit in the amount of approximately $300,000
was available under the NHD Credit Facility.
Alternate Postal Direct, Inc., a Michigan corporation and a wholly
owned subsidiary of Alternate Marketing, entered into a new financing
agreement with Accord Financial, Inc., subject to execution and delivery of a
guaranty, as applicable (the "APD Credit Facility"), on April 30, 2003 to
replace the financing agreements between Alternate Postal and Fifth Third
that expired on May 1, 2003. The APD Credit Facility provides for the sale
of accounts receivable by Alternate Postal to Accord at a 1.5% discount and
aggregate advances up to $750,000. Advances under the APD Credit Facility
accrue interest at the prime commercial rate of interest established from day
to day by Bank of America, Inc. for short term unsecured loans to substantial
borrowers. Sales of accounts receivable and advances under the APD Credit
Facility are subject to conditions and restrictions, including, without
limitation, accounts receivable eligibility restrictions, and accounts
receivable verification and approval. The APD Credit Facility is secured by
substantially all of the assets of Alternate Postal. As of April 30, 2003,
no advances were outstanding and advances in the amount of approximately
$170,000 were available under the APD Credit Facility.
Hencie Consulting amended its existing financing agreement with Accord
(the "HCS Credit Facility") on April 29, 2003. The HCS Credit Facility
provides for the sale of accounts receivable by Hencie Consulting to Accord
at a 1.5% discount and aggregate advances up to $750,000. Advances under the
HCS Credit Facility accrue interest at the prime commercial rate of interest
established from day to day by Bank of America, Inc. for short term unsecured
loans to substantial borrowers. Sales of accounts receivable and advances
under the HCS Credit Facility are subject to conditions and restrictions,
including, without limitation, accounts receivable eligibility restrictions,
and accounts receivable verification and approval. The HCS Credit Facility
is secured by substantially all of the assets of Hencie Consulting. As of
April 30, 2003, advances in the amount of approximately $300,000 were
outstanding and advances in the amount of approximately $70,000 were
available under the HCS Credit Facility.
Alternate Marketing assumed short-term and long-term liabilities in
connection with its acquisition of Hencie. The short-term liabilities
include "accounts payable, other" owing to former vendors of Hencie and
expenses of Hencie related to the acquisition itself. The short-term
liabilities also include required monthly payments of $2,604 under a Small
Business Administration loan. Borrowings under the loan accrue interest at
9.75%. As of December 31, 2002, borrowings in the amount of approximately
$92,508 were outstanding under the loan. The loan matures in March 2006.
On February 18, 2003, Alternate Marketing entered into an agreement
regarding settlement of approximately $1 million of liabilities owing to
Drawbridge. The agreement provided for a cash payment of $120,000 to
Drawbridge, issuance of 2,474,309 shares of common stock to Drawbridge,
registration rights for the shares, and an obligation for Alternate Marketing
to repurchase $100,000 of the shares from Drawbridge annually for three years
beginning February 18, 2004.
Alternate Marketing believes that its existing financing arrangements
and estimated operating cash flows will be sufficient to fund its operations
and working capital needs for at least the next 12 months. There can be no
assurance, however, that a failure to comply with the provisions of our
existing financing arrangements, changes in operating plans, the acceleration
or modification of expansion plans, lower than anticipated revenues,
increased expenses, potential acquisitions, or other events will not cause
Alternate Marketing to seek additional financing sooner than anticipated,
prevent Alternate Marketing from achieving the goals of our expansion
strategy, force the closure of unprofitable segments or portions of these
segments, or prevent Alternate Marketing from operating profitably. In
addition, there can be no assurance that any additional financing, if needed,
will be available on terms acceptable to Alternate Marketing or at all.
In addition, the following are contractual cash obligations of Alternate
Marketing as of December 31, 2002:
Cash Obligations Due by Year
Total 2003 2004 2005 2006
Operating leases $1,082,258 $477,260 $457,224 $142,036 $5,738
Notes payable, bank * 1,125,000 1,125,000 -- -- --
Notes payable, factor * 269,508 269,508 -- -- --
Long-term debt ** 386,922 316,614 31,248 31,248 7,812
---------- --------- -------- -------- ------
$2,863,688 $2,188,382 $488,472 $173,284 $13,550
========== ========== ======== ======== =======
* Alternate Marketing intends to replace these notes payable with another
source of revolving credit. See above for further details.
**The Drawbridge note payable was settled in February 2003 for cash of
$120,000 and the issuance of Alternate Marketing's common stock, and
obligations for Alternate Marketing to repurchase $100,000 of Alternate
Marketing's common stock annually for three years beginning in 2004. The
non-cash portion of this settlement of $871,734 is not included in this
schedule.
In addition to the above, Alternate Marketing estimates that the past
due payables as of December 31, 2002 in the amount of $484,221 will be paid
off over the next three years.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002 the Financial Accounting Standards Board (FASB) approved
for issuance SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This statement
is effective for fiscal years beginning after December 31, 2002. Alternate
Marketing does not expect the adoption of SFAS No. 146 to have a material
effect on Alternate Marketing's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-
Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No.
123, to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002.
As Alternate Marketing did not make a voluntary change to the fair value
based method of accounting for stock-based employee compensation in 2002, the
adoption of SFAS No. 148 did not have a material impact on Alternate
Marketing's financial position and results of operations.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Assumptions and estimates of future earnings and cash flow
are used in the periodic analyses of the recoverability of goodwill, deferred
tax assets, and property, plant and equipment. Historical experience and
trends are used to estimate reserves, including reserves for bad debts. To
the extent that future earnings, cash flows and costs and losses are
determined to be different from the assumptions and estimates used,
adjustments may be required.
Alternate Marketing currently has not recorded the value of the
deferred tax asset on the balance sheet due to the uncertainty of its
utilization prior to the expiration of the related net operating loss carry-
forwards.
As of December 31, 2002 and 2001, respectively, the allowance for bad
debts was $150,000 and $100,000. This increase was due to the increase in
accounts receivable associated with the Hencie acquisition. Alternate
Marketing periodically reviews accounts receivable balances for all customers
to allocate an estimate to each customer of an amount, which may potentially
be uncollectible. These estimates are then aggregated and compared to the
total allowance and adjustments made if necessary.
In connection with the adoption of SFAS No. 142, Alternate Marketing
allocated goodwill of $2,004,447 to each of its reporting units and tested
this goodwill for impairment as of January 1, 2002. Alternate Marketing
completed the testing during the second quarter ending June 30, 2002. As a
result, a charge of $1,204,058 was recorded for the goodwill assigned to the
logistics reporting unit. The remaining goodwill of $800,889 at June 30,
2002 was assigned to the advertising and marketing reporting unit. The fair
market value of the reporting units was estimated using a combination of
valuation techniques including the discounted present value of future cash
flows and management's estimated values to a third party buyer. Alternate
Marketing has concluded that no impairment has occurred for the advertising
and marketing reporting unit as of December 31, 2002.
The goodwill of approximately $7 million that arose from the Hencie
acquisition will be tested for impairment at least annually beginning in
2003. Hencie has been experiencing losses since the acquisition and further
improvements in operations are required. However, Alternate Marketing
believes that the estimated fair value of the Hencie reporting unit has not
decreased significantly since the acquisition; therefore, no adjustment
should be made to goodwill as of December 31, 2002.
OUTLOOK FOR THE FUTURE
Alternate Marketing will continue in 2003 to explore options and
opportunities to maximize stockholder value under the Fulcrum Strategy. The
business plan for 2003 includes a number of strategic initiatives to achieve
growth and profits by addressing the emerging trends, especially, in the
technology segment of our business. These new initiatives include growth
through promotion and positioning of our current IT services, as well as
strategic alliances and asset based acquisitions to extend our service
offerings.
Alternate Marketing has seen improvement in its sales pipeline for the
technology segment as a result of promoting our services through new direct
marketing programs. We expect to see results from these efforts in the
second half of the year 2003.
We will continue to address selling, general and administrative
expenses throughout the company and have combined the sales and client
management functions of the technology segment into a single role of client
development manager to reduce costs.
DESCRIPTION OF PROPERTY
Alternate Marketing does not have any materially important property
leases. All of the office space and other facilities currently leased by
Alternate Marketing could be replaced by Alternate Marketing with
substantially equivalent facilities at similar cost without great difficulty.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective as of January 1, 2003, K2 VC LTD., a Texas limited
partnership and an affiliate of Adil Khan, the Chief Executive Officer of
Alternate Marketing, contributed 1,474,039 shares, par value $0.01 per share,
of common stock of Alternate Marketing to Alternate Marketing pursuant to
that certain Contribution Agreement, effective as of January 1, 2003, by and
between Alternate Marketing and K2 VC. Mr. Khan may be deemed to be an
indirect beneficial owner of such shares and exercises indirect voting power
over such shares as the Co-Managing Member of K2 VC Management, LLC, a Texas
limited liability company and the sole general partner of K2 VC.
On February 18, 2003, Alternate Marketing granted to Mr. Khan a non-
qualified stock option to purchase up to 1,700,000 shares of common stock at
an exercise price of $0.50 per share with vesting of 25% per year over the
next four years pursuant to and in accordance with that certain Non-Qualified
Stock Option Agreement, dated February 18, 2003, by and between Alternate
Marketing and Mr. Khan.
On February 18, 2003 Alternate Marketing also released K2 VC and Mr.
Khan from indemnification obligations owed by Mr. Khan to Alternate
Marketing, in exchange for the option to use 200,000 shares of common stock
owned by K2 VC to settle certain pending claims against Alternate Marketing
pursuant to and in accordance with that certain Mutual Release Agreement,
dated February 18, 2003, by and among Alternate Marketing, K2 VC, and Mr.
Khan.
On February 18, 2003, Alternate Marketing entered into that certain
Release Agreement, dated February 18, 2003, by and among Alternate Marketing,
Hencie, Hencie Consulting, K2 VC, Mr. Khan, Drawbridge Investment Partners,
LLC , who was the largest creditor of Hencie and Hencie Consulting, and
certain directors and stockholders of Alternate Marketing, to eliminate
approximately $1,000,000 in debt of Alternate Marketing in exchange for
$120,000, 2,474,039 shares of common stock, and registration rights for the
2,474,039 shares of common stock.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range Of Common Stock
Our common stock is currently traded on the OTCBB under the symbol
ALTM.OB. The following table sets forth the quarterly high and low bid
prices for our common stock (which is its only class of security outstanding)
for each quarter within the last two fiscal years, as reported in the Nasdaq
SmallCap Market and the OTCBB. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and may not represent actual
transactions.
Bid Price
Low High
Year ended December 31, 2002:
First quarter . . . . . . . . . . . . . . 0.650 1.750
Second quarter . . . . . . . . . . . . . . 0.710 1.450
Third quarter . . . . . . . . . . . . . . 0.600 0.950
Fourth quarter . . . . . . . . . . . . . . 0.260 0.750
Year ended December 31, 2001:
First quarter . . . . . . . . . . . . . . 1.063 1.625
Second quarter . . . . . . . . . . . . . . 0.950 1.210
Third quarter . . . . . . . . . . . . . . 0.900 1.190
Fourth quarter . . . . . . . . . . . . . 0.600 1.550
On April 17, 2003, the bid price for our common stock was and $0.21 and
the ask price was $0.29 and there were approximately 56 holders of record of
our common stock. Many of the shares of our common stock are held by brokers
and other institutions on behalf of stockholders. As of April 17, 2003, we
estimated the number of beneficial owners to be approximately 400.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information, as of December 31, 2002,
regarding (i) the number of securities to be issued upon exercise of
outstanding options, warrants, and rights, (ii) the weighted average exercise
price of outstanding options, warrants and rights, and (iii) the number of
securities remaining available for future issuance with respect to
compensation plans (including individual compensation arrangements) under
which equity securities of Alternate Marketing are authorized for issuance,
including all compensation plans previously approved by the stockholders and
all compensation plans not previously approved by the stockholders.
Equity Compensation Plan Information
Number of
securities to be Weighted-
issued upon average
exercise of exercise price of
outstanding outstanding
options options Number of securities
warrants and warrants and remaining available for
Plan Category rights rights future issuance
Equity compensation plans 1,540,000 $0.76 -0-
approved by security holders
Equity compensation plans N/A N/A N/A
not approved by security
holders
Total 1,540,000 $0.76 -0-
Dividend Policy And Stock Repurchases
We paid our first cash dividend on our common stock on January 22, 2002
and our second on July 29, 2002. Future dividend policy will be determined
by the board of directors based upon our earnings, if any, Alternate
Marketing's capital needs and other relevant factors. Alternate Marketing
currently has no plans to pay dividends.
Stock Repurchases
In 1998, Alternate Marketing began acquiring shares of its common stock
from time to time in the open market or in privately negotiated transactions.
Alternate Marketing purchased and retired 103,100 shares of common stock in
2001 at an aggregate cost of $114,065. Alternate Marketing is currently
authorized to purchase up to 300,000 shares of which 103,100 had been
repurchased through December 31, 2002.
EXECUTIVE COMPENSATION
The required executive compensation information required is incorporated
by reference from the definitive proxy statement on Schedule 14A of Alternate
Marketing Networks, Inc. filed by us with the Commission on April 8, 2003.
FINANCIAL STATEMENTS
The required financial statements are incorporated by reference from the
annual report on Form 10-KSB of Alternate Marketing Networks, Inc. filed by
us with the Commission on March 31, 2003. In addition, we incorporate by
reference the consolidated financial statements of Hencie, Inc. and
subsidiary, appearing in Alternate Marketing Networks, Inc.'s Schedule 14A
Definitive Proxy Statement, filed by us with the Commission on July 23, 2002.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
We changed certifying accountants from PricewaterhouseCoopers LLP to
Deloitte & Touche LLP effective August 12, 2002. The following sets forth
the information required by Regulation S-B Item 304: (i) On August 12, 2002,
PricewaterhouseCoopers was dismissed as our principal accountant; (ii)
PricewaterhouseCoopers's reports on the financial statements for the past
fiscal year did not contain an adverse opinion or a disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit scope or
accounting principles; (iii) the decision to change accountants was approved
by our board of directors; (iv) during our most recent fiscal year and
subsequent interim periods prior to such change in accountants, there were no
disagreements with PricewaterhouseCoopers on any matter of accounting
principles or practices, financial statement disclosures or auditing scope or
procedure; (v) during our two most recent fiscal years and subsequent interim
periods prior to such change in accountants, there have occurred none of the
"reportable events" listed in Item 304; and (vi) we have requested and
received from PricewaterhouseCoopers the letter required by Item 23 (and
filed the same as Exhibit 16.1 to our report on Form 8-K filed on August 12,
2002, and we state that PricewaterhouseCoopers agrees with the statements
made by us in this prospectus in response to Item 304.
LEGAL MATTERS
Certain legal matters, including the validity of the shares being
issued, will be passed upon for Alternate Marketing by Haynes and Boone, LLP.
EXPERTS
The consolidated financial statements of Alternate Marketing Networks,
Inc. and subsidiaries incorporated in this prospectus by reference from the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2002,
have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report (which report expresses an unqualified opinion and includes
an explanatory paragraph referring to the Company's adoption of SFAS No. 142,
"Goodwill and Other Intangible Assets"), which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
Also, the consolidated financial statements of Hencie, Inc. and
subsidiary for the years ended December 31, 2001 and 2000, incorporated by
reference from the Company's Proxy Statement dated July 23, 2002, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which expresses an unqualified opinion and includes an explanatory
paragraph concerning substantial doubt about the ability of Hencie, Inc. and
subsidiary to continue as a going concern), which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows of Alternate Marketing Networks, Inc. and subsidiaries for the year
ended December 31, 2001 have been incorporated by reference herein in
reliance upon the report of PricewaterhouseCoopers, LLP, and upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission in accordance with the Securities Exchange
Act of 1934, as amended. You may read and copy our reports, proxy statements
and other information filed by us at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our reports, proxy statements and other information filed
with the Securities and Exchange Commission are also available to the public
over the internet at the Securities and Exchange Commission's website at
http://www.sec.gov. Our web site on the Internet is at
http://www.altmarknet.com.
Incorporation By Reference
The Securities and Exchange Commission allows us to incorporate by
reference the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
prospectus, and information that we file later with the Securities and
Exchange Commission will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
made by us with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act until we have completed our offering
described in this prospectus:
- Our Annual Report on Form 10-KSB for the year ended December 31, 2002,
as amended by Amendment No. 1 thereto filed May 2, 2003 by Alternate
Marketing with the Commission.
- Our Schedule 14A Definitive Proxy Statement filed on July 23, 2002
Any statement contained in a document that is incorporated by reference
will be modified or superseded for all purposes to the extent that a
statement contained in this prospectus (or in any other document that is
subsequently filed with the Commission and incorporated by reference)
modifies or is contrary to that previous statement. Any statement so modified
or superseded will not be deemed a part of this prospectus except as so
modified or superseded.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Investor Relations, 13155 Noel Road,
10th Floor, Dallas, TX 75240, (972) 720-3500.
PROSPECTUS
ALTERNATE MARKETING NETWORKS, INC.
[LOGO]
2,474,039 Shares
Common Stock
_____________________________________________________________________________
We have not authorized anyone to provide information different from that
contained in this prospectus. When you make a decision about whether to
invest in our common stock, you should not rely upon any information other
than the information in this prospectus. Neither the delivery of this
prospectus nor the sale of our common stock means that information contained
in this prospectus is correct after the date of this prospectus. This
prospectus is not an offer to sell or solicitation of an offer to buy these
shares of common stock in any circumstances under which the offer or
solicitation is unlawful.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our certificate of incorporation provides that we shall indemnify to the
extent permitted by Delaware law any person whom we may indemnify thereunder,
including our directors, officers, employees and agents. Our bylaws provide
such indemnification (other than an order by a court) shall be made by us
only upon a determination that indemnification is proper in the circumstances
because the individual met the applicable standard of conduct. Advances for
such indemnification may be made pending such determination. Such
determination shall be made by a majority vote of a quorum consisting of
disinterested directors, by independent legal counsel or by the stockholders.
In addition, our certificate of incorporation eliminates, to the extent
permitted by Delaware law, personal liability of directors to us and our
stockholders for monetary damages for breach of fiduciary duty as directors.
Our authority to indemnify our directors and officers is governed by the
provisions of Section 145 of the Delaware General Corporation Law, as
follows:
(a) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not
the corporation would have the power to indemnify such person against such
liability under this section.
(h) For purposes of this section, references to the corporation shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to other enterprises shall
include employee benefit plans; references to fines shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to serving at the request of the corporation shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses which will be paid
by us in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee and the NASD
filing fee, all amounts shown are estimates.
Registration fee $ 50.04
NASD filing fee $ -
OTCBB listing expenses $ -
Blue sky fees and expenses
(including legal and filing fees) $ -
Printing expenses (other than stock certificates) $ -
Legal fees and expenses (other than Blue sky) $25,000
Accounting fees and expenses $10,000
Transfer Agent and Registrar fees and expenses $ 200
Miscellaneous expenses $ 500
Total $35,750.04
Item 26. Recent Sales of Unregistered Securities.
On August 1, 2002, Alternate Marketing issued 50,000 shares of its
restricted, unregistered common stock to an officer of Alternate Marketing
pursuant to the officer's employment agreement. The amount was recorded as
compensation expense.
On August 1, 2002, Alternate Marketing issued 183,700 shares of its
restricted, unregistered common stock to GoldenGoose Software, Inc. as
contingent consideration in exchange for certain assets of Golden Goose
pursuant to an asset purchase agreement dated May 3, 2000 by and between
Alternate Marketing and Golden Goose. The amount was recorded as additional
goodwill.
On September 19, 2002, Alternate Marketing issued 93,750 shares of its
restricted, unregistered common stock to outside legal counsel to Alternate
Marketing for a reduction of $75,000 of the outstanding balance of trade
accounts payable to the outside legal counsel for legal services rendered to
Alternate Marketing.
Item 27. Exhibits.
Exhibit No. Description of Exhibit
2.1 Acquisition Agreement dated March 29, 1996 between Alternate Marketing
and National Home Delivery, Inc. (incorporated by reference from Form 8-K of
Alternate Marketing dated April 11, 1996)
2.2 Asset Purchase Agreement dated February 17, 2000, between Alternate
Marketing, Kevin Powers, and Total Logistics, Inc. (incorporated by reference
from Form 8-K of Alternate Marketing dated March 1, 2000)
2.3 Consulting Agreement dated February 17, 2000 between Alternate
Marketing, Kevin Powers, and Total Logistics, Inc. (incorporated by reference
from Form 8-K of Alternate Marketing dated March 1, 2000)
2.4 Amended and Restated Agreement and Plan of Reorganization dated May 31,
2002 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. (incorporated by reference from
Appendix A to the Definitive Proxy Statement of Alternate Marketing dated
July 23, 2002 and filed June 16, 2002 by Alternate Marketing with the
Commission)
3.1 Amended and Restated Certificate of Incorporation (incorporated by
reference from Exhibit 4.1 to the Form 8-K of Alternate Marketing dated
August 1, 2002 and filed August 14, 2002 by Alternate Marketing with the
Commission)
3.2 Amended and Restated Bylaws (incorporated by reference from Exhibit 4.2
to the Form 8-K of Alternate Marketing dated August 1, 2002 and filed August
14, 2002 by Alternate Marketing with the Commission)
4.1 1995 Long-Term Incentive and Stock Option Plan (incorporated by
reference from the Registration Statement on Form SB-2; Commission File No.
33-95332C)
4.2 1995 Outside Directors and Advisors Stock Option Plan(incorporated by
reference from the Registration Statement on Form SB-2; Commission File No.
33-95332C)
4.3 Form of Registration Rights Agreement between Alternate Marketing and
certain noteholders of Alternate Marketing (incorporated by reference from
the Registration Statement on Form SB-2; Commission File No. 33-95332C)
5.1 Opinion of Haynes and Boone, LLP (filed herewith)
10.1 Employment Agreement dated July 21, 1995 between the Company and Phillip
D. Miller (incorporated by reference from the Registration Statement on Form
SB-2; Commission File No. 33-95332C)
10.2 Addendum to Employment Agreement dated July 21, 1995 between Alternate
Marketing and Phillip D. Miller dated January 1, 2000 (incorporated by
reference from the Form 10-KSB of the Company for the fiscal year ended
December 31, 1999 filed March 30, 2000 by Alternate Marketing with the
Commission)
10.3 Second Addendum dated to Employment Agreement dated July 21, 1995
between Alternate Marketing and Phillip D. Miller (incorporated by reference
from Exhibit 99.2 to the Form 8-K of Alternate Marketing dated August 1, 2002
and filed August 14, 2002 by Alternate Marketing with the Commission)
10.4 Employment Agreement dated July 1, 2001 between Alternate Marketing and
Sandra J. Smith (incorporated by reference from the Form 10-KSB of Alternate
Marketing for the fiscal year ended December 31, 2001 filed March 28, 2002 by
Alternate Marketing with the Commission)
10.5 Addendum dated to Employment Agreement dated July 1, 2001 between
Alternate Marketing and Sandra J. Smith (incorporated by reference from
Exhibit 99.2 to the Form 8-K of Alternate Marketing dated August 1, 2002 and
filed August 14, 2002 by Alternate Marketing with the Commission)
10.6 Employment Agreement dated August 1, 2002 between Alternate Marketing
and Adil Khan (incorporated by reference from Exhibit 99.1 to the Form 8-K of
Alternate Marketing dated August 1, 2002 and filed August 14, 2002 by
Alternate Marketing with the Commission)
10.7 Loan Agreement (incorporated by reference from the Form 10-KSB of
Alternate Marketing for the fiscal year ended December 31, 2001 filed March
28, 2002 by Alternate Marketing with the Commission)
10.8 First Amendment to Loan Agreement dated April 29, 2003 among National
Home Delivery, Inc. Alternate Postal Direct, Inc., and Fifth Third Bank
(filed herewith)
10.9 Amended and Restated Revolving Loan Note dated April 29, 2003 between
National Home Delivery, Inc. and Fifth Third Bank (filed herewith)
10.10 Times Mirror Stock Purchase Agreement (incorporated by reference from
the Form 10-QSB of Alternate Marketing for the quarterly period ended
September 30, 1999)
10.11 Contribution Agreement dated January 1, 2003 between Alternate
Marketing, K2 VC LTD., a Texas limited partnership (incorporated by reference
from Exhibit 99.1 to the Form 8-K of Alternate Marketing dated and filed
February 20, 2003 by Alternate Marketing with the Commission)
10.12 Mutual Release Agreement dated February 18, 2003 between Alternate
Marketing, K2VC LTD., a Texas limited partnership (incorporated by reference
from Exhibit 99.2 to the Form 8-K of Alternate Marketing dated and filed
February 20, 2003 by Alternate Marketing with the Commission)
10.13 Non-Qualified Stock Option Agreement dated February 18, 2003 between
Alternate Marketing and Adil Khan (incorporated by reference from Exhibit
99.3 to the Form 8-K of Alternate Marketing dated and filed February 20, 2003
by Alternate Marketing with the Commission)
10.14 Release Agreement dated February 18, 2003 between Alternate Marketing,
Hencie, Inc., Hencie Consulting Services, Inc., K2VC LTD., Adil Khan,
Drawbridge Investment Partners, LLC, and certain directors and stockholders
of Alternate Marketing (incorporated by reference from Exhibit 99.4 to the
Form 8-K of Alternate Marketing dated and filed February 20, 2003 by
Alternate Marketing with the Commission)
10.15 Addendum to Master Purchase and Sale Agreement dated April 29, 2003
between Hencie Consulting Services, Inc. and Accord Financial, Inc. (filed
herewith)
10.16 Master Purchase and Sale Agreement dated April 30, 2003 between
Alternate Postal Direct, Inc. and Accord Financial, Inc. (filed herewith)
10.17 Addendum to Master Purchase and Sale Agreement dated April 30, 2003
between Alternate Postal Direct, Inc. and Accord Financial, Inc. (filed
herewith)
13.1 Annual Report on Form 10-KSB of Alternate Marketing for the fiscal year
ended December 31, 2002 filed March 31, 2003 by Alternate Marketing with the
Commission, as amended by Amendment No. 1 thereto filed May 2, 2003 by
Alternate Marketing with the Commission (incorporated by reference)
21.1 List of Subsidiaries of the Company (incorporated by reference from
Exhibit 21.1 to the Annual Report on Form 10-KSB of Alternate Marketing for
the fiscal year ended December 31, 2002 filed March 31, 2003 by Alternate
Marketing with the Commission, as amended by Amendment No. 1 thereto filed
May 2, 2003 by Alternate Marketing with the Commission)
22.1 Schedule 14A Definitive Proxy Statement filed July 23, 2002 by Alternate
Marketing with the Commission (incorporated by reference)
23.1 Consent of Deloitte & Touche LLP (filed herewith)
23.2 Consent of PricewaterhouseCoopers, LLP (filed herewith)
Item 28. Undertakings.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d)
of the Exchange Act), that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant undertakes to provide to the underwriters at
the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Dallas, State of Texas, on May 7, 2003.
ALTERNATE MARKETING NETWORKS, INC.
By: /s/ Adil Khan
Name: Adil Khan
Title: Chief Executive Officer
(Principal executive officer) and Director
Know all men by these presents, that each person whose signature appears
below hereby constitutes and appoints Adil Khan and Phillip D. Miller and each
of them his or her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
related registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, and to authorize, approve, sign and cause to be filed such other
documents as may be necessary or appropriate to qualify the securities which
are the subject of the Registration Statement for offer and sale under the
Blue Sky and other applicable laws of each jurisdiction in which such
securities may be offered and sold, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated:
Dated
/s/ Adil Khan May 7, 2003
Adil Khan, Chief Executive Officer
(Principal executive officer) and Director
/s/ Phillip D. Miller May 7, 2003
Phillip D. Miller, President and Chairman of the
Board of Directors
/s/ Sandra J. Smith May 7, 2003
Sandra J. Smith, Chief Financial Officer and
Treasurer (Principal financial and accounting officer)
/s/ Phillip Baker May 7, 2003
Phillip Baker, Director
/s/ Thomas Hiatt May 7, 2003
Thomas Hiatt, Director
/s/ J. Robert Routt May 7, 2003
J. Robert Routt, Director
EXHIBIT 5.1
May 7, 2003
Alternate Marketing Networks, Inc.
13155 Noel Road
10th Floor
Dallas, Texas 75240
Re: Registration Statement on Form SB-2 (Commission File No. 333-104704) of
up to 2,474,039 Shares of Common Stock of Alternate Marketing Networks, Inc.
Ladies and Gentlemen:
We have acted as special counsel to Alternate Marketing Networks, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of
the Company's registration statement on Form SB-2 (Commission File No. 333-
104704) filed by the Company with the Securities and Exchange Commission (the
"Commission") on April 23, 2003, and Amendment No. 1 thereto, filed by the
Company with the Commission on the date hereof (as amended, the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"). The Registration Statement relates to the registration under the
Securities Act of the offer and sale by Drawbridge Investment Partners LLC, a
Delaware limited liability company ("Drawbridge"), from time to time, pursuant
to Rule 415 under the Securities Act, of up to 2,474,039 shares of common
stock, par value $0.01 per share, of the Company (the "Securities"). The
Securities were issued by the Company to Drawbridge pursuant to that certain
Release Agreement, dated February 18, 2003, by and among Drawbridge, the
Company, K2 VC LTD., a Texas limited partnership, Hencie, Inc., a Delaware
corporation, Hencie Consulting Services, Inc., a Texas corporation, Adil Khan,
and the directors and certain stockholders of the Company (the "Release
Agreement").
We have examined and relied on originals or copies, certified or
otherwise identified to our satisfaction, of (i) the Certificate of
Incorporation and Bylaws of the Company, each as amended and/or restated as of
the date hereof, (ii) the Release Agreement, (iii) the Registration Statement
and all exhibits thereto, (iv) the minutes and resolutions of the Board of
Directors of the Company authorizing and approving the Release Agreement, the
Registration Statement, and the issuance of the Securities to Drawbridge
pursuant to the Release Agreement, (v) the certificates representing the
Securities, and (vi) such other statutes, records, certificates, agreements,
instruments, and documents as we have deemed necessary or appropriate for
purposes of the opinion hereinafter expressed. As to various questions of
fact material to the opinion hereinafter expressed, we have relied in part,
and to the extent we have deemed necessary or appropriate, without independent
check or verification of their accuracy, on the representations and warranties
of the Company contained in the Release Agreement and such other records,
certificates, agreements, instruments, and documents furnished or made
available to us by the Company and the officers or other representatives of
the Company, including, without limitation, the representations of the Company
regarding receipt of consideration for the Securities (having a value not less
than the par value of the Securities) in accordance with the Release
Agreement. In making the foregoing examinations, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies thereof, and the
authenticity of the originals of such latter documents. Finally, we have
assumed that all formalities required by the Certificate of Incorporation and
Bylaws of the Company and the DGCL (as defined below) were complied with by
the Company when the Securities were issued.
Based on the foregoing, subject to the assumptions, qualifications,
limitations, and exceptions set forth herein, and in reliance on the
statements of fact contained in the documents that we have examined, we are of
the opinion that the Securities have been duly authorized and are validly
issued, fully paid, and nonassessable.
The opinions expressed herein are limited to the federal laws of the
United States of America, and, to the extent relevant to the opinion
expressed herein, the General Corporation Law of the State of Delaware (the
"DGCL") and applicable provisions of the Delaware Constitution, in each case
as currently in effect, and judicial decisions reported as of the date hereof
and interpreting the DGCL and such provisions of the Delaware Constitution.
You have informed us that Drawbridge may sell the Securities from time to
time on a delayed basis. This opinion is limited to the laws referred to
above as in effect on the date hereof as to all facts as they currently exist.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement and to the use of our name under
the caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we are not admitting that we
are within the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Haynes And Boone, LLP
Haynes And Boone, LLP
Exhibit 10.8
FIRST AMENDMENT TO
LOAN AGREEMENT
THIS AMENDMENT (this "Amendment") is made as of this 29th day of
April, 2003, by and among NATIONAL HOME DELIVERY, INC., an Illinois
corporation ("NHD"), ALTERNATE POSTAL DIRECT, INC., a Michigan corporation
("APD" and, together with NHD, the "Borrowers", and each, individually, a
"Borrower"), and FIFTH THIRD BANK, a Michigan chartered bank, of 111 Lyon
Street, N.W., Grand Rapids, Michigan 49503-2495 (the "Bank").
Preliminary Statement
Bank, NHD and APD entered into a Loan Agreement dated April 11,
2002, (the "Loan Agreement") which provided for a revolving line of credit
to NHD in the amount of One Million Dollars ($1,000,000.00) defined as the
NHD Loan, and a revolving line of credit to APD in the amount of Five Hundred
Thousand Dollars ($500,000.00) defined as the APD Loan. Bank and NHD wish to
extend the NHD Loan, Bank and APD wish to terminate the obligation of Bank to
grant further disbursements under the APD Loan, and the parties wish to make
additional amendments to the Loan Agreement by way of this Amendment.
Agreement
In consideration of the facts set forth above, the parties agree
as follows:
1. Amendment of Loan Agreement. The following provisions of
the Loan Agreement are hereby amended as follows:
a) The following Section 10 is hereby added:
Disbursements Under APD Loan. APD hereby
acknowledges that all obligations of Bank to
make disbursements pursuant to the APD Loan are
hereby terminated.
b) Section 3(b) is amended and restated to read as follows:
Interest Rate. From the date of Closing
through May 1, 2003 for the APD Loan, and from
the date of Closing through May 1, 2004 for the
NHD Loan (for each to the respective Loans, the
"Stated Maturity Date"), interest shall accrue
on the outstanding principal balance of the APD
Loan at a rate equal to the Bank Prime Rate,
and interest shall accrue on the outstanding
principal balance of the NHD Loan at a rate
equal to the Bank Prime Rate plus one hundred
(100) basis points (for each of the respective
Loans, the "Loan Rate"). The Loan Rate shall
change simultaneously with changes in the Bank
Prime Rate. After maturity (whether at the
Stated Maturity Date, by acceleration, or
otherwise) or during any period that an Event
of Default remains uncured, interest shall
accrue on the outstanding principal balance of
the Loans at two percent (2%) above the Loan
Rate until the Loans are paid in full or the
Event of Default is cured. Interest shall be
computed for the actual number of days elapsed
on the basis of a 360-day year. If at any time
the interest rate payable under the Notes
exceeds the maximum legal rate applicable, the
interest rate payable shall be reduced to that
maximum legal rate.
c) Section 7 is amended and restated to read as follows:
Affirmative and Negative Covenants. NHD and APD agree that
until all amounts payable pursuant to the NHD Loan and the
APD Loan, respectively, NHD and APD, individually, shall:
(a) Performance of Operative Documents.
Observe and perform all covenants and agreements con-
tained in the Loan Documents.
(b) Compliance With Laws. Comply with all
applicable federal, state and local laws, ordinances,
rules and regulations, including but not limited to,
all environmental laws, ordinances, rules and
regulations and shall keep all of its real and
personal property or any interest therein free and
clear of any liens (other than Permitted Liens)
imposed pursuant to such laws, ordinances, rules and
regulations and deliver to Bank reports and
information in form satisfactory to Bank as Bank may
request from time to time to establish compliance
with this covenant.
(c) Maintain Existence. Carry on and conduct
its business in substantially the same manner and in
substantially the same areas as such business is now
and has previously been carried on, and maintain its
legal existence.
(d) Financial Information. Maintain a
standard, modern system of accounting and deliver to
Bank financial reports in form satisfactory to Bank
in accordance with GAAP as Bank may request from time
to time, including but not limited to: (i) Form 10-K
of Guarantor and annual operating projections of each
Borrower within one hundred twenty (120) days after
the end of each fiscal year, (ii) Form 10-Q of
Guarantor within sixty (60) days after the end of
each fiscal quarter; and (iii) quarterly reports
confirming that no Events of Default have occurred,
or circumstances which, with the passage of time
would be an Event of Default, and demonstrating
compliance with all financial covenants set forth in
paragraph 7(p).
(e) Inspection Rights. Permit Bank to
inspect its books, records, and properties at all
reasonable times, wherever the same may be located.
(f) Maintain Collateral. Maintain, preserve,
and keep its properties and every part thereof in
good repair, working order, and condition and from
time to time make all necessary and proper repairs,
renewals, replacements, additions, betterments, and
improvements thereof, so that at all times, their
efficiency shall be fully preserved and maintained.
(g) Notice of Default. Provide Bank with
prompt notice of any Event of Default.
(h) Maintain Books and Records. Keep
accurate books and records in accordance with GAAP.
(i) Expenses of Bank. Pay all costs and
expenses incurred by Bank in connection with the
Loans including but not limited to reasonable
attorney fees, credit reports, documentation,
searches and filing fees, and costs of environmental
investigations, appraisals, surveys and title
insurance.
(j) Maintain Security Interest. Take all
actions, including but not limited to the execution
and delivery of certificates and other documents,
reasonably requested by Bank in order to assure Bank
that its security interest in the Collateral is not
impaired, and that the priority of its security
interest in the Collateral is maintained.
(k) Insure Collateral. Maintain insurance
against fire, theft, and other casualty on its
insurable real and personal property at full re-
placement cost; liability insurance against such
risks and in such amounts as is customarily
maintained by similar businesses; workers'
compensation insurance as required under all workers'
compensation laws; and any other insurance as may
from time to time be reasonably requested by Bank.
Such insurance shall be issued by insurers reasonably
satisfactory to Bank, and Borrowers shall deliver
certified copies of all such insurance policies to
Bank. Prior to Closing, and thereafter as requested
by Bank, Borrowers shall deliver to Bank certificates
evidencing all such insurance policies, in form and
substance satisfactory to Bank, naming Bank as loss
payee and additional insured, and providing that the
insurer shall not cancel or materially modify the
policy without at least thirty (30) days prior
written notice to Bank.
(l) Avoid Liens on Collateral. Maintain the
Collateral free from all liens and encumbrances
except for Permitted Liens.
(m) Comply with Employment Laws. Comply with
all applicable federal, state and local laws,
ordinances, rules and regulations concerning wage
payments, minimum wages, overtime laws, and payment
of withholding taxes, and deliver to Bank such
reports and information in form satisfactory to Bank
as Bank may request from time to time to establish
compliance with such laws.
(n) Discharge Taxes and Assessments. Duly
pay and discharge or cause to be paid and discharged
all taxes, assessments, and other governmental
charges imposed upon it and its properties or any
part thereof, or upon the income or profits
therefrom, as well as all claims for labor,
materials, or supplies, which if unpaid could become
a lien or charge upon its property, except such items
as are being in good faith appropriately contested
and for which the Borrowers have provided adequate
reserves.
(o) Financial Covenants. Prior to maturity
(whether at the Stated Maturity Date, upon
acceleration or otherwise), NHD shall comply with
each of the following financial restrictions:
(i) Maintain Cash Flow Coverage
(defined as EBITDA divided by the sum of
the interest expense and scheduled
payments of debt for borrowed money) of
at least 1.25 to 1.00, as measured
quarterly on a rolling four (4) calendar
quarter basis. "EBITDA" means NHD's
earnings before interest, taxes,
depreciation and amortization, calculated
in accordance with generally accepted
accounting principles, consistently
applied.
(p) Deposit Accounts. From and after the
date of Closing, NHD shall maintain its primary
depository accounts with Bank and maintain in its
demand deposit account with the Bank at least a
$125,000 combined minimum balance.
(q) Insertion Orders. Include language
substantially similar to the language set forth in
Exhibit A as "Insertion Order Insert" into the
Borrowers' insertion orders with media.
(r) Incur Indebtedness. Refrain from
incurring any Debt, except Debt owed to the Bank, and
except for Debt incurred in the ordinary course of
business.
(s) Distributions to Related Entities. No
Borrower shall remit any payment of cash, or permit
any distribution of assets, to Guarantor or to any
entity in which Guarantor, or any equity holder of
Guarantor, holds any equity interest, unless
consented to in advance, in writing, by Bank.
d) Section 3(g) is amended and restated to read as follows:
Annual Fee. A loan processing fee in the
amount of $325 shall be paid by NHD to Bank on
each anniversary of the Closing until the NHD
Loan is repaid in full.
2. Amended NHD Note. The existing NHD Note shall be
surrendered and replaced with an Amended and Restated NHD Note which shall
reflect the amendments to the maturity date and interest rate set forth in
Section 1 above.
3. Effect of Amendment. Except as otherwise expressly
provided by this Amendment, all terms and conditions of the Loan Agreement
shall remain unchanged, and shall continue in full force and effect.
Further, this Amendment shall control over any inconsistent terms and
conditions between this Amendment and the Loan Agreement.
4. Updating of Representations, Warranties and Covenants. NHD
and APD hereby certify to Bank that all representations, warranties and
covenants made in the Loan Agreement by NHD and APD are true and correct in
all respects as of the date of this Amendment, and, except as otherwise
provided in this Amendment, NHD and APD have performed in all respects their
obligations, agreements and covenants undertaken in the Agreement on or
before the date of this Amendment.
WHEREFORE, the parties have executed this Amendment as of the
date first written above.
FIFTH THIRD BANK
By /s/ Frederick C. Lake
Frederick C. Lake
Its: Vice President
BANK
NATIONAL HOME DELIVERY, INC.
By /s/ Phillip D. Miller
Phillip D. Miller
Its: President
BORROWER
ALTERNATE POSTAL DIRECT, INC.
By /s/ Phillip D. Miller
Phillip D. Miller
Its: President
BORROWER
CONSENT OF GUARANTOR
The undersigned Guarantor hereby consents to all terms and
conditions of this Amendment, and further affirms its continuing guaranty, as
provided in that Continuing Unconditional Guaranty issued by Guarantor in
favor of Bank, dated March 12, 2002.
WITNESSES: GUARANTOR:
ALTERNATE MARKETING NETWORKS, INC.
/s/ Randall D. Byle By: /s/ Phillip D. Miller
Phillip D. Miller
President
/s/ Frederick C. Lake
Address:
One Ionia, S.W.
Suite 520
Grand Rapids, Michigan 49503
Exhibit 10.9
AMENDED AND RESTATED
REVOLVING LOAN NOTE
Grand Rapids, Michigan
$1,000,000.00 April 29, 2003
On May 1, 2004 (the "Stated Maturity Date"), National Home Delivery,
Inc., an Illinois corporation ("Borrower") for value received, promises to
pay to the order of Fifth Third Bank, a national banking association ("Bank")
at its offices located at 111 Lyon Street, N.W., Grand Rapids, Michigan, the
principal sum of One Million Dollars ($1,000,000.00), or such other amount as
is reflected upon the books and records of the Bank, with interest thereon
until paid, plus all of the Bank's expenses (including reasonable attorney's
fees and court costs) incurred in the enforcement and collection of this
Note. This Note amends, restates and replaces that Note dated March 12, 2002
in the original face amount of $1,000,000 from Borrower to Bank. Capitalized
terms not otherwise defined in this Note shall be defined as provided in
that Loan Agreement dated March 12, 2002 as amended as of April 29, 2003, by
and among Borrower, Alternate Postal Direct, Inc., a Michigan corporation,
and Bank ("Loan Agreement").
From the date of this Note until maturity (whether at the Stated
Maturity Date, upon acceleration, or otherwise), Borrower agrees to pay
interest on the outstanding principal balance of this Note at a rate equal to
the Bank Prime Rate plus one hundred (100) basis points (the "Loan Rate").
The "Bank Prime Rate" shall mean the fully-floating daily variable rate of
interest determined and announced by the Bank from time to time as its prime
lending rate (without reference to the prime or base rate of any other
financial institution). This rate is not necessarily the lowest rate of
interest charged by the Bank to any of its customers. The rate is an index
and the actual rate charged to any borrower for a specific loan may be above
or below that index. The Loan Rate shall change automatically with any change
in the Bank Prime Rate.
Interest shall be payable on the first Business Day of each month during
the term of this Note. Interest payments shall be automatically debited from
account number ___________ on the first day of every month beginning May 1,
2003 and continuing monthly thereafter. Interest shall be computed for the
actual number of days elapsed on the basis of a year consisting of 360 days.
Interest hereunder shall begin to accrue on the date of the first advance
made by the Bank. Interest on all advances shall be computed from the
respective dates thereof until the same are paid in full. The principal
payable hereunder at any given date shall be equivalent to all advances made
by the Bank to or at the request of Borrower as of that date less principal
payments previously received by the Bank. Advances hereunder shall be made
at the sole discretion of the Bank, and Bank shall not have any obligation
whatsoever to make any such advances.
The outstanding principal balance of this Note may be prepaid at any
time without premium or penalty. Principal amounts prepaid shall be made
available for re-borrowing by Borrower in accordance with the terms and
conditions of the Loan Agreement.
At the Bank's option, upon occurrence of a default under this Note or
any other agreement with the Bank, Borrower shall pay interest on the unpaid
principal balance of this Note at the then applicable rate of interest plus
two percent (2%) per annum effective from and after the date of occurrence of
the default which is not cured or waived within the appropriate grace period,
if any.
In the event that any payment is not paid when due, Borrower shall pay
to the Bank a late penalty equal to the greater of $50.00 or 1/10th of 1% of
the then outstanding principal balance of this Note to compensate Bank for
its administrative costs in collecting and processing the late payment.
Notwithstanding any provision of this Note to the contrary, all accrued
interest and outstanding principal shall become due and owing on May 1, 2004.
Borrower does hereby pledge to the Bank all deposits and other property
of Borrower now or hereafter in the possession, custody or control of Bank
for any purpose, and does hereby grant to Bank as security for the Note the
collateral described in the Security Agreement of even date from Borrower to
the Bank, as well as any other security agreement, mortgage, document or loan
agreement executed at any time by Borrower and delivered to the Bank
(collectively, the "Collateral") as security for the payment of this Note and
for the payment of all other liabilities, whether direct or indirect,
absolute or contingent, now or hereafter existing, due to become due, several
or otherwise, of Borrower to the Bank (collectively, the "Indebtedness").
Collateral securing other obligations of Borrower to Bank may also secure
this Note. The surrender of this Note upon payment or otherwise shall not
affect the right of Bank to retain the Collateral as security for any
Indebtedness.
Subject to any applicable grace periods, upon default in payment of this
Note, a default in payment of any Indebtedness of Borrower to Bank, or an
Event of Default under the Loan Agreement, it is agreed that the Bank may
exercise all rights and remedies available to it under any security
agreement, mortgage, loan agreement or document relating to or otherwise
securing any of the Indebtedness, or which may be available to Bank under the
Uniform Commercial Code as in effect in the State of Michigan or other
applicable law. Delay or forbearance by the Bank in the exercise of any
right granted hereunder shall not operate as a waiver thereof.
All loan advances to Borrower shall be evidenced by this Note. A
separate note will not be required of Borrower upon each advance; rather the
Bank shall establish a "Loan Account" for Borrower upon the records of Bank
on which will be recorded as debits loan advances to Borrower and as credits
all payments made by Borrower on this Note. Records prepared by the Bank in
the ordinary course of business shall be evidence of the dates and amounts of
disbursements, payments, interest rates and applicable effective dates
thereof.
Loan advances to Borrower may be made by the Bank upon the written
request of those officers or agent of Borrower duly authorized by appropriate
resolution or partnership agreement of Borrower on file with the Bank. No
loan advance shall be permitted in an amount less than $5,000. Loan advances
shall be made in the Bank's discretion. The Bank is also authorized and
directed to accept telephonic instructions from authorized officers of
Borrower to make further advances for credit to Borrower's checking account.
It is agreed that the Bank shall have the right at all times to hold or
apply its own indebtedness or liability to Borrower as security for, or in
payment of, this Note either before or after its maturity, or in payment of
the Indebtedness. This Note shall be governed by the laws of the State of
Michigan, without regard to its conflict of laws principles.
Borrower hereby waives presentment, demand, protest and notice of
dishonor and agrees that Borrower shall not be released or discharged by
reason of any extension, indulgence or release given to any person, or by the
Bank's release, sale or non-action with respect to the Collateral or any
guaranty or other undertaking securing this Note. If this Note is not dated
when executed by Borrower, Bank is hereby authorized, without notice to
Borrower to date this Note as of the date when the principal balance
hereunder has been advanced to Borrower in whole or in part. Borrower
acknowledges receipt of a fully completed copy of this Note.
ADDRESS: BORROWER:
428 E. State Pkwy. NATIONAL HOME DELIVERY, INC.
Suite 226
Schaumburg, Illinois 60173 By /s/ Phillip D. Miller
Phillip D. Miller
Its: President
Accepted as to form and Substance:
FIFTH THIRD BANK
By /s/ Frederick C. Lake
Frederick C. Lake
Vice President
Exhibit 10.15
ADDENDUM TO MASTER PURCHASE AND SALE AGREEMENT
DISCOUNT RATE SCHEDULE
Effective Date:
Factor shall advance up to seventy (70%) of the face amount of each Accounts
Receivable.
Factor's discount rate shall be on and on half percent (1.50%) of the face
amount of each Accounts Receivable for ninety days (90). The principal
amount of any such advance shall bear interest at a fluctuating annual rate
from the date of such advance until collection, the annual rate shall be the
prime commercial rate of interest ("prime rate") established from day to day
by Bank of America, Inc., for short term unsecured loans to substantial
borrowers. Any invoices refactored, with the express consent of Accord
Financials, Inc., shall bear a factoring fee of 3.0% for each 30 day period.
It is further understood and agreed that hr maximum amount outstanding in
Accounts Receivable at any one time shall not exceed $750,000.00
This schedule may be amended at any time by mutual consent of Factor and
Seller. Such amendment shall be in writing and shall be effective as to any
Accounts Receivable purchased thereafter.
Accord Financial, Inc.
Factor
By:/s/M Rettig
Date: 4/29/03
Hencie Consulting Services, Inc.
Seller
By:/s/Adil Khan
Date: 4/29/03
Note: The above contract change shall be effective upon the occasion of the
initial funding by Accord Financial, Inc., to Alternate Postal Direct, Inc.
Exhibit 10.16
MASTER PURCHASE AND SALE AGREEMENT
THIS MASTER PURCHASE AND SALE AGREEMENT (the "Agreement") is executed by
and between ACCORD FINANCIAL, INC., a Delaware corporation, having a mailing
address at P.O. Box 6704, Greenville, South Carolina, 29606, (hereinafter
referred to as "Factor") and ALTERNATE POSTAL DIRECT, INC., a MICHIGAN
corporation, located at 12495 34TH STREET NORTH, UNIT D, ST. PETERSBURG, FL
33716 (hereinafter referred to as "Seller"). Seller and Factor agree to the
following terms and conditions:
1. Purchase and Sale of Accounts Receivable. For the consideration
hereinafter set forth and subject to the terms and conditions contained
herein, Seller hereby agrees to sell, transfer, convey, assign and deliver to
Factor as absolute owner thereof, and Factor hereby agrees to purchase and
receive from Seller all of Seller's right, title and interest in and to
certain accounts receivable arising from the furnishing of materials or the
rendering of labor by Seller in Seller's ordinary course of business. For
all purposes hereof, the term "Accounts Receivable" is intended to mean and
include each account created as a result of the sale of goods and/or services
furnished pursuant to and in compliance with a contract between Seller and
its customers, and all accounts as defined under the Uniform Commercial Code
of South Carolina as in effect from time to time. In addition to the
Accounts Receivable purchased, Seller shall be deemed to have sold and
assigned all incidental rights with respect thereto, including any
guarantees.
2. Sale Procedure. Upon Seller's submission of any Account Receivable to
Factor for purchase, Seller shall execute for each such Account Receivable or
group of Accounts Receivable, an Invoice Control Record in the form annexed
hereto or as may be modified from time to time by Factor, which identifies
and describes the Accounts Receivable being offered for purchase and the
total face amount of such Accounts Receivable. Each Account Receivable
offered for sale to Factor shall be evidenced by an identical duplicate
written invoice or other such equivalent document(s) as Factor may require
from time to time, together with supporting documentation, including, but not
limited to, the contract referencing the sale of goods and/or services
furnished and any modification(s) or amendment(s) thereto and any such other
documentation which may be requested by Factor. The decision to accept or
reject any Account Receivable offered for sale shall rest within the sole and
exclusive discretion of Factor. Upon receiving notice that Factor accepts
for purchase any Account Receivable, Seller shall not vary or seek to modify
the terms of the Account Receivable.
3. Purchase Price and Payment. In Factor's sole discretion, it may
advance the purchase price for Accounts Receivable purchased up to
eighty (80%) percent (hereinafter referred to as "Advance") of the face
amount of the Accounts Receivable, minus the applicable discount fee
and subject to any reserve that Factor, in its sole discretion, may
elect to maintain (hereinafter referred to as "Reserve"). As a general
rule, Reserves are released upon the request of the Seller or when the
Factor's next purchase of Accounts Receivable from Seller is funded,
however Factor may increase or decrease the amount of such Reserve at
any time and from time to time if it deems it necessary in order to
protect its interests: for example, from contingencies, disputes,
potential breach of warranties, or the like that may exist or which
Factor may reasonably anticipate might arise in the future. Payments
received will be credited to specific invoices when credit is given by
Factors bank, not to exceed three banking days. The applicable
discount fee is calculated based on the discount rate set forth in the
Discount Rate Schedule (attached as an addendum hereto and incorporated
herein by reference). Nothing contained herein shall be construed as
to prohibit Factor from conditioning future purchases on Seller's
agreeing to modification(s) of the Discount Rate Schedule. It is the
intention of the parties hereto that the transactions contemplated
hereby shall constitute a purchase of accounts under the Uniform
Commercial Code of South Carolina.
4. Notice of Assignment. Upon Seller's execution of this Agreement, Seller
shall notify each customer (hereinafter referred to as "Account
Debtor") of the contemplated sale by insuring that each invoice bears
the following language, conspicuously placed, which language may be
modified or amended at Factor's request from time to time:
This invoice has been assigned, sold and is payable only to
Accord Financial, Inc. In the event of any dispute as to
quantity, quality or otherwise, notification must be given to
Accord Financial, Inc., in writing, within five (5) days of
receipt of goods or rendition of services.
Seller agrees to use its best efforts to assist Factor in procuring the
Account Debtor's acknowledgment and acceptance if so requested by Factor.
Factor's inability, for whatever reason, to receive Account Debtor's
acknowledgment and acceptance may result in the rejection of the Accounts
Receivable submitted for purchase or revocation of a conditional approval to
purchase Accounts Receivable without any obligation or liability on the part
of Factor.
5. Security. In order to secure the payment of all indebtedness and
obligations of Seller to Factor, whether presently existing or hereafter
arising, Seller hereby grants to Factor a security interest in and lien upon
all of Seller's right, title and interest in and to the following, whether
now existing or hereafter arising: (a) any and all Reserves and all payments
(if any) due or to become due to Seller from the Reserves as well as all
monies on deposit, holdbacks and credits, (b) all Accounts, as defined herein
below, and general intangibles whether now existing or hereafter acquired or
arising, all interest of Seller arising in goods, the sale of which gave rise
to any account, (c) all documents, chattel paper, instruments and general
intangibles relating to the foregoing, (d) all books and records pertaining
to all of the foregoing, including but not limited to computer programs, data
and lists, and (e) all proceeds of the foregoing (collectively the
"Collateral"). Seller agrees to comply with all appropriate laws in order to
perfect Factor's security interest in and to the Collateral, to execute any
financing statements, continuations thereof, amendments thereto or additional
documents as Factor may require. The occurrence of any Event of Default
shall entitle Factor to all of the default rights and remedies (without
limiting the other rights and remedies exercisable by Factor either prior or
subsequent to an Event of Default) as available to a secured party under the
Uniform Commercial Code in effect in any applicable jurisdiction. Account(s)
is intended to include "accounts" as defined in the Uniform Commercial Code
of South Carolina, as in effect from time to time, and to mean a right to
payment of a monetary obligation, whether or not earned by performance, (i)
for property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of, (ii) for services rendered or to be rendered, The
terms "general intangibles", "goods", and "proceeds" shall have the meaning
given thereto in the Uniform Commercial Code of South Carolina. Factor shall
have the rights and remedies provided in this Agreement and in accordance
with general law. The security interest and lien granted in this paragraph
shall remain in full force and effect until all the Accounts Receivable
purchased hereunder are paid in full and all obligations owed Factor are
satisfied. The rights assigned do not constitute any obligation being
assumed by Factor. Seller agrees to execute and deliver, without delay, any
document or take any action requested by Factor to protect Factor's interest
in the purchased Accounts Receivable or to perfect the assignment thereof.
Seller hereby agrees that until all Accounts Receivable have been paid in
full to Factor, Seller shall not permit any liens on any of the Collateral,
except those in favor of Factor, nor will Seller sell or transfer any of the
Collateral to any third party.
6. Seller's Representations. As an inducement for Factor to purchase
Accounts Receivable from Seller, Seller hereby represents, warrants and
covenants to Factor that, and furthermore, acknowledges that, each such
representation, warranty and covenant shall be made at any and every time any
Account Receivable is offered to Factor for sale that:
(a) If Seller is a legal entity, it is duly organized and existing under
the laws of Michigan and is duly qualified, properly licensed, and in good
standing in such state and every other state in which it is doing
business, and the execution, delivery and performance of this Agreement
are within its corporate powers and have been duly authorized as evidenced
by the Corporate Resolution attached hereto, and are not in contravention
of any law or the powers of its charter, bylaws, articles of acquisition,
partnership agreement, or other incorporation papers, or of any indenture,
agreement or undertaking to which Seller is a party or by which it is
bound.
(b) If Seller is operating under a trade or assumed name, said name has
been filed with the proper authorities and each name has been provided, in
writing, to Factor.
(c) Seller has good, clear and undisputed exclusive title to the
Accounts Receivable offered for sale to Factor hereunder, and such sale
will vest absolute ownership to such Accounts Receivable in Factor, free
and clear of any lien, encumbrances, claims or security interest of any
kind or nature.
(d) Each Account Receivable sold and assigned to Factor shall be an
Account Receivable based upon a bona fide sale and the delivery and
acceptance of merchandise or performance of services by Seller to an
Account Debtor and shall be an unconditional, valid and enforceable
obligation of the Account Debtor, with no claim, offset, allowance,
discount, deduction, dispute, contingency or counterclaim, which could
reduce the amount of such Account Receivable, affect the validity thereof,
or hinder Factor's ability to collect or receive payment of the full face
amount of said Account Receivable.
(e) All information furnished by Seller to Factor , including, but
not limited to, past histories of the payment of Account Debtors, and any
and all information given to Factor in connection with the Accounts
Receivable, is true, complete and accurate, and contains no material
omissions, misstatements or misrepresentations.
(f) Seller is the sole and absolute owner of any other property in
which Factor is given a security interest and has good right and authority
to grant a security interest to Factor in such Collateral and there is no
presently outstanding adverse lien, security interest or encumbrance in or
on the Collateral or proceeds and there is no financing statement covering
the Collateral or proceeds on file in any public office except as shown on
the exhibit attached hereto.
(g) All financial records (including, but not limited to, balance
sheets, income statements, federal income tax returns, and Accounts
Receivable agings, listing or reports) which may have been or may
hereafter be furnished to Factor by Seller to induce Factor to enter into
this Agreement or to purchase Accounts Receivable, shall fairly and
accurately represent the financial conditions and operating results of
Seller as of the dates or for the periods stated thereon. Such financial
records shall be accurate and correct in all material respects and
complete insofar as necessary to give Factor a true and accurate knowledge
of the subject matter.
(h) All Accounts Receivable sold by Seller to Factor shall be
properly reflected on the books of Seller.
(i) If Seller should change the location of the principal office or
the offices wherein the books and records of Seller are kept, Seller shall
notify Factor immediately in writing of such change.
7. Recourse To Seller. Under the circumstances set forth herein,
Factor may, in its sole discretion, require Seller to take any or all of the
actions provided for below. The provisions of this Section are cumulative to
and may be exercised concurrently with any other rights, powers or remedies
of Factor.
(a) In the event an Account Receivable purchased by Factor is
not paid in full by the Account Debtor for any reason (or for no reason), on
or before the date when due in accordance with its terms, or in the event an
Account Debtor objects to the quality of property sold or services performed
by Seller, or rejects or fails or refuses to accept or receive any property
or services represented by any Account Receivable purchased by Factor, or if
any such property is rerouted or reconsigned, Factor may require the Seller
to promptly repurchase such Account Receivable from Factor (i) by payment to
Factor of the amount represented by Factor to be owing on such Account
Receivable or (ii) by providing Factor with another Account Receivable
acceptable to Factor in its sole discretion with a face value equal to or
exceeding the face value of the unpaid Account Receivable (the "Replacement
Account") in substitution therefor or (iii) by Factor charging Seller's
Reserve. The method of repayment or replacement shall be determined by
Factor in its sole discretion. If Seller provides Factor with an acceptable
Replacement Account, Factor shall transfer all of its right, title and
interest in such unpaid Account Receivable to Seller.
(b) In the event an Account Debtor suspends business, requests a
general extension of time within which to pay debts or makes an assignment
for the benefit of creditors, or if a petition in bankruptcy for liquidation
or reorganization under the Bankruptcy Code, or a similar petition under
state law, is filed by or with respect to an Account Debtor, a creditor's
committee is appointed with respect to an Account Debtor, or if an event
occurs amounting to a general business failure of an Account Debtor, Factor
may require that Seller promptly repurchase from Factor all Accounts
Receivable on which such account debtor is obligated (i) by payment to Factor
of the amount represented by Factor to be owing on such Accounts Receivable
or (ii) by providing Factor with Replacement Accounts in substitution
therefor or (iii) by Factor charging Seller's Reserve.
(c) Without limiting the generality of subsection (a) above, in
the event any Account Receivable purchased by Factor has not been paid in
full to Factor for any reason (or no reason) (the "Aged Account") within
ninety (90) days after the date of the invoice representing the Account
Receivable (the "Maximum Discount Period"), Factor may require that Seller
promptly repurchase such Aged Account from Factor (i) by payment to Factor of
the amount represented by Factor to be owing on such Aged Account, or (ii) by
providing Factor with a Replacement Account in substitution therefor or (iii)
by Factor charging Seller's Reserve.
(d) Without limiting the generality of any other provision of
this Section, in the event that Factor in its sole and absolute discretion
determines that any Account Receivable is or has become uncollectable (a
"Worthless Account"), Factor may require that Seller promptly repurchase such
Worthless Account from Factor (i) by payment to Factor of the amount
represented by Factor to be owing on such Worthless Account, or (ii) by
providing Factor with a Replacement Account in substitution therefor or (iii)
by Factor charging Seller's Reserve.
8. Power of Attorney. In order to carry out the intention of the parties
hereto, Seller hereby irrevocably appoints Factor, or any person designed by
Factor, as its attorney in fact, which agency is coupled with an interest and
which appointment shall be irrevocable until all obligations Seller owes
Factor are satisfied, with the express authority to (i) sign and endorse on
behalf of Seller all checks, drafts and other forms of payment received by
Factor, waiving any notice of presentment and dishonor, whether or not said
checks represent payment on purchased Accounts Receivable, (ii) receive, open
and dispose of Seller's mail received at Factor's address, (iii) strike out
Seller's address on any billing or statement sent to an Account Debtor and
substitute Factor's address, (iv) in Seller's name demand, sue for, collect
and give releases for any and all monies due on or to become due on purchased
Accounts Receivable, (v) compromise, prosecute, or defend any and all things
necessary and proper to carry out this Agreement, specifically including, but
not limited to, executing any documents necessary to perfect or continue the
perfection of the security interest granted herein.
9. Payments Received by Seller. Should Seller receive payment of all or
any portion of an Account Receivable sold pursuant to this Agreement, Seller
shall immediately notify Factor of the receipt of the payment, hold said
payment in trust for Factor separate and apart from Seller's own property and
funds, and shall deliver said payment to Factor without delay in the
identical form in which received. Should Seller receive a check or other
instrument of payment representing payment of amounts due to both Factor and
Seller, Seller shall surrender said check or payment instrument to Factor.
Should Seller receive a check or other instrument of payment representing
payment of amounts due Factor and fail to surrender to Factor said check or
payment instrument within five (5) business days, Seller shall be deemed to
have committed a material default in this Agreement. In addition to all
other damages to which Factor shall be entitled, Factor shall be entitled, in
the event Seller violates its obligations under this paragraph, to charge
Seller a misdirected payment fee equal to ten (10%) percent of the amount of
the payment instrument or One Thousand Dollars ($1,000.00) whichever is
greater, to compensate Factor for the additional administrative expenses that
are likely to be incurred as a result of a breach. In the event any
merchandise, the sale of which gave rise to an Account Receivable purchased
by Factor, is returned to or repossessed by Seller, such merchandise shall be
held by Seller in trust for Factor, separate and apart from Seller's own
property and subject to Factor's sole direction and control.
10. Default. The term "Event of Default" as used in this Agreement
shall mean the occurrence of any of the following events:
(a) The failure of Seller to punctually and properly observe, keep or
perform any covenant, agreement or condition herein required to be
observed, kept or performed; or required under any other agreement
or contract that may be executed between Seller and Factor.
(b) A representation or warranty made by Seller in this Agreement
shall prove to be untrue or incorrect or any financial statement or
other statement purporting to represent the financial condition of
Seller proves to be false or incorrect.
(c) The failure of Seller to, within two (2) business days, deliver to
Factor a remittance received by Seller in payment of a purchased
Account Receivable.
(d) The failure of Seller to pay any indebtedness owed by Seller to
Factor whether or not said indebtedness arises hereunder or under
some other agreement or contract by and between Seller and Factor.
(e) The appointment of a receiver or trustee for Seller.
(f) Seller becomes insolvent, is unable to pay its debts as they
mature or makes an assignment for the benefit of creditors.
(g) Seller is adjudicated a debtor in bankruptcy or requests, either
by way of petition or answer, that Seller be adjudicated a bankrupt
or that Seller be allowed or granted any composition, reassignment,
extension, reorganization or other relief under any bankruptcy law
or any other law for the relief of debtors now or hereafter
existing.
(h) An involuntary petition in bankruptcy is filed by or against
Seller or any guarantor.
(i) A levy(s) or notice(s) of attachment, execution(s), tax lien(s) or
assessment(s) or similar process is issued against Seller or the
Collateral.
(j) The dissolution of Seller.
(k) The death or incompetency of any guarantor of Seller's obligation.
(l) Factor has reasonable grounds to deem itself insecure.
(m) Until full payment and performance of all obligations of Seller
under the Agreement, Seller will notify in writing to Factor within
15 days of any changes of name, dba, place of business, state of
incorporation or corporate status.
11. Remedies Upon Default. Upon the occurrence of an Event of
Default, Factor may resort to any one or more of the following remedies.
The employment of any particular remedy shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies:
(a) Declare any indebtedness secured hereby immediately due and payable.
(b) Exercise its rights as a secured party and enforce the security
interest granted hereunder pursuant to applicable law, including,
but not limited to, the right of Factor to establish contact with
and instruct any and all of Seller's customers to remit payment(s)
due or to become due arising from the sale of merchandise or
rendering of services directly to Factor at Factor's address,
whether or not said payments relate to Accounts Receivable purchased
by Factor hereunder. Furthermore, Factor shall have the right to
establish contact with and instruct any other party from whom Seller
may be entitled to receive monies now due or to become due in the
future to remit said monies to Factor at Factor's address. In the
event Factor deems it necessary to seek equitable relief, including,
but not limited to, injunctive or receivership remedies, as a result
of Seller's default, Seller waives any requirement that Factor post
or otherwise obtain or procure any bond. Seller also waives any
right to attorney's fees or costs in the event any equitable relief
awarded is thereafter, for whatever reason(s), vacated, dissolved or
reversed.
(c) Immediately terminate this Agreement as to future transactions,
without affecting the rights and obligations of the parties
occurring with respect to prior transactions.
(d) Enter the premises of Seller and take possession of the Collateral
and of records pertaining to the Accounts Receivable and the
Collateral.
(e) Grant extensions, compromise claims and settle Accounts Receivable
for less than face value, all without prior notice to or authority
of Seller, except as granted herein.
(f) Exercise all other rights conferred by law or equity or under this
Agreement and resort to any remedy existing at law or in equity for
the collection of any indebtedness secured hereby and for the
enforcement of the covenants and agreements contained herein.
12. Financial Statements. Seller agrees to keep proper books of record in
accordance with generally accepted accounting principles and practices, which
books shall at all times be open to inspection by Factor. In addition,
Seller shall furnish Factor upon request any prior or current income
statement, balance sheet, tax return and report, along with any other
supplementary financial information requested. Factor shall have the right,
at all times during normal business hours, without prior written notice, to
examine and make extracts from all books and records of Seller.
13. Reimbursable Expenses. In the course of performing its functions with
respect to the investigation, approval, purchase and collection of Accounts
Receivable purchased from or offered for sale by Seller, Factor may incur
routine and/or extraordinary expenses, including, but not limited to, one-
time set up charges, long distance telephone, postage over and above first
class mail postage, photocopies, credit research, credit report preparation,
trade credit report preparation, wire transfers, overnight mail delivery,
courier delivery, check certification, UCC search and filing fees, other lien
search fees, facsimile transmissions, auditing and legal fees, all of which
shall be reimbursed to Factor by Seller upon demand or deducted from the
proceeds payable on a purchased Account Receivable.
14. Account Debtor Claims. Seller shall notify Factor of the assertion of
any claim, including any defenses, dispute or offset by an Account Debtor
with respect to an Account Receivable purchased by and assigned to Factor or
the merchandise or service relating thereto within twenty four (24) hours
after receiving such information, and subject to Factor's approval Seller may
at its own expense, settle all such claims. Factor may, in its sole
discretion, opt to settle any Account Debtor claim directly with the Account
Debtor involved, at the Seller's expense, upon such terms as Factor may deem
advisable at which time Seller shall cease any communications with the
respective Account Debtor. In the event of any Account Debtor claim or
breach by Seller of any representation hereunder as to an Account Receivable
purchased by and assigned to Factor, Seller shall pay the unpaid balance of
said Account Receivable in accordance with the provision of paragraph 7
above. In the event Factor exercises its right to settle and compromise
Account Debtor claims, Seller hereby specifically agrees to the terms,
conditions and provisions of any and all settlements, compromises and other
agreements, oral or written, entered into by Factor and Factor shall be
deemed authorized to execute all releases, settlements or compromise
agreements, and receive, for and in Seller's name, all money and property
that Factor may receive in settlement, release or compromise of Account
Debtor claims. The foregoing is discretionary upon the part of Factor and
Seller shall have no right to demand or require Factor's exercise of the
aforesaid rights. Notwithstanding delivery of such notice, Factor's failure
to agree shall not otherwise adversely affect any right(s) of Factor or
Seller's waiver(s) herein.
15. Attorney's Fees. In the event that Factor retains counsel for the
purpose of enforcing any rights inuring to Factor arising out of the
relationship between Seller and Factor and this Agreement, Seller agrees to
pay all reasonable attorney's fees, courts costs and expenses incurred by
Factor or its counsel at all trial and/or appellate levels. Seller also
acknowledges that Factor may charge and/or setoff against Seller's Reserve
all such fees and costs as they are incurred. Notwithstanding the existence
of any law, statute, rule, or procedure in any jurisdiction which may provide
Seller with a right to attorney's fees or costs, Seller hereby waives any and
all rights to hereafter seek attorney's fees or costs thereunder and Seller
agrees that Factor exclusively shall be entitled to indemnification and
recovery of any and all attorney's fees or costs in respect to any litigation
based hereon, arising out of, or related hereto, whether under, or in
connection with, this and/or any agreement executed in conjunction herewith,
or any course of conduct, course of dealing, statements (whether verbal or
written) or actions of either party.
16. Notice. Except for routine day to day business communications, any
notice or communication required hereunder shall be in writing and given by
personal delivery or delivery service or sent by regular, registered, or
certified mail, postage prepaid to the addressee at the address shown below
or at the most current address that the party has from time to time
designated in writing.
17. Term. This Agreement shall be effective from the date hereof and shall
continue in full force and effect for a period of one (1) year and shall be
deemed renewed from year to year thereafter unless terminated by Seller by
delivery of written notice of termination, by registered or certified mail,
not less than thirty (30) days prior to the last date of the then current
term. Factor or Seller shall be entitled to terminate this Agreement at any
time by giving thirty (30) days prior written notice. In addition, Factor
shall have the right for any reason or no reason to terminate this Agreement
at any time without prior written or oral notice upon the occurrence of an
Event of Default. Upon the effective date of termination, all of Seller's
obligations, whether incurred under this Agreement or any amendment or
supplement thereto or otherwise, shall become immediately due and payable
without notice or demand. Notwithstanding any termination, until all of
Seller's obligations of every nature whatsoever shall have been fully paid
and satisfied, Factor shall retain Factor's security interest in and title to
all existing and future Accounts Receivable and other Collateral held by
Factor hereunder. Until final termination following the notice thereof,
Seller shall continue to offer all Accounts Receivable to Factor and Factor
shall be under no obligation to make any further Advances or purchase any
Account Receivable with respect thereto. In addition, any termination of
this Agreement shall not serve to release any security interest granted
herein until all Accounts Receivable purchased hereunder and all indebtedness
of Seller to Factor have been paid in full nor shall such termination affect
any of the obligations incurred by the parties hereto.
18. Indemnification. Seller agrees to promptly and immediately upon demand
indemnify, defend and save Factor harmless from and against any and all
liability, claims, suits, demands, damages, judgments, costs, interest and
expenses (including, but not limited to attorney's fees and costs) to which
Factor may be subject or suffer by reason of any liability or claim arising
or resulting from Seller's acts or omission to do any act. This paragraph 18
shall survive termination of this Agreement.
19. Binding on Future Parties. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, personal
representatives, successors and assigns.
20. No Waiver. Failure by Factor to exercise any of Factor's rights or
remedies hereunder shall not be deemed to be a waiver by Factor of such or
any other rights or remedies, nor in any manner impair the subsequent
exercise of the same or any other rights or remedies, and any waiver by
Factor of any default hereunder shall not constitute a waiver of any
subsequent default.
21. Severability. Each and every provision, condition, covenant and
representation contained in this Agreement is and shall be construed to be a
separate and independent covenant and agreement. In the event any term or
provision of this Agreement shall to any extent be declared illegal, contrary
to law, invalid or unenforceable, the remainder of this Agreement shall not
be affected thereby and this Agreement shall continue in full force and
effect as though such term or provision had not been incorporated herein.
22. Miscellaneous.
(a) This Agreement is deemed made and shall be governed,
interpreted and construed in accordance with the laws of the State of South
Carolina.
(b) Factor's books and records shall be admissible in
evidence without objection as conclusive evidence of the status of the
Accounts Receivable between Factor and Seller. Each statement, report, or
accounting rendered or issued by Factor to Seller shall be deemed
conclusively accurate and binding on Seller unless within fifteen (15) days
after the date of issuance Seller notifies Factor to the contrary by
registered or certified mail, setting forth with specificity each reason why
Seller believes such statement, report, or accounting or any portion thereof
is inaccurate, what Seller believes to be correct amount(s) therefor, and
supplies detailed, written support for its objection(s). Seller's failure to
receive any monthly statement shall not relieve it of the responsibility to
request such statement and Seller's failure to do so shall nonetheless bind
Seller to whatever Factor's records would have reported.
(c) Seller may not assign this Agreement or any of Seller's
rights hereunder to any person without Factor's prior written consent and
this Agreement shall be deemed to be one of financial accommodation and not
assumable by any debtor, trustee or debtor-in-possession in any bankruptcy
proceeding without Factor's express written consent and may be suspended in
the event a petition in bankruptcy is filed by or against Seller.
(d) Each of the parties to this Agreement expressly submits and
consents to the exclusive jurisdiction of the state and federal courts of the
State of South Carolina or, at Factor's sole and exclusive discretion, the
courts of the state in which Seller resides, and agrees that if suit be filed
in South Carolina, venue shall lie exclusively in the County of Greenville,
South Carolina with respect to any controversy arising under, out of, or
relating to, this Agreement, any amendment or supplement thereto or to any
transactions in connection therewith whether asserted by way of claim,
counterclaim, cross claim or otherwise.
Seller expressly authorizes Factor to access the systems of and/or
communicate with any shipping or trucking company in order to obtain or
verify tracking, shipment or delivery status of any merchandise regarding an
Account Receivable.
(e) Seller acknowledges that there is no, and it will not seek or
attempt to establish any, fiduciary relationship between Factor and Seller,
and Seller waives any right to assert, now or in the future, the existence or
creation of any fiduciary or joint venture relationship between Factor and
Seller in any action or proceeding (whether by way of claim, counterclaim,
crossclaim or otherwise) for damages.
(f) No failure or delay by Factor in exercising any of
Factor's powers or rights hereunder, or under any present or future
supplement hereto or under any other agreement between Factor and Seller
shall operate as a waiver thereof; nor shall any single or partial exercise
of any such power or right preclude other or further exercise thereof or the
exercise of any other right or power. Factor's rights, remedies and benefits
hereunder are cumulative and not exclusive of any rights, remedies or
benefits which Factor may have. No waiver by Factor of any provision
hereunder shall be deemed to extend to any other provision hereunder.
(g) This Agreement is a complete and final agreement, reflects
Seller's and Factor's mutual understanding, supersedes any prior agreement or
understanding between the parties, and may not be modified or amended orally.
We acknowledge that, but for the promises and representations expressly
contained in this Agreement, no other promise or representation of any kind
has been made to induce either to execute this Agreement. Furthermore,
Seller and Factor acknowledge that if any such promise or representation has
been made, neither has relied, nor shall either be entitled to rely, upon any
such promise or representation in deciding to enter into this Agreement.
(h) In the event Seller's principals, officers or directors form
a new entity, whether corporate, partnership, limited liability company or
otherwise, similar to that of Seller during the term of this Agreement or
merge into any other entity (regardless of whether Seller is the surviving
entity), such entity shall be deemed to have expressly assumed the
obligations due Factor by Seller under this Agreement. Upon the formation of
any such entity, Factor shall be deemed to have been granted an irrevocable
power of attorney with authority to execute, on behalf of the newly formed
successor business, a new UCC-1 or UCC-3 financing statement and have it
filed with the appropriate secretary of state or UCC filing office. Factor
shall be held-harmless and be relieved of any liability by Seller or such new
entity as a result of Factor's filing any UCC financing statement or the
resulting perfection of a lien in any of the successor entity's assets. In
addition, Factor shall have the right to notify the successor entity's
account debtors of Factor's lien rights, its right to collect all Accounts,
and to notify any new lender who has perfected a lien in such successor
entity's assets.
(i) Seller acknowledges that Factor may obtain financing from
Bank of America, N.A., and in connection herewith: (a) consents to Factor's
granting Bank of America, N.A., a security interest in all of it's rights
under Agreement, the documents executed in connection therewith and all
collateral thereunder: and (b) agrees that Bank of America, N.A., shall be
beneficiary of all its representations, warranties and covenants in this
Agreement and may exercise any power of attorney given Seller to Factor under
this Agreement or otherwise.
(j) Seller and Factor hereby irrevocably waive any right either
may have to a trial by jury in respect of any litigation directly or
indirectly at any time arising out of, under or in connection with this
Agreement or any transaction contemplated hereby or associated herewith.
Seller irrevocably waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any such litigation any special,
exemplary, punitive or consequential damages, or damages other than, or in
addition to, actual damages. Seller certifies that no party hereto nor any
representative or agent or counsel for any party hereto has represented,
expressly or otherwise, or implied that such party would not, in the event of
litigation, seek to enforce the foregoing waivers. Seller acknowledges that
Factor has been induced to enter into this Agreement and the transactions
contemplated hereby, in part, as a result of the mutual waivers and
certifications contained in this paragraph.
23. Paragraph Headings. The paragraph headings contained in this Agreement
are for convenience only and shall in no way enlarge or limit the scope of
meaning of the paragraphs hereof.
SELLER
ALTERNATE POSTAL, DIRECT, INC.
By: /s/ Sandra J. Smith
Title: Secretary/Treasurer
Executed this 30th day of April, 2003.
This counterpart constitutes an original counterpart for purposes of
perfection of a security interest.
STATE OF FLORIDA COUNTY OF PINELLAS
The foregoing instrument was acknowledged before me this 30th day of
April, 2003, by Driver License, S530-790-58-955-0 of Florida, on behalf of
the Corporation. He is personally known to me or who provided Driver License
as identification.
/s/ Alvaro B. Muriel
Notary Public
ACCORD FINANCIAL, INC.
By: /s/ M. Rettig
Title: VP
Executed this 30th day of April, 2003.
Exhibit 10.17
ADDENDUM TO MASTER PURCHASE AND SALE AGREEMENT
DISCOUNT RATE SCHEDULE
Effective Date:
Factor shall advance up to eighty (80%) of the face amount of each Account
Receivable, less than 90 days old.
Factor's discount rate shall be one and one half percent (1.50%) of the face
amount of each Account Receivable for ninety days (90). The principal amount
of any such advance shall bear interest at a fluctuating annual rate from the
date of such advance until collection, the annual rate shall be the prime
commercial rate of interest ("prime rate") established from day to day by
Bank of America, Inc., for short term unsecured loans to substantial
borrowers Any invoices refactored, with the express consent of Accord
Financial, Inc., shall bear a factoring fee of 3.0% for each 30 day period.
The minimum aggregate amount to be factored under this Agreement shall be
$200,000.00 per quarter. It is further understood and agreed that the maximum
amount outstanding in Accounts Receivable at any one time shall not exceed
$750,000.00
This schedule may be amended at any time by mutual consent of Factor and
Seller. Such amendment shall be in writing and shall be effective as to any
Account Receivable purchased thereafter.
Accord Financial, Inc.
Factor
By: /s/ M. Rettig
Date: 4-30-03
ALTERNATE POSTAL DIRECT, INC.
Seller
By: /s/ Sandra J. Smith Sec/Treas.
Date: 4/30/03
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Alternate Marketing Networks, Inc. (the Company) on Form SB-2 of our
report dated March 26, 2003 (which report expresses an unqualified opinion
and includes an explanatory paragraph referring to the Company's adoption of
SFAS No. 142, Goodwill and Other Intangible Assets), appearing in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2002.
We also consent to the incorporation by reference of our report dated April
22, 2002 (May 22, 2002, as to second paragraph of Note 4) (which expresses
an unqualified opinion and includes an explanatory paragraph concerning
substantial doubt about the ability of Hencie, Inc. and subsidiary to
continue as a going concern) dated April 22, 2002 (May 22, 2002, as to second
paragraph of Note 4) on the consolidated financial statements of Hencie, Inc.
and subsidiary, appearing in the Company's Proxy Statement dated July 23,
2002. We also consent to the reference to us under the heading Experts in
the Prospectus, which is part of this Registration Statement.
Deloitte & Touche LLP
Dallas, Texas
May 7, 2003
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form SB-2/A of our report dated March 15, 2002 relating to the
financial statements of Alternate Marketing Networks, Inc., as of and for the
year ended December 31, 2001, which appear in the Company's Annual Report on
Form 10-KSB/A for the year ended December 31, 2002. We also consent to the
reference to us under the heading "Experts" in the Prospectus which is part
of such Registration Statement.
PricewaterhouseCoopers, LLP
Grand Rapids, Michigan
May 7, 2003
82