SCHEDULE 14C
(RULE 14C-101)
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[_] Definitive Information Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
Essential Reality, Inc.
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the Appropriate Box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which the transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials
[_] check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
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1
ESSENTIAL REALITY, INC.
15-15 132nd Street, College Point, New York 11356
INFORMATION STATEMENT
PURSUANT TO SECTION 14
OF THE SECURITIES EXCHANGE ACT OF 1934
AND REGULATION 14C AND SCHEDULE 14C THEREUNDER
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE NOT REQUESTED TO SEND US A PROXY
This Information Statement has been mailed on or about [November 15], 2004
to the stockholders of record as of [November 9], 2004 ("Record Date") of the
Company's (i) common stock, par value $.001 per share ("common stock"), (ii)
Series A 6% Convertible Non Redeemable Preferred Stock, par value $.001 per
share (the "Series A Preferred Shares") and (iii) Series B Convertible Non
Redeemable Preferred Stock, par value $.001 (the "Series B Preferred Shares"),
in connection with certain actions to be taken on or about [December 6, 2004],
which is 20 days after the mailing of this information statement. These actions
will be taken pursuant to the written consents by the majority stockholders of
the Company dated as of July 26, 2004 and [October 15],2004.
THIS IS NOT A NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS. NO STOCKHOLDER
MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED HEREIN.
By Order of the Board of Directors,
/s/ Jay Gelman , Chairman of the Board and Chief Executive Officer
2
NOTICE OF ACTION TO BE TAKEN PURSUANT TO THE WRITTEN CONSENTS DATED JULY 26,
2004 [AND OCTOBER 15, 2004] OF MAJORITY STOCKHOLDERS IN LIEU OF A SPECIAL
MEETING OF THE STOCKHOLDERS.
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the following actions will be taken on or
about [December 6, 2004] pursuant to written consents dated July 26, 2004 and
[October 15], 2004 by the majority stockholders, in lieu of a special meeting of
the stockholders.
1. the Company's Articles of Incorporation will first be amended to
increase the number of authorized shares of common stock, par value $0.001
per share (the "common stock"), from 50,000,000 shares to 4,400,000,000
shares, and to increase the number of authorized shares of preferred
stock, par value $0.001 per share from 5,000,000 shares to 10,000,000
shares;
2. the Company's Articles of Incorporation will then be further amended to
reverse split the number of authorized shares of common stock and the
outstanding shares of common stock on the basis of one share for 44
shares;
3. the Company will merge into its Delaware wholly owned subsidiary,
Alliance Distributors Holding Inc. and terminate its corporate existence
in the State of Nevada; and
4. the Company will adopt the Alliance Distributors Holding Inc. 2004
Stock Plan.
3
BACKGROUND
On June 17, 2004, the Company entered into a Share Exchange Agreement (the
"Exchange Agreement") with Jay Gelman, Andre Muller and Francis Vegliante, who
were the sole shareholders (the "Shareholders") of AllianceCorner Distributors
Inc. ("Alliance"). Alliance is a wholesale distributor of interactive video
games that had no prior affiliation with the Company. Pursuant to the Exchange
Agreement, the Company on June 29, 2004 acquired all the outstanding capital
stock of Alliance from the Shareholders for 1,551,314 Series B Preferred Shares.
Alliance thereupon became a wholly-owned subsidiary of the Company.
On June 29, 2004 the Company received $2,884,171 in net proceeds from the sale
of 1,124,767 Series A Preferred Shares in a private placement (the "Offering").
Sunrise Securities Corp. acted as placement agent in connection with the
Offering and received (a) an $8,500 retainer fee; and (b) a commission
consisting of 108,146 shares of Series A Preferred Shares and warrants to
purchase 68,820,224 shares of common stock at an exercise price of $.005 per
share. At the same time, substantially all outstanding debt of the Company was
extinguished through conversion into an aggregate of 452,202 Series A Preferred
Shares and $915,330 in cash payments.
Certain holders of Series A Preferred Shares (the "Proxy Grantors") have granted
to Jay Gelman an irrevocable proxy (the "Voting Proxy") to vote 526,225 Series A
Preferred Shares owned by them and any shares of common stock into which such
Series A Preferred Shares are converted. Since the Series A Preferred Shares are
entitled to 700 votes per share, the Series A Preferred Shares owned by the
Proxy Grantors are entitled in the aggregate to 368,357,500 votes.
In the Exchange Agreement, the Shareholders agreed to vote their Series B
Preferred Shares in favor of an amendment to the Company's Articles of
Incorporation that would increase the number of authorized shares of common
stock from 50,000,000 to 4,400,000,000 (the "Amendment"), and in favor of a
simultaneous reverse split of the common stock on the basis of one share for
forty-four shares (the "Reverse Split").
The Series A Preferred Shares are entitled on conversion to a dividend in kind,
i.e., in Series A Preferred Shares, accruing at the rate of 6% per annum from
June 29, 2004 until the effectiveness of the Amendment.
The Series A Preferred Shares are convertible into 1,179,580,500 shares of
common stock. The Series B Preferred Shares are convertible into 1,085,919,800
shares of common stock. The warrant issued to Sunrise Securities Corp. is
exercisable into 68,820,224 shares of common stock. There are available for
issuance only 28,000,000 shares of authorized and unissued shares of common
stock, or less than 1% of the shares issuable on conversion and exercise.
Accordingly, the Company does not regard these securities as convertible or
exercisable until the adoption of the Amendment creates sufficient authorized
and unissued shares of common stock to permit conversion and exercise.
The adoption of the Amendment and the Reverse Split will result in the automatic
conversion of each Series A Preferred Share and each Series B Preferred Share
into 15.91 shares of post-split common stock. However, Series A Preferred Shares
owned by a holder will not be converted into common stock if and so long as a
result of conversion the holder would beneficially own in excess of 4.999% or
9.999% of the issued and outstanding shares. Any Series A Preferred Shares not
converted into the Company's common stock due to the operation of this
restriction (the "4.999% Restriction") will no longer be entitled to the 6%
dividend referred to above.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
1. VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On October 12, 2004, there were issued and outstanding (a) 22,000,000 shares of
common stock; (b) 1,685,115 Series A Preferred Shares; and (c) 1,551,314 Series
B Preferred Shares.
4
Effective on adoption of the Amendment and the Reverse Split referred to under
"Background" and except as limited by the 4.999% Restriction, each Series A
Preferred Share and each Series B Preferred Share will be automatically
converted into 15.91 shares of post-split common stock. After giving effect to
the 4.999% Restriction based on the Company's current capitalization, there will
then be outstanding a total of 46,972,666 shares of post-split common stock.
Each share of common stock entitles the holder thereof to one vote on each
matter that may come before a meeting of the shareholders. Until converted into
common stock on adoption of the Amendment and the Reverse Split, each Series A
Preferred Share and each Series B Preferred Share is entitled to 700 votes, and
votes as one class with the common stock.
The following table sets forth the ownership of the common stock and Series A
Preferred Shares and Series B Preferred Shares as of October 12, 2004, and of
the common stock after giving effect to the Amendment and the Reverse Split and
to the conversion of the Series A Preferred Shares and the Series B Preferred
Shares, by (i) each person known to the Company who is the beneficial owner of
more than five percent of the outstanding shares of common stock, Series A
Preferred Shares or Series B Preferred Shares, (ii) each director and (iii) all
of our directors and executive officers as a group. Jay Gelman, Andre Muller,
Thomas Vitiello and Humbert Powell are the directors of the Company, and the
Company's executive officers are Jay Gelman and Andre Muller.
As set forth under "Background," the Series A Preferred Shares are entitled on
conversion to a dividend in kind, i.e., in Series A Preferred Shares, accruing
at the rate of 6% per annum from June 29, 2004 until the effectiveness of the
Amendment. The table does not give effect to this dividend.
Unless otherwise indicated, we believe that all persons named in the table have
sole voting and investment power with respect to all shares of voting stock
beneficially owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of options, warrants or convertible securities. As set
forth under "Background," the Company does not regard any security of the
Company to be exercisable into or convertible for common stock until the
adoption of the Amendment and the Reverse Split.
In calculating the percentage ownership by any holder of common stock, the table
considers that no warrants are exercisable before the Amendment and the Reverse
Split, and that, after the Amendment and Reverse Split, the total number of
outstanding shares includes shares issuable on exercise of warrants that are
beneficially owned by that holder. Accordingly, for calculating the percentage
ownership of shares of common stock outstanding after the Amendment and the
Reverse Split, for Nathan A. Low there are deemed outstanding 48,196,767 shares
of common stock, for Amnon Mandelbaum there are deemed outstanding 47,229,989
shares of common stock, and for all other holders there are deemed outstanding
46,972,666 shares of common stock. For these calculations, the table reflects as
outstanding a total of 1,685,115 Series A Preferred Shares and 1,551,314 Series
B Preferred Shares before the Amendment and the Reverse Split. As explained at
Note 16, the table reflects a total of 315,290 Series A Preferred Shares as
outstanding after the Amendment and the Reverse Split.
5
------------------------- -----------------------------------------------------------------------------------------------------
Name and address of Amount and Nature of beneficial ownership
beneficial owner
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Series A Series B Preferred Common stock Common stock after Series A
Preferred Shares Shares (% of before Amendment Amendment and Preferred Shares
(% of class)(1) class)(2) and Reverse Split Reverse Split (% after Amendment
(% of class) of class) and Reverse Split
(% of class)
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Jay Gelman, 526,225(3)(31.22%) 517,105 (33.4%) 13,985,183(4)(29.8%) 164,261(52.1%)(5)
15-15 132nd Street,
College Point, NY 11356
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Andre Muller 517,105 (33.4%) 8,226,665(6) (17.5%)
15-15 132nd Street,
College Point, NY 11356
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Francis Vegliante 517,104 (33.3%) 8,226,665(7) (17.5%)
15-15 132nd Street,
College Point, NY
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Humbert B. Powell III 1,000,000 (4.5%) 22,727 (less than
527 Madison Avenue, NY, 1%)
NY 10022
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Thomas Vitiello
15-15 132nd Street,
College Point, NY 11356
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
----------------------
1 As set forth under "Background," the Series A Preferred Shares are not
convertible until the effectiveness of the Amendment and Reverse Split. Except
as set forth in Note 15, each Series A Preferred Share converts automatically
into 15.91 shares of common stock on effectiveness of the Amendment and the
Reverse Split.
2 As set forth under "Background," the Series B Preferred Shares are not
convertible until the effectiveness of the Amendment and Reverse Split. Each
Series B Preferred Share converts automatically into 15.91 shares of common
stock on effectiveness of the Amendment and the Reverse Split.
3 Consists of the Voting Proxy referred to under "Background."
4 Consists of 8,226,665 shares issuable on conversion of Series B Preferred
Stock, and 5,758,518 shares for which Mr. Gelman has the Voting Proxy referred
to under "Background."
5 Consists of shares subject to the Voting Proxy referred to under "Background."
6 Consists of shares issuable on conversion of Series B Preferred Stock.
7 Consists of shares issuable on conversion of Series B Preferred Stock.
6
------------------------- -----------------------------------------------------------------------------------------------------
Name and address of Amount and Nature of beneficial ownership
beneficial owner
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Series A Series B Preferred Common stock Common stock after Series A
Preferred Shares Shares (% of before Amendment Amendment and Preferred Shares
(% of class)(1) class)(2) and Reverse Split Reverse Split (% after Amendment
(% of class) of class) and Reverse Split
(% of class)
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
LCG Capital Group, LLC 9,600,000 (43.6%)(8) 218,182 (less
Hamilton Resources than 1%)(9)
Group, LLC
Winchester Capital
Group, LLC
Michael Alpert
335 Central Avenue
Lawrence, NY 11559
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Martin Abrams 2,400,480 (10.9%) 54,556 (less than
c/o Abrams Gentile 1%)
Entertainment, Inc.
244 West 54th Street,
9th Floor
New York, NY 10017
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Michael B. Schwab 2,041,933 (9.3%)(10) 46,408 (less than
1219 Lombard St. 1%)(11)
San Francisco, CA 94109
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
----------------------
8 Includes 4,800,000 shares of common stock (109,091 post split) held by LCG
Capital Group, LLC (LCG) and an additional 4,800,000 shares of common stock
(109,091) held collectively by Martin Abrams, John Gentile, Anthony Gentile and
MSH Entertainment Corporation ("Age Stockholders"), who have agreed to vote
their shares in the same manner as LCG votes its shares with respect to certain
matters (including but not limited to the election of directors), pursuant to a
Voting Agreement dated as of June 20, 2002 by and among LCG and the Age
Stockholders, all at the addresses listed in the table, other than for MSH
Entertainment Corporation, the address for which is 244 West 54th Street, NY,NY
10017. LCG may be deemed to beneficially own such shares whose vote it controls
but it disclaims beneficial ownership of such shares. Hamilton Resources Group,
LLC currently owns a majority of the equity in LCG and may be deemed to
beneficially own the shares held by LCG. Winchester Capital Group, LLC, as the
managing member of LCG, may be deemed to beneficially own the shares held by
LCG. Michael Alpert, as the managing member of Winchester Capital Group, may be
deemed to beneficially own the shares held by LCG. Hamilton Resources Group,
Winchester Capital Group and Michael Alpert each disclaims beneficial ownership
of the shares beneficially owned by LCG.
9 See Note 8.
10 Includes 37,621 shares of common stock (855 post split) held by Mr. Schwab,
1,897,234 shares of common stock (43,119 post-split) held directly by Big Sky
Partners, and 107,078 shares of common stock (2,434 post-split) held indirectly
by Big Sky Partners through its ownership in LCG Capital Group. Mr. Schwab, as
managing partner of Big Sky Partners, may be deemed to beneficially own the
shares held by Big Sky Partners, but he disclaims beneficial ownership of such
shares.
11 See Note 10.
7
------------------------- -----------------------------------------------------------------------------------------------------
Name and address of Amount and Nature of beneficial ownership
beneficial owner
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Series A Series B Preferred Common stock Common stock after Series A
Preferred Shares Shares (% of before Amendment Amendment and Preferred Shares
(% of class)(1) class)(2) and Reverse Split Reverse Split (% after Amendment
(% of class) of class) and Reverse Split
(% of class)
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Big Sky Partners 2,004,312 (9.1%)(12) 45,553 (less than
1219 Lombard St. San 1%)(13)
Francisco, CA 94109
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Anthony Gentile 1,129,260 (5.1%) 25,665 (less than
c/o Abrams Gentile 1%)
Entertainment, Inc.
244 West 54th Street,
9th Floor
New York, NY 10017
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
John Gentile 1,129,260 (5.1%) 25,665 (less than
c/o Abrams Gentile 1%)
Entertainment, Inc.
244 West 54th Street,
9th Floor
New York, NY 10017
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Jayvee & Co., for AGF 1,113,800 (5.1%) 25,314 (less than
Canadian Growth Equity 1%)
c/o Jayvee & Co.
P.O. Box 9
Commerce Court West
Securities Level
Toronto, Ontario M5H 4A6
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Nathan A. Low 389,519 (23.1%)(14) 2,405,018(15)(4.99%) 315,290
c/o Sunrise Securities (100%)(16)
Corp.
641 Lexington
Avenue
NY, NY 10022
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
-------------------
12 Includes 1,897,234 shares of common stock (43,119 post-split) held directly
by Big Sky Partners and 107,078 shares of common stock (2,434 post-split) held
indirectly by Big Sky Partners through its ownership in LCG Capital Group. Big
Sky Partners disclaims beneficial ownership of the shares held by LCG Capital
Group.
13 See Note 12.
14 Includes 47,467 shares owned by Mr. Low personally, 23,665 shares owned by
Nathan A. Low Family Trust, 140,596 owned by Nathan A. Low Roth IRA, 21,746
shares owned by Sunrise Foundation Trust, 15,449 shares owned by Sunrise
Securities Corp. and 140,596 shares owned by Sunrise Equity Partners. The shares
owned by Nathan A. Low IRA are subject to the Voting Proxy referred to under
"Background." Mr. Low's wife has sole voting and investment power in the shares
owned by Nathan A. Low Family Trust. Mr. Low has shared voting and investment
power in Level Counter LLC, which has sole investment and voting power in the
shares owned by Sunrise Equity Partners. Mr. Low has shared voting and
investment power in the shares owned by Sunrise Foundation Trust. Mr. Low
disclaims beneficial ownership of the shares owned by Nathan A. Low Family
Trust, Sunrise Equity Partners and Sunrise Foundation Trust.
15 These 2,405,018 shares consist of 800,527 shares issuable on exercise of
warrants owned by Nathan A. Low, 200,132 shares issuable on exercise of warrants
owned by Sunrise Foundation Trust, 223,442 shares issuable on exercise of
warrants owned by Sunrise Securities Corp., and 1,180,917 shares of common stock
issuable on conversion of 74,229 of the Series A Preferred Shares owned by
Sunrise Equity Partners. Excludes 755,166 shares of common stock for Nathan Low,
376,488 shares of common stock for Nathan A. Low Family Trust, 2,236,754 shares
of common stock for Nathan A Low Roth IRA, 345,959 shares of common stock for
Sunrise Foundation Trust, 245,779 shares of common stock for Sunrise Securities
Corp. and 1,055,838 shares of common stock for Sunrise Equity Partners, which,
based on the Company's current capitalization, would not be issued on adoption
of the Amendment and the Reverse Split because the 4.999% Restriction limits to
2,405,018 the number of shares of common stock that may be issued to a
beneficial owner on conversion of Series A Preferred Shares. See Note 14.
16 Consists of 47,467 shares owned by Nathan A. Low, 23,665 shares owned by
Nathan A. Low Family Trust, 140,596 by Nathan A. Low Roth IRA, 21,746 shares
owned by Sunrise Foundation Trust, 15,449 shares owned by Sunrise Securities
Corp. and 66,367 shares owned by Sunrise Equity Partners that are not
convertible into common stock by reason of the 4.999% Restriction. See Note 15.
8
------------------------- -----------------------------------------------------------------------------------------------------
Name and address of Amount and Nature of beneficial ownership
beneficial owner
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Series A Series B Preferred Common stock Common stock after Series A
Preferred Shares Shares (% of before Amendment Amendment and Preferred Shares
(% of class)(1) class)(2) and Reverse Split Reverse Split (% after Amendment
(% of class) of class) and Reverse Split
(% of class)
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Nathan A. Low Roth IRA 140,596 (8.3%)(17) (18) 140,596 (44.5%)(19)
c/o Sunrise Securities
Corp.
641 Lexington Avenue
NY, NY 10022
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Sunrise Equity Partners 140,596 (8.3%) 1,180,917 (2.5%)(20) 66,367 (21%)(21)
641 Lexington Avenue
25th Floor
New York, NY 10022
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
-------------------
17 These shares are subject to the Voting Proxy referred to under "Background."
18 See Note 15.
19 See Notes 15 and 16.
20 Excludes 1,055,838 shares of common stock, which, based on the Company's
current capitalization, would not be issued on adoption of the Amendment and the
Reverse Split because the 4.999% Restriction limits the number of shares of
common stock that may be issued to a beneficial owner on conversion of Series A
Preferred Shares. See Notes 15 and 16.
21 See Notes 15 and 16.
9
------------------------- -----------------------------------------------------------------------------------------------------
Name and address of Amount and Nature of beneficial ownership
beneficial owner
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Series A Series B Preferred Common stock Common stock after Series A
Preferred Shares Shares (% of before Amendment Amendment and Preferred Shares
(% of class)(1) class)(2) and Reverse Split Reverse Split (% after Amendment
(% of class) of class) and Reverse Split
(% of class)
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Level Counter LLC 140,596 (8.3%)(22) 1,180,917 (2.5%)(23) 66,367 (21%)(24)
641 Lexington Avenue
25th Floor
New York, NY 10022
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Amnon Mandelbaum 158,394 (9.4%)(25) 1,721,390 (3.6%)(26) 66,367 (21%)(27)
641 Lexington Avenue
25th Floor
New York, NY 10022
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Marilyn Adler 140,596 (8.3%)(28) 1,180,917 (2.5%)(29) 66,367 (21%)(30)
641 Lexington Avenue
25th Floor
New York, NY 10022
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
------------------
22 Level Counter LLC has sole investment and voting power in the shares owned by
Sunrise Equity Partners. Level Counter LLC disclaims beneficial ownership of
these shares.
23 See Notes 15 and 22
24 See Notes 15 and 16.
25 Consists of 17,798 shares owned by Mr. Mandelbaum, and 140,596 shares owned
by Level Counter LLC. Mr. Mandelbaum has shared voting and investment power in
Level Counter LLC, which has sole investment and voting power in the shares
owned by Sunrise Equity Partners. Mr. Mandelbaum disclaims beneficial ownership
of the shares owned by Sunrise Equity Partners. See Note 22.
26 Consists of 283,150 shares issuable on conversion of Series A Preferred
Shares owned by Mr. Mandelbaum, 257,323 shares issuable on exercise of warrants
owned by Mr. Mandelbaum, and 1,180,917 shares of common stock issuable on
conversion of 74,229 of the Series A Preferred Shares owned by Sunrise Equity
Partners. Excludes 1,055,838 shares of common stock for Sunrise Equity Partners,
which, based on the Company's current capitalization, would not be issued on
adoption of the Amendment and the Reverse Split because the 4.999% Restriction
limits the number of shares of common stock that may be issued to a beneficial
owner on conversion of Series A Preferred Shares. See Note 14.
27 See Notes 15 and 16.
28 Consists of shares owned by Level Counter LLC. Ms. Adler has shared voting
and investment power in Level Counter LLC, which has sole investment and voting
power in the shares owned by Sunrise Equity Partners. Ms. Adler disclaims
beneficial ownership of the shares owned by Sunrise Equity Partners.
29 Consists of shares of common stock issuable on conversion of 74,229 of the
Series A Preferred Shares owned by Sunrise Equity Partners. Excludes 1,055,838
shares of common stock, which, based on the Company's current capitalization,
would not be issued on adoption of the Amendment and the Reverse Split because
the 4.999% Restriction limits the number of shares of common stock that may be
issued to a beneficial owner on conversion of Series A Preferred Shares. See
Notes 15, 16 and 28.
30 See Notes 15 and 16.
10
------------------------- -----------------------------------------------------------------------------------------------------
Name and address of Amount and Nature of beneficial ownership
beneficial owner
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Series A Series B Preferred Common stock Common stock after Series A
Preferred Shares Shares (% of before Amendment Amendment and Preferred Shares
(% of class)(1) class)(2) and Reverse Split Reverse Split (% after Amendment
(% of class) of class) and Reverse Split
(% of class)
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Northumberland Holdings 155,887 (9.3%)(31) 2,480,020 (5.3%)(32)
LTD
Beaufort House BOX 438
Road Town
Tortola, BVI
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Smithfield Fiduciary LLC 140,596 (8.3%) 2,236,755 (4.7%)
c/o Highbridge Capital
Management
9 W57th Street
New York, NY 10019
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
South Ferry #2 LP 112,477 (6.7%) 1,789,406 (3.8%)
1 State St Plaza 29th
Floor
New York, NY 10004
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
Vitel Ventures 103,214 (6.1%)(33) 1,642,041 (3.5%)(34)
Corporation
c/o Bodden Corp.
Services, 1st Floor
Room 802
Grand Pavilion
Grand Cayman, Cayman
Islands
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
All executive officers 526,225 (31.22%)(36) 1,551,314 (100%) 1,000,000 (4.5%) 22,234,575 (47.3%) 164,261 (52.1%)(37)
and directors(35) as a
group
------------------------- ------------------- -------------------- ------------------- -------------------- -------------------
--------------------
31 These shares are subject to the Voting Proxy referred to under "Background."
32 These shares are subject to the Voting Proxy referred to under "Background."
To facilitate the presentation in this table no account is given to the 4.99%
Restriction as applied to this holder.
33 18,857 of these shares are subject to the Voting Proxy referred to under
"Background."
34 299,989 of these shares are subject to the Voting Proxy referred to under
"Background."
35 Includes persons to become directors as provided in the last paragraph under
"Background."
36 See Note 3.
37 Consists of shares subject to the Voting Proxy referred to under
"Background."
11
2. CHANGE IN CONTROL
By reason of the transactions described under "Background," the former
shareholders of AllianceCorner Distributors Inc. (the "Shareholders"), including
Jay Gelman who serves as Chairman of the Board of Directors and Chief Executive
Officer, each own 517,105 Series B Preferred Shares representing 15.8% of the
Company's total voting power (the total number of votes that can be cast by the
outstanding common stock, Series A Preferred Shares and Series B Preferred
Shares). Mr. Gelman, based on his Series B Preferred Shares and his voting
rights pursuant to the Voting Proxy, has 31.9% of the Company's total voting
power. The Shareholders in the aggregate have approximately 63% of the Company's
total voting power and control the Company.
DIRECTORS AND EXECUTIVE OFFICERS
There are no family relationships among directors or executive officers.
DIRECTORS:
NAME OF DIRECTORS Age
Humbert B. Powell III 63
Jay Gelman 43
Andre Muller 39
Thomas Vitiello 43
EXECUTIVE OFFICERS:
Name of Officer Age Office
---------------- --- ------
Jay Gelman 43 Chief Executive Officer
Andre Muller 39 President, Chief Operating
Officer
HUMBERT B. POWELL III
Humbert B. Powell III has been a Managing Director at Sanders Morris Harris, a
regional investment-banking firm headquartered in Houston, Texas, with a branch
in New York City, since November 1996. He is also a Director of Lawman Armour
Corp., Bikers Dream Inc., World Water Corp., and a trustee of Salem-Teikyo
University. Mr. Powell served as chief executive officer of the Company from
June 20, 2002 until July 1, 2002.
JAY GELMAN
Jay Gelman in 1988 co-founded L & J Marketing, Inc. d/b/a Alliance Distributors,
a regional video game software and hardware distributor based in College Point,
NY. He served as President, until December of 1997 when Alliance was sold to
Take-Two Interactive Software, Inc. From 1998 until 2003, Mr. Gelman was
employed by Track Data Corporation (NASDAQ: TRAC) where he served as a director
and as Executive Vice President. In 2003, Mr. Gelman joined Mr. Muller to found
Alliance Distributors, Inc. (name later changed to AllianceCorner Distributors
Inc.), and served as its President and Chief Executive Officer. Since the
acquisition by the Company of AllianceCorner Distributors Inc. on June 29, 2004,
Mr. Gelman has served as Chief Executive Officer of the Company and is also
currently the Chairman of the Board of Directors.
12
ANDRE MULLER
For more than five years prior to 2003 Andre Muller was employed as a General
Manager by Take-Two Interactive Software. In 2003 Mr. Muller joined Mr. Gelman
to found Alliance Distributors, Inc., and served as its Chief Operating Officer.
Since the acquisition by the Company of AllianceCorner Distributors Inc. on June
29, 2004, Mr. Muller has served as Chief Operating Officer and President of the
Company.
THOMAS VITIELLO
For more than five years, Mr. Vitiello has been the president of VIT Trading,
Inc., a trader in precise metals. He graduated from NYU with a BS in Finance in
1985.
TERM OF OFFICE
The Company's Directors are appointed for a one-year term to hold office until
the next annual meeting of shareholders. Our officers serve at the pleasure of
the Board of Directors.
COMMITTEES
The Company does not have standing a nominating or compensation committee of the
Board of Directors, or a committee performing similar functions. The Company
does not have an audit committee established in accordance with section
3(a)(58)(A) of the Securities Exchange Act of 1934, or a committee performing
similar functions. The Company does not have an audit charter or a charter
governing the nominating process. Management of the Company believes that it is
premature at this early stage of the Company's management and business
development to form an audit, nominating or compensation committee. The entire
board of directors participates in the director nomination and compensation
process. Although the Board of Directors has not established any minimum
qualifications for director candidates, when considering potential director
candidates, the Board considers the candidate's character, judgment, diversity,
skills, including financial literacy, and experience in the context of the needs
of the Company and the Board of Directors. In 2003 the Company did not pay any
fees to any third party to assist in identifying or evaluating potential
nominees.
The Board of Directors will consider director candidates recommended by the
Company's stockholders in a similar manner as those recommended by members of
management or other directors, provided the stockholder submitting such
nomination has provided such recommendation on the same timely basis required
for stockholders to submit a proposal at the Company's annual meeting under Rule
14a-8 of the Securities Exchange Act of 1934. To date, the Company has not
received any recommended nominees from any non-management stockholder or group
of stockholders that beneficially owns five percent of its voting stock.
The board of directors have determined that Humbert B. Powell III is an
independent director based on Rule 4200 of the National Association of
Securities Dealers' listing standards and is qualified as an "Audit Committee
Financial Expert" as defined in Item 7(d)(3)(iv) of Schedule 14A.
13
The Company does not provide a process for security holders to send
communications to the board of directors. Management of the Company does not
feel it necessary to implement any such processes until such time as the common
stock of the Company has greater liquidity and trades on a national securities
exchange or on an automated inter-dealer quotation system of a national
securities association.
MEETINGS OF THE BOARD AND COMMITTEES
The Board of Directors of the Company took no actions at meetings during the
year ended December 31, 2003. All actions by the Board of Directors were
conducted by resolutions consented to in writing by all the directors. During
the 2003 fiscal year the board acted by unanimous written consent four times.
Prior to August 30, 2004 the Company had an audit, compensation and nominating
committee. During the 2003 fiscal year, each of the audit, compensation and
nominating committee met two times.
The Company does not have a policy requiring incumbent directors and director
nominees to attend the Company's annual meeting of stockholders. Two incumbent
directors attended last year's annual meeting.
SIGNIFICANT EMPLOYEES
We have no significant employees other than the officers mentioned above.
LEGAL PROCEEDINGS INVOLVING DIRECTORS AND EXECUTIVE OFFICERS
The Company is not aware of any legal proceedings in which any director,
officer, or any owner of record or beneficial owner of more than five percent of
any class of voting securities of the Company, or any affiliate of Purchaser, or
of any such director, officer, affiliate of the Company, or security holder, is
a party adverse to the Company or has a material interest adverse to the
Company.
The Company is not aware of any legal proceedings in which any director, or any
person nominated to become a director, is involved in any of the proceedings set
forth in Item 401(d) of Regulation S-B.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934; BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who beneficially own 10% or more of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and ten percent shareholders are
required by Securities Exchange Commission regulations to furnish the Company
with copies of all Section 16(a) forms they file. We believe that in fiscal year
2003, no Forms 3, 4 or 5 were required to be filed by any of the Company's
executive officers, directors or owners of ten percent of the Company's equity
securities.
14
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for all services rendered
during the 2003, 2002 and 2001 fiscal years for the Company's highest paid
executive officers, directors and those individuals who earned in excess of
$100,000 during the Company's fiscal year ended December 31, 2003. No other
compensation was paid to any such officers or directors other than the cash and
stock option compensation set forth below.
------------------------------- ---------------------------- ----------------------------
Name and Principal Position Fiscal Year Ended Annual Compensation Salary
December 31
------------------------------- ---------------------------- ----------------------------
Steven T. Francesco, Chief 2003 $0
Executive Officer
------------------------------- ---------------------------- ----------------------------
2002 $127,000
------------------------------- ---------------------------- ----------------------------
2001 $0
------------------------------- ---------------------------- ----------------------------
John Gentile, Chief Executive 2003 $0
Officer
------------------------------- ---------------------------- ----------------------------
Following the resignation of Mr. Francesco as Chief Executive Officer after
February 5, 2003, the company had no Chief Executive Officer or President for
the remainder of the fiscal year 2003 and no other officers or employees that
were compensated in excess of $100,000 during the fiscal years ended December
31, 2001, 2002 and 2003. During the fiscal year ended December 31, 2002, the
Company had three chief executive officers. Frank Drechsler served as chief
executive officer until our business combination with ER LLC on June 20, 2002.
Mr. Drechsler did not earn or receive any compensation for services he rendered.
Following the business combination, Humbert B. Powell, III acted as chief
executive officer until July 1, 2002. Mr. Powell did not earn or receive any
compensation for services he rendered in such capacity. Steven T. Francesco
served as chief executive officer from July 1, 2002 until February 5, 2003. From
February 5, 2003 until December 31, 2003, John Gentile served as principal
executive officer. Mr. Gentile did not earn or receive any compensation for
services he rendered.
DIRECTOR COMPENSATION
No director is paid any compensation for his services as director.
Prior to August 30, 2004, board members were compensated for their services as
director. Each member received annual compensation of $10,000 ($12,000 if acting
as chairman of a committee) plus options to purchase 10,000 shares of the
Company's common stock at an exercise price equal to the closing price of our
common stock on the date of the grant. The options vested over a one-year period
in equal quarterly amounts, so long as the director completed service for such
quarter. Non-employee directors were reimbursed for reasonable expenses in
connection with serving as a director and member of a committee. There were
100,000 options issued prior to June 29, 2004, all of which were cancelled
pursuant to terms of the Exchange Agreement.
STOCK INCENTIVE PLAN
The Company has terminated its 2001 Stock Incentive Plan (the "Plan"), and no
options are outstanding under the Plan. The Company has no other stock option
plan.
15
ADVISORY BOARD COMPENSATION
Prior to August 30, 2004, the Company had an Advisory Board. As compensation for
serving on the Advisory Board, the members received options under the Plan to
purchase an aggregate of 235,000 shares of common stock at exercise prices
ranging from $0.75 to $1.60. These options expired on August 29, 2004.
EMPLOYMENT AGREEMENT
The Company has a two year employment agreement (the "Employment Agreement")
effective as of July 1, 2004 with Jay Gelman, who is the Company's Chief
Executive Officer and Chairman of its Board of Directors. The Employment
Agreement provides for annual compensation of $300,000 for the first year and
$350,000 annually thereafter. The Employment Agreement also provides for the
Board of Directors to award bonuses to Mr. Gelman in an amount equal to his
salary. In the event of a termination of Mr. Gelman's employment by the Company
other than for Cause, as defined under the Employment Agreement, or by Mr.
Gelman for Good Reason, as defined under the Employment Agreement, Mr. Gelman
will be entitled to a lump sum equal to three times his base salary for the
period from the date of termination through June 30, 2006. The Employment
Agreement contains a 12-month non-compete provision effective following
termination, except for termination by the Company other than for Cause, or Good
Reason by Mr. Gelman. The Employment Agreement also contains customary
confidentiality provisions.
16
ACTION NO. 1
AMENDMENT TO THE ARTICLES OF INCORPORATION
The Company currently has authorized capital stock of 50,000,000 shares of
common stock and 5,000,000 shares of preferred stock. There are issued and
outstanding 22,000,000 shares of common stock, 1,685,115 Series A Preferred
Shares and 1,551,314 Series B Preferred Shares. The par value of each class of
capital stock is $.001 per share. By their written consents, shareholders and a
proxy holder have voted 1,454,277,300 shares, out of a total of 2,287,500,300
shares entitled to vote, in favor of an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of common stock from
50,000,000 shares to 4,400,000,000 shares and to increase the number of
authorized shares of preferred stock from 5,000,000 to 10,000,000. The vote in
favor of the amendment is greater than a majority of the Company's total voting
power and is sufficient to approve the amendment.
The text of the Articles of Incorporation increasing the number of authorized
shares of common stock and authorized number of shares of preferred stock is set
forth in Exhibit A to this information statement. The text of the Articles of
Incorporation is subject to modification to include such changes as may be
required by the office of the Secretary of State of the State of Nevada and as
the Board of Directors deems necessary and advisable to effect the amendments.
Of the 4,400,000,000 shares of common stock to be authorized, 22,000,000 shares
will constitute shares of common stock issued and outstanding prior to the
amendment, 2,265,500,300 shares will be available to permit the conversion of
the Preferred A Shares and the Preferred B Shares as described under
"Background," and the balance will be available for issuance by the Board of
Directors. Of the 10,000,000 shares of preferred stock to be authorized,
6,763,571 shares will be available for issuance by the Board of Directors.
The terms of the additional shares of common stock will be identical to those of
the currently outstanding shares of common stock. Because holders of common
stock have no preemptive rights to purchase or subscribe for any unissued stock
of the Company, the issuance of additional shares of common stock will reduce
the current stockholders' percentage ownership in the total outstanding shares
of common stock. This amendment and the creation of additional shares of
authorized common stock will not alter the current number of issued shares
except for the automatic conversion of the Preferred Shares as described in the
"Background" section above. The relative rights and limitations of the shares of
common stock will remain unchanged under this amendment.
The Board of Directors, within the limitations and restrictions contained in the
articles of incorporation and without further action by the Company's
stockholders, has the authority to issue the preferred stock from time to time
in one or more series and to fix the number of shares and the relative rights,
conversion rights, voting rights, rights and terms of redemption, liquidation
preferences and any other preferences, special rights and qualifications of any
such series. The terms of the additional shares of preferred stock, including
dividend or interest rates, conversion prices, voting rights, redemption prices,
maturity dates, and similar matters will be determined by the board of
directors. Because holders of preferred stock have no preemptive rights to
purchase or subscribe for any unissued stock of the Company, the issuance of
additional shares of preferred stock will reduce a stockholders' percentage
ownership in the total outstanding shares of preferred stock. The creation of
additional shares of authorized preferred stock will not alter the current
number of issued preferred shares. The relative rights and limitations of the
shares of preferred stock will remain unchanged under this amendment.
17
The increase in the number of authorized but unissued shares of common stock and
preferred stock that would be available for issuance would enable the Company,
without further stockholder approval, to issue shares from time to time as may
be required for proper business purposes, such as raising additional capital for
ongoing operations, business and asset acquisitions, stock splits and dividends,
present and future employee benefit programs and other corporate purposes.
The proposed increase in the authorized number of shares of common stock and
preferred stock could have a number of effects on the Company's stockholders
depending upon the exact nature and circumstances of any actual issuances of
authorized but unissued shares. The increase could have an anti-takeover effect,
in that additional shares could be issued (within the limits imposed by
applicable law) in one or more transactions that could make a change in control
or takeover of the Company more difficult. For example, additional shares could
be issued by the Company so as to dilute the stock ownership or voting rights of
persons seeking to obtain control of the Company, even if the persons seeking to
obtain control of the Company offer an above-market premium that is favored by a
majority of the independent shareholders.
Similarly, the issuance of additional shares to certain persons allied with the
Company's management could have the effect of making it more difficult to remove
the Company's current management by diluting the stock ownership or voting
rights of persons seeking to cause such removal. The Company does not have any
other provisions in its articles of incorporation, by-laws, employment
agreements, credit agreements or any other documents that have material
anti-takeover consequences. The Company has no plans or proposals to adopt other
provisions or enter into other arrangements that may have material anti-takeover
consequences. The Board of Directors is not aware of any attempt, or
contemplated attempt, to acquire control of the Company, and this Action is not
being taken with the intent that it be utilized as a type of anti-takeover
device.
Any issuance of preferred stock with voting rights could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company by increasing the number of outstanding shares entitled to vote and
increasing the number of votes required to approve a change in control of the
Company.
As of the date of this information statement, no preferred stock has been issued
other than the Series A Preferred Shares and Series B Preferred Shares described
under "Background."
Except for the automatic conversion of the Preferred Shares as described under
"Background," there are currently no plans, arrangements, commitments or
understandings for the issuance of the additional shares of common stock or
preferred to stock.
18
ACTION NO. 2
REVERSE STOCK SPLIT
General
By their written consents, shareholders and a proxy holder have voted
1,454,277,300 shares, out of a total of 2,287,500,300 shares entitled to vote,
in favor of a further amendment to the Company's Articles of Incorporation to
effect a reverse stock split of the Company's authorized common stock and the
Company's issued and outstanding common stock on the basis of one-for-44. The
amendment will not reverse split the preferred stock. The vote in favor of the
amendment is greater than a majority of the Company's total voting power and is
sufficient to approve the amendment.
After giving effect to the reverse split, there will be authorized 100,000,000
shares of common stock, of which 500,000 shares shall be issued and outstanding
to shareholders holding shares of common stock prior to the amendment,
51,488,644 shares will be available to permit the conversion of the Preferred A
Shares and the Preferred B Shares, and 48,011,356 shares will be available for
issuance by the Board of Directors. There will continue to be authorized
10,000,000 shares of preferred stock, of which 6,763,571 shares will be
available for issuance by the Board of Directors.
CERTAIN RISK FACTORS ASSOCIATED WITH THE REVERSE STOCK SPLIT
There can be no assurance that the total market common stock capitalization of
the Company (the aggregate value of all the Company's common stock at the then
market price) after the reverse stock split will be equal to or greater than the
total market capitalization before the reverse stock split, or that the per
share market price of the Company's common stock following the reverse stock
split will increase in proportion to the reduction in the number of shares of
the Company's common stock outstanding before the reverse stock split.
A decline in the market price of the Company's common stock after the reverse
stock split may result in a greater percentage decline than would occur in the
absence of a reverse stock split, and the liquidity of the Company's common
stock could be adversely affected following such a reverse stock split.
If the reverse stock split is effected and the market price of the Company's
common stock declines, the percentage decline may be greater than would occur in
the absence of a reverse stock split. The market price of the Company's common
stock will, however, also be based on the Company's performance and other
factors, which are unrelated to the number of shares of common stock
outstanding. Furthermore, the liquidity of the Company's common stock could be
adversely affected by the reduced number of shares that would be outstanding
after the reverse stock split.
IMPACT OF THE REVERSE STOCK SPLIT
The reverse stock split will be realized simultaneously for all the Company's
common stock and the ratio will be the same for all the Company's common stock.
The reverse stock split will affect all of the Company's shareowners uniformly
and will not affect any shareowner's percentage ownership interests in the
Company, except that, as described below, shareowners otherwise entitled to
fractional shares as a result of the reverse stock split will be rounded up to a
full share.
19
The principal effect of the reverse stock split will be that:
o there will be authorized 100,000,000 shares of common stock, of which 500,000
shares shall be issued and outstanding to shareholders holding shares of common
stock prior to the amendment, 51,488,644 shares will be available to permit the
conversion of the Preferred A Shares and the Preferred B Shares, and 48,011,356
shares will be available for issuance by the Board of Directors;
o proportionate adjustments will be made to the conversion rate of Series A
Preferred Shares that are not automatically converted into common stock by
reason of the 4.999% Restriction referred to under "Background," and to the
per-share exercise price and the number of shares issuable upon the exercise of
all outstanding options and warrants entitling the holders to purchase shares of
the Company's common stock, which will result in approximately the same
aggregate price being required to be paid for such options and warrants upon
exercise immediately preceding the reverse stock split.
In addition, the reverse stock split will increase the number of shareowners who
own odd lots (less than 100 shares). Shareowners who hold odd lots typically may
experience an increase in the cost of selling their shares and may have greater
difficulty in effecting sales.
Effect on Fractional Shareowners
Shareholders will not receive fractional post-reverse stock split shares in
connection with the reverse stock split. Instead, shareholders will be issued
receive the next highest full number of shares.
Procedure regarding Stock Certificates
Shareholders will receive a transmittal letter from our transfer agent, Pacific
Stock Transfer Company, as soon as practicable after the effective date of the
reverse stock split. The letter of transmittal will contain instructions on how
to surrender certificate(s) representing pre-reverse stock split shares to the
transfer agent. As soon as practicable thereafter, the Company will issue a
replacement certificate for post-split shares.
SHAREOWNERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT
ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
Accounting Matters
The reverse stock split will not affect the par value of the Company's common
stock. As a result, as of the effective time of the reverse stock split, the
stated capital attributable to the Company's common stock on its balance sheet
will be reduced proportionately based on the reverse stock split ratio selected
by the Board of Directors, and the additional paid-in capital account will be
credited with the amount by which the stated capital is reduced. The per-share
net income or loss and net book value of the Company's common stock will be
restated because there will be fewer shares of the Company's common stock
outstanding.
Procedure for Effecting Reverse Stock Split
The Company will file a Certificate of Amendment to the Amended and Restated
Articles of Incorporation with the Secretary of State of the State of Nevada to
amend our existing Amended and Restated Articles of Incorporation. The reverse
stock split will become effective on the date of filing the Certificate of
Amendment to the Articles of Incorporation, which is referred to as the
"effective date." Beginning on the effective date, each certificate representing
pre-reverse stock split shares will be deemed for all corporate purposes to
evidence ownership of post-reverse stock split shares. The text of the
Certificate of Amendment to the Amended and Restated Articles of Incorporation
is set forth in Exhibit B to this information statement. The text of the
Certificate of Amendment to the Amended and Restated Articles of Incorporation
is subject to modification to include such changes as may be required by the
office of the Secretary of State of the State of Nevada and as the Board of
Directors deems necessary and advisable to effect the reverse stock split.
20
No Appraisal Rights
Under the Nevada Revised Statutes ("NRS") of the State of Nevada, our
shareowners are not entitled to appraisal rights with respect to the reverse
stock split, and we will not independently provide shareowners with any such
right.
Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain material United States federal income tax
consequences of the reverse stock split, does not purport to be a complete
discussion of all of the possible federal income tax consequences of the reverse
stock split and is included for general information only. Further, it does not
address any state, local or foreign income or other tax consequences. Also, it
does not address the tax consequences to holders that are subject to special tax
rules, such as banks, insurance companies, regulated investment companies,
personal holding companies, foreign entities, nonresident alien individuals,
broker-dealers and tax-exempt entities. The discussion is based on the
provisions of the United States federal income tax law as of the date hereof,
which is subject to change retroactively as well as prospectively. This summary
also assumes that the pre-reverse stock split shares were, and the post-reverse
stock split shares will be, held as a "capital asset," as defined in the
Internal Revenue Code of 1986, as amended (i.e., generally, property held for
investment). The tax treatment of a shareowner may vary depending upon the
particular facts and circumstances of such stockholder. Each stockholder is
urged to consult with such stockholder's own tax advisor with respect to the tax
consequences of the reverse stock split. As used herein, the term United States
holder means a stockholder that is, for federal income tax purposes: a citizen
or resident of the United States; a corporation or other entity taxed as a
corporation created or organized in or under the laws of the United States, any
State of the United States or the District of Columbia; an estate the income of
which is subject to federal income tax regardless of its source; or a trust if a
U.S. court is able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust.
No gain or loss should be recognized by a stockholder upon such stockholder's
exchange of pre-reverse stock split shares for post-reverse stock split shares
pursuant to the reverse stock split. The aggregate tax basis of the post-reverse
stock split shares received in the reverse stock split (including any fraction
of a post-reverse stock split share deemed to have been received) will be the
same as the stockholder's aggregate tax basis in the pre-reverse stock split
shares exchanged therefor.
Our view regarding the tax consequences of the reverse stock split is not
binding on the Internal Revenue Service or the courts. ACCORDINGLY, EACH
STOCKHOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH RESPECT TO ALL
OF THE POTENTIAL TAX CONSEQUENCES TO HIM OR HER OF THE REVERSE STOCK SPLIT.
21
ACTION NO. 3
REINCORPORATION IN DELAWARE
The Company is incorporated in Nevada. By their written consents,
shareholders and a proxy holder have voted 1,454,277,300 shares, out of a total
of 2,287,500,300 shares entitled to vote, and approved a change in the Company's
state of incorporation from Nevada to Delaware by way of the merger of the
Company under a merger agreement in the form of Exhibit C into its wholly-owned
subsidiary, Alliance Distributors Holding Inc. ("Alliance-Delaware"). Since
Alliance-Delaware will be the surviving corporation, the reincorporation will
change the name of the Company to Alliance Distributors Holding Inc. The vote in
favor of the reincorporation is greater than a majority of the Company's total
voting power and is sufficient to approve the reincorporation.
SUBSTANTIVE PROVISIONS OF THE REINCORPORATION MERGER AGREEMENT
The following discussion summarizes certain aspects of the reincorporation
merger agreement. The summary is not intended to be complete and is qualified in
its entirety by reference to the reincorporation merger agreement,
Alliance-Delaware's certificate of incorporation ("Delaware Charter"), attached
hereto as Exhibit D, and Alliance-Delaware's bylaws ("Delaware Bylaws"),
attached hereto as Exhibit E.
On the effective date of the reincorporation, Alliance-Delaware will
succeed to all of the assets, liabilities and business of the Company and will
possess all of the rights and powers of the Company. The current officers and
directors of the Company will become the officers and directors of
Alliance-Delaware.
The Delaware Charter and Delaware Bylaws will remain in full force and
effect after the reincorporation, without amendment, and will be the Charter and
By-Laws that govern the public entity in which investors own their shares.
Alliance-Delaware will remain subject to the Delaware General Corporation Law.
The Delaware Charter and (giving effect to Actions 1 and 2) the Company's
Amended and Restated Articles of Incorporation (the "Nevada Charter") each
authorize 100,000,000 shares of common stock and 10,000,000 shares of preferred
stock. On the effective date of the reincorporation, each issued and outstanding
share of common and preferred stock of the Company, $0.001 par value per share,
will be converted automatically into one share of Alliance-Delaware common and
preferred stock, $0.001 par value per share, respectively, and each issued and
outstanding option and warrant of the Company will be converted automatically
into one option or warrant, as the case may be, of Alliance-Delaware. Each stock
certificate representing issued and outstanding shares of the Company's common
and preferred stock will continue to represent the same number of shares of
Alliance-Delaware common and preferred stock, respectively.
By reason of the 4.999% Restriction referred to in "Background," certain
Series A Preferred Shares will not be converted into common stock on
effectiveness of the Amendment referred to in Action 1. These Series A Preferred
Shares will instead be converted, on a one share for one share basis, into
shares of Series A Convertible Non Redeemable Preferred Stock of
Alliance-Delaware ("Alliance-Delaware Series A Preferred Shares") that have the
same applicable terms and provisions as the Series A Preferred Shares of the
Company.
22
There will be no difference in the number of shares of capital stock
authorized under the Nevada Charter and the Delaware Charter, in the number of
shares of capital stock authorized but unissued, or in the number of issued
shares.
The Company's common stock trades on the Pink Sheets and, after the
reincorporation, Alliance-Delaware common stock will be listed for trading on
the Pink Sheets under the symbol, ADHI, if such symbol is available.
Approval of the reincorporation also constitutes approval of any Company
plans continuing as Alliance-Delaware plans. Other employee benefit arrangements
of the Company will also be continued by Alliance-Delaware upon the terms and
subject to the conditions currently in effect.
The holders of Alliance-Delaware stock will be entitled to one vote for
each share on all matters voted on by stockholders, including the election of
directors. The holders of Alliance-Delaware common stock will not have any
cumulative voting, conversion, redemption or preemptive rights. Subject to any
preferential rights of any outstanding series of Alliance-Delaware preferred
stock designated by Alliance-Delaware board of directors from time to time, the
holders of Alliance-Delaware common stock will be entitled to such dividends as
may be declared from time to time by Alliance-Delaware board of directors from
funds available therefore, and upon liquidation will be entitled to receive pro
rata all assets of Alliance-Delaware available for distribution to such holders.
Stockholders may, but are not required to, surrender their present
Company's common and preferred stock certificates so that replacement
certificates representing shares of Alliance-Delaware common and preferred
stock, respectively, may be issued in exchange therefor. Each stock certificate
of the Company will continue to represent the same number of shares of
Alliance-Delaware after the reincorporation. The Company's transfer agent,
Pacific Stock Transfer Company, will act as transfer agent for Alliance-Delaware
after the reincorporation. Stockholders may consult their stockbrokers or the
Company with respect to any questions regarding the mechanics of obtaining new
stock certificates.
The reincorporation merger agreement provides that it may be amended at
any time, whether before or after it is approved by the Company stockholders, by
agreement of the Company board and the board of directors of Alliance-Delaware,
subject to any restrictions imposed by the Delaware and Nevada corporation
statutes. The reincorporation merger agreement is subject to modification to
include such changes as may be required by the office of the Secretary of State
of the State of Nevada and Delaware and as the Board of Directors deems
necessary and advisable. Delaware law does not permit an amendment to the
reincorporation merger agreement, absent stockholder approval, if such amendment
would adversely affect the holders of any class of stock of either the Company
or Alliance-Delaware. Nevada law will permit amendment to the reincorporation
merger agreement after approval by the Company stockholders and prior to
becoming effective, so long as any amendment does not alter or change the manner
or basis for exchanging the Company stockholders' interests and do not adversely
affect the Company stockholders. Neither the Company board nor Alliance-Delaware
board intends to make any material amendment to the reincorporation merger
agreement, nor do they intend to amend the Delaware Charter or Delaware Bylaws
should the reincorporation be approved by the Company's stockholders.
23
RIGHTS OF DISSENTING STOCKHOLDERS
YOU ARE HEREBY GIVEN NOTICE THAT YOU HAVE CERTAIN DISSENTER'S AND APPRAISAL
RIGHTS UNDER NEVADA LAW
Under Nevada law, a stockholder is entitled to dissent from the
reincorporation merger and obtain cash payment for the fair value of his or her
shares. Any consideration that you receive for your shares of capital stock
pursuant to such judicial valuation could be more or less than you would have
received pursuant to the reincorporation. To exercise your dissenters' rights,
you must follow certain procedures under Nevada law. If you do not follow these
procedures exactly, you will lose your dissenters' rights.
The full text of Nevada statutes NRS 92A.300 through 92A.500 are included
as Exhibit H hereto, and are incorporated herein by reference.
These statutes give you the right to dissent from the merger and obtain
cash payment for the "fair value" of your shares, as determined in accordance
with NRS. Below is a description of the steps you must take if you wish to
exercise dissenters' rights with respect to the merger under NRS Sections
92A.300 to 92A.500, the Nevada dissenters' rights statute. This description is
not intended to be complete. If you are considering exercising your dissenters'
rights with respect to the merger, you should review NRS Sections 92A.300 to
92A.500 carefully, particularly the steps required to perfect dissenters'
rights. Failure to take any one of the required steps may result in termination
of your dissenters' rights under Nevada Law. If you are considering dissenting,
you should consult with your own legal advisor.
If you (an "Objecting Stockholder") elect to dissent, you must, by no
later than [December 15, 2004 ], file a written objection to the merger stating
your intention to demand payment for your shares. The written objection should
be sent to Essential Reality, Inc. 15-15 132nd Street, College Point, New York
11356, Attention: Secretary. Registered Mail, Return Receipt Requested is
recommended. The objection shall include (i) a notice of election to dissent,
(ii) the stockholder's name and residence address, (iii) the number of shares as
to which the stockholder dissents (iv) a demand for payment of the fair value of
the stockholder's shares if the merger is consummated and (v) a certification as
to whether you or the beneficial owner on whose behalf you are dissenting, as
the case may be, acquired beneficial ownership of the shares before the date set
forth in the dissenter's notice.
A stockholder may not dissent as to less than all of the shares as to
which he has a right to dissent, held by him of record that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
Together with the written demand or by [December 15, 2004], the Objecting
Stockholder must submit certificates representing all of his shares of stock of
Essential Reality, Inc. to Essential Reality, Inc. or its transfer agent for the
purpose of affixing a notation indicating that a demand for payment has been
made.
FAILURE TO DEMAND PAYMENT IN THE PROPER FORM OR DEPOSIT YOUR CERTIFICATES
AS DESCRIBED IN THE DISSENTER'S NOTICE WILL TERMINATE YOUR RIGHT TO RECEIVE
PAYMENT FOR YOUR SHARES PURSUANT TO NEVADA'S DISSENTERS' RIGHTS STATUTE. YOUR
RIGHTS AS A STOCKHOLDER WILL CONTINUE UNTIL THOSE RIGHTS ARE CANCELED OR
MODIFIED BY THE COMPLETION OF THE REINCORPORATION.
When required by the Nevada disenters' rights statutes, after receiving
your properly executed payment demand, we will pay you what we determine to be
the fair value of your shares, plus accrued interest (computed from the
effective date of the reincorporation until the date of payment). The payment
will be accompanied by:
24
o our balance sheet as of the end of a fiscal year ended not more than
16 months before the date of payment, an income statement for that
year, a statement of changes in stockholders' equity for that year,
and the latest available interim financial statements, if any;
o an explanation of how we estimated the fair value of the shares and
how the interest was calculated;
o information regarding your right to challenge the estimated fair
value; and
o a copy of Nevada's dissenters' rights statute.
We may elect to withhold payment from you if you became the beneficial
owner of the shares on or after the date set forth in the dissenter's notice. If
we withhold payment, after the consummation of the reincorporation, we will
estimate the fair value of the shares, plus accrued interest, and offer to pay
this amount to you in full satisfaction of your demand. The offer will contain a
statement of our estimate of the fair value, an explanation of how the interest
was calculated, and a statement of dissenters' rights to demand payment under
NRS Section 92A.480.
If you believe that the amount we pay in exchange for your dissenting
shares is less than the fair value of your shares or that the interest is not
correctly determined, you can demand payment of the difference between your and
our estimate. You must make such demand within 30 days after we have made or
offered payment; otherwise, your right to challenge calculation of fair value
terminates.
If there is still disagreement about the fair market value within 60 days
after we receive your demand, we will petition the District Court of Carson
City, Nevada to determine the fair value of the shares and the accrued interest.
If we do not commence such legal action within the 60-day period, we will have
to pay the amount demanded for all unsettled demands. All dissenters whose
demands remain unsettled will be made parties to the proceeding, and are
entitled to a judgment for either:
o the amount of the fair value of the shares, plus interest, in excess
of the amount we paid; or
o the fair value, plus accrued interest, of the after-acquired shares
for which we withheld payment.
In no event will Essential Reality, Inc. make any payments in respect of
dissenters' rights before the consummation of the reincorporation merger, or if
the reincorporation merger is not effected for any reason.
FAILURE TO FOLLOW THE STEPS REQUIRED BY NRS SECTIONS 92A.400 THROUGH
92A.480 FOR PERFECTING DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
IF DISSENTERS' RIGHTS ARE NOT PERFECTED, YOU WILL BE ENTITLED TO RECEIVE THE
CONSIDERATION RECEIVABLE WITH RESPECT TO SUCH SHARES IN ACCORDANCE WITH THE
AGREEMENT AND PLAN OF MERGER. IN VIEW OF THE COMPLEXITY OF THE PROVISIONS OF
NEVADA'S DISSENTERS' RIGHTS STATUTE, IF YOU ARE CONSIDERING OBJECTING TO THE
REINCORPORATION YOU SHOULD CONSULT YOUR OWN LEGAL ADVISOR.
25
REASONS FOR AND ADVANTAGES OF REINCORPORATION IN DELAWARE
The board of directors seeks the reincorporation for a number of reasons.
For many years, Delaware has followed a policy of encouraging incorporation in
that state and, in furtherance of that policy, has adopted comprehensive, modern
and flexible corporate laws which are periodically updated and revised to meet
changing business needs. As a result, many corporations have initially chosen
Delaware for their domicile or have subsequently reincorporated in Delaware.
Furthermore, the Delaware courts have developed considerable expertise in
dealing with corporate issues, and a substantial body of case law has developed
construing Delaware law and establishing public policies with respect to
Delaware corporations, thereby providing greater predictability with respect to
legal affairs.
Delaware law permits a corporation to adopt a number of measures, through
amendment of the corporate certificate of incorporation or bylaws or otherwise,
designed to reduce a corporation's vulnerability to unsolicited takeover
attempts. There is substantial judicial precedent in the Delaware courts as to
the legal principles applicable to such defensive measures with respect to the
conduct of the board of directors under the business judgment rule with respect
to unsolicited takeover attempts.
In the opinion of the Company's board of directors, the latitude described
above also affords Delaware corporations more opportunities to raise capital.
The procedures and degree of stockholder approval required for Delaware
corporations for the authorization of additional shares of stock, and for
approval of certain mergers and other transactions, present fewer practical
impediments to the capital raising process than those which apply to Nevada
corporations.
For example, a Delaware corporation has greater flexibility in declaring
dividends, which can aid a corporation in marketing various classes or series of
dividend paying securities. Under Delaware law, dividends may be paid out of
surplus, or if there is no surplus, out of net profits from the corporation's
previous fiscal year or the fiscal year in which the dividend is declared, or
both, so long as there remains in the stated capital account an amount equal to
the par value represented by all shares of the corporation's stock, if any,
having a preference upon the distribution of assets. Under Nevada law, dividends
may not be paid by the corporation if the corporation would not be able to pay
its debts as they come due in the usual course of business, or (unless the
corporation's articles of incorporation permit otherwise) if the corporation's
total assets would be less than the sum of its total liabilities, plus amounts
payable in dissolution to holders of shares carrying a liquidation preference
over the class of shares to which a dividend is declared. These and other
differences between Nevada and Delaware corporation laws are more fully
explained below in the section entitled "Comparative Rights of Stockholders."
Delaware law also permits a corporation to adopt a holding company
structure without requiring a meeting or vote of stockholders, provided that the
certificate of incorporation and bylaws of the holding company do not differ
materially from the certificate of incorporation and bylaws of the predecessor
corporation that becomes the holding company's subsidiary, each share of the
predecessor's capital stock outstanding immediately prior to the transaction is
converted into a share of the holding company having the same designations,
rights, powers and preferences, the directors remain the same, and the
stockholders of the predecessor do not recognize gain or loss for federal income
tax purposes.
Finally, in the opinion of the Company's board and other members of the
financial services industry may be more willing and better able to assist in
capital raising programs for corporations having the greater flexibility
afforded by the DGCL.
26
DISADVANTAGES OF REINCORPORATION IN DELAWARE
Despite the Company board's belief as to the benefits and advantages of
reincorporation in Delaware, some stockholders may find the reincorporation
disadvantageous for several reasons. As discussed below, Delaware law, unlike
any applicable provision of Nevada law, contains a statutory provision intended
to discourage certain takeover attempts of Delaware corporations which are not
approved by the board of directors. This anti-takeover provision could have the
effect of lessening the possibility that stockholders of Alliance-Delaware would
be able to receive a premium above market value for their shares of the Company-
Delaware common stock in the event of a takeover. This provision could also have
an adverse effect on the market value of the shares of Alliance-Delaware common
stock. To the extent that this provision may restrict or discourage takeover
attempts, it may render less likely a takeover opposed by Alliance-Delaware
board of directors and may make removal of the board of directors or management
less likely as well.
As further discussed below, the Delaware Charter contains a provision
limiting director liability under certain circumstances and the Delaware Bylaws
contain provisions relating to indemnification of directors and officers. These
provisions could operate to the potential disadvantage of the stockholders of
Alliance-Delaware. For example, their inclusion may have the effect of reducing
the likelihood of Alliance-Delaware recovering monetary damages from directors
as a result of derivative litigation against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefited Alliance-Delaware and its stockholders. In addition, the stockholders
of Alliance-Delaware may forego potential causes of action for breach of duty of
care involving grossly negligent business decisions, including those relating to
attempts to change control of Alliance-Delaware.
COMPARATIVE RIGHTS OF STOCKHOLDERS
As a result of the reincorporation, holders of the Company's common stock
will become holders of Alliance-Delaware common stock and the rights of all such
former the Company stockholders will thereafter be governed by the Delaware
Charter, the Delaware Bylaws, and Delaware law. The rights of the holders of the
Company's common stock are presently governed by the Company's Charter ("Nevada
Charter"), attached hereto as Exhibit F, the Company's bylaws ("Nevada Bylaws"),
attached hereto as Exhibit G, and Nevada law.
The following summary, which does not purport to be a complete statement
of the general differences among the rights of the stockholders of
Alliance-Delaware and the Company, sets forth certain differences between the
corporation statutes of Delaware and Nevada, between the Delaware Charter and
the Nevada Charter, and between the Delaware Bylaws and the Nevada Bylaws. This
summary is qualified in its entirety by reference to the full text of each of
such documents, the Delaware General Corporation Law ("DGCL") and the Nevada
Revised Statutes ("NRS").
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES The Delaware Charter and
Bylaws and the Nevada Bylaws both provide that the number of directors shall be
fixed from time to time by the board of directors, but the Nevada Bylaws
provides that there may be a maximum of 15 directors.
Under both the DGCL and the NRS, classified boards with staggered terms
are permitted. The Nevada Charter and Nevada Bylaws do not provide for a
classified board, nor do the Delaware Charter and Delaware Bylaws.
27
Under the NRS, stockholders may remove one or more directors by the vote
of the holders of not less than 66 2/3% of the voting power of the voting,
unless the articles of incorporation require a vote of a greater percentage of
the voting stock. The Nevada Charter does not require a greater percentage than
the NRS. Under the DGCL, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors, except where the board is
classified or shareholders have the right to cumulate their votes for directors.
The Delaware Charter and Delaware Bylaws do not provide for a classified board
nor for cumulative voting rights. Thus, if the Delaware reincorporation is
approved, the vote of a smaller proportion (i.e., a majority) of the outstanding
shares of common stock would be required to remove one or more directors of the
Company.
The Delaware Bylaws provide that any vacancies (including newly-created
directorships) will be filled only by a majority of the remaining directors,
though less than a quorum. Directors appointed to fill vacancies created by the
resignation or termination of a director will serve until the expiration of the
term for which elected. Under the Nevada Bylaws, newly created vacancies can
also be filled by the shareholders.
BUSINESS COMBINATIONS
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested stockholder" for a three-year period following the date
that such stockholder becomes an interested stockholder unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares held by
directors who are also officers and employee stock purchase plans in which
employee participants do not have the right to determine confidentially whether
plan shares will be tendered in a tender or exchange offer) or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and by the affirmative vote at an annual or special
meeting, and not by written consent, of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified in Section 203 of the DGCL, an interested stockholder is defined to
include (a) any person that is the owner of 15% or more of the outstanding
voting stock of the corporation or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation, at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL may make it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the Corporation's certificate of incorporation or stockholders may
elect to exclude a corporation from the restrictions imposed thereunder. The
Delaware Charter does not exclude Alliance-Delaware from the restrictions
imposed under Section 203 of the DGCL. It is anticipated that the provisions of
Section 203 of the DGCL may encourage companies interested in acquiring
Alliance-Delaware to negotiate in advance with Alliance-Delaware board, since
the stockholder approval requirement would be avoided if a majority of the
directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an interested stockholder.
28
The NRS also prohibits certain business combinations between a corporation
and an "interested stockholder" (one beneficially holding, directly or
indirectly, at least 10% of the outstanding voting stock) for three years after
such person became an interested stockholder unless such interested stockholder,
prior to becoming an interested stockholder, obtained the approval of the board
of directors of either the business combination or the transaction that resulted
in such person becoming an interested stockholder. Notwithstanding the
foregoing, the NRS permits business combinations that meet all requirements of
the corporation's articles of incorporation and either (i) are approved by the
board of directors before the interested stockholder became an interested
stockholder (or as to which the purchase of shares made by the interested
stockholder had been approved by the board of directors before the date of
purchase), or (ii) are approved by the affirmative vote of the holders of stock
representing a majority of the voting stock (excluding voting stock of the
interested stockholder and its affiliates and associates) at a meeting called
for such purpose no earlier than three years after the interested stockholder
became an interested stockholder, or (iii) the form and amount of consideration
to be received by stockholders (excluding the interested stockholder) of the
corporation satisfy certain tests and, with limited exceptions, the interested
stockholder has not become the beneficial owner of additional voting shares of
the corporation after becoming an interested stockholder and before the business
combination is consummated. A corporation may expressly exclude itself from
application of the foregoing business combination provisions of the NRS, but the
Company has not done so.
LIMITATION OF LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for certain breaches
of the director's fiduciary duty. However, no such provision may eliminate or
limit the liability of a director: (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for declaration of unlawful dividends or illegal redemptions or stock
repurchases; or (iv) for any transaction from which the director derived an
improper personal benefit. The Delaware Bylaws and the Delaware Charter each
include such a provision, in each case, to the maximum extent permitted by law.
The Delaware Charter provides that a director or an officer will not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
which concerns unlawful payments of dividends, stock purchases or redemptions,
or (iv) for any transaction from which the director derived an improper personal
benefit.
The NRS permits a corporation to include any provision in its articles of
incorporation that are not contrary to the laws of the State of Nevada; there is
no restriction on a corporation's ability to limit the personal liability of a
director or officer to the corporation. Under the NRS, a director is not
individually liable to the corporation or its stockholders for any damages as a
result of any act or failure to act in his capacity as a director or officer
unless it is proven that: (i) his act or failure to act constituted a breach of
his fiduciary duties as a director or officer; and (ii) his breach of those
duties involved intentional misconduct, fraud or a knowing violation of the law.
There is no requirement that any such provision be included in the articles of
incorporation to be effective.
The Nevada Charter provides that the Company's directors and officers
shall not be personally liable for monetary damages for any breach of fiduciary
duty except for (i) acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law, or (ii) for the payment of dividends in
violation of the NRS, in which cases a director shall be liable to the extent
provided under prior Nevada law. While these provisions provide officers and
directors with protection from awards for monetary damages for breaches of their
duty of care, they do not eliminate such duty. Accordingly, these provisions
will have no effect on the availability of equitable remedies such as an
injunction or rescission based on an officer's or director's breach of his or
her duty of care. The NRS limits an officer's or director's liability for
monetary damages, except for breach of his duties under certain circumstances.
29
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both the NRS and the DGCL permit a corporation to indemnify officers,
directors, employees and agents for actions taken in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. Both states' laws provide that a
corporation may advance expenses of defense (upon receipt of a written
undertaking to reimburse the corporation if indemnification is not appropriate)
and must reimburse a successful defendant for expenses, including attorney's
fees, actually and reasonably incurred, and both states permit a corporation to
purchase and maintain liability insurance for its directors and officers. Both
the DGCL and NRS provide that indemnification may not be made for any claim,
issue or matter as to which a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation, unless and only to the extent a court determines that the person is
entitled to indemnity for such expenses as the court deems proper.
The Delaware Charter and Bylaws provide that the corporation shall
indemnify its directors and officers, and the directors and officers of its
subsidiaries, to the fullest extent permitted by law. Section 145 of the DGCL
provides as follows:
ss. 145. Indemnification of officers, directors, employees and agents;
insurance.
(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.
30
(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.
31
(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.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court
of Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
The Nevada Bylaws provide as follows (see Exhibit G for additional
indemnification provisions in Section 10 of the Nevada Bylaws):
10.1 Right to Indemnification of Directors and Officers
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereafter a
"proceeding"), by reason of the fact that he or she is or was a director
or officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official
capacity as a director or officer or in any other capacity while serving
as a director or officer
32
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Nevada General Corporation Law, as the same
exists or may hereafter be amended, (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation
to broader indemnification rights than permitted prior thereto), against
all expense, liability and loss (including attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith
and such indemnification shall continue as to an indemnitee who has ceased
to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 10.3 of these Bylaws or with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
Section 10.2 Right to Advancement of Expenses
The right to indemnification conferred in Section 10.1 of these
Bylaws shall include the right to be paid by the Corporation the expenses
incurred in defending any proceeding for which such right to
indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if
the Nevada General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit
plan) shall be made upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to
repay all amounts so advanced if it shall ultimately be determined by
final judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this section or otherwise.
10.3 Right of Indemnitee to Bring Suit
The rights to indemnification and to the advancement of expenses conferred
in Sections 10.1 and 10.2 of these Bylaws shall be contract rights. If a
claim under Sections 10.1 and 10.2 of these Bylaws is not paid in full by
the Corporation within sixty (60) days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty (20) days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the indemnitee shall be entitled to be paid
also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder
(but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Nevada General
Corporation Law. Neither the failure of the Corporation (including its
board of directors, independent legal counsel, or its stockholders) to
have made a
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determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee
has met the applicable standard of conduct set forth in Nevada General
Corporation Law, nor an actual determination by the Corporation (including
its board of directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this section or otherwise shall be on the
Corporation.
10.4 Non-Exclusivity of Rights
The rights to indemnification and to the advancement of expenses conferred
in this article shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's
Articles of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
10.5 Insurance
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or loss
under the Nevada General Corporation Law.
10.6 Indemnification of Employees and Agents of the Corporation
The Corporation may, to the extent authorized from time to time by the
board of directors, grant rights to indemnification, and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this article with respect to the
indemnification and advancement of expenses of directors and officers of
the Corporation.
10.7 No Presumption of Bad Faith
The termination of any 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 this Corporation, or, with respect to any
criminal proceeding, that the person had reasonable cause to believe that
the conduct was unlawful.
The members of the Company Board have a personal interest in seeing that
the reincorporation is approved and effected so that they are subject to the
limitation on liability and indemnification provisions included in the Delaware
Charter and the Delaware Bylaws.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, a special meeting of stockholders may be called by the
corporation's board of directors or by such persons as may be authorized by the
Corporation's certificate of incorporation or bylaws. The Delaware Bylaws
provide that a special meeting may be called at any time by (i)
Alliance-Delaware Board, (ii) the Chairman, or (iii) the Chief Executive
Officer.
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Unless otherwise provided in the articles of incorporation or bylaws, the
NRS provides that the entire board of directors, any two directors or the
president of a corporation may call annual and special meetings of the
stockholders. The Nevada Bylaws provide that a special meeting of stockholders
may be called by the Company Board, the President, the Chairman or holders of
not less than 10% of the outstanding shares of stock of the Company entitled to
vote at the meeting.
AUTHORIZED CAPITAL
The preferred stock may be issued from time to time in one or more series,
and the Alliance-Delaware Board, without further approval of its stockholders,
is authorized to fix the relative rights, preferences, privileges and
restrictions applicable to each series of preferred stock. Such shares of
preferred stock, if and when issued, may have rights, powers and preferences
superior to those of Alliance-Delaware common stock. Similarly, the NRS provides
that the articles of incorporation may prescribe, or vest authority in the board
of directors to prescribe, the classes, series, voting powers, designations,
preferences, limitations, restrictions and relative rights of each class or
series of stock without further approval of its stockholders. Holders of
Alliance-Delaware common stock will not have any preemptive or similar rights to
acquire any preferred stock.
AMENDMENT OR REPEAL OF THE CERTIFICATE OF REINCORPORATION
Under the DGCL, unless the certificate of incorporation otherwise
provides, amendments to the certificate of incorporation generally require the
approval of the holders of a majority of the outstanding stock entitled to vote
thereon, and if the amendment would increase or decrease the number of
authorized shares of any class or series or the par value of such shares or
would adversely affect the rights, powers or preferences of such class or
series, a majority of the outstanding stock of such class or series also would
have to approve the amendment. Under the NRS, the board of directors of a Nevada
corporation that has already issued stock must approve any proposed amendment to
its articles of incorporation and declare its advisability. The proposed
amendments must be approved by a majority of all the votes entitled to be cast
by each voting group, unless the articles of incorporation require a greater or
lesser vote with respect to specified amendments. The Nevada Charter requires
approval by a majority of the stockholders to amend the Nevada Charter.
AMENDMENTS TO BYLAWS
Under the DGCL, directors may amend the bylaws of a corporation only if
such right is expressly conferred upon the directors in its certificate of
incorporation. There is no provision in the NRS that proscribes amendments by
the board of directors to a corporation's bylaws. The Delaware Charter affords
to the Board the power to make, alter or repeal the Delaware Bylaws. The Nevada
Charter provides the same power to the Board but the Bylaws provide the same
power to shareholders, and permit the shareholders to override bylaw changes
made by the Board.
SUMMARY OF CERTAIN OTHER SIGNIFICANT DIFFERENCES BETWEEN DELAWARE AND
NEVADA CORPORATE LAWS
The following is a brief summary of certain other ways in which the NRS and DGCL
differ and does not purport to be a complete statement of such laws.
PROCEDURE FOR MAKING NOMINATIONS The Nevada Bylaws provide no specific
procedure for nominations of directors by stockholders. The Delaware Bylaws
establish an advance notice procedure for stockholders to make nominations of
candidates for election of director or to bring other business before an annual
meeting. Under these procedures, a stockholder that proposes to nominate a
candidate for director or propose other business at an annual meeting of
stockholders, must give written notice of such nomination or proposal not less
than 60 days and not more than 90 days prior to the scheduled date of the
meeting (or, if less than 70 days' notice or prior public disclosure of the date
of the meeting is given, then not later than the 15th day following the earlier
of (i) the date such notice was mailed or (ii) the day such public disclosure
was made). Such notice must provide certain information as specified in our
by-laws and must be received by the deadline specified above.
35
MERGER WITH SUBSIDIARY Under the DGCL, a parent corporation may merge into
a subsidiary and a subsidiary may merge into its parent, without stockholder
approval, where such parent corporation owns at least 90% of the outstanding
shares of each class of capital stock of its subsidiary. The NRS permits such
mergers without stockholder approval if 90% of each class of capital stock of
the subsidiary is owned by the parent corporation.
COMMITTEES OF THE BOARD OF DIRECTORS The NRS and DGCL both provide that
the board of directors may delegate certain of their duties to one or more
committees elected by a majority of the board. A Delaware corporation can
delegate to a committee of the board of directors, among other things, the
responsibility of nominating candidates for election to the office of director,
to fill vacancies on the board of directors, to reduce earned or capital
surplus, and to authorize the acquisition of the corporation's own stock.
Moreover, if the Corporation's certificate of incorporation or bylaws, or the
resolution of the board of directors creating the committee so permits, a
committee of the board of directors may declare dividends and authorize the
issuance of stock. Under the NRS, unless it is otherwise provided in the
articles of incorporation, a committee of the board of directors has and may
exercise the powers of the board of directors in the management of the business
and affairs of the corporation.
VOTE REQUIRED FOR MERGERS The NRS provides that the sale, lease, exchange
or disposal of all of the assets of a Nevada corporation as well as any merger,
consolidation or share exchange generally must be recommended by the Board of
Directors and approved by the affirmative vote of a majority of the shares of
each class of the stock of the corporation entitled to vote on such matters.
Under the NRS, the vote of the stockholders of a Nevada corporation surviving a
merger is not required if: (i) the articles of incorporation of the surviving
corporation will not substantially differ from its articles of incorporation
before the merger, (ii) each stockholder of the surviving corporation before the
effective date will hold the same number of shares, with identical designations,
preferences, limitations and relative rights immediately after the merger, (iii)
the number of voting shares outstanding immediately after the merger, plus the
number of voting shares issued as a result of the merger, will not exceed by
more than twenty percent the total number of voting shares of the surviving
entity outstanding immediately before the merger, and (iv) the number of
participating shares outstanding immediately after the merger, plus the number
of participating shares issuable as a result of the merger will not exceed by
more than twenty percent the total number of participating shares outstanding
immediately before the merger. The DGCL has a similar provision requiring
stockholder approval in the case of the disposition of assets or a merger or a
share exchange. The DGCL requires that either (i) no shares of common stock of
the surviving corporation and no shares, securities or obligations convertible
into such stock are to be issued or delivered under the plan of merger or (ii)
the authorized unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger, plus
those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan, do not exceed 20% of the
shares of common stock of such constituent corporation outstanding immediately
prior to the effective date of the merger.
36
STOCK REDEMPTIONS AND REPURCHASES
Both Delaware and Nevada corporations may generally purchase or redeem
their own shares of capital stock. Under the DGCL, a Delaware corporation may
purchase or redeem its own shares of capital stock, except when the capital of
the corporation is impaired or when such purchase or redemption would cause any
impairment of the capital of the corporation. Subject to any restrictions
imposed by its articles of incorporation, a Nevada corporation may make
distributions to stockholders, so long as, after giving effect to such
distribution: (i) the corporation would be able to pay its debts as they become
due in the usual course of business; or (ii) the corporation's total assets
would not be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise), the amount that would be needed if
the corporation were to be dissolved at the time of the distribution to satisfy
the preferential rights upon dissolution of stockholders whose preferential
rights are superior to those receiving the distribution.
PROXIES Under the DGCL, a proxy executed by a stockholder will remain
valid for a period of three years unless the proxy provides for a longer period.
Under the NRS, a proxy is effective only for a period of six (6) months, unless
it is coupled with an interest or unless otherwise provided in the proxy which
duration may not exceed seven (7) years.
CONSIDERATION FOR STOCK
Under the NRS, a corporation may issue its capital stock in return for
consideration consisting of any tangible or intangible property or benefit to
the corporation, including but not limited to cash, promissory notes, services
performed, contracts for services to be performed, or other securities of the
corporation. Under the DGCL, a corporation may accept as consideration for its
stock consisting of cash, any tangible or intangible property or any benefit to
the corporation, or any combination thereof, in an amount not less than the par
value of the shares being issued, and a secured promissory note or other binding
obligation executed by the subscriber for any balance, the total of which must
equal at least the par value of the issued stock, as determined by the board of
directors.
STOCKHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS
The DGCL provides that any stockholder of record may demand to examine the
corporation's books and records for any proper purpose. If management of the
corporation refuses, the stockholder can compel release of the books by court
order. Under the NRS, any stockholder who owns at least 15% of the outstanding
shares of the corporation's capital stock or has been authorized in writing by
the holders of at least 15% of all its issued and outstanding shares may
inspect, copy and audit the books of account and all financial records of the
corporation. However, only a stockholder whose demand is made with a proper
purpose may undertake any such inspection or audit. Under the NRS, if any
officer or agent keeping records in Nevada refuses to allow a stockholder of a
corporation to inspect or audit the corporation's books of account and financial
records, the corporation and the officer or agent will be liable to the
stockholder for all damages incurred by the stockholder, and the corporation may
be liable for fines payable to the State of Nevada. There is no such
corresponding provision in the DGCL.
DIVIDENDS The DGCL provides that the corporation may pay dividends out of
surplus, out the corporation's net profits for the preceding fiscal year, or
both provided that there remains in the stated capital account an amount equal
to the par value represented by all shares of the corporation's stock having a
distribution preference. The NRS provides that dividends may be paid, unless
after giving effect to such distribution, the corporation would not be able to
pay its debts as they come due in the usual course of business, or the
corporation's total assets would be less than the sum of its total liabilities,
plus (unless the corporation's articles of incorporation permit otherwise) the
amount needed to satisfy preferential distributions.
37
CORPORATE ACTION WITHOUT A STOCKHOLDER MEETING The DGCL and the NRS both
permit corporate action without a meeting of stockholders upon the written
consent of the holders of that number of shares necessary to authorize the
proposed corporate action being taken, unless the certificate of incorporation
or articles of incorporation, respectively, or the bylaws of a Nevada
corporation expressly provide otherwise. In the event such proposed corporate
action is taken without a meeting by less than the unanimous written consent of
stockholders, the DGCL requires that prompt notice of the taking of such action
be sent to those stockholders who have not consented in writing.
APPRAISAL AND DISSENTERS' RIGHTS
Under the DGCL and the NRS, stockholders have appraisal or dissenter's
rights, respectively, in the event of certain corporate actions such as a
merger. These rights include the right to dissent from voting to approve such
corporate action, and demand fair value for the shares of the dissenting
stockholder. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders meeting, a stockholder who wishes to
assert dissenter's rights (i) must deliver to the corporation, before the vote
is taken, written notice of his intent to demand payment for his shares if the
proposed action is effected, and (ii) must not vote his shares in favor of the
proposed action. If fair value is unsettled, the DGCL and the NRS provide for
the dissenter and the company to petition the Court of Chancery or a Nevada
state court, respectively. Although appraisal or dissenter's rights are
substantially similar in Delaware and Nevada, this discussion is qualified in
its entirety by reference to the DGCL and the NRS which provide more specific
provisions and requirements for dissenting stockholders.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The following description of the material U.S. federal income tax
consequences of the reincorporation is based on the Code and applicable Treasury
regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this joint
prospectus/proxy statement, all of which are subject to differing
interpretations and change, possibly with retroactive effect. This discussion
should not be considered tax or investment advice, and the tax consequences of
the reincorporation may not be the same for all stockholders. In particular,
this discussion does not address the tax treatment of special classes of
stockholders, such as financial institutions, insurance companies, tax-exempt
entities, dealers in securities, holders of dissenting shares, holders as part
of a hedge, straddle, or conversion transaction, foreign persons, and holders
who acquired their shares as compensation, whether through employee stock
options or otherwise. This discussion does not address or describe any tax
consequences arising out of the tax laws of any state, local or foreign
jurisdiction. Stockholders desiring to know their individual federal, state,
local and foreign tax consequences are encouraged to consult their own tax
advisors.
The reincorporation is intended to qualify as a tax-free reorganization
under Section 368(a)(1)(F) of the Code. Assuming such tax treatment, the
following U.S. federal income tax consequences will generally result:
- No gain or loss will be recognized by the Company or the Company
stockholders as a result of the reincorporation.
- The aggregate tax basis of Alliance-Delaware common stock received by
each Company stockholder in the Reincorporation merger will be equal to
the aggregate tax basis of the Company's common stock exchanged in the
reincorporation merger.
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- The holding period of Alliance-Delaware common stock received by each
Company stockholder in the reincorporation will include the period for
which such stockholder held the Company's common stock exchanged in the
reincorporation merger, provided that such the Company's common stock was
held by such stockholder as a capital asset at the time of the
reincorporation.
SECURITIES ACT CONSEQUENCES
The shares of Alliance-Delaware common stock to be issued in exchange for
shares of the Company's common stock are not being registered under the
Securities Act of 1933, as amended. In that regard, Alliance-Delaware is relying
on Rule 145(a)(2) under the Securities Act, which provides that a merger which
has "as its sole purpose" a change in the domicile of a corporation does not
involve the sale of securities for purposes of the Securities Act, and on
interpretations of the Rule by the Securities and Exchange Commission which
indicate that the making of certain changes in the surviving corporation's
charter documents which could otherwise be made only with the approval of the
stockholders of either corporation does not render Rule 145(a)(2) inapplicable.
After the reincorporation, Alliance-Delaware will be a publicly-held
company, Alliance-Delaware common stock will trade on the Pink Sheets, and
Alliance-Delaware will file periodic reports and other documents with the SEC
and provide to its stockholders the same types of information that the Company
has previously filed and provided. Stockholders whose common stock is freely
tradable before the reincorporation will have freely tradable shares of
Alliance-Delaware common stock. Stockholders holding restricted shares of common
stock will have shares of Alliance-Delaware common stock which are subject to
the same restrictions on transfer as those to which their present shares of
common stock are subject, and their stock certificates, if surrendered for
replacement certificates representing shares of Alliance-Delaware common stock,
will bear the same restrictive legend as appears on their present stock
certificates. For purposes of computing compliance with the holding period
requirement of Rule 144 under the 1933 Act, stockholders will be deemed to have
acquired their shares of Alliance-Delaware common stock on the date they
acquired their shares of the Company's common stock. In summary,
Alliance-Delaware and its stockholders will be in the same respective positions
under the federal securities laws after the reincorporation as were the Company
and its stockholders prior to the reincorporation.
ABANDONMENT
The Company reserves the right, by action of the Company board, to abandon
the reincorporation prior to effectiveness of the reincorporation if it
determines that such abandonment is in the best interests of the Company. The
Company board has made no determination as to any circumstances which may prompt
a decision to abandon the reincorporation.
39
ACTION NO. 4
APPROVAL OF THE ALLIANCE DISTRIBUTORS HOLDING INC. 2004 STOCK PLAN
General
By their written consents, shareholders and a proxy holder have voted
1,454,277,300 shares, out of a total of 2,287,500,300 shares entitled to vote,
and approved a plan that will enable us to grant equity and equity-linked awards
to our directors and officers and employees and other person who provide
services to the Company. This plan is called the "Alliance Distributors Holding
Inc. 2004 Stock Plan," and is sometimes referred to in this information
statement as the plan. The plan is intended to allow us to provide incentives
that will (1) strengthen the desire of highly competent persons to provides
services to our company and (2) further stimulate their efforts on behalf of our
company. The vote in favor of the plan is greater than a majority of the
Company's total voting power and is sufficient to approve the plan.
Additional Information Concerning the Plan
The following is a summary of the certain key provisions of the plan. A
copy of the plan is included as Exhibit I.
Shares Available. The maximum number of shares of common stock that may be
delivered under the plan is 10,000,000, subject to adjustment for certain
specified changes to the Company's capital structure. Some awards under the plan
may link future payments to the awardee to the future value of a specified
number of shares of common stock. The number of shares used for reference
purposes in connection with these awards will be considered "delivered" for
purposes of computing the maximum number of shares that may be delivered under
the plan. If an award under the plan terminates without the shares subject
thereto being delivered, the shares subject to such award will thereafter be
available for further awards under the plan.
Eligibility. All directors, officers and other employees and other person
who provide services to the Company are eligible to participate in the plan.
Administration. The administrator of the plan will be the board or any
other committee which the board designates to serve as the administrator of the
plan. The board or committee serving as administrator (the "Committee") will,
among other things, have the authority to: construe the plan and any award under
the plan; select the directors and officers to whom awards may be granted and
the time or times at which awards will be granted; determine the number of
shares of common stock to be covered by or used for reference purposes for any
award; determine and modify from time to time the terms, conditions, and
restrictions of any award; approve the form of written instrument evidencing any
award; accelerate or otherwise change the time or times at which an award
becomes vested or when an award may be exercised or becomes payable; waive, in
whole or in part, any restriction or condition with respect to any award; and
modify, extend or renew outstanding awards, or accept the surrender of
outstanding awards and substitute new awards.
The Committee has not yet made any awards under the plan. Because the
granting of awards is in the sole discretion of the Committee, the nature and
magnitude of future awards cannot currently be determined.
40
Types of Awards. The types of awards that may be made under the plan are
stock options, stock appreciation rights, restricted stock awards, and stock
units. The Committee will fix the terms of each award, including, to the extent
relevant, the following: (1) exercise price for options, base price for stock
appreciation rights, and purchase price, if any, for restricted stock awards,
(2) vesting requirements and other conditions to exercise, (3) term and
termination, (4) effect, if any, of change of control and (5) method of exercise
and of any required payment by the recipient. Additional information concerning
the types of awards that may be made are set forth below.
Stock Options. The Committee may grant options that are qualified as
"incentive stock options" under Section 422 of the Internal Revenue Code
("ISOs") and options that are not so qualified ("non-qualified options"). ISOs
are subject to certain special limitations, including the following: (1) the
exercise price per share may not be less than 100% of the fair market value per
share of our common stock as of the grant date (110% of such fair market value,
if the recipient owns more than 10% of the total combined voting power of all
classes of our outstanding shares), (2) the term may not exceed 10 years, and
(3) the recipient must be an employee of our company.
Stock Appreciation Rights. A stock appreciation right gives the holder the
opportunity to benefit from the appreciation of our common stock over a
specified base price determined by the Committee. Upon exercise of a stock
appreciation right, the holder has the right to receive in respect of each share
subject thereto a payment equal to the excess, if any, of: (1) the fair market
value of a share of our common stock as of the exercise date over (2) the
specified base price. At the discretion of the Committee, any required payment
may be made in cash, shares of our common stock, or both.
Restricted Stock Awards. A restricted stock award entitles the recipient
to acquire shares of our common stock for no consideration or for the
consideration specified by the Committee. The shares will be subject to such
vesting periods and other restrictions and conditions as the Committee
determines.
Stock Units. A stock unit is a bookkeeping account to which there is
credited the fair market value of a share of our common stock. The value of the
account is subsequently adjusted to reflect changes in the fair market value.
Upon exercise of a stock unit, the holder is entitled to receive the value of
the account. At the discretion of the Committee, any required payment may be
made in cash, shares of our common stock, or both.
Certain Corporate Transactions. If certain corporate transactions
specified in the plan occur, the Committee may make appropriate or equitable
adjustments to the plan and awards, including (1) the number of shares of stock
that can be granted; (2) the number and kind of shares or other securities
subject to any then outstanding awards and (3) the exercise price, base price,
or purchase price applicable to outstanding awards under the plan. The Committee
may cancel outstanding awards, but not outstanding stock or restricted stock
awards, in connection with any merger or consolidation of our company or any
sale or transfer of all or part of our assets or business, or any similar event.
The Committee may determine to make no compensation whatsoever for any canceled
awards that are not in-the-money (as defined below) or for any canceled awards
to the extent not vested. The Company is required to provide payment in cash or
other property for the in-the-money value of the vested portion of awards that
are in-the-money and that are canceled as aforesaid. Awards are in-the-money
only to the extent of their then realizable market value, without taking into
account the potential future increase in the value of the award (whether under
Black-Scholes-type formulas or otherwise).
Amendment. The board may amend the plan at any time and from time to time,
provided that (1) no amendment may deprive any person of any rights granted
under the plan before the effective date of such amendment, without such
person's consent; and (2) amendments may be subject to shareholder approval to
the extent needed to comply with applicable law and stock exchange requirements.
41
Term of Plan. No award may be granted under the plan after the close of
business on the day immediately preceding the tenth anniversary of the adoption
of the plan. However, all awards made prior to such time will remain in effect
in accordance with their terms.
Certain Federal Income Tax Considerations; Matters Relating to Section
162(m) of the Internal Revenue Code. Under Section 162(m) of the Internal
Revenue Code, we are generally precluded from deducting compensation in excess
of $1 million per year paid to our chief executive officer and our next four
highest paid executive officers. For purposes of this limitation, there is
excluded from compensation any payments that an executive receives under
performance-based plans that meet certain requirements specified by the Internal
Revenue Code. The new plan that you are being asked to approve does not qualify
as a performance-based plan and, accordingly, compensation realized in respect
of awards will be subject to the Section 162(m) limitation. Consequently, the
granting of awards under the plan, either alone or in conjunction with other
compensation, could cause us to have non-deductible compensation expense.
Matters Relating to Change of Control. The Committee may provide that the
vesting of an award be accelerated upon a change of control. In such event, all
or a portion of the relevant award may be deemed a "parachute payment." Under
provisions of the Internal Revenue Code, (1) the recipient of an "excess
parachute payments" (as defined in Section 280G of the Internal Revenue Code)
would be required to pay a 20% excise tax thereon (in addition to income tax
otherwise owed) and (2) the "excess parachute payment" would not be deductible
to our company. If any of our executive officers is required to pay such an
excise tax, we will be required to pay the executive an amount that is
sufficient on an after-tax basis to offset such payment.
Matters Relating to Stock Options
Non-Qualified Options. No income will be recognized by a participant upon
the grant of a non-qualified option. Upon exercise, the participant will
generally have ordinary income in the amount equal to the excess of the fair
market value of the shares acquired over the exercise price. The income
recognized by an employee participant will be subject to tax withholding. Upon a
later sale of such shares, the participant will have capital gain or loss in an
amount equal to the difference between the amount realized on such sale and the
tax basis of the shares sold. The Company will be entitled to a tax deduction in
the same amount as the ordinary income recognized by the participant with
respect to shares acquired upon exercise of the non-qualified option.
Incentive Stock Options. No income will be recognized by a participant
upon the grant of an incentive stock option. Further, the participant will
recognize no income at the time of exercise (although a participant may have
income for purposes of alternative minimum tax calculations) and we will not be
allowed a deduction for federal income tax purposes in connection with the grant
or exercise of an option. If the participant holds the acquired shares two years
from the date of grant and one year from the date of exercise the entire gain
(or loss) realized when the participant eventually disposes of the stock is
treated as long term capital gain (or loss). If the shares are disposed of
before such holding period requirements are satisfied, the participant will
recognize ordinary income in an amount equal to the lesser of the difference
between (1) the exercise price and the fair market value of the shares on the
date of exercise or (2) the exercise price and the sales proceeds. Any remaining
gain or loss will be treated as capital gain or loss. The Company will be
entitled to a federal income tax deduction equal to the amount of ordinary
income recognized by the participant.
By Order of the Board of Directors
/s/ Jay Gelman
Jay Gelman
Chairman of The Board
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Exhibit A
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 After Issuance of Stock)
1. Name of corporation: Essential Reality, Inc.
2. The articles have been amended as follows (provide article numbers, if
available):
See Attachment A
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or
such greater proportion of the voting powers as may be required in the
case of a vote by classes or series, or as may be required by the
provisions of the articles of incorporation have voted in favor of the
amendment is: 1,454,277,300. *
4. Officer Signature (Required):
/s/ Jay Gelman
--------------------------
Jay Gelman
Chief Executive Officer
* If any proposed amendment would alter or change any preference or any relative
or other right given to any class or series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit the proper
fees may cause this filing to be rejected.
43
ATTACHMENT A
"FOURTH. The aggregate number of shares which this corporation is authorized to
issue is 4,410,000,000, divided into classes as follows:
A. 4,400,000,000 shares of common stock, $.001 par value per share
(hereinafter called the "Common Stock), and
B. 10,000,000 shares of preferred stock, $.001 par value per share, to
be issued in series (hereinafter called the "Preferred Stock").
The following is a statement of the designations, powers, preferences and
rights, and the qualifications, limitations or restrictions with respect to the
Preferred Stock of this corporation:
The shares of Preferred Stock may be issued in one or more series, and each
series shall be so designated as to distinguish the shares thereof from the
shares of all other series.
Authority is hereby expressly granted to the Board of Directors of this
corporation to fix by resolution, subject to the provisions herein set forth,
before the issuance of any shares of a particular series, the number,
designations, and relative rights, preferences and limitations of the shares of
such series including (1) voting rights, if any, which may include the right to
vote together as a single class with the Common Stock and any other series of
the Preferred Stock with the number of votes per share accorded to shares of
such series being the same as or different from that accorded to such other
shares, (2) the dividend rate per annum, if any, and the terms and conditions
pertaining to dividends and whether such dividends shall be cumulative, (3) the
amount or amounts payable upon such voluntary or involuntary liquidation, (4)
the redemption price or prices, if any, and the terms and conditions of the
redemption, (5) sinking fund provisions, if any for the redemption or purchase
of such shares, (6) the terms and conditions on which such shares are
convertible, in the event the shares are to have conversion rights, and (7) any
other rights, preferences and limitations pertaining to such series which may be
fixed by the Board of Directors pursuant to the Nevada Revised Statutes.
44
Exhibit B
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 After Issuance of Stock)
1. Name of corporation: Essential Reality, Inc.
2. The articles have been amended as follows (provide article numbers, if
available):
See Attachment A
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or
such greater proportion of the voting powers as may be required in the
case of a vote by classes or series, or as may be required by the
provisions of the articles of incorporation have voted in favor of the
amendment is: 1,454,277,300. *
4. Officer Signature (Required):
/s/ Jay Gelman
--------------------------
Jay Gelman
Chief Executive Officer
* If any proposed amendment would alter or change any preference or any relative
or other right given to any class or series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit the proper
fees may cause this filing to be rejected.
45
ATTACHMENT A
"FOURTH. The aggregate number of shares which this corporation is authorized to
issue is 110,000,000, divided into classes as follows:
A. 100,000,000 shares of common stock, $.001 par value per share
(hereinafter called the "Common Stock), and
B. 10,000,000 shares of preferred stock, $.001 par value per share, to
be issued in series (hereinafter called the "Preferred Stock").
The following is a statement of the designations, powers, preferences and
rights, and the qualifications, limitations or restrictions with respect to the
Preferred Stock of this corporation:
The shares of Preferred Stock may be issued in one or more series, and each
series shall be so designated as to distinguish the shares thereof from the
shares of all other series.
Authority is hereby expressly granted to the Board of Directors of this
corporation to fix by resolution, subject to the provisions herein set forth,
before the issuance of any shares of a particular series, the number,
designations, and relative rights, preferences and limitations of the shares of
such series including (1) voting rights, if any, which may include the right to
vote together as a single class with the Common Stock and any other series of
the Preferred Stock with the number of votes per share accorded to shares of
such series being the same as or different from that accorded to such other
shares, (2) the dividend rate per annum, if any, and the terms and conditions
pertaining to dividends and whether such dividends shall be cumulative, (3) the
amount or amounts payable upon such voluntary or involuntary liquidation, (4)
the redemption price or prices, if any, and the terms and conditions of the
redemption, (5) sinking fund provisions, if any for the redemption or purchase
of such shares, (6) the terms and conditions on which such shares are
convertible, in the event the shares are to have conversion rights, and (7) any
other rights, preferences and limitations pertaining to such series which may be
fixed by the Board of Directors pursuant to the Nevada Revised Statutes.
Reverse Split. Upon this Certificate of Amendment to the Amended and Restated
Articles of Incorporation of the Corporation becoming effective pursuant to the
Nevada Revised Statutes of the State of Nevada (the "Effective Time"), every 44
shares of the Corporation's common stock, par value $.001 per share (the "Old
common stock"), issued and outstanding immediately prior to the Effective Time,
will be automatically reclassified as and converted into one share of common
stock, par value $.001 per share, of the Corporation (the "New common stock").
Notwithstanding the immediately preceding sentence, no fractional shares of New
common stock shall be issued to the holders of record of Old common stock in
connection with the foregoing reclassification of shares of Old common stock. In
lieu thereof, the Corporation shall, round up any fractional shares to the
nearest whole share. Each stock certificate that, immediately prior to the
Effective Time, represented shares of Old common stock shall, from and after the
Effective Time, automatically and without the necessity of presenting the same
for exchange, represent that number of whole shares of New common stock into
which the shares of Old common stock represented by such certificate shall have
been reclassified, provided, however, that each holder of record of a
certificate that represented shares of Old common stock shall receive, upon
surrender of such certificate, a new certificate representing the number of
whole shares of New common stock into which the shares of Old common stock
represented by such certificate shall have been reclassified.
46
Exhibit C
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into
as of [October 15], 2004 by and between Essential Reality, Inc., a Nevada
corporation ("the Company"), and Alliance Distributors Holding Inc., a Delaware
corporation ("the Company-Delaware").
RECITALS
WHEREAS, the Company-Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, the Company is a corporation duly organized and existing under the laws
of the State of Nevada;
WHEREAS, on the date of this Merger Agreement, the Company-Delaware has
authority to issue 100,000,000 shares of common stock, $0.001 par value per
share (the "the Company-Delaware common stock"), of which 10 shares are issued
and outstanding and owned by the Company and 10,000,000 shares of Preferred
Stock, $0.001 par value per share (the "the Company-Delaware Preferred Stock"),
no shares of which are issued or outstanding;
WHEREAS, on the date of this Merger Agreement, the Company has authority to
issue 100,000,000 shares of common stock, $.001 par value per share (the "the
Company common stock"), and 10,000,000 shares of Preferred Stock (the "the
Company Preferred Stock").
WHEREAS, the respective Boards of Directors for the Company-Delaware and the
Company have determined that, for the purpose of effecting the reincorporation
of the Company in the State of Delaware, it is advisable and to the advantage of
said two corporations and their shareholders that the Company merge with and
into the Company-Delaware upon the terms and conditions herein provided; and
WHEREAS, the respective Boards of Directors of the Company-Delaware and the
Company, the shareholders of the Company, and the sole stockholder of the
Company-Delaware have adopted and approved this Merger Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, the Company and the Company-Delaware hereby agree to merge as
follows:
1. Merger. The Company shall be merged with and into the Company-Delaware, and
the Company-Delaware shall survive the merger ("Merger"), effective upon the
date of filing of a Certificate of Merger with the State of Delaware and
Articles of Merger with the State of Nevada made effective in accordance with
applicable law (the "Effective Date").
2. Governing Documents. The Certificate of Incorporation of the
Company-Delaware, (the "Certificate of Incorporation") shall continue to be the
Certificate of Incorporation of the Company-Delaware as the surviving
Corporation, unless and until thereafter changed or amended in accordance with
the provisions thereof and applicable laws. The Bylaws of the Company-Delaware,
in effect on the Effective Date, shall continue to be the Bylaws of the
Company-Delaware as the surviving Corporation without change or amendment until
further amended in accordance with the provisions thereof and applicable laws.
47
3. Directors and Officers. The directors and officers of the Company shall
become the directors and officers of the Company-Delaware upon the Effective
Date and any committee of the Board of Directors of the Company shall become the
members of such committees for the Company-Delaware.
4. Succession. On the Effective Date, the Company-Delaware shall succeed to the
Company in the manner of and as more fully set forth in Section 259 of the
General Corporation Law of the State of Delaware.
5. Further Assurances. From time to time, as and when required by the
Company-Delaware or by its successors and assigns, there shall be executed and
delivered on behalf of the Company such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other action, as
shall be appropriate or necessary in order to vest, perfect or confirm, of
record or otherwise, in the Company-Delaware the title to and possession of all
the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of the Company, and otherwise to carry out the purposes
of this Merger Agreement and the officers and directors of the Company-Delaware
are fully authorized in the name and on behalf of the Company or otherwise to
take any and all such action and to execute and deliver any and all such deeds
and other instruments.
6. Stock of the Company. Upon the Effective Date, by virtue of the Merger and
without any action on the part of the holder thereof, each 1 share of the
Company common stock outstanding immediately prior thereto shall be changed and
converted into one 1 fully paid and nonassessable share of the Company-Delaware
common stock and each share of the Company Series A Preferred Stock outstanding
immediately prior thereto shall be changed and converted into one 1 fully paid
and nonassessable Series A Preferred Stock of the Company-Delaware.
7. Stock Certificates. On and after the Effective Date, all of the outstanding
certificates which prior to that time represented shares of the Company stock
shall be deemed for all purposes to evidence ownership of and to represent the
shares of the Company-Delaware stock into which the shares of the Company stock
represented by such certificates have been converted as herein provided. The
registered owner on the books and records of the Company-Delaware or its
transfer agent of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted for
to the Company-Delaware or its transfer agent, have and be entitled to exercise
any voting and other rights with respect to and to receive any dividend and
other distributions upon the shares of the Company-Delaware stock evidenced by
such outstanding certificate as above provided.
8. Options, Warrants and All Other Rights to Purchase Stock. Upon the Effective
Date, each outstanding option, warrant or other right to purchase shares of the
Company stock, and any other plan adopted hereafter pursuant to which there is a
right to purchase the Company stock, shall be converted into and become an
option, warrant, or right to purchase the same number of shares of the
Company-Delaware stock, at a price per share equal to the exercise price of the
option, warrant or right to purchase the Company stock and upon the same terms
and subject to the same conditions as set forth in the agreements entered into
by the Company pertaining to such options, warrants, or rights. A number of
shares of the Company-Delaware stock shall be reserved for purposes of such
options, warrants, and rights equal to the number of shares of the Company stock
so reserved as of the Effective Date. As of the Effective Date, the
Company-Delaware shall assume all obligations of the Company under agreements
pertaining to such options, warrants, and rights, including the outstanding
options, warrants, or other rights, or portions thereof, granted pursuant
thereto.
48
9. Other Employee Benefit Plans. As of the Effective Date, the Company-Delaware
hereby assumes all obligations of the Company under any and all employee benefit
plans in effect as of said date or with respect to which employee rights or
accrued benefits are outstanding as of said date.
10. Outstanding common stock of the Company-Delaware. Forthwith upon the
Effective Date, the 10 shares of the Company-Delaware common stock presently
issued and outstanding in the name of the Company shall be canceled and retired
and resume the status of authorized and unissued shares of the Company-Delaware
common stock, and no shares of the Company-Delaware common stock or other
securities of the Company-Delaware shall be issued in respect thereof.
11. Amendment. At any time before or after approval and adoption by the
stockholders of the Company, this Merger Agreement may be amended in any manner
as may be determined in the judgment of the respective Boards of Directors of
the Company-Delaware and the Company to be necessary, desirable or expedient in
order to clarify the intention of the parties hereto or to effect or facilitate
the purposes and intent of this Merger Agreement.
12. Abandonment. At any time before the Effective Date, this Merger Agreement
may be terminated and the Merger may be abandoned by the Board of Directors of
either the Company or the Company-Delaware or both, notwithstanding approval of
this Merger Agreement by the sole stockholder of the Company-Delaware and the
shareholders of the Company.
13. Counterparts. In order to facilitate the filing and recording of this Merger
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original.
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved by
resolution of the Board of Directors of the Company and the Company-Delaware, is
hereby executed on behalf of each of said two corporations by their respective
officers thereunto duly authorized.
ALLIANCE DISTRIBUTORS HOLDING INC., a Delaware corporation
By:
ESSENTIAL REALITY, INC. a Nevada corporation
By:
49
Exhibit D
CERTIFICATE OF INCORPORATION
OF
ALLIANCE DISTRIBUTORS HOLDING INC.
1. The name of the Corporation is Alliance Distributors Holding Inc.
The address of the Corporation's registered office in the State of
Delaware is Corporations Service Company. The registered agent at such
address shall be 2711 Centerville Road, Suite 400, New Castle County,
Wilmington, Delaware, 19808.
3. The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law
of Delaware.
4. a) The total number of shares of stock which the corporation shall have
authority to issue is 100,000,000 shares of Common Stock par value $.001
per share ("Common Stock") and 10,000,000 shares of Preferred Stock par
value $.001 per share ("Preferred Stock").
b)
i) Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Board of
Directors, each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and the Board of Directors of the Corporation is hereby
expressly granted authority to fix by resolution or resolutions
adopted prior to the issuance of any shares of a particular series
of Preferred Stock, the voting powers and the designation,
preferences and relative, optional and other special rights, and the
qualifications, limitations and restrictions of such series,
including, but without limiting the generality of the foregoing, the
following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the number
of shares thereof then outstanding) from time to time by like
action of the Board of Directors;
50
(2) The rate and times at which, and the terms and conditions on
which, dividends, if any, on Preferred Stock of such series
shall be paid, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other
class or classes, or series of the same or other classes of
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of such
series to convert the same into or exchange the same for,
shares of any other class or classes or of any series of the
same or any other class or classes of stock of the Corporation
and the terms and conditions of such conversion or exchange;
(4) Whether or not Preferred Stock of such series shall be subject
to redemption, and the redemption price or prices and the time
or times at which, and the terms and conditions on which,
Preferred Stock of such series may be redeemed;
(5) The rights, if any, of the holders of Preferred Stock of such
series upon the voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or
winding-up, of the Corporation;
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting the generality of
the foregoing, include the right, voting as a series or by
itself or together with other series of Preferred Stock or all
series of Preferred Stock as a class, to elect one or more
directors of the Corporation if there shall have been a
default in the payment of dividends on any one or more series
of Preferred Stock or under such other circumstances and on
such conditions as the Board of Directors may determine.
ii) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the powers, preferences and rights of
each other series of Preferred Stock shall, in each case, be as
fixed from time to time by resolution of the Board of Directors, and
the consent, by class or series vote or otherwise, of the holders of
such of the series of Preferred Stock as are from time to time
outstanding shall not be required for the issuance by the Board of
Directors of any other series of Preferred Stock whether or not the
powers, preferences and rights of such other series shall be fixed
by the Board of Directors as senior to, or on a parity with, the
powers, preferences and rights of such outstanding series, or any of
them; provided, however, that the Board of Directors may provide in
such resolution that the consent of the holders of a majority (or
such greater proportion as shall be therein fixed) of the
outstanding shares of such series voting therein shall be required
for the issuance of any or all other series of Preferred Stock.
51
iii) Subject to any limitations set forth herein, Shares of Common Stock
or any series of Preferred Stock may be issued from time to time as
the Board of Directors of the Corporation shall determine and on
such terms and for such consideration as shall be fixed by the Board
of Directors.
iv) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
(c) There is herby created a series of the Preferred Stock to consist of
1,685,115 shares of Preferred Stock, $.001 par value per share (the "Series A
Preferred Stock"), with the designation and number of shares, and the relative
rights, preferences, privileges, powers and restrictions as follows:
I. CERTAIN DEFINITIONS
For purposes of this amendment, capitalized terms are defined in this
amendment or shall have the following meanings:
"Common Stock" means the common stock of the Company.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
II. DESIGNATION AND AMOUNT
The designation of this series, which consists of 1,685,115 shares of
Preferred Stock, is the Series A Convertible Non Redeemable Preferred Stock (the
"Series A Preferred Stock") and the par value shall be $.001 per share.
III. [omitted]
IV. CONVERSION
(a) The Series A Preferred Stock shall be converted into Common Stock on
such date(s) (a "Conversion Date") as described in Section IV(b) below. Any
conversion under this Section IV (a) shall entitle Holder to receive 15.91
shares of Common Stock for each share of Series A Preferred Stock (the
"Conversion Price") (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares). Upon the conversion of any Series A Preferred Stock, such Series A
Preferred Stock shall be returned to the Company for cancellation.
52
(b) Subject to the conversion restrictions set forth in Section IV(f)
hereof, a Holder may from time to time convert such of its outstanding shares of
Series A Preferred Stock into Common Stock that become eligible for conversion
under Section IV(f) by delivering written notice to the Company stating that
such Holder can convert shares of Series A Preferred Stock into Common Stock
without being restricted by Section IV(f) hereof and setting forth the number of
shares of Series A Preferred Stock to be converted (the "Conversion Notice").
The Company covenants and agrees that, if requested by the Holder, it will
provide the information relating to the total number of issued and outstanding
shares of Common Stock for purposes of allowing the Holder to calculate Holder's
beneficial ownership in the Company's Common Stock. Promptly following the
receipt by the Company of a Conversion Notice, the Holder whose Series A
Preferred Stock is converted into Common Stock shall surrender the certificate
or certificates for the applicable shares of Series A Preferred Stock at the
office of the Company's transfer agent (or at the principal office of the
Company if the Company serves as its own transfer agent). If required by the
Company, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Company, duly executed by the registered holder of his, her
or its attorney duly authorized in writing. The Company shall, as soon as
practicable after any Conversion Date, and in all events within ten (10)
business days of receipt of the certificate or certificates surrendered for
conversion, issue and deliver at such office to such Holder, a certificate or
certificates for the number of shares of Common Stock to which such Holder shall
be entitled; provided however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
any Series A Preferred Stock until the Series A Preferred Stock is either
delivered for conversion to the Company or any transfer agent for the Series A
Preferred Stock or Common Stock, or the Holder notifies the Company that such
Series A Preferred Stock has been lost, stolen or destroyed and provides an
agreement reasonably acceptable to the Company to indemnify the Company from any
loss incurred by it in connection therewith. No fractional shares of Common
Stock shall be issuable upon a conversion hereunder and the number of shares to
be issued shall be rounded up to the nearest whole share. If a fractional share
interest arises upon any conversion hereunder, the Company shall eliminate such
fractional share interest by causing to be issued to Holder an additional full
share of Common Stock. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid and nonassessable.
53
(c) In case of any reclassification of the Common Stock, any consolidation
or merger of the Company with or into another Person, the sale or transfer of
all or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property (each, a "Fundamental Transaction"), then each Holder then
outstanding shall have the right thereafter to convert such Series A Preferred
Stock only into the shares of stock and other securities and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange
(except in the event the property is cash, then the Holder shall have the right
to convert the Series A Preferred Stock and receive cash in the same manner as
other stockholders), and the Holder shall be entitled upon such event to receive
such amount of securities or property as the shares of the Common Stock into
which such Series A Preferred Stock could have been converted immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section IV(c) upon any conversion following such consolidation, merger,
sale, transfer or share exchange. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(d) The Company covenants that it will authorize, reserve and keep
available, such number of shares of Common Stock as shall be issuable upon the
conversion of all outstanding shares of Series A Preferred Stock free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders of Series A Preferred Stock.
(e) The issuance of certificates for shares of Common Stock on conversion
of Series A Preferred Stock shall be made without charge to the Holder for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(f) Certain Conversion Restrictions.
i. Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by a Holder
upon any conversion of Series A Preferred Stock shall be limited to
the extent necessary to insure that, following such conversion, the
total number of shares of Common Stock then beneficially owned by
such Holder and its affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with such
Holder's for purposes of Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), does not exceed 4.999%
of the total number of issued and outstanding shares of Common Stock
(including for such purpose the shares of Common Stock issuable upon
such conversion). For such purposes, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. This restriction
may not be waived; provided, however, that this provision shall not
restrict the number of shares of Common Stock which a Holder may
receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in
the event of a Fundamental Transaction as contemplated herein.
54
ii. Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by a Holder
upon any conversion of Series A Preferred Stock shall be limited to
the extent necessary to insure that, following such conversion, the
total number of shares of Common Stock then beneficially owned by
such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the
Holder's for purposes of Section 13(d) of the Exchange Act, does not
exceed 9.999% of the total number of issued and outstanding shares
of Common Stock (including for such purpose the shares of Common
Stock issuable upon such conversion). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated
thereunder. This restriction may not be waived; provided, however,
that this provision shall not restrict the number of shares of
Common Stock which a Holder may receive or beneficially own in order
to determine the amount of securities or other consideration that
such Holder may receive in the event of a Fundamental Transaction as
contemplated herein.
V. RANK
The Series A Preferred Stock shall rank pari passu with the Common Stock
on an as converted basis, except as is otherwise expressly provided herein.
VI. [omitted]
VII. VOTING RIGHTS
Except as otherwise required by law or as otherwise set forth herein, the
Holders, if and to the extent convertible in accordance with Section IV(f)
55
hereunder, shall be entitled to vote as one class with the holders of the common
stock on all matters on which holders of Common Stock are entitled to vote,
including, without limitation, the election of directors. If and to the extent
convertible in accordance with Section IV(f) hereunder, each Holder shall be
entitled to one vote per share of Common Stock into which the Series A Preferred
Stock held by it is convertible at the record date for determination of the
Holders entitled to vote, or if no such record date is established, at the date
such vote is taken or any written consent of Holders is solicited.
VIII. NO IMPAIRMENT
The Company will not, by amendment of its Certificate of Incorporation or
Bylaws or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company but will at all times in good faith assist
in the carrying out of all the provisions of the Series A Preferred Stock and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the Holders against impairment.
IX. AMENDMENT
No amendment to the Company's Certificate of Incorporation changing or
inconsistent with the terms hereof shall be permitted without the consent of
Holders holding 66 2/3% of the outstanding Series A Preferred Stock (voting as a
separate class) so long as there is any Series A Preferred Stock outstanding.
5. The name and mailing address of the incorporator is as follows:
Oscar D. Folger
521 Fifth Avenue, 24th Floor
New York, NY 10175
6. The original by-laws of the corporation shall be adopted by the
incorporator. Thereafter, the power to make, alter or repeal by-laws shall
be in the Directors of the Corporation.
7. The business and affairs of the Corporation shall be managed and directed
by a Board of Directors, which may be comprised of a single director. The
number of directors shall be fixed by the by-laws or as provided in the
by-laws. Election of directors need not be by written ballot.
8. A director, or former director, shall not be liable to the corporation or
to any of its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or
limit the liability of a director: (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the General
Corporation Law of the State of Delaware, pertaining to the liability of
directors for unlawful payment of dividends or unlawful stock purchase or
redemption; or (iv) for any transaction from which the director derived an
improper personal benefit.
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9. The corporation shall indemnify its directors and officers, and the
directors and officers of its subsidiaries, to the maximum extent
permitted by law.
IN WITNESS WHEREOF, the undersigned hereby certify that the facts herein
stated are true and, accordingly, have signed this Certificate of Incorporation
this ___day of ____ 2004.
/s/______________________
Oscar D. Folger, Incorporator
57
Exhibit E
BY-LAWS
OF
ALLIANCE DISTRIBUTORS HOLDING INC.
(Effective [October 15], 2004)
Article 1. Office
Section 1.1. Office. The office of the Corporation shall be located at
such address as the Board of Directors shall fix.
Article 2. Shareholder Meetings
Section 2.1. Place of Meetings. Meetings of shareholders may be held at
any place, either within or without the State of Delaware designated by
the Board of Directors.
Section 2.2. Annual Meeting. The annual meeting of shareholders for the
election of directors and the transaction of such other business as may
properly come before it shall be held on such date, and at such place, as
shall be fixed by the Board of Directors.
Section 2.3. Special Meetings. Shareholders are not permitted to call a
special meeting of shareholders or to require the Board of Directors or
officers of the Corporation to call such a special meeting. A special
meeting of shareholders may only be called by a majority of the Board of
Directors or by the Chairman or Chief Executive Officer. The business
permitted to be conducted at a special meeting of shareholders shall be
limited to matters properly brought before the meeting by or at the
direction of the Board of Directors.
Section 2.4. Quorum. The holders of a majority of the shares entitled to
vote thereat (whether present in person, by proxy or by voting agreement)
shall constitute a quorum at a meeting of shareholders for the transaction
of any business.
Section 2.5. Organization. Meetings of shareholders shall be presided over
by the Chairman, if any, or in his or her absence (or election not to
preside) by the Vice Chairman, if any, or in his or her absence (or
election not to preside) by the President, or in his or her absence (or
election not to preside) by a Vice President, or in the absence of the
foregoing persons by a chairman designated by the Board of Directors, or
in the absence of such designation by a chairman chosen at the meeting.
The Secretary shall act as secretary of the meeting, but in his or her
absence (or election not to so act) the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.6. Conduct of Meetings. The Board of Directors may adopt such
rules and regulations for the conduct of the meeting of shareholders as it
shall deem appropriate. Except to the extent inconsistent with such rules
and regulations as adopted by the Board of Directors, the chairman of any
meeting of shareholders shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the
Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to
shareholders of record of the Corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time
fixed for the commencement thereof; and (v) limitations on the time
allotted to questions or comments by participants. Unless and to the
extent determined by the Board of Directors or the chairman of the
meeting, meetings of shareholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
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Section 2.7. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors; provided, however, that the following procedures shall not
apply to the nomination of persons for election as directors by vote of
any class or series of preferred stock of the Corporation. Nominations of
persons for election to the Board of Directors of the Corporation at the
annual meeting may be made at such meeting by or at the direction of the
Board of Directors, by any committee appointed by the Board of Directors
or by any common shareholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice
procedures set forth in this Section 2.7. Such nominations, other than
those made by or at the direction of the Board of Directors or by any
committee appointed by the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation not less than 60
days nor more than 90 days prior to the meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made,
whichever first occurs. Such shareholder's notice to the Secretary shall
set forth (a) as to each person whom the shareholder proposes to nominate
for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation
or employment of the person, (iii) the class, series and number of shares
of capital stock of the Corporation which are beneficially owned by the
person and (v) any other information relating to the person that is
required to be disclosed in solicitations for proxies for election of
directors pursuant to the Rules and Regulations of the Securities and
Exchange Commission under Section 14 of the Securities Exchange Act of
1934, as amended; and (b) as to the shareholder giving the notice (i) the
name and record address of the shareholder, (ii) the class, series and
number of shares of capital stock of the Corporation which are
beneficially owned by the shareholder and (iii) a description of all
arrangements or understandings between the shareholder and each nominee
and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the shareholder.
Such notice shall be accompanied by the executed consent of each nominee
to serve as a director if so elected. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be
eligible for election as a director of the Corporation by the holders of
Common Stock of the Corporation unless nominated in accordance with the
procedures set forth herein.
The chairman of the Corporation presiding at an annual meeting shall, if
the facts warrant, determine that a nomination was not made in accordance
with the foregoing procedure and, if he or she should so determine, he or
she shall so declare to the meeting and the defective nomination shall be
disregarded.
59
Section 2.8. Advance Notification of Business to be Transacted at
Shareholder Meetings. To be properly brought before the annual or any
special meeting of shareholders, business must be either (a) specified in
the notice of meeting (or any supplement or amendment thereto) given by or
at the direction of the Board of Directors or any committee appointed by
the Board of Directors, (b) otherwise properly brought before the meeting
by or at the direction of the Board of Directors, or (c) otherwise
properly brought before an annual meeting by a shareholder. In addition to
any other applicable requirements, for business to be properly brought
before any annual meeting of shareholders by a shareholder, the
shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the fifteenth day
following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made, whichever first occurs. Such
shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
record address of the shareholder proposing such business, (iii) the
class, series and number of shares of capital stock of the Corporation
which are beneficially owned by the shareholder and (iv) any material
interest of the shareholder in such business .
No business shall be conducted at the annual or any special meeting of
shareholders unless it is properly brought before the meeting in
accordance with the procedures set forth in this Section 2.8, provided,
however, that nothing in this Section 2.8 shall be deemed to preclude
discussion by any shareholder of any business properly brought before the
meeting in accordance with the procedures set forth in this Section 2.8.
The chairman of the Corporation presiding at the meeting shall, if the
facts warrant, determine that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.8 and, if he
or she should so determine, he or she shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted .
Section 2.9. Compliance with Securities and Exchange Act of 1934.
Notwithstanding any other provision of these By-laws, the Corporation
shall be under no obligation to include any shareholder proposal in its
proxy statement materials or otherwise present any such proposal to
shareholders at a special or annual meeting of shareholders if the Board
of Directors reasonably believes that the proponents thereof have not
complied with Sections 13 and 14 of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder, and the
Corporation shall not be required to include in its proxy statement
material to shareholders any shareholder proposal not required to be
included in its proxy material to shareholders in accordance with such
Act, rules, or regulations.
Section 2.10. Ballots. The vote upon any question before any shareholders'
meeting need not be by ballot.
Article 3. Directors
Section 3.1. Number of Directors. The number of directors which shall
constitute the entire Board shall be as set by the Board of Directors from
time to time. No reduction in the number of directors constituting the
entire Board of Directors shall have the effect of removing any director
before that director's term of office expires.
Section 3.2. Term. Each director, including a director elected to fill a
vacancy, shall hold office for a term that extends to the next annual
meeting of shareholders and until his successor has been elected and has
qualified .
60
Section 3.3. Quorum of Directors. At all meetings of the Board of
Directors, a majority of the entire Board shall be necessary and
sufficient to constitute a quorum for the transaction of business.
Section 3.4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be
determined by the Board of Directors. Special meetings of the Board of
Directors may be called by the Chairman, the Vice Chairman, the Chief
Executive Officer or the Secretary or by resolution of the Board of
Directors. Unless waived, notice of the time and place of special meetings
shall be delivered to each director either (i) personally (either orally
or in writing), (ii) by telephone, (iii) by telex, telecopy or other
facsimile transmission, (iv) by e-mail, or (v) by first-class mail,
postage prepaid, addressed to a director at that director's address as it
is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four days before the
time of the holding of the meeting (ten days in the case of a director
whose address as shown on the records of the Corporation is outside of the
United States of America). If the notice to a director is delivered in any
other manner it shall be delivered (which shall for this purpose mean
received by the director) at least 24 hours before the time of the holding
of the meeting. If a meeting is adjourned to another time or place, no
additional notice shall be required to be given with respect to such
adjourned meeting if the time and place of such adjourned meeting is
announced at the meeting at which the adjournment is taken .
Section 3.5. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman, if any or in his or her absence by the Vice
Chairman, if any or in the absence of the foregoing persons by a chairman
chosen at the meeting.
Section 3.6. Unanimous Written consent in Place of Meeting. An action
required or permitted to be taken by the Board or any committee thereof
may be taken without a meeting if all the members of the Board or
committee consent in writing or by electronic transmission to the adoption
of a resolution authorizing the action .
Section 3.7. Meetings by Conference Telephone or Similar Device. Any
meeting of the Board or a committee thereof may be conducted by means of a
conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a
meeting .
Article 4. Officers
Section 4.1. Executive Officers. The executive officers of the Corporation
shall be a Chairman, a Chief Executive Officer, a Secretary, a Treasurer,
and such number of Vice Presidents, Assistant Secretaries and Assistant
Treasurers, and such other officers, if any, as the Board of Directors may
from time to time determine. Any officer may, but no officer need, be
chosen from among the Board of Directors.
Section 4.2. Power and Duty of Officers. The Chief Executive Officer of
the Corporation shall have such powers in the management of the
Corporation as may be prescribed in a resolution by the Board of Directors
and, to the extent not so provided, as generally pertain to such office.
The Chief Executive Officer shall see that all orders and resolutions of
the Board of Directors are carried into effect.
61
Section 4.3. The other officers of the Corporation shall have such powers
and duties in the management of the Corporation as may be prescribed in a
resolution by the Board of Directors or delegated to them by the Chief
Executive Officer and, to the extent not so provided or delegated, as
generally pertain to their respective offices, subject to the control of
the Board of Directors and the Chief Executive Officer. Without limiting
the foregoing, the Secretary shall have the duty to record the proceedings
of the meetings of the stockholders and directors in a book to be kept for
that purpose .
Article 5. Miscellaneous
Section 5.1. Waivers of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these By-laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, and, in the case of a waiver of
notice of a meeting, whether or not the business to be transacted at or
the purposes of such meeting is set forth in such waiver, shall be deemed
equivalent thereto. The attendance of any person at any meeting, in person
or, in the case of the meeting of stockholders, by proxy, shall constitute
a waiver of notice of such meeting except where such person attends such
meeting for the express purpose of objecting at the beginning of such
meeting to the transaction of any business on the grounds that such
meeting is not duly called or convened .
Section 5.2. Fiscal Year. The fiscal year of the Corporation shall be
fixed from time to time by the Board of Directors .
Section 5.3. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 5.4. Indemnification of Directors and Officers. The Corporation
shall indemnify its directors and officers to the fullest extent permitted
by law, or as otherwise set forth in an Indemnification Agreement entered
into between the Corporation and an officer or director.
Section 5.5. Entire Board. As used in these By-Laws, "entire Board of
Directors" means the total number of directors which the Corporation would
have if there were no vacancies in the Board of Directors .
Section 5.6. Section Headings. The headings of the Articles and Sections
of these By-Laws are inserted for convenience of reference only and shall
not be deemed to be part thereof or used in the construction or
interpretation thereof.
62
Exhibit F
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
JPAL, INC.
(name later changed to Essential Reality, Inc.
The undersigned, as the President and Secretary of JPAL, INC., a Nevada
corporation, hereby certify that by vote of the Board of Directors by written
consent dated March 16, 2000, and majority vote of the stockholders by written
consent dated March 16, 2000, it was agreed that these RESTATED ARTICLES OF
INCORPORATION be filed with the Secretary of State for the State of Nevada. The
undersigned further certify that the original Articles of Incorporation of JPAL,
INC. were filed with the Secretary of State for the State of Nevada on the 31st
day of March, 1999. The exact text of the Restated Articles of Incorporation of
JPAL, INC., which amends Article SECOND, Article THIRD, Article FOURTH, Article
FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH, Article NINTH and Article
TENTH, is as follows:
FIRST. The name of this corporation is JPAL, Inc.
SECOND. The registered office for this corporation in the State of Nevada is
located at Nevada Agency and Trust Company, 50 West Liberty Street, Suite 880,
City of Reno, County of Washoe, State of Nevada 89501. This corporation may
maintain an office, or offices, in such other place or places within or without
the State of Nevada as may be from time to time designated by the Board of
Directors of this corporation, or by the Bylaws of this corporation, and this
corporation may conduct all business of every kind and nature, including the
holding of all meetings of directors and stockholders, outside the State of
Nevada, as well as within the State of Nevada.
THIRD. The purposes for which this corporation is organized are to engage in any
activity or business not in conflict with the laws of the State of Nevada or of
the United States of America and, without limiting the generality of the
foregoing, specifically, to have all the powers now or hereafter conferred by
the laws of the State of Nevada upon corporations organized pursuant to the laws
pursuant to which this corporation is organized and any and all acts amendatory
thereof and supplemental thereto. The purposes specified in this article shall
be construed both as purposes and powers and shall be in no manner limited or
restricted by reference to, or inference from, the terms of this or any other
article.
FOURTH. The total number of shares of stock which this corporation shall have
authority to issue is Fifty Five Million (55,000,000) with a par value of one
mil ($.001) per share. Fifty Million (50,000,000) of those shares are common
stock and Five Million (5,000,000) of those shares are Preferred Stock.
FIFTH. The affairs of this corporation shall be governed by a Board of
Directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the Bylaws of this corporation;
provided, however, that the number of directors shall not be reduced to fewer
than one (1).
SIXTH. The capital stock of this corporation, after the amount of the
subscription price, or par value, has been paid, shall not be subject to
assessment to pay the debts of this corporation.
SEVENTH. This corporation shall have a perpetual existence.
63
EIGHTH. The power to alter, amend, or repeal the Bylaws of this corporation, or
to adopt new Bylaws, shall be vested in the Board of Directors of this
corporation, except as otherwise may be specifically provided in those Bylaws.
NINTH. No shareholder shall be entitled, as a matter of right, to subscribe for
or receive additional shares of any class of stock of this corporation, whether
now or hereafter authorized, or any bonds, debentures or securities convertible
into such stock, but such additional shares of stock or other securities
convertible into such stock may be issued or disposed of by the Board of
Directors of this corporation to such persons, for such consideration, and on
such terms as, in its discretion, the Board of Directors of this corporation
shall deem advisable.
TENTH. No director or officer of this corporation shall be personally liable to
this corporation or any of its stockholders for damages for breach of fiduciary
duty as a director or officer involving any act or omission of any such director
or officer; provided, however, that the foregoing provision shall not eliminate
or limit the liability of a director or officer (i) for acts or omissions which
involved intentional misconduct, fraud or a knowing violation of law, or (ii)
the payment of dividends in violation of Section 78.300 of the Nevada Revised
Statutes. Any repeal or modification of this article by the stockholders of this
corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director or officer of this
corporation for acts or omissions prior to such repeal or modification.
The undersigned hereby certify that they have on this 17th day of March, 2000,
executed these Restated Articles of Incorporation.
By: /s/ Sharareh Frouzesh
-----------------------
Sharareh Frouzesh
Its: President
By: /s/ Sharareh Frouzesh
-----------------------
Sharareh Frouzeh
Its: Secretary
64
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 o After Issuance of Stock)
1. Name of corporation: JPAL, Inc.
2. The articles have been amended as follows (provide article numbers, if
available):
FIRST: The name of the corporation is: Essential Reality, Inc.
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or
such greater proportion of the voting powers as may be required in the
case of a vote by classes or series, or as may be required by the
provisions of the articles of incorporation have voted in favor of the
amendment is: 5,100,260. *
4. Officer Signature (Required):
/s/ Humbert B. Powell, III
--------------------------
Humbert B. Powell, III
Chief Executive Officer (Acting)
* If any proposed amendment would alter or change any preference or any relative
or other right given to any class or series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit the proper
fees may cause this filing to be rejected.
65
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 After Issuance of Stock)
1. Name of corporation: Essential Reality, Inc.
2. The articles have been amended as follows (provide article numbers, if
available):
See Attachment A
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or
such greater proportion of the voting powers as may be required in the
case of a vote by classes or series, or as may be required by the
provisions of the articles of incorporation have voted in favor of the
amendment is: 5,100,260. *
4. Officer Signature (Required):
/s/ Humbert B. Powell, III
--------------------------
Humbert B. Powell, III
Chief Executive Officer (Acting)
* If any proposed amendment would alter or change any preference or any relative
or other right given to any class or series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit the proper
fees may cause this filing to be rejected.
66
ATTACHMENT A
"FOURTH. The aggregate number of shares which this corporation is authorized
to issue is fifty-five million (55,000,000), divided into classes as
follows:
A. Fifty million (50,000,000) shares of common stock, $.001 par value per
share (hereinafter called the "Common Stock), and
B. Five million (5,000,000) shares of preferred stock, $.001 par value per
share, to be issued in series (hereinafter called the "Preferred Stock").
The following is a statement of the designations, powers, preferences and
rights, and the qualifications, limitations or restrictions with respect
to the Preferred Stock of this corporation: The shares of Preferred Stock
may be issued in one or more series, and each series shall be so
designated as to distinguish the shares thereof from the shares of all
other series.
Authority is hereby expressly granted to the Board of Directors of this
corporation to fix by resolution, subject to the provisions herein set
forth, before the issuance of any shares of a particular series, the
number, designations, and relative rights, preferences and limitations of
the shares of such series including (1) voting rights, if any, which may
include the right to vote together as a single class with the Common Stock
and any other series of the Preferred Stock with the number of votes per
share accorded to shares of such series being the same as or different
from that accorded to such other shares, (2) the dividend rate per annum,
if any, and the terms and conditions pertaining to dividends and whether
such dividends shall be cumulative, (3) the amount or amounts payable upon
such voluntary or involuntary liquidation, (4) the redemption price or
prices, if any, and the terms and conditions of the redemption, (5)
sinking fund provisions, if any for the redemption or purchase of such
shares, (6) the terms and conditions on which such shares are convertible,
in the event the shares are to have conversion rights, and (7) any other
rights, preferences and limitations pertaining to such series which may be
fixed by the Board of Directors pursuant to the Nevada Revised Statutes."
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Exhibit G
BYLAWS OF JPAL, INC., a Nevada corporation (name changed to Essential Reality,
Inc.)
SECTION 1. OFFICES The principal office of JPAL, Inc., a Nevada corporation
("Corporation") shall be located at the principal place of business or such
other place as the Board of Directors ("Board") may designate. The Corporation
may have such other offices, either within or without the State of Nevada, as
the Board may designate or as the business of the Corporation may require from
time to time.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting The annual meeting of the shareholders shall be held the
first Friday of March in each year, or on such other day as shall be fixed by
resolution of the Board, at the principal office of the Corporation, or such
other place as fixed by the Board, for the purpose of electing directors and
transacting such other business as may properly come before that meeting. If the
day fixed for the annual meeting is a legal holiday at the place of that
meeting, that meeting shall be held on the next succeeding business day.
2.2 Special Meetings The Board, the President, or the Chairperson of the Board,
may call special meetings of the shareholders for any purpose. The holders of
not less than ten percent (10%) of all the outstanding shares of the Corporation
entitled to vote for or against any issue proposed to be considered at the
proposed special meeting, if they date, sign and deliver to the Corporation's
Secretary a written demand for a special meeting specifying the purpose or
purposes for which it is to be held, may call a special meeting of the
shareholders for such specified purpose.
2.3 Place of Meeting All meetings shall be held at the principal office of the
Corporation, or at such other place as designated by the Board, by any persons
entitled to call a meeting pursuant to the bylaws, or in a waiver of notice
signed by all of the shareholders entitled to vote at that meeting.
2.4 Notice of Meeting (a) The Corporation shall cause to be delivered to each
shareholder entitled to notice of, or to vote at, an annual or special meeting
of shareholders, either personally or by mail, not less than ten (10) days nor
more than sixty (60) days before that meeting, written notice stating the date,
time and place of that meeting and, in the case of a special meeting, the
purpose or purposes for which that meeting is called. (b) Notice to a
shareholder of an annual or special shareholders meeting shall be in writing.
Such notice, if in comprehensible form, is effective (a) when mailed, if it is
mailed postpaid and is correctly addressed to that shareholder's address
specified in the Corporation's then current record of shareholders, or (b) when
received by that shareholder, if it is delivered by telegraph, facsimile
transmission or private courier. (c) If an annual or special shareholders
meeting is adjourned to a different date, time, or place, notice of the new
date, time, or place shall not be required if the new date, time, or place is
announced at that meeting before adjournment, unless a new record date for the
adjourned meeting is, or must be, fixed pursuant to (i) Section 2.6(a) of these
bylaws or (ii) the Nevada General Corporation Law.
2.5 Waiver of Notice (a) Whenever any notice is required to be given to any
shareholder pursuant to the provisions of these bylaws, the Articles of
Incorporation or the Nevada General Corporation Law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time specified in such notice, and delivered to the Corporation for
inclusion in the minutes for filing with the corporate records, shall be deemed
equivalent to the giving of such notice. (b) The attendance of a shareholder at
a meeting shall be a waiver of each objection to lack of, or defect in, notice
of such meeting or of consideration of a particular matter at that meeting,
unless that shareholder, at the beginning of that meeting or prior to
consideration of such matter, objects to holding that meeting, transacting
business at that meeting, or considering the matter when presented at that
meeting.
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2.6 Fixing of Record Date for Determining Shareholders (a) For the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders, or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or to make a determination of shareholders for any
other purpose, the Board may fix in advance a date as the record date for any
such determination. Such record date shall be not more than seventy (70) days,
and in case of a meeting of shareholders, not less than ten (10) days, prior to
the date on which the particular action requiring such determination is to be
taken. If no record date is fixed for the determination of shareholders entitled
to notice of, or to vote at, a meeting, or to receive payment of a dividend, the
date on which the notice of meeting is mailed or on which the resolution of the
Board declaring such dividend is adopted, as the case may be, shall be the
record date for such determination. Such determination shall apply to any
adjournment of that meeting; provided, however, such adjournment is not set for
a date more than one hundred twenty (120) days after the date fixed for the
original meeting. (b) The record date for the determination of shareholders
entitled to demand a special shareholders meeting shall be the date the first
shareholder signs the demand.
2.7 Shareholders' List
(a) Beginning two (2) business days after notice of a meeting of shareholders is
given, a complete alphabetical list of the shareholders entitled to notice of
that meeting shall be made, arranged by voting group, and within each voting
group by class or series, with the address of and number of shares held by each
shareholder. Such record shall be kept on file at the Corporation's principal
office or at a place identified in that meeting notice in the city where the
meeting will be held. On written demand, such record shall be subject to
inspection by any shareholder at any time during normal business hours. Such
record shall also be kept open at that meeting for inspection by any
shareholder.
(b) A shareholder may, on written demand, copy the shareholders' list at such
shareholder's expense during regular business hours; provided, however, that:
(i) Such shareholder's demand is made in good faith and for another
purpose;
ii) Such shareholder has described with reasonable particularity such
shareholder's purpose specified in the written demand;
and
(iii) The shareholders' list is directly related to such shareholder's
purpose.
2.8 Quorum A majority of the votes entitled to be cast on a matter at a meeting
by a voting group, represented in person or by proxy, shall constitute a quorum
of that voting group for action on that matter at a meeting of the shareholders.
If a quorum is not present for a matter to be acted upon, a majority of the
shares represented at that meeting may adjourn that meeting from time to time
without additional notice. If the necessary quorum is present or represented at
a reconvened meeting following such an adjournment, any business may be
transacted that might have been transacted at the meeting as originally called.
The shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
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2.9 Manner of Acting (a) If a quorum exists, action on a matter (other than the
election of directors) by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the affirmative vote of a greater number is required by these bylaws, the
Articles of Incorporation or the Nevada General Corporation Law. (b) If a matter
is to be voted on by a single group, action on that matter is taken when voted
upon by that voting group. If a matter is to be voted on by two (2) or more
voting groups, action on that matter is taken only when voted upon by each of
those voting groups counted separately. Action may be taken by one voting group
on a matter even though no action is taken by another voting group entitled to
vote on such matter.
2.10 Proxies A shareholder may vote by proxy executed in writing by that
shareholder or by his or her attorney-in-fact. Such proxy shall be effective
when received by the Secretary or other officer or agent authorized to tabulate
votes at the meeting. A proxy shall become invalid eleven (11) months after the
date of its execution, unless otherwise expressly provided in the proxy. A proxy
for a specified meeting shall entitle the holder thereof to vote at any
adjournment of that meeting, but shall not be valid after the final adjournment
thereof.
2.11 Voting of Shares Each outstanding share entitled to vote shall be entitled
to one vote upon each matter submitted to a vote at a meeting of shareholders.
2.12 Voting for Directors Each shareholder may vote, in person or by proxy, the
number of shares owned by such shareholder that are entitled to vote at an
election of directors, for as many persons as there are directors to be elected
and for whose election such shares have a right to vote. Unless otherwise
provided in the Articles of Incorporation, directors are elected by a plurality
of the votes cast by shares entitled to vote in the election at a meeting at
which a quorum is present.
2.13 Voting of Shares by Corporations
2.13.1 Shares Held by Another Corporation. Shares standing in the name of
another corporation may be voted by such officer, agent or proxy as the
bylaws of such other corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine;
provided, however, such shares are not entitled to vote if the Corporation
owns, directly or indirectly, a majority of the shares entitled to vote
for directors of such other corporation.
2.13.2 Shares Held by the Corporation. Authorized but unissued shares
shall not be voted or counted for determining whether a quorum exists at
any meeting or counted in determining the total number of outstanding
shares at any given time. Notwithstanding the foregoing, shares of its own
stock held by the Corporation in a fiduciary capacity may be counted for
purposes of determining whether a quorum exists, and may be voted by the
Corporation.
2.14 Acceptance or Rejection of Shareholder Votes, Consents, Waivers and Proxy
Appointments
2.14.1 Documents Bearing Name of Shareholders. If the name signed on a
vote, consent, waiver or proxy appointment corresponds to the name of a
shareholder, the Secretary or other agent authorized to tabulate votes at
the meeting may, if acting in good faith, accept such vote, consent,
waiver or proxy appointment and give it effect as the act of the
shareholder.
2.14.2 Documents Bearing Name of Third Parties. If the name signed on a
vote, consent, waiver or proxy appointment does not correspond to the name
of its shareholder, the Secretary or other agent authorized to tabulate
votes at the meeting may nevertheless, if acting in good faith, accept
such vote, consent, waiver or proxy appointment and give it effect as the
act of the shareholder if:
(a) The shareholder is an entity and the name signed purports to be
that of an officer or an agent of that entity;
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(b) The name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and,
if the Secretary or other agent requests, acceptable evidence of
fiduciary status has been presented;
(c) The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder, and, if the Secretary or other agent
requests, acceptable evidence of this status has been presented;
(d) The name signed purports to be that of a pledgee, beneficial
owner or attorney-in-fact of the shareholder and, if the Secretary
or other agent requests, acceptable evidence of the signatory's
authority to sign has been presented; or
(e) Two or more persons are the shareholder as co-owners or
fiduciaries and the name signed purports to be the name of at least
one of the co-owners and the person signing appears to be acting on
behalf of all co-owners.
2.14.3 Rejection of Documents. The Secretary or other agent authorized to
tabulate votes at the meeting is entitled to reject a vote, consent,
waiver or proxy appointment if such agent, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or
about the signatory's authority to sign for the shareholder.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation shall be managed
by the Board, except as may be otherwise provided in these Bylaws, the Articles
of Incorporation or the Nevada General Corporation Law.
3.2 Number, Tenure and Qualifications. The Board of Directors shall consist of
no less than one (1) and no more than fifteen (15) Directors, the specific
number to be set by resolution of the Board of Directors. The number of
directors may be changed from time to time by amendment to these Bylaws, but no
decrease in the number of directors shall shorten the term of any incumbent
director. The terms of the directors expire at the next annual shareholder's
meeting following their election. Despite the expiration of a director's term,
however, the director shall continue to serve until such director's successor is
elected and qualifies or until there is a decrease in the number of directors.
Directors need not be shareholders of the Corporation or residents of the State
of Nevada.
3.3 Annual and Regular Meetings. An annual meeting of the Board of Directors
shall be held without additional notice immediately after and at the same place
as the annual meeting of shareholders. By resolution the Board of Directors, or
any committee thereof, may specify the time and place for holding regular
meetings thereof without other notice than such resolution.
3.4 Special Meetings. Special meetings of the Board of Directors or any
committee designated by the Board of Directors may be called by or at the
request of the Chair of the Board of Directors, or the President or any director
and, in the case of any special meeting of any committee designated by the Board
of Directors, by the Chair thereof. The person or persons authorized to call
special meetings may fix any place either within or without the State of Nevada
as the place for holding any special Board or committee meeting called by them.
3.5 Meetings by Telecommunications. Members of the Board of Directors or any
committee designated by the Board of Directors may participate in a meeting of
the Board of Directors or such committee by use of any means of
telecommunications equipment pursuant to which all persons participating may
simultaneously hear each other during such meeting. Participation by such method
shall be deemed presence in person at such meeting.
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3.6 Notice of Special Meetings. Notice of a special Board of Directors or
committee meeting specifying the date, time and place of such meeting shall be
given to a director in writing or orally by telephone or in person as specified
below. Neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice of such meeting.
3.6.1 Personal Delivery. If delivery is by personal service, the notice shall be
effective if delivered at the address specified on the records of the
Corporation at least one day before the meeting.
3.6.2 Delivery by Mail. If notice is delivered by mail, the notice shall be
deemed effective if deposited in the official government mail at least five (5)
days before the meeting properly addressed to a director at his or her address
specified on the records of the Corporation with postage prepaid.
3.6.3 Delivery by Telegraph. If notice is delivered by telegraph, the notice
shall be deemed effective if the content thereof is delivered to the telegraph
company by such time that the telegraph company guarantees delivery at least one
day before the meeting.
3.6.4 Oral Notice. If notice is delivered orally, by telephone or in person, the
notice shall be effective if personally given to a director at least one day
before the meeting.
3.6.5 Notice by Facsimile Transmission. If notice is delivered by facsimile
transmission, the notice shall be deemed effective if the content thereof is
transmitted to the office of a director, at the facsimile number specified on
the records of the Corporation, at least one day before the meeting, and receipt
is either confirmed by confirming transmission equipment or acknowledged by the
receiving office.
3.6.6 Notice by Private Courier. If notice is delivered by private courier, the
notice shall be deemed effective if delivered to the courier, properly addressed
and prepaid, by such time that the courier guarantees delivery at least one day
before the meeting.
3.7 Waiver of Notice
3.7.1 Written Waiver. Whenever any notice is required to be given to any
director pursuant to the provisions of these Bylaws, the Articles of
Incorporation or the Nevada General Corporation Law, a waiver thereof in
writing, executed at any time, specifying the meeting for which notice is
waived, signed by the person or persons entitled to such notice, and filed with
the minutes or corporate records, shall be deemed equivalent to the giving of
such notice.
3.7.2 Waiver by Attendance. The attendance of a director at a Board of Directors
or committee meeting shall constitute a waiver of notice of such meeting, unless
such director, at the beginning of the meeting, or promptly upon such director's
arrival, objects to holding the meeting or transacting any business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
3.8 Quorum. A majority of the number of directors determined by or in the manner
provided by these Bylaws shall constitute a quorum for the transaction of
business at any Board of Directors meeting.
3.9 Manner of Acting. The act of the majority of the directors present at a
Board of Directors or committee meeting at which there is a quorum shall be the
act of the Board of Directors or committee, unless the vote of a greater number
is required by these Bylaws, the Articles of Incorporation or the Nevada General
Corporation Law.
3.10 Presumption of Assent. A director of the Corporation present at a Board of
Directors or committee meeting at which action on any corporate matter is taken
shall be deemed to have assented to the action taken unless such director
objects at the beginning of the meeting, or promptly upon such director's
arrival, to holding the meeting or transacting business at the meeting; or such
director's dissent is entered in the minutes of the meeting; or such director
delivers a written notice of dissent or abstention to such action with the
presiding officer of the meeting before the adjournment thereof; or such
director forwards such notice by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. A director who
voted in favor of such action may not thereafter dissent or abstain.
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3.11 Action by Board of Directors or Committee Without a Meeting. Any action
which could be taken at a meeting of the Board of Directors or of any committee
appointed by the Board of Directors may be taken without a meeting, if a written
consent setting forth the action so taken is signed by each Director or by each
committee member. The action shall be effective when the last signature is
placed on the consent, unless the consent specifies an earlier or later date.
Such written consent, which shall have the same effect as a unanimous vote of
the directors or such committee, shall be inserted in the minute book as if it
were the minutes of a Board of Directors or committee meeting.
3.12 Resignation. Any director may resign at any time by delivering written
notice to the Chair of the Board of Directors, the Board of Directors, or to the
registered office of the Corporation. Such resignation shall take effect at the
time specified in the notice, or if no time is specified, upon delivery. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. Once delivered, a notice of resignation is
irrevocable unless revocation is permitted by the Board of Directors.
3.13 Removal. One or more members of the Board of Directors (including the
entire Board of Directors) may be removed at a meeting of shareholders called
expressly for that purpose, provided that the notice of such meeting states that
the purpose, or one of the purposes, of the meeting is such removal. A member of
the Board of Directors may be removed with or without cause, unless the Articles
of Incorporation permit removal for cause only, by a vote of the holders of a
majority of the shares then entitled to vote on the election of the director. A
director may be removed only if the number of votes cast to remove the director
exceeds the number of votes cast to not remove the director. If a director is
elected by a voting group of shareholders, only the shareholders of that voting
group may participate in the vote to remove such director.
3.14 Vacancies. Any vacancy occurring on the Board of Directors, including a
vacancy resulting from an increase in the number of directors, may be filled by
the shareholders, by the Board of Directors, by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his or her predecessor in office;
except that the term of a director elected by the Board of Directors to fill a
vacancy expires at the next shareholders' meeting at which directors are
elected. Any directorship to be filled by reason of an increase in the number of
directors may be filled by the affirmative vote of a majority of the number of
directors fixed by the Bylaws prior to such increase for a term of office
continuing only until the next election of directors by the shareholders. Any
directorship not so filled by the directors shall be filled by election at the
next annual meeting of shareholders or at a special meeting of shareholders
called for that purpose. If the vacant directorship is filled by the
shareholders and was held by a director elected by a voting group of
shareholders, then only the holders of shares of that voting group are entitled
to vote to fill such vacancy. A vacancy that will occur at a specific later date
by reason of a resignation effective at such later date or otherwise may be
filled before the vacancy occurs, but the new director may not take office until
the vacancy occurs.
3.15 Minutes. The Board of Directors shall keep minutes of its meetings and
shall cause them to be recorded in books kept for that purpose.
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3.16 Executive and Other Committees
3.16.1 Creation of Committees. The Board of Directors, by resolution adopted by
a majority of the number of Directors fixed in the manner provided by these
Bylaws, may appoint standing or temporary committees, including an Executive
Committee, from its own number. The Board of Directors may invest such
committee(s) with such powers as it may see fit, subject to such conditions as
may be prescribed by the Board of Directors, these Bylaws, the Articles of
Incorporation and the Nevada General Corporation Law.
3.16.2 Authority of Committees. Each committee shall have and may exercise all
of the authority of the Board of Directors to the extent provided in the
resolution of the Board of Directors designating the committee and any
subsequent resolutions pertaining thereto and adopted in like manner, except
that no such committee shall have the authority to (a) authorize distributions,
except as may be permitted by Section 3.16.2 (g) of these Bylaws; (b) approve or
propose to shareholders actions required by the Nevada General Corporation Law
to be approved by shareholders; (c) fill vacancies on the Board of Directors or
any committee thereof; (d) adopt, amend or repeal these Bylaws; (e) amend the
Certificate of Incorporation; (f) approve a plan of merger not requiring
shareholder approval; or (g) authorize or approve reacquisition of shares,
except within limits prescribed by the Board of Directors.
3.16.3 Quorum and Manner of Acting. A majority of the number of Directors
composing any committee of the Board of Directors, as established and fixed by
resolution of the Board of Directors, shall constitute a quorum for the
transaction of business at any meeting of such committee.
3.16.4 Minutes of Meetings. All committees so appointed shall keep regular
minutes of their meetings and shall cause them to be recorded in books kept for
that purpose.
3.16.5 Resignation. Any member of any committee may resign at any time by
delivering written notice thereof to the Board of Directors, the Chair of the
Board of Directors or the Corporation. Any such resignation shall take effect at
the time specified in the notice, or if no time is specified, upon delivery.
Unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. Once delivered, a notice of resignation is
irrevocable unless revocation is permitted by the Board of Directors.
3.16.6 Removal. The Board of Directors may remove from office any member of any
committee elected or appointed by it, but only by the affirmative vote of not
less than a majority of the number of directors fixed by or in the manner
provided by these Bylaws.
3.17 Compensation By Board of Directors resolution, directors and committee
members may be paid their expenses, if any, of attendance at each Board of
Directors or committee meeting, or a fixed sum for attendance at each Board of
Directors or committee meeting, or a staled salary as director or a committee
member, or a combination of the foregoing. No such payment shall preclude any
director or committee member from serving the Corporation in any other capacity
and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 Number The Officers of the Corporation shall be a President and a Secretary,
each of whom shall be appointed by the Board of Directors. One or more Vice
Presidents, a Treasurer and such other Officers and assistant Officers,
including a Chair of the Board of Directors, may be appointed by the Board of
Directors; such officers and assistant officers to hold office for such period,
have such authority and perform such duties as are provided in these Bylaws or
as may be provided by resolution of the Board of Directors. Any Officer may be
assigned by the Board of Directors any additional title that the Board of
Directors deems appropriate. The Board of Directors may delegate to any officer
or agent the power to appoint any such subordinate officers or agents and to
prescribe their respective terms of office, authority and duties. Any two or
more offices may be held by the same person.
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4.2 Appointment and Term of Office The officers of the Corporation shall be
appointed annually by the Board of Directors at the Board of Directors meeting
held after the annual meeting of the shareholders. If the appointment of
officers is not made at such meeting, such appointment shall be made as soon
thereafter as a Board of Directors meeting conveniently may be held. Unless an
officer dies, resigns, or is removed from office, he or she shall hold office
until the next annual meeting of the Board of Directors or until his or her
successor is appointed.
4.3 Resignation Any officer may resign at any time by delivering written notice
to the Corporation. Any such resignation shall take effect at the time specified
in the notice, or if no time is specified, upon delivery. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Once delivered, a notice of resignation is irrevocable unless
revocation is permitted by the Board of Directors.
4.4 Removal Any officer or agent appointed by the Board of Directors may be
removed by the Board of Directors, with or without cause, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.
4.5 Vacancies A vacancy in any office because of death, resignation, removal,
disqualification, creation of a new office or any other cause may be filled by
the Board of Directors for the unexpired portion of the term, or for a new term
established by the Board of Directors. If a resignation is made effective at a
later date, and the Corporation accepts such future effective date, the Board of
Directors may fill the pending vacancy before the effective date, if the Board
of Directors provides that the successor does not take office until the
effective date.
4.6 Chair of the Board of Directors If appointed, the Chair of the Board of
Directors shall perform such duties as shall be assigned to him or her by the
Board of Directors from time to time and shall preside over meetings of the
Board of Directors and shareholders unless another officer is appointed or
designated by the Board of Directors as Chair of such meeting.
4.7 President The President shall be the chief executive officer of the
Corporation unless some other Officer is so designated by the Board of
Directors, shall preside over meetings of the Board of Directors and
shareholders in the absence of a Chair of the Board of Directors and, subject to
the Board of Director's control, shall supervise and control all of the assets,
business and affairs of the Corporation. The President shall have authority to
sign deeds, mortgages, bonds, contracts, or other instruments, except when the
signing and execution thereof have been expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation,
or are required by law to be otherwise signed or executed by some other officer
or in some other manner. In general, the President shall perform all duties
incident to the office of President and such other duties as are prescribed by
the Board of Directors from time to time.
4.8 Vice President In the event of the death of the President or his or her
inability to act, the Vice President (or if there is more than one Vice
President, the Vice President who was designated by the Board of Directors as
the successor to the President, or if no Vice President is so designated, the
Vice President first appointed to such office) shall perform the duties of the
President, except as may be limited by resolution of the Board of Directors,
with all the powers of and subject to all the restrictions upon the President.
Vice Presidents shall have, to the extent authorized by the President or the
Board of Directors, the same powers as the President to sign deeds, mortgages,
bonds, contracts or other instruments. Vice Presidents shall perform such other
duties as from time to time may be assigned to them by the President or by the
Board of Directors.
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4.9 Secretary The Secretary shall (a) prepare and keep the minutes of meetings
of the shareholders and the Board of Directors in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be responsible for custody
of the corporate records and seal of the corporation; (d) keep registers of the
post office address of each shareholder and Director; (e) have general charge of
the stock transfer books of the Corporation; and (f) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him or her by the President or by the Board of
Directors. In the absence of the Secretary, an Assistant Secretary may perform
the duties of the Secretary.
4.10 Treasurer If required by the Board of Directors, the Treasurer shall give a
bond for the faithful discharge of his or her duties in such amount and with
such surety or sureties as the Board of Directors shall determine. The Treasurer
shall have charge and custody of and be responsible for all funds and securities
of the Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the name
of the Corporation in banks, trust companies or other depositories selected in
accordance with the provisions of these Bylaws; and in general perform all of
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him or her by the President or by the Board of
Directors. In the absence of the Treasurer, an Assistant Treasurer may perform
the duties of the Treasurer.
4.11 Salaries The salaries of the Officers shall be fixed from time to time by
the Board of Directors or by any person or persons to whom the Board of
Directors has delegated such authority. No officer shall be prevented from
receiving such salary by reason of the fact that he or she is also a Director of
the Corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts The Board of Directors may authorize any Officer or Officers, or
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation. Such authority may
be general or confined to specific instances.
5.2 Loans to the Corporation No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
5.3 Loans to Directors The Corporation shall not lend money to or guarantee the
obligation of a Director unless (a) the particular loan or guarantee is approved
by a majority of the votes represented by the outstanding voting shares of all
classes, voting as a single voting group, excluding the votes of the shares
owned by or voted under the control of the benefitted director; or (b) the Board
of Directors determines that the loan or guarantee benefits the Corporation and
either approves the specific loan or guarantee or a general plan authorizing the
loans and guarantees. The fact that a loan or guarantee is made in violation of
this provision shall not affect the borrower's liability on the loan.
5.4 Checks, Drafts, Etc. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such officer or officers, or agent or agents, of
the Corporation and in such manner as is from time to time determined by
resolution of the Board of Directors.
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5.5 Deposits All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares No shares of the Corporation shall be issued unless
authorized by the Board of Directors, which authorization shall include the
maximum number of shares to be issued and the consideration to be received for
each share. Before the Corporation issues shares, the Board of Directors shall
determine that the consideration received or to be received for such shares is
adequate. Such determination by the Board of Directors shall be conclusive
insofar as the adequacy of consideration for the issuance of shares relates to
whether the shares are validly issued, fully paid and nonassessable.
6.2 Escrow for Shares The Board of Directors may authorize the placement in
escrow of shares issued for a contract for future services or benefits or a
promissory note, or may authorize other arrangements to restrict the transfer of
shares, and may authorize the crediting of distributions in respect of such
shares against their purchase price, until the services are performed, the note
is paid or the benefits received. If the services are not performed, the note is
not paid, or the benefits are not received, the Board of Directors may cancel,
in whole or in part, such shares placed in escrow or restricted and such
distributions credited.
6.3 Certificates for Shares Certificates representing shares of the Corporation
shall be in such form as shall be determined by the Board of Directors Such
certificates shall be signed by any two of the following officers: the Chair of
the Board of Directors, the President, any Vice President, the Treasurer, the
Secretary or any Assistant Secretary. Any or all of the signatures on a
certificate may be facsimiles if the certificate is manually signed on behalf of
a transfer agent or a registrar other than the Corporation itself or an employee
of the Corporation. All certificates shall be consecutively numbered or
otherwise identified.
6.4 Stock Records The stock transfer books shall be kept at the registered
office or principal place of business of the Corporation or at the office of the
Corporation's transfer agent or registrar. The name and address of each person
to whom certificates for shares are issued, together with the class and number
of shares represented by each such certificate and the date of issue thereof,
shall be entered on the stock transfer books of the Corporation. The person in
whose name shares stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes. 6.5 Restriction on
Transfer
6.5.1 Securities Laws Except to the extent that the Corporation has obtained an
opinion of counsel acceptable to the Corporation that transfer restrictions are
not required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the Corporation shall bear conspicuously on the front or back of the
certificate a legend or legends describing the restriction or restrictions.
6.5.2 Other Restrictions In addition, the front or back of all certificates
shall include conspicuous written notice of any further restrictions which may
be imposed on the transferability of such shares.
6.6 Transfer of Shares Transfer of shares of the Corporation shall be made only
on the stock transfer books of the Corporation pursuant to authorization or
document of transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
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6.7 Lost or Destroyed Certificates In the case of a lost, destroyed or mutilated
certificate, a new certificate may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
6.8 Transfer Agent and Registrar The Board of Directors may from time to time
appoint one or more Transfer Agents and one or more Registrars for the shares of
the Corporation, with such powers and duties as the Board of Directors shall
determine by resolution.
6.9 Officer Ceasing to Act In case any officer who has signed or whose facsimile
signature has been placed upon a stock certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if the signer were such officer at the date of its
issuance.
6.10 Fractional Shares The Corporation shall not issue certificates for
fractional shares.
SECTION 7. BOOKS AND RECORDS The Corporation shall keep correct and complete
books and records of account, stock transfer books, minutes of the proceedings
of its shareholders and Board of Directors and such other records as may be
necessary or advisable.
SECTION 8. FISCAL YEAR The fiscal year of the Corporation shall be the calendar
year; provided, however, that the Board of Directors may select a different
fiscal year at any time for purposes of federal income taxes, or otherwise.
SECTION 9. SEAL The seal of the Corporation, if any, shall consist of the name
of the Corporation and the state of its incorporation
SECTION 10. INDEMNIFICATION
10.1 Right to Indemnification of Directors and Officers Each person who was or
is made a party or is threatened to be made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Nevada General Corporation Law, as the same exists or may
hereafter be amended, (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director or officer
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in Section 10.3 of
these Bylaws or with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
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10.2 Right to Advancement of Expenses The right to indemnification conferred in
Section 10.1 of these Bylaws shall include the right to be paid by the
Corporation the expenses incurred in defending any proceeding for which such
right to indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Nevada General Corporation Law requires, an advancement of expenses incurred by
an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this section or otherwise.
10.3 Right of Indemnitee to Bring Suit The rights to indemnification and to the
advancement of expenses conferred in Sections 10.1 and 10.2 of these Bylaws
shall be contract rights. If a claim under Sections 10.1 and 10.2 of these
Bylaws is not paid in full by the Corporation within sixty (60) days after a
written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty (20) days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Nevada General Corporation Law. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
Nevada General Corporation Law, nor an actual determination by the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
section or otherwise shall be on the Corporation.
10.4 Non-Exclusivity of Rights The rights to indemnification and to the
advancement of expenses conferred in this article shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
the Corporation's certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
10.5 Insurance The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Nevada General Corporation Law.
10.6 Indemnification of Employees and Agents of the Corporation The Corporation
may, to the extent authorized from time to time by the board of directors, grant
rights to indemnification, and to the advancement of expenses to any employee or
agent of the Corporation to the fullest extent of the provisions of this article
with respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
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10.7 No Presumption of Bad Faith The termination of any 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 this Corporation, or, with respect to
any criminal proceeding, that the person had reasonable cause to believe that
the conduct was unlawful.
10.8 Survival of Rights The rights conferred on any person by this Bylaw shall
continue as to a person who has ceased to be a director, officer, employee or
other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
10.9 Amendments to Law For purposes of this Bylaw, the meaning of "law" within
the phrase "to the fullest extent not prohibited by law" shall include, but not
be limited to, the Nevada General Corporation Law, as the same exists on the
date hereof or as it may be amended; provided, however, that in the case of any
such amendment, such amendment shall apply only to the extent that it permits
the Corporation to provide broader indemnification rights than the Act permitted
the Corporation to provide prior to such amendment.
10.10 Savings Clause If this Bylaw or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, the Corporation shall
indemnify each director, [officer or other agent] to the fullest extent
permitted by any applicable portion of this Bylaw that shall not have been
invalidated, or by any other applicable law.
10.11 Certain Definitions For the purposes of this Section, the following
definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall include, without
limitation, the investigation, preparation, prosecution, defense, settlement and
appeal of any threatened, pending or completed action, suit or proceeding,
whether brought in the right of the Corporation or otherwise and whether civil,
criminal, administrative or investigative, in which the director or officer may
be or may have been involved as a party or otherwise by reason of the fact that
the director or officer is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise.
(b) The term "expenses" shall be broadly construed and shall include, without
limitation, all costs, charges and expenses (including fees and disbursements of
attorneys, accountants and other experts) actually and reasonably incurred by a
director or officer in connection with any proceeding, all expenses of
investigations, judicial or administrative proceedings or appeals, and any
expenses of establishing a right to indemnification under these Bylaws, but
shall not include amounts paid in settlement, judgments or fines.
(c) "Corporation" shall mean JPAL, Inc. and any successor corporation thereof.
(d) Reference to a "director" or "officer" of the Corporation shall include,
without limitation, situations where such person is serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise.
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(e) 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. 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. A person who acted in good faith and in a
manner the 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 Bylaw.
SECTION 11. AMENDMENTS These Bylaws may be altered, amended or repealed and new
Bylaws may be adopted by the Board of Directors at any regular or special
meeting of the Board of Directors; provided, however, that the shareholders, in
amending or repealing a particular Bylaw, may provide expressly that the Board
of Directors may not amend or repeal that Bylaw. The shareholders may also make,
alter, amend and repeal the Bylaws of the Corporation at any annual meeting or
at a special meeting called for that purpose. All Bylaws made by the Board of
Directors may be amended, repealed, altered or modified by the shareholders at
any regular or special meeting called for that purpose. The foregoing Bylaws
were adopted by the Board of Directors of the Corporation on April 15, 1999.
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Exhibit H
NEVADA REVISED STATUTES
DISSENTERS' RIGHTS STATUTES
NRS 92A.300 DEFINITIONS. As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections. (Added
to NRS by 1995, 2086)
NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED. "Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record. (Added to NRS by 1995, 2087)
NRS 92A.310 "CORPORATE ACTION" DEFINED. "Corporate action" means the action of a
domestic corporation. (Added to NRS by 1995, 2087)
NRS 92A.315 "DISSENTER" DEFINED. "Dissenter" means a stockholder who is entitled
to dissent from a domestic corporation's action under NRS 92A.380 and who
exercises that right when and in the manner required by NRS 92A.400 to 92A.480,
inclusive. (Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "FAIR VALUE" DEFINED. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
(Added to NRS by 1995, 2087) NRS 92A.325 "STOCKHOLDER" DEFINED. "Stockholder"
means a stockholder of record or a beneficial stockholder of a domestic
corporation. (Added to NRS by 1995, 2087)
NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED. "Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation. (Added
to NRS by 1995, 2087)
NRS 92A.335 "SUBJECT CORPORATION" DEFINED. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective. (Added to NRS by 1995, 2087)
NRS 92A.340 COMPUTATION OF INTEREST. Interest payable pursuant to NRS 92A.300 to
92A.500, inclusive, must be computed from the effective date of the action until
the date of payment, at the average rate currently paid by the entity on its
principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances. (Added to NRS by 1995, 2087)
NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity. (Added to NRS by 1995, 2088)
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NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY COMPANY.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity. (Added to NRS by
1995, 2088)
NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws,
no member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1. (Added to NRS by
1995, 2088)
NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS AND
TO OBTAIN PAYMENT FOR SHARES.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, any
stockholder is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of any of the following corporate actions:
(a) Consummation of a conversion or plan of merger to which the domestic
corporation is a constituent entity:
(1) If approval by the stockholders is required for the conversion
or merger by NRS 92A.120 to 92A.160, inclusive, or the articles of
incorporation, regardless of whether the stockholder is entitled to vote on the
conversion or plan of merger; or
(2) If the domestic corporation is a subsidiary and is merged with
its parent pursuant to NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation
is a constituent entity as the corporation whose subject owner's interests will
be acquired, if his shares are to be acquired in the plan of exchange.
(c) Any corporate action taken pursuant to a vote of the stockholders to
the extent that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
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2. A stockholder who is entitled to dissent and obtain payment pursuant to
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
(Added to NRS by 1995, 2087; A 2001, 1414, 3199; 2003, 3189)
NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES OR
SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan
of merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of Securities
Dealers, Inc., or held of record by a least 2,000 holders of owner's interests
of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph
(b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
(Added to NRS by 1995, 2088)
NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY TO
SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
84
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 and
NRS 92A.400 is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;
85
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF RIGHTS
OF STOCKHOLDER.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he or the beneficial owner on whose behalf he is
dissenting, as the case may be, acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are cancelled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730; 2003, 3189)
NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER DEMAND
FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are cancelled or modified by the taking of the proposed corporate
action.
(Added to NRS by 1995, 2090)
NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
86
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of income
for that year, a statement of changes in the stockholders' equity for that year
and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under
NRS 92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2090)
NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF DISSENTER'S
NOTICE.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
87
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
(Added to NRS by 1995, 2091)
NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
(Added to NRS by 1995, 2091)
NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS AND
FEES.
1. The court in a proceeding to determine fair value shall determine all
of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
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2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
(Added to NRS by 1995, 2092)
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Exhibit I
ALLIANCE DISTRIBUTORS HOLDING INC. 2004 STOCK PLAN
1. ARTICLE I General
1.1. Purpose. The purpose of the Plan is to provide additional incentive
to officers, directors, employees and others who render services to
Alliance Distributors Holding Inc. ("Corporation"). It is intended that
Awards granted under the Plan strengthen the desire of such persons to
join and remain in the employ of the Corporation, or otherwise render
services to the Corporation, and stimulate their efforts on behalf of the
Corporation.
1.2. Term. No Award shall be granted under the Plan after the close of
business on the day immediately preceding the 10-year anniversary of the
adoption of the plan. Subject to other applicable provisions of the Plan,
all Awards made under the Plan prior to such termination of the Plan shall
remain in effect until such Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
1.3. Shares Subject to the Plan. Subject to adjustments as provided in
Article IX, the number of shares of Stock that may be delivered, purchased
or used for reference purposes (with respect to SARs or Stock Units) with
respect to Awards granted under the Plan shall be 10,000,000 shares. If
any Award, or portion of an Award, under the Plan expires or terminates
unexercised, becomes unexercisable or is forfeited or otherwise
terminated, surrendered or canceled as to any shares without the delivery
of shares of Stock or other consideration, the shares subject to such
Award shall thereafter be available for further Awards under the Plan.
2. ARTICLE II Definitions; For purposes of the Plan, the following terms
shall be defined as set forth below.
2.1. Administrator means the Special Stock Option Committee or any other
committee which is designated by the Board as the "Administrator."
2.2. Award means any Stock Options (including ISOs and NSOs), SARs
(including free-standing and tandem SARs), Restricted Stock Awards, Stock
Units, or any combination of the foregoing granted pursuant to the Plan,
except, however, when the term is being used under the Plan with respect
to a particular category of grant in which case it shall only refer to
that particular category of grant.
2.3. Board means the Board of Directors of the Corporation.
2.4. Code means the Internal Revenue Code of 1986, as amended.
2.5. Fair Market Value of the Stock on any given date means the average of
the high and low price of a share of Stock, as traded on a national
securities exchange.
2.6. Grant Agreement means the agreement between the Corporation and the
Participant pursuant to which the Corporation authorizes an Award
hereunder. Each Grant Agreement entered into between the Corporation and a
Participant with respect to an Award granted under the Plan shall contain
such provisions, consistent with the provisions of the Plan, as may be
established by the Administrator.
2.7. Grant Date means the date on which the Administrator formally acts to
grant an Award to a Participant or such other date as the Administrator
shall so designate at the time of taking such formal action.
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2.8. ISO means any Stock Option designated and qualified as an "incentive
stock option" as defined in Code section 422.
2.9. NSO means any Option that is not an ISO.
2.10. Option means any option to purchase shares of Stock granted under
Article V.
2.11. Parent means a corporation, whether now or hereafter existing,
within the meaning of the definition of "parent corporation" provided in
Code section 424(e), or any successor to such definition.
2.12. Participant means any person to whom any Award is granted pursuant
to the Plan.
2.13. Restricted Stock Award means any Award of shares of restricted Stock
granted pursuant to Article VII of the Plan.
2.14. SAR means a stock appreciation right, as awarded under Article VI.
2.15.Stock means the voting common stock of the Corporation, subject to
adjustments pursuant to the Plan.
2.16. Stock Unit means credits to a bookkeeping reserve account solely for
accounting purposes, where the amount of the credit shall equal the Fair
Market Value of a share of Stock on the date of grant (unless the
Administrator provides otherwise in the Grant Agreement) and which shall
be subsequently increased or decreased to reflect the Fair Market Value of
a share of Stock. Stock Units do not require segregation of any of the
Corporation's assets. Stock Units are awarded under Article VII.
2.17. Subsidiary means any corporation or other entity (other than the
Corporation) in any unbroken chain of corporations or other entities,
beginning with the Corporation, if each of the corporations or entities
(other than the last corporation or entity in the unbroken chain) owns
stock or other interests possessing 50% or more of the economic interest
or the total combined voting power of all classes of stock or other
interests in one of the other corporations or entities in the chain.
3. ARTICLE III Administration
3.1. General. The Plan shall be administered by the Administrator. The
Administrator's determinations under the Plan (including without
limitation determinations of the persons to receive Awards, the form,
amount and timing of such Awards, the terms and provisions of such Awards
and the agreements evidencing same) need not be uniform and may be made by
the Administrator selectively among persons who receive, or are eligible
to receive, Awards under the Plan, whether or not such persons are
similarly situated.
3.2. Duties. The Administrator shall have full power and authority to
administer and interpret the Plan and to adopt such rules, regulations,
agreements, guidelines and instruments for the administration of the Plan
and for the conduct of its business as the Administrator deems necessary
or advisable, all within the Administrator's sole and absolute discretion.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan,
including, but not limited to, the authority to:
3.2.1. construe the Plan and any Award under the Plan;
3.2.2. subject to Section 4.1, select the persons to whom Awards may be
granted and the time or times at which Awards shall be granted;
3.2.3. determine the number of shares of Stock to be covered by or used
for reference purposes for any Award;
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3.2.4. determine and modify from time to time the terms and conditions,
including restrictions, of any Award (including provisions that
would allow for cashless exercise of Awards and/or reduction in the
exercise price of outstanding Awards) and to approve the form of
written instrument evidencing Awards;
3.2.5. accelerate the time or times at which an Award becomes vested or
when an Award may be exercised or becomes payable and to waive or
accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to,
any restriction or condition with respect to the vesting or
exercisability of an Award following a Participant's termination of
employment or death;
3.2.6. impose limitations on Awards, including limitations on transfer and
repurchase provisions; and
3.2.7. modify, extend or renew outstanding Awards, or accept the surrender
of outstanding Awards and substitute new Awards.
4. ARTICLE IV Eligibility and Participation
4.1. Eligibility. The persons eligible to participate in the Plan are
officers, directors, employees of the Corporation or its Subsidiaries and
others that render services to the Corporation or its Subsidiaries.
5. ARTICLE V Stock Options
5.1. General. Subject to the other applicable provisions of the Plan, the
Administrator may from time to time grant to eligible Participants Awards
of ISOs or NSOs. The ISO or NSO Awards granted shall be subject to the
following terms and conditions.
5.2. Grant of Option. The grant of an Option shall be evidenced by a Grant
Agreement, executed by the Corporation and the Participant, describing the
number of shares of Stock subject to the Option, whether the Option is an
ISO or NSO, the Exercise Price of the Option, the vesting period for the
Option and such other terms and conditions that the Administrator deems,
in it sole discretion, to be appropriate, provided that such terms and
conditions are not inconsistent with the Plan.
5.3. Price. The price per share payable upon the exercise of each Option
(the "Exercise Price") shall be determined by the Administrator and set
forth in the Grant Agreement; provided, however, that in the case of ISOs,
the Exercise Price shall not be less than 100% of the Fair Market Value of
the shares on the Grant Date.
5.4. Payment. Options may be exercised in whole or in part by payment of
the Exercise Price of the shares to be acquired in accordance with the
provisions of the Grant Agreement, and/or such rules and regulations as
the Administrator may prescribe, and/or such determinations, orders, or
decisions as the Administrator may make.
5.5. Terms of Options. The term during which each Option may be exercised
shall be determined by the Administrator; provided, however, that in no
event shall an ISO be exercisable more than ten years from the date it is
granted.
5.6. Reload Options. The terms of an Option may provide for the automatic
grant of a new Option Award when the Exercise Price of the Option and/or
any related tax withholding obligation is paid by tendering shares of
Stock.
5.7. Restrictions on ISOs. ISO Awards granted under the Plan shall comply
in all respects with Code section 422 and, as such, shall meet the
following additional requirements:
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5.7.1. Grant Date. An ISO must be granted within ten (10) years of the
earlier of the Plan's adoption by the Board of Directors or approval
by the Corporation's shareholders.
5.7.2. Exercise Price and Term. The Exercise Price of an ISO shall not be
less than 100% of the Fair Market Value of the shares on the date
the Option is granted and the term of the Option shall not exceed
ten (10) years. Notwithstanding the immediately preceding sentence,
the Exercise Price of any ISO granted to a Participant who owns,
within the meaning of Code section 422(b)(6), after application of
the attribution rules in Code section 424(d), more than ten percent
(10%) of the total combined voting power of all classes of shares of
the Corporation, or its Parent or Subsidiary corporations, shall not
be less than 110% of the Fair Market Value of the Stock on the Grant
Date and the term of such ISO shall not exceed five (5) years.
5.7.3. Maximum Grant. The aggregate Fair Market Value (determined as of
the Grant Date) of shares of Stock with respect to which all ISOs
first become exercisable by any Participant in any calendar year
under this or any other plan of the Corporation and its Parent and
Subsidiary corporations may not exceed $100,000 or such other amount
as may be permitted from time to time under Code section 422. To the
extent that such aggregate Fair Market Value shall exceed $100,000,
or other applicable amount, such Options shall be treated as NSOs.
In such case, the Corporation may designate the shares of Stock that
are to be treated as stock acquired pursuant to the exercise of an
ISO by issuing a separate certificate for such shares and
identifying the certificate as ISO shares in the stock transfer
records of the Corporation.
5.7.4. Participant. ISOs shall only be issued to employees of the
Corporation, or of a Parent or Subsidiary of the Corporation.
5.7.5. Tandem Options Prohibited. An ISO may not be granted in tandem with
a NSO in such a manner that the exercise of one affects a
Participant's right to exercise the other.
5.7.6. Designation. No option shall be an ISO unless so designated by the
Administrator at the time of grant or in the Grant Agreement
evidencing such Option.
5.8. Exercisability. Options shall be exercisable as provided in the Grant
Agreement.
5.9. Transferability. ISOs shall be non-transferable. Except as provided
in the Grant Agreement, NSOs shall not be assignable or transferable by
the Participant, except by will or by the laws of descent and
distribution.
6. ARTICLE VI Stock Appreciation Rights
6.1. Award of SARs. Subject to the other applicable provisions of the
Plan, the Administrator may at any time and from time to time grant SARs
to eligible Participants, either on a free-standing basis (without regard
to or in addition to the grant of an Option) or on a tandem basis (related
to the grant of an underlying Option).
6.2. Restrictions on Tandem SARs. ISOs may not be surrendered in
connection with the exercise of a tandem SAR unless the Fair Market Value
of the Stock subject to the ISO is greater than the Exercise Price for
such ISO. SARs granted in tandem with Options shall be exercisable only to
the same extent and subject to the same conditions as the related Options
are exercisable. The Administrator may, in its discretion, prescribe
additional conditions to the exercise of any such tandem SAR.
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6.3. Amount of Payment Upon Exercise of SARs. A SAR shall entitle the
Participant to receive, subject to the provisions of the Plan and the
Grant Agreement, a payment having an aggregate value equal to the product
of (i) the excess of (A) the Fair Market Value on the exercise date of one
share of Stock over (B) the base price per share specified in the Grant
Agreement, times (ii) the number of shares specified by the SAR, or
portion thereof, which is exercised. In the case of exercise of a tandem
SAR, such payment shall be made in exchange for the surrender of the
unexercised related Option (or any portions thereof which the Participant
from time to time determines to surrender for this purpose).
6.4. Form of Payment Upon Exercise of SARs. Payment by the Corporation of
the amount receivable upon any exercise of a SAR may be made by the
delivery of Stock or cash, or any combination of Stock and cash, as
determined in the sole discretion of the Administrator.
6.5. Transferability. SARs shall be transferable only as provided in the
Grant Agreement.
7. ARTICLE VII; Restricted Stock and Stock Units
7.1. Grants. Subject to the other applicable provisions of the Plan, the
Administrator may grant Restricted Stock or Stock Units to Participants in
such amounts and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it determines.
Such Awards shall be made pursuant to a Grant Agreement.
7.2. Terms and Conditions. A Restricted Stock Award entitles the recipient
to acquire shares of Stock and a Stock Unit Award entitles the recipient
to be paid the Fair Market Value of the Stock on the exercise date. Stock
Units may be settled in Stock, cash or a combination thereof, as
determined by the Administrator. Restricted Stock Awards and Stock Unit
Awards are subject to vesting periods and other restrictions and
conditions as the Administrator may include in the Grant Agreement.
7.3. Restricted Stock.
7.3.1. The Grant Agreement for each Restricted Stock Award shall specify
the applicable restrictions on such shares of Stock, the duration of
such restrictions, and the times at which such restrictions shall
lapse with respect to all or a specified number of shares of Stock
that are part of the Award. Notwithstanding the foregoing, the
Administrator may reduce or shorten the duration of any restriction
applicable to any shares of Stock awarded to any Participant under
the Plan.
7.3.2. Share certificates with respect to restricted shares of Stock may
be issued at the time of grant of the Restricted Stock Award,
subject to forfeiture if the restrictions do not lapse, or upon
lapse of the restrictions. If share certificates are issued at the
time of grant of the Restricted Stock Award, the certificates shall
bear an appropriate legend with respect to the restrictions
applicable to such Restricted Stock Award (as described in Section
11.1) or, alternatively, the Participant may be required to deposit
the certificates with the Corporation during the period of any
restriction thereon and to execute a blank stock power or other
instrument of transfer.
7.3.3. The extent of the Participant's rights as a shareholder with
respect to the Restricted Stock shall be specified in the Grant
Agreement.
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7.4. Stock Units.
7.4.1. The grant of Stock Units shall be evidenced by a Grant Agreement
that states the number of Stock Units evidenced thereby and the
terms and conditions of such Stock Units.
7.4.2. Stock Units may be exercised in the manner described in the Grant
Agreement.
7.4.3. The extent of the Participant's rights as a shareholder with
respect to the Stock Units shall be specified in the Grant
Agreement.
7.5. Transferability. Unvested Restricted Stock Awards or Stock Units may
not be sold, assigned, transferred, pledged or otherwise encumbered or
disposed of except as specifically provided in the Grant Agreement.
8. ARTICLE VIII Tax Withholding
8.1. Corporation's Right to Demand Payment for Withholding.
8.2. Subject to subparagraph 8.3, as a condition to taking any action
otherwise required under the Plan or any Grant Agreement, the Corporation
shall have the right to require assurance that the Participant will remit
to the Corporation when required an amount sufficient to satisfy federal,
state and local tax withholding requirements. The Administrator may permit
such withholding obligations to be satisfied through cash payment by the
Participant, through the surrender of shares of Stock which the
Participant already owns or through the surrender of shares of Stock to
which the Participant is otherwise entitled under the Plan or through any
other method determined by the Administrator.
8.3. If a Participant makes a disposition of shares of Stock acquired upon
the exercise of an ISO within either two (2) years after the Option was
granted or one (1) year after its exercise by the Participant, the
Participant shall promptly notify the Corporation and the Corporation
shall have the right to require the Participant to pay to the Corporation
an amount sufficient to satisfy federal, state and local tax withholding
requirements.
9. ARTICLE IX Corporate Transactions
9.1. Adjustments Due to Special Circumstances.
9.1.1. In the event of any change in the capital structure or business of
the Corporation by reason of any stock dividend or extraordinary
dividend, stock split or reverse stock split, recapitalization,
reorganization, merger, consolidation, split-up, combination or
exchange of shares, non-cash distributions with respect to its
outstanding Stock, reclassification of the Corporation's capital
stock, any sale or transfer of all or part of the Corporation's
assets or business, or any similar change affecting the
Corporation's capital structure or business or the capital structure
of any business of any Subsidiary, as determined by the
Administrator, if the Administrator determines that an adjustment is
equitable, then the Administrator may make such adjustments as it
deems equitable with respect to the Plan and Awards, including,
without limitation, in: (i) the number of shares of Stock that can
be granted or used for reference purposes pursuant to the Plan; (ii)
the number and kind of shares or other securities subject to any
then outstanding Awards under the Plan; and (iii) the exercise
price, base price, or purchase price applicable to outstanding
Awards under the Plan. The adjustment by the Administrator shall be
final, binding and conclusive.
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9.1.2. The Administrator may cancel outstanding Awards, but not
outstanding Stock or Restricted Stock Awards, in connection with any
merger, consolidation of the Corporation, or any sale or transfer of
all or part of the Corporation's assets or business, or any similar
event. The Administrator may determine to pay no compensation
whatsoever for any canceled Awards that are not in-the-money (as
hereinafter defined) or for any canceled Awards to the extent not
vested. The Corporation shall provide payment in cash or other
property for the in-the-money value of the vested portion of Awards
that are in-the-money and that are canceled as aforesaid. Awards are
"in-the-money" only to the extent of their then realizable market
value, without taking into account the potential future increase in
the value of the Award (whether under Black-Scholes-type formulas or
otherwise). The opinion by the Administrator of the in-the-money
value of any Award shall be final, binding and conclusive.
9.2. Substitution of Options. In the event that, by reason of a corporate
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board shall authorize the issuance or
assumption of a stock option or stock options in a transaction to which
Code section 424(a) applies, then, notwithstanding any other provision of
the Plan, the Administrator may grant options upon such terms and
conditions as it may deem appropriate for the purpose of assumption of the
old option, or substitution of a new option for the old option, in
conformity with the provisions of Code section 424(a) and the rules and
regulations thereunder, as they may be amended from time to time.
10. ARTICLE X Amendment and Termination
10.1. Amendment. The Board may amend the Plan at any time and from time to
time, provided that (i) no amendment shall deprive any person of any
rights granted under the Plan before the effective date of such amendment,
without such person's consent; and (ii) amendments may be subject to
shareholder approval to the extent needed to comply with applicable law
and stock exchange requirements.
10.2. Termination. The Board reserves the right to terminate the Plan in
whole or in part at any time, without the consent of any person granted
any rights under the Plan.
11. ARTICLE XI Miscellaneous
11.1. Restrictive Legends. The Corporation may at any time place legends
referencing any restrictions described in the Grant Agreement and any
applicable federal or state securities law restrictions on all
certificates representing shares of Stock underlying an Award.
11.2. Compliance with Governmental Regulations. Notwithstanding any
provision of the Plan or the terms of any Grant Agreement entered into
pursuant to the Plan, the Corporation shall not be required to issue any
shares hereunder prior to registration of the shares subject to the Plan
under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, if such registration shall be necessary, or
before compliance by the Corporation or any Participant with any other
provisions of either of those acts or of regulations or rulings of the
Securities and Exchange Commission thereunder, or before compliance with
other federal and state laws and regulations and rulings thereunder,
including the rules of any applicable securities exchange or quotation
system.
11.3. No Guarantee of Employment. Participation in this Plan shall not be
construed to confer upon any Participant the legal right to be retained in
the employ of the Corporation or give any person any right to any payment
whatsoever, except to the extent of the benefits provided for hereunder.
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11.4. Governing Law. The provisions of this Plan shall be governed by,
construed and administered in accordance with applicable federal law;
provided, however, that to the extent not in conflict with federal law,
this Plan shall be governed by, construed and administered under the laws
of Delaware, other than its laws respecting choice of law.
11.5. Severability. If any provision of the Plan shall be held invalid,
the remainder of this Plan shall not be affected thereby and the remainder
of the Plan shall continue in force.
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