SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by rule 14c-5(d)(2))
[X] Definitive Information Statement
ALPH-NET CONSULTING GROUP, LTD.
(Name of Registrant As Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No Fee Required.
[X] 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: Common Stock
2) Aggregate number of securities to which transaction
applies: 750,000 shares
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):
Value: $0.10 per share times 750,000 shares
Times 0.00025 resulted in $18.75
4) Proposed maximum aggregate value of transaction:
$75,000
5) Total fee paid: $18.75
Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing:
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
ALPH-NET CONSULTING GROUP, LTD.
2102 N. Donner Ave.
Tucson, Arizona 85748
November 21, 2001
The enclosed information statement is being furnished to
shareholders of record on November 21, 2001, of Alph-Net
Consulting Group, Ltd., a Nevada corporation, in connection with
the following actions taken by written consent of holders of a
majority of the outstanding shares of our common stock entitled
to vote on the following proposal:
1. Approval and adoption of a contribution agreement
whereby McKnight Consulting L.L.C. will contribute all or
substantially all of its assets to us. A copy of the
contribution agreement is enclosed as Appendix A.
Shareholders are entitled to assert dissenter's rights under
Nevada Revised Statutes 92A.300-92A.500, a copy of which is
enclosed as Appendix B;
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY
Our board of directors has fully reviewed and unanimously
approved the actions in connection with the above-referenced
contribution agreement and has determined that the consideration
to our shareholders is fair for our acquisition of McKnight
Consulting. All such actions will become effective on the
closing date of the contribution agreement.
The holder of 80% of our common stock has executed a written
consent in favor of the above items. However, under federal law
these proposals may not be effected until at least 20 days after
this Information Statement has first been sent to our
shareholders.
By Order of the Board of Directors
Daniel L. Hodges
Chairman of the Board
Tucson, Arizona
November 21, 2001
INFORMATION STATEMENT
TABLE OF CONTENTS
Item 1. Information Required by Items of Schedule 14A
Item 2. Statement that Proxies are Not Solicited
Item 3. Interest of Certain Person in or Opposition to Matters
to be Acted Upon
Item 4. Proposals by Security Holders
Item 5. Delivery of Documents to Security Holders Sharing an
Address
SUMMARY OF INFORMATION STATEMENT
The following summary highlights selected information from the
entire information statement and may not contain all of the
information that is important to you. You should carefully read
this entire information statement, including the "Risk Factors,"
the financial statements and the related notes and all the
attachments for a complete understanding of the combination. In
particular, you should read the contribution agreement, which is
attached as Annex A. When we refer to "pro forma" financial
results, we mean our financial results as if the combination with
McKnight Consulting and the issuance of the shares described
below had occurred at the beginning of the relevant time period.
The Companies
We were organized under the laws of the state of Nevada in 1996.
We are currently an inactive corporation with a class of
securities registered under the Securities Exchange Act of 1934.
We have not had, since our inception, any significant assets and
we have not engaged in any operations other than organizational
matters. We were specifically formed to be a "blank check"
corporation, for the purpose of either merging with or acquiring
an operating company. Our principal executive offices are
located at 2102 N. Donner Ave., Tucson, Arizona 85749, and our
phone number is (520) 731-9890.
McKnight Consulting, L.L.C., is a privately held limited
liability company organized under the laws of the State of
Arizona. McKnight Consulting is a technical consulting company
whose primary focus is in developing, supporting, designing, and
implementing computer connectivity solutions with small to
mid-sized companies nationwide. These services include network
design, configuration, management, administration, programming,
and evaluation. In addition to these services, database
connectivity and server application management is offered when
these services are integrated into the network design. McKnight
Consulting's principal executive offices are located at 2110 E.
Water Street, Tucson, Arizona 87519, and its phone number is
(520) 322-9918.
The Combination
On the Effective Date, which is expected to be December 15,
2001, we will acquire all or substantially all of the assets
of McKnight Consulting pursuant to the terms and subject to the
conditions of the contribution agreement and continue operations
under the name Alph-Net Consulting Group, Ltd. In connection
with the combination, on the effective date, all of the assets
and liabilities of McKnight Consulting will become our assets and
liabilities and McKnight Consulting will receive shares of our
common as described in this information statement.
Market Price
There are no public markets for either our common stock or
for the membership interests of McKnight Consulting. There have
been no sales of either our common stock or the membership
interests of McKnight Consulting prior to the combination.
Reasons for the Combination
In evaluating the proposed combination, our management
considered criteria such as the value of the assets of McKnight
Consulting, McKnight Consulting's ability to compete in its
market and the present and anticipated business operations of
McKnight Consulting. Based on these criteria, our management
determined that the combination was in the best interest of our
shareholders.
Management of McKnight Consulting believes that being a
public company will allow it greater flexibility in the raising
of additional capital when required for the execution of its
business strategy. In addition, McKnight Consulting believes
that if our application to be listed on the OTC Bulletin Board is
approved by the NASD, it will provide access to added liquidity
for its current members.
Votes Required
Nevada law provides that the actions of a corporation may be
approved upon such terms and conditions as its board of directors
may deem expedient and for the best interests of the corporation
when authorized by a vote of the holders of the majority of the
stock in a corporation. Nevada further permits the holders of a
majority of the stock in a corporation to approve such an action
by written consent without the necessity of holding a meeting.
Daniel L. Hodges, holder of 800,000 shares of our common stock,
or 80% of our currently outstanding shares, has executed a
written consent to take all of the actions set forth in this
information statement including ratification of the contribution
agreement. Therefore, no further vote of our shareholders is
required.
Income Tax Consequences of the Combination
Neither our shareholders nor the members of McKnight
Consulting will recognize gain or loss as a result of the
combination.
Dissenter's Rights
Any shareholder who dissents from the combination is
entitled to the rights and remedies of dissenting shareholders as
provided in chapter 92A.380 of the Nevada Revised Statutes,
subject to compliance with the procedures set forth in the
chapter. A copy of chapter 92A.380 of the Nevada Revised
Statutes is attached as Appendix B to this proxy
statement/prospectus. See also the section entitled "Dissenter's
Rights of Appraisal" contained herein.
Government Regulation
Our combination with McKnight Consulting is not subject to
federal or state regulatory review.
INFORMATION STATEMENT
This Information Statement has been prepared for the Board
by our management. "We," "our," "Alph-Net Consulting" and the
"Company" refer to Alph-Net Consulting Group, Ltd. This
Information Statement is first being sent to our stockholders on
or about November 23, 2001.
Risks Relating To McKnight Consulting's Business.
You should consider the following risk factors for McKnight
Consulting and our business once the combination is consummated,
which are important for you to consider, as well as any other
information in this information statement, in evaluating McKnight
Consulting. Any investment in McKnight Consulting common stock
involves a high degree of risk.
McKnight Consulting has a limited operating history and may not
successfully implement its business plan.
McKnight Consulting has a limited operating history, and its
business model is still in development. McKnight Consulting
commenced operations in 1990 a sole proprietorship and then
became a limited liability company under the laws of the state of
Arizona in 2001. As an early stage computer consulting company,
McKnight Consulting is subject to expenses and difficulties
associated with implementing its business plan that are not
typically encountered by more mature companies. The risks
associated with implementing its business plan relate to:
- building out its web hosting and network
infrastructure;
- expanding its sales structure and marketing programs;
- increasing awareness of its brand;
- providing services to its customers that are reliable
and cost-effective;
- responding to technological development or service
offerings by competitors; and
- attracting and retaining qualified personnel.
If McKnight Consulting is not successful in implementing its
business plan, its business or future financial or operating
results could suffer.
McKnight Consulting will need additional funds which, if
available, could result in dilution of your shareholdings or an
increase in its interest expense. If these funds are not
available, its business could be hurt.
McKnight Consulting's business plan projects expansion through
acquisitions funded mostly with stock but requiring some cash
expenses and consideration. McKnight Consulting will need to
raise additional funds through public or private debt or equity
financing in order to:
- take advantage of anticipated opportunities or
acquisitions of complementary assets, technologies
or businesses;
- develop new products;
- respond to unanticipated competitive pressures; or
- achieve profitability.
When additional funds become necessary, additional financing may
not be available on terms favorable to McKnight Consulting or
available at all. If adequate funds are not available or are not
available on acceptable terms when needed, McKnight Consulting's
business could be hurt. If additional funds are raised through
the issuance of equity securities, the percentage ownership of
McKnight Consulting's then current stockholders may be reduced,
and the new equity securities may have rights, preferences or
privileges senior to those of the holders of our common stock.
If additional funds are raised through the issuance of debt
securities, these securities could have some rights, preferences
and privileges senior to those of the holders of McKnight
Consulting common stock, and the terms of this debt could impose
restrictions on its operations and result in significant interest
expense to McKnight Consulting.
Rapid growth strategy is likely to place a significant strain on
our resources.
The future success of McKnight Consulting depends in large part
on its ability to manage any achieved growth in its business. For
its business plan to succeed, McKnight Consulting will need:
- to expand its business with new and current
customers;
- to develop and offer successful new products and
services;
- to retain key employees and hire new employees; and
- to ensure that any future business McKnight
Consulting may develop or acquire will perform in
a satisfactory manner.
These activities are expected to place a significant strain on
its resources. Also, McKnight Consulting cannot guarantee that
any of these will occur or that McKnight Consulting will succeed
in managing the results of any success in its business plan.
Annual and quarterly operating results are subject to significant
fluctuations. As a result, period-to-period comparisons of
results of Operations are not necessarily meaningful and should
not be relied upon as indications of future performance.
McKnight Consulting has experienced significant fluctuations in
its results of operations on a quarterly and annual basis.
McKnight Consulting expect to continue to experience significant
fluctuations in its future quarterly and annual results of
operations due to a variety of factors, many of which are outside
of its control, including:
- demand for and market acceptance of our services;
- customer retention;
- the timing and success of our marketing efforts;
- the timing and magnitude of capital expenditures,
including costs relating to the expansion of
operations;
- the timely expansion of existing facilities and
completion of new facilities;
- the ability to increase bandwidth as necessary;
- fluctuations in bandwidth used by customers;
- introductions of new services or enhancements by
McKnight Consulting and its competitors;
- increased competition in its markets;
- economic conditions including those in the technology
sector;
- potential unfavorable legislative and regulatory
developments;
- growth of Internet use and establishment of Internet
operations by mainstream enterprises; and
- changes in its pricing policies and its competitors'
pricing policies.
A relatively large portion of McKnight Consulting's expenses are
fixed in the short-term. As a result, its results of operations
will be particularly sensitive to fluctuations in revenue.
A relatively large portion of McKnight Consulting's expenses are
fixed in the short-term, particularly in respect of hardware,
data and telecommunications costs, depreciation, amortization,
real estate occupancy costs, interest expense and personnel.
Because McKnight Consulting will be required to incur these fixed
expenses, irrespective of its revenue, its future results of
operations are particularly sensitive to fluctuations in revenue.
The expected continued growth in the market for its products and
services may not materialize or may materialize in a manner
McKnight Consulting have not anticipated.
The market is rapidly evolving. Whether, and the manner in
which, the market for the products and services of McKnight
Consulting will continue to grow is uncertain. The market for
these products and services may be inhibited for a number of
reasons, including:
- the reluctance of businesses to outsource their
connectivity solutions and Web hosting needs;
- McKnight Consulting's failure to successfully market
its products and services to new customers; and
- the inability to maintain and strengthen its brand
awareness.
Success depends in large part on the continued growth of the
Internet Market.
McKnight Consulting's business will be hurt if demand for
Internet and related services does not continue to grow. This
demand may be inhibited for a number of reasons, including:
- general economic conditions;
- access costs;
- inadequate network infrastructure;
- security concerns;
- uncertainty of legal and regulatory issues concerning
use of the Internet;
- inconsistent quality of service; and
- lack of availability of cost-effective, high-speed
service.
The Internet infrastructure may not be able to support the
demands placed on it or the Internet's performance and
reliability may decline. Similarly, Web sites have experienced
interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure.
This could hurt McKnight Consulting's business.
A portion of McKnight Consulting's growth depends on its ability
to expand web hosting capacity to meet anticipated demand.
Continuing to expand web hosting center capacity is critical to
achieving the goals of McKnight Consulting's business plan. This
expansion is likely to include the need to add new hardware and
software, and may include the opening of additional web hosting
centers. McKnight Consulting intends to add web hosting center
capacity in the future as justified by customer demand. Its
ability to do so successfully depends on:
- anticipating and planning for future demand levels;
- having access to sufficient capital; and
- locating and securing satisfactory web hosting center
sites and implementing the build-out of these and
existing sites, all of which may require
significant lead time.
If McKnight Consulting is unable to expand its capacity
effectively, its growth may suffer and McKnight Consulting may
not be able to adequately meet the demands of existing customers.
McKnight Consulting operates in an extremely competitive market
and may not be able to compete effectively.
The computer connectivity consulting services market is extremely
competitive and most of McKnight Consulting's competitors are
more established and have greater financial resources. In
addition, there are no substantial barriers to entry in this
market. McKnight Consulting also expects that competition will
intensify in the future. Most of its competitors have greater
market presence, engineering and marketing capabilities and
financial, technological and personnel resources than McKnight
Consulting do. As a result, as compared to McKnight Consulting
its competitors may:
- develop and expand their network and web hosting
infrastructures and service offerings more efficiently or more
quickly;
- adapt more swiftly to new or emerging technologies
and changes in customer requirements;
- take advantage of acquisitions and other
opportunities more effectively; and
- more effectively leverage existing relationships with
customers or exploit a more recognized brand name to market and
sell their services.
McKnight Consulting's current and prospective competitors
generally may be divided into the following three groups:
- Web hosting companies including Digex, Inc., Verio,
Inc., Genuity, Globix Corporation, PSINet Inc., Exodus
Communications, Inc. and other companies;
- Internet solution companies including Razorfish Inc.,
IBM Global Services, Accenture, US Internetworking Inc., Scient
Corp., Cambridge Technology Partners, Inc., Whittman-Hart Inc.,
Oracle Corporation, the Big 5 accounting firms, EDS Corporation
and other companies; and
- Internet connectivity, VPNs and security providers
including Genuity, Verio Inc., Qwest Communications International
Inc., Sprint Corporation, AT&T Corp., UUNET Technologies, Inc.,
XO Communications, Cable & Wireless plc, WorldCom, Inc. and other
national and regional providers.
McKnight Consulting believes that it may also face competition
from other large computer hardware and software companies and
other media, technology and telecommunications companies.
The number of businesses providing connectivity-related services
is rapidly growing. McKnight Consulting is aware of other
companies, in addition to those named above, that have entered
into or are forming joint ventures or consortia to provide
services similar to those provided by McKnight Consulting.
Others may acquire the capabilities necessary to compete with
McKnight Consulting through acquisitions.
McKnight Consulting could encounter significant pricing pressure
as a result of increased competition and industry consolidation.
As a result of increased competition and consolidation in the
industry, McKnight Consulting could encounter significant pricing
pressure, which in turn could result in significant reductions in
the average selling price of our services. McKnight Consulting
may not be able to offset such price reductions even if McKnight
Consulting obtains an increase in the number of its customers,
derive higher revenue from enhanced services or manage to reduce
its costs. Increased price or other competition could erode
market share and could significantly hurt business. McKnight
Consulting cannot assure you that it will have the financial
resources, technical expertise or marketing and support
capabilities to compete successfully in that environment.
McKnight Consulting's revenues are heavily dependent on
contracts. If McKnight Consulting loses these contracts, if
there is a reduction in the amount of work generated from them,
or if McKnight Consulting fails to diversify its customer base,
its business will suffer.
McKnight Consulting currently derives a substantial portion of
our total revenue from contracts with two customers; Metropolitan
Energy Commission and Pasqua Yaqui Indian Tribe. Metropolitan
Energy Commission - Baseline Study: The study involves a
detailed analysis of energy use data collected from Tucson
homeowners to estimate the energy use patterns and relevant
predictors. The project requires the application of statistical
models that McKnight Consulting is providing. In addition, the
study serves as a pilot test that will later be funded by the
Department of Energy to study construction methods that may lead
to decreased energy consumption. Pasqua Yaqui - Bring Treatment
Home Study: The study requires the supervision by McKnight
Consulting to carry out a quasi-experimental treatment trial.
The Native American tribe has contracted with McKnight Consulting
to provide technical consulting regarding data collection,
measure development, database design, research methodology, and
statistical analyses. The loss of either of these contracts
could significantly hurt its business.
McKnight Consulting cannot assure you that revenue from these
customers, or from other customers that have accounted for
significant revenue in past periods, individually or as a group,
will continue, or if continued, will reach or exceed historical
levels in any future period. In addition, McKnight Consulting
may not succeed in diversifying its customer base in future
periods.
McKnight Consulting could experience system failures and capacity
constraints, which would affect its ability to compete.
Interruptions in service to our customers could hurt its
business. To succeed, McKnight Consulting must be able to
operate our network and web hosting management infrastructure 24
hours per day, seven days per week, without interruption.
McKnight Consulting's operations depend upon its ability to
protect its network and web hosting infrastructure, its equipment
and customer data against damage from human error and/or "acts of
God." Even if McKnight Consulting takes precautions, the
occurrence of a natural disaster or other unanticipated problems
could result in interruptions in the services McKnight Consulting
provide to its customers.
Although McKnight Consulting has attempted to build redundancy
into its network and hosting facilities by establishing a
redundant, rigorously engineered backbone connected to our four
web hosting centers, our network is currently subject to various
single points of failure. For example, a problem with one of our
routers or switches could cause an interruption in the services
McKnight Consulting provides to some of its customers. Any
interruptions in service could:
- cause end users to seek damages for losses incurred;
- require McKnight Consulting to spend more money and
dedicate more resources to replacing existing equipment,
expanding facilities or adding redundant facilities;
- cause McKnight Consulting to spend money on existing
or new equipment and infrastructure earlier than McKnight
Consulting plans;
- damage its reputation for reliable service;
- cause existing end-users and resellers to cancel its
contracts; or
- make it more difficult for McKnight Consulting to
attract new end-users and partners.
Any of these results could hurt its business.
Failure of the national telecommunications network and Internet
infrastructure to continue to grow in an orderly manner could
result in service interruptions. While the national
telecommunications network and Internet infrastructure have
historically developed in an orderly manner, there is no
guarantee that this will continue as the network expands and more
services, users and equipment connect to the network. Failure by
the telecommunications providers to provide McKnight Consulting
with the data communications capacity required could cause
service interruptions, which could hurt McKnight Consulting's
business.
McKnight Consulting is dependent on networks built and operated
by others. If McKnight Consulting does not have continued access
to a reliable network, its business will suffer.
In delivering its services, McKnight Consulting relies on
networks which are built and operated by others. McKnight
Consulting does not have control over these networks, nor can
McKnight Consulting guarantee that it will continue to have
access on terms that fit its business needs.
McKnight Consulting's use of the infrastructure of other
communications carriers presents risks. Success partly depends
upon the coverage, capacity, scalability, reliability and
security of the network infrastructure provided to us by
telecommunications network suppliers, including AT&T Corp.,
Sprint Corporation, Verizon Communications, Pacific Bell,
Worldcom, Inc. and Broadwing, Inc. McKnight Consulting's
expansion plans require additional network resources. Without
these resources, its ability to execute its business strategy
could be hurt. In addition, future expansion and adaptation of
McKnight Consulting's network and web hosting infrastructure may
require substantial financial, operational and management
resources. McKnight Consulting may not be able to expand or
adapt its network or web hosting infrastructure on a timely basis
and at a commercially reasonable cost to meet additional demand,
changing customer requirements or evolving industry standards.
In addition, if demand for usage of its network and web hosting
facilities were to increase faster than projected or were to
exceed current forecasts, the network could experience capacity
constraints which would hurt its performance.
The consolidation of network providers could adversely affect
peering and transit arrangements if peering criteria becomes more
restrictive or cost prohibitive. McKnight Consulting also
depends on telecommunications suppliers to provide uninterrupted
and error-free service through their telecommunications networks.
If these suppliers greatly increase the price for their services
or if the telecommunications capacity available to McKnight
Consulting is insufficient for its business purposes, and
McKnight Consulting is unable to use alternative networks or pass
along any increased costs to its customers, its business could
suffer.
McKnight Consulting's network and software are vulnerable to
security breaches and similar threats which could result in being
liable for damages and harm its reputation.
Despite the implementation of network security measures, the core
of McKnight Consulting's network infrastructure is vulnerable to
computer viruses, break-ins and similar disruptive problems
caused by Internet users. This could result in being liable for
damages, and McKnight Consulting's reputation could suffer,
thereby deterring potential customers from working with McKnight
Consulting. Security problems caused by third parties could lead
to interruptions and delays or to the cessation of service to
McKnight Consulting customers. Furthermore, inappropriate use of
the network by third parties could also jeopardize the security
of confidential information stored in McKnight Consulting
computer systems and in those of its customers.
McKnight Consulting relies upon encryption and authentication
technology purchased from third parties to provide the security
and authentication necessary to effect secure transmission of
confidential information. Although McKnight Consulting intends
to continue to implement industry-standard security measures, in
the past some of these standards have occasionally been
circumvented by third parties. Therefore, McKnight Consulting
cannot assure you that the measures McKnight Consulting
implements will not be circumvented. The costs and resources
required to eliminate computer viruses and alleviate other
security problems may result in interruptions, delays or
cessation of service to its customers, which could hurt McKnight
Consulting's business.
The McKnight Consulting brand is not as well known as most of our
competitors, and failure to develop brand recognition could hurt
its business.
To successfully execute its strategy, McKnight Consulting must
strengthen its brand awareness. While many of our competitors
have well-established brands, McKnight Consulting's market
presence has been limited principally to Tucson, Arizona. In
order to build its brand awareness, our marketing efforts must
succeed, and McKnight Consulting must provide high quality
services. McKnight Consulting cannot assure you that these
efforts will succeed as planned. If McKnight Consulting does not
build its brand awareness, its ability to realize its strategic
and financial objectives could be hurt.
If McKnight Consulting does not respond effectively and on a
timely basis to rapid technological change, its business could
suffer.
If McKnight Consulting does not successfully use or develop new
technologies, introduce new services or enhance its existing
services on a timely basis, or new technologies or enhancements
used or developed by it do not gain market acceptance, its
business could be hurt. This industry is characterized by
rapidly changing technology, industry standards, customer needs
and competition, as well as by frequent new product and service
introductions. McKnight Consulting's future success will depend,
in part, on its ability to accomplish all of the following in a
timely and cost-effective manner, all while continuing to develop
its business model and rolling-out its services on a national
level:
- effectively use and integrate leading technologies;
- continue to develop its technical expertise;
- enhance its products and current networking services;
- develop new products and services that meet changing
customer needs;
- have the market accept its services;
- advertise and market its products and services; and
- influence and respond to emerging industry standards
and other changes.
McKnight Consulting cannot assure you that it will successfully
use or develop new technologies, introduce new services or
enhance our existing services on a timely basis, or that new
technologies or enhancements used or developed by it will achieve
market acceptance. Its pursuit of necessary technological
advances may require substantial time and expense. In addition,
McKnight Consulting cannot assure you that, if required, it will
successfully adapt our services to alternate devices and
conduits.
If its services do not continue to be compatible and
interoperable with products and architectures offered by other
industry members, McKnight Consulting's ability to compete could
be impaired. Its ability to compete successfully is dependent,
in part, upon the continued compatibility and interoperability of
its services with products and architectures offered by various
other members of the industry. Although McKnight Consulting
intends to support emerging standards in the market for
connectivity solutions, McKnight Consulting cannot assure you
that it will be able to conform to new standards in a timely
fashion and maintain a competitive position in the market.
McKnight Consulting's services rely on the continued widespread
commercial use of Transmission Control Protocol/Internet
Protocol, commonly known as TCP/IP, which is an industry standard
to facilitate the transfer of data. Alternative open protocol
and proprietary protocol standards could emerge and become widely
adopted. A resulting reduction in the use of TCP/IP could render
its services obsolete and unmarketable. McKnight Consulting's
failure to anticipate the prevailing standard or the failure of a
common standard to emerge could hurt its business.
McKnight Consulting may be exposed to risks associated with
acquisitions, including integration risks and risks associated
with methods of financing and the impact of accounting treatment.
Also, completed acquisitions may not enhance its business.
A component of McKnight Consulting's strategy is to acquire web
hosting and Internet solutions companies and other businesses
complementary to its operations. In the future, McKnight
Consulting intends to acquire companies that complement its
existing business model and growth strategies. Any future
acquisitions would be accompanied by the risks commonly
encountered in acquisitions, including:
- the difficulty of assimilating the operations and
personnel of acquired companies;
- the potential disruption of McKnight Consulting's
business;
- McKnight Consulting management's inability to
maximize its financial and strategic position through the
incorporation of an acquired technology or business into its
service offerings;
- the difficulty of maintaining uniform standards,
controls, procedures and policies;
- the potential loss of key employees from acquired
businesses, and the impairment of relationships with the
employees and customers of an acquired business as a result of
changes in management; and
- the inaccuracy of financial data of acquired
companies.
McKnight Consulting cannot assure you that any completed
acquisition will enhance our business. If McKnight Consulting
consummates acquisitions in which any significant portion of the
consideration consists of cash, a significant portion of our
available cash could be used to consummate the acquisitions. If
McKnight Consulting consummates acquisitions in which any
significant portion of the consideration consists of stock,
stockholders could suffer significant dilution of their interest.
In addition, McKnight Consulting could incur or assume
significant amounts of indebtedness in connection with
acquisitions. The purchase price of future acquisitions will
most likely be significantly greater than the fair value of the
acquired net assets. Acquisitions required to be accounted for
under the purchase method could result in significant goodwill
and/or amortization charges for acquired technology.
McKnight Consulting is dependent on its hardware and software
suppliers to provide it with the products and services it needs
to serve its customers.
McKnight Consulting relies on outside vendors to supply it with
computer hardware, software and networking equipment. These
products are available from only a few sources. McKnight
Consulting purchases a significant portion of these products from
Sun Microsystems, Inc., Compaq Computer Corporation, Cisco
Systems, Inc., Microsoft Corporation and Oracle Corporation.
McKnight Consulting cannot assure you that it will be able to
obtain the products and services that it needs on a timely basis
and at affordable prices.
McKnight Consulting has in the past experienced delays in
receiving shipments of equipment purchased for resale. To date,
these delays have not adversely affected McKnight Consulting, but
McKnight Consulting cannot guarantee that it will not be
adversely affected by delays in the future. McKnight Consulting
may not be able to obtain computer equipment on the scale and at
the times required by it at an affordable cost. Suppliers may
enter into exclusive arrangements with competitors or stop
selling McKnight Consulting their products or services at
commercially reasonable prices. If sole or limited source
suppliers do not provide McKnight Consulting with products or
services, its business, financial condition and results of
operations may be significantly hurt.
McKnight Consulting operates in an uncertain regulatory and legal
environment. New laws and regulations could harm its business.
McKnight Consulting is not currently subject to direct regulation
by the Federal Communications Commission ("FCC") or any other
governmental agency, other than regulations applicable to
businesses in general. However, in the future, McKnight
Consulting may become subject to regulation by the FCC or another
regulatory agency. Its business could suffer depending on the
extent to which its activities are regulated or proposed to be
regulated.
While there are currently few laws or regulations that
specifically regulate Internet communications, laws and
regulations directly applicable to online commerce or Internet
communications are becoming more prevalent. There is much
uncertainty regarding the market-place impact of these laws. In
addition, various jurisdictions already have enacted laws
covering intellectual property, privacy, libel and taxation that
could affect McKnight Consulting's business by virtue of their
impact on online commerce. Further, the growth of the Internet,
coupled with publicity regarding Internet fraud, may lead to the
enactment of more stringent consumer protection laws. If
McKnight Consulting becomes subject to claims that McKnight
Consulting has violated any laws, even if McKnight Consulting
successfully defend against these claims, its business could
suffer. Moreover, new laws that impose restrictions on its
ability to follow current business practices or increase its
costs of doing business could hurt its business.
McKnight Consulting may be subject to legal liability for
distributing or publishing content over the internet, which could
be costly for it to defend.
It is possible that claims will be made against online service
companies and Internet access providers in connection with the
nature and content of the materials disseminated through their
networks. Several private lawsuits are pending which seek to
impose liability upon online services companies and Internet
access providers as a result of the nature and content of
materials disseminated over the Internet. If any of these
actions succeed, McKnight Consulting might be required to respond
by investing substantial resources in connection with this
increased liability or by discontinuing some of its service or
product offerings. Also, any increased attention focused upon
liability issues relating to the Internet could also have a
negative impact on the growth of Internet use.
McKnight Consulting may be unable to protect its intellectual
property rights or to continue using intellectual property that
McKnight Consulting license from others.
McKnight Consulting relies on a combination of copyright,
trademark, service mark and trade secret laws and contractual
restrictions to establish and protect certain of its proprietary
rights. McKnight Consulting has no patented technology that
would bar competitors from our market. Despite its efforts to
protect its proprietary rights, unauthorized parties may attempt
to copy or otherwise obtain and use our data or technology.
McKnight Consulting also relies on certain technologies licensed
from third parties. McKnight Consulting cannot be sure these
licenses will remain available to it on commercially reasonable
terms or at all. The loss of such technology may require
McKnight Consulting to obtain substitute technology of lesser
quality or performance standards or at greater cost which could
harm its business.
Management will control 75% of our common stock, and these
parties may have conflicts of interest.
Patrick E. McKnight and Kathy McKnight will own 75% of the
outstanding common stock following the combination with Alph-Net
Consulting. Accordingly, Patrick E. McKnight and Kathy McKnight,
are able to exert considerable influence over any stockholder
vote, including any vote on the election or removal of directors
and any merger, consolidation or sale of all or substantially all
of our assets, and control our management and affairs. Such
control could discourage others from initiating potential merger,
takeover or other change in control transactions. As a
consequence, our business could be hurt.
McKnight Consulting is dependent on key personnel and operate in
an industry where it is difficult to attract and retain qualified
personnel.
McKnight Consulting expects that it will need to hire additional
personnel in all areas of our business. The competition for
personnel throughout the industry is intense. McKnight
Consulting has experienced difficulty in attracting qualified new
personnel. If McKnight Consulting does not succeed in attracting
new, qualified personnel its business could suffer. McKnight
Consulting is also dependent on the continued services of our key
personnel, particularly our current management. McKnight
Consulting does not have employment agreements with its executive
officers, nor does McKnight Consulting have key man insurance
policies on its management. The loss of current management would
harm its business.
Industry consolidation could make it more difficult to compete.
Companies offering connectivity, data and communications
services are increasingly consolidating. As a company with a
limited operating history, McKnight Consulting may not be able to
successfully compete with businesses that have combined, or will
combine, to produce companies with substantially greater
financial, sales and marketing resources, larger customer bases,
extended networks and infrastructures and more established
relationships with vendors, distributors and partners than
McKnight Consulting have. In addition, this consolidation trend
could prevent or hinder its ability to further grow our
operations through acquisitions. With these heightened
competitive pressures, there is a significant risk that the value
of our common stock will decline.
The amount of stock to be paid to McKnight Consulting member was
determined by Alph-Net Consulting and McKnight Consulting after
negotiations and may not reflect any recognized criteria of
value.
The consideration offered to McKnight Consulting in the
combination may not reflect the actual value of our stock and
bears no relationship to the assets, book value, earnings, net
worth, or any other recognized criteria of value. Consequently,
the consideration offered to McKnight Consulting, which can be
deemed an offering price for McKnight Consulting's assets, was
determined arbitrarily and solely by us and McKnight Consulting.
In establishing the offering price, our management considered
such matters as McKnight Consulting's financial resources, the
general condition of the securities markets and the percentage of
ownership of minority shareholders. The exchange ratio of the
merger should not, however, be considered an indication of our or
McKnight Consulting's actual value. Neither we nor McKnight
Consulting obtained a fairness opinion in connection with the
combination.
There is no market for the shares and you may no be able to sell
them.
There has been no trading market for our common stock. Although
we will apply to list our common stock on the OTC Bulletin Board,
there can be no assurance that our application will be granted
and there can be no assurance that an active market will develop
for our common stock. Therefore, it may be difficult to sell
your shares if you should desire or need to sell.
Once you are issued shares of McKnight Consulting common stock in
the combination, we do not know how that common stock will trade.
The market price of that common stock may fluctuate significantly
due to a number of factors, some of which may be beyond our
control, including:
* the potential absence of securities analysts covering us and
distributing research and recommendations about us;
* the liquidity of our common stock will be low because only
200,000 shares will be in the hands of non-affiliates of the
company;
* changes in earnings estimates by securities analysts or our
ability to meet those estimates;
* the operating results and stock price performance of other
comparable companies;
* overall stock market fluctuations; and
* economic conditions generally and in the mortgage industry
in particular.
Any of these factors could have a significant and adverse impact
on the market price of the common stock. In addition, the stock
market in general has experienced extreme volatility and rapid
decline that has often been unrelated or disproportionate to the
operating performance of particular companies. These broad
market fluctuations may adversely affect the trading price of our
common stock, regardless of our actual operating performance.
Forward Looking Statements
This information statement contains or incorporates by
reference certain forward looking statements with respect to our
financial condition, results of operations and business and,
assuming the consummation of the combination, the proposed
combination with McKnight Consulting. These forward-looking
statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those
contemplated by such forward looking statements include, among
others, general economic conditions and perception of the United
States economy.
Unaudited Pro Forma Condensed Financial Information
The following Proforma Unaudited Financial Statements have been
prepared in order to present consolidated financial position and
results of operations for us and McKnight Consulting as if the
combination had occurred as of June 30, 2001.
On October 31, 2001, we entered into a contribution agreement
whereby, subject to shareholder approval, we acquired, in
exchange for 750,000 shares of our common stock. We are an
inactive publicly registered shell corporation with no
significant assets or operations. We will be the surviving
entity in the combination. The transaction is accounted for
using the purchase method of accounting.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On October 31, 2001, Alph-Net Consulting Group, LTD., (a
development stage company) ("Alph-Net Consulting Group") and
McKnight Consulting, LLC, ("McKnight Consulting") executed a
contribution agreement that provides for the acquisition of the
assets of McKnight Consulting by Alph-Net Consulting Group. See
"The Merger." The following unaudited pro forma condensed
combined financial statements are based on the June 30, 2001
unaudited historical financial statements of Alph-Net Consulting
Group and McKnight Consulting contained elsewhere herein, giving
effect to the transaction under the purchase method of
accounting, with Alph-Net Consulting Group treated as the
acquiring entity for financial reporting purposes. The unaudited
pro forma condensed combined balance sheet presenting the
financial position of the Surviving Corporation assumes the
purchase occurred as of June 30, 2001. The unaudited pro forma
condensed combined statement of operations presents the results
of operations of the Surviving Corporation, assuming the merger
was completed on January 1, 2000.
The unaudited pro forma condensed combined financial
statements have been prepared by management of Alph-Net
Consulting Group and McKnight Consulting based on the financial
statements included elsewhere herein. The pro forma adjustments
include certain assumptions and preliminary estimates as
discussed in the accompanying notes and are subject to change.
These pro forma statements may not be indicative of the results
that actually would have occurred if the combination had been in
effect on the dates indicated or which may be obtained in the
future. These pro forma financial statements should be read in
conjunction with the accompanying notes and the historical
financial information of both Alph-Net Consulting Group and
McKnight Consulting (including the notes thereto) included in
this Form. See "FINANCIAL STATEMENTS."
(Format change)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 2001
Alph-Net
Consulting McKnight Pro Forma
Group Consulting Pro Forma Combined
LTD. LLC Adjustments Balance
ASSETS
Current Assets $ - $56,849 $ - $56,849
Fixed Assets (net) - 5,979 - 5,979
Total Assets,$ - $62,828 $ - $62,828
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities $ 1,126 $ 9,355 $ - $10,481
Total Liabilities 1,126 9,355 - 10,481
Stockholders' Equity:
Owners' Equity 53,473 (53,473) A -
Common Stock 1,000 - - 1,000
Additional Paid in Capital 2,895 - 53,473 A 56,368
Retained Deficit (1,200) - - (1,200)
Deficit Accumulated During the
Development Stage (3,821) - - (3,821)
Total Stockholders' Equity (Deficit) (1,126) 53,473 - 52,347
Total Liabilities and Stockholders'
Equity $ - $62,828 $ - $62,828
See accompanying notes to unaudited pro forma condensed combined financial statements.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
Alph-Net
Consulting McKnight Pro Forma
Group Consulting Pro Forma Combined
LTD. LLC Adjustments Balance
Revenues $ - $ 23,611 $ - $23,611
Cost of Sales - 10,693 - 10,693
Gross Margin - 12,918 - 12,918
Expenses:
General & Administrative 1,345 12,840 - 14,185
Net Income (Loss) $ (1,345) $ 78 $ - $(1,267)
Income (Loss) per share $ - $ - $ - $ -
Weighted average shares outstanding 1,000,000 - 1,000,000
See accompanying notes to unaudited pro forma condensed combined financial statements.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Alph-Net
Consulting McKnight Pro Forma
Group Consulting Pro Forma Combined
LTD. LLC Adjustments Balance
Revenues $ - $ 14,063 $ - $ 14,063
Cost of Sales - 2,362 2,362
Gross Margin - 11,701 11,701
Expenses:
General & Administrative 1,126 1,970 - 3,096
Net Income (Loss) $ (1,126) $ 9,731 $ - $ 8,605
Income (Loss) per share $ - $ - $ - $ (0.01)
Weighted average shares outstanding 1,000,000 - 1,000,000
See accompanying notes to unaudited pro forma condensed combined financial statements.
(Format Change)
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
(1) General
In the acquisition, Alph-Net Consulting Group will acquire
McKnight Consulting with Alph-Net Consulting Group being the
surviving entity. Alph-Net Consulting Group will acquire all of
the assets and liabilities of McKnight Consulting, in exchange
for 750,000 shares of Common Stock, or approximately 75% of the
New Common Stock outstanding subsequent to the acquisition,
subject to certain adjustments. Alph-Net Consulting Group will
also cancel 750,000 shares of the majority shareholders common
stock prior to the exchange of shares. McKnight Consulting has
not yet performed a detailed evaluation and appraisal of the fair
market value of the net assets sold in order to allocate the
purchase price among the assets sold. For purposes of preparing
these pro forma financial statements, certain assumptions as set
forth in the notes to the pro forma adjustments have been made
in allocating the sales price to the net assets sold. As such,
the pro forma adjustments discussed below are subject to change
based on final appraisals and determination of the fair market
value of the assets and liabilities of McKnight Consulting.
(2) Fiscal Year Ends
The unaudited pro forma condensed combined statements of
operations for the year ended December 31, 2000, and the six
months ended June 30, 2001, Alph-Net Consulting Group's and
McKnight Consulting's operations on a common fiscal year.
(3) Pro Forma Adjustments
The adjustments to the accompanying unaudited pro forma
condensed combined balance sheet as of June 30, 2001, are
described below:
(A) Record merger by issuing 750,000 shares of Common Stock,
par value $0.001 and canceling 750,000 shares of Common Stock,
par value $0.001.
The adjustments to the accompanying unaudited pro forma
condensed combined statements of operations are described below:
There are no anticipated adjustments to the statements of
operations as a result of the merger.
Terms of the Combination
Conditions to the Combination
Our obligations and those of McKnight Consulting to
consummate the merger are subject to the satisfaction or written
waiver of the following conditions:
* The absence of actual or threatened proceedings before a
court or other governmental body relating to the merger;
* Performance by us and McKnight Consulting of each party's
obligations under the contribution agreement;
* The accuracy, in all material respects, of the
representations and warranties given by us and McKnight
Consulting in the contribution agreement; and
* The receipt of certificates from us and McKnight
Consulting.
The contribution agreement is attached as Appendix A to this
information statement.
DISSENTER'S RIGHTS OF APPRAISAL
Any shareholder who dissents from the combination with McKnight
Consulting is entitled to the rights and remedies of dissenting
shareholders as provided in 92A.380 of the Nevada Revised
Statutes, subject to compliance with the procedures set forth in
such chapter. A copy of Sections 92A.300 and 92A.500 of the
Nevada
Revised Statutes is attached as Appendix D to this Information
Statement.
A dissenting shareholder may not challenge the corporate
action creating his entitlement to dissenter's rights unless the
action is unlawful or fraudulent.
A notice of dissenter's rights must be sent no later than ten
days after the effectuation of the corporate action creating the
dissenter's rights, this Information Statement constitutes such
notice. A dissenting shareholder must demand payment by
completing and executing a "Demand for Payment," a form which is
attached hereto as Appendix E, and returning all share
certificates to the Company at the following address:
Alph-Net Consulting Group, Ltd.
Attn: Daniel L. Hodges, President
2102 N. Donner Ave.
Tucson, Arizona 85749
All demands for payment must be received by [30 days from date
of notice]. Any shareholder who fails to demand payment or
deposit his or her certificates where required by such date
forfeits his or her payment.
We must pay the dissenter within 30 days after receipt of a
demand for payment the amount we estimate to be the fair value of
the shares plus accrued interest. We must include with the
payment a copy of our balance sheet as of the end of a fiscal
year ending not more than 16 months before the payment date, an
income statement for that year, a statement of changes in
shareholders equity for that year, and the latest available
interim financial statements. We must also provide a statement
of our estimate of the fair value of the shares, an explanation
of how the interest was calculated, a statement of dissenter's
rights to demand payment and a copy of the Nevada Revised Statute
Sections 92A.300 and 92A.500, inclusive.
The Companies
Alph-Net Consulting
Since its inception on April 15, 1996, Alph-Net Consulting,
Ltd., a Nevada corporation, has not engaged in any operations
other than organizational matters. It was formed specifically to
be a "blank check" or "clean public shell" corporation, for the
purpose of either merging with or acquiring an operating company
with operating history assets. We are currently an inactive
publicly registered shell corporation with no significant assets
or operations. We have not been involved in any litigation nor
have we had any prior regulatory problems or business failures.
We are not traded on any public market and we have never paid
dividends. As of September 15, 2001 we have 29 shareholders.
Our executive offices are located at 2102 N. Donner Ave.,
Tucson, Arizona 85749. Our telephone number is (520) 731-9890.
Our President, Secretary and sole director is Daniel L. Hodges.
As the sole director, Mr. Hodges has commenced implementation
of our principal business purpose, which is to seek merger or
acquisition candidates. We have sought to acquire assets or
shares of an entity actively engaged in business and which
generates revenues, in exchange for our securities. We have not
and will not, if the combination is not consummated, limit our
search to any particular field or industry.
Mr. Hodges has a controlling interest in numerous shell
companies which seek or have effected mergers or acquisitions
similar to that which we seek. In the past, Mr. Hodges has
typically sold his controlling interests in the shell companies
for cash. The other shareholders of the shell companies received
interests in the applicable new company as a result of the merger
or acquisition.
Competition. We are not a significant participant in the
market for business combinations with, or financing of,
development stage enterprises. There are many established
management and financial consulting companies and venture capital
firms which have significantly greater financial and personnel
resources, technical expertise and experience than we have in
this field. In view of our limited financial resources and
management availability, we continue to be at a significant
competitive disadvantage.
Regulation and Taxation. We believe that we have structured
the combination in such a manner as to minimize federal and state
tax consequences to us and to McKnight Consulting and its
members.
Intellectual Property. We own no intellectual property of any
kind.
Employees. We have no full-time or part-time employees. Mr.
Hodges, our sole officer and director, has agreed to allocate a
nominal portion of his time to our activities without
compensation.
Legal Proceedings. We are not subject to any pending
litigation, legal proceedings or claims.
Our Management's Discussion and Analysis of Financial Condition
and Results of Operation
We are an inactive publicly registered shell corporation with
no significant assets or operations. There are no trends that
will result in or are likely to result in our liquidity
increasing or decreasing. We have no material commitments for
capital expenditures as of the end of the latest fiscal period.
We do not anticipate performing research and development for any
products during the next twelve months. We have no full or part
time employees and do not anticipate hiring any employees during
the next twelve months. We are a public shell corporation
created as a vehicle to acquire or merge with another corporation
that seeks perceived advantages of a publicly held corporation.
We have, and likely will continue to have, insufficient capital
to engage in any operations other than acquiring or merging with
another company.
McKnight Consulting
General
Originally operated as a sole proprietorship, and then
reformed as a limited liability company under the laws of the
state of Arizona in 2001, McKnight Consulting LLC is a technical
consulting company whose primary focus is in developing,
supporting, designing, and implementing computer connectivity
solutions with small to mid-sized companies nationwide. These
services include network design, configuration, management,
administration, programming, and evaluation. In addition to
these services, database connectivity and server application
management is offered when these services are integrated into the
network design.
McKnight Consulting's executive offices are located at 2110 E.
Water Street, Tucson, Arizona 85799. Our telephone number is
(520) 322-9918. McKnight Consulting's President and sole
director is Patrick E. McKnight.
Competition. McKnight Consulting is not a significant
participant in the market for computer connectivity solutions.
There are many established consulting companies that have
significantly greater financial and personnel resources,
technical expertise and experience than we have in this field.
In view of its limited resources and size, McKnight Consulting
will continue to be at a significant competitive disadvantage.
Regulation and Taxation. We believe that we have structured
the combination in such a manner as to minimize federal and state
tax consequences to Alph-Net Consulting and to McKnight
Consulting and its members.
Intellectual Property. We own no intellectual property of any
kind.
Employees. We have two full-time employees. None of McKnight
Consulting's employees are represented by a union. McKnight
Consulting considers its relations with its employees to be
satisfactory.
Legal Proceedings. McKnight Consulting is not subject to any
pending litigation, legal proceedings or claims.
McKnight Consulting's Management Discussion and Plan of
Operation
McKnight Consulting is a technical consulting company whose
primary focus is in developing, supporting, designing, and
implementing computer connectivity solutions with small to
mid-sized companies nationwide. Smaller companies often lack
in-house technical expertise necessary for understanding the full
range of available solutions. Slightly larger companies in the
range of mid-sized companies with fewer than 1,000 employees may
have technically capable individuals, however, their ability to
be objective decision-makers may be compromised by company policy
or power hierarchies. McKnight Consulting has provided services
to this targeted market for over 8 years as a sole proprietorship
and, at this time, it is in the interest of the company to expand
the range of offerings and expand operations to enlist more
specialists.
Since the mid-1990's, technical consulting has been building
nationwide at an ever increasing rate. Businesses recognize the
need to confer with outside organizations to understand the
nature and extent of internal problems. Technical consulting has
been the benefactor of this need that is often caused by the
ever-growing computer industry and rapid expansion of technical
solutions. Just over 4 years in the late 1990's, computer
communication speeds have increased 100 times! In addition to
the speed increases, the number of methods to implement computer
networks has risen from 4 in 1990 to over 20 in 2001. These
facts lead many companies to rely on outside sources to assist in
the evaluation of their current infrastructure and assess methods
to change the infrastructure for future compatibility.
McKnight Consulting offers technical consulting for computer
connectivity. These services include network design,
configuration, management, administration, programming, and
evaluation. In addition to these services, database connectivity
and server application management is offered when these services
are integrated into the network design.
Within the next three to five years, McKnight Consulting
expects to enhance revenues by expanding the domain of consulting
activities to include network application hosting and design. In
addition, additional revenue will be expected by adding formal
evaluation methodologies that will fully delineate the source and
nature of existing technical problems. The activities that may
place financial burden on the company include: Recruitment of
personnel for programming and database management; Lost revenue
resulting from recruitment process; marketing costs; inventory
acquisition costs
Revenues
McKnight Consulting had net revenues for year ended December
31, 2000 in the amount of $78 compared to $8,105 for the same
period ended December 31, 1999. For the six-month period ended
June 30 2001, McKnight Consulting had net revenues of $9,731
compared to $5,032 for the same period ended June 30, 2000.
Revenues consisted primarily of consulting fees for projects
managed.
Costs and Expenses
McKnight Consulting had costs and expenses for year ended
December 31, 2000 in the amount of $12,840 compared to $17,219
for the same period ended December 31, 1999. For the six-month
period ended June 30 2001, McKnight Consulting had expenses of
$1,970 compared to $5,385 for the same period ended June 30,
2000. Costs and expenses consist of primarily of general and
administrative expenses and depreciation.
Liquidity and Capital Resources
At December 31, 2000, McKnight Consulting had total current
assets of $45,980 and $56,849 in current assets at June 30, 2001.
Owners equity in McKnight Consulting was $43,742 as of December
31, 2000 and $53,473 at June 30, 2001.
The Company will not have sufficient funds (unless it is able
to raise funds in a private placement) to undertake any
significant acquisitions or developments.
Description of Capital Stock of Alph-Net Consulting
We are authorized to issue up to 100,000,000 shares of common
stock, $.001 par value per share. As of September 15, 2001,
there were 1,000,000 common shares issued and outstanding held by
29 shareholders. There is no public market for our common stock.
The rights of holders of common stock are subject to the
rights of holders of any preferred stock that may be issued in
the future. All outstanding shares of common shares of common
stock are duly authorized, validly issued, fully paid and
nonassessable. Upon liquidation, dissolution or winding up, the
holders of common stock are entitled to share ratably in all net
assets available for distribution to shareholders after payment
to creditors. The common stock is not redeemable and has no
preemptive or conversion rights.
Voting Rights
Holders of our common shares are entitled to one vote per
share on all matters submitted for shareholders vote. A majority
of the outstanding shares entitled to vote constitute a quorum
and action generally is taken by a majority of the votes cast.
Dividends
Holders of common stock are entitled to receive dividends out
of assets legally available for this purpose at the times and in
the amounts as the Board of Directors may from time to time
determine. Holders of common stock will share equally on a per
share basis in any dividend declared by the Board of Directors.
We have not paid any dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future.
Merger or Consolidation
In the event of a merger or consolidation, holders of our
common stock will vote as a class and such action shall be
approved by a vote of a majority of the shares entitled to vote
being necessary for approval. In any merger or consolidation,
holders of common stock must be treated equally per share.
Security Ownership of Alph-Net Consulting Shares By Certain
Beneficial Shareholders
The following table presents certain information regarding
beneficial ownership of our common stock as of September 15,
2001, by Mr. Hodges who is: (i) the only person known by us to
be the beneficial owner of more than 5% of the outstanding shares
of common stock, and (ii) is our sole director and executive
officer. Mr. Hodges has sole voting and investment power as to
the shares shown.
(Format change)
Name and Address Ownership Percentage
Title of Class of Beneficial Ownership Amount of Beneficial Ownership
Common Daniel L. Hodges 800,000 80%
President and Director
11601 E. Lusitano Pl.
Tucson, AZ 85748
After the merger our shareholders will own 250,000 shares or 25% of the combined company.
The following table presents certain information regarding beneficial ownership of
common stock of the combined company after the acquisition. Mr. McKnight would be: (i)
the only person known by us to be the beneficial owner of more than 5% of the outstanding
shares of common stock, and (ii) is the chief executive officer and a director of the
combined company. Mr. McKnight would have sole voting and investment power as to the
shares shown.
Name and Address Ownership Percentage
Title of Class of Beneficial Ownership Amount of Beneficial Ownership
Common Patrick E. McKnight 375,000 37.5%
President and Director
2110 E. Water Street
Tucson, AZ 85719
Common Kathy McKnight 375,000 37.5%
Secretary and Director
2110 E. Water Street
Tucson, AZ 85719
(Format change)
Management Following the Combination
The following table sets forth the names, positions and
ages of the directors and executive officers of our directors and
officers following the merger. All directors are elected at each
annual meeting and serve for one year and until their successors
are elected and qualify. Officers are elected by the Board of
Directors and their terms of office are at the discretion of the
Board.
Name of Director/Officer Age Position(s) With Company
Patrick E. McKnight 35 President, Director
Kathy McKnight 38 Secretary, Director
Mr. McKnight has been involved in the program development of
the business since its inception. He provides the expertise in
the technical areas including computer applications, software
development, statistical analysis, and technical writing. In
addition, Mr. McKnight handles many of the day-to-day business
operations and decisions for McKnight Consulting.
Ms. McKnight has been involved in the business since 1995 and
continues to serve as the secretary and specialist for program
implementation and customer care/service. Her main
responsibilities include grant application preparation, client
consultation, and information dissemination. These
responsibilities along with purchasing and long-term planning are
her only responsibilities within McKnight Consulting.
Principal Shareholder of Alph-Net Consulting
As of October 15, 2001, Daniel Hodges holds 800,000 shares of
common stock of Alph-Net Consulting which represents 80% of our
issued and outstanding capital stock. He is also the sole
director and executive officer. The remaining 200,000 shares of
our common stock are held by 28 shareholders none of whom own in
excess of 5% of our shares.
Executive Compensation of Directors and Officers
Alph-Net Consulting has not paid, nor does owe, any
compensation to our executive officers for the year ended
December 31, 2000 and we have not done so for the 2001.
McKnight Consulting paid its president, Patrick E. McKnight
$13 in 2000 and $10,608 in 1999. McKnight Consulting has not
paid, nor does owe, any compensation to its executive officers
for the period ended June 30, 2001.
Our by-laws authorize the Board of Directors to fix the
compensation of directors, to establish a set salary for each
director and to reimburse the director's expenses for attending
each meeting of the Board of Directors.
Available Information
ANNUAL REPORT
Our Annual Report on Form 10-KSB with certified financial
statements required to be filed for the fiscal year ended
December 31, 2000, and our Quarterly Reports on From 10_QSB with
reviewed financial statements required to be filed for the
periods ended March 31, 2001 and June 30, 2001 are incorporated
into this Information Statement by this reference and accompanies
this Information and Proxy Statement. Any exhibit to the annual
report on Form 10-KSB or quarterly reports on Form 10-QSB will be
furnished to any requesting person who sets forth a good faith
representation that he or she was a beneficial owner of our
common stock on November 15, 2001. The fee for furnishing a copy
of any exhibit will be 25 cents per page plus $3.00 for postage
and handling.
Copies of our reports, proxy statements and other information
may be inspected and copied at the public facilities maintained
by the SEC:
Judiciary Plaza Citicorp Center
Room 1024 500 West Madison Street
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549
Copies of these materials can also be obtained by mail at
prescribed rates from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549, or by calling the
SEC at 1-800-SEC-0330. The SEC maintains a Web site that
includes reports, proxy statements and other information. The
address of the SEC Web site is http://www.sec.gov.
WHO SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about this Information Statement or the
propped merger, please call Daniel L. Hodges, our sole officer.
Mr. Hodges may be reached at (520) 731-9890.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned;
thereunto duly authorized, in Tucson, Arizona, on 21st of
November, 2001.
ALPH-NET CONSULTING GROUP, LTD.
By:/s/ Daniel L. Hodges
Daniel L. Hodges
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933,
this Information Statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Daniel L. Hodges President and Chief Executive 11/21/01
Daniel L. Hodges Officer (Principal Executive Officer)
MCKNIGHT CONSULTING, LLC.
-:-
INDEPENDENT AUDITOR'S REPORT
JUNE 30, 2001
(UNAUDITED)
AND
DECEMBER 31, 2000
CONTENTS
Page
Independent Auditor's Report . . . . . . . . . . . . .. . F - 1
Balance Sheet
June 30, 2001 (Unaudited) and December 31, 2000 F - 2
Statements of Operations
For the Period Ended June 30, 2001 (Unaudited) and the
Years Ended December 31, 2000 and 1999 . . . . . . . . F - 3
Statements of Owners Equity
For the Period Ended June 30, 2001 (Unaudited) and the
Year Ended December 31, 2000 . . . . . . . . . . . . . F - 4
Statements of Cash Flows
For the Period Ended June 30, 2001 (Unaudited) and the
Years Ended December 31, 2000 and 1999 . . . . . . . F - 5
Notes to Financial Statements. . . . . . . . . . . . . . F - 6
INDEPENDENT AUDITOR'S REPORT
McKnight Consulting, LLC.
Tucson, Arizona
We have audited the accompanying balance sheet of McKnight
Consulting, LLC. as of December 31, 2000, and the related
statements of operations, and cash flows for the years ended
December 31, 2000 and 1999 and the statement of owners equity for
the year ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of McKnight Consulting, LLC. as of December 31, 2000,
and the results of its operations and its cash flows for the
years ended December 31, 2000 and 1999 in conformity with
generally accepted accounting principles.
Respectfully submitted
Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
July 11, 2001
MCKNIGHT CONSULTING, LLC.
BALANCE SHEETS
June 30, 2001 December 31,
(Unaudited) 2000
ASSETS
Current Assets:
Cash and Cash Equivalents $ 8,949 $ 7,553
Accounts Receivable 17,878 6,919
Inventory 30,022 31,508
------ ------
Total Current Assets 56,849 45,980
------ ------
Fixed Assets:
Office Equipment 10,877 10,877
Less Accumulated Depreciation (4,898) (3,810)
------ -----
Net Fixed Assets 5,979 7,067
------ -----
Total Assets $ 62,828 $ 53,047
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable $ 4,794 $ 5,065
Credit Cards Payable 3,848 3,848
Payroll Taxes Payable 119 119
Sales Tax Payable 594 273
------ ------
Total Liabilities 9,355 9,305
------ ------
Owners' Equity: 53,473 43,742
------ ------
Total Liabilities
and Owners' Equity $ 62,828 $ 53,047
------ ------
The accompanying notes are an integral part of these financial
statements.
(Format change)
MCKNIGHT CONSULTING, LLC
STATEMENTS OF OPERATIONS
(Unaudited)
For the Periods Ended For the Years Ended
June 30, December 31,
2001 2000 2000 1999
Revenues:
Sales $ 4,588 $ 13,578 $ 14,654 $ 46,926
Services 1,600 5,858 10,325 10,914
Evaluation 7,875 - - -
Reimbursed Expenses - 500 ( 1,368) 3,951
Total Revenues 14,063 19,936 23,611 61,791
Cost of Goods Sold 2,362 9,519 10,693 36,467
Gross Profit 11,701 10,417 12,918 25,324
Expenses:
General and
Administrative 882 4,348 10,766 15,483
Depreciation 1,088 1,037 2,074 1,736
Net Income $ 9,731 $ 5,032 $ 78 $ 8,105
The accompanying notes are an integral part of these financial statements.
MCKNIGHT CONSULTING, LLC.
STATEMENT OF OWNERS' EQUITY
DECEMBER 31, 2000 AND JUNE 30, 2001 (UNAUDITED)
General Owner
% Income Total
Allocation Amount
Amount
Balance at December 31, 1999 100 $ 43,664 $ 43,664
Net Income - 78 78
Balance at December 31, 2000 100 43,742 43,742
Net Income (Unaudited) - 9,731 9,731
Balance at June 30, 2001 (Unaudited) 100 $ 53,473 $ 53,473
The accompanying notes are an integral part of these financial statements.
MCKNIGHT CONSULTING, LLC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Periods Ended For the Years Ended
June 30, December 31,
2001 2000 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 9,731 $ 5,032 $ 78 $ 8,105
Depreciation 1,088 1,037 2,074 1,736
Change in operating assets
and liabilities:Paging - - - (1,854)
Accounts Receivable (10,959) 7,192 4,546 (4,601)
Inventory 1,486 (1,771) (2,431) (2,389)
Accounts Payable ( 271) ( 601) 303 (6,128)
Credit Cards Payable - - - 194
Payroll Tax Payable - - - 119
Sales Tax Payable 321 (1,038) (1,038) 548
Net Cash Used in operating
activities 1,396 9,851 3,532 (4,270)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Office Equipment - ( 574) (1,011) (9,866)
Net Cash Provided by Investing Activities - ( 574) (1,011) (9,866)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributed Capital - - ( 13) 14,041
Net Cash Provided by Financing Activities - - ( 13) 14,041
Net (Decrease) Increase in Cash 1,396 9,277 2,508 ( 95)
Cash at Beginning of Period 7,553 5,045 5,045 5,140
Cash at End of Period $ 8,949 $ 14,322 $ 7,553 $ 5,045
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ - $ -
Franchise and income taxes $ - $ - $ - $ -
The accompanying notes are an integral part of these financial statements.
(Format change)
MCKNIGHT CONSULTING LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 200 AND 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This summary of accounting policies for McKnight Consulting,
LLC, is presented to assist in understanding the Company's
financial statements. The accounting policies conform to
generally accepted accounting principles and have been
consistently applied in the preparation of the financial
statements.
Organization and Basis of Presentation
The Company was originally organized as a sole
proprietorship under the laws of the State of Arizona and has
operated as a proprietorship prior to the formation of the
Limited Liability Company in 2001.
Nature of Business
McKnight Consulting is a research and technical consulting
firm specializing in social science research and technology that
supports efforts in research. Efforts are focused on research
design, methodology and statistics in formulating sound research
design proposals. Additionally, McKnight Consulting offers
technical and computer consulting related to the research
process.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents to
the extent the funds are not being held for investment purposes.
Inventory
Inventories are stated at the lower of cost or market.
Pervasiveness of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles required management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
MCKNIGHT CONSULTING LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 200 AND 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Concentration of Credit Risk
The Company has o significant off-balance-sheet
concentrations of credit risk such as foreign exchange contracts,
options contracts or other foreign hedging arrangements. The
Company maintains the majority of its cash balances with one
financial institution, in the for of demand deposits.
Fixed Assets.
The office equipment is state at cost and will be
depreciated, on a straight-line basis, over their estimated
useful lives of five years.
The Company has adopted the Financial Accounting standards
Board SFAS No, 121, "Accounting for the Impairment of Long-lived
Assets." SFAS No. 121 addresses the accounting for (i)
impairment of long-lived assets, certain identified intangibles
and goodwill related to assets to be held and used, and (ii)
long-lived assets and certain identifiable intangibles to be
disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles be held and used by an entity be
reviewed for impairment whenever events or changes in
circumstances indicate that he carrying amount of an asset may
not be recoverable. If the sum of the expected future cash flows
from the use of the asset and its eventual disposition
(un-discounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized.
NOTE 2 - COMMITMENTS
As of December 31, 2000 all activities of the Company
have been conducted by corporate officers from either their
homes or business offices. Currently, there are no outstanding
debts owed by the company for the use of these facilities and
there are no commitments for future use of the facilities.
NOTE 3- INCOME TAX
As of December 31, 2000, the Company has been operating as
a sole proprietorship and thus income tax is paid on the
proprietors Schedule C, included on Form 1040 filed with the
Internal Revenue Service.
MCKNIGHT CONSULTING, LLC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,2000 AND 1999
(Continued)
NOTE 4 - SUBSEQUENT EVENTS
On January 25, 2001, the Company, was converted from a
sole proprietorship to a limited liability company.
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
-:-
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 2000 AND 1999
CONTENTS
Page
Independent Auditor's Report . . . . . . . . . . . . . . F - 1
Balance Sheets
December 31, 2000 and 1999 F - 2
Statements of Operations for the
Years Ended December 31, 2000 and 1999 . . . . . . . . F - 3
Statement of Stockholders' Equity for the
Since April 15, 1996 Inception to December 31, 2000 . F - 4
Statements of Cash Flows for the
Years Ended December 31, 2000 and 1999 F - 5
Notes to Financial Statements F - 6
INDEPENDENT AUDITOR'S REPORT
Alph-Net Consulting Group, Ltd.
(A Development Stage Company)
We have audited the accompanying balance sheets of Alph-Net
Consulting Group, Ltd. (a development stage company) as of
December 31, 2000 and 1999, and the related statements of
operations and cash flows for the two years ended December 31,
2000 and the statement of stockholders' equity from April 15,
1996 (inception) to December 31, 2000. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Alph-Net Consulting Group, Ltd. (a development stage company)
as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the two years ended December
31, 2000 in conformity with generally accepted accounting
principles.
Respectfully submitted
Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
January 19, 2001
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
BALANCE SHEETS
December 31,
2000 1999
Assets: $ - $ -
Liabilities - Accounts Payable $ 215 $ -
Stockholders' Equity:
Common Stock, Par value $.001 ,
Authorized 100,000,000 shares,
Issued 1,000,000 shares at,
December 31, 2000 and 1999 1,000 1,000
Paid-In Capital 2,680 1,550
Retained Deficit (1,200) (1,200)
Deficit Accumulated During the
Development Stage (2,695) (1,350)
Total Stockholders' Equity (215) -
Total Liabilities and
Stockholders' Equity $ - $ -
The accompanying notes are an integral part of these
financial statements.
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
since July
12, 1999
inception
For the year ended of
December 31 development
2000 1999 stage
Revenues: $ - $ - $ -
Expenses: 1,345 1,350 2,695
Net Loss $ (1,345) $(1,350) $ (2,695)
Basic & Diluted loss
per share $ - $ -
The accompanying notes are an integral part of these
financial statements.
(Format change)
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
SINCE APRIL 15, 1996 (INCEPTION) TO DECEMBER 31, 2000
Deficit
Accumulated
Since July
12, 1999
Inception of
Common Stock Paid-In Retained Development
Shares Par Value Capital Deficit Stage
Balance at April 15, 1996
(inception) - $ - $ - $ - $ -
September 4, 1996 Issuance of
Stock for Services and payment
of Accounts payable 1,000,000 1,000 - - -
Net Loss - - - (1,000) -
Balance at December 31, 1996 1,000,000 1,000 - (1,000) -
Net Loss - - - (100) -
Balance at December 31, 1997 1,000,000 1,000 - (1,100) -
Net Loss - - - (100) -
Balance at December 31, 1998 1,000,000 1,000 - (1,200) -
Capital contributed by
shareholder - - 1,550 - -
Net Loss - - - - (1,350)
Balance at December 31, 1999 1,000,000 1,000 1,550 (1,200) (1,350)
Capital contributed by
shareholder,, - - 1,130 - -
Net Loss - - - - (1,345)
December 31, 2000 $1,000,000 $1,000 $2,680 $(1,200) $(2,695)
The accompanying notes are an integral part of these financial statements.
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
since July
12, 1999
inception
For the years ended of
December 31,
development
2000 1999 stage
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $(1,345) $(1,350) $( 2,695)
Increase (Decrease) in Accounts Payable 215 (200) 15
Net Cash Used in operating activities (1,130) (1,550) ( 2,680)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash provided by
investing activities - - -
CASH FLOWS FROM FINANCING
ACTIVITIES:
Capital contributed by shareholder 1,130 1,550 2,680
Net Cash Provided by
Financing Activities 1,130 1,550 2,680
Net (Decrease) Increase in
Cash and Cash Equivalents - - -
Cash and Cash Equivalents
at Beginning of Period - - -
Cash and Cash Equivalents
at End of Period $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ -
Franchise and income taxes $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: None
The accompanying notes are an integral part of these financial statements.
(Format change)
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 2000 AND 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This summary of accounting policies for Alph-Net Consulting
Group, Ltd. is presented to assist in understanding the Company's
financial statements. The accounting policies conform to
generally accepted accounting principles and have been
consistently applied in the preparation of the financial
statements.
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of
Nevada on April 15, 1996. The Company ceased all operating
activities during the period from April 15, 1996 to July 12, 1999
and was considered dormant. On July 12, 1999, the Company
obtained a Certificate of renewal from the State of Nevada.
Since July 12, 1999, the Company is in the development stage, and
has not commenced planned principal operations.
Nature of Business
The company has no products or services as of December 31,
2000. The Company was organized as a vehicle to seek merger or
acquisition candidates. The Company intends to acquire interests
in various business opportunities, which in the opinion of
management will provide a profit to the Company.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents to the
extent the funds are not being held for investment purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles required management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Loss per Share
The reconciliations of the numerators and denominators of
the basic loss per share computations are as follows:
Per-Share
Income Shares Amount
(Numerator) (Denominator)
For the year ended
December 31, 2000
Basic Loss per Share
Loss to common shareholders $(1,345) 1,000,000 $ -
For the year ended
December 31, 1999
Basic Loss per Share
Loss to common shareholders $(1,350) 1,000,000 $ -
The effect of outstanding common stock equivalents would be
anti-dilutive for December 31, 2000 and 1999 and are thus not
considered.
Concentration of Credit Risk
The Company has no significant off-balance-sheet
concentrations of credit risk such as foreign exchange contracts,
options contracts or other foreign hedging arrangements. The
Company maintains the majority of its cash balances with one
financial institution, in the form of demand deposits.
NOTE 2 - INCOME TAXES
As of December 31, 2000, the Company had a net operating
loss carryforward for income tax reporting purposes of
approximately $3,800 that may be offset against future taxable
income through 2011.
Current tax laws limit the amount of loss available to be offset
against future taxable income when a substantial change in
ownership occurs. Therefore, the amount available to offset
future taxable income may be limited. No tax benefit has been
reported in the financial statements, because the Company
believes there is a 50% or greater chance the carryforwards will
expire unused. Accordingly, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the
same amount.
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED DECEMBER 31, 2000 AND 1999
(Continued)
NOTE 3 - DEVELOPMENT STAGE COMPANY
The Company has not begun principal operations and as is
common with a development stage company, the Company has had
recurring losses during its development stage.
NOTE 4 - COMMITMENTS
As of December 31, 2000 all activities of the Company have
been conducted by corporate officers from either their homes or
business offices. Currently, there are no outstanding debts owed
by the company for the use of these facilities and there are no
commitments for future use of the facilities.
NOTE 5 - STOCK SPLIT
On July 5, 1999 the Board of Directors authorized 1,000 to 1
stock split, changed the authorized number of shares to
100,000,000 shares and the par value to $.001 for the Company's
common stock. As a result of the split, 999,000 shares were
issued. All references in the accompanying financial statements
to the number of common shares and per-share amounts for 1999 and
1998 have been restated to reflect the stock split.
INDEPENDENT ACCOUNTANT'S REPORT
Alph-Net Consulting Group, Ltd.
(A Development Stage Company)
We have reviewed the accompanying balance sheets of Alph-Net
Consulting Group, Ltd. (a development stage company) as of June
30, 2001 and December 31, 2000, and the related statements of
operations for the three and six months ended June 30, 2001 and
2000, and cash flows for the six months ended June 30, 2001 and
2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statement taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
statements for them to be in conformity with generally accepted
accounting principles.
Respectfully submitted
Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
August 15, 2001
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
BALANCE SHEETS
June 30, December 31,
2001 2000
ASSETS $ - $ -
LIABILITIES & STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable $ 1,126 215
------- --------
Total Liabilities 1,126 215
Stockholders' Equity:
Common Stock, Par value $.001
Authorized 100,000,000 shares,
Issued 1,000,000 Shares at
June 30, 2001 and
December 31, 2000 1,000 1,000
Paid-In Capital 2,895 2,680
Retained Deficit (1,200) (1,200)
Deficit Accumulated During the
Development Stage (3,821) (2,695)
------- --------
Total Stockholders' Equity (1,126) ( 215)
Total Liabilities and
Stockholders' Equity $ - $ -
======= ========
See accompanying notes and accountants report.
(Format change)
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
since July
12, 1999
inception
For the three months ended For the six months ended of
June 30, June 30,
development
2000 2000 2000 2000 stage
Revenues: $ - $ - $ - $ - $ -
Expenses:
General & Administrative 276 980 1,126 980 3,821
Net Loss $ (276) $(980) $(1,126) $ (980) $ (3,821)
Basic & Diluted loss
per share $ - $ - $ - $ -
See accompanying notes and accountants report.
(Format change)
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
since July 12,
1999
For the six months ended Inception of
June 30, Development
2001 2000 Stage
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (1,126) $ (980) $( 3,821)
Increase (Decrease) in
Accounts Payable 911 980 926
----- ---- -------
Net Cash Used in operating
activities (215) - ( 2,895)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash provided by
investing activities - - -
CASH FLOWS FROM FINANCING
ACTIVITIES:
Capital contributed by
shareholder 215 - 2,895
Net Cash Provided by
Financing Activities 215 - 2,895
Net (Decrease) Increase in
Cash and Cash Equivalents - - -
Cash and Cash Equivalents
at Beginning of Period - - -
Cash and Cash Equivalents
at End of Period $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ -
Franchise and income
taxes $ - $ - 350
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES: None
See accompanying notes and accountants report.
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This summary of accounting policies for Alph-Net Consulting
Group, Ltd. (a development stage company) is presented to assist
in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation
of the financial statements.
The unaudited financial statements as of June 30, 2001 and
for the three and six months then ended reflect, in the opinion
of management, all adjustments (which include only normal
recurring adjustments) necessary to fairly state the financial
position and results of operations for the three and six months.
Operating results for interim periods are not necessarily
indicative of the results which can be expected for full years.
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of
Nevada on April 15, 1996. The Company ceased all operating
activities during the period from April 15, 1996 to July 12, 1999
and was considered dormant. Since July 12, 1999, the Company is
in the development stage, and has not commenced planned principal
operations.
Nature of Business
The Company has no products or services as of June 30, 2001.
The Company was organized as a vehicle to seek merger or
acquisition candidates. The Company intends to acquire interests
in various business opportunities, which in the opinion of
management will provide a profit to the Company.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents to the
extent the funds are not being held for investment purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles required management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
Loss per Share
The reconciliations of the numerators and denominators of
the basic loss per share computations are as follows:
Per-Share
Income Shares Amount
(Numerator ) (Denominator)
For the three
months ended
June 30, 2001
Basic Loss per Share
Loss to common shareholders $(276) 1,000,000 $ -
For the six
months ended
June 30, 2001
Basic Loss per Share
Loss to common shareholders $(1,126) 1,000,000 $ -
For the three
months ended
June 30, 2000
Basic Loss per Share
Loss to common shareholders $( 980) 1,000,000 $ -
For the six
months ended
June 30, 2000
Basic Loss per Share
Loss to common shareholders $( 980) 1,000,000 $ -
The effect of outstanding common stock equivalents are anti-
dilutive for June 30, 2001 and 2000 and are thus not considered.
Reclassification: Certain reclassifications have been made in
the 2001 and financial statements to conform with the June 30,
2001 presentation.
ALPH-NET CONSULTING GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(Continued)
NOTE 2 - INCOME TAXES
As of June 30, 2001, the Company had a net operating loss
carryforward for income tax reporting purposes of approximately
$5,000 that may be offset against future taxable income through
2020. Current tax laws limit the amount of loss available to be
offset against future taxable income when a substantial change in
ownership occurs. Therefore, the amount available to offset
future taxable income may be limited. No tax benefit has been
reported in the financial statements, because the Company
believes there is a 50% or greater chance the carry-forwards will
expire unused. Accordingly, the potential tax benefits of the
loss carry-forwards are offset by a valuation allowance of the
same amount.
NOTE 3 - DEVELOPMENT STAGE COMPANY
The Company has not begun principal operations and as is
common with a development stage company, the Company has had
recurring losses during its development stage.
NOTE 4 - COMMITMENTS
As of June 30, 2001 all activities of the Company have been
conducted by corporate officers from either their homes or
business offices. Currently, there are no outstanding debts owed
by the company for the use of these facilities and there are no
commitments for future use of the facilities.
APPENDIX A
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (the Agreement) is effective as of
October 31, 2001, between ALPH-NET CONSULTING GROUP, LTD., a
Nevada corporation (the Company) and MCKNIGHT CONSULTING, LLC, an
Arizona limited liability company (McKnight).
RECITALS
WHEREAS, McKnight is engaged in the business of computer
connectivity consulting;
WHEREAS, the Company is a public company with a class of
securities registered pursuant to section 12(g) of the Securities
Exchange Act of 1934, as amended (the Exchange Act) whose
business plan is to acquire the profitable operations of an
ongoing business;
WHEREAS, McKnight desires to enter into a combination with the
Company in order to gain the benefits of being a publicly-held
entity;
WHEREAS, the board of directors of the Company has determined
that it is in the best interests of the Company to enter into a
combination with McKnight in furtherance of the Companys business
plan;
WHEREAS, in order to effectuate such a combination (the
Combination), McKnight will contribute all of its right, title
and interest in and to all of its assets (the Assets);
WHEREAS, in order to effectuate such Combination, the sole
officer and director of Alph-Net will return to the Company for
cancellation seven hundred fifty thousand (750,000) of his eight
hundred thousand (800,000) shares of common stock of the Company;
WHEREAS, in consideration for the contribution of the Assets, the
Company will issue to McKnight seven hundred fifty thousand
(750,000) shares of its Common Stock and assume any and all
liabilities of McKnight as reflected on McKnights financial
statements;
WHEREAS, the parties intend that for federal and applicable state
income tax purposes that the Contribution qualify as a tax-free
contribution under Section 351 of the Internal Revenue Code of
1986, as amended;
WHEREAS, the Company will file a Registration Statement on Form
SB-2 (the Registration Statement) which will register the
issuance of the Common Stock under the Securities Act of 1933, as
amended (the Securities Act), and which will seek the approval of
the shareholders of the Company to the Combination and certain
other matters; and
WHEREAS, the Company and McKnight intend to consummate the
Combination contemplated by this Agreement not later than five
(5) business days after approval of the Combination by the
shareholders of the Company at a special meeting of shareholders
called for the purpose of approving the Combination and the
completion of all conditions to closing contemplated herein (the
Effective Date).
NOW THEREFORE, in consideration of the forgoing and the mutual
representations, warranties, covenants and agreements contained
herein, the parties agree as follows:
ARTICLE ONE
THE CONTRIBUTION
1.1 The Closing. Unless otherwise provided in this
Agreement, the closing date shall be the Effective Date and shall
take place at 2102 N. Donner Ave., Tucson, Arizona or at any
other location designated by the parties or by facsimile or
express courier of executed closing documents, concurrent with
the satisfaction of the conditions set forth in this Agreement.
1.2 Contribution. Upon the terms and subject to the
conditions of this Agreement and effective as of the Effective
Date, McKnight will contribute to the Company all of its right,
title and interest in and to the Assets (the Contribution).
After such transfer of the Assets and assumption of the
liabilities, as contemplated by Paragraph 1.3 below, the Company
shall own all of the assets, business and operations formerly and
currently used and conducted by McKnight.
1.3 Consideration. As consideration for the Contribution the
Company will issue to McKnight 750,000 shares of its Common Stock
(the Common Stock) and will unconditionally assume and agree to
pay, satisfy and discharge when due in accordance with their
terms, and the Company will forever hold McKnight harmless
against, any and all liabilities of McKnight as shown on the
financial statements of McKnight dated not earlier than thirty
days prior to the date of this Agreement. As of the Effective
Date, the Common Stock will be validly issued, fully paid,
nonassessable and free of preemptive rights.
1.4 Cancellation of Shares. In addition, Daniel L. Hodges,
President and sole Director of Alph-Net, hereby agrees that seven
hundred fifty thousand (750,000) of his eight hundred thousand
(800,000) shares of Alph-Net, shall be cancelled and extinguished
upon approval of the Combination by the Alph-Net shareholders and
prior to the Closing, the cancellation of the Cancelled Shares
shall be deemed to have occurred and to have been effective prior
to the Closing without any further act by Daniel L. Hodges or by
Alph-Net other than the approval of the Combination by the
Alph-Net shareholders.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF MCKNIGHT
2.1 Organization and Qualification. McKnight is a limited
liability company duly organized and validly existing under the
laws of the State of Arizona. McKnight has the requisite power
and authority to own, operate or lease its properties and to
carry on its business as now conducted, and is duly qualified or
licensed to do business, and is in good standing, in each
jurisdiction in which the nature of its business or the
properties owned, operated or leased by it makes such
qualification, licensing or good standing necessary except where
the failures to have such authority, or the failures to be so
qualified, licensed or in good standing, individually, or in the
aggregate, would not have a Material Adverse Effect on McKnight.
The term Material Adverse Effect as used in this Agreement, means
any change in or effect on the business, results of operations,
assets or condition of the affected party that would be
materially adverse to such party, except for any change or effect
resulting from general economic or financial market conditions.
2.2 Subsidiaries. McKnight does not have the power,
directly or indirectly, to vote or direct the voting of,
securities sufficient to elect the majority of the directors of
any corporation (a subsidiary) and does not control, directly or
indirectly, or have any direct or indirect controlling equity
interest, or any commitment to acquire any such direct or
indirect controlling equity interest, in any corporation,
partnership, joint venture, association, trust, or other business
organization.
2.3 Articles of Organization and Operating Agreement.
McKnight has heretofore made available to the Company a complete
and correct copy of its articles of organization and operating
agreement, each as amended to the date hereof. McKnight is not
in violation of any provision of its articles of organization or
operating agreement.
2.4 Capitalization. As of the close of business on the date
of this Agreement, McKnight had 2 membership interests
outstanding. All outstanding membership interests have been duly
authorized and validly issued and are fully paid and
non-assessable. There are no outstanding obligations of McKnight
to repurchase, redeem or otherwise acquire any McKnight
securities, as defined below and to the knowledge of McKnight,
there are no voting trusts, proxies or other agreements or
understandings with respect to the voting of the membership
interests of McKnight. There are outstanding:
2.4.1 No other voting securities of McKnight
2.4.2 No securities of McKnight convertible into or
exchangeable for membership interests or voting securities of
McKnight; and
2.4.3 No options or other rights to acquire from McKnight,
and no obligation to issue, any voting securities or securities
convertible into or exchangeable for membership interests or any
voting securities of McKnight (the items in paragraphs 2.4.1,
2.4.2 and 2.4.3 will be referred to collectively as the McKnight
Securities).
2.5 Authority. McKnight has all necessary power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement by McKnight and the consummation by McKnight of
the transactions contemplated hereby have been duly and validly
authorized and approved by the members of McKnight (the
Members)and no other corporate proceedings on the part of
McKnight are necessary to authorize or approve this Agreement or
to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
McKnight and, assuming the due and valid authorization, execution
and delivery of this Agreement by the Company, constitutes a
valid and binding obligation of McKnight enforceable against
McKnight in accordance with its terms, except as such
enforceability (a) may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the
enforcement of creditor rights generally and (b) is
subject to general principles of equity.
2.6 No Conflict; Required Filings and Consents SECTION
IV.6No Conflict; Required Filings and Consents.
2.6.1 Except as disclosed on Schedule 2.6.1, None of the
execution and delivery of this Agreement by McKnight, the
consummation by McKnight of the transactions contemplated hereby
or the compliance by McKnight with any of the provisions hereof
will (i) conflict with or violate the articles of organization or
operating agreement of McKnight; (ii) conflict with or violate
any statute, ordinance, rule, regulation, order, judgment or
decree applicable to McKnight, or by which McKnight or any of its
properties or assets may be bound or affected, or (iii) result in
a violation or breach of or constitute a default (or an event
which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in any loss
of any material benefit, or the creation of any Lien on any of
the property or assets of McKnight (any of the foregoing referred
to in clause (ii) or this clause (iii) being a violation)
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation to which McKnight is a party or by which McKnight
or any of its properties may be bound or affected, except in the
case of the foregoing clauses (ii) or (iii) for any Violation
which, individually and in the aggregate, would not have a
Material Adverse Effect on McKnight.
2.6.2 Except as disclosed on Schedule 2.6.2, none of the
execution and delivery of this Agreement by McKnight, the
consummation by McKnight of the transactions contemplated hereby
or the compliance by McKnight with any of the provisions hereof
will require any consent, waiver, approval, authorization or
permit of, or registration or filing with or notification to (any
of the foregoing being a Consent), any government or subdivision
thereof, or any administrative, governmental or regulatory
authority, agency, commission, tribunal or body, domestic,
foreign or supranational (a Governmental Entity), except for (i)
such filings and approvals as may be required by any foreign
jurisdiction or under applicable state takeover Laws; and (ii)
other Consents or filings the failure of which to obtain or make,
individually and in the aggregate, would not have a Material
Adverse Effect on McKnight.
2.7 Financial Statements. The audited financial statements
and unaudited interim financial statements of McKnight (the
Financial Statements) provided to the Company comply as to form
in all material respects with applicable accounting requirements
applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
financial condition of McKnight as of the dates thereof and the
results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit adjustments).
2.8 Information. None of the information supplied by
McKnight in writing specifically for inclusion or incorporation
by reference in (i) the Registration Statement; (ii) the proxy
statement included as a part of the Registration Statement (the
"Proxy Statement"); or (iii) any other document to be filed with
the SEC or any other Governmental Entity in connection with the
transactions contemplated by this Agreement (the "Other Filings")
will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy
Statement, at the date it or any amendment or supplement is
mailed to the shareholders of the Company, at the time of the
shareholders' Meeting and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.9 Absence of Certain Material Adverse Changes. Since the
date of the Financial Statements, there has not been any change
in the Assets, business, financial condition or results of
operations of McKnight that would have a Material Adverse Effect
on McKnight, nor has there occurred any event which should
reasonably be foreseen to result in such a Material Adverse
Effect on McKnight.
2.10 Undisclosed Liabilities. Except where any such
liabilities, individually or in the aggregate, would not have a
Material Adverse Effect on McKnight, McKnight does not have any
liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or
to become due), except for (a) liabilities accrued or reserved
against in the Financial Statements or incurred in the ordinary
course of business since the date of the Financial Statements,
(b) contractual or statutory liabilities incurred in the ordinary
course of business which are not required by GAAP to be reflected
on a balance sheet, and (d) liabilities adequately reserved
against or disclosed in writing other than in the Financial
Statements.
2.11 Tax Matters.
2.11.1 For all years where the statute of limitations has
not expired, McKnight has filed all Tax Returns (as defined
below) that it was required to file and all such Tax Returns were
correct and complete in all material respects, except where the
failure to file such Tax Returns, individually or in the
aggregate, would not have a Material Adverse Effect on McKnight.
McKnight has paid or will pay all Taxes (as defined below) that
are due on or before the Closing Date, whether or not shown on
any such Tax Returns, except such as are being contested in good
faith by appropriate proceedings (to the extent any such
proceedings are required) and with respect to which McKnight is
maintaining reserves adequate for their payment and except where
the failure to pay such Taxes, individually or in the aggregate,
would not have a Material Adverse Effect on McKnight. The
accrued but unpaid Taxes of McKnight for Tax Periods through the
date of the Financial Statements do not exceed the accruals and
reserves for Taxes (other than deferred Taxes) set forth on the
Financial Statements. McKnight has no actual or, to its
knowledge, potential liability for any Tax obligation of any
taxpayer (including without limitation any affiliated group or
corporations or other entities that included McKnight during a
prior period) other than McKnight. All Taxes that McKnight is or
was required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid
to the proper Governmental Entity, except where the failure to
withhold or collect Taxes, individually or in the aggregate,
would not have a Material Adverse Effect on McKnight.
2.11.1.1 For purposes of this Agreement, "taxes" means all
taxes, charges, levies or other similar assessments or
liabilities, including without limitation income, gross receipts,
ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll
and franchise taxes imposed by the United States of America or
any state, local or foreign government, or any agency thereof, or
other political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments or
additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof and any
amounts of Taxes of another person that McKnight is liable to pay
by Law.
2.11.1.2 For purposes of this Agreement, "Tax Returns"
means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in
connection with Taxes.
2.11.1.3 For purposes of determining the amount of Taxes
attributable to a specified period (e.g., the period from the
date of the Financial Statements through the Closing) other than
a Tax Period, each Tax shall be computed as if the specified
period were a Tax Period. For purposes of this paragraph 2.11.4,
a Tax Period means a period for which a Tax is required to be
computed under applicable statutes and regulations.
2.11.2 No examination or audit of any Tax Returns of
McKnight by any Governmental Entity that would have a Material
Adverse Effect on McKnight is currently in progress or, to the
knowledge of McKnight, threatened or contemplated. McKnight has
not waived any statute of limitations with respect to taxes or
agreed to an extension of time with respect to a tax assessment
or deficiency.
2.12 Owned Real Property. McKnight does not own any real
property.
2.13 No Litigation. There is no (i) unsatisfied judgment,
order, decree, award, stipulation or injunction or (ii) private
or governmental claims, complaint, action, suit, arbitration,
proceeding, hearing, rule, law, regulation or investigation
affecting McKnight to which McKnight, or to McKnight's knowledge,
any member, manager, employee or agent of McKnight is or was a
party or is threatened to be made a party that would have a
Material Adverse Effect on McKnight.
2.14 Compliance With Applicable Laws. McKnight is in
material compliance with all applicable Laws and orders, writs,
injunctions, judgments, plans or decrees (collectively, "orders")
of any Governmental Entity, including any COBRA and any
applicable employee wage and hour requirements, except where
failure to be in compliance would not have a Material Adverse
Effect on McKnight.
2.15 Benefit Plans; ERISA.
2.15.1 McKnight has previously provided a complete and
accurate list of all Employee Benefit Plans maintained, or
contributed to, by McKnight. Complete and accurate copies of (i)
all Employee Benefit Plans which have been reduced to writing,
(ii) written summaries of all unwritten Employee Benefit Plans,
if any, (iii) all related trust agreements, insurance contracts
and summary plan descriptions, and (iv) all annual reports filed
on IRS Form 5500, 5500C or 5500R for the last two plan years for
each Employee Benefit Plan, have been delivered or made available
to the Company. Each Employee Benefit plan has been administered
in all material respects in accordance with its terms and
McKnight has met its obligations with respect to such Employee
Benefit Plan and has made all required contributions thereto.
McKnight and all Employee Benefit Plans are in all material
respects in compliance with the currently applicable provisions
of ERISA and the Code and the regulations there under.
2.15.2 There are no investigations by a Governmental
Entity, termination proceedings or other claims (except claims
for benefits payable in the normal operation of the Employee
Benefit Plans and proceedings with respect to qualified domestic
relations orders), suits or proceedings against or involving any
Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to
any liability.
2.15.3 All the Employee Benefit Plans that are intended
to be qualified under Section 401(a) of the Code have received
determination, opinion or notification letters from the Internal
Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trust related thereto are
exempt from federal income taxes under Sections 401(a) and
501(a), respectively, of the Code, no such determination, opinion
or notification letter has been revoked and revocation has not
been threatened, and no such Employee Benefit Plan has been
amended since the date of its most recent determination, opinion
or notification letter or application therefore in any respect,
and no act or omission has occurred, that would adversely affect
its qualification or increase its cost.
2.15.4 McKnight has never maintained an Employee Benefit
Plan subject to Section 412 of the Code or Title IV of ERISA.
2.15.5 At no time has McKnight been obligated to
contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
2.15.6 There are no unfunded obligations under any
Employee Benefit Plan providing benefits after termination of
employment to any employee of McKnight (or to any beneficiary of
any such employee), including but not limited to retiree health
coverage and deferred compensation, but excluding continuation of
health coverage required to be continued under Section 4980B of
the Code, any applicable state health insurance continuation law
and any state insurance conversion privileges law.
2.15.7 No act or omission has occurred and no condition
exists with respect to any Employee Benefit Plan maintained by
McKnight that would subject McKnight to any fine, penalty, tax or
liability of any kind imposed under ERISA or the Code.
2.15.8 No Employee Benefit Plan is funded by, associated
with, or related to "voluntary employee's beneficiary
association" within the meaning of Section 501(c)(9) of the Code.
2.15.9 No Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written
communication distributed generally to employees by its terms
prohibits McKnight from amending or terminating any such Employee
Benefit Plan.
2.15.10 There is no: (i) written agreement with any
member, manager or any key employee of McKnight which has not
been terminated in accordance with its terms (A) the benefits of
which are contingent, or the terms of which are altered, upon
occurrence of a transaction involving the McKnight of the nature
of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee or (C)
providing severance benefits or other benefits after the
termination of employment of such member, manager or key
employee; (ii) agreement, plan or arrangement under which any
person may receive payments from McKnight that may be subject to
the tax imposed by Section 4999 of the Code or included in the
determination of such person's "excess parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding
McKnight any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement.
2.16 Intellectual Property.
2.16.1 McKnight owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any
applications for such patents, trademarks, trade names, service
marks, and copyrights, and all trade secrets, schematics,
technology, know-how, computer software and tangible or
intangible proprietary information or material (collectively,
"Intellectual Property") that are necessary or used to conduct
their businesses as currently conducted, except where any failure
to own, license or otherwise possess any such Intellectual
Property, individually or in the aggregate, would not have a
Material Adverse Effect on McKnight. McKnight has taken all
reasonable measures necessary to protect the proprietary nature
of each item of Intellectual Property that it considers
confidential, and to maintain in confidence all trade secrets and
confidential information that it presently owns or uses.
2.16.1.1 McKnight has previously provided a list of all
patents and patent applications and all trademarks, registered
copyrights, know-how, technology, schematics, computer software
or tangible or intangible proprietary information or material,
trade names and service marks owned by McKnight and which are
currently necessary or used in connection with McKnight's
businesses, including the jurisdictions in which each such
Intellectual Property right has been created, recognized, issued
or registered or in which any such application for such creation,
recognition, issuance or registration has been filed.
2.16.1.2 McKnight has previously provided a list of all
written licenses, sublicenses and other agreements to which it is
a party and pursuant to which any person is authorized to use any
Intellectual Property rights.
2.16.1.3 McKnight has previously provided a list of all
written licenses, sublicenses and other agreements to which
McKnight is a party and pursuant to which McKnight is authorized
to use any third party patents, patent applications, trademarks,
service marks, trade names, know-how, schematics, technology
trade secrets or copyrights, including all software ("Third Party
Intellectual Property Rights") which are incorporated in, or used
in the development or operation of, any existing product or
service of McKnight.
2.16.1.4 McKnight has made available to the Company correct
and complete copies of all patents, registrations, applications
(owned by McKnight), and all licenses, sublicenses and agreements
referred to above and as amended to date. Except for retail
purchases of software, McKnight is not a party to any oral
license, sublicense or agreement which, if reduced to written
form, would have been required to be listed pursuant to
paragraphs 2.16.1.1 through 2.16.1.4 under the terms of this
Section 2.16.
2.16.2 With respect to each item of Intellectual Property
that McKnight owns: (i) other than Intellectual Property subject
to joint development rights or other rights that will not
materially interfere with the conduct of the business of
McKnight, and subject to such rights as have been granted by
McKnight under license agreements entered into by McKnight,
(which have been identified in the lists provided pursuant to
paragraphs Section 2.16.1.1 through 2.16.1.4 and copies of which
have previously been made available, or the contents of which
have been disclosed in writing to the Company), McKnight
possesses all right, title and interest in and to each such item;
and (ii) each such item is not subject to any outstanding
judgment, order, decree, stipulation or injunction that
materially interferes with the conduct of McKnight's business as
currently conducted, except where any instance of non-compliance
with subsections (i) and/or (ii) above, individually or in the
aggregate, would not have a Material Adverse Effect on McKnight.
With respect to each item of Third Party Intellectual Property
Rights: (i) the license, sublicense or other agreement covering
such item is legal, valid, binding, enforceable and in full force
and effect with respect to McKnight, and to McKnight's knowledge
is legal, valid, binding, enforceable and in full force and
effect with respect to each other party thereto; (ii) McKnight is
not in breach or default there under, and to McKnight's knowledge
no other party to such license, sublicense or other agreement is
in breach or default there under, and no event has occurred which
with notice or lapse of time would constitute a breach or default
by McKnight or permit termination, modification or acceleration
thereunder by any party thereto; and (iii) the underlying item of
hird Party Intellectual Property is not subject to any
outstanding judgment, order, arbitration award, decree,
stipulation, injunction or governmental rule, law or regulation
to which McKnight is a part or has been specifically named that
materially interferes with the conduct of McKnight's business as
currently conducted, nor subject to any other outstanding
judgment, order, decree, arbitration award, stipulation,
injunction or governmental rule, law or regulation that
materially interferes with the conduct of McKnight's business as
currently conducted, except where any instance of non-compliance
with subsections (i), (ii) and/or (iii) above, individually or in
the aggregate, would not have a Material Adverse Effect on
McKnight.
2.16.3 McKnight (i) has not been named in any suit,
action, arbitration or other proceeding which involves a claim of
infringement or misappropriation of any patent, trademark,
service mark, trade name, copyright, trade secret, schematic,
technology, know-how, computer software, tangible or intangible
proprietary information of any third party or breach of any
license, sublicense or other agreement relating to such
intellectual property and (ii) has not received any written
notice alleging any such claim of infringement, breach or
misappropriation where the events described in subsections (i)
and (ii) would have a Material Adverse Effect on McKnight.
McKnight has made available to the Company correct and complete
copies of all pleadings and papers from such suits, actions,
arbitrations, or proceedings and written notices to the extent
McKnight is not prohibited from disclosing the same under
applicable court orders. The performance of the service offerings
of McKnight do not currently infringe and have not, within the
six years prior to the date of this Agreement, infringed any
patent, trademark, service mark, trade name, copyright, trade
secret, schematic, technology, know-how, computer software,
tangible or intangible proprietary information or material right
of any third party, except where such infringement would not have
a Material Adverse Effect on McKnight; and to the knowledge of
McKnight, the Intellectual Property rights of McKnight are not
being materially infringed by activities, products or services of
any third party.
2.17 Certain Events. Since the date of this Agreement until
the Effective Date, there has not been any event, occurrence or
development which has had or would be reasonably likely to result
in a Material Adverse Effect on McKnight, except for general
economic changes, changes that affect the industry of McKnight
generally, and changes in McKnight's business after the date
hereof attributable solely to actions taken by the Company.
Since the date of this Agreement there has not been (a) any
declaration, setting aside or payment of any dividend or other
distribution in respect of the membership interests of McKnight
or any redemption or other acquisition by McKnight of any
membership interests; (b) any issuance or the authorization of
any issuance of any other securities in respect of, in lieu of or
in substitution for membership interests; (c) (i) any granting by
McKnight to any officer or key employee of McKnight of any
increase in compensation, except in the ordinary course of
business or as was required under employment agreements in effect
as of the date of the Financial Statements or (ii) any entry by
McKnight into any employment, severance or termination agreement
with any such officer or key employee or granting by McKnight to
any such officer or key employee of any increase in severance or
termination pay, except as was required under employment,
severance or termination agreements in effect as of the date of
the Financial Statements; (d) any damage, destruction or loss,
whether or not covered by insurance, that has or would be
reasonably likely to have a Material Adverse Effect on McKnight;
(e) any change in accounting methods, principles or practices by
McKnight materially affecting its assets, liabilities or
business, except insofar as may have been required by a change in
generally accepted accounting principles; or (f) any adoption or
increase in payments to or benefits under any Benefit Plan; or
(g) any agreement or commitment to do any of the things described
in the preceding clauses (a) through (f).
2.18 Contracts. Since the date of the Financial Statements,
McKnight has not breached, or received in writing any claim or
threat that it has breached, any of the terms or conditions of
any material agreement, contract or commitment to which it is a
party or by which any of its assets are bound ("McKnight Material
Contracts") in such a manner as would permit any other party to
cancel or terminate the same prior to its stated term or would
permit any other party to collect material damages from McKnight
under any McKnight Material Contract, other than those McKnight
Material Contracts that if terminated prior to the stated term,
or that if material damages were collected under such McKnight
Material Contract such damages, individually or in the aggregate,
would not have a Material Adverse Effect on McKnight. Each
McKnight Material Contract that has not expired or been
terminated, is in full force and effect, and is not subject to
any material default there under by any party obligated to
McKnight pursuant to such McKnight Material Contract, other than
those McKnight Material Contracts the failure of which to be in
full force and effect or not subject to any material default,
individually or in the aggregate, would not have a Material
Adverse Effect on McKnight. There are no outstanding powers of
attorney executed on behalf of McKnight.
2.19 Employees. To the knowledge of McKnight, no key
employee or group of employees has any current plans to terminate
employment with McKnight, except where any such termination,
individually or in the aggregate, would not have a Material
Adverse Effect on McKnight. McKnight is a party to or bound by
any collective bargaining agreement, nor has any of them
experienced any strikes, formal grievances, claims of unfair
labor practices or other collective bargaining disputes. McKnight
has no knowledge of any organizational effort made or threatened,
either currently or within the past two years, by or on behalf of
any labor union with respect to its employees.
2.20 Books and Records. The minute books of McKnight
contain true and complete records of all actions taken at any
meetings of McKnight's Members, Managers or any committee thereof
and of all written consents executed in lieu of the holding of
any such meeting. The financial books and records of McKnight
accurately reflect in all material respects the assets,
liabilities, business, financial condition and results of
operations of McKnight.
2.21 Brokers. None of McKnight, or any of its Members,
managers or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commission or
finder's fees in connection with the transactions contemplated by
this Agreement.
2.22 Vote Required. The affirmative vote of the holders of
a majority of the membership interests is the only vote of the
holders any class or series of McKnight Securities necessary to
approve the Combination, this Agreement and the transactions
contemplated hereby.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to McKnight as follows:
3.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada. The Company has the
requisite corporate power and authority to own, operate or lease
its properties and to carry on its business as it is now being
conducted, and is duly qualified or licensed to do business, and
is in good standing, in each jurisdiction in which the nature of
its business or the properties owned, operated or leased by it
makes such qualification, licensing or good standing necessary
except where the failures to have such power or authority, or the
failures to be so qualified, licensed or in good standing,
individually, and in the aggregate, would not have a Material
Adverse Effect on the Company.
Subsidiaries. The Company does not have the power,
directly or indirectly, to vote or direct the voting of,
securities sufficient to elect the majority of the directors of
any corporation (a "Subsidiary") and does not control, directly
or indirectly, or have any direct or indirect controlling equity
interest, or any commitment to acquire any such direct or
indirect controlling equity interest, in any corporation,
partnership, joint venture, association, trust, or other business
organization.
3.2 Articles of Incorporation and Bylaws. The Company has
heretofore made available to the McKnight a complete and correct
copy of its articles of incorporation and bylaws, each as amended
to the date hereof. The Company is not in violation of any
provision of its articles of incorporation or bylaws.
3.3 Capitalization. As of the close of business on the
date of this Agreement, the Company had 1,000,000 shares of
common stock issued and outstanding. All outstanding shares have
been duly authorized and validly issued and are fully paid and
non-assessable. The Company has no outstanding obligations to
repurchase, redeem or otherwise acquire any Company Securities,
as defined below, and to the knowledge of the Company, there are
no voting trusts, proxies or other agreements or understandings
with respect to the voting of the shares of the Company. There
are outstanding:
3.3.1 No other voting securities of the Company;
3.3.2 No securities of the Company convertible into or
exchangeable for common stock or other voting securities of the
Company; and
3.3.3 No options or other rights to acquire from the
Company, and no obligation to issue, any voting securities or
securities convertible into or exchangeable for shares of common
stock or any voting securities of the Company (the items in
paragraphs 4.4.1, 4.4.2 and 4.4.3 will be referred to
collectively as the "Company Securities").
3.4 Authority. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized and approved by the
board of directors of the Company. Other than approval of the
shareholders of the Company at a special meeting called for the
purpose of approving the transactions contemplated by this
Agreement and the effectivity of the Registration Statement, no
other corporate proceedings on the part of the Company are
necessary to authorize or approve this Agreement or to consummate
the transactions contemplated hereby. Upon the approval of the
Company's shareholders, this Agreement will be duly and validly
executed and deliverable by the Company and, assuming the due and
valid authorization, execution and delivery of this Agreement by
McKnight, will constitute a valid and binding obligation of the
Company enforceable against it in accordance with its terms,
except as such enforceability (a) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or
relating to the enforcement of creditor rights generally and (b)
is subject to general principles of equity.
3.5 No Conflict; Required Filings and Consents.
3.5.1 None of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the
transactions contemplated hereby or the compliance by the Company
with any of the provisions hereof will (i) conflict with or
violate the articles of incorporation or bylaws of the company;
(ii) conflict with or violate any statute, ordinance, rule,
regulation, order, judgment or decree applicable to the Company,
or by which the Company or any of its properties or assets may be
bound or affected, or (iii) result in a violation or breach of or
constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation
of, or result in any loss of any material benefit, or the
creation of any Lien on any of the property or assets of the
Company (any of the foregoing referred to in clause (ii) or this
clause (iii) being a "Violation") pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company
is a party or by which the Company or any of its properties may
be bound or affected, except in the case of the foregoing clauses
(ii) or (iii) for any Violation which, individually and in the
aggregate, would not have a Material Adverse Effect on the
Company.
3.5.2 None of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the
transactions contemplated hereby or the compliance by the Company
with any of the provisions hereof will require any consent,
waiver, approval, authorization or permit of, or registration or
filing with or notification to (any of the foregoing being a
"consent"), any government or subdivision thereof, or any
administrative, governmental or regulatory authority, agency,
commission, tribunal or body, domestic, foreign or supranational
(a "Governmental Entity"), except for (i) such filings and
approvals as may be required by any foreign jurisdiction or under
applicable state takeover Laws; and (ii) other Consents or
filings the failure of which to obtain or make, individually and
in the aggregate, would not have a Material Adverse Effect on the
Company.
3.6 Financial Statements. The audited financial statements
and unaudited interim financial statements of the Company (the
"Company Financial Statements") provided to McKnight comply as to
form in all material respects with applicable accounting
requirements applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and
fairly present the financial condition of the Company as of the
dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
3.7 Absence of Certain Material Adverse Changes. Since the
date of the Company Financial Statements, there has not been any
change in the Assets, business, financial condition or results of
operations of the Company that would have a Material Adverse
Effect on the Company, nor has there occurred any event that
should reasonably be foreseen to result in such a Material
Adverse Effect on the Company.
3.8 Undisclosed Liabilities. Except where any such
liabilities, individually or in the aggregate, would not have a
Material Adverse Effect on the Company, the Company does not have
any liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or
to become due), except for (a) liabilities accrued or reserved
against in the Company Financial Statements or incurred in the
ordinary course of business since the date of the Company
Financial Statements, (b) contractual or statutory liabilities
incurred in the ordinary course of business which are not
required by GAAP to be reflected on a balance sheet, and (d)
liabilities adequately reserved against or disclosed in writing
other than in the Company Financial Statements.
3.9 Tax Matters.
3.9.1 For all years where the statute of limitations has
not expired, the Company has filed all Tax Returns (as defined
below) that it was required to file and all such Tax Returns were
correct and complete in all material respects, except where the
failure to file such Tax Returns, individually or in the
aggregate, would not have a Material Adverse Effect on the
Company. The Company has paid or will pay all Taxes (as defined
below) that are due on or before the Closing Date, whether or not
shown on any such Tax Returns, except such as are being contested
in good faith by appropriate proceedings (to the extent any such
proceedings are required) and with respect to which the Company
is maintaining reserves adequate for their payment and except
where the failure to pay such Taxes, individually or in the
aggregate, would not have a Material Adverse Effect on the
Company. The accrued but unpaid Taxes of the Company for Tax
Periods through the date of the Company Financial Statements do
not exceed the accruals and reserves for Taxes (other than
deferred Taxes) set forth on the Company Financial Statements.
The Company has no actual or, to its knowledge, potential
liability for any Tax obligation of any taxpayer (including
without limitation any affiliated group or corporations or other
entities that included the Company during a prior period) other
than the Company. All Taxes that the Company is or was required
by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the
proper Governmental Entity, except where the failure to withhold
or collect Taxes, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
3.9.1.1 For purposes of this Agreement, "Taxes" means all
taxes, charges, levies or other similar assessments or
liabilities, including without limitation income, gross receipts,
ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll
and franchise taxes imposed by the United States of America or
any state, local or foreign government, or any agency thereof, or
other political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments or
additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof and any
amounts of Taxes of another person that the Company is liable to
pay by Law.
3.9.1.2 For purposes of this Agreement, "Tax Returns"
means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in
connection with Taxes.
3.9.1.3 For purposes of determining the amount of Taxes
attributable to a specified period (e.g., the period from the
date of the Financial Statements through the Closing) other than
a Tax Period, each Tax shall be computed as if the specified
period were a Tax Period. For purposes of this paragraph 4.10.1,
a Tax Period means a period for which a Tax is required to be
computed under applicable statutes and regulations.
3.9.2 No examination or audit of any Tax Returns of the
Company by any Governmental Entity that would have a Material
Adverse Effect on the Company is currently in progress or, to the
knowledge of the Company, threatened or contemplated. The
Company has not waived any statute of limitations with respect to
taxes or agreed to an extension of time with respect to a tax
assessment or deficiency.
3.10 Owned Real Property. The Company does not own any real
property.
3.11 No Litigation. There is no (i) unsatisfied judgment,
order, decree, award, stipulation or injunction or (ii) private
or governmental claims, complaint, action, suit, arbitration,
proceeding, hearing, rule, law, regulation or investigation
affecting the Company to which the Company, or to the Company's
knowledge, any shareholder, director, officer, employee or agent
of the Company is or was a party or is threatened to be made a
party that would have a Material Adverse Effect on the Company.
3.12 Compliance With Applicable Laws. The Company is in
material compliance with all applicable Laws and orders, writs,
injunctions, judgments, plans or decrees (collectively, "Orders")
of any Governmental Entity, including any COBRA and any
applicable employee wage and hour requirements, except where
failure to be in compliance would not have a Material Adverse
Effect on the Company.
3.13 Benefit Plans; ERISA.
3.13.1 The Company has no Employee Benefit Plans.
3.13.2 The Company has never maintained an Employee
Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
3.13.3 At no time has the Company been obligated to
contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
3.13.4 There are no unfunded obligations under any
Employee Benefit Plan providing benefits after termination of
employment to any employee of the Company (or to any beneficiary
of any such employee), including but not limited to retiree
health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under
Section 4980B of the Code, any applicable state health insurance
continuation law and any state insurance conversion privileges
law.
3.13.5 No act or omission has occurred and no condition
exists with respect to any Employee Benefit Plan maintained by
the Company that would subject the Company to any fine, penalty,
tax or liability of any kind imposed under ERISA or the Code.
3.13.6 No Employee Benefit Plan is funded by, associated
with, or related to "voluntary employees beneficiary association"
within the meaning of Section 501(c)(9) of the Code.
3.13.7 No Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written
communication distributed generally to employees by its terms
prohibits the Company from amending or terminating any such
Employee Benefit Plan.
3.13.8 There is no: (i) written agreement with any
manager or any key employee of the Company which has not been
terminated in accordance with its terms (A) the benefits of which
are contingent, or the terms of which are altered, upon
occurrence of a transaction involving the Company of the nature
of any of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee or (C)
providing severance benefits or other benefits after the
termination of employment of such member, manager or key
employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company that may be subject
to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "excess parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding the
Company any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement.
3.14 Intellectual Property.
3.14.1 The Company owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any
applications for such patents, trademarks, trade names, service
marks, and copyrights, and all trade secrets, schematics,
technology, know-how, computer software and tangible or
intangible proprietary information or material (collectively,
"Intellectual Property") that are necessary or used to conduct
their businesses as currently conducted. The Company has taken
all reasonable measures necessary to protect the proprietary
nature of each item of Intellectual Property that it considers
confidential, and to maintain in confidence all trade secrets and
confidential information that it presently owns or uses.
3.14.1.1 The Company has no patents, patent applications,
trademarks, registered copyrights, know-how, technology,
schematics, computer software or tangible or intangible
proprietary information or material, trade names and service
marks.
3.14.1.2 The Company has no written licenses, sublicenses
and other agreements to which it is a party and pursuant to which
any person is authorized to use any Intellectual Property rights.
3.14.1.3 The Company has previously provided a list of all
written licenses, sublicenses and other agreements to which the
Company is a party and pursuant to which the Company is
authorized to use any third party patents, patent applications,
trademarks, service marks, trade names, know-how, schematics,
technology trade secrets or copyrights, including all software
("Third Party Intellectual Property Rights") which are
incorporated in, or used in the development or operation of, any
existing product or service of the Company.
3.14.1.4 The Company has made available to McKnight correct
and complete copies of all patents, registrations, applications
(owned by the Company), and all licenses, sublicenses and
agreements referred to above and as amended to date. Except for
retail purchases of software, the Company is not a party to any
oral license, sublicense or agreement which, if reduced to
written form, would have been required to be listed pursuant to
paragraphs 4.16.1.1 through 4.16.1.4 under the terms of this
Section 4.15.
3.14.2 With respect to each item of Intellectual Property
that the Company owns: (i) other than Intellectual Property
subject to joint development rights or other rights that will not
materially interfere with the conduct of the business of the
Company, and subject to such rights as have been granted by the
Company under license agreements entered into by the Company,
(which have been identified in the lists provided pursuant to
paragraphs Section 4.16.1.1 through 4.16.1.4 and copies of which
have previously been made available, or the contents of which
have been disclosed in writing to McKnight), the Company
possesses all right, title and interest in and to each such item;
and (ii) each such item is not subject to any outstanding
judgment, order, decree, stipulation or injunction that
materially interferes with the conduct of the Company's business
as currently conducted, except where any instance of
non-compliance with subsections (i) and/or (ii) above,
individually or in the aggregate, would not have a Material
Adverse Effect on the Company. With respect to each item of
Third Party Intellectual Property Rights: (i) the license,
sublicense or other agreement covering such item is legal, valid,
binding, enforceable and in full force and effect with respect to
the Company, and to the Company's knowledge is legal, valid,
binding, enforceable and in full force and effect with respect to
each other party thereto; (ii) the Company is not in breach or
default there under, and to the Company's knowledge no other
party to such license, sublicense or other agreement is in breach
or default there under, and no event has occurred which with
notice or lapse of time would constitute a breach or default by
the Company or permit termination, modification or acceleration
there under by any party thereto; and (iii) the underlying item
of Third Party Intellectual Property is not subject to any
outstanding judgment, order, arbitration award, decree,
stipulation, injunction or governmental rule, law or regulation
to which the Company is a part or has been specifically named
that materially interferes with the conduct of the Company's
business as currently conducted, nor subject to any other
outstanding judgment, order, decree, arbitration award,
stipulation, injunction or governmental rule, law or regulation
that materially interferes with the conduct of the Company's
business as currently conducted, except where any instance of
non-compliance with subsections (i), (ii) and/or (iii) above,
individually or in the aggregate, would not have a Material
Adverse Effect on the Company.
3.14.3 The Company (i) has not been named in any suit,
action, arbitration or other proceeding which involves a claim of
infringement or misappropriation of any patent, trademark,
service mark, trade name, copyright, trade secret, schematic,
technology, know-how, computer software, tangible or intangible
proprietary information of any third party or breach of any
license, sublicense or other agreement relating to such
intellectual property and (ii) has not received any written
notice alleging any such claim of infringement, breach or
misappropriation where the events described in subsections (i)
and (ii) would have a Material Adverse Effect on the Company.
The Company has made available to McKnight correct and complete
copies of all pleadings and papers from such suits, actions,
arbitrations, or proceedings and written notices to the extent
the Company is not prohibited from disclosing the same under
applicable court orders. The performance of the service offerings
of the Company do not currently infringe and have not, within the
six years prior to the date of this Agreement, infringed any
patent, trademark, service mark, trade name, copyright, trade
secret, schematic, technology, know-how, computer software,
tangible or intangible proprietary information or material right
of any third party, except where such infringement would not have
a Material Adverse Effect on the Company; and to the knowledge of
the Company, the Intellectual Property rights of the Company are
not being materially infringed by activities, products or
services of any third party.
3.15 Certain Events. Since the date of this Agreement until
the Effective Date, there has not been any event, occurrence or
development which has had or would be reasonably likely to result
in a Material Adverse Effect on the Company, except for general
economic changes, changes that affect the industry of the Company
generally, and changes in the Company's business after the date
hereof attributable solely to actions taken by McKnight. Since
the date of this Agreement there has not been (a) any
declaration, setting aside or payment of any dividend or other
distribution in respect of any Company Securities or any
redemption or other acquisition by the Company of any Company
Securities; (b) any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in
substitution for common stock; (c) (i) any granting by the
Company to any officer or key employee of McKnight of any
increase in compensation, except in the ordinary course of
business or as was required under employment agreements in effect
as of the date of the Company Financial Statements or (ii) any
entry by the Company into any employment, severance or
termination agreement with any such officer or key employee or
granting by the Company to any such officer or key employee of
any increase in severance or termination pay, except as was
required under employment, severance or termination agreements in
effect as of the date of the Company Financial Statements; (d)
any damage, destruction or loss, whether or not covered by
insurance, that has or would be reasonably likely to have a
Material Adverse Effect on the Company; (e) any change in
accounting methods, principles or practices by the Company
materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in generally
accepted accounting principles; or (f) any adoption or increase
in payments to or benefits under any Benefit Plan; or (g) any
agreement or commitment to do any of the things described in the
preceding clauses (a) through (f).
3.16 Contracts. Since the date of the Company Financial
Statements, the Company has not breached, or received in writing
any claim or threat that it has breached, any of the terms or
conditions of any material agreement, contract or commitment to
which it is a party or by which any of its assets are bound
("Company Material Contracts") in such a manner as would permit
any other party to cancel or terminate the same prior to its
stated term or would permit any other party to collect material
damages from the Company under any Company Material Contract,
other than those Company Material Contracts that if terminated
prior to the stated term, or that if material damages were
collected under such Company Material Contract such damages,
individually or in the aggregate, would not have a Material
Adverse Effect on the Company. Each Company Material Contract
that has not expired or been terminated, is in full force and
effect, and is not subject to any material default there under by
any party obligated to the Company pursuant to such Company
Material Contract, other than those Company Material Contracts
the failure of which to be in full force and effect or not
subject to any material default, individually or in the
aggregate, would not have a Material Adverse Effect on the
Company. There are no outstanding powers of attorney executed on
behalf of the Company.
3.17 Employees. To the knowledge of the Company, no key
employee or group of employees has any current plans to terminate
employment with the Company, except where any such termination,
individually or in the aggregate, would not have a Material
Adverse Effect on the Company. The Company is a party to or
bound by any collective bargaining agreement, nor has any of them
experienced any strikes, formal grievances, claims of unfair
labor practices or other collective bargaining disputes.
McKnight has no knowledge of any organizational effect made or
threatened, either currently or within the past two years, by or
on behalf of any labor union with respect to its employees.
3.18 Books and Records. The minute books of the Company
contain true and complete records of all actions taken at any
meetings of the Company's shareholders, board of directors, or
any committee thereof, and of all written consents executed in
lieu of the holding of any such meetings. The financial books
and records of the Company accurately reflect in all material
respects the assets, liabilities, business, financial condition
and results of operations of the Company.
3.19 Brokers. None of the Company, or any of its
shareholders, directors, officers or employees has employed any
broker or finder or incurred any liability for any brokerage
fees, commission or finder's fees in connection with the
transactions contemplated by this Agreement.
3.20 Vote Required. The affirmative vote of the holders of
a majority of the Company's common stock is the only vote of the
holders any class or series of Company Securities necessary to
approve the Combination, this Agreement and the transactions
contemplated hereby.
3.21 Authority. The Company has all necessary corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have
been duly and validly authorized and approved by the Boards of
Directors of the Company. Except for the approval of the
shareholders of the Company which will be required to approve
this Agreement and the transactions contemplated hereby, no other
corporate proceedings on the part of the Company are necessary to
authorize or approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly
executed and delivered and, assuming the due and valid
authorization, execution and delivery by McKnight, constitutes a
valid and binding obligation of the Company enforceable against
it in accordance with its terms, except that such enforceability
(i) may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of
creditors, rights generally and (ii) is subject to general
principles of equity.
3.22 No Conflict; Required Filings and Consents.
3.22.1 None of the execution and delivery of this
Agreement by the Company, the consummation by it of the
transactions contemplated hereby or the compliance by it with any
of the provisions hereof will (i) conflict with or violate the
organizational, documents of the Company; (ii) conflict with or
violate any statute, ordinance, rule, regulation, order, judgment
or decree applicable to the Company or by which any of its
properties or assets may be bound or affected; or (iii) result in
a Violation pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company is a party or by
which any of its properties or assets may be bound or affected,
except in the case of the foregoing clauses (ii) and (iii) for
any such Violation which, individually and in the aggregate,
would not have a Material Adverse Effect on the Company.
3.22.2 None of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the
transactions contemplated hereby or the compliance by the Company
with any of the provisions hereof will require any Consent of any
Governmental Entity, except for (i) compliance with any
applicable requirements of the Securities Act and the Exchange
Act, and (ii) such filings and approvals as may be required by
any applicable state securities, "blue sky" or takeover Laws, and
(v) other Consents or filings the failure of which to obtain or
make, individually and in the aggregate, would not have a
Material Adverse Effect on the Company.
3.23 Information. None of the information supplied or to be
supplied by the Company in writing specifically for inclusion in
(i) the Registration Statement; (ii) the Proxy Statement; or
(iii) the Other Filings will, at the respective times filed with
the SEC or such other Governmental Entity and, in addition, in
the case of the Proxy Statement, at the date it or any amendment
or supplement is mailed to shareholders of the Company, at the
time of the shareholders' Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
3.24 Brokers. None of the Company, or any of its officers,
directors or employees, has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or
finder's fees in connection with the transactions contemplated by
this Agreement for or with respect to which McKnight is or might
be liable.
ARTICLE FOUR
COVENANTS
4.1 Conduct of Business of McKnight. Except as required by
this Agreement or with the prior written consent of the Company,
during the period from the date of this Agreement to the
Effective Date, McKnight will conduct its operations only in the
ordinary course of business. Without limiting the generality to
the foregoing, and except as otherwise required or contemplated
by this Agreement, McKnight will not, prior to the Effective
Date, without the prior written consent of the Company, not to be
unreasonably withheld:
4.1.1 adopt any amendment to its articles of
organization or operating agreement;
4.1.2 issue, reissue or sell or authorize the issuance,
reissuance or sale of additional membership interests or any
rights, warrants or options to acquire any instruments
convertible into membership interests;
4.1.3 declare, set aside or pay any distribution
(whether in cash, property or any combination thereof) in respect
of the membership interests, except for regularly scheduled
distributions intended to satisfy the tax payments of the
Members;
4.1.4 enter into, adopt or amend any Employee Benefit
Plan or any employment or severance agreement or arrangement or
increase in any manner the compensation or fringe benefits of, or
modify the employment terms of, its Members, managers or
employees, generally or individually, or pay any benefit not
required by the terms in effect on the date hereof of any
existing Employee Benefit Plan, other than in the ordinary course
of business consistent with past practice make normal merit
increases to employees of McKnight;
4.1.5 create, incur or assume any debt not currently
outstanding (including obligations in respect of capital leases);
assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity; or make any loans,
advances or capital contributions to or investments in, any other
person or entity, except, in each case, in the ordinary course of
business;
4.1.6 change in any material respect its accounting
methods, principles or practices, except insofar as may be
required by a change in generally accepted accounting principles;
4.1.7 make any material tax election or settle or
compromise any material income tax liability;
4.1.8 acquire, sell, lease, encumber or dispose of any
assets or property, other than purchases and sales of assets in
the ordinary course of business;
4.1.9 discharge or satisfy any security interest or pay
any obligation or liability other than in the ordinary course of
business;
4.1.10 mortgage or pledge any of its property or assets
or subject any such assets to any security interest other than in
the ordinary course of business;
4.1.11 sell, assign, transfer or license any Intellectual
Property, other than in the ordinary course of business;
4.1.12 enter into, amend, terminate, take or omit to take
any action that would constitute a material violation of or
default under, or waive, release or assign any material rights
under, any material contract or agreement;
4.1.13 make or commit to make any capital expenditure in
excess of $20,000 per item or in an aggregate in excess of
$50,000;
4.1.14 willfully take any action, or willfully fail to
take any action required or permitted by this Agreement with the
intent that such action or failure to take action could result in
(i) any of the representations and warranties of McKnight set
forth in this Agreement becoming untrue or (ii) any of the
conditions to the Combination set forth in Article 5 not being
satisfied;
4.1.15 hire, terminate or discharge any key employee or
engage or terminate any key consultant, provided however that any
such employee or consultant may himself or herself terminate his
or her relationship with the Company in accordance with the terms
of any applicable employment, consulting or similar agreement;
4.1.16 agree in writing or otherwise to take any of the
foregoing actions.
4.2 Access to Information. From the date hereof until the
Effective Time and subject to applicable Law, McKnight will, and
each of its respective Members, managers, employees, counsel,
advisors and representatives (collectively, the "McKnight
Representatives") to (i) provide the Company and its officers,
employees, counsel, advisors and representatives (collectively,
the "Company Representatives") access, during normal business
hours and upon reasonable notice, to the offices and other
facilities and to the books, records, financial statements and
other documents and materials relating to the financial
condition, assets and liabilities of McKnight, and will permit
the Company to make inspections of such as either of them may
reasonably require; (ii) cause the McKnight Representatives to
furnish the Company and the Company Representatives to the extent
available with such other information with respect to the
business of McKnight as the Company may from time to time
reasonably request; and (iii) confer and consult with the Company
Representatives, as the Company may reasonably request, to report
on operational matters, financial matters and the general status
of ongoing business operations of McKnight. Unless otherwise
required by Law and except as is necessary to disseminate the
Registration Statement and the Proxy Statement, the Company will,
and will cause the Company Representatives to hold any such
information in confidence until such time as such information
otherwise becomes publicly available through no wrongful act of
the Company or the Company Representatives.
4.3 Commercially Reasonable Efforts. Subject to the terms
and conditions herein provided and to applicable legal
requirements, so long as this Agreement has not been terminated
according to its terms, each of the parties hereto agrees to use
its commercially reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, consistent
with the fiduciary duties of such party's respective governing
body, and to assist and cooperate with the other parties hereto
in doing, as promptly as practicable, all things necessary,
proper or advisable under applicable Laws and regulations to
ensure that the conditions set forth in Article 5 are satisfied
and to consummate and make effective the transactions
contemplated by the Registration Statement, the Proxy Statement
and this Agreement, including, without limitation, to make
promptly their respective filings and thereafter to make any
other submissions required under applicable Laws. In addition,
if at any time prior to the Effective Time any event or
circumstance relating to either McKnight or the Company should be
discovered by McKnight or the Company, as the case may be, and
which should be set forth in an amendment to the Registration
Statement or the Proxy Statement, the discovering party will
promptly inform the other party of such event or circumstance and
promptly take all steps necessary to cause the Registration
Statement or the Proxy Statement, as the case may be, as so
corrected to be filed with the SEC and to be disseminated to the
shareholders of the Company, in each case as to the extent
required by applicable Law. If at any time after the Effective
Time any further action is necessary or desirable to carry out
the purposes of this Agreement, including the execution of
additional instruments, the proper officers and directors of each
party to this Agreement, as the case may be, shall take all such
necessary action.
4.4 Consents. Each of the parties will use its
commercially reasonable efforts to obtain as promptly as
practicable all Consents of any Governmental Entity or any other
person required in connection with the consummation of the
transactions contemplated by the Registration Statement, Proxy
Statement, and this Agreement.
4.5 Public Announcements. Subject to applicable Law, so
long as this Agreement is in effect, the Company and McKnight
agree to consult with each other before issuing any press release
or otherwise making any public statement (including any
statements included in any filing with the SEC) with respect to
the Combination, the Registration Statement and the other
transactions contemplated by this Agreement.
4.6 No Solicitation. McKnight shall use its commercially
reasonable efforts to cause the Members, managers, employees,
investment bankers, attorneys and other agents and
representatives of McKnight to, immediately cease any existing
activities, information exchanges, discussions or negotiations
with any person other than the Company (a "third Party")
heretofore conducted with respect to any Acquisition Transaction
(as hereinafter defined). McKnight shall not, and shall use its
commercially reasonable efforts to cause the Members, managers,
employees, investment bankers, attorneys and other agents and
representatives of McKnight not to, directly or indirectly, (i)
solicit, initiate, continue, or encourage (including by way of
furnishing or disclosing non-public information) any inquiries,
proposals or offers from any Third Party with respect to any
acquisition or purchase of all or a material portion of the
assets or business of, or any significant equity interest in, or
any consolidation or business combination with, or any similar
transaction involving, McKnight (the foregoing being referred to
collectively as an "acquisition Transaction"), or (ii) negotiate
or otherwise communicate in any way with any Third Party with
respect to any Acquisition Transaction or enter into, approve or
recommend any agreement, arrangement or understanding requiring
McKnight to abandon, terminate or fail to consummate the
Combination or any other transaction contemplated hereby.
Additionally, McKnight shall terminate all letters of intent or
agreements with respect to any Acquisition Transaction
outstanding as of the date hereof and shall provide evidence of
such termination to the Company.
4.7 Notification of Certain Matters. The Company and
McKnight shall promptly notify each other of (a) the occurrence
or non-occurrence of any fact or event which would be reasonably
likely (i) to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time or (ii) to
cause any covenant, condition or agreement hereunder not to be
complied with or satisfied in all material respects; and (b) any
failure of McKnight or the Company, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall
affect the representations or warranties of any party or the
conditions to the obligations of any party hereunder.
4.8 Deliveries of Information. From time to time after the
date of this Agreement and prior to the Effective Time (unless
this Agreement is terminated), McKnight shall furnish promptly to
the Company:
4.8.1 a copy of each report, schedule and other document
filed by McKnight or received by McKnight after the date of this
Agreement pursuant to the requirements of federal or state
securities Laws promptly after such documents are available, and
4.8.2 the monthly consolidated financial statements of
McKnight (as prepared by McKnight in accordance with its normal
accounting procedures) promptly after such financial statements
are available.
ARTICLE FIVE
CONDITIONS TO CONSUMMATION OF THE COMBINATION
5.1 Conditions to Each Party's Obligation to Effect the
Combination. The respective obligations of the Company and
McKnight to consummate the Combination are subject to the
satisfaction or waiver in writing by each Party hereto at or
before the Effective Date of each of the following conditions:
5.2 Shareholder Approval. The shareholders of the Company
shall have duly approved and adopted this Agreement and the
transactions contemplated hereby to the extent required pursuant
to the requirements of the Company's articles of incorporation
and applicable Law.
5.3 Member Approval. The members of McKnight shall have
duly approved and adopted this Agreement and the transactions
contemplated hereby to the extent required pursuant to the
requirements of McKnight's operating agreement and applicable
law.
5.4 Issuance of Shares. The Company shall have issued the
Common Stock to McKnight.
5.5 Injunctions; Illegality. The consummation of the
Combination shall not be restrained, enjoined or prohibited by
any order, judgment, decree, injunction or ruling of a court of
competent jurisdiction or any Governmental Entity, and there
shall not have been any statute, rule or regulation enacted,
promulgated or deemed applicable to the Combination by any
Governmental Entity that prevents the consummation of the
Combination.
5.6 Registration Statement. The Registration Statement has
been declared effective by the Securities and Exchange
Commission.
5.7 Representations and Warranties True. The
representations and warranties of the parties contained herein,
in the Disclosure Schedule and in all certificates and other
documents delivered by each party to the other in connection with
the transactions contemplated hereby shall be true in all
material respects as of the date made and as of the Closing Date.
ARTICLE SIX
POST-CLOSING COVENANTS
6.0 Officers and Directors. Following the Closing, the
Company shall cause to be appointed the following individuals to
the indicated positions and such individuals shall serve until
the next annual meeting of shareholders:
Patrick E. McKnight
President and Director
Kathy McKnight
Secretary and Director
ARTICLE SEVEN
TERMINATION; AMENDMENTS; WAIVER
7.0 Termination. This Agreement may be terminated and the
Combination contemplated hereby may be abandoned at any time
prior to the Effective Date (notwithstanding approval thereof by
the shareholders of the Company):
7.1.1 by mutual written consent of the Company and
McKnight;
7.1.2 by either the Company or McKnight, if the
Combination has not been consummated by December 31, 2001 and the
terminating party is not in material breach of its obligations
hereunder;
7.1.3 by either the Company or McKnight, if there shall
be any Law or regulation that makes consummation of the
Combination or otherwise prohibited or if any judgment,
injunction, order or decree enjoining the Company or McKnight
from consummating the Combination is entered and such judgment,
injunction, order or decree shall become final and unappealable;
7.1.4 The Company may terminate this Agreement by giving
written notice to McKnight if McKnight is in breach, and McKnight
may terminate this Agreement by giving written notice to the
Company in the event that the Company is in breach, of any
material representation, warranty, or covenant contained in this
Agreement, and such breach is not remedied within ten days of
delivery of written notice thereof;
7.1.5 by the Company, if the shareholders of the Company
fail to approve the Combination at any meeting called for the
purpose of approving the Combination.
7.2 Effect of Termination.
7.2.1 Whether or not the Combination is consummated, all
costs and expenses incurred in connection with the Combination,
this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
7.2.2 In the event of termination of this Agreement by
either McKnight or the Company, this Agreement shall forthwith
become void and have no effect, without any liability on the part
of any party or its Members, managers, directors, officers or
shareholders.
7.3 Amendment. To the extent permitted by applicable Law,
this Agreement may be amended by the parties at any time before
or after approval of this Agreement by the shareholders of the
Company; provided, however, that after any such shareholder
approval, no amendment shall be made which by law requires
further approval of the Company's shareholders without the
approval of such shareholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of
the parties.
7.4 Extension; Waiver. At any time prior to the Effective
Date, a party hereto may (a) extend the time for the performance
of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant
hereto by any other party or (c) waive compliance by any other
party with any of the agreements or conditions contained herein.
Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such
rights.
7.5 Procedure for Termination, Extension or Waiver. A
termination, amendment or an extension or waiver of this
Agreement in order to be effective shall require, in the case of
the Company or McKnight, action by its Board of Directors or
Members, respectively.
ARTICLE EIGHT
MISCELLANEOUS
8.0 Non-Survival of Representations and Warranties. None
of the representations and warranties made in this Agreement or
in any instrument delivered pursuant to this Agreement shall
survive the Effective Time. This paragraph 8 shall not limit any
covenant or agreement of the parties hereto which by its terms
contemplates performance after the Effective Time.
8.1 Entire Agreement; Assignment.
8.1.1 This Agreement constitutes the entire agreement
and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject
matter hereof.
8.1.2 Neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by any of the
parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their
respective successors and assigns. This Agreement is not
intended to confer upon any person other than the Company and
McKnight any rights or remedies hereunder.
8.2 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, each of
which shall remain in full force and effect.
8.3 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be
deemed to have been duly given when delivered in person, by
overnight courier or facsimile to the respective parties as
follows:
If to the Company: Alph-Net Consulting Group, Ltd.
2102 N. Donner Ave.
Tucson, Arizona 85749
Attention: Daniel L. Hodges, President
Fax: (520) 731-9892
If to McKnight: McKnight Consulting, L.L.C.
2110 E. Water Street
Tucson, Arizona 85749
Patrick E. McKnight, General
Manager
Fax: (520) 322-9918
or to such other address as the person to whom notice is given
may have previously furnished to the other in writing in the
manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
8.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada,
regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof.
8.5 Descriptive Headings. The descriptive headings herein
are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation
of this Agreement.
8.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same
agreement.
8.7 Fees and Expenses. All fees, costs and expenses
incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such fees and
expenses, whether or not the Combination is consummated.
8.8 Interpretation. Unless the context requires otherwise,
all words used in this Agreement in the singular number shall
extend to and include the plural, all words in the plural number
shall extend to and include the singular, and all words in any
gender shall extend to and include all genders.
8.9 No Third Party Beneficiary. The terms and provisions
of this Agreement are intended solely for the benefit of the
parties hereto and their respective successors and assigns and it
is not the intention of the parties to confer third-party
beneficiary rights upon any other person.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its respective officer
thereunto duly authorized, all as of the day and year first above
written.
ALPH-NET CONSULTING GROUP, LTD.
Daniel L. Hodges
President
MCKNIGHT CONSULTING, LLC
By: Patrick E. McKnight
Its: General Manager
APPENDIX B
RIGHTS OF DISSENTING OWNERS
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, a
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 plan of merger to which the domestic
corporation is a party:
(1) If approval by the stockholders is required for the merger
NRS 92A.120 to 92A.160 inclusive, or the articles of
incorporation and he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged
with its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's
interests will be acquired, if he is entitled to vote on the
plan.
(c) Any corporate action taken pursuant to a vote of the
stockholders to the event 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.
2. A stockholder who is entitled to dissent and obtain payment
under 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.
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:
(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.
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.
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.
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;
(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.
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 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 canceled 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. 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:
(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.
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.
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.
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.
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.
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.
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 benefitted.
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.