SCHEDULE 14A INFORMATION
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clickNsettle.com, Inc.
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
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1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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|_| Check box if any part of the fee is offset as provided by Exchange Act
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4) Date Filed:
CLICKNSETTLE.COM, INC.
1010 Northern Boulevard, Suite 336
Great Neck, New York 11021
(516) 829-4343
December 7, 2004
Dear Stockholders:
On behalf of the Board of Directors and Management of clickNsettle.com,
Inc. (the "Company"), I cordially invite you to attend the Annual Meeting of
Stockholders to be held on Thursday, January 13, 2005, at 9:30 a.m., at the
Company's principal offices, located at 1010 Northern Boulevard, Suite 336,
Great Neck, New York 11021.
The matters to be acted upon at the meeting are fully described in the
attached Notice of Annual Meeting of Stockholders and Proxy Statement. In
addition, certain of our directors and executive officers will be present to
respond to any questions that you may have. Accompanying the attached Proxy
Statement is a Proxy Card and our Annual Report. This report describes our
financial and operational activities.
Whether or not you plan to attend the annual meeting, please complete,
sign, and date the enclosed proxy card and return it in the accompanying
envelope as promptly as possible. If you attend the Annual Meeting, and I hope
you will, you may vote your shares in person even if you have previously mailed
in a proxy card.
We look forward to greeting our stockholders at the meeting.
Sincerely,
Roy Israel
Chief Executive Officer, President,
and Chairman of the Board
CLICKNSETTLE.COM, INC.
1010 Northern Boulevard, Suite 336
Great Neck, New York 11021
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 13, 2005
--------------
TO THE STOCKHOLDERS OF
CLICKNSETTLE.COM, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of clickNsettle.com, Inc., a Delaware corporation (the
"Company"), will be held in the main conference room at our principal offices,
located at 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021 on
Thursday, January 13, 2005, at 9:30 a.m., for the following purposes:
1. To consider and vote on a proposal to approve an asset purchase
agreement with National Arbitration and Mediation, Inc., a company affiliated
with the present Chief Executive Officer of the Company, pursuant to which the
buyer would acquire the assets and would assume all the current and future
liabilities and commitments of the Company's sole operating business, our
alternative dispute resolution services;
2. To consider and take action on a proposal to authorize the Board of
Directors, in its sole discretion, to amend the Company's Certificate of
Incorporation authorizing the Board of Directors to increase the authorized
common stock, par value $0.001 per share, of the Company from 25,000,000 shares
up to and including 300,000,000 shares;
3. To elect directors of the Company to hold office until the next Annual
Meeting or until their respective successors are duly elected and qualified;
4. To ratify the appointment of Grant Thornton LLP as our independent
registered public accounting firm for the fiscal year ending June 30, 2005; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on December 7, 2004
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournments thereof. Representation
of at least a majority of all outstanding shares of our common stock is required
to constitute a quorum. Accordingly, it is important that your stock be
represented at the Annual Meeting. The list of stockholders entitled to vote at
the Annual Meeting will be available for examination by any stockholder at our
offices located at 1010 Northern Boulevard, Suite 336, Great Neck, New York
11021 for ten (10) days prior to January 13, 2005.
Whether or not you plan to attend the Annual Meeting, please complete,
date, and sign the enclosed proxy card and mail it promptly in the
self-addressed envelope enclosed for your convenience. You may revoke your proxy
at any time before it is voted.
By Order of the Board of Directors,
Roy Israel,
Chairman of the Board
Great Neck, New York
December 7, 2004
--------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT; ACCORDINGLY, WE URGE YOU TO DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING.
--------------------------------------------------------------------------------
2
CLICKNSETTLE.COM, INC.
TABLE OF CONTENTS
Page
----
SUMMARY TERM SHEET ........................................................ 5
PROXY STATEMENT ........................................................... 7
INFORMATION CONCERNING VOTE ............................................... 7
General .............................................................. 7
Voting Rights and Outstanding Shares ................................. 7
Revocability of Proxies .............................................. 7
Voting Procedures .................................................... 7
CAUTIONERY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION ............... 8
PROPOSAL 1: APPROVE ASSET PURCHASE AGREEMENT .............................. 8
General .............................................................. 8
The Buyer ............................................................ 8
The Transaction ...................................................... 9
Background ........................................................... 9
Factors Considered by the Board in Recommending the Transaction ...... 12
Evaluation of Reasons for the Transaction ............................ 14
The Company's Future Business Operations ............................. 14
Principal Provisions of the Asset Purchase Agreement ................. 14
Assets to be Sold and Liabilities to be Assumed ................... 14
Accounting and Tax Treatment ...................................... 15
Representations, Warranties and Covenants ......................... 15
Closing ........................................................... 16
Termination ....................................................... 16
Fairness Opinion of Capitalink, L.C .................................. 16
No Dissenters' Rights ................................................ 21
Pro Forma Condensed Consolidated Financial Information ............... 21
PROPOSAL 2: AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK OF THE COMPANY ....................... 28
Reasons for the Amendment ............................................ 28
Current Capitalization ............................................... 28
Effectiveness ........................................................ 28
Effects .............................................................. 28
RISK FACTORS .............................................................. 29
PROPOSAL 3: ELECTION OF THE BOARD OF DIRECTORS ............................ 31
Director Nominees .................................................... 31
Committees of the Board of Directors and Meeting Attendees ........... 32
Executive Officers ................................................... 33
REPORT OF THE AUDIT COMMITTEE ............................................. 33
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION ................... 34
PROPOSAL 4: APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .. 35
OTHER MATTERS ARISING AT THE ANNUAL MEETING ............................... 35
3
INTERESTED PARTY TRANSACTIONS ............................................. 36
STOCKHOLDER PROPOSALS ..................................................... 36
COST OF SOLICITATION OF PROXIES ........................................... 36
SECTION 16(a) REPORTING DELINQUENCIES ..................................... 36
ANNUAL REPORT ON FORM 10-KSB .............................................. 36
ANSWERING YOUR QUESTIONS .................................................. 36
EXHIBIT A: ASSET PURCHASE AGREEMENT ....................................... A-1
EXHIBIT B: FAIRNESS OPINION ............................................... B-1
EXHIBIT C: CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION ....... C-1
4
SUMMARY TERM SHEET
The following summary briefly describes the material terms of the proposed
sale of the assets and liabilities and future commitments of the Company's sole
operating business to National Arbitration and Mediation, Inc., a company
affiliated with the Company's present Chief Executive Officer, pursuant to the
Asset Purchase Agreement dated as of October 18, 2004 (the "Asset Purchase
Agreement"). This summary does not contain all the information that may be
important for you to consider when evaluating the proposed transaction. We
encourage you to read this Proxy Statement and the exhibits attached to the
Proxy Statement in full before voting. Proposals 3 and 4, relating to the
election of directors and ratification of the appointment of the Company's
independent registered public accounting firm, are not covered in this Summary
Term Sheet.
-We are located in Great Neck, New York, and provide alternative dispute
resolution services ("ADR business").
-Management and the Board of Directors have been exploring strategic
alternatives for the Company due to the continuing operating losses of the ADR
business and declining operating cash. See "Proposal 1 - Background."
-On October 18, 2004, the Company signed an Asset Purchase Agreement with
National Arbitration and Mediation, Inc., a New York Corporation that is
affiliated with the Company's present Chief Executive Officer, Roy Israel. In
this Proxy Statement, we refer to National Arbitration and Mediation, Inc. as
"the Buyer."
-Pursuant to the Asset Purchase Agreement, the Buyer will acquire the assets and
assume all the current and future liabilities and commitments of the Company's
ADR business. The Buyer is not paying cash to the Company but is assuming the
commitments and contingencies (including potential severance payments) related
to the ADR business that are estimated at approximately $1.6 million as of
September 30, 2004. Additionally, the Asset Purchase Agreement provides that a
minimum of $200,000 in cash is to remain with the Company. This cash will be
utilized by the Company to pay for the costs associated with the sale of the ADR
business, for continued public reporting obligations and to acquire a new
operating business or affect a business combination. Based on a final balance
sheet that will be prepared after the closing date, the cash to be retained by
the Company may increase to the extent of 60% of the excess of the Remaining Net
Capital before Commitments (as defined on page 14) over $380,462 as of the
closing date. Furthermore, the Company will retain the OTC Bulletin Board
listing which it may use to attract a potential target company. See "Proposal
1-Principal Provisions of the Asset Purchase Agreement: Assets to be Sold and
Liabilities to be Assumed."
-For accounting and tax purposes, the Company may incur a loss upon the
consummation of the transaction, due primarily to non-recurring expenses and to
the extent that the recorded amount of the assets sold exceed the recorded
amount of the liabilities transferred. For tax and accounting purposes, future
liabilities and commitments are not considered to be recorded as yet and
therefore are not included in the calculation even though such items are legal
obligations of the Company. See "Proposal 1-Principal Provisions of the Asset
Purchase Agreement: Accounting and Tax Treatment."
-All of the disinterested members of our Board of Directors approved the Asset
Purchase Agreement. The Board believes that the transaction with the Buyer is
advisable and in the best interests of the Company and its stockholders and is
fair to our stockholders. The Board of Directors received an opinion, dated
October 15, 2004, from an unrelated party, Capitalink, L.C., that, as of such
date, based upon and subject to the assumptions made, matters considered, and
limitations on its review as set forth in the opinion, the purchase
consideration is fair, from a financial point of view, to the Company's
unaffiliated stockholders. See "Proposal 1-Fairness Opinion of Capitalink, L.C."
-The proposed sale is subject to the satisfaction of several conditions, one of
which is that our stockholders must approve the proposed sale to the Buyer. See
"Proposal 1-Principal Provisions of the Asset Purchase Agreement: Closing."
-We have the right to terminate the Asset Purchase Agreement in the event the
Company receives an offer for the ADR business that the Board of Directors
believes, in the exercise of their fiduciary duty, to be better for our
stockholders. If the Board does accept such offer and terminates the Asset
Purchase Agreement, the Company shall pay the Buyer $25,000 to cover the Buyer's
reasonable out-of-pocket costs. See "Proposal 1-Principal Provisions of the
Asset Purchase Agreement: Termination."
5
-The closing of the sale under the Asset Purchase Agreement is scheduled, upon
the satisfaction of all conditions precedent, for January 31, 2005 and, in any
event, not later than March 31, 2005. See "Proposal 1-Principal Provisions of
the Asset Purchase Agreement: Closing."
-Any of our stockholders who do not vote for Proposal 1 are not entitled to
appraisal or dissenter's rights under Delaware law or our Certificate of
Incorporation. See "Proposal 1-No Dissenters' Rights."
-The pending sale of the ADR business is part of our plan to seek strategic
alternatives. This plan may involve a merger or a similar transaction with the
intent to acquire a different operating business. See "Proposal 1-The Company's
Future Business Operations."
-Because our current strategy involves the sale of principally all of the assets
of the Company, this transaction will trigger a change in control. Upon a change
in control, the CEO is entitled to a lump-sum payment equal to three times his
then current base salary and severance bonus. Currently, if calculated, such
payment would approximate $1.015 million. However, pursuant to the Asset
Purchase Agreement, the CEO will waive his right to trigger the
change-in-control provision under his employment contract as long as the Buyer
(a company with which he is affiliated) acquires the ADR business. See "Proposal
1- Principal Provisions of the Asset Purchase Agreement: Assets to be Sold and
Liabilities to be Assumed."
-The cash that is to remain in the Company after the sale of the ADR business
will be used to pay the expenses associated with the sale which are to include,
but not be limited to, legal, accounting, tax advice, the cost of the fairness
opinion and the printing and mailing of this Proxy Statement. Additionally, such
cash will be used for transactional and due diligence costs related to any
potential acquisition and for the reporting obligations of the Company. There
can be no assurances that the cash remaining in the Company after the completion
of the sale of the ADR business will be sufficient to fund future needs. See
"Risk Factors."
-The principal risks factors to which we are subject will no longer include the
risks related to our ADR business. However, there are additional risks
associated with the Company after it no longer owns the ADR business. Our risks
include recent and continuing losses, the "going-concern" qualification in our
audit opinion and liquidity risk. See "Risk Factors."
-The Board of Directors has approved an amendment to the Company's Certificate
of Incorporation to increase the Company's authorized stock up to a total of 300
million shares of stock. The Company presently has 25 million shares authorized
for issuance. The Board of Directors believes it may need additional authorized
shares in order to facilitate a possible business combination following the sale
of the Company's ADR business. See "Proposal 2 - Reason for the Amendment."
6
CLICKNSETTLE.COM, INC.
1010 Northern Boulevard, Suite 336
Great Neck, New York 11021
--------------
PROXY STATEMENT
--------------
For Annual Meeting of Stockholders
to be Held on January 13, 2005
--------------
Approximate Mailing Date of Proxy Statement and Form of Proxy: December 9, 2004.
INFORMATION CONCERNING VOTE
General
This Proxy Statement and the enclosed form of proxy is furnished in
connection with the solicitation of proxies by the Board of Directors of
clickNsettle.com, Inc., a Delaware corporation (the "Company"), for use at the
annual meeting of stockholders to be held on Thursday, January 13, 2005 at 9:30
a.m., and at any and all adjournments thereof (the "Annual Meeting"), with
respect to the matters referred to in the accompanying notice. The Annual
Meeting will be held at our principal offices, located at 1010 Northern
Boulevard, Suite 336, Great Neck, New York 11021.
Voting Rights and Outstanding Shares
Only stockholders of record at the close of business on December 7,
2004 are entitled to notice of and to vote at the Annual Meeting. As of the
close of business on November 15, 2004, 8,701,554 shares of our common stock,
par value $.001 per share, were issued, of which 8,449,056 shares were
outstanding. Each share of common stock entitles the record holder thereof to
one (1) vote on all matters properly brought before the Annual Meeting.
Revocability of Proxies
A stockholder who executes and mails a proxy in the enclosed return
envelope may revoke such proxy at any time prior to its use by notice in writing
to the Secretary of our company, at the above address, or by revocation in
person at the Annual Meeting. Unless so revoked, the shares represented by duly
executed proxies received by us prior to the Annual Meeting will be presented at
the Annual Meeting and voted in accordance with the stockholder's instructions
marked thereon. If no instructions are marked thereon, proxies will be voted FOR
the approval of the Asset Purchase Agreement pursuant to which National
Arbitration and Mediation, Inc. would acquire the assets and all the current and
future liabilities of the Company's ADR business, FOR the amendment to the
Company's Certificate of Incorporation authorizing the Board of Directors to
increase the authorized common stock, FOR the election as directors of the
nominees named below under the caption "ELECTION OF DIRECTORS," and FOR the
ratification of the independent registered public accounting firm. In their
discretion, the proxies are authorized to consider and vote upon such matters
incident to the conduct of the Annual Meeting and upon such other business
matters or proposals as may properly come before the Annual Meeting that our
Board of Directors does not know of in a reasonable time prior to this
solicitation.
Voting Procedures
All votes shall be tabulated by the inspector of elections appointed
for the Annual Meeting, who shall separately tabulate affirmative and negative
votes, abstentions, and broker non-votes. The presence of a quorum for the
Annual Meeting, defined here as a majority of the votes entitled to be cast at
the Annual Meeting, is required. Votes withheld from director nominees and
abstentions will be counted in determining whether a quorum has been reached.
7
Broker-dealer non-votes are not counted for quorum purposes.
Assuming a quorum has been reached, a determination must be made as to the
results of the vote on each matter submitted for stockholder approval. Director
nominees must receive a plurality of the votes cast at the Annual Meeting, which
means that a vote withheld from a particular nominee or nominees will not affect
the outcome of the Annual Meeting. In order to approve proposals 1 and 2, a
majority of the outstanding shares entitled to vote must be cast affirmatively.
In order to approve proposals 3 and 4, a majority of the votes cast must be
voted affirmatively for such proposal.
Cautionary Statement Concerning Forward-Looking Information
This Proxy Statement and the documents to which we refer and which we
incorporate into this Proxy Statement by reference contain forward-looking
statements. In addition, from time to time, we or our representatives may make
forward-looking statements orally or in writing. We base these statements on our
expectations and projections about future events, which we derive from the
information currently available to us. Forward-looking statements relate to
future events or our future performance.
The forward-looking events discussed in this Proxy Statement, the
documents to which we refer you and other statements made from time to time by
us or our representatives, may not occur, and actual events and results may
differ materially and are subject to risks, uncertainties and assumptions about
us. We are not obligated to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Proxy Statement, the documents to which we refer you
and other statements made from time to time from us or our representatives, may
not occur.
PROPOSAL 1: APPROVAL OF ASSET PURCHASE AGREEMENT WITH NATIONAL ARBITRATION
AND MEDIATION, INC., A COMPANY AFFILIATED WITH THE PRESENT CHIEF EXECUTIVE
OFFICER OF THE COMPANY, PURSUANT TO WHICH THE BUYER WOULD ACQUIRE THE
ASSETS AND WOULD ASSUME ALL THE CURRENT AND FUTURE LIABILITIES AND
COMMITMENTS OF THE COMPANY'S SOLE OPERATING BUSINESS, ALTERNATIVE DISPUTE
RESOLUTION SERVICES.
GENERAL
Our Board is proposing that the stockholders approve the Asset Purchase
Agreement, dated October 18, 2004, with National Arbitration and Mediation, Inc.
(the "Buyer"), a New York corporation affiliated with the Company's present
Chief Executive Officer, Roy Israel. Pursuant to the Asset Purchase Agreement,
the buyer would acquire assets and would assume all current and future
liabilities and commitments relating to the ADR business, the sole operating
business of our Company. A copy of the Asset Purchase Agreement is attached as
Exhibit A to this Proxy Statement. Certain material provisions of the Asset
Purchase Agreement are summarized below. STOCKHOLDERS SHOULD READ THE ASSET
PURCHASE AGREEMENT IN ITS ENTIRETY.
After the closing of the transaction, the Company will not have an
operating business. The Board believes that the sale of the ADR business will
enable the Company to acquire or enter into a business combination with another
operating business as we will have divested ourselves of the liabilities and
commitments and contingencies related to the ADR business. The sale of the ADR
business is part of the Company's plan to sell its assets and liabilities and
then seek other strategic alternatives. This plan may involve a merger or a
similar transaction with the intent to acquire or enter into a business
combination with another operating business. The Company has not reached any
agreement with regard to a potential transaction. There can be no assurance that
the Company will enter into such an agreement.
THE BUYER
The Buyer is a privately held corporation located in Great Neck, New York.
The Buyer was incorporated to carry out this transaction. The Buyer is
affiliated with the present Chief Executive Officer of the Company, Roy Israel.
8
THE TRANSACTION
The Buyer will acquire principally all the assets and assume all the
current and future liabilities and commitments of the Company's ADR business
(the "Transaction") except as defined in the Asset Purchase Agreement below. The
Buyer is not paying cash to the Company but is assuming the commitments and
contingencies related to the ADR business that are estimated to be approximately
$1.6 million (including potential severance payments of approximately $1.1
million) as of September 30, 2004. Additionally, the Asset Purchase Agreement
provides that a minimum of $200,000 in cash is to remain with the Company. This
cash will be utilized by the Company to pay for the costs associated with the
sale of the ADR business, to acquire a new operating business and to fund the
continuing reporting obligations of the Company. Based on a final balance sheet
that will be prepared after the closing date, the cash to be retained by the
Company may increase to the extent of 60% of the excess of the Remaining Net
Capital before Commitments (as defined on page 14) over $380,462 as of the
closing date. The Remaining Net Capital Before Commitments shall mean the fair
market value of the assets purchased less the following: (a) recorded
liabilities assumed; (b) commitment due to American Lawyer Media for unused
advertising in the amount of $75,854 (unless such sum is already reflected in
the recorded liabilities assumed) and (c) $200,000 in cash to remain with the
Company (to be adjusted based on the timing of payments for the Transaction
costs). The Transaction costs, which are to be paid by the Company with the
$200,000 cash balance, are expected to include, but not be limited to, legal,
accounting, tax advice, the cost of the fairness opinion and printing and
mailing costs related to the Proxy Statement. Additionally, as there will no
longer be an operating business after the Transaction closes, the Company's cash
balance will be used to cover the transactional and due diligence costs related
to any potential acquisition by the Company, as well as to pay legal and
accounting/auditing costs related to remaining a publicly-traded shell and the
creation and filing of annual and quarterly reports. Furthermore, the Company
will retain the OTC Bulletin Board listing which it may use to attract a
potential target company.
The Board believes that the transaction with the Buyer is in the best
interests of the Company and its stockholders and is fair to us and our
stockholders. The Board of Directors received an opinion, dated October 15,
2004, from an unrelated party, Capitalink, L.C., that, as of such date, based
upon and subject to the assumptions made, matters considered, and limitations on
its review as set forth in the opinion, the purchase consideration is fair, from
a financial point of view, to the Company's unaffiliated stockholders.
Capitalink, L.C. is an investment-banking firm that is regularly engaged in the
evaluation of businesses and their securities in connection with mergers,
acquisitions, corporate restructurings and private placements. See Exhibit B for
a copy of the fairness opinion.
ACCORDINGLY, ALL OF THE DISINTERESTED MEMBERS OF THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
TRANSACTION, AS DESCRIBED IN PROPOSAL 1.
BACKGROUND
The Company has had a net loss every year and through September 30, 2004
since "going public" in November 1996. Despite a substantial reduction in
headcount, losses are expected to continue. Cash, cash equivalents and
marketable securities have been declining for the past three years as well. The
Company's independent auditors included a going concern paragraph in their
report on the June 30, 2004 consolidated financial statements indicating that
there is substantial doubt about the Company's ability to function as a going
concern during the twelve months ending June 30, 2005. In July 2004, those
employees earning in excess of $100,000 per annum took a voluntary 15% reduction
in their pay to assist in further reducing costs. Additionally, as a result of
the Sarbanes-Oxley Act of 2002, expenses associated with being a publicly traded
company is expected to increase in the future.
As a result, Management and the Board of Directors have discussed
strategic alternatives for the Company for several reasons. Firstly, the Company
is the only publicly-traded alternative dispute resolution business. As such,
there are no analysts that follow this market nor do we have large institutional
investors interested in our common stock. As a result, it is difficult to
increase the liquidity in our common stock and to expand our potential investor
base to a diverse group of investors. Secondly, the Company's main client base
includes insurance companies and plaintiff attorney firms. We believe our
revenue continues to be adversely affected by the consolidation and turmoil in
the insurance industry, which represents a major portion of our clientele.
Additionally, insurance companies in general and some, in particular, have
changed their claims-settling philosophies. Currently, we perceive that many of
the larger insurance companies are
9
taking a harder line with the plaintiff bar. This results in a slow down in the
number of cases being submitted to ADR and thus to our forum. Over the past
several years, the Company has attempted to diversify and increase its client
base by pursuing the administration of large-scale arbitration programs with
large institutions and insurance departments without success.
Furthermore, it appears that the stock market has ascribed no value to the
ADR operations of the Company as the market capitalization of the Company has
been below the book value of the Company for some time as, in effect, the
Company has a negative enterprise value. Additionally, trading volume in our
Company could be described as illiquid.
As a result, Management and the Board of Directors believed that immediate
actions needed to be taken which would be in the best interests of the
shareholders. A time line of such recent events follows:
May 11, 2004: During one of the regularly scheduled board meetings, the
Board of Directors reviewed the financial performance of the Company and the
increasingly negative forecasted results for the next fiscal year. The Board
agreed to meet again in June to further discuss the prospects of the Company and
to explore strategic alternatives.
June 28, 2004: A special meeting of the Board of Directors was held to
review the strategic direction of the Company as a result of recent poor
operational performance. Management reported that business had continued to
decline since the last board meeting and was not expected to turn around in the
near term. Management further stated that it was their belief that the decline
in revenues was attributed to the continuing weakness in the insurance industry.
Insurance companies in general and some, in particular, have changed their
claims-settling philosophies in that many of the larger insurance companies are
taking a harder line with the plaintiff bar. This results in a slow down in the
number of cases being submitted to ADR which adversely affects the number of
cases referred to the Company. Management further stated that while they believe
that lawsuits continue to be commenced and that the Company's services should
prove to be vital to insurers in their ability to address a growing caseload
with reduced costs, the timing of such has been delayed. The burden of being a
publicly traded company in terms of out-of-pocket costs and the drain on limited
personnel resources has become even heavier in recent months due to the
increased compliance requirements of the Sarbanes-Oxley Act of 2002. As a result
of these factors and in light of the diminishing cash position and the
historical losses and forecasted performance, Management recommended that the
Board consider all alternatives to salvage stockholder value. The alternatives
included, but were not limited to, a drastic streamlining of the current
operations, selling the operations of the Company and pursuing
merger/acquisition candidates. With respect to a drastic streamlining of
operations, the Company had previously reduced employee headcount through the
utilization of an enhanced operating system. Additional streamlining would
likely involve a significant reduction in top Management that would adversely
affect revenues and the continued viability of the business. As a result, the
Board decided that they should seek potential targets for acquisition. Also, the
Board decided that they should seek bids for the operation of the Company. In
connection therewith, the Board decided to initiate the process of retaining a
financial advisor to evaluate the fairness of any bids to be received by the
Company. At the meeting, both Roy Israel, through the Buyer, and director
Kenneth Geraghty, as a representative of Insurance Services Office, Inc.
("ISO"), the leading supplier of information about property and liability risk,
expressed a possible interest in bidding for the ADR business of the Company.
Mr. Israel, Mr. Geraghty and Mr. Specht, the Company's Director of Information
Technology, all agreed to abstain from the process and allow the remaining
members of the Board, who are each disinterested, to manage the process with the
assistance of counsel.
July 2, 2004: The Company announced in a press release that the Board of
Directors had decided to explore strategic alternatives for the Company in an
effort to protect stockholder value. ISO made a request for due diligence
information with the intent to make a potential bid for the ADR operations of
the Company.
On or about July 7, 2004: The Company received a phone call from a
competitor within the ADR business that they were interested in bidding for the
ADR operations of the Company in response to the press release dated July 2,
2004.
July 13, 2004: A special meeting of the Board of Directors was held to
provide an update since the last meeting in June. Management reported that
revenues continued to decline and that the trend was not reversing. In an effort
to save available cash, all senior personnel within the Company who earned more
than $100,000 per annum were taking a voluntary 15% reduction in their pay
commencing July 14, 2004. Management reported on the status of potential merger
targets and the fact that it would take some time to locate and negotiate with
an appropriate candidate. In addition to interest expressed by ISO, a competitor
and Mr. Israel, the Board discussed other potential suitors for the Company who
10
may have the financial ability to acquire the Company. Due to the deteriorating
financial condition of the Company, the disinterested members of the Board
decided to set a deadline of August 3, 2004 at 5pm for all bids to be received.
July 30, 2004: The competitor made a request for due diligence information
with the intent to make a potential bid for the ADR operations of the Company.
August 4, 2004: A special meeting of the Board of Directors was held to
report upon the bids received for the ADR business of the Company. Only one bid
was received which was from the Buyer. The disinterested members of the Board,
including Mr. Geraghty, then met to discuss the bid.
August 11, 2004: In response to a telephone call from the Company
concerning whether or not they had an interest in a possible business
transaction, another competitor requested a confidentiality agreement. Such
competitor did not ultimately sign the agreement.
August 13, 2004: A special meeting of the Board of Directors was held to
review a further analysis of the deteriorating financial condition of the
Company and various alternatives for the Board to consider. The scenarios
presented included (1) continue to run the Company as is; (2) liquidate the
Company; (3) continue to run the Company but with significant changes which are
aimed at reducing costs; or (4) selling the ADR business to the Buyer and then
having the Company pursue another operating business. In discussing the
alternatives, it was apparent that if the Company continued to operate the ADR
business and still remained as a publicly-held entity, cash flow would still be
negatively affected. If the Company was to liquidate, the current liabilities
and commitments (including a commitment of $1.015 million as a change in control
payment to the Chief Executive Officer which would be triggered if the Company
was to liquidate) was expected to exceed the assets, thereby leaving nothing for
the stockholders. As a result, it appeared that selling the ADR business and
then acquiring another operating business was in the best interests of the
stockholders.
August 20, 2004: A special meeting of the Board of Directors was held to
review a revised bid submitted by the Buyer for the ADR operations. The Company
had received no other bids.
August 24, 2004: A special meeting of the Board of Directors was held to
again review the latest financial projections of the Company and to negotiate
the bid with the Buyer. At the meeting, the disinterested members of the Board
approved the bid pending entering into a definitive agreement and the receipt of
a fairness opinion.
August 31, 2004: The disinterested members of the Board of Directors
interviewed the principal of Capitalink, L.C. to determine if the firm was
independent and qualified to render a fairness opinion with respect to the sale
of the ADR business. Following the meeting, the disinterested members of the
Board approved retaining Capitalink, L.C. for this purpose.
September 3, 2004: The Company signed an engagement letter with
Capitalink, L.C. to render an opinion to the Board of Directors as to whether,
on the date of such opinion, the proposed transaction involving the acquisition
of all of the Company's operations by a related party is fair, from a financial
point of view, to the unaffiliated stockholders of the Company.
September 23, 2004: A regularly scheduled Board of Directors meeting was
held to review the financial results for the fiscal year ended June 30, 2004.
Additionally, the Board received a draft of the Asset Purchase Agreement.
Capitalink, L.C. also presented the status of their review.
October 15, 2004: A special meeting of the Board of Directors was held
wherein Capitalink L.C. made a presentation concerning their opinion which
stated that, as of such date, based upon and subject to the assumptions made,
matters considered, and limitations on its review as set forth in the opinion,
the purchase consideration is fair, from a financial point of view, to the
Company's unaffiliated stockholders. Additionally, the disinterested members of
the Board, with Messrs. Israel and Specht abstaining, approved the Asset
Purchase Agreement and instructed Management to sign such agreement on behalf of
the Company.
October 18, 2004: The Company issued a press release that the Asset
Purchase Agreement was signed that day and that the Company planned on obtaining
approval for the transaction from the stockholders at its annual meeting.
11
October 26, 2004: The competitor who previously requested a
confidentiality agreement on August 11, 2004 telephoned one of the disinterested
members of the Board of Directors and requested another confidentiality
agreement.
November 4, 2004: The competitor spoke with our outside counsel and
informed him that he decided not to move forward with a proposed acquisition of
the ADR business.
OUR BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTION, CONSTITUTING THE
SALE OF SUBSTANTIALLY ALL THE ASSETS AND LIABILITIES AND COMMITMENTS OF THE
COMPANY, IS IN THE BEST INTEREST OF THE COMPANY AND OUR STOCKHOLDERS. AMONG
OTHER THINGS, THE BOARD BELIEVES THAT THIS IS AN ESSENTIAL STEP IN CARRYING OUT
THE COMPANY'S STRATEGY. ACCORDINGLY, THE DISINTERESTED MEMBERS OF THE BOARD HAS
APPROVED THE PROPOSED TRANSACTION.
FACTORS CONSIDERED BY THE BOARD IN RECOMMENDING THE TRANSACTION
In reaching its decision on October 15, 2004, the Board considered a
number of factors, including the following:
(a) The Company has incurred operating losses each fiscal year of the
eight-year period ended June 30, 2004. Going forward, it appeared
likely that this trend would continue in light of the following: (i)
we believe our revenue has been adversely affected by the
consolidation and turmoil in the insurance industry, which
represents a major portion of our clientele. Additionally, insurance
companies in general and some, in particular, have changed their
claims-settling philosophies. Currently, we perceive that many of
the larger insurance companies are taking a harder line with the
plaintiff bar, which results in a slow down in the number of cases
referred to our forum; and (ii) the cost of being a publicly-traded
entity is becoming more expensive and onerous due to the additional
compliance requirements of the Sarbanes-Oxley Act of 2002 both in
terms of out-of-pocket expenses for legal and accounting/audit fees
and in terms of the strain it places on our limited personnel
resources.
(b) Public interest in the Company's common stock has been low as
reflected in little or no trading activity over the past year
(through October 14, 2004) and low prices per share (price has
ranged from $.05 to $.37 during that period). As such, the Board
perceived that the current business may not be attractive to public
investors and that the Company may be better off divesting itself of
our current business and operating a business with broader appeal to
the investing public.
(c) Other than the Buyer, no one else made a bid for the Company's ADR
business even though the Board solicited potential buyers. Also, the
Company issued a press release on July 2, 2004, stating that the
Company was exploring strategic alternatives including the sale of
the current business. The Company also made subsequent press
releases (and filed Form 8-Ks with the U.S. Securities and Exchange
Commission (the "SEC")) on September 28, 2004 in connection with its
year-end earnings release and on October 18, 2004 wherein the
Company discussed the continued exploration of strategic
alternatives. Other than the Buyer, only two parties expressed any
interest and both parties declined to bid for the Company.
(d) The Buyer would assume all of the liabilities and commitments of the
ADR business. Therefore, upon the consummation of the Transaction,
the Company will be free of any significant liabilities after the
consummation of the Transaction. The Board believed that this fact
would increase the Company's attractiveness for private companies
that might be interested in a business combination transaction with
a company whose shares are publicly traded.
(e) If the Company was to be sold to another buyer or if the Company was
to be liquidated, a change-in-control payment to the Chief Executive
Officer would be triggered and would be paid to him in a lump sum
payment. Currently, such amount would be $1.015 million. Upon
liquidation and after this payment, there would be no funds left in
the Company and the stockholders would not receive anything for
their investment. In the Transaction, Mr. Israel has waived this
payment to him in the event the Closing of the Transaction occurs as
a result of the Buyer acquiring the ADR business. Also, the Company
will retain a minimum of $200,000 in cash
12
This cash will be utilized by the Company to pay for the costs
associated with the sale of the ADR business and will better enable
it to acquire a new operating business.
(f) The opinion of Capitalink, L.C. issued to the Board that, based on
the matters set forth in its opinion, the purchase consideration is
fair, from a financial point of view, to the Company's unaffiliated
stockholders. The opinion was a positive factor in the Board's
decision to recommend the Transaction to the stockholders. The full
text of the written opinion, dated October 15, 2004, which sets
forth the reviews, analyses and inquiries made and matters
considered by Capitalink, L.C., is attached to this Proxy Statement
as Exhibit B hereto and is incorporated by reference. Stockholders
are urged to read such opinion carefully in its entirety.
(g) The Company has retained the right in the Asset Purchase Agreement
to have a so-called "fiduciary out" to allow the Company to
terminate the Asset Purchase Agreement and sell the ADR business on
terms more favorable than the terms set forth in the Asset Purchase
Agreement, should such an offer be presented prior to the Closing.
Such termination of the Asset Purchase Agreement would require the
Company to pay the Buyer $25,000 to cover Buyer's reasonable
out-of-pocket expenses. The Board of Directors viewed this
"fiduciary out" overall as a positive factor.
(h) When evaluating the terms of the Transaction, the Company's Board
ensured that the directors interested in the Transaction (namely,
Roy Israel and Will Specht), did not participate in the vote on the
Transaction. The Board, therefore, came to the conclusion that the
personal interests of the officers and directors of the Company in
the consummation of the Transaction did not outweigh the potential
positive effects of the Transaction on stockholder value in the
Company.
(i) After the sale of the ADR business, the Company will not operate any
business and may not be able to identify and consummate a business
combination transaction that will increase stockholder value
significantly. The Company's future business, if any, is unknown at
the time of mailing of this Proxy Statement. The Board believes that
the Company will be able to consummate a business combination
transaction subsequent to the closing of the Transaction.
(j) Even the successful completion of a business combination may not
result in a significant increase of stockholder value because of the
uncertainty as to the future business and the dilutive impact of the
potential issuance of additional stock in connection with a business
combination. However, the Board believed that the Company would not
be able to increase stockholder value if it continued to operate its
current business and was in danger of decreasing shareholder value
and that it was in the best interest of the Company and its
stockholders to attempt to operate another business.
(k) To the extent that the Transaction is not completed, there could be
a negative effect on the Company's sales and operating results, and
its ability to attract and retain new customers and attract and
retain key sales, technical and Management personnel. The Board
decided that this factor was outweighed by the potential increase in
stockholder value if the Transaction and a subsequent business
combination were consummated.
(l) The announcement of the Transaction and the efforts necessary to
complete the sale could result in a disruption in the operations of
the Company by, among other things, diverting Management and other
resources of the Company from its day-to-day business and from the
Company's efforts to continue the development of existing business.
The Board believed that such disruptions could be minimized and any
negative effect resulting from them would be outweighed by the
potentially positive effects of the Transaction.
The above information and factors considered by the Board are not intended
to be exhaustive, but include all of the material factors, both negative
and positive, considered by the Board. The Board of Directors did not
attempt to quantify or otherwise assign relative weights to the specific
factors it considered or determine that any factor was of particular
importance. A determination of various weightings would, in the view of
the Board, be impractical. Rather, the Board viewed its position and
recommendations as being based on all of the information presented to, and
considered by, it. In addition, individual members of the Board may have
given different weight to different factors.
13
EVALUATION OF REASONS FOR THE TRANSACTION
The Board considered the aforesaid factors and came to the conclusion that
the Company would be an attractive object for a "public shell" merger after the
Transaction. The Board believed that the Company will be able to identify an
attractive business acquisition after the Transaction with the potential to
increase stockholder value. Based on these considerations, the Board decided
that the Transaction was fair to the Company's stockholders and therefore
approved the Asset Purchase Agreement.
THE COMPANY'S FUTURE BUSINESS OPERATIONS
If the Company's stockholders approve the Transaction, the Board will
attempt to identify new strategic business opportunities. The Board will attempt
to find a privately held company that either has already successfully operated
its business or has started doing business in an area that the Board considers
to be promising and wants to achieve the status of a reporting company without
having to do an initial public offering and file a registration statement in
connection therewith. When evaluating potential targets for a business
combination, the Company will consider the operating history of the target, the
anticipated cash needs of the target during the short term and long term, the
experience of the target's Management team in the target's business, and the
short term and long term prospects of the business the target is operating in.
When making its decision on a future business combination, the Board will also
consider the percentage of ownership in the surviving company that the Company's
stockholders would retain.
PRINCIPAL PROVISIONS OF THE ASSET PURCHASE AGREEMENT
The following summarizes the material provisions of the Asset Purchase
Agreement. You should carefully read the full text of the Asset Purchase
Agreement attached to this Proxy Statement as Exhibit A as it qualifies this
description and is incorporated by reference into this Proxy Statement.
Assets to be Sold and Liabilities to be Assumed
The Buyer will acquire the assets and assume all the current and future
liabilities and commitments of the Company's ADR business. The Buyer is not
paying cash to the Company but is assuming the commitments and contingencies
related to the ADR business that are estimated to be approximately $1.6 million
(including potential severance payments of approximately $1.1 million) as of
September 30, 2004. However, the Asset Purchase Agreement provides that a
minimum of $200,000 in cash is to remain with the Company. This cash will be
utilized by the Company to pay for the costs associated with the sale of the ADR
business and to acquire or enter into a business combination with a new
operating business as discussed below. Based on a final balance sheet that will
be prepared after the closing date, the cash to be retained by the Company may
increase to the extent of 60% of the excess of the Remaining Net Capital before
Commitments (as defined) over $380,462 as of the closing date. The Remaining Net
Capital Before Commitments shall mean the fair market value of the assets
purchased less the following: (a) recorded liabilities assumed; (b) commitment
due to American Lawyer Media for unused advertising in the amount of $75,854
(unless such sum is already reflected in the recorded liabilities assumed) and
(c) $200,000 in cash to remain with the Company (to be adjusted based on the
timing of payments for the Transaction costs). The Transaction costs, which are
to be paid by the Company with the $200,000 cash balance, are expected to
include, but not be limited to, legal, accounting, tax advice, the cost of the
fairness opinion and printing and mailing costs related to the Proxy Statement.
Additionally, as there will no longer be an operating business after the
Transaction closes, the Company's cash balance will be used to cover the
transactional and due diligence costs related to any potential acquisition by
the Company, as well as to pay legal and accounting/auditing costs related to
remaining a publicly-traded shell.
The Buyer will assume as of the closing date all liabilities of the
Company including recorded liabilities and current and future commitments. More
specifically, the Buyer will assume the lease agreements for the Company's
facilities in Great Neck, New York and in Brooklyn, New York. The lease
agreement for the Company's headquarters in Great Neck expires June 30, 2005.
Under that agreement, the Company is obligated to make monthly lease payments
plus taxes and utilities, net of sublease rental income, which amounts to an
aggregate payment of approximately $168,000 for the period from October 1, 2004
through June 30, 2005. The lease agreement for the Brooklyn conference facility
is expected to commence on January 1, 2005 for a five-year period. Under that
agreement, the Company is obligated for leasehold
14
improvements and to make monthly lease payments plus taxes and utilities which,
in aggregate, amounts to approximately $252,000 (not including taxes and
utilities) for the five-year period. The Buyer is also responsible for the
remaining commitment for advertising with American Lawyer Media, Inc. The unused
commitment for advertising as of September 30, 2004 is $75,854. The Buyer will
also assume all employment agreements (including severance obligations and
change-in-control payments, all of which approximate $1.1 million if they were
calculated as of September 30, 2004), auto and equipment leases (which
approximates $28,500 for amounts due subsequent to September 30, 2004) and all
other commitments and contingencies of the Company related to the ADR business.
The Buyer shall not assume or be liable for taxes, if any, for which the Company
is responsible as a result of this Transaction nor shall Buyer assume or be
liable for liabilities not relating to the ADR business.
As part of the Asset Purchase Agreement, with respect to the severance for
Mr. Israel discussed above, Mr. Israel agreed that he will not trigger his
change-in-control provision under his employment agreement as a result of the
Buyer acquiring the ADR business. Currently, if such provision was triggered
upon the sale or liquidation of the ADR business, the Company would owe Mr.
Israel, in one lump sum, approximately $1.015 million as such amount represents
three times his then current base salary.
Accounting and Tax Treatment
Accounting. The proposed Transaction under the Asset Purchase Agreement
will be accounted for as a sale of certain assets and the assumption of
liabilities. Upon consummation of the proposed Transaction, it appears likely
that as of the Closing date, the Company will recognize a financial reporting
loss equal to the excess of assets sold (excluding assets remaining with the
Company) over the recorded liabilities assumed by the Buyer. For financial
reporting purposes, the transfer of future liabilities and commitments (for
leases, employment agreements, etc.) is not valued as part of the consideration
received by the Company.
Tax. This summary does not purport to be a complete analysis of tax
considerations. The considerations pertaining to stockholders relate only to
stockholders that hold their shares as a capital asset and are either citizens
or residents of the United States, entities taxable as corporations organized
under the laws of the United States and estates or trusts that are treated as
United States persons pursuant to the Internal Revenue Code. The summary does
not consider the effect of any applicable foreign, state, local or other tax
laws nor does it address tax considerations to investors that may be subject to
special federal income tax rules.
-Corporate Tax Considerations: The proposed Transaction under the Asset Purchase
Agreement will be accounted for as a sale of certain assets and the assumption
of liabilities. Upon consummation of the proposed Transaction, it appears likely
that the Company will recognize a tax loss equal to the excess of assets sold
(excluding assets remaining with the Company) over the recorded liabilities
assumed by the Buyer. For tax reporting purposes, the transfer of future
liabilities and commitments (for leases, employment agreements, etc.) is not
valued as part of the consideration received by the Company.
-Stockholder Tax Consideration: The sale as such does not have federal income
tax consequences for stockholders except for Mr. Israel.
Representations, Warranties and Covenants
In the Asset Purchase Agreement, both parties give the customary
representations and warranties, including that each of them is duly organized
and qualified to do business, and that each of them has the corporate power and
authority to perform its obligations under the Asset Purchase Agreement.
The Buyer also agrees to provide, without charge, the services of the
current Chief Financial Officer for the earlier of (i) a one-year period from
the Closing Date as long as the current Chief Financial Officer of the Company
remains an employee of the Buyer and (ii) the closing of a transaction wherein
the Company acquires a new business. In the event the current Chief Financial
Officer of the Company is no longer an employee of the Buyer, then the Buyer
will substitute the current Accounting Supervisor of the Company. The Buyer
shall also provide the necessary and reasonable support to carry out the
reporting obligations of the Company during such period without any charge.
15
The Asset Purchase Agreement provides that the Company and the Buyer will
cooperate with each other with respect to tax information in order to prepare
tax returns or in connection with any tax audit or proceeding. The Buyer and the
Company shall each be equally responsible for any sales, use, excise, transfer
or other similar tax imposed (if any) with respect to the Transaction and will
coordinate the payment of taxes and other amounts with the other party.
The parties shall cooperate with each other following the Closing and
shall make all adjustments necessary to insure that each party receives the
benefits they are entitled to under the Asset Purchase Agreement.
The Company shall hold a meeting of stockholders to approve the
Transaction in a timely manner.
Closing
Pursuant to the Asset Purchase Agreement, the obligations of the parties
to consummate the Transaction are subject to the satisfaction of the closing
conditions described in the following paragraph. At the time of the mailing of
this Proxy Statement, neither party anticipates that any of the closing
conditions will not be met.
In addition to the Company having received the approval of its
stockholders for the Transaction and as the Company has already received a
fairness opinion, the closing is subject to the representations and warranties
made by either party still being true and correct in all material respects as of
the closing. Additionally, the parties have to execute and deliver to each other
certain closing documents, including instruments of transfer as may be necessary
to convey the ADR business to the Buyer and to transfer the liabilities from the
Company to the Buyer.
The consummation of the Transaction is to take place on a date to be
mutually agreed upon by the second business day following the approval of the
Transaction by the requisite number of stockholders and as soon as all
conditions to the closing are met by the Company (as the "Seller") and the
Buyer. Assuming stockholder approval is granted at the Annual Meeting on January
13, 2005, the closing is expected to occur on or about January 31, 2005. In no
event is the closing to be later than March 31, 2005.
Termination
The Asset Purchase Agreement may be terminated as follows: (i) by the
mutual written consent of parties; (ii) if the closing does not take place on or
before March 31, 2005 and such failure to effectuate the closing is not caused
by the terminating party; (iii) by the buyer, if there has been a breach by the
Company and such breach cannot be cured in 30 days; (iv) by the Company, if
there has been a breach by the Buyer and such breach cannot be cured in 30 days;
(v) by the Company, if the requisite number of votes of stockholders approving
the Transaction is not received; or (vi) by the Company, if it receives an offer
for the ADR business that the Board of Directors believes, in the exercise of
their fiduciary duty, to be better for the stockholders than the Buyer's offer
and the Board accepts such offer. If the Company accepts another offer and
terminates the Asset Purchase Agreement, it shall pay the Buyer $25,000 within
five business days of closing the other offer to cover the Buyer's reasonable
out-of-pocket costs.
FAIRNESS OPINION OF CAPITLINK, L.C.
The Board of Directors of the Company engaged Capitalink to render an
opinion as to whether, on the date of such opinion, the purchase consideration
is fair, from a financial point of view, to the Company's unaffiliated
stockholders.
On September 23, 2004, Capitalink made a presentation to the Company's
Board of Directors setting forth its financial analyses. On October 15, 2004,
Capitalink made an additional presentation to the Company's board of directors
setting forth its financial analyses regarding the Transaction and rendered its
oral opinion that, as of such date, based upon and subject to the assumptions
made, matters considered, and limitations on its review as set forth in the
opinion, the Purchase Consideration is fair, from a financial point of view, to
the Company's unaffiliated stockholders. Subsequently, Capitalink delivered its
written opinion.
The full text of the written opinion of Capitalink, dated as of October
15, 2004, is attached as Exhibit B and is incorporated by reference into this
Proxy Statement. The Company and Capitalink urge you to read the
16
Capitalink opinion carefully and in its entirety for a description of the
assumptions made, matters considered, procedures followed and limitations on the
review undertaken by Capitalink in rendering its opinion. The summary of the
Capitalink opinion set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of the opinion.
No limitations were imposed by the Company on the scope of Capitalink's
investigation or the procedures to be followed by Capitalink in rendering its
opinion. The Capitalink opinion was for the use and benefit of the Board of
Directors of the Company in connection with its consideration of the Transaction
and was not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how that stockholder should vote with respect
to the Transaction. Capitalink was not requested to opine as to, and its opinion
does not address, the Company's underlying business decision to proceed with or
effect the Transaction. Further, Capitalink was not asked to consider, and its
opinion does not address, the relative merits of the Transaction as compared to
any alternative business strategy that might exist for the Company. Capitalink
was not engaged to seek alternatives to the Transaction that might exist for the
Company.
In arriving at its opinion, Capitalink took into account an assessment of
general economic, market and financial conditions as well as their experience in
connection with similar transactions and securities valuations generally and,
among other things: (i) reviewed the Asset Purchase Agreement; (ii) reviewed
publicly available financial information and other data with respect to the
Company, including the Annual Report on Form 10-KSB for the year ended June 30,
2004 and the Definitive Proxy Statement on Schedule 14A, dated October 27, 2003;
(iii) reviewed and analyzed the Transaction's pro forma financial impact on the
Company's balance sheet; (iv) reviewed the Company's current ownership
structure; (v) reviewed and analyzed the Company's historical financial results
and present financial condition; (vi) reviewed certain publicly available
information concerning the trading of, and the market for, the common stock of
the Company and a general market index; (vii) reviewed and analyzed the
Company's net adjusted net book value utilizing a range of potential liquidation
premises; (viii) reviewed and analyzed the Company's range of projected fiscal
year 2005 financial performances under various scenarios; (ix) reviewed and
analyzed certain private company adjustments to the Company's historical
financial performance; (x) reviewed and discussed with representatives of the
Management of the Company certain financial and operating information furnished
by them, including financial analyses with respect to the business and
operations of the Company; (xi) inquired about and discussed the Transaction and
other matters related thereto with Company Management and its Board of
Directors; and (xii) performed such other analyses and examinations as were
deemed appropriate.
In arriving at its opinion, Capitalink relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
used by Capitalink without assuming any responsibility for any independent
verification of any such information and further relied upon the assurances of
Company Management that it was not aware of any facts or circumstances that
would make any such information inaccurate or misleading. With respect to the
financial information utilized, Capitalink assumed that such information had
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments, and that such information provided a reasonable basis
upon which Capitalink could make its analyses and form an opinion. Capitalink
did not make a physical inspection of the properties and facilities of the
Company and did not make or obtain any evaluations or appraisals of the
Company's assets and liabilities (contingent or otherwise). Capitalink did not
attempt to confirm if the Company had good title to its assets. Capitalink
assumed that the Transaction will be consummated in a manner that complies in
all respects with the applicable provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and all other
applicable federal and state statues, rules and regulations. In addition, based
upon discussions with Company Management, Capitalink assumed that the
Transaction would not have any effective negative tax impact on the Company.
Capitalink assumed that the Transaction would be consummated substantially in
accordance with the terms set forth in the Asset Purchase Agreement, without any
further amendments thereto, and without waiver by the Company of any of the
conditions to any obligations or in the alternative that any such amendments,
revisions or waivers thereto will not be detrimental to the Company or its
unaffiliated stockholders.
Capitalink's opinion is necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, October 15, 2004.
Accordingly, although subsequent developments may affect its opinion, Capitalink
has not assumed any obligation to update, review or reaffirm its opinion.
The estimates contained in Capitalink's analyses and the ranges of
valuations resulting from any particular
17
analysis are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not necessarily purport to be appraisals or to reflect the prices
at which businesses or securities actually may be sold. Accordingly,
Capitalink's analyses and estimates are inherently subject to substantial
uncertainty.
Each of the analyses conducted by Capitalink was carried out in order to
provide a different perspective on the Transaction, and to enhance the total mix
of information available. Capitalink did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to whether, on the date of such opinion, the Purchase Consideration
(as defined in Exhibit B) is fair from a financial point of view to the
Company's unaffiliated stockholders. Capitalink did not place any particular
reliance or weight on any individual analysis, but instead concluded that its
analyses, taken as a whole, supported its determination. Accordingly, Capitalink
believes that its analyses must be considered as a whole and that selecting
portions of its analyses or the factors it considered, without considering all
analyses and factors collectively, could create an incomplete and misleading
view of the process underlying the analyses performed by Capitalink in
connection with the preparation of its opinion.
Further, the summary of Capitalink's analyses described below is not a
complete description of the analyses underlying Capitalink's opinion. The
preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, a fairness opinion is not readily susceptible to partial
analysis or summary description. In arriving at its opinion, Capitalink made
qualitative judgments as to the relevance of each analysis and factors that it
considered.
Pro Forma Transaction Review. Capitalink reviewed the pro forma impact of
the Transaction to the Company's balance sheet as at June 30, 2004.
Capitalink noted that in July 2004, the Company's Board of Directors
determined to explore strategic alternatives for the Company in an effort to
protect stockholder value. During July and August 2004, the Board of Directors
reviewed potential alternatives, including merger candidates, as well as the
sale or privatization of the existing business. However, other than Mr. Israel,
no party put forth any offer to merge with or acquire the Company's assets.
Ownership Review. Capitalink reviewed the current securities ownership of
the Company, estimated as of October 15, 2004. Capitalink noted that Mr. Israel,
along with his wife, owns approximately 28.5% of the voting shares outstanding
(or 37.6% on a fully diluted basis). The Company's other directors, officers and
employees control approximately 15.9% of the voting shares outstanding (or 29.3%
on a fully diluted basis).
Financial Performance Analysis. Capitalink undertook analyses of the
historical financial data of the Company in order to understand and interpret
its operating and financial performance and strength.
Capitalink reviewed the Company's historical financial data for the five
fiscal years ended June 30, 2004. The Company's revenue and earnings have been
adjusted to remove any unusual or extraordinary sources of revenue and expenses.
The adjustments provide a more accurate portrayal of the Company's underlying
earnings and cash flows. Capitalink noted the following:
o revenue decreased from approximately $4.0 million in fiscal 2000 to
approximately $3.8 million in fiscal 2004. Throughout this period,
the Company's revenue has been volatile. This reflects the turmoil
within the insurance industry, which represents a major portion of
the Company's clientele. For instance, in fiscal 2003, revenue rose
to approximately $4.1 million, before falling again.
o During the past four fiscal years, gross margin has varied from
74.6% in Fiscal 2000 to 77.1% in fiscal 2004.
o The Company's EBITDA has been negative throughout the reviewed
period, ranging from approximately $(1.9) million to approximately
$(0.4) million. EBITDA for fiscal 2004 was approximately $(0.6)
million.
o In addition, net loss during the reviewed period ranged from
approximately $(2.1) million to approximately $(0.6) million.
18
o The Company's auditors report for fiscal 2004 contained qualifying
language regarding the uncertainty of the Company's ability to
continue as a going concern.
o Without additional significant changes in operations, the Company
expects to continue to incur net losses in the foreseeable future.
o The Company's stockholders' equity has significantly decreased from
approximately $6.3 million as of June 30, 2000 to approximately $1.0
million as of June 30, 2004.
o The Company's working capital has also significantly decreased from
approximately $5.9 million as of June 30, 2000 to approximately $0.9
million as of June 30, 2004.
o The Company has significant contingent and contractual obligations
with respect to lease obligations and employment contracts,
including severance and change in control provisions under Mr.
Israel's contract.
Market Performance Analysis. Capitalink utilized a historical stock price
analysis to review and compare the Company's stock performance to a general
market index. In addition, Capitalink reviewed the liquidity of the Company's
common stock in the public trading markets.
Capitalink reviewed the daily closing market price and trading volume of
the Company's common stock for the twelve-month period ended October 14, 2004.
Capitalink also compared the daily closing market price performance of the
Company's common stock for the period to the Russell 3000 Index. Capitalink
calculated total trading volumes at various closing price ranges of the
Company's common stock. In addition, the number of trading days, and the
respective percentages, at certain trading volumes, was set forth. Capitalink
noted that:
o The Company's stock has experienced limited liquidity as the average
and median daily number of shares traded was 20,563 and 1,440,
respectively. There were 104 trading days (representing 40.9% of
available trading days) within the period where the Company's stock
did not trade.
o The Company's average share price was $0.17 and ranged from a high
of $0.37 to a low of $0.05 over the period. The Company's common
stock closed at $0.08 on October 14, 2004.
o During the period ended October 14, 2004, the Company's common stock
fell 72.6%, while the Russell 3000 Index rose 5.2%.
Adjusted Net Book Analysis. Capitalink performed an adjusted book value
analysis, based upon liquidation premises, to determine the value of the Company
assuming all of its assets and liabilities were valued at market value. Under
historical cost accounting most assets and liabilities in the Company's
financial statements generally do not reflect market value, but rather
historical acquisition costs, with the exception of marketable securities. In
addition, this methodology attempts to quantify and value contingent
liabilities, which may not be recorded in the financial statements.
For the purposes of this analysis, the June 30, 2004 balance sheet and the
Management prepared preliminary August 31, 2004 balance sheet were utilized. For
each balance sheet period, three liquidation scenarios were prepared assuming
differing time frames and success of liquidation and therefore, values achieved.
Based upon discussions with Company Management, certain contingent liabilities
were calculated as follows:
o Present value of current property lease obligations.
o Estimated range of values for additional property lease obligations.
o Present value of current advertising commitment.
o Severance payments under employment contracts.
o Present value of other operating leases.
19
Utilizing the June 30, 2004 balance sheet, the net adjusted book value
analysis generated an indicated value of $(0.4) million, $(0.6) million and
$(0.8) million under a best case, assumed case and worst case scenario,
respectively. Utilizing the August 31, 2004 balance sheet, the net adjusted book
value analysis generated an indicated value of $(0.6) million, $(0.8) million
and $(1.0) million under a best case, assumed case and worst case scenario,
respectively.
Capitalink noted that without taking into account Mr. Israel's contractual
obligations, the adjusted net book value for the Company, as of August 31, 2004,
would range from approximately zero to approximately $0.58 million.
Pro Forma 2005 Alternatives Review. Capitalink noted that the Company's
board of directors had reviewed two alternate budget plans for fiscal year 2005.
The first alternative budget scenario assumed that the Company continued
as a public company, but substantial operating changes were made, including the
termination of Mr. Israel and that the maintenance of 2004 revenue levels might
not be feasible without Mr. Israel. The plan assumes that other existing Company
personnel (at reduced personnel levels) would be able to maintain revenue and
operations at nearly fiscal 2004 levels. However, Capitalink noted that this
budget scenario did not have any provision for severance obligations to Mr.
Israel.
The second reviewed alternative budget scenario also assumed the Company
continues as a public company with substantial operating changes made, but Mr.
Israel remains CEO. Under this scenario, the obligation due Mr. Israel would
only occur if a change of control also took place.
Under scenario one, the Company expected to generate EBITDA of
approximately $213,000. Again it was noted that this amount did not include any
severance payments to Mr. Israel. Capitalink noted that assuming that this
EBITDA level could be achieved and a purchaser could be located, the assets
would have to be sold at a minimum of 5 times EBITDA in order to satisfy Mr.
Israel's change of control obligation. Capitalink also noted that attempts by
the Board of Directors to sell the Company resulted in no offers from any third
parties at any price. In addition, the Company or the prospective purchaser
would still have significant additional liabilities, both real and contingent to
address.
Based upon scenario two, the Company would not generate a positive EBITDA,
although, losses would be reduced. Under this scenario it would be highly
unlikely that a third party purchaser would have any additional incentive or
desire to enter into an alternative transaction.
Private Company Review. Capitalink, in conjunction with Management,
reviewed and analyzed the Company's historical financials for fiscal years 2002,
2003 and 2004 in order to estimate private company adjustments to determine a
range of pro forma private company cash flows and other data. Capitalink noted
the following:
The fiscal years reviewed indicated average and median public company
expenses of $264,000 and $235,000, respectively. Such expenses would not be
incurred if the Company were private.
In addition, it was determined that expenses for top management salaries
would be approximately $250,000 annually as compared to $493,000, $600,000 and
$536,000 for fiscal years 2002, 2003 and 2004, respectively.
Capitalink noted that even as a private company, based upon the pro forma
private company adjustments, the Company would have generated negative EBIT,
negative EBITDA and net losses for both fiscal 2002 and 2004. In fiscal 2003 on
a pro forma basis, as a private company, EBIT, EBITDA and net income would have
all been positive.
Capitalink performed a variety of financial and comparative analyses for
the purpose of rendering its opinion. While the foregoing summary describes all
material analyses and factors reviewed by Capitalink with the Company's Board of
Directors, it does not purport to be a complete description of the presentations
by Capitalink or the analyses performed by Capitalink in arriving at its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In addition,
Capitalink may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuations resulting from any particular
analysis described above should not be taken to be Capitalink's view of the
actual value of the Company. In performing its analyses, Capitalink made
numerous
20
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Company. The analyses performed were prepared solely as part of Capitalink's
analysis of the fairness of the Purchase Consideration, from a financial point
of view, to the Company's unaffiliated stockholders, and were provided to the
Company's board of directors in connection with the delivery of Capitalink's
opinion.
As part of its financial advisory services, Capitalink received a fee in
connection with the preparation and issuance of its opinion. In addition, the
Company has agreed to indemnify Capitalink for certain liabilities that may
arise out of the rendering of the opinion. Capitalink is an investment banking
firm that, as part of its investment banking business, regularly is engaged in
the evaluation of businesses and their securities in connection with mergers,
acquisitions, corporate restructurings, private placements, and for other
purposes. Capitalink does not beneficially own any interest in the Company.
NO DISSENTERS' RIGHTS
Any of our stockholders who do not approve the proposed Transaction, which
constitutes the sale of substantially all assets of the Company, under the
General Corporate Law of the State of Delaware, are not entitled to appraisal or
dissenter's rights with respect to the proposed sale of substantially all assets
of the Company under Delaware law or our Certificate of Incorporation.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated financial information of
the Company is based on and should be read in conjunction with the historical
financial statements and notes thereto appearing in the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 2004 and the unaudited
consolidated financial statements filed in the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2004. The Pro Forma Condensed
Consolidated Balance Sheet as of September 30, 2004 reflects the financial
position of the Company after giving effect to the sale of certain of the
Company's assets and assumption of liabilities representing principally all the
operating assets in accordance with the Asset Purchase Agreement and assumes
that such transaction was consummated as of September 30, 2004. The Pro Forma
Condensed Consolidated Statements of Operations for the quarter ended September
30, 2004 and the years ended June 30, 2004 and June 30, 2003 present the
operating results of the Company assuming the existing operations of the Company
have been sold and include estimated ongoing results of the Company thereafter
as a company with no operations. The pro forma statements of operations do not
include non-recurring items representing the costs of the Transaction and the
estimated loss on the Transaction. Such amounts are reflected in the pro forma
balance sheet in the stockholders' equity line.
In the opinion of Management, the accompanying pro forma condensed
consolidated financial information includes all material adjustments necessary
to reflect, on a pro forma basis, the impact of the Transaction on the
historical financial information of the Company. The adjustments are described
in the notes to the unaudited pro forma condensed consolidated financial
statements and are set forth in the "Pro Forma Adjustments" column. The
condensed consolidated pro forma statements of operations presented do not
include non-recurring items directly related to the Transaction. The table
presented in the footnotes summarizes the effect of such items upon the closing
of the Transaction. The condensed consolidated pro forma statements of
operations for the three months ended September 30, 2004 and for the years ended
June 30, 2004 and 2003 do not include the loss on the Transaction.
The unaudited pro forma condensed consolidated financial information have
been presented for illustrative purposes only and are not necessarily indicative
of the future financial position or future results of operations of the Company,
or of the financial position or results of operations of the Company that would
have actually occurred had the transaction been in effect as of the date or the
periods presented.
The Company has continued to experience operating losses through September
30, 2004. Also, the Company's historical audited financials reflect a decline in
net worth each year from approximately $3.4 million as of June 30, 2001 to
approximately $2.1 million as of June 30, 2002 to approximately $1.7 million as
of June 30, 2003 to approximately $1.0 million as of June 30, 2004 and the
unaudited financial statements as of September 30, 2004 reflect a decline of
approximately $0.3 million to approximately $0.7 million from June 30, 2004 to
September 30, 2004.
21
clickNsettle.com, Inc. and Subsidiaries
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2004
(unaudited)
Pro Forma Adjustments
---------------------
As Effects of the Pro
Reported Transaction (1) Other (2) Forma (3)
---------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents and certificates of deposit $ 1,166,818 (869,108) (99,497) $ 198,213
Accounts receivable, net 275,406 (275,406) --
Prepaid expenses and other current assets, net 45,350 (23,350) 22,000
---------------------------------------------------------------
Total current assets 1,487,574 (1,167,864) (99,497) 220,213
FURNITURE AND EQUIPMENT, net -- --
OTHER ASSETS 49,726 (49,726) --
---------------------------------------------------------------
$ 1,537,300 $(1,217,590) $ (99,497) $ 220,213
===============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 197,495 $ (178,591) $ (18,904) $ --
Accrued expenses and other liabilities 286,123 (264,873) (80,593)
59,343 --
Accrued payroll and employee benefits 88,523 (88,523) --
Deferred revenues 233,478 (233,478) --
---------------------------------------------------------------
Total current liabilities 805,619 (765,465) (40,154) --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $.001 par value; 25,000,000 shares authorized;
8,701,554 shares issued and outstanding 8,702 8,702
Additional paid-in capital 10,104,325 10,104,325
Accumulated deficit (9,297,428) (452,125) (59,343) (9,808,896)
Less common stock in treasury at cost, 252,498 shares (83,918) (83,918)
---------------------------------------------------------------
Total stockholders' equity 731,681 (452,125) (59,343) 220,213
---------------------------------------------------------------
$ 1,537,300 $(1,217,590) $ (99,497) $ 220,213
===============================================================
See accompanying Notes to Pro Forma Condensed Financial Information.
22
clickNsettle.com, Inc. and Subsidiaries
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(1) The pro forma balance sheet reflects the financial position of the Company
after giving effect to the sale of principally all the Company's assets
and liabilities and assumes that such transaction was consummated as of
September 30, 2004. As such, the Company would recognize a financial
reporting loss equal to the excess of assets sold (excluding assets
remaining with the Company) over the recorded liabilities assumed by the
Buyer and other adjustments as follows:
Book value of liabilities assumed $ 765,465
Consideration by Buyer in providing future management services 17,000
Book value of assets sold (1,234,590)
-----------
Book loss on Transaction $ (452,125)
===========
Such loss is reflected in stockholders' equity in the column "Effects of
the Transaction" on the accompanying pro forma balance sheet.
The cash that is to remain in the Company after the Transaction is to
increase to the extent of 60% of the excess of the Remaining Net Capital
before Commitments (as defined on page 14) over $380,462 as of the closing
date. The Remaining Net Capital Before Commitments is calculated as the
fair market value of the assets purchased less the following: (a) recorded
liabilities assumed; (b) commitment due to American Lawyer Media for
unused advertising in the amount of $75,854 and (c) $170,497 (that is,
$200,000 in cash to remain with the Company less payments of $29,503
already made through September 30, 2004 for certain of the Transaction
costs. As of September 30, 2004, the Remaining Net Capital Before
Commitments would have been $592,484. Therefore, $212,022 represents the
amount in excess of $380,462; 60% of which, or $127,213 is additional cash
to remain in the Company. Therefore, total remaining cash in the Company
would be $297,710 before unpaid Transaction costs and taxes of $99,497
(see 2 below).
(2) The Company estimates that $129,000 will be incurred for expenses related
to the Transaction (which will include the costs of legal, accounting, tax
advice, the fairness opinion and the printing and mailing of this Proxy
Statement) and for taxes as follows:
Estimated legal, accounting and tax advice $ 70,000
Cost of fairness opinion 42,500
Estimated cost of printing and mailing 6,000
--------
Subtotal 118,500
Estimated taxes on Transaction 10,500
--------
Total net non-recurring expenses $129,000
Of such total, $69,657 has already been recorded in the historical
September 30, 2004 financial statements. Therefore, an additional $59,343
of accrued expenses are recorded on the accompanying pro forma balance
sheet. Such amount is reflected in stockholders' equity in the column
"Other" on the accompanying pro forma balance sheet. Also, as of September
30, 2004, $29,503 of the total estimated Transaction costs and taxes have
already been paid, leaving an outstanding balance due of $99,497 as of
September 30, 2004.
(3) The pro forma balance sheet after the Transaction reflects the payment of
the remaining balance of $99,497 of non-recurring expenses and taxes
relating to the Transaction. After the Transaction, the pro forma balance
sheet contains only cash and a prepaid balance for insurance, management
services to be provided by the Buyer and taxes relating to the
Transaction.
23
clickNsettle.com, Inc. and Subsidiaries
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended September 30, 2004
(unaudited)
Pro Forma Adjustments
---------------------
As Effects of the Pro
Reported Transaction (1) Other (2) Forma
---------------------------------------------------------
Net revenues $ 770,394 $ (770,394) $ --
---------------------------------------------------------
Operating costs and expenses
Cost of services 166,736 (166,736) --
Sales and marketing expenses 253,597 (253,597) --
General and administrative expenses 508,964 (508,964) 40,000 40,000
Loss on impairment of furniture and equipment 1,066 (1,066) --
Reorganization costs 69,657 (69,657) --
---------------------------------------------------------
1,000,020 (1,000,020) 40,000 40,000
---------------------------------------------------------
Loss from operations (229,626) 229,626 (40,000) (40,000)
Other income
Investment income 48,636 (48,636) --
Other income 513 (513) --
---------------------------------------------------------
49,149 (49,149) -- --
---------------------------------------------------------
Loss before income taxes (180,477) 180,477 (40,000) (40,000)
Income taxes -- -- -- --
---------------------------------------------------------
NET LOSS $ (180,477) 180,477 (40,000) $ (40,000)
=========================================================
Net loss per common share - basic and diluted $ (0.02) 0.02 $ (0.00)
=========================================================
Weighted-average shares outstanding - basic and diluted 8,449,056 8,449,056 8,449,056
=========================================================
See accompanying Notes to Pro Forma Condensed Financial Information.
24
clickNsettle.com, Inc. and Subsidiaries
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year ended June 30, 2004
(unaudited)
Pro Forma Adjustments
---------------------
As Effects of the Pro
Reported Transaction (1) Other (2) Forma
--------------------------------------------------------------------
Net revenues $ 3,759,372 $(3,759,372) $ --
--------------------------------------------------------------------
Operating costs and expenses
Cost of services 860,325 (860,325) --
Sales and marketing expenses 1,278,207 (1,278,207) --
General and administrative expenses 2,314,803 (2,314,803) 160,000 160,000
Loss on impairment of furniture and equipment 85,721 (85,721) --
--------------------------------------------------------------------
4,539,056 (4,539,056) 160,000 160,000
--------------------------------------------------------------------
Loss from operations (779,684) 779,684 (160,000) (160,000)
Other income
Investment (loss) income 54,298 (54,298) --
Other income 2,682 (2,682) --
--------------------------------------------------------------------
56,980 (56,980) -- --
--------------------------------------------------------------------
Loss before income taxes (722,704) 722,704 (160,000) (160,000)
Income taxes -- -- -- --
--------------------------------------------------------------------
NET LOSS $ (722,704) 722,704 (160,000) $ (160,000)
====================================================================
Net loss per common share - basic and diluted $ (0.09) 0.09 $ (0.02)
====================================================================
Weighted-average shares outstanding - basic and diluted 8,449,056 8,449,056 8,449,056
====================================================================
See accompanying Notes to Pro Forma Condensed Financial Information.
25
clickNsettle.com, Inc. and Subsidiaries
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year ended June 30, 2003
(unaudited)
Pro Forma Adjustments
---------------------
As Effects of the Pro
Reported Transaction (1) Other (2) Forma
----------------------------------------------------------------
Net revenues $ 4,078,119 $(4,078,119) $ --
----------------------------------------------------------------
Operating costs and expenses
Cost of services 1,006,562 (1,006,562) --
Sales and marketing expenses 1,137,489 (1,137,489) 160000 160,000
General and administrative expenses 2,437,805 (2,437,805) --
----------------------------------------------------------------
4,581,856 (4,581,856) 160,000 160,000
----------------------------------------------------------------
Loss from operations (503,737) 503,737 (160,000) (160,000)
Other income
Investment income 13,448 (13,448) --
Other income 10,778 (10,778) --
----------------------------------------------------------------
24,226 (24,226) -- --
----------------------------------------------------------------
Loss before income taxes (479,511) 479,511 (160,000) (160,000)
Income taxes -- -- -- --
----------------------------------------------------------------
NET LOSS $ (479,511) 479,511 (160,000) $ (160,000)
================================================================
Net loss per common share - basic and diluted $ (0.06) 0.06 $ (0.02)
================================================================
Weighted-average shares outstanding - basic and diluted 8,449,056 8,449,056 8,449,056
================================================================
See accompanying Notes to Pro Forma Condensed Financial Information.
26
clickNsettle.com, Inc. and Subsidiaries
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(unaudited)
(1) The effect of the Transaction would be to sell all the existing operations
of the Company.
(2) Estimated ongoing costs for continued reporting obligations of the Company
after the Transaction:
Estimated legal, accounting, tax and printing expenses for SEC filings $ 72,000
Estimated cost of insurance 60,000
Estimated management fee expense 17,000
Estimated directors fees and transfer agent fees 11,000
--------
Total recurring operating expenses for full year $160,000
--------
Total recurring operating expenses for three months $ 40,000
Although an operating loss would normally result in the Company booking a
tax benefit, at this point in time, the Company cannot predict if, in
fact, it will ever be able to actually apply those benefits to future
earnings. Due to this uncertainty, the Company has not recorded a tax
benefit for projected losses as part of this pro forma.
27
PROPOSAL 2: APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK FROM 25,000,000 SHARES UP TO 300,000,000
SHARES
The Board of Directors is seeking stockholder approval to authorize the
Board of Directors, in its sole discretion, to amend the Company's Certificate
of Incorporation to increase the authorized common stock, par value $0.001 per
share, of the Company from 25,000,000 shares up to, and including, 300,000,000
shares (the "Certificate of Amendment"). The full text of the Certificate of
Amendment is set forth in Exhibit C to this Proxy Statement. If this proposal is
approved by the stockholders, the Board of Directors will have the authority, in
its sole discretion and without further action on the part of the stockholders,
to increase the authorized shares of common stock at any time prior to the next
Annual Meeting of Stockholders. The Board of Directors also reserves the right,
notwithstanding stockholder approval and without further action or approval by
the stockholders, to decide not to proceed with the increase in the shares of
authorized common stock or to increase the number of authorized shares to an
amount less than 300,000,000, if it determines, in its sole discretion, that
such actions are in the best interests of the Company and its stockholders.
Reason for the Amendment
We intend to inquire into business acquisition opportunities. Our goal is
to increase stockholder value by changing our operations to a business that has
the potential to generate greater returns to our stockholders and potential
investors than the business we are currently in. To have the necessary
flexibility and ability to act quickly in connection with such business
acquisition opportunities, our Board decided that we should have the authority
to increase the amount of stock authorized for issuance.
Current Capitalization
As of November 15, 2004, there are 5,000,000 shares of $.001 par value
preferred stock authorized, of which none are outstanding. There are 25,000,000
shares of $.001 par value common stock authorized. Of such authorized common
shares, there were 8,449,056 shares outstanding. A total of 7,428,000 shares of
common stock have been reserved for issuance under our stock option plan. In
addition, warrants to purchase an aggregate of 492,500 shares of common stock
were outstanding as of November 15, 2004.
Effectiveness
Assuming the approval of the amendment by the stockholders, the amendment
will be effective upon the filing of the amendment with the Secretary of State
of the State of Delaware, the Company's state of incorporation. Even if this
proposal is approved by stockholders, our Board of Directors has discretion not
to carry out the increase in the authorized shares of common stock if it
determines that these actions will not be beneficial.
Currently, we do not plan to file the amendment until the Company has
identified a possible business to acquire or a possible merger candidate. Once
identified, the amendment could be filed for an amount of 300,000,000 shares or
possibly a lesser amount based on the requirements of that particular
transaction, if needed at all. Currently, there are no agreements that the
Company has entered into or plans to enter into in connection with a future
stock issuance. There can be no assurance that the Company will enter into such
agreements.
Effects
The overall effect will be an increase in the authorized shares of
common stock. The unissued shares may be issued by our Board of Directors in its
discretion. Any future issuance will have the effect of diluting the percentage
of stock ownership and voting rights of the present holders of common stock.
The Board of Directors believes it advisable to authorize and
approve the increase in the number of authorized shares for the reasons set
forth above. However, this action is not being recommended by the Board as part
of an anti-takeover strategy although the Board is aware that the increase in
the number of authorized but unissued shares of common stock may have a
potential anti-takeover effect. Our ability to issue additional shares could be
used to thwart persons, or otherwise dilute the stock ownership of stockholders
seeking to control us.
28
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
INCREASE THE AUTHORIZED COMMON STOCK.
RISK FACTORS
You should carefully consider the risks described below before voting on
the proposals contained in this Proxy Statement. The risks and uncertainties
described below are the material risks and uncertainties that are evident at the
time this Proxy Statement is mailed. However, we may face additional unforeseen
risks following the sale of our ADR business. If any of the following risks
occur, the financial condition of the Company could be materially harmed. In
that case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
TRANSACTION EXPENSES MAY BE SUBSTANTIAL AND COULD SIGNIFICANTLY EXCEED OUR
EXPECTATIONS.
We will incur transaction costs in connection with the sale of the ADR
business. Although we believe the cash that is to remain in the Company will be
sufficient, unanticipated additional expenses related to the sale, and as yet
unidentified expenses in connection with the intended acquisition of an as yet
unidentified operating business, could cause these amounts to increase
significantly. We expect expenses related to the sale to include, but not be
limited to, fees and expenses for legal and accounting services, tax advice, the
cost of the fairness opinion and the printing and mailing of proxy statements.
This does not include any costs that we may incur in connection with the
acquisition of a new business or a possible business combination/merger.
However, it is impossible to determine in advance the actual amount of the costs
for the sale and subsequent acquisition of a new business.
WHILE ATTEMPTING TO IDENTFY A SUITABLE CANDIDATE, WE WILL INCUR FURTHER EXPENSES
THAT CURRENTLY CANNOT BE SPECIFIED.
Our Board of Directors decided to dispose of our ADR business because our
current business has operating losses for the last eight fiscal years and
through September 30, 2004, has used significant cash in operations and our
independent auditors included a going concern paragraph in their report on the
June 30, 2004 consolidated financial statements which states that there is
substantial doubt about the Company's ability to continue as a going concern
during the twelve months ending June 30, 2005. Additionally, the compliance
requirements stemming from the Sarbanes-Oxley Act of 2002 will result in higher
legal and accounting fees as well as place an additional strain on our limited
personnel resources. Our Board assumes that we will be able to identify as
merger candidates privately held companies with attractive business prospects
that have the potential to increase stockholder value to a greater extent than
our current business. At this time, the Board has not identified a definitive
candidate. Following the sale of the ADR business, the Company will no longer
have any full-time employees. However, the Board of Directors will continue to
serve and, along with the present Chief Executive Officer, is charged with
identifying a target company to acquire. Additionally, the Asset Purchase
Agreement provides that the services of the Buyer's Chief Financial Officer or
equivalent will be provided by the Buyer without charge for a one-year time
period following the closing of the sale. Without full-time employees, it may
take a significant amount of time to identify a suitable candidate for a
business combination with us. During such time, we will have further expenses
such as general legal and accounting/auditing fees all of which cannot be
specified at this time but will deplete our financial resources and thereby make
it more difficult for the Company to identify a suitable candidate for a
business combination.
WE MAY NOT BE ABLE TO ACQUIRE A COMPANY WITH ONGOING BUSINESS OPERATIONS.
Our Board believes that privately held companies will be interested in a
merger with an OTC Bulletin Board reporting company that, after the sale of our
ADR business, would allow the private company to "go public," i.e., have
publicly traded securities without an initial public offering. However, many
private companies seeking to "go public" may prefer an initial public offering
to a merger with a public shell (a public traded company with no operating
business). Moreover, the SEC typically evaluates the merger of a public shell
with a private company. This can be a time-consuming and cost-intensive review
process for the parties involved in the merger that could discourage privately
held companies from any transaction with a public shell. If, subsequent to the
proposed sale of our ADR business, we are not able to merge with an operating
company, whether a privately held company or a company subject to the reporting
obligations of the Securities Exchange Act from 1934, our financial reserves
will most likely not be sufficient for us to start any kind of operating
29
business on our own. Therefore, there can be no guarantee that we will ever
operate any business again after the proposed sale of our ADR business.
WE DO NOT KNOW WHICH BUSINESS WE WILL OPERATE IN THE FUTURE, IF ANY.
As described above, we do not know which business, if any, we will be
operating in the future, subsequent to a sale of our ADR business. Even if we
are able to commence new business operations, there can be no guarantee that we
will be successful.
DUE TO THE INCREASE IN AUTHORIZED CAPITAL, THE PER-SHARE VALUE OF EACH SHARE OF
COMMON STOCK MAY DECREASE.
In connection with the sale of our ADR business, the Board of Directors is
asking the stockholders to approve an amendment to our Certificate of
Incorporation, thereby providing for an increase in our authorized capital from
25 million shares up to a total of 300 million shares. Currently, there are
8,449,056 common shares outstanding. Even if we are able to successfully
consummate a business combination with a privately held company, to the extent
that the market capitalization of the Company does not rise to a level which
exceeds or offsets the additional number of outstanding shares, this potential
increase in authorized capital and the potential for the issuance of additional
stock by the Board of Directors may significantly decrease the per-share value
of each share of common stock currently outstanding.
WE EXPECT THE MARKET PRICE FOR OUR STOCK TO DECREASE IF OUR STOCKHOLDERS DO NOT
APPROVE THE PROPOSED AMENDMENT TO OUR CERTIFICATE OF INCORPORATION AND THE
PROPOSED SALE OF OUR ADR BUSINESS, BUT WE CANNOT PREDICT THE EFFECT OF THE
APPROVAL OF OUR PROPOSALS.
If our stockholders do not approve the amendment of our Certificate of
Incorporation and the proposed sale of our ADR business in light of continuing
operating losses and the significant use of cash from such operations, we
anticipate that the price offered for our stock in the public market will
decrease. Alternatively, even though the Board of Directors believes that a
successful business combination with a privately held company will increase the
interest in our stock, we cannot predict if this will be the case. The interest
in our stock may remain low even after the successful completion of the sale of
our ADR business as proposed in this Proxy Statement and the subsequent
consummation of a business combination.
WE CANNOT ASSURE YOU THAT THERE WILL BE A SUFFICIENT NUMBER OF SECURITIES FIRMS
MAKING AN ACTIVE TRADING MARKET IN OUR STOCK.
Our common stock was delisted from The Nasdaq SmallCap Market on March 5,
2003 and commenced trading on the OTC Bulletin Board under the symbol "CLIK"
thereafter. Our common stock has also been listed on the Boston Stock Exchange
under the symbol "NAM" since we became a publicly traded Company in November
1996. There is no assurance that our stock will continue to be listed on the
Boston Stock Exchange or that there will continue to be a sufficient number of
securities firms prepared to make an active trading market in our stock, and the
public perception of the value of our common stock could be materially adversely
affected. The market price of the Company's common stock could decline as a
result of sales of shares by the Company's existing stockholders if the Company
was to be delisted from the Boston Stock Exchange due to a failure to maintain
its listing standards.
"GOING CONCERN" QUALIFICATION IN AUDIT OPINION.
The Company received a report from its independent registered public
accounting firm for the year ended June 30, 2004, containing an explanatory
paragraph stating that the Company's recurring losses from continuing operations
and the Company's intention to sell its sole operating business raise
substantial doubt about the Company's ability to continue as a going concern
during the twelve months ending June 30, 2005.
LIQUIDITY RISK: THERE MAY NOT BE ADEQUATE RESOUCES TO FUND THE OPERATIONS OF THE
COMPANY.
30
There is no assurance that the future expenses of the Company (including
the expenses of maintaining the Company as a "public" reporting Company under
SEC regulations) will not be greater than anticipated, and that, as a result, a
liquidity problem may arise.
THE COMPANY'S CUMULATIVE NET OPERATING LOSSES ("NOL'S") MAY BECOME SIGNIFICANTLY
LIMITED.
The Company had NOL's of approximately $7,769,000 at September 30, 2004,
which were available to offset taxable earnings in the future. In the event of a
"change in ownership" within the meaning of Section 382 of the Internal Revenue
Code, the ability of the Company to use these NOL's to offset future taxable
earnings becomes significantly limited.
PROPOSAL 3: ELECTION OF THE BOARD OF DIRECTORS
The Board of Directors has nominated seven (7) persons to be elected as
Directors at the Annual Meeting and to hold office until the next annual meeting
or until their successors have been duly elected and qualified. It is intended
that each proxy received by us will be voted FOR the election, as directors of
the Company, of the nominees listed below, unless authority is withheld by the
stockholder executing such proxy. Shares may not be voted cumulatively. Each of
such nominees has consented to being nominated and to serve as a director of the
Company if elected. If any nominee should become unavailable for election or
unable to serve, it is intended that the proxies will be voted for a substitute
nominee designated by the Board of Directors. At the present time, the Board of
Directors knows of no reason why any nominee might be unavailable for election
or unable to serve. The proxies cannot be voted for a greater number of persons
than the number of nominees named herein.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL THE DIRECTOR NOMINEES.
Director Nominees
The following table sets forth certain information with respect to the
nominees for directors:
Company Positions Director of the
Name and Offices Held Company Since
------------------------ ------------------------------------------ ---------------
Roy Israel Chief Executive Officer, President and February 1994
Chairman of the Board of Directors
Kenneth G. Geraghty Director, Audit Committee member December 2002
Randy Gerstenblatt Director December 2001
Corey J. Gottlieb Director, Audit Committee member December 2001
Anthony J. Mercorella Director, Compensation Committee member February 1997
Robert M. Silverson, Jr. Director, Audit Committee and Compensation December 2001
Committee member
Willem F. Specht Vice President, Director of Information December 2001
Technology and Director
ROY ISRAEL, age 45, has been our Chairman of the Board of Directors,
Chief Executive Officer, and President since February 1994. Immediately prior to
holding such positions, Mr. Israel was President, Director, and founder of
National Arbitration & Mediation, Inc. ("NA&M"), a wholly-owned subsidiary of
the Company until merged
31
with the Company in June 1999.
KENNETH G. GERAGHTY, age 54, has been the Executive Vice President
and Chief Financial Officer of Insurance Services Office, Inc. since February
2000. From March 1999 through January 2000, Mr. Geraghty was the Executive Vice
President and Chief Administrative Officer of Dycom Industries, Inc., a company
which provides engineering, construction and maintenance services to
telecommunications providers. Prior to holding this position, Mr. Geraghty was
the Senior Vice President, Strategic Finance of Massachusetts Mutual Life
Insurance Company from December 1997 through March 1999. From October 1995
through May 1997, Mr. Geraghty was the Vice President, Change Management for
American Express Company. Mr. Geraghty holds BS and MS degrees in Chemical
Engineering and a MBA degree in Finance.
RANDY GERSTENBLATT, age 45, is currently the Senior Vice President,
Customer Marketing, ESPN/ABC Sports Customer Marketing and Sales. Prior to
holding this position, Mr. Gerstenblatt was Vice President of ESPN Customer
Marketing and Sales from January 2000 through October 2000. From November 1997
through January 2000, Mr. Gerstenblatt was the Director of Integrated Sales and
Marketing at ESPN. From 1991 through November 1997, he was the Director of Group
Station Sales at ABC National Television Sales.
COREY J. GOTTLIEB, age 41, is the President/CEO of Targeted Media
Partners LLC, a sales, marketing and consulting company for established and
start-up ventures in the commercial advertising sector. From January 1998
through August 2001, Mr. Gottlieb was the Senior Vice President & National Sales
Manager for Transportation Displays Incorporated (TDI). Prior to holding this
position, Mr. Gottlieb was Senior Vice President & National Sales Manager for
Paramount Pictures Domestic Television Group for seven years and the first
Senior Vice President of Sales for the UPN television network. Mr. Gottlieb
holds a BS degree in Finance and a minor in Computer Science.
ANTHONY J. MERCORELLA, Esq., age 77, is a senior partner of the law
firm of Wilson, Elser, Moskowitz, Edelman & Dicker and has been a partner with
such firm since 1984, which he joined upon his retirement as a Justice of the
Supreme Court of the State of New York. Judge Mercorella currently serves as an
independent hearing officer for us.
ROBERT M. SILVERSON, JR., Esq., age 62, is a principal in the law
firm of Silverson, Pareres & Lombardi LLP and has been a principal with such
firm since founding it in 1992. Judge Silverson previously served as a Judge of
the Civil Court of the City of New York. Judge Silverson currently serves as an
independent hearing officer for us.
WILLEM F. SPECHT, age 44, has been our Director of Information
Technology since May 1998 and previously held the position of Systems Analyst
with us since April 1995.
Committees of the Board of Directors and Meeting Attendees
The Board of Directors held seven (7) meetings during fiscal year
2004.
The Compensation Committee is authorized to review and make
recommendations to our Board of Directors on all matters regarding the
remuneration of our executive officers, including the administration of our
compensation plans, other than our Stock Option Plan. The current members of
this committee are Judge Mercorella and Judge Silverson. The Compensation
Committee held two (2) meetings during fiscal year 2004.
The Audit Committee is responsible for making recommendations to our
Board of Directors as to the selection of our independent auditor, maintaining
communication between our Board and the independent auditor, reviewing the
annual audit report submitted by the independent auditor, and determining the
nature and extent of issues, if any, presented by such audit warranting
consideration by our Board. The current members of this committee are Corey
Gottlieb, Judge Silverson and Kenneth Geraghty. The Audit Committee held four
(4) meetings during fiscal year 2004.
32
Executive Officers
In addition to Mr. Israel and Mr. Specht, we have one other
executive officer:
PATRICIA GIULIANI-RHEAUME, age 46, has been our Vice President,
Chief Financial Officer, and Treasurer since February 1997. Immediately prior to
holding such positions, Ms. Giuliani-Rheaume was the Vice President and
Corporate Controller of The Robert Plan Corporation, an insurance services
company, since April 1991. Prior thereto, Ms. Giuliani-Rheaume was an audit
senior manager with KPMG Peat Marwick LLP. Ms. Giuliani-Rheaume is a certified
public accountant and a member of the AICPA and the New York State Society of
CPAs.
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent we specifically incorporate this Report by
reference therein.
In May 2000, a written charter of the Audit Committee of the Board of
Directors was approved by the full Board. In September 2002, the Board approved
certain amendments to the charter.
As set forth in more detail in the charter, the Audit Committee's primary
responsibilities fall into three broad categories:
a. the Committee is charged with monitoring the preparation of
quarterly and annual financial reports by our Management, including
discussions with our Management and the outside auditors about draft
annual financial statements and key accounting and reporting
matters;
b. the Committee is responsible for matters concerning the relationship
between us and the outside auditors, including their appointment or
removal; reviewing the scope of their audit services and related
fees, as well as any other services being provided to us; and
determining whether the outside auditors are independent (based in
part on the annual letter provided to us pursuant to Independence
Standards Board Standard No. 1); and
c. the Committee oversees Management's implementation of effective
systems of internal controls, including review of policies relating
to legal and regulatory compliance, ethics and conflicts of
interests.
The Committee has implemented procedures to ensure that during the course
of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under the Committee's charter.
To carry out its responsibilities, the Committee met four times during fiscal
year 2004. During fiscal year 2005, the Committee will continue to meet
quarterly with the outside auditors to review the quarterly results. The
Committee will meet with the outside auditors to review and approve the planning
of the annual audit and will also meet at the conclusion of the annual audit to
review the results thereof.
In overseeing the preparation of our financial statements, the Committee
met with both Management and the outside auditors to review and discuss all
financial statements prior to their issuance and to discuss significant
accounting issues. Management advised the Committee that all financial
statements were prepared in accordance with generally accepted accounting
principles, and the Committee discussed the statements with both Management and
the outside auditors. The Committee's review included discussion with the
outside auditors of matters required to be discussed pursuant to Statement on
Auditing Standards No. 61 (Communication With Audit Committees).
With respect to our independent registered public accounting firm, Grant
Thornton LLP, the Committee, among other things, discussed matters relating to
its independence, including the disclosures made to the Committee as required by
the Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees).
On the basis of these reviews and discussions, the Committee recommended
to the Board of Directors that the Board approve the inclusion of our audited
financial statements in our Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2004 for filing with the Securities and Exchange Commission.
33
The Audit Committee
Corey J. Gottlieb, Chairman
Kenneth G.Geraghty
Honorable Robert M. Silverson, Jr.
September 2004
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
It is the duty of the Compensation Committee to develop, administer and
review our compensation plans, programs, and policies; to monitor the
performance and compensation of executive officers; and to make appropriate
recommendations and reports to the Board of Directors relating to executive
compensation.
Our compensation program is intended to motivate, retain and attract
Management, thus linking incentives to financial performance and creating
enhanced stockholder value. The program's fundamental philosophy is to tie the
amount of compensation "at risk" for an executive to his or her contribution to
our success in achieving superior performance objectives.
The compensation program consists of two components: (1) a base salary as
set forth in each executive's employment agreement, and (2) the potential for an
annual cash and/or stock option bonus equal to a percentage of the executive's
base salary, depending upon the satisfaction of certain general performance
criteria established by the Compensation Committee for each position and
evaluated at the end of each fiscal year. The criteria may relate to overall
Company performance, the individual executive's performance, or a combination of
the two, depending upon the particular position at issue. The second component
constitutes the "at risk" portion of the compensation program.
The Compensation Committee
Honorable Anthony J. Mercorella, Chairman
Honorable Robert M. Silverson, Jr.
September 2004
34
PROPOSAL 4: APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
It is proposed that the stockholders ratify the appointment of Grant
Thornton LLP ("Grant Thornton") as our independent registered public accounting
firm for fiscal year 2005. Grant Thornton has served as our independent
registered public accounting firm since March 4, 1997.
Representatives of Grant Thornton, who audited our fiscal year 2004
financial statements, are expected to be present at the Annual Meeting with the
opportunity to make a statement, if they so desire, and they are expected to be
available to respond to appropriate questions. Approval by the stockholders of
the appointment of our independent registered public accounting firm is not
required, but the Board deems it desirable to submit the matter to the
stockholders for ratification. If the majority of stockholders voting at the
Annual Meeting should not approve the selection of Grant Thornton, the selection
of the independent registered public accounting firm will be reconsidered by the
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
OTHER MATTERS ARISING AT THE ANNUAL MEETING
The matters referred to in the Notice of Annual Meeting and
described in this Proxy Statement are, to the knowledge of the Board of
Directors, the only matters that will be presented for consideration at the
Annual Meeting. If any other matters should properly come before the Annual
Meeting, the persons appointed by the accompanying proxy will vote on such
matters in accordance with their best judgment pursuant to the discretionary
authority granted to them in the proxy.
35
INTERESTED PARTY TRANSACTIONS
Since our inception, there have not been any material transactions
between us and any of our officers and directors, except as set forth herein.
Judge Mercorella and Judge Silverson currently serve as independent hearing
officers for us through their respective law firms. Carla Israel, our Sales
Supervisor and Secretary of the Company, is the wife of Roy Israel, our
president and chief executive officer. Her compensation for the year ended June
30, 2004 was $60,554. She also received a car allowance (including insurance) of
$9,176 for the year ended June 30, 2004.
On March 12, 2004, we extended our March 1998 purchase plan (the
"Purchase Plan"), pursuant to which the number of shares of our common stock
eligible for purchase under the Purchase Plan remained at an aggregate of
1,600,002 shares. The Purchase Plan shall expire on the earlier of all of the
shares being purchased or March 12, 2005, provided, however, that the Purchase
Plan may be discontinued at any time by us. As of October 1, 2004, we have
purchased 252,498 shares under the Purchase Plan for an aggregate cost of
$83,918.
STOCKHOLDER PROPOSALS
A stockholder who wishes to present a proposal for action at our
2005 Annual Meeting of Stockholders must submit such proposal to us, and such
proposal must be received by us, no earlier than July 20, 2005 and no later than
September 20, 2005.
COST OF SOLICITATION OF PROXIES
The solicitation of proxies pursuant to this Proxy Statement is made
by and on behalf of our Board of Directors. The cost of such solicitation will
be paid by us. Such cost includes the preparation, printing, and mailing of the
Notice of Annual Meeting, Proxy Statement, Annual Report, and form of proxy. The
solicitation will be conducted principally by mail, although our directors,
officers, and employees (at no additional compensation) may solicit proxies
personally or by telephone or telegram. Arrangements will be made with brokerage
houses and other custodians, nominees, and fiduciaries for the forwarding of
proxy material to the beneficial owners of shares held of record by such
fiduciaries, and we may reimburse such persons for their reasonable expenses in
so doing.
SECTION 16(a) REPORTING DELINQUENCIES
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who beneficially own more than ten
percent (10%) of a registered class of our equity securities, to file with the
SEC reports of ownership and changes in ownership of our common stock and other
equity securities. Executive officers, directors, and greater than ten percent
(10%) beneficial owners are required by SEC regulation to furnish us with copies
of all Section 16(a) reports that they file. Based solely upon a review of the
copies of such reports furnished to us or written representations that no other
reports were required, we believe that, during fiscal year 2004 all filing
requirements applicable to our executive officers, directors, and greater than
ten percent (10%) beneficial owners were met.
ANNUAL REPORT ON FORM 10-KSB
We are providing the Form 10-KSB as part of our Annual Report to
each person whose proxy is solicited. We do not undertake to furnish without
charge copies of all exhibits to our Form 10-KSB, but will furnish any exhibit
upon the payment of Twenty Cents ($0.20) per page or a minimum charge of Five
Dollars ($5.00). Such written requests should be directed to Patricia
Giuliani-Rheaume, Chief Financial Officer, clickNsettle.com, Inc., 1010 Northern
Boulevard, Suite 336, Great Neck, New York 11021. Each such request must set
forth a good faith representation that, as of December 7, 2004, the person
making the request was a beneficial owner of securities entitled to vote at the
Annual Meeting. We incorporate herein the Annual Report by reference.
ANSWERING YOUR QUESTIONS
If you have any additional questions concerning the proposed
Transaction under the Asset Purchase Agreement or other matters to be acted on
at the Annual Meeting, you should contact: Roy Israel, Chief Executive Officer
or Patricia Giuliani-Rheaume, Chief Financial Officer, at 516-829-4343. If you
need additional copies of this Proxy Statement or any public filings referred to
in this Proxy Statement, you should contact Jackie
36
Streffacio, Administrative Assistant to the Chief Executive Officer, at
516-829-4343 ext 167. Our public filings can also be accessed at the SEC's web
site at www.sec.gov.
By Order of the Board of Directors,
Roy Israel
Chairman of the Board
Great Neck, New York
December 7, 2004
37
Exhibit A
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as of
October 18, 2004, by and between CLICKNSETTLE.COM, INC., a Delaware corporation
(the "Seller"), and National Arbitration and Mediation, Inc., a New York
corporation (the "Buyer").
Capitalized terms used but not otherwise defined herein shall have the
respective meanings in the Appendix of Definitions.
R E C I T A L S:
WHEREAS, Seller owns an arbitration and mediation services business (the
"Business"); and
WHEREAS, Buyer desires to acquire the Business in exchange for the
consideration set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
representations, warranties, covenants and promises contained herein, the
adequacy and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS/ASSUMPTION OF LIABILITIES.
1.1. Purchased Assets. On the terms and subject to the conditions
contained herein, Seller agrees to sell, assign, transfer, convey and deliver to
Buyer, and Buyer agrees to purchase from Seller at the Closing, all of Seller's
rights, title and interest in and to all of the assets of the Seller (the
"Purchased Assets"), except for (i) $200,000 of cash less (a) transaction costs
including, without limitation, legal, accounting, tax advice, fairness opinion
and printing and mailing of the proxy statement, and (b) the transactional and
due diligence costs related to any potential acquisition by the Seller, and (ii)
60 percent of the excess amount of the Remaining Net Capital before Commitments
over $380,462 on the Closing Date, if any.
1.2. Assumed Liabilities. On the terms and subject to the conditions
contained herein, on the Closing Date, Buyer shall assume and agree to perform
and discharge, when and as due, all liabilities and obligations of the Seller,
as the same may exist at or accrue following the Closing Date as they relate to
the Business, including, without limitations, all employment agreements, the
EEOC claims and leases.
1.3. Israel Waiver. In the event the Closing occurs, Mr. Israel hereby
acknowledges that he shall not trigger his change-in-control provision under his
employment agreement as a result of the Buyer acquiring the Business.
1.4. Liabilities Not Assumed. Buyer shall not assume or be liable for
Taxes, if any, for which Seller is responsible for as a result of this
transaction nor shall Buyer assume or be
A-1
liable for liabilities not relating to the Business and any shareholder actions
(the "Excluded Liabilities").
2. CLOSING.
2.1. Time; Place. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Thelen Reid &
Priest LLP, 875 Third Avenue, New York, New York 10022 at 10:00 a.m., Eastern
Time, on a date to be mutually agreed upon by the second business day following
the approval of the Sale by the requisite number of shareholders of the Seller,
or as soon thereafter as the conditions in Section 6 are satisfied or waived by
the applicable party, or at such other time, date or place as may be mutually
agreed upon by Buyer and Seller and in no event later than March 31, 2005 (the
"Closing Date"). At the Closing, (i) Seller shall sell, assign, transfer, convey
and deliver to Buyer (or its designee) the Purchased Assets; (ii) Buyer shall
assume the Assumed Liabilities; (iii) Seller will deliver to Buyer the various
agreements, certificates and documents, referred to in Section 6.2.6; and (iv)
Buyer will deliver to Seller the various agreements, certificates and documents
referred to in Section 6.1.5.
2.2. Effective Time. Title to the Purchased Assets shall be deemed to have
been transferred to Buyer at 11:59 p.m. (Eastern Time) on the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer that the statements contained in
this Section 3 are true and correct on the date hereof and at Closing, except
(i) as in the disclosure schedule provided by Seller to Buyer on the date hereof
and attached hereto (the "Disclosure Schedule"), if any, (ii) to the extent of
changes or developments expressly contemplated by the terms of this Agreement,
and (iii) except for representations and warranties that speak as of a specific
date or time (which need only to be true and correct as of such date or time).
3.1. Organization, Power and Qualification. Seller is a corporation, duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its organization, and has all requisite corporate power and
authority to own or hold under lease its properties and assets and to carry on
the Business as now conducted. Seller is duly qualified to do business and is in
good standing as a foreign corporation in every jurisdiction in which the
operation or ownership of the Purchased Assets requires such qualification,
except where the failure to so qualify would not be reasonably likely to have a
Material Adverse Effect.
3.2. Authorization; Enforceability. Seller has all necessary power and
authority to make, execute and deliver this Agreement and all other agreements
and documents to be executed and delivered by it pursuant hereto, and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the other agreements and
documents to be executed and delivered herewith, and the consummation of the
transactions contemplated hereby and thereby, have been duly approved and
authorized by all necessary corporate actions on behalf of Seller or will be at
the time of Closing. This Agreement constitutes, and all other agreements and
documents to be executed and delivered by Seller will, upon execution by Buyer,
constitute the valid and binding agreements of Seller, enforceable in
A-2
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other Laws of general
application affecting the enforcement of creditors' rights generally, and as
limited by Laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
As an inducement for Seller to enter into this Agreement, Buyer represents
and warrants to Seller that the statements contained in this Section 6 are true
and correct on the date hereof and at Closing, except (i) to the extent of
changes or developments expressly contemplated by the terms of this Agreement
and (ii) except for representations and warranties that speak as of a specific
date or time (which need only to be true and correct as of such date or time).
4.1. Organization. Buyer is a corporation, duly organized, validly
existing, and in good standing under the Laws of the jurisdiction of its
incorporation.
4.2. Authorization; Enforceability. Buyer has all requisite power and
authority to execute and deliver this Agreement and all other agreements and
documents to be executed and delivered by Buyer pursuant hereto and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and all other agreements and documents to be executed and
delivered by Buyer pursuant hereto, and the consummation of the transactions
contemplated hereby and thereby have been duly approved and authorized by all
necessary action on Buyer's part and this Agreement and all other agreements and
documents to be executed and delivered by Buyer pursuant hereto constitute the
valid and binding agreements of Buyer, enforceable in accordance with their
respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other Laws of general application affecting the
enforcement of creditors' rights generally, and as limited by Laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies.
5. COVENANTS OF THE PARTIES.
5.1. Buyer's Covenants. Following the Closing Date, Buyer agrees to
provide, without charge, the services of Ms. Giuliani-Rheaume as CFO of the
Seller for the earlier of (i) a one-year period from the Closing Date as long as
Ms. Giuliani-Rheaume remains an employee of Buyer and (ii) the closing of a
Seller Transaction. In the event Ms. Giuliani-Rheaume is no longer an employee
of Buyer, then Buyer shall substitute Ms. Sharon Noto in her place. The Buyer
shall also provide Ms. Giuliani-Rheaume the necessary and reasonable support to
carry out the reporting obligations of the Company during such period without
any charge.
5.2. Taxes.
5.2.1. Cooperation. From and after the Signing Date, Seller and
Buyer shall (and shall cause their respective Affiliates to) cooperate fully
with each other and make available or cause to be made available to each other
for consultation, inspection and copying (at such other party's expense) in a
timely fashion such personnel, Tax data, relevant Tax Returns or portions
thereof and filings, files, books, records, documents, financial, technical and
operating data, computer records and other information as may be reasonably
required (a) for the preparation by such other party of any Tax Returns or (b)
in connection with any Tax audit or proceeding
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including one party (or an Affiliate thereof) to the extent such Tax audit or
proceeding relates to or arises from the transactions contemplated by this
Agreement.
5.2.2. Allocation of Consideration. Buyer's Consideration shall be
allocated among the Purchased Assets, and the value of the Purchased Assets and
any liabilities assumed by Seller shall be allocated among Buyer's
Consideration, in a manner consistent with a schedule to be jointly prepared by
the parties on or prior to the Closing Date (the "Allocation Schedule"), and
which shall be prepared in accordance with Treas. Reg. Section 1.1060-1 (or any
comparable provision of state or local Tax Law) or any successor provision. The
parties agree that they will report the federal, state, local and other Tax
consequences of the purchase and sale hereunder (including in filings on IRS
Form 8594) in a manner consistent with such allocation and that they will not
take any position inconsistent therewith in connection with any Tax Return,
refund claim, litigation or otherwise, unless and to the extent required to do
so pursuant to applicable law. Seller and Buyer shall cooperate in the filing of
any forms (including Form 8594) with respect to such allocation. Notwithstanding
any other provision of this Agreement, the foregoing Section 5.2.2 shall survive
any termination or expiration of this Agreement.
5.2.3. Transfer Taxes. Buyer and Seller shall each be equally
responsible for any sales, use, excise, transfer, or other similar Tax imposed
with respect to the transactions provided for in this Agreement, and any
interest or penalties related thereto, and will coordinate the payment of such
Taxes and other amounts with the other party. As between Buyer, on the one hand,
and Seller, on the other hand, the party that has the primary responsibility
under applicable Law for filing any Tax Returns required to be filed in respect
of such Taxes shall prepare and timely file such Tax Returns; provided that such
party's preparation of such Tax Returns shall be subject to the other party's
approval, which approval shall not be unreasonably withheld. Buyer and Seller
shall cooperate and make all efforts to obtain any available exemptions from
such Taxes.
5.2.4. Proration of Taxes. All personal property Taxes or similar ad
valorem obligations levied with respect to the Purchased Assets for any taxable
period that includes the day before the Closing Date and ends after the Closing
Date shall be prorated between Seller and Buyer as of 12:01 A.M. on the Closing
Date. If any Taxes subject to proration are paid by Buyer, on the one hand or
Seller, on the other hand, the proportionate amount of such Taxes paid (or in
the event any portion of such Taxes previously paid is received as a refund,
such refund net of any Taxes payable with respect to the receipt of any interest
included in such refund) shall be paid promptly by (or to) the other after the
payment of such Taxes (or promptly following the receipt of any such refund).
5.2.5. Unbilled Transactional Taxes. If a Tax assessment is levied
upon any party by an authorized Tax jurisdiction for unbilled transactional
Taxes that are the obligation of the other party under this Agreement, then the
non-assessed party shall reimburse the assessed party for those Taxes including
any interest and penalty.
5.2.6. Tax Structure Disclosure. Notwithstanding anything herein to
the contrary, each party to the transactions contemplated herein (and each
Affiliate and Person acting on behalf of any such party) agrees that each party
(and each employee, representative, and other agent of such party) may disclose
to any and all Persons, of any kind, the tax treatment and tax
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structure of the transaction and all materials of any kind (including opinions
or other tax analyses) that are provided to such party or such Person relating
to such tax treatment and tax structure, except to the extent necessary to
comply with any applicable federal or state securities laws; provided, however,
that such disclosure may not be made until the earliest of the date of any
public announcement of the discussions relating to the transaction, the date of
any public announcement of the transaction and the date of the execution of this
Agreement. This authorization is not intended to permit disclosure of any other
information including: (i) any portion of any materials to the extent not
related to the tax treatment or tax structure of the transaction; (ii) the
identities of participants or potential participants in the transaction; (iii)
the existence or status of any negotiations; (iv) any pricing or financial
information (except to the extent such pricing or financial information is
related to the tax treatment or tax structure of the transaction); or (v) any
other term or detail not relevant to the tax treatment or the tax structure of
the transaction.
5.3. Post Closing Adjustments. The parties shall cooperate with each other
following the Closing and shall make all adjustments necessary to insure that
each party receives the benefits they are entitled to under the Agreement.
5.4. Shareholders Vote. The Seller shall hold a meeting of shareholders to
approve the Sale in a timely manner.
6. CONDITIONS TO CLOSING.
6.1. Conditions to Buyer's Obligations. The obligations of Buyer to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to Closing of each of the following conditions:
6.1.1. Representations and Warranties; Performance of Obligations.
(i) All representations and warranties made by Seller contained in this
Agreement shall be true and correct in all material respects on the date hereof
and as of the Closing Date as though such representations and warranties were
made as of the Closing Date, except (a) for changes contemplated or permitted by
this Agreement, (b) for those representations and warranties that address
matters only as of a particular date (which shall be true and correct as of such
date, subject to clause (c) below), and (c) where the failure of the
representations and warranties to be true and correct would not reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Effect; and (ii) Seller shall have duly performed or complied in all material
respects with all of the obligations to be performed or complied with it under
the terms of this Agreement on or prior to Closing.
6.1.2. Certificate. Seller shall have delivered to Buyer a
certificate of a duly authorized officer, dated as of the Closing Date,
certifying to the effects in Section 6.1.1.
6.1.3. No Material Adverse Change. No Material Adverse Effect shall
have occurred with respect to the Business.
6.1.4. No Suit. No suit, action or other proceeding or investigation
shall, to the knowledge of any party to this Agreement, be pending before or by
any Governmental Authority
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or by any third party seeking to restrain or prohibit the consummation of the
Sale, or seeking damages as a result thereof.
6.1.5. Closing Documents. The following items shall have been
delivered to Buyer, or waived by Buyer:
(i) A duly executed bill of sale in form and substance
reasonably satisfactory to Buyer;
(ii) The officer's certificates required to be delivered
pursuant to Section 6.1.2;
(iii) All other instruments of conveyance and transfer, in
form and substance reasonably acceptable to Buyer, as may be
necessary to convey the Business to Buyer.
6.2. Conditions to Seller's Obligations. The obligations of Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to each Closing of each of the following conditions:
6.2.1. Representations and Warranties; Performance of Obligations.
The representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on the date hereof and as of the
Closing Date as though such representations and warranties were made as of the
Closing Date. Buyer shall have duly performed or complied with all of the
obligations to be performed or complied with by it under the terms of this
Agreement on or prior to Closing.
6.2.2. Certificate. Buyer shall have delivered to Seller a
certificate of a duly authorized officer, dated as of the Closing Date,
certifying to the effects in Section 6.2.1.
6.2.3. No Suit. No suit, action or other proceeding or investigation
shall, to the knowledge of any party to this Agreement, be pending before or by
any Governmental Authority or by any third party seeking to restrain or prohibit
the consummation of the Sale.
6.2.4. Fairness Opinion. The Company shall have received a fairness
opinion from Capitalink, or any other firm chosen solely by the Company,
expressing the opinion that the Sale is fair to the non-Affiliated shareholders
of the Company.
6.2.5. Shareholder Vote. The Company shall have received the
requisite vote of its shareholders approving the Sale.
6.2.6. Closing Documents. The following items shall have been
delivered to Seller:
(i) The officer's certificate required to be delivered
pursuant to Section 6.2.2; and
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(ii) All other instruments of transfer, in form and substance
reasonably acceptable to Seller, as may be necessary for Buyer to
assume the Assumed Liabilities.
7. TERMINATION.
7.1. Termination. This Agreement may be terminated at any time prior to
Closing upon notice:
7.1.1. By Buyer, if there has been a breach by Seller of any
representation, warranty, covenant or agreement contained in this Agreement
which would result in a failure of a condition in Section 6.1; and such breach
cannot be cured within 30 days from notice of such event;
7.1.2. By Seller, (i) if there has been a breach by Buyer of any
representation, warranty, covenant or agreement contained in this Agreement
which failure cannot be cured within 30 days from notice of such event, (ii) if
the requisite number of votes of shareholders approving the Sale is not
received, or (iii) in the event the Seller receives an offer for the Business
that the Board of Directors of the Seller believes, in the exercise of their
fiduciary duty, to be better for the shareholders of the Seller than the Buyer's
offer (the "Competing Offer") and the Board accepts such offer;
7.1.3. By the mutual written consent of the parties; or
7.1.4. If the Closing does not take place on or before March 31,
2005 and such failure to effectuate the Closing is not caused by the terminating
party.
7.2. Effect of Termination. In the event of the termination of this
Agreement as provided in Section 7.1, this Agreement shall become void and no
party to this Agreement shall have any liability or further obligation to any
other party; provided, however, that the provisions of Sections 9.4, 9.5, 9.7
and 9.17 shall remain in full force and effect; provided, further, however, that
nothing herein shall relieve any party for willful breach. If the Seller accepts
a Competing Offer and terminates this Agreement, it shall pay the Buyer $25,000
within five (5) business days of closing the Competing Offer to cover Buyer's
reasonable out-of-pocket costs..
8. INDEMNIFICATION/LIMITATION ON LIABILITY.
8.1. Indemnification of Buyer. Seller covenants and agrees with Buyer that
it shall reimburse and indemnify and hold Buyer and its Affiliates, and their
respective directors, officers, employees and agents (the "Buyer Indemnified
Party"), harmless from, against and in respect of any and all actions, suits,
claims, proceedings, assessments, damages, fines, judgments, liabilities, costs
and expenses, (including, without limitation, reasonable attorneys' fees, but
excluding any incidental, consequential or punitive damages) ("Losses") as and
when incurred by any Buyer Indemnified Party that result from:
8.1.1. Any breach of any representations or warranties of Seller
under this Agreement;
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8.1.2. Any breach of, or failure to perform, any covenants or
agreements of Seller under this Agreement; and
8.1.3. The Excluded Liabilities.
8.2. Indemnification of Seller. Buyer covenants and agrees with Seller
that it shall reimburse and indemnify and hold Seller and its Affiliates, and
their respective directors, officers, employees and agents (the "Seller
Indemnified Party," together with the Buyer Indemnified Party, collectively
referred to as the "Indemnified Party"), harmless from, against and in respect
of any and all Losses as and when incurred by any Seller Indemnified Party that
result from:
8.2.1. Any breach of any representations or warranties of Buyer
under this Agreement;
8.2.2. Any breach of, or failure to perform, any covenants or
agreements of Buyer under this Agreement; and
8.2.3. The ownership and operation of the Business, the Purchased
Assets or the Assumed Liabilities.
8.3. Procedure. Each Indemnified Party shall give either Buyer or Seller,
as applicable, in its role as an indemnifying party (the "Indemnifying Party"),
prompt notice of any Loss asserted or threatened against such Indemnified Party
on the basis of which such party intends to seek indemnification (but the
obligations of the Indemnifying Party shall not be conditioned upon receipt of
such notice, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to receive such notice). The Indemnified Party will
provide such other information with respect thereto as the Indemnifying Party
may be reasonably request. To the extent that a Loss arises from a third party
claim against an Indemnified Party, the Indemnifying Party shall promptly assume
the defense of any Indemnified Party with counsel reasonably satisfactory to
such Indemnified Party and the fees and expenses of such counsel shall be at the
sole cost and expense of the Indemnifying Party. Notwithstanding the foregoing,
any Indemnified Party shall be entitled, at its sole expense, to employ counsel
separate from counsel for the Indemnifying Party and from any other party in
such action, proceeding, or investigation. Any settlement of a Loss for other
than money damages must have the prior written approval of the Indemnified
Party, which approval shall not be unreasonably withheld or delayed.
8.4. Cooperation. The parties agree reasonably to cooperate with one
another and their respective counsel in contesting and defending any Loss in any
manner the other party may reasonably request (including furnishing evidence and
testimony and granting reasonable access to the pertinent books, records and
personnel (to the extent such personnel are available) in their possession or
control).
8.5. Tax Indemnity. Seller covenants and agrees that it shall reimburse,
indemnify and hold Buyer and its Affiliates harmless from, against, and in
respect of, any and all demands, investigations, audits and Losses (including
reasonable attorneys' and accountants' fees and expenses) as and when sustained,
incurred or suffered by Buyer or any of its Affiliates, directly or indirectly,
by reason of or resulting from any Tax liability of Seller or any liability of
Seller
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for the unpaid Taxes of any Person under Treas. Reg. 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise, including but not limited to, any such liability of
Seller for any state or local sales or use Tax. Notwithstanding any other
provision of this Agreement to the contrary, any obligation of Seller pursuant
to this Section 8.5 shall be unconditional and absolute and shall survive until
30 days after the expiration of the applicable statute of limitations, provided
that, if on the last date of such survival period Seller is under audit or shall
have received a notice of any Tax audit, such obligations shall survive until
the date on which all such audits are completely and finally resolved.
8.6. Survival. The representations, warranties and indemnities made by
Seller, on the one hand, and by Buyer, on the other hand, under this Agreement
shall survive for a period of two years (the "Survival Period") from the Closing
Date, provided, however, that any indemnity with respect to Taxes shall survive
until 30 days after the expiration of the applicable statute of limitations, and
provided, further, that this limitation shall not extinguish any claim for
indemnification of Seller or Buyer, as applicable, who has given notice of a
Loss prior to the end of the Survival Period. The covenants and agreements of
the parties hereto shall survive the Closing in accordance with their terms.
8.7. Exclusive Remedy. The provisions of this Section 8 shall constitute
the sole and exclusive remedy with respect to any and all claims between the
parties hereto for money damages arising under or arising out of this Agreement
or the transactions contemplated hereby.
9. GENERAL PROVISIONS.
The parties further covenant and agree as follows:
9.1. Entire Agreement. This Agreement and the other agreements and
documents referred to herein express the entire understanding of the parties
with respect to the subject matter hereof. Any previous agreements or
understandings between the parties regarding the subject matter hereof, are
merged into and superseded by this Agreement.
9.2. Waiver. Any of the terms or conditions of this Agreement may be
waived at any time by the party or parties entitled to the benefit thereof, but
only by a written notice signed by the party or parties waiving such terms or
conditions.
9.3. Amendments. This Agreement may be amended, supplemented or
interpreted at any time only by written instrument duly executed by each of the
parties.
9.4. Expenses. Except as otherwise expressly provided herein, the parties
shall each pay its or their own expenses, including, without limitation, the
expenses of its or their own counsel, investment bankers and accountants,
incurred in connection with the preparation, execution and delivery of this
Agreement and the other agreements and documents referred to herein and the
consummation of the transactions contemplated hereby and thereby.
9.5. Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be by hand-delivery, certified
or registered mail, return receipt requested; telecopier, or overnight courier
to the parties below. Such notices shall be
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deemed given: at the time personally delivered, if delivered by hand; at the
time received if sent certified or registered mail; when receipt is acknowledged
by facsimile equipment if telecopied; and the third business day after timely
delivery to the courier for overnight delivery, if sent by a nationally
recognized overnight courier service.
If to Seller: CLICKNSETTLE.COM, Inc.
1010 Northern Boulevard
Suite 336
Great Neck, NY 11021
Attn: CEO
If to Buyer: National Arbitration and Mediation, Inc.
1010 Northern Boulevard
Suite 336
Great Neck, NY 11021
Attn: CEO
9.6. Assignment. Neither this Agreement nor any of the rights and
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except, that Buyer may assign all or part of its
rights under this Agreement and may delegate all or part of its obligations
under this Agreement to an Affiliate without consent. In the event of any such
assignment and delegation, the term "Buyer" as used in this Agreement shall be
deemed to refer to each such assignee of Buyer and shall be deemed to include
both Buyer and each such assignee where appropriate. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of the parties.
9.7. Commissions and Finder's Fees. Buyer on the one hand, and Seller on
the other hand, represent and warrant that none of them has retained or used the
services of any individual, firm or corporation in such manner as to entitle
such individual, firm or corporation to any compensation for brokers' or
finders' fees with respect to the transactions contemplated hereby for which the
other may be liable.
9.8. Severability. If any provision of this Agreement is held by a court
of competent jurisdiction or other authority to be invalid, illegal, void or
unenforceable, for any reason, such provision shall be reformed to the maximum
extent permitted so as to preserve the parties' original intent, failing which,
it shall be severed from this Agreement with the balance of the provision of
this Agreement continuing in full force and effect and shall in no way be
affected, impaired or invalidated, as long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to either party.
9.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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9.10. Headings. The headings of the Sections and the subsections of this
Agreement are inserted for convenience of reference only and shall not
constitute a part of this Agreement.
9.11. Interpretation. In this Agreement, unless a clear contrary intention
appears, the singular number includes the plural number and vice versa.
9.12. Instruments of Further Assurance. Each of the parties hereto agrees,
upon the request of the other party, from time to time to execute and deliver to
such other party or parties all such instruments and documents of further
assurance or otherwise as shall be reasonable under the circumstances, and to do
any and all such acts and things as may reasonably be required to perfect
transfer of the Purchased Assets or otherwise to carry out the obligations of
such requested party hereunder.
9.13. Publicity. Neither Buyer nor Seller shall make any press release or
public announcement in connection with the transactions contemplated hereby
without the prior written consent of the other party or, if required by Law,
without prior consultation with the other party.
9.14. No Third Party Beneficiaries. Except for the provisions of Section 8
relating to Indemnified Parties under this Agreement, (i) the provisions of this
Agreement are solely for the benefit of the parties hereto and their permitted
assignees and are not intended to confer upon any Person, except the parties
hereto, any rights or remedies hereunder, and (ii) there are no third party
beneficiaries of this Agreement and this Agreement shall not provide any third
Person with any remedy, claim, liability, reimbursement, claim of action or
other right in excess of those existing without reference to this Agreement.
9.15. Waiver of Trial by Jury. The parties hereby knowingly, voluntarily
and intentionally waive any right they may have to a trial by jury in respect to
any litigation arising out of, under or in connection with this Agreement, or
any course of conduct, course of dealing, statements (whether verbal or written)
or actions of any party hereto. This provision is a material inducement for
Buyer and Seller entering into this Agreement.
9.16. Cumulative Remedies. All rights and remedies of the parties hereto
are cumulative of each other and of every other right or remedy such parties may
otherwise have at Law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
9.17. Governing Law; Exclusive Jurisdiction. This Agreement shall be
governed, construed and enforced in accordance with the Laws of the State of New
York, excluding any choice of Law rules which may direct the application of the
Laws of another jurisdiction. Any and all claims, actions, causes of action,
suits and proceedings related to the foregoing shall be filed and maintained
only in the state courts of the State of New York and the parties hereby consent
to and submit to the exclusive jurisdiction of such Court.
9.18. Waiver of Bulk Transfer Laws. Buyer hereby waives compliance by
Seller with the provisions of the bulk transfer Laws (of any jurisdiction) in
connection with the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
on the date first written above.
CLICKNSETTLE.COM, INC.
By: /s/ Patricia Giuliani-Rheaume
------------------------------------
Name: Patricia Giuliani-Rheaume
Title: Vice President
NATIONAL ARBITRATION AND MEDIATION, INC.
By: /s/ Roy Israel
----------------------------------
Name: Roy Israel
Title: President
/s/ Roy Israel
----------------------------------------------
Roy Israel, Solely with respect to Section 1.3
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APPENDIX OF DEFINITIONS
The following definitions shall be applicable for purposes of the
Agreement except as otherwise specifically provided to the contrary in the text
of the Agreement.
"Affiliates" shall mean, with respect to any entity, any other entity
controlling, controlled by or under common control with such entity, whether
directly or indirectly through one or more intermediaries, but excluding the
officers or directors of an entity or entities controlled by an officer or
director.
"Agreement" shall have the meaning in the Preamble.
"Allocation Schedule" shall have the meaning in Section 5.2.2.
"Assumed Liabilities" shall have the meaning in Section 1.2.
"Business" shall have the meaning in the Recitals.
"Buyer" shall have the meaning in the Preamble.
"Buyer Indemnified Party" shall have the meaning in Section 8.1.
"Closing" shall have the meaning in Section 2.1.
"Closing Date" shall have the meaning in Section 2.1.
"Competing Offer" shall have the meaning in Section 7.1.2.
"Disclosure Schedule" shall have the meaning in Section 3.
"Excluded Liabilities" shall have the meaning in Section 1.4.
"Indemnified Party" shall have the meaning in Section 8.2.
"Indemnifying Party" shall have the meaning in Section 8.3.
"IRS" shall mean the United States Internal Revenue Service.
"Laws" shall mean any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Losses" shall have the meaning in Section 8.1.
"Material Adverse Effect" shall mean any change or effect that is, or is
reasonably likely to be, materially adverse to: (i) the assets or properties
constituting the Business, (ii) the Assumed Liabilities, or (iii) the ability of
Seller to fulfill its obligations hereunder.
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"Remaining Net Capital Before Commitments" shall mean the fair market
value of the assets purchased less the following: (i) recorded liabilities
assumed; (ii) commitment due to American Lawyer Media in the amount of $75,854
and (iii) $200,000 of cash to remain with the Seller (to be adjusted based on
the timing of payments for the transaction costs).
"Person" shall mean an individual, a partnership, a corporation, an
association, a joint stock company, limited liability company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or
department, agency or political subdivision thereof).
"Purchased Assets" shall have the meaning in Section 1.1.
"Sale" shall mean the sale of the Business as contemplated by the
Agreement.
"Seller" shall have the meaning in the Preamble.
"Seller Indemnified Party" shall have the meaning in Section 8.2.
"Seller Transaction" shall mean a transaction by which the Seller acquires
a new business.
"Survival Period" shall have the meaning in Section 8.6.
"Taxes" shall mean taxes, charges, fees, duties, levies or other
assessments, including income, gross receipts, net proceeds, ad valorem,
turnover, real and personal property (tangible and intangible), sales, use,
franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel,
excess profits, occupational, interest equalization, windfall profits,
severance, employee's withholding, other withholding, unemployment and social
security taxes, which are imposed by any Governmental Authority, including in
each case any interest, penalties or additions to tax attributable thereto,
whether disputed or not, and including any obligation to indemnify or otherwise
assume or succeed to the Tax liability of any other Person.
"Tax Return" shall mean any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
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Exhibit B
[LETTERHEAD OF CAPITALINK]
October 15, 2004
Board of Directors
Clicknsettle.com, Inc.
1010 Northern Blvd.
Suite 336
Great Neck, NY 10021
Gentlemen:
We have been advised that Clicknsettle.com, Inc. (the "Company") will enter into
a transaction with National Arbitration and Mediation, Inc. ("National")
pursuant to a Asset Purchase Agreement between the parties (the "Agreement").
Under the terms of the Agreement, National will purchase all of the rights,
title and interest in and to all of the assets of the Company, except for (i)
$200,000 of cash less (a) transaction costs including, without limitation,
legal, accounting, tax advice, fairness opinion and mailing of the proxy
statement, and (b) the transactional and due diligence costs related to any
potential acquisition by the Company, and (ii) 60 percent of the excess amount
of the Company's remaining net capital before commitments over $380,462 on the
closing date of the Transaction (as defined below), if any, (the "Purchased
Assets"). In exchange for the Purchased Assets, National shall assume and agree
to perform and discharge when as due all liabilities and obligations of the
Company, as the same may exist at or accrue following the closing date of the
Transaction as each relate to the business of the Company, including, without
limitations, all employment agreements, Equal Employment Opportunity Commission
claims and leases (the "Purchase Consideration"). The transaction described in
this paragraph is hereinafter, the "Transaction."
We have been retained by the Board of Directors to render an opinion as to
whether, on the date of such opinion, the Purchase Consideration is fair, from a
financial point of view, to the unaffiliated shareholders of the Company. We
have not been requested to opine as to, and the opinion does not in any manner
address, the underlying business decision of the Company to proceed with or
affect the Transaction. We were not asked to consider, and our opinion does not
address the relative merits of the Transaction as compared to any alternative
business strategy that might exist for the Company.
In arriving at our opinion, we took into account an assessment of general
economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuations generally and,
among other things: (i) reviewed the Agreement; (ii)
B-1
Board of Directors October 15, 2004
Clicknsettle.com, Inc. Page 2
reviewed publicly available financial information and other data with respect to
the Company, including the Annual Report on Form 10-K for the year ended June
30, 2004 and the Definitive Proxy Statement on Schedule 14A, dated October 27,
2003; (iii) reviewed and analyzed the Transaction's pro forma financial impact
on the Company's balance sheet; (iv) reviewed the Company's current ownership
structure; (v) reviewed and analyzed the Company's historical financial results
and present financial condition; (vi) reviewed certain publicly available
information concerning the trading of, and the market for, the common stock of
the Company and a general market index; (vii) reviewed and analyzed the
Company's net adjusted net book value utilizing a range of potential liquidation
premises; (viii) reviewed and analyzed the Company's range of projected fiscal
year 2005 financial performances under various scenarios; (ix) reviewed and
analyzed certain private company adjustments to the Company's historical
financial performance; (x) reviewed and discussed with representatives of the
management of the Company certain financial and operating information furnished
by them, including financial analyses with respect to the business and
operations of the Company; (xi) inquired about and discussed the Transaction and
other matters related thereto with Company management and its Board of
Directors; and (xii) performed such other analyses and examinations as were
deemed appropriate.
In arriving at our opinion we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was used by us
without assuming any responsibility for any independent verification of any such
information and has further relied upon the assurances of Company management
that it is not aware of any facts or circumstances that would make any such
information inaccurate or misleading. With respect to the financial information
utilized, we assumed that such information has been reasonably prepared on a
basis reflecting the best currently available estimates and judgments, and that
such information provides a reasonable basis upon which we could make our
analyses and form an opinion. We have not made a physical inspection of the
properties and facilities of the Company and have not made or obtained any
evaluations or appraisals of the assets and liabilities (contingent or
otherwise) of the Company. We have not attempted to confirm if the Company has
good title to its assets.
We assumed that the Transaction will be consummated in a manner that complies in
all respects with the applicable provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and all other
applicable federal and state statues, rules and regulations. In addition, based
upon discussions with Company management, it is assumed that the Transaction
will not have any effective negative tax impact on the Company. We assumed that
the Transaction will be consummated substantially in accordance with the terms
set forth in the Agreement, without any further amendments thereto, and without
waiver by the Company of any of the conditions to any obligations or in the
alternative that any such amendments, revisions or waivers thereto will not be
detrimental to the Company or its unaffiliated shareholders.
Our opinion is necessarily based upon market, economic and other conditions, as
they exist on, and could be evaluated as of October 15, 2004. Accordingly,
although subsequent developments may affect our opinion, we do not assume any
obligation to update, review or reaffirm our opinion.
Our opinion is for the use and benefit of the Board of Directors in connection
with its consideration of the Transaction and is not intended to be and does not
constitute a recommendation to any Company shareholder as to how such
shareholder should vote with
B-2
Board of Directors October 15, 2004
Clicknsettle.com, Inc. Page 3
respect to the Transaction. We do not express any opinion as to the underlying
valuation or future performance of the Company nor the price at which its common
stock would trade at any time in the future.
Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the Purchase Consideration is fair, from a financial point of
view, to the Company's unaffiliated shareholders.
In connection with our services, we have previously received a retainer and will
receive the balance of our fee upon the rendering of this opinion. In addition,
the Company has agreed to indemnify us for certain liabilities that may arise
out of the rendering this opinion.
Our opinion is for the use and benefit of the Board of Directors and is rendered
in connection with its consideration of the Transaction and may not be used by
the Company for any other purpose or reproduced, disseminated, quoted or
referred to by the Company at any time, in any manner or for any purpose,
without the prior written consent of Capitalink, except that this opinion may be
reproduced in full in, and references to the opinion and to Capitalink and its
relationship with the Company may be included in filings made by the Company
with the Securities and Exchange Commission if required by Securities and
Exchange Commission rules, and in any proxy statement or similar disclosure
document disseminated to shareholders if required by the Securities and Exchange
Commission rules.
Very truly yours,
/s/ Capitalink, L.C.
B-3
Exhibit C
clickNsettle.com, Inc.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CLICKNSETTLE.COM, INC.
(Under Section 242 of the General Corporation Law)
clickNsettle.com, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
FIRST: The name of the Corporation is clickNsettle.com, Inc.
SECOND: The Board of Directors of the Corporation adopted the
following preamble and resolution on October 15, 2004, setting forth, proposing
and declaring advisable the following amendment to the Certificate of
Incorporation of the Corporation:
WHEREAS, the Board of Directors deems it advisable to increase the
number of outstanding shares of the Corporation and the number of
authorized shares of common stock; be it
RESOLVED, that the number of authorized shares of common stock, par
value $0.001 per share, shall be increased from 25 million to 300
million, and that to effect such, and subject to the approval of a
majority of the stockholders of the Corporation, Article Fourth of
the Certificate of Incorporation of the Corporation be amended by:
Deleting "Twenty-Five Million (25,000,000)" and replacing it with
"Three Hundred Million (300,000,000)."
THIRD: That thereafter the above amendment to the Certificate of
Incorporation of the Corporation was duly approved upon written consent of the
stockholders owning a majority of the issued and outstanding shares of the
common stock of the Corporation entitled to vote thereon in accordance with
Section 228 of the General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed this ___ day of ___________ 200_.
clickNsettle.com, Inc.
By:
-----------------------------
Name: Roy Israel
Title: CEO & President
ATTEST:
-----------------------------------
Name: Patricia A. Giuliani-Rheaume
Title: VP & CFO
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