SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 001-11784
THE NETPLEX GROUP, INC.
(Exact name of small business issuer as specified in its charter)
NEW YORK 11-2824578
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8260 Greensboro Drive, 5th Floor
McLean, Virginia 22102-3806
(Address of principal executive offices and zip code)
(703) 356-3001
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of November 13, 1998, 10,259,735 shares of the registrant's Common Stock were
outstanding.
<PAGE>
THE NETPLEX GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Facing sheet
Index
Part I. Financial information
Item 1. Financial statements and supplementary data
a) Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997...........................3
b) Condensed Consolidated Statements of Operations for
the Three Months and Nine Months Ended
September 30, 1998 and 1997........................................4
c) Condensed Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 1998 and 1997..................5
d) Notes to Condensed Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................11
Part II Other information.................................................18
Signatures........................................................21
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PART I ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 1998 and December 31, 1997
(Unaudited)
Assets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,291,145 $ 353,005
Accounts receivable, net 8,872,301 4,133,148
Prepaids and other current assets 427,957 432,842
----------- ----------
Total current assets 10,591,403 4,918,995
----------- ----------
Property and equipment, net 1,404,532 952,546
Employee notes receivable 193,824 193,464
Other assets 226,754 82,738
Acquired software, net 341,986 418,225
Fulfillment data base, net 832,571 -
Other acquired intangible assets 2,750,000 -
Goodwill, net 2,144,960 346,529
----------- -----------
Total assets $18,486,030 $ 6,912,497
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,991,785 $ 567,805
Line of Credit 1,994,742 1,316,300
Accrued expenses and other 7,750,493 3,492,521
----------- -----------
Total current liabilities 11,737,020 5,376,626
Other liabilities 182,290 205,169
----------- -----------
Total Liabilities 11,919,310 5,581,795
----------- -----------
Stockholders' equity:
Class A cumulative preferred stock; $.01 par value; 2,000,000
authorized, 987,753 shares outstanding in 1998 and 1,062,500 shares in 1997 9,875 10,625
Class B cumulative preferred stock; $.01 par value; 1,500,000 authorized,
643,770 shares outstanding in 1998 and no shares outstanding in 1997 6,437 -
Class C cumulative preferred stock; $.01 par value; 2,500,000 authorized,
1,500,000 share outstanding in 1998 and no shares outstanding in 1997 15,000 -
Common stock $.001 par value
40,000,000 authorized, 10,259,735 shares outstanding in 1997 and 7,470,370
shares in 1996 10,259 7,470
Additional paid in capital 13,908,331 6,272,407
Accumulated deficit (7,383,182) (4,959,800)
---------- ----------
Commitments and contingencies
Total stockholders' equity 6,566,720 1,330,702
----------- ----------
Total liabilities and stockholders' equity $18,486,030 $6,912,497
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $16,077,743 $10,380,066 $43,755,189 $30,088,967
Cost of revenues 12,928,169 9,066,074 36,061,828 26,876,627
----------- ----------- ----------- -----------
Gross profit 3,149,574 1,313,992 7,693,361 3,212,340
----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative expenses 4,019,512 1,931,709 9,271,694 5,376,662
Inventory write-off 131,104 131,104
Restructuring costs 345,000 - 345,000 -
Acquired in-process technology 250,000 - 250,000 -
----------- ----------- ---------- -----------
4,745,616 1,931,709 9,997,798 5,376,662
----------- ----------- ---------- -----------
Operating loss (1,596,042) (617,717) (2,304,437) (2,164,322)
Other income (expense)
Interest income(expense), net (38,462) (24,622) (118,941) 14,783
----------- ----------- ---------- -----------
Loss (1,634,505) (642,339) (2,423,378) (2,149,539)
Income tax provision - - - -
=========== =========== ========== ===========
Net loss $(1,634,505) $ (642,339) $(2,423,378) $(2,149,539)
=========== =========== ========== ===========
Basic and diluted loss per common share $ (0.17) $ (0.10) $ (0.29) $ (0.36)
Weighted average common
shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
----------- ----------- ---------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
September 30,
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
Net cash used in operating activities $ (2,784,108) $ (3,252,864)
------------- -------------
Investing activities:
Purchases of property and equipment (299,986) (141,892)
Net Cash (paid in) acquired from acquisitions (3,146,670) 2,148
------------- -------------
Net cash used in operating activities (3,446,656) (139,744)
------------- -------------
Financing activities:
Net proceeds from stock offerings 6,462,510 -
Net borrowings on line of credit 683,595 772,000
Proceeds from the exercise of stock options and warrants 22,799 607,500
Dividends paid on Class A preferred stock - (165,000)
------------- -------------
Net cash provided by financing activities 7,168,904 1,214,500
------------- -------------
Increase (decrease) in cash and cash equivalents 938,140 (2,178,108)
Cash and equivalents at beginning of period 353,005 3,691,099
------------- -------------
Cash and equivalents at end of period $ 1,291,145 $ 1,512,991
============= =============
Supplemental information:
Cash paid during the period for:
Interest $ 118,941 $ 28,966
============= =============
Income taxes - $ -
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
THE NETPLEX GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(Unaudited)
(1) General
The accompanying unaudited condensed consolidated financial
statements of The Netplex Group, Inc. and Subsidiaries ("Netplex" or
the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and note disclosures normally
included in the financial statements presented in accordance with
generally accepted accounting principles have been condensed or
omitted. The Company believes the disclosures made are adequate to
make the information presented consistent with past practices.
However, these condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-KSB
for the fiscal year ended December 31, 1997.
In the opinion of the Company, the accompanying condensed
consolidated financial statements reflect all adjustments and
reclassifications (which include only normal recurring adjustments)
necessary to present fairly the financial position of the Company as
of September 30, 1998 and December 31, 1997, the results of its
operations for the three months and nine months ended September 30,
1998 and 1997. and its cash flows for the nine months ended September
30, 1998. Interim results are not necessarily indicative of the
results that may be expected for the fiscal years ended December 31,
1998 and 1997.
Business
Based in McLean, Virginia with twelve offices throughout the U.S.,
The Netplex Group, Inc. together with its wholly owned subsidiaries,
is an Information Technology (IT) Services and Solutions company
providing the people, technologies, and processes that build, manage,
and protect business information systems. Through the strategic
teaming of business consulting practice areas, operating units, and
wholly owned subsidiaries, Netplex believes that it is positioned to
deliver: IT Solutions - Design and implementation of systems
solutions to address IT related business needs; IT Staffing - Staff
augmentation and flexible task outsourcing; and IT Contractor
Resources Business services for the independent IT Consultant.
Basis of Presentation
The accompanying financial statements include the accounts of The
Netplex Group, Inc. and its wholly-owned subsidiaries for the three
months and nine months ended September 30, 1998 and 1997. The
accounts of Onion Peel Solutions, the PSS Group, Inc., Automated
Business Systems, Inc and Applied Intelligence Group, Inc. are
included from the effective dates of their acquisitions, accounted
for as purchases, which were July 1, 1997, January 1, 1998, June 30,
1998 and September 1, 1998, respectively. All significant
intercompany transactions were eliminated in consolidation.
Earnings (loss) per share
Basic net loss per share is calculated using the weighted average
number of common shares outstanding during the periods. Diluted net
loss per common share is calculated using the weighted average number
of common shares and dilutive potential common shares outstanding
during the periods. For the three month and nine month periods ended
September 30, 1998 and 1997, the assumed exercise of the Company's
outstanding stock options and warrants, Convertible Preferred Stock
and contingently issuable shares in connection with certain business
combinations have not been included in the calculation as the effect
would be anti-dilutive.
A reconciliation of the numerators and denominators of the basic and
diluted EPS for the three months and the nine months ended September
30, 1998 and 1997, is provided below:
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<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months
September 30 September 30
============-----------========= ======---------=========
1998 1997 1998 1997
============ ========== =========== ===========
<S> <C> <C> <C> <C>
Basic Earnings(Loss) Per Share of Common Stock:
Weighted average number of common shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
Common stock equivalents from outstanding stock options (1)
============ ========== =========== ===========
Average common shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
============ ========== =========== ===========
Net loss $ (1,634,505) $ (642,339) $(2,423,378) $(2,149,539)
Preferred dividends 49,379 57,500 161,000 222,500
============ ========== =========== ===========
Loss attributable to Common Stock $ (1,683,884) $ (699,839) $(2,584,378) $(2,372,039)
============ ========== =========== ===========
Basic loss per share of Common Stock $ (0.17) $ (0.10) $ (0.29) $ (0.36)
============ ========== =========== ===========
Diluted Earnings (Loss) Per Share of Common Stock:
Weighted average number of common shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
Preferred stock convertible into common shares (1) - - - -
Common stock equivalents from outstanding stock options (1) - - - -
============ ========== =========== ===========
Average common shares outstanding 9,889,062 6,806,923 8,945,022 6,614,098
============ ========== =========== ===========
Net loss $ (1,634,505) $ (642,339) $(2,423,378)$(2,149,539)
Preferred dividends 49,379 57,500 161,000 222,500
------------ ========== -========== -=========
Loss attributable to Common Stock $ (1,683,884) $ (699,839) $(2,584,378) $(2,372,039)
============ ========== =========== ===========
Diluted loss per share of Common Stock $ (0.17) $ (0.10) $ (0.29) $ (0.36)
============ ========== =========== ==========
</TABLE>
(1) As the Company is in a net loss position the effect of all options and
warrants, including common stock equivalents is anti-dilutive and is thus
not presented in the computations of loss per common share.
(2) Acquisitions
Onion Peel Solutions L.L.C.:
The Company acquired Onion Peel Solutions L.L.C., a Raleigh, NC based
provider of network management solutions as of July 1, 1997, by
issuing 80,000 shares of its Common Stock to the members of Onion
Peel, subject to the issuance of additional shares based on the
closing price of the Company's Common Stock on December 31, 1998. The
acquisition was accounted for using the purchase method of
accounting, whereby the $400,000 purchase price was allocated to the
fair value of the assets acquired and the liabilities assumed.
PSS Group, Inc.:
On January 30, 1998, the Company completed the purchase of all of the
stock of The PSS Group, Inc. ("PSS"), the technical professional
staff augmentation operations and business of Preferred Systems
Solutions, Inc. ("Preferred") and formerly a wholly owned subsidiary
of Preferred. In consideration for the purchase, the Company paid
$300,000 at closing and on or before January 15, 1999 will pay
$300,000 in cash or issue 200,000 shares of its Common Stock or any
combination thereof, at Preferred's option. The agreement also
provides that Preferred will receive additional consideration (the "
Preferred Earn-out") if PSS meets certain operating targets. Such
Preferred Earn-out may be paid at the Company's option in cash or its
Common Stock based on future stock
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<PAGE>
prices, or any combination thereof. In connection with the
acquisition, the Company and PSS have entered into employment
agreements with certain employees of PSS. The acquisition was
recorded effective January 1, 1998 using the purchase method of
accounting.
The purchase price of the PSS acquisition was determined to be
$600,000 (subject to adjustment for contingent consideration) and was
preliminarily allocated to the fair value of the assets and
liabilities acquired, as follows:
Cash $ 148,000
Accounts receivable 800,000
Fulfillment database 930,000
Other assets 122,000
Less liabilities assumed (1,400,000)
=================
Net assets acquired $ 600,000
=================
The Company is amortizing the fulfillment database (resume database)
over 7 years using the straight-line method.
As of September 30, 1998, the Company has not paid and does not owe
any additional consideration to Preferred, in connection with the acquisition of
PSS.
Automated Business Systems:
On June 18 1998, the Company completed the purchase of all of the
stock of Automated Business Solutions and Kellar Technology Group,
Inc. (Collectively "ABS"). In consideration for the purchase, the
Company paid $200,000 and issued 450,000 shares of its Common Stock.
The agreement also provides that the former shareholders of ABS will
receive additional consideration, if ABS meets certain operating
targets. In connection with the acquisition, the Company has entered
into employment agreements with certain employees of ABS. The
acquisition was recorded effective June 30, 1998 using the purchase
method of accounting.
The purchase price of the ABS acquisition was determined to be
$791,000 (subject to adjustment for contingent consideration) and was
preliminarily allocated to the fair value of the assets and liabilities
acquired, as follows:
Cash $ 205,000
Accounts receivable 756,000
Property and equipment 51,000
Other assets 33,000
Goodwill 673,000
Less liabilities assumed (927,000)
===========
Net assets acquired $ 791,000
==========
The Company is amortizing the goodwill resulting from the acquisition
over an estimated useful life of 15 years using the straight-line method.
As of September 30, 1998, the Company has recorded $158,000 of
additional consideration in accordance with the ABS acquisition
agreement. Such consideration was recorded as an addition to goodwill
and will be recovered over the remaining life of the goodwill
resulting from the transaction.
Applied Intelligence Group, Inc.
On October 16, 1998, The Netplex Group, Inc. (the "Company" or
"Netplex") completed the purchase of the information technology
consulting business of Applied Intelligence Group, Inc. of Oklahoma
City ("AIG") effective September 1, 1998. In consideration for the
purchase, the Company paid $3,000,000 and issued 643,770 shares of
Class B Preferred Stock ("Preferred Stock") (valued at $1,000,000) at
closing. The Company used working capital to finance the acquisition.
Such working capital was provided by (i) an increase in the Company's
line of credit from First Union National Bank from $2.0 million to
$6.0 million, which credit line is based on 80% of the Company's
eligible accounts receivable and (ii) certain equity instruments as
further described in Note 3. The Class B Preferred Stock is
convertible into Common Stock of the Company at anytime on a share
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<PAGE>
for share basis. No dividends are payable on the Preferred Stock. The
holders of the Preferred Stock have agreed not to sell or otherwise
distribute the Common Stock underlying the Preferred Stock for a
period of one year. The agreement also provides that AIG will receive
additional consideration (the "AIG Earn-out") if AIG meets certain
operating targets. Such Earn-out would consist of (i) up to $1.5
million of cash based on net profit AIG generates over the next six
quarters and (ii) up to 643,770 shares of Class B Preferred Stock if
AIG achieves approximately 9 million net profits over the next 9
quarters. The acquisition was accounted for using the purchase method
of accounting. In connection with the acquisition, the Company
entered into employment agreements with certain employees of AIG.
The purchase price of the AIG acquisition was determined to be
$4,000,000 (subject to adjustment for contingent consideration). The
Company has allocated the purchase price on a preliminary basis to
the fair value of the assets and liabilities acquired and to the
acquired in-process technology, as follows:
Prepaid and other assets $ 52,000
Property and equipment 450,000
Acquired software 850,000
Assembled workforce 1,000,000
ViaLink non-compete agreement 900,000
Goodwill 836,000
Less: liabilities assumed (338,000)
-----------
Net assets acquired 3,750,000
Acquired in process technology 250,000
-----------
Purchase price $ 4,000,000
-----------
The Company has allocated $250,000 of the purchase price to it's
preliminary estimate of the fair value of certain in-process internet
commerce product technology that had not achieved technological
feasibility as of acquisition date. Accordingly, such costs were
included in the statement of operations for the three and nine months
ended September 30, 1998. The purchase price allocation may change as
the result of additional studies and analyses.
As of September 30, 1998, the Company has recorded $ 133,000 of
additional consideration in accordance with the AIG acquisition
agreement. Such consideration was recorded as an addition to goodwill
and will be recovered over the remaining life of such goodwill.
The following unaudited supplemental financial information presents
the consolidated results of the Company from continuing operations,
on a pro forma basis, and the resulting increase in common shares
outstanding, as though the acquisitions of Onion Peel, PSS, ABS and
AIG were consummated on January 1, 1997.
<TABLE>
<CAPTION>
Unaudited
(amounts in thousands, except per share data)
---------------------------------------------
Three Months Nine Months
September 30, September 30,
---------------------------------------------
1998 1997 1998 1997
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 17,513 $ 16,720 $ 53,051 $ 41,205
========= ========= ========= =========
Net loss (1,551) (875) (705) (2,587)
========= ========= ========= =========
Weighted Average shares outstanding 9,889 7,257 9,395 7,144
========= ========= ========= =========
Basic and diluted loss per share $ (0.16) $ (0.13) $ (0.09) $ (0.39)
========= ========= ========= =========
</TABLE>
(3) Equity Financings:
On July 29, 1998, at the Company's annual meeting of shareholders,
the number of authorized shares of preferred stock was increased from
2,000,000 to 6,000,000 and the number of authorized shares of Common
Stock , $.001 par value was increased from 20,000,000 to 40,000,000.
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<PAGE>
Between January 1, 1998 and September 30, 1998, the Company has raised
additional equity totaling $6,463,000 as follows:
In February 1998 the Company raised $100,000 through the sale of 80,000 shares
of un-registered Common Stock plus a warrant to purchase an additional 100,000
shares of common stock at $1.20.
In March 1998 the Company raised $1,457,000 of financing in a Private placement
raised primarily from accredited investors and employees of the Company. The
Company issued shares of un-registered Common Stock to purchasers who have
agreed not to sell or otherwise distribute their shares for a period of one
year. These restricted shares carry registration rights and were offered at
$1.00 per share. The funds will be used to finance operations and additional
acquisitions.
On April 7, 1998 Netplex completed the sale of 1,500 units of a Private
placement, totaling $1.5 million ($1.3 million after fees and expenses). The
sale represents the first half of a transaction that could include the sale of
an additional 1,500 units for $1.5 million at a future date, subject to the
satisfaction of certain conditions. Each unit sold in the private placement
consisted of a prepaid Common Stock purchase warrant entitling the holder to
acquire such number of shares of the Company's Common Stock as is equal to
$1,000 divided by an adjustable exercise price and an additional incentive
warrant to acquire 52 shares of Common Stock (or an aggregate of 78,000 shares
of Common Stock). The Company also granted the placement agent a warrant to
purchase 39,000 shares of Common Stock plus a placement fee and a
non-accountable expense allowance equal to 12.53% of the proceeds of the
offering. The second half of the transaction would be for the sale of an
additional and committed 1,500 units, for $1,000 per unit.
In April 1998 the Company raised $198,000 of financing in two Private placements
raised from accredited investors. The Company issued shares of un-registered
Common Stock to purchasers who have agreed not to sell or otherwise distribute
their shares for a period of one year. These restricted shares carry
registration rights and were offered at $1.375 to $1.50 per share. The funds
will be used to finance operations and additional acquisitions.
On August 28, 1998, the Company raised $592,000 of financing in a private
placement to accredited investors. The Company issued un-registered shares of
Common Stock to purchasers who have agreed not to sell or otherwise distribute
their shares for a period of one year. These restricted shares carry
registration rights and were offered at $1.3125 per share.
On September 28, 1998, the Company completed the sale of 1,700 units
of prepaid common stock purchase warrants in a Private placement,
totaling $1.5 million ($1.3 million net of expenses). The prepaid
warrants are exercisable in shares of Common Stock of the Company as
is computed by dividing $1,700,000 by 125% of the fixed exercise
price of $1.3938, with respect to any exercise within thee first
year, and the lower of the fixed exercise price and a variable
exercise price (subject to a floor price of $1.00), with respect to
any exercise after the first year. As part of this transaction, the
Company also issued to the holders, warrants to purchase 141,667
shares of common stock at an exercise price of $1.3938 per share. In
connection with the issuance of these warrants, the Company issued
50,000 shares of its Common Stock to the placement agent.
On September 30, 1998, the Company completed the sale of 1,500,000
shares of its Class C Convertible Preferred Stock and warrants to
purchase Common Stock for $1.5 million (1.4 million net of expenses).
The Class C Preferred Stock bears a dividend rate of 9.99% for the
first year, and 15% thereafter. The Preferred Stock is convertible at
any time after the earlier of a change in control of the Company or
five years from the date of issuance. The number of shares into which
the Preferred Stock is convertible is equal to $1,5000,000 (plus
accrued but unpaid dividends) divided by 25% of the 20 day average
trading price of the Common Stock immediately prior to conversion.
The warrants issued entitles the holder to acquire 150,000 shares of
Common Stock at $1.375 per share. The Company may be required to
issue up to an additional 450,000 shares of Common Stock under the
warrants, depending upon the term in which the Class C Preferred
Stock is outstanding. The Preferred Stock is redeemable at the option
of the Company at any time within the first five years. In connection
with the issuance of this Preferred Stock and warrants, the Company
issued warrants to purchase 250,000 shares of Common Stock at $1.59
per share to the placement agent.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") SFAS No. 131 Segment Information. This
standard is effective for reporting periods beginning January 1, 1999. SFAS No.
131 amends the requirements for public enterprises to report financial and
descriptive information about its reportable operating segments. Operating
segments, as defined in SFAS No. 131, are components of an enterprise for which
separate financial information is available and is evaluated regularly by the
Company in deciding how to allocate resources and in assessing performance. The
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<PAGE>
financial information is required to be reported on the basis that it is used
internally for evaluating the segment performance. The Company believes it
operates in three segments as defined: IT Solutions, IT Staffing, and IT
Contractors Resources. The Company is planning to implemented this pronouncement
effective January 1, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Based in McLean, Virginia with twelve offices throughout the eastern U.S., The
Netplex Group, Inc., together with its wholly owned subsidiaries ("the Company"
or "Netplex"), is an Information Technology (IT) Services and Solutions company
providing the people, technologies, and processes to build, manage, and protect
business information systems. Through the strategic teaming of business
consulting practice areas, operating units, and wholly owned subsidiaries,
Netplex believes that it is positioned to deliver: IT Solutions - Design and
implementation of systems solutions to address IT related business needs; IT
Staffing - Staff augmentation and flexible task outsourcing; and IT Contractor
Resources - Business services for the independent IT Consultant.
The Company's operations have been concentrated on providing IT services and
solutions to U.S.-based commercial organizations since the beginning of 1997.
In July 1997, the Company acquired the net assets of Onion Peel Solutions,
L.L.C. ("Onion Peel") to broaden its customer base and expand the fulfillment
capacity of its Enterprise Systems Management service offerings in exchange for
80,000 shares of its Common Stock, subject to adjustment.
In January 1998, the Company acquired the net assets of The PSS Group, Inc.
("PSS") to expand its staffing organization in the Washington DC metropolitan
area and to broaden its customer base, for $300,000 in cash a $300,000
promissory note to be paid in either cash or 200,000 shares of the Company's
Common Stock. The agreement also provides for additional payments based on PSS's
future profitability.
In June 1998, the Company acquired all of the stock of Automated Business
Systems ("ABS") for $200,000 in cash and issued 450,000 shares of the Company's
common stock. The agreement provides for additional payments based on ABS's
future profitability. The acquisition of ABS expands the geographic reach of the
Company's IT Solutions business to the Charlotte, NC; Spartanburg, SC and
Atlanta, GA market places and broadens its customer base.
In September 1998 the Company acquired certain assets of the Applied
Intelligence Group ("AIG" ) for $3,000,000 and issued 643,770 shares of Class B
convertible preferred stock. The agreement provides for additional payments
based on AIG's future profitability. The acquisition of AIG expands the IT
Solutions practice adding information technology consulting expertise in the
retail and distribution industry and expands the Company's geographic reach in
to the southwest .
The results of operations for PSS, ABS and AIG are included in the statements
for operations for the three and nine month periods ended September 30, 1998
beginning on the effective date of their acquistions January 1, 1998, June 30,
1998 and September 1, 1998, respectively.
The above acquisitions fit within the Company's three distinct, but
inter-related business operations:
o IT Solutions - Design and implementation of systems solutions to address all
information technology-related business needs. This business is comprised of
several specialized technology consulting practices and provides customers with
firm deliverables, generally on a "proposed estimate" or "fixed-fee" basis. IT
Solutions also maintains certifications with several leading technology
manufacturers, which authorizes Netplex to resell and implement "best-in-class"
technology products.
o IT Staffing - Providing technical staff augmentation services to organizations
based on technical need and Information Technology goals. IT Staffing provides
customers with IT consulting and resource services on an as-needed basis,
generally for contract terms ranging from three to 12 months. Consulting rates
vary based on the skills and experience of the consultants requested.
o IT Contractor's Resources - Providing business advice, skills training, and
administrative employer services to IT contract professionals. IT Contractor's
Resources targets independent-minded IT professionals who are entrepreneurial
and accustomed to the variability and flexibility of contract assignments. This
service provides the stability and "back-office" infrastructure to enable and
encourage IT professionals to build skills-based careers across multiple
customer environments.
11 OF 21
<PAGE>
The following table sets forth the revenue, gross profit, business unit
expenses, and business unit income of each of the business areas for the three
and nine months ended September 30, 1998 and 1997.
Consolidated Operating Results by Segment
Amounts in $000's
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Operating revenues
<S> <C> <C> <C> <C>
IT Solutions $ 4,478 $ 1,241 $ 10,100 $ 3,280
IT Staffing 2,840 841 7,772 2,285
IT Contractor's Resources 8,760 8,298 25,883 24,524
-------------- ---------- ------------- ------------
Operating revenues 16,078 10,380 43,755 30,089
-------------- ---------- ------------- ------------
Gross profit
IT Solutions 2,223 758 4,981 1,785
IT Staffing 635 307 1,835 681
IT Contractor's Resources 291 249 877 747
-------------- ---------- ------------- ------------
Gross profit 3,149 1,314 7,693 3,213
-------------- ---------- ------------- ------------
Gross profit percentage
IT Solutions 49.6% 61.1% 49.3% 54.4%
IT Staffing 22.4% 36.5% 23.6% 29.8%
IT Contractor's Resources 3.3% 3.0% 3.4% 3.0%
-------------- ----------
------------- ------------
Gross profit percentage 19.6% 12.7% 17.6% 10.7%
-------------- ---------- ------------- ------------
Business unit expenses
IT Solutions 1,964 677 4,153 2,205
IT Staffing 868 599 2,081 1,018
IT Contractor's Resources 272 257 771 720
-------------- ---------- ------------- ------------
Business unit expenses 3,104 1,533 7,005 3,943
-------------- ---------- ------------- ------------
Business unit income (loss)
IT solutions 259 81 825 (420)
IT Staffing (233) (292) (246) (337)
IT Contractor's Resources 19 (8) 106 27
-------------- ---------- ------------- ------------
Business unit income (loss) 45 (219) 688 (730)
-------------- ---------- ------------- ------------
Corporate Expenses 689 347 1,712 1,176
Inventory write-off 131 131
Restructuring costs 345 345
Acquired in process technology 250 250
-------------- ---------- ------------- ------------
Total corporate and other costs 1,415 347 2,438 1,176
-------------- ---------- ------------- ------------
EBITDA (1,370) (566) (1,750) (1,906)
Interest, taxes, depreciation
& amortization 265 76 673 243
============== ========== ============= ============
Net loss $ (1,635) $ (642) $ (2,423) $ (2,149)
============== ========== ============= ============
</TABLE>
12 OF 21
<PAGE>
Results of Operations
Three months ended September 30, 1998 and 1997
Revenue for the three months ended September 30, 1998 increased approximately
$5.7 million or 55% to approximately $16.1 million, compared to $10.4 million
for the same period in 1997. This increase includes a $3.2 million or 261%
increase in IT Solutions revenue, a $2.0 million or 238% increase in IT Staffing
revenue, and $460,000 or 6% increase in IT Contractor Resources revenue. The
increase in revenues is due to a combination of growth, better integration
across the three business units and the acquisition of PSS (January 1998), ABS
(June 1998) and AIG (September 1998).
Gross Profit for the three months ended September 30, 1998 increased
approximately $1.8 million or 140% to approximately $3.1 million as compared to
approximately $1.3 million for the same period of 1997. This increase includes
an increase of approximately $1.5 million or 193% in IT Solutions gross profit,
an approximately $329,000 or 107% increase in IT Staffing gross profit and a
$42,000 or 17% increase in IT Contractor Resources gross profit. The increased
IT Solutions gross profit is primarily due to an increase in revenues from the
IT Solutions practice areas and the acquisition of ABS in June 1998 and AIG in
September 1998. The increase in IT Staffing is attributable to growth and to the
acquisition of The PSS Group, Inc in January 1998. The IT Contractor Resources
increase is all due to internal revenue growth.
Gross Profit margin increased to approximately 19.6% for the three months ended
September 30, 1998, from approximately 12.7% for the same period of 1997. This
increase is due to a greater proportion of revenues being generated by IT
Solutions and IT Staffing in the three months ended September 30, 1998 than in
the same period of 1997. The IT Solutions and Staffing businesses achieve higher
gross profit margins than experienced in the IT Contractor Resources business.
Business unit expenses for the three months ended September 30, 1998 increased
approximately $1.6 million or 100% to approximately $3.1 million from
approximately $1.5 million for the same period of 1997. This increase includes
increases in IT Solutions, IT Staffing and IT Contractor's Resources business
unit expenses of approximately $1.3 million, $270,000 and $16,000, respectively.
The increase in IT Solutions business unit expenses is primarily due to expanded
sales force and practice management staff as and the acquistions of ABS and AIG
in June 1998 and September 1998, respectively. The IT Staffing increase is
primarily due to the acquisition of PSS in January 1998, the expansion of the
Reston, VA facility and the opening of the Tampa, FL office (April 1998).
Business unit income for the three months ended September 30, 1998 was
approximately $45,000 as compared to a business unit loss of $219,000 for the
same period of 1997, an improvement of approximately $265,000. This improvement
includes increases in business unit profits from IT Solutions and IT Contractors
Resources of $178,000 and $27,000 respectively and decreased losses from IT
Staffing of $59,000
Corporate expense for the three months ended September 30, 1998 increased
approximately $342,000 or 99% to approximately $689,000 from approximately
$347,000 compared to the same period in 1997. This increase reflects an
additional investment in corporate development capability to support the growth
of operations and the integration of acquisitions.
Restructuring costs of $345,000 were recorded in the three months ended
September 30, 1998 related to the reduction of duplicate costs, consolidation of
facilities and write down on certain assets stemming from the Company's
continued integration of its acquisitions.
The Company's preliminary estimate of acquired in-process technology of $250,000
from the Company's acquisition of AIG were recorded in the three months ended
September 30, 1998 (see further discussion in Note 2 Acquisitions). The purchase
price allocation may change as the result of additional studies and analyses.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for the three months ended September 30, 1998 was a loss of approximately $1.4
million as compared to a loss of approximately $566,000 for the same period of
1997, an increase in loss of approximately $803,000. The components of this
improvement are discussed above.
Depreciation, amortization and interest expense for the three months ended
September 30, 1998 increased approximately $189,000 to approximately $265,000
from approximately $76,000 for the same period of 1997.
13 OF 21
<PAGE>
This increase is principally due to increased borrowings under the Company's
line of credit facility in the three months ended September 30, 1998 as compared
to the same period of 1997 as well as the additional depreciation and
amortization of assets acquired in the Company's acquisitions of PSS, ABS and
AIG..
No provision or benefit for income taxes was required for either the three
months ended September 30, 1998 or 1997.
The net loss increased approximately $992,000 to approximately $1.6 million from
approximately $642,000 in the same period of 1997. The components of this
increase are discussed above.
Nine months ended September 30, 1998 and 1997
Revenue for the nine months ended September 30,1998 increased approximately
$13.7 million or 45% to approximately $43.8 million, as compared to $30.1
million for the same period in 1997. This increase includes a $6.8 million or
208% increase in IT Solutions revenue, a $5.5 million or 240% increase in IT
Staffing revenue, and a $1.4 million or 6% increase in IT Contractor Resources
revenue. The increase in revenues is due to a combination of growth, better
integration across the three business units as well as the acquisition of Onion
Peel (July 1997), ABS (June 1998), and AIG (September 1998), the PSS Group
(acquired in January 1998) and the opening of a Tampa office (April 1998).
Gross Profit for the nine months ended September 30,1998 increased approximately
$4.5 million or 139% to approximately $7.7 million as compared to approximately
$3.2 million for the same period of 1997. This increase includes increases of
approximately $3.2 million or 179% in IT Solutions gross profit, an
approximately $1.2 million or 170% increase in IT Staffing gross profit and a
$130,000 or 17% increase in IT Contractor Resources gross profit. The increased
IT Solutions gross profit is primarily due to an increase in revenues from the
IT Solutions practice areas as well as the acquisitions of Onion Peel (July
1997), ABS (June 1998) and AIG (September 1998). The increase in IT Staffing is
attributable to growth and to the acquisition of The PSS Group, Inc (January
1998). The IT Contractor Resources increase is due to revenue growth.
Gross Profit margin increased to approximately 17.6% for the nine months ended
September 30, 1998, from approximately 10.7 % for the same period of 1997. This
increase is due to a greater proportion of revenues being generated by IT
Solutions and IT Staffing in the nine months ended September 30 ,1998 than in
the same period of 1997. The IT Solutions and Staffing businesses achieve higher
gross profit margins than experienced in the IT Contractor Resources business.
Business unit expenses for the nine months ended September 30, 1998 increased
approximately $3.1 million or 77% to approximately $7.0 million from
approximately $3.9 million for the same period of 1997. This increase includes
increases in IT Solutions, IT Staffing and IT Contractor's Resources business
unit expenses of approximately $1.9 million, $1.1 million and $52,000,
respectively. The IT Solutions increase includes the business unit expenses for
ABS (acquired in June 1998) and AIG (acquired in September 1998) and Onion Peel
(acquired in July 1997) as well as increases due to the expansion of the sales
force and practice management staff. IT Staffing business unit expense increase
is primarily due to the acquisition of PSS in January 1998 and the expansion of
the Reston, VA facility and the opening of the Tampa office in April 1998. The
Contractor's Resources business unit expense growth is due to the growth of
operations.
Business unit income for the nine months ended September 30, 1998 was
approximately $688,000 as compared to an operating business unit loss of
$730,000 for the same period of 1997, an increase of approximately $1.4 million.
This increase includes increased business unit profits from IT Solutions, IT
Staffing and IT Contractor Resources of approximately $1.2 million, $91,000, and
$79,000, respectively.
Corporate expense for the nine months ended September 30, 1998 increased
approximately $535,000 or 46% to approximately $1.7 million from approximately
$1.2 million when compared to the same period of 1997. This increase reflects an
additional investment in corporate development capability to support the growth
of operations and integration of acquisitions. Restructuring costs of $345,000
were recorded in the nine months ended September 30, 1998 related to the
reduction of duplicate costs, consolidation of facilities and write down on
certain assets stemming from the Company's continued integration of its
acquisitions.
14 OF 21
<PAGE>
The Company's preliminary estimate of acquired in-process technology of $250,000
from the Company's acquisition of AIG were recorded in the nine months ended
September 30, 1998 (see further discussion in Note 2 Acquisitions). The purchase
price allocation may change as the result of additional studies and analyses.
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
for the nine months ended September 30, 1998 was a loss of $1.7 million as
compared to a loss of approximately $1.9 million for the same period of 1997, an
improvement of approximately $157,000. The components of this improvement are
discussed above.
Depreciation, amortization and interest expense for the nine months ended
September 30, 1998 increased approximately $430,000 to approximately $673,000
from approximately $243,000 for the same period of 1997. This increase is
principally due to increased borrowings under the Company's line of credit
facility in the nine months ended September 30, 1998 as compared to the same
period of 1997 and to the increased depreciation and amortization from assets
acquired in the acquisitions of Onion Peel, PSS, ABS and AIG.
No provision or benefit for income taxes was required for either the nine months
ended September 30, 1998 or 1997.
The net loss increased approximately $274,000 to approximately $2.4 million from
approximately $2.1 million in the same period of 1997. The components of this
increase are discussed above
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 the Company had cash and cash equivalents of $1,291,145.
The Company had $1,994,742 outstanding on its line of credit facilities and had
long term capital lease obligations of $182,290.
The Company's liquidity and capital resources were increased by the following:
For the nine months ended September 30, 1998 the Company's cash increased by
$938,000. This increase is comprised of cash used in operating activities of
approximately $2,785,000 cash used in investing activities of approximately
$3,447,000 and cash provided by financing activities of approximately
$7,168,000.
As of September 30, 1998, the Company maintains a line of credit with a bank
which allows the Company to borrow the lesser of $6,000,000 or 80% of eligible
accounts receivable. Advances against this line of credit bear interest at 0.75%
over the bank's prime rate and require the Company to maintain certain financial
covenants. The Company had borrowings of $1,995,000 under the line of credit as
of September 30, 1998. As of November 12, 1998 the Company had net availability
of $800,000 under the line. This line of credit expires on July 1, 2000.
The Company also had a line of credit facility with a bank that it acquired in
the PSS acquisition (the "PSS line of credit"). The Company retired the PSS line
of credit in April 1998 and repaid the outstanding balance of approximately
$803,000.
In January 1998, the Company completed the purchase of all of the stock of PSS.
In June 1998 the Company completed the purchase of all of the stock of ABS.
Effective September 1, 1998 the Company acquired certain assets of AIG. See
additional discussion of the PSS, ABS and AIG acquisitions in Note 2
- -Acquisitions.
Capital expenditures for the Nine months ended September 30, 1998 were
approximately $300,000. Cash paid in the acquisitions of ABS, AIG and PSS, net
of cash acquired totaled approximately $3,147,000.
Between January 1, 1998 and September 30, 1998, the Company has raised
additional equity totaling $6,463,000, as follows:
In February 1998 the Company raised $100,000 through the sale of 80,000 shares
of un-registered Common Stock plus a warrant to purchase an additional 100,000
shares at $1.20.
In March 1998 the Company raised $1,457,000 of financing in a Private placement
with accredited investors and employees of the Company. The Company issued
shares of un-registered Common Stock to purchasers who have agreed not to sell
or otherwise distribute their shares for a period of one year. These restricted
shares carry registration rights and were offered at $1.00 per share. The funds
will be used to finance operations and additional acquisitions.
On April 7, 1998 Netplex completed the sale of 1,500 units of a Private
placement, totaling $1.5 million ($1.3
14 OF 21
<PAGE>
million net of expenses). The sale represents the first half of a transaction
that could include the sale of an additional 1,500 units for $1.5 million at a
future date, subject to the satisfaction of certain conditions. See additional
discussion in Note 3- Equity Financings.
On April 26, 1998, the Company raised $150,000 of financing in a private
placement with accredited investors. The Company issued non registered shares of
Common Stock to purchasers who have agreed not to sell or otherwise distribute
their shares for a period of one year. These restricted shares carry
registration rights and were offered at $1.50 per share.
On April 27, 1998, the Company raised $48,125 of financing in a private
placement with accredited investors. The Company issued non registered shares of
Common Stock to purchasers who have agreed not to sell or otherwise distribute
their shares for a period of one year. These restricted shares carry
registration rights and were offered at $1.375 per share.
On August 28, 1998, the Company raised $592,000 of financing in a private
placement with accredited investors. The Company issued non registered shares of
Common Stock to purchasers who have agreed not to sell or otherwise distribute
their shares for a period of one year. These restricted shares carry
registration rights and were offered at $1.3125 per share.
On September 28, 1998, the Company completed the sale of 1,700 units of a
Private placement, totaling $1.5 million ($1.3 million net of expenses). See
additional discussion in Note 3- Equity Financings.
On September 30, 1998, the Company completed the sale of 1,500,000 shares of its
Class C, 9.9% Preferred Stock for $1.5 million ($1.4million net of expenses) and
warrants to acquire up to 550,000 shares of common stock based on certain
conditions. See additional discussion in Note 3 -Equity Financings.
The proceeds of these equity financings have been used to finance acquisitions
and to provide additional corporate working capital.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four- digit entries to distinguish 21st century dates from
20th century dates. This problem could result in system failures or
miscalculations causing disruptions of business operations. As a result, in
approximately one year, computer systems and/or software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
The Company's vendors, customers, suppliers and service providers are under no
contractual obligation to provide Year 2000 information to the Company.
Generally, the Company believes its key internal software systems are either
compliant, the vendors claim compliance, or the problems can be corrected by
purchasing small amounts of hardware, software or software upgrades, where
necessary. The Company is also continuing its assessment of the readiness of
external entities, such as subcontractors, suppliers, vendors, and service
providers that interface with the company.
Based on the its assessments and current knowledge, the Company believes it will
not, as a result of the Year 2000 issue, experience any material disruptions in
internal processes, information processing or services from outside
relationships. The Company presently believes that the Year 2000 issue will not
pose significant operational problems and the Company will be able to manage its
total Year 2000 transition without any material effect on the Company's results
of operations or financial condition. The most likely risks to the Company from
Year 2000 issues are external, due to the difficulty of validating all key third
parties' readiness for Year 2000. The Company has sought and will continue to
seek confirmation of such compliance and seek relationships which are compliant.
The Company currently anticipates that all of its internal systems and equipment
will be Year 2000 compliant by the end of the second quarter of 1999 and that
the associated costs will not have a material adverse effect on the Company's
results of operations and financial condition. However, the failure to properly
assess or timely implement a material Year 2000 problem could result in a
disruption in the Company's normal business activities or operations. Such
failures, depending on the extent and nature, could materially and adversely
effect the Company's operations and financial condition. To date, the Company
has not developed a contingency plan.
16 OF 21
<PAGE>
The Company does not believe that the costs of its Year 2000 Program have been
or are material to its financial position or results of operations. All expenses
have been charged against earnings as incurred and the Company intends to
continue to charge such costs against earnings as the costs are incurred.
The Company's subsidiary, Onion Peel Software L.L.C., (OPS) head quartered in
Raleigh, North Carolina, confirms that all of its network management software
products (America, Productivity Series, Network Data Collector, ROVE and ROVE
Motif) will properly process/utilize dates beyond December 31, 1999.
The Company does not engage in any Year 2000 work.
The estimates and conclusions set forth herein regarding Year 2000 compliance
contain forward-looking statements and are based on management's estimates of
future events and information provided by third parties. There can be no
assurance that such estimates and information provided will prove to be
accurate. Risks to completing the Year 2000 project include the availability of
resources, the Company's ability to discover and correct potential Year 2000
problems and the ability of suppliers and other third parties to bring their
systems into Year 2000 compliance.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, (including without
limitation, future financings and expenses, revenues and income of the Company,
as well as general market conditions) though the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-Q
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
INFLATION
Inflation has not had and the Company does not expect inflation to have a
significant adverse impact on its operations.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter the Company settled the complaint filed against it by ACS,
Ltd. on terms favorable to the Company.
Item 2. Changes in Securities
In February 1998 the Company sold 80,000 shares of Common Stock to a purchaser
at a price of $1.25 per share. In addition, the purchaser received a warrant to
purchase an additional 100,000 shares of Common Stock at an exercise price of
$1.20 per share.
In March 1998 the Company closed a private placement of 1,457,000 shares of
Common Stock. Such shares were sold at a price of $1.00 per share.
On April 7, 1998 Netplex completed the sale of 1,500 units of a Private
placement, totaling $1.5 million ($1.3 million net of fees and expenses). The
sale represents the first half of a transaction that could include the sale of
an additional 1,500 units for $1.5 million at a future date, subject to the
satisfaction of certain conditions. See additional discussion in Note 3- Equity
Financings. On April 26 and 27, 1998, the Company raised $198,125 of financing
in a private placement with accredited investors. The Company issued non
registered shares of Common Stock to purchasers who have agreed not to sell or
otherwise distribute their shares for a period of one year. These restricted
shares carry registration rights and were offered at prices ranging from $1.375
to $1.50 per share. The funds will be used to finance operations and additional
acquisitions.
17 OF 21
<PAGE>
On August 28, 1998, the Company raised $592,000 of financing in a private
placement with accredited investors. The Company issued non registered shares of
Common Stock to purchasers who have agreed not to sell or otherwise distribute
their shares for a period of one year. These restricted shares carry
registration rights and were offered at $1.3125 per share.
On September 28, 1998, the Company completed the sale of 1,700 units of a
Private placement, totaling $1.5 million ($1.3 million net of expenses). See
additional discussion in Note 3- Equity Financings.
On September 30, 1998, the Company completed the sale of 1,500,000 shares of its
Class C, 9.9% Preferred Stock and warrants for $1.5 million (1.4 million net of
expenses). See additional discussion in Note 3 -Equity Financings.
All of the above transactions were made pursuant to the exemption contained in
Section 4(2) of the Securities Act of 1933, as amended. In each case the Company
engaged no underwriter. With Respect to the transactions consummated on April 7,
1998, September 28, 1998 and September 30, 1998, the Company engaged the
services of a Placement Agent. For further information relating to such
transactions, please see Note 3 to the Condensed Consolidated Financial
Statements.
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
The following proposals were voted upon by the Company's shareholders at the
Annual Meeting of Shareholders held on July 29, 1996 ("Annual Shareholders
Meeting"):
1. The following persons were elected as directors of the Company to serve until
the next Annual Shareholders and until their successors have been duly elected
and qualified:
Name Votes For Votes Against Abstained
---- --------- ------------- ---------
Gene Zaino 8,120,424 83,139 0
Deborah S. Novick 7,757,024 446,539 0
Richard Goldstein 8,126,624 76,939 0
Frank C. Lagattuta 8,129,624 73,939 0
Steven L. Hanau 8,129,624 73,939 0
18 OF 21
<PAGE>
<TABLE>
<CAPTION>
Resolution In Favor Against Abstained Broker Non Votes
<S> <C> <C> <C> <C>
2. To authorize the issuance of shares of Common 4,682,562 232,979 291,250 2,996,772
Stock of the Company to complete a private
placement of the Company's Securities with certain
independent investors and their agent.
3. To authorize an amendment to the certificate of 7,668,310 261,333 273,920 0
incorporation of Netplex increasing the number of
authorized shares of Netplex Common Stock, par
value $0.001 ("Common Stock") from 20,000,000 to
40,000,000 shares.
4. To approve an amendment to the certificate of 4,846,440 322,851 37,500 2,996,772
incorporation of Netplex to increase the number of
authorized shares of Netplex Preferred Stock, par
value $0.01 ("Preferred Stock") from 2,000,000 to
6,000,000 shares.
5. To approve an amendment to the Netplex 1995 5,342,174 299,072 26,970 2,535,347
Directors Stock Option Plan, increasing the number
of shares of Common Stock authorized to be issued
under the 1995 Directors Stock Option Plan from
100,000 to 300,000 shares
6. To approve the Netplex 1998 Employee Stock 4,965,223 193,518 17,406 2,996,772
7. To ratify the Purchase Plan ("Stock Purchase 8,039,338 109,625 23,956 0
Plan"). appointment of KPMG Peat Marwick L.L.P. as
the Netplex independent auditors for the year
1998.
</TABLE>
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits:
27 - Financial Data Schedule
(b). Reports on Form 8-K:
Form 8-K dated July 2, 1998 describing ABS acquisition
Item 2. Acquisition or Disposition of Assets.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
19 OF 21
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Netplex Group, Inc.
Date: November 23, 1998 By: /s/ Gene Zaino
------------------------ ---------------------------
Gene Zaino, President and CEO
(Principal Executive Officer) and
Chairman of the Board
Date: November 23, 1998 By: /s/ Walton E. Bell, III
------------------------ ---------------------------------
Walton E. Bell, III, Chief Financial
Officer
(Principal Accounting Officer)
2O OF 21
FIRST AMENDMENT TO
------------------
ASSET ACQUISITION AGREEMENT
---------------------------
This First Amendment (hereinafter "Amendment") to the Asset Acquisition
Agreement (hereinafter "Agreement") between Applied Intelligence Group, Inc.
("Seller") and The Netplex Group, Inc. ("Netplex") is entered into as of this __
day of September, 1998 by and between Seller and Netplex.
WHEREAS, on August 31, 1998 Seller and Netplex entered into
said Agreement, and
WHEREAS, the parties mutually desire to amend certain terms
and provisions of said Agreement.
WHEREUPON, in consideration of the above premises and in
consideration of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Additional Defined Terms. The following terms are added to
Article 1 of the Agreement:
1 "Preliminary Closing Date" shall mean such date as the
consideration for this Agreement is transferred to the Escrow Agent pursuant to
the terms of Article 3 of the Agreement as amended hereby, which date shall not
be later than September 30, 1998.
0.2. "Preliminary Closing" shall mean the transaction at which
the consideration provided for by the Agreement will be
delivered to the Escrow Agent subject to the terms of the
Escrow Agreement.
0.3. "Effective Date" shall be September 1, 1998.
0.4. "Escrow Agent" shall mean such Person to whom the Parties
agree shall be delivered the consideration set forth in
Article 3 of the Agreement and this Amendment, pursuant to
the terms of the Escrow Agreement.
0.5. "Escrow Agreement" shall mean an agreement to be executed to
the mutual satisfaction of the Parties at or prior to the
Preliminary Closing Date.
1. Amendment of Defined Terms:
1.1. The definition of "Closing" in Section 1.13 of the Agreement
is amended as follows: "Closing" shall mean the actual
transaction at which the Seller receives from the Escrow
Agent the consideration and other documents required to be
given by Netplex hereunder, and at which Netplex receives
2
<PAGE>
from the Escrow Agent the documents required to be given by
Seller hereunder. Closing shall take place in Oklahoma City,
Oklahoma.
1.2. The definition of "Closing Date" in Section 1.14 of the
Agreement is amended as follows: "Closing Date" shall mean
such date after the 21st day following the giving of notice
to Seller's shareholders of the transaction contemplated by
the Agreement when Netplex and Seller submit the
documentation required by the Escrow Agreement to the Escrow
Agent to enable each of them to receive the consideration
held by the Escrow Agent.
1.3. "Agreement Documents" shall mean this Agreement and the
various Schedules, Exhibits, attachments, and other
documents, of which the exchange or execution between
Netplex and Seller is contemplated by this Agreement to
occur at or before the Closing escrow and any amendments or
modifications thereto executed by Seller and Netplex.
2. Amendment of Delivery of Consideration.
2.1. Section 3.1 of the Agreement, including is subsections, is
deleted and replaced as follows: Consideration to Seller:
2.1.1. At Preliminary Closing, Netplex shall deliver and
pay to the Escrow Agent (i) the Cash Consideration
of Three Million Dollars ($3,000,000) in certified
funds or bank wire transfer to an account
designated by the EscrowAgreement, less the
amounts loaned to Seller under Section 5.1.3
below; (ii) a stock certificate representing the
number of shares of Netplex Preferred Stock as
calculated below; (iii) the Certificate of
Designation of the Preferred Shares.
2.1.2. The number of shares of Netplex Preferred Stock
which Netplex shall deliver to the Escrow Agent at
the Preliminary Closing Date and which will be
delivered to Seller by the Escrow Agent at
Closing, shall be calculated by dividing one
million (1,000,000) by the average reported
closing price of the Netplex Common Stock on the
NASDAQ Small Cap Market for the twenty (20) days
immediately prior to September 1, 1998.
2.1.3. At Preliminary Closing, Seller and Netplex shall
deliver to the Escrow Agent the executed Earn-Out
Agreement in the form substantially as set forth
in Exhibit B hereto, and such other Agreements
Documents as are provided for by this Agreement,
all of which are incorporated by reference as if
fully set forth herein.
3.1.4. At Preliminary Closing, Netplex shall deliver to
the Escrow Agent such other documents as are
reasonably necessary to effect the transactions
contemplated by this Agreement.
3.2. Section 3.2 of the Agreement is deleted and replaced as
follows: Consideration to Netplex. At Preliminary Closing,
Seller shall, subject to the terms, covenants, and
conditions of this Agreement, convey, transfer and deliver
to the Escrow Agent by an executed bill of sale,
assignments, assignments of contracts, and such other
documents as are reasonably required to perfect the transfer
of the Business and the Assets to Netplex free and clear of
all Liens, Contracts and Liabilities, except to the extent
identified on Schedule 3.2 hereto, which Schedule identifies
the Liens, Contracts and Liabilities Netplex agrees to
assume.
3. Effective Date
3.1. Subject to the terms of this Amendment, the parties agree
and understand that Netplex shall assume the risks and
benefits of the Business as of the Effective Date as if the
parties had consummated the transaction contemplated hereby
on such date; subject however to the Closing of the
transaction contemplated by the Agreement as amended hereby.
3.2. The parties agree and understand that the Preliminary
Closing Date shall be such date when the parties deliver the
documents and money specified in the Agreement as amended
hereby to the Escrow Agent.
3.3. The parties agree and understand that the Closing Date shall
be the day when the Escrow Agent delivers to the respective
parties the money and documents delivered to the Escrow
Agent at the Preliminary Closing Date.
4. Transition between Effective Date and Closing
4.1. As of the Effective Date, Seller shall lease the employees
identified on Schedule 4.22 to the Agreement to Netplex as
of September 1, 1998 to allow Netplex to assume
responsibility for the operation of the Business between the
Effective Date and the Preliminary Closing Date of the
Agreement as amended. As of the Effective Date, Netplex
shall assume total responsibility for completing all Work in
Progress and shall assume responsibility for the operation
of the Business and all expenses associated therewith.
4.1.1. Seller shall continue to keep said employees on
its payroll and benefit plans through the
Preliminary Closing Date or September 30,
whichever occurs later. Netplex shall pay Seller
for all costs and expenses directly and indirectly
incurred by Seller for such payroll and benefits
as set forth in this Amendment. As of October 1,
1998, all employees identified on Schedule 4.22
shall become
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direct employees of Netplex and shall be placed on
Netplex's benefit plans, and Seller shall have no
further obligation regarding the same.
4.1.2. Although Netplex shall be responsible for all
expenses associated with the Business after the
Effective Date, it is anticipated that Seller
either has paid or will incur expenses for the
Business which are the obligation of Netplex to
pay. Such expenses include, without limitation,
payroll, benefits, rent, services and amounts paid
to third parties for or in relation to the
Business such as pagers, cellular phones travel,
etc. Netplex shall allow Seller to collect and
use, as Seller desires, the receivables invoiced
for revenue earned and expenses incurred during
September 1998 for the Business ("Invoiced
September Earnings"). To the extent that any
actual invoice(s) includes revenue earned or
expenses incurred during a month prior to
September, 1998, such revenue and/or expenses
shall not be included within said Invoiced
September Earnings. Netplex shall not make any
effort to collect or use the Invoiced September
Earnings. Netplex shall provide to Seller and/or
Trinity Capital, Inc. such documentation as is
necessary to allow Seller to continue to finance
said receivables for September, 1998 in Seller's
name. As of October 1, 1998, all expenses
associated with the Business shall become direct
obligations of Netplex, and Seller shall have no
further obligation regarding the same.
4.1.3. Additionally, on September 15, 1998, Netplex shall
loan Seller $125,000. On September 30, 1998,
Netplex shall loan Seller up to an additional
$375,000. The total of such sums loaned ("Loaned
Amount"), to the extent not withheld by Netplex
from the consideration paid to Seller at
Preliminary Closing pursuant to section 3.1.1 of
the Agreement as amended hereby, shall be repaid
by Seller to Netplex at Closing, without interest,
from the sums otherwise due at Closing. If the
transaction fails to close, the Loaned Amount
shall be due and payable to Netplex within 10 days
after the termination of the Agreement or
abandonment of the Closing.
4.1.4. On or before Closing, Seller shall submit to
Netplex an accounting for the actual disbursements
for expenses incurred by Seller for or on behalf
of the Business from the Effective Date through
September ("Actual September Expenses"). If the
Actual September Expenses exceed the Invoiced
September Earnings less any credits thereon or
reductions thereto ("Net Receivables"), then
Netplex shall forthwith pay Seller at Closing,
without interest, the difference between such
Actual September Expenses and the Net
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Receivables. If the Net Receivables exceed the
Actual September Expenses, then Seller shall
forthwith pay Netplex at Closing, without
interest, the difference between such Net
Receivables and the Actual September Expenses.
4.1.5. Seller shall provide such documentation as Netplex
reasonably requests to support the Actual Total
Expenses incurred by Seller for the Business for
which Seller seeks payment pursuant to Section
5.1.4 of this Amendment. In addition, prior to
paying any such expenses, Seller shall notify
Netplex of any individual payment in excess of
$1,000 each.
4.1.6. If any of the sums due pursuant to Section 5.1.4
of this Amendment are not paid when due, the party
owed such sum shall be entitled to interest at the
rate of 10 percent per year on any unpaid
principal amount from and after the date such
amount was due.
4.1.7. Netplex shall indemnify, defend and hold Seller
harmless from any Liabilities arising from the
nonpayment of any such expenses.
4.1.8. It is agreed and understood that, although Robert
Barcum and David North will be leased to Netplex
pursuant to this Amendment, they will also retain
their positions as officers of Seller through the
Preliminary Closing Date and will continue to
report to Seller's Board of Directors and to
represent the interests of Seller on issues
relating to or arising out of the Agreement as
amended hereby between the Effective Date and the
Preliminary Closing Date. Moreover, Netplex agrees
that Robert Barcum may retain his position as
Chairman of Seller's Board of Directors and may
continue to represent the interests of Seller on
the issues relating to or arising out of the
Agreement as amended hereby between the Effective
Date and the Closing thereof. It is also agreed
that, although Kay Titchenal will be leased to
Netplex pursuant to this Amendment, through the
Preliminary Closing Date she will also maintain
her responsibilities as Human Resources Director
of Seller and will continue to represent the
interests of Seller on issues relating to or
arising out of this Agreement as amended hereby
between the Effective Date and the Preliminary
Closing Date.
4.2. Subject to the terms of Schedule 3.2 to the Agreement,
Netplex shall indemnify, defend and hold Seller harmless
from any Liabilities related to or arising from Netplex's
operation of the Business from and after the Effective Date.
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4.3. Notwithstanding the terms of section 8.10 of the Agreement,
Netplex shall be entitled to receive any income earned by
the Business based on work performed after the Effective
Date. Seller shall account to Netplex for the same at the
Preliminary Closing Date and, to the extent the same is
received after Closing, Seller, upon receipt thereof, shall
pay to Netplex such sums received for income earned after
the Effective Date.
4.4. Netplex shall make available to Seller all Business Records
of the Business covering the period of time between the
Effective Date and the Closing.
4.5. As of the Effective Date and through the Closing, but
subject to the terms of the Agreement and this Amendment,
Netplex shall assume total responsibility for and control
over the employees leased to Netplex pursuant to this
Amendment or otherwise employed by Netplex and shall comply
with all federal, state and local laws, rules and
regulations relating to said employees. Netplex shall
indemnify, defend and hold Seller harmless from any
Liabilities arising out of Netplex's use and/or control of
such employees.
4.6. Between the Effective Date and the Closing, in addition to
its other obligations under Section 8.2 of the Agreement,
Netplex shall continue to maintain the confidentiality of
all Business Records of the Business regardless of when the
same were generated.
4.7. Seller shall cooperate with Netplex in providing Netplex
with such Business Records as it reasonably needs to operate
the Business between the Effective Date and Closing.
4.8. After the Effective Date, Netplex shall have the right to
use the AIG Marks only in relation to the operation of the
Business between the Effective Date and Closing as are
approved in writing by Seller.
4.9. Between the Effective Date and the Preliminary Closing Date,
Seller shall allow Netplex to use the Assets of the Business
and will provide Netplex space at its principal business
location to fulfill its obligations hereunder.
4.10. Subsequent to Closing, the parties shall make such periodic
accountings to one another as are reasonably necessary to
account for payments due to a party as a result of the
payment obligations of a party set forth in the Agreement
and/or this Amendment.
4.11. In the event that the Preliminary Closing fails to be
completed by September 30, 1998, or if the Closing is
abandoned, for whatever reason, the Agreement as amended
hereby, may be terminated by either party. In such event,
the lease of the employees shall be terminated and Seller
shall assume responsibility for all risks and benefits of
the Business. In the
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event of such termination, (i) Seller shall indemnify,
defend and hold Netplex harmless from any Liabilities
associated therewith after such termination; (ii) Netplex
shall deliver to Seller all Business Records, Assets and AIG
marks in its possession and Netplex shall forthwith
terminate the use thereof; (iii) the Confidentiality
Obligations of section 8.2 of the Agreement shall remain in
full force and effect; (iv) Netplex shall indemnify, defend
and hold Seller harmless from any Liabilities associated
with the Business between the Effective Date and such
termination; (v) Seller shall be entitled to receive any and
all income earned from the Business from and after the
Effective Date and Seller shall be responsible for any
expenses incurred by the Business from and after the
Effective Date.
5. Modification of certain terms:
5.1. The term "Closing" as used in sections 4.21 (f) and (g),
5.11, 6.2, 6.4, 7.1, 7.3, 8.5, 8.8, 8.10, 9.1, 9.1(b), 9.2,
9.2(b), 9.2(g), 9.2(k), 9.3, 9.3(a), 9.3(b), and 10.1(c) of
the Agreement is amended to "Preliminary Closing" as defined
in this Amendment. The term "Closing" as used in the
introductory clauses of Article 6 and Article 7 is amended
to "Preliminary Closing" as defined in this Amendment. The
heading of Article 9 of the Agreement is amended as follows:
Conditions Precedent to Preliminary Closing.
5.2. The term "Closing Date" as used in sections 1.25, 8.16, 11.1
and 11.2 of the Agreement is amended to "Effective Date" as
defined in this Amendment.
5.3. The term "Closing Date" as used in section 9.2(k) of the
Agreement is amended to "Preliminary Closing Date" as
defined in this Agreement.
5.4. Section 8.2 of the Agreement is amended as follows: The last
sentence of 8.2 is deleted and replaced by the following:
"This Section 8.2 shall survive the Closing or the
termination of this Agreement, as the case may be.
5.5. Section 10.1 is deleted and replaced as follows: "This
Agreement may be terminated without liability of any Party,
each to the other, at any time prior to the Preliminary
Closing and the Closing contemplated hereby may be
abandoned:". The provisions of sections 10.1(a)-10.1(f),
inclusive are not amended by the change to section 10.1
except as otherwise set forth in this Amendment.
5.6. Notwithstanding anything to the contrary in the Agreement or
in this Amendment, Section 10.1(b) is deleted and replaced
as follows: "(b) by Netplex, or Seller, if the Preliminary
Closing shall not have occurred on or
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before September 30, 1998 (provided that the right to
terminate this Agreement under this Section 10.1 shall not
be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or has
resulted in the failure of the Closing to occur on or before
such date); or"
5.7. The Introductory clauses of sections 8.4(a)(b) and (c) shall
be amended to read as follows: "For a period of fours years
after the Effective Date, if the Closing occurs,".
5.8. In section 10.1(f) the term "Seller, Netplex" shall be
amended to read "Seller or Netplex".
5.9. The following paragraph is added to Article 9 of the
Agreement as Section 9.3(l): "Netplex shall amend its
Certificate of Incorporation as set forth in the Certificate
of Designation."
5.10. The following paragraph is added as section 6.8 of the
Agreement: "No Person other than Seller and/or its
transferees or designees shall be eligible to hold the
Netplex Preferred Stock.
6. Covenants of Seller.
6.1. Seller hereby covenants:
6.1.1. That, unless the Agreement is terminated, from and
after the execution of the Agreement and through
Closing, it will refrain from, and will cause each
other Person acting for or on behalf of Seller, to
refrain, from taking, directly or indirectly, any
action (a) to merge, consolidate, or combine, or
to permit any other Person to merge, consolidate
or combine, with Seller in a manner which affects
the Business or the Assets; and (b) to seek or
encourage any offer or proposal from any Person to
acquire the Business or any Assets.
6.1.2. Seller shall comply with the terms of the Escrow
Agreement.
7. Covenants of Netplex.
7.1. Netplex hereby covenants:
7.1.1. That between the Effective Date and Closing, it
shall conduct the Business and use the Assets only
in the ordinary course of business, consistent
with the past practices of Seller, which shall
include, without limitation, compliance in all
respects with all Laws, regulations and
administrative orders of any federal, state or
local governmental authority that are applicable
to Netplex or Seller with respect to the Assets or
Business, with the intent of preserving the
ongoing operations of the Assets and Business and
which shall also include, without limitation, not
selling, transferring or disposing of any of the
Assets nor making any distributions of cash or
other property relating to the Assets to Netplex
shareholders or incurring any indebtedness other
than accounts payable consistent with past
practices.
7.1.2. That between the Effective Date and Closing, it
shall promptly notify Seller of any materially
adverse developments that occur prior to Closing
with respect to the Assets or the operation of the
Business. Netplex shall keep Seller informed of
all material operational matters and business
developments with respect to the Business and its
markets, including any competitive changes.
7.1.3. That between the Effective Date and Closing, it
will refrain from, and will cause each other
Person acting for or on behalf of Netplex, to
refrain, from taking, directly or indirectly, any
action (a) to merge, consolidate, or combine, or
to permit any other Person to merge, consolidate
or combine, with Netplex in a manner which affects
the Business or the Assets; and (b) to seek or
encourage any offer or proposal from any Person to
acquire the Business or any Assets.
7.1.4. Netplex shall comply with the Escrow Agreement.
8. Other Additional Covenants:
8.1 Non-solicitation by Netplex. For a period of four (4) years
after the Effective Date, if the Closing occurs, Netplex and
any of its subsidiaries, Affiliates, successors or assigns
shall not, directly or indirectly, alone, or as a partner,
partial owner, consultant, or agent of any other
corporation, partnership or other business organization,
knowingly solicit the employment of, or knowingly hire, any
employee of Seller, or any Seller subsidiary, or
intentionally cause any such employee to terminate the
employee's relationship with Seller or any Seller Affiliate,
without the prior written approval of Seller.
9. Conditions Precedent to Closing.
9.1. The respective obligations of each party to consummate the
Agreement are subject to the satisfaction at Closing Date of
the following conditions precedent:
9.1.1. No order, decree or injunction shall have been
enacted, entered, promulgated or enforced by any
court of competent jurisdiction or any
governmental authority which prohibits the
Closing.
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9.1.2. No action, claim, suit or proceeding seeking to
enjoin, restrain, or prohibit the consummation of
this Agreement shall be pending before any court
or any other governmental authority.
9.2. The obligations of Netplex to consummate the Agreement are
subject to the satisfaction or waiver at or prior to the
Closing Date of the following condition precedent:
9.3.1. Netplex shall have received an opinion of Seller's
outside counsel, in form satisfactory to counsel
for Netplex, to the effect all necessary approvals
of shareholders and/or the Board of Directors of
Seller have been obtained for the transaction.
9.3. The obligation of Seller to consummate the Agreement is
subject to the satisfaction or waiver at or prior to the
Closing Date of the following condition precedent:
9.3.1. Seller shall have received an opinion of Netplex's
outside counsel, in form satisfactory to counsel
for Seller, to the effect that the Certificate of
Designation of the Preferred Stock of Netplex
fully complies with all applicable Laws and that
all necessary approvals of shareholders and/or the
Board of Directors of Netplex have been obtained
both for the Certificate of Designation and for
the transactions contemplated by the Agreement.
10. Miscellaneous.
10.1. The Escrow Agreement shall be mutually agreed upon and
executed by Netplex and Seller at or prior to the
Preliminary Closing.
10.2. Any terms defined in the Agreement used herein and not
otherwise defined in this Amendment shall have the meaning
for such term that is provided in the Agreement.
10.3. This Amendment is a material part of the Agreement and the
terms hereof supercede any conflicting terms of the
Agreement. However, nothing in this Amendment abrogates any
provision of the Agreement or the Agreement Documents except
as expressly set forth in this Amendment.
10.4. Captions and numbering. The captions and numbering of the
provisions of this Amendment are for convenience only, are
not to be interpreted as substantive terms, and are not to
be interpreted to signify replacement of similarly captioned
or numbered provisions of the Agreement, except where such
effect is expressly set forth in this Amendment.
10.5. The term "Buyer" as used in sections 8.4(a) and 8.4(c) is
amended to read "buyer".
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10.6. The term "Buyer" as used in section 5.6 is amended to read
"Netplex".
10.7. In section 3.2 of the Earnout Agreement, Exhibit B to the
Agreement, the date "March 1, 2000" shall be amended to read
"March 1, 2001". It is agreed and understood that Seller
shall be entitled to receive fifty percent (50%) of the Net
Profit from the Business between the Effective Date and
September 30, 1998. The Earnout Agreement and the Employment
Agreements shall be amended to reflect the same.
SIGNATURE PAGE FOLLOWS
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THE NETPLEX GROUP, INC.
By:
Name:
Title:
APPLIED INTELLIGENCE GROUP, INC.
By:
Name:
Title:
12
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT is entered into as of August 31, 1998
("Services Agreement") by and among APPLIED INTELLIGENCE GROUP, INC., 13800
Benson Road, Edmond, Oklahoma 73013-6417 ("Seller"), and THE NETPLEX GROUP,
INC., a New York corporation, 8260 Greensboro Drive, Fifth Floor, McLean,
Virginia 22102 ("Netplex")
WHEREAS Netplex is acquiring Assets of the Business of Seller, as such terms are
defined in the Asset Acquisition Agreement, as amended ("Asset Agreement")
between Seller and Netplex;
WHEREAS Netplex desires to operate the Business at the Premises of Seller; and
WHEREAS the parties agree that Seller shall make available to Netplex, and
Netplex shall compensate Seller for, certain administrative services as
hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and the agreements herein
contained, the parties hereto agree as follows:
1. Definitions:
1.1. "Premises" shall mean the property located at 13800 Benson Road,
Edmond, Oklahoma.
1.2. "Services" shall be the administrative services identified on
Schedule A which is attached hereto and incorporated herein by
reference.
1.3. "Term" shall mean the period of time from the Effective Date until
December 31, 2001, unless earlier terminated pursuant to the terms
of this Services Agreement.
1.4. "Effective Date" shall be September 1, 1998.
1.5. "Sublease" shall mean the Sublease between the parties hereto
executed of even date herewith for the subleasing of a portion of
the Premises by Netplex from Seller.
1.6. "Netplex's Proportionate Share" shall have the same meaning as
given such term in said Sublease.
1.7. "Asset Acquisition Agreement" shall refer to the Asset Acquisition
Agreement executed between the parties hereto on August 31, 1998
and any amendments thereto.
1.8. "Earn-Out Agreement" shall refer to the Earn-Out Agreement executed
between the parties hereto on September 30, 1998 and any amendments
thereto.
2. Services Provided:
2.1. Subject to the terms of this Services Agreement, during the Term
hereof:
2.1.1.
Seller shall provide to Netplex the Services identified
on Schedule A hereto at the times set forth thereon.
Seller shall provide such Services in a professional,
business-like manner consistent with its past practices.
2.1.2. Except as otherwise set forth in this Services Agreement,
Seller shall not be obligated to increase the type of
Services, the frequency of any of the Services, or the
terms or conditions of any of the Services unless Seller
and Netplex agree to the cost and scope of the same.
2.1.3. Subject to the terms, covenants and conditions of this
Services Agreement, in the event that Netplex, at any
time(s) pursuant to the Sublease, increases the amount of
space in the Premises which it has the right to occupy to
an amount less than all of the Premises ("Additional
Space"), Seller, subject to the terms of said Sublease,
shall provide to Netplex the same type of Services for
such Additional Space which Seller was providing to
Netplex for its then Existing Space.
2.1.4. Neither Netplex nor Seller shall interfere with the use
of the Services by the other party.
2.1.5. Notwithstanding anything to the contrary in this Services
Agreement, Seller may discontinue offering any of the
Services on sixty (60) days notice to Netplex.
2.1.6. Notwithstanding anything to the contrary in this Services
Agreement, Seller may upgrade, modify or otherwise change
the equipment, software, carrier, supplier or other means
used to provide the Services so long as the nature and
quality of the Services provided pursuant hereto remains
substantially similar to those originally contracted for
by Netplex pursuant to this Services Agreement. Seller
shall use its best efforts to notify Netplex ninety (90)
days in advance of any material changes in the Services.
In the event that Seller upgrades, modifies or otherwise
changes the Services as allowed by this Section, for
purposes of determining the amount due Seller for the
Services for the purposes of this Services Agreement, the
cost of the same shall be deemed as an
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actual cost of Seller in the month that the cost(s) for
such upgrade, modification or change is incurred by
Seller. Notwithstanding anything to the contrary herein,
if Netplex requests an upgrade, modification or change on
hardware, software or any other type of equipment owned
by Netplex and which is solely used by Netplex but for
which services are provided by Seller pursuant to this
Services Agreement, Netplex shall solely bear the total
cost of any such upgrade, modification or change;
provided however, to the extent that the labor portion
for the installation of any such equipment is
accomplished within the labor costs of the monthly
charges already paid for by Netplex to Seller for the
time period in which the same is installed, no additional
cost shall be incurred by Netplex; and provided further,
if any additional labor on Seller's part is needed to
complete the installation, Netplex shall pay for the same
at Seller's then current rates.
2.1.7. Notwithstanding anything to the contrary in this Services
Agreement, Netplex may discontinue the use of any of the
Services (i) upon sixty (60) days prior written notice to
the Seller or (ii) at the end of the notice period which
Seller must give to any third party provider who is
providing the Services after Netplex gives written notice
to Seller of its decision to terminate such Services,
whichever is longer. In the event that Netplex
discontinues any of the Services and such discontinuation
results in the imposition of any penalty or liquidated
damages ("Damages") to Seller from the third party
providing such Service, Netplex shall reimburse Seller
for all of such Damages. Seller, upon request from
Netplex, shall provide to Netplex such documentation as
is reasonably necessary to allow Netplex (i) to determine
what notice must by given to a third party providing any
of the Services and (ii) to determine what, if any,
penalty or liquidated damages provision may be applicable
to a particular Service.
2.1.8. Notwithstanding anything to the Contrary in this Services
Agreement, in the event that Netplex exercises its right
under the Sublease to occupy all of the Premises, Seller,
as of the date upon which Netplex has the right to occupy
all of the Premises, shall not be obligated to offer or
otherwise provide any Services to Netplex.
2.1.9. Seller shall allow Netplex to use the equipment located
in the Netplex/AIG Space identified in the Sublease as of
September 30, 1998 ("Loaned Equipment"). The parties
agree and understand that said Loaned Equipment is
currently under lease from one or more third parties, and
that said leases also cover equipment which is not part
of the Loaned Equipment. Netplex shall not permanently
remove the Loaned Equipment from the Leased
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Premises as defined in the Sublease without the prior
written consent of Seller. Seller shall keep said lease
payments on the Loaned Equipment current. At the end of
each lease covering any or all of the Loaned Equipment,
Seller shall exercise its option to purchase the same and
shall transfer title to such portion of the Loaned
Equipment acquired thereby to Netplex without further
cost; provided, that prior to such time, no ownership
interest to said Loaned Equipment shall pass to Netplex.
On or before Closing as defined in the Asset Agreement,
Seller shall provide to Netplex a list of the Loaned
Equipment.
2.2. During the Term of this Services Agreement, Netplex shall provide
Seller the services set forth on Schedule A-1 hereto.
3. Payment for Services:
3.1. For the Services rendered during the Term of this Services
Agreement, Netplex, subject to the terms of this Services
Agreement, shall pay Seller the amount derived from Monthly Netplex
Cost Formula set forth on Schedule A for each of the Services then
provided pursuant to this Services Agreement. Any sums due Netplex
for services rendered to Seller pursuant to Schedule A-1 shall be
credited by Seller to the amount due to Seller hereunder from
Netplex. Moreover, if any deposit is required after the
commencement of this Services Agreement to be paid by Seller in
relation to providing any of the Services, Netplex shall pay Seller
its then current Proportionate Share of the same. Upon
discontinuation of the Service(s) for which the deposit was paid or
upon termination of this Services Agreement, whichever first
occurs, Seller shall refund to Netplex its Proportionate Share of
such deposit without interest.
3.2. Said payment from Netplex shall be due within twenty (20) days of
the date that Netplex receives the invoice(s) for Services. Seller
shall provide Netplex with such reasonable documentation as
requested by Netplex to support the invoiced charges for Services.
An initial payment of fifteen thousand dollars ($15,000)
("Prepayment") shall be made upon execution of this Services
Agreement by Netplex as a prepayment for the first month's
estimated Services. Such Prepayment shall be applied against future
invoices received by Netplex from Seller.
3.3. Netplex shall pay Seller interest on any amount not paid when due
pursuant to this Services Agreement at the rate of thirteen percent
(13%) per year from the date any such payment was due until such
amount is paid in full.
3.4. If the actions of Netplex or Netplex's requested changes in any
Service cause the cost of any of the Services to increase, Netplex,
in addition to the
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amount(s) set forth on Schedule A, shall be solely liable for all
of such increase in cost.
4. Insurance: Each party shall at all times during the term of this Services
Agreement maintain (i) comprehensive general liability insurance with
coverage limits of at least one million dollars ($1,000,000) per occurrence
and (ii) workers compensation and employers liability insurance. Such
policies of insurance, to the extent allowable by Oklahoma law, shall
contain a waiver of subrogation against the other party hereto.
5. Termination:
5.1. This Services Agreement may be terminated by Seller if:
5.1.1. Netplex fails to make any payment due hereunder within
fifteen (15) days after the due date thereof
5.1.2. Netplex breaches any other term or condition of this
Services Agreement and such breach is not remedied by
Netplex within thirty (30) days of receipt of Notice
thereof from Seller detailing the nature of the breach,
5.1.3. Netplex enters into bankruptcy, whether voluntarily or
involuntarily, or is declared or adjudged insolvent or
makes a general assignment for the benefit of creditors,
or
5.1.4. Netplex breaches the Asset Agreement, the Sublease and/or
the Earn-Out Agreement between Netplex and Seller and
fails to cure such breach(es) within the cure period, if
any, provided in the applicable agreement.
5.1.5. Seller ceases to conduct its business operations at the
Premises or has provided Netplex with sixty (60) days
prior notice of the termination of this Services
Agreement.
5.2. This Services Agreement may be terminated by Netplex if:
5.2.1. Seller enters into bankruptcy, whether voluntarily or
involuntarily, or is declared or adjudged insolvent or
makes a general assignment for the benefit of creditors,
or
5.2.2. Seller breaches any term or condition of this Services
Agreement and such breach is not remedied by Seller
within thirty (30) days of receipt of Notice thereof from
Netplex detailing the nature of the breach.
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5.2.3. Seller breaches the Asset Agreement and/or the Sublease
between Netplex and Seller and fails to cure such
breach(es) within the cure period, if any, provided in
the applicable agreement.
6. Arbitration: Any controversy or claim arising out of or relating to this
Services Agreement, or its breach, or its validity or interpretation, except
claims involving necessary third parties who refuse to participate or claims
seeking injunctive or equitable relief, shall be settled by binding
arbitration in accordance with the then current Commercial Arbitration Rules
of the American Arbitration Association ("AAA") subject, however, to the
following:
6.1. The location for the arbitration shall be at a location in Oklahoma
County, Oklahoma agreed to by the parties; provided, however, in
the event that the parties cannot agree on such location, the
arbitration shall be at a location in Oklahoma County, Oklahoma
designated by the AAA.
6.2. Such arbitration shall be heard and determined by an arbitrator in
accordance with the then current rules or regulations of the AAA
relating to commercial disputes. The arbitrator shall be neutral
and shall be selected by the parties; provided however if they
cannot agree upon such neutral arbitrator, the arbitrator shall be
appointed by the AAA. Such neutral arbitrator shall be a person
with experience in handling disputes relating to the management
and/or leasing of commercial property.
6.3. The arbitration award shall be binding on the parties and may be
enforced in any court of competent jurisdiction.
7. Other Terms:
7.1. Remedies. The remedies provided in this Services Agreement are
exclusive.
7.2. Modification. Any change in the Services as permitted in this
Services Agreement shall be deemed an authorized modification of
this Services Agreement. No other modification of this Services
Agreement is permitted except with the written consent of both
parties.
7.3. Attorneys' fees. The prevailing party in any action to enforce this
Services Agreement, including any Arbitration under Section 6
hereof, shall be entitled to recover from the other party all of
the prevailing party's costs incurred in such action, including its
reasonable attorneys' fees.
7.4. Choice of Law, Venue. This Services Agreement shall be governed by
Oklahoma law. Any action to enforce any provision of this Services
Agreement shall be brought only in a court of appropriate
jurisdiction located in the State of Oklahoma.
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7.5. Integration. This Services Agreement constitutes the entire
agreement between the parties hereto on the subject matter hereof
and supercedes and replaces any prior or contemporaneous agreement
on said subject.
7.6. Binding, Assignment. This Services Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and no other person or
entity shall have any right (whether third party beneficiary or
otherwise) hereunder. This Services Agreement may not be assigned
by any party without the prior written consent of the other party.
7.7. Waiver. Unless otherwise specifically agreed in writing to the
contrary: (a) the failure of any party at any time to require
performance by the other of any provision of this Services
Agreement shall not affect such party's right thereafter to enforce
the same; (b) no waiver by any party of any default by any other
shall be valid unless in writing and acknowledged by an authorized
representative of the nondefaulting party, and no such waiver shall
be taken or held to be a waiver by such party of any other
preceding or subsequent default; and (c) no extension of time
granted by any party for the performance of any obligation or act
by any other party shall be deemed to be an extension of time for
the performance of any other obligation or act hereunder.
7.8. Notices. All notices demands and other communications pertaining to
this Services Agreement ("Notices") shall be in writing addressed
as follows: If to Seller:
Robert N. Baker, Vice President
The viaLink Company
13800 Benson Road
Edmond, OK 73013-6417
with a copy to:
Richard M. Klinge, Esq.
Richard M. Klinge & Associates, P.C.
228 Robert S. Kerr, Suite 940
Oklahoma City, OK 73102
If to Netplex:
The Netplex Group, Inc.
Attention: Gene F. Zaino, President
8260 Greensboro Drive, 5th Floor
McLean, Virginia 22102
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with a copy to:
Attn: Edward J. Walsh, Jr., Esq.
Vedder Price Kaufman & Day
22nd Floor
805 Third Avenue
New York, NY 10022
Notices shall be deemed given five (5) business days after being
mailed by certified or registered United States mail, postage
prepaid, return receipt requested, or on the first business day
after being sent, prepaid, by nationally recognized overnight
courier that issues a receipt or other confirmation of delivery to
the appropriate recipient of such Notice. Any party may change the
address to which Notices under this Services Agreement are to be
sent to it by giving written notice of a change of address in the
manner provided in this Services Agreement for giving Notice.
7.9. Counterparts; Facsimile. This Services Agreement may be signed in
any number of counterparts with the same effect as if the signature
on each such counterpart were on the same instrument. This Services
Agreement and any counterparts may be executed by facsimile with
the same effect as if the signature were an original.
7.10. Construction. The headings of the Sections of this Services
Agreement are for convenience only and in no way modify, interpret
or construe the meaning of specific provisions of this Services
Agreement.
7.11. Severability. In case any one or more of the provisions contained
in this Services Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions will not in any way be
affected or impaired. Any illegal or unenforceable term shall be
deemed to be void and of no force and effect only to the minimum
extent necessary to bring such term within the provisions of
applicable Laws and such term, as so modified, and the balance of
this Services Agreement shall then be fully enforceable.
7.12. Neither party may assign or sublease its rights or obligations
under this Services Agreement without the prior written consent of
the other party, which consent shall not be unreasonably withheld.
The use of third parties to provide the Services under this
Services Agreement shall not be deemed a violation of this Section.
7.13. Any arbitration arising out of this Services Agreement must be
commenced within one (1) year from the date upon which such cause
of action shall have first accrued. Any other actions arising out
of this
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Services Agreement to the extent that they are excluded from the
provisions of Section 6 of this Services Agreement must be
commenced within the applicable Statute of Limitations prescribed
by law.
7.14. Seller and Netplex are strictly independent contractors. Neither
party has the right to bind the other in any manner, and nothing in
this Services Agreement shall be interpreted to make either party
the agent or legal representative of the other or to make the
parties joint venturers or partners, nor shall either party
represent or imply to other persons or entities that any such
relationship exists.
7.15. Notwithstanding anything to the contrary in this Services
Agreement, Seller shall not be responsible for failure of
performance due to any cause(s) beyond its reasonable control,
including, but not limited to, accidents, acts of God, labor
disputes, or the actions of any government agency or common carrier
or other third party over whom Seller has no reasonable control.
7.16. Netplex and Seller shall each keep confidential and not, directly
or indirectly, reveal, report, publish, disclose or transfer any
confidential information ("Confidential Information") obtained by
it with respect to the other in connection with this Services
Agreement. Notwithstanding the foregoing limitation, neither party
shall be required to keep confidential or return any Confidential
Information that (a) is known or available through other lawful
sources, not bound by a confidentiality agreement with the
disclosing party, (b) is or becomes publicly known or generally
known in the industry through no fault of the receiving party or
its agents, (c) is required to be disclosed pursuant to Law
(provided the other parties are given reasonable prior notice), or
(d) is developed by the receiving party independently of the
disclosure by the disclosing party. This section 7.16 shall survive
the termination of this Services Agreement.
7.17. The parties agree and acknowledge that they have read this Services
Agreement. The persons signing below on behalf of the respective
parties represent and warrant that they have the authority to bind
the party on whose behalf they have executed this Services
Agreement.
7.18. All of Sections 3 and 6 and Subsections 7.1, 7.2, 7.3, 7.4, 7.5,
7.6, 7.7, 7.10, 7.11, 7.13, 7.15, 7.16 and this 7.18 shall survive
the termination of this Services Agreement.
SIGNATURE PAGE FOLLOWS
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WHEREFORE, the parties have executed this Services Agreement
as of the date first above written.
THE NETPLEX GROUP, INC.
By:
Name:
Title:
APPLIED INTELLIGENCE GROUP, INC.
By:
Name:
Title:
10
ASSET ACQUISITION AGREEMENT
THIS ASSET ACQUISITION AGREEMENT is entered into as of August 31, 1998
("Agreement") by and among APPLIED INTELLIGENCE GROUP, INC., 13800 Benson Road,
Edmond, Oklahoma 73013-6417 ("Seller"), and THE NETPLEX GROUP, INC., a New York
corporation, 8260 Greensboro Drive, Fifth Floor, McLean, Virginia 22102
("Netplex").
RECITALS
WHEREAS, Seller desires to sell to Netplex all of the Assets (as
hereinafter defined) relating to the delivery of its technical consulting
services and solutions business to the retail industry;
WHEREAS, Netplex desires to acquire said Assets, and in connection
therewith, Seller will receive from Netplex (i) $3,000,000 in cash (the "Cash
Consideration"); (ii) One Million Dollars ($1,000,000) in value of Netplex
Preferred Stock (as defined below), and (iii) certain earn-out compensation
payments (the "Earn-Out Payments") as described in the Earn-Out Agreement as
provided for herein.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1. "Accounts Receivable" shall mean the accounts receivable of
Seller arising from the operation of the Business.
1.2 "Agreement Documents" shall mean this Agreement and the various
Schedules, Exhibits, attachments, and other documents, of which the exchange or
execution between Netplex and Seller is contemplated by this Agreement to occur
at or before the Closing, except as to such documents subsumed in the
definitions hereinafter provided.
1.3. "Assets" shall mean all the assets of Seller used in the
operation of the Business as a going concern, except for the ChainLink software
product, Accounts Receivable earned prior to Closing, and cash of the Business,.
1.4. The "Business" shall mean the technical consulting services and
solutions business of Seller which provides such services and solutions to the
retail and distribution industries, but not including the Seller's viaLink and
iJob businesses.
1.5. "Business Records" shall mean all business records of Seller
relating to the Business, including, but not limited to, all books of account,
customer contracts, customer lists, supplier and vendor lists, employee
personnel files, file materials, logs, consultants' reports, budgets, financial
reports and sales, operating and business plans, and customer files relating to
or used or held for use in the operation of the Business.
<PAGE>
1.6. "Contracts" shall mean oral and written agreements and
contracts of Seller relating to the Business to the extent identified on
Schedule 4.14 attached to this Agreement, including, without limitation, notes
receivable, license agreements, assignment agreements, purchase orders, sales
orders, warranties, rights to discounts, joint venture agreements, partnership
agreements, maintenance agreements, sales representative agreements, service
agreements, distribution agreements, leases of real property and automobiles and
agreements for leased equipment.
1.7. "Fixed Assets and Tangible Personal Property" shall mean all
fixed assets and tangible personal property of Seller used in the Business ,
including, without limitation, all machinery, including essential replacement
parts, equipment, supplies, tools, tooling, furniture, fixtures, hardware and
spare parts.
1.8. "Intangible Property" shall mean all intangible property and
assets of Seller used in the Business (whether owned, used, registered in the
name of, or licensed by Seller or in which Seller otherwise has an interest) .
Without limiting the generality of the foregoing, any intangible property not
used in the Business, such as the iJob(TM) and viaLink(R) software products and
all associated intellectual property, are specifically excluded from this
definition.
1.9. "Inventory" shall mean all inventory of raw materials, finished
goods, supplies, project deliverables and repair materials of Seller relating to
the Business.
1.10. "AIG Marks" shall mean such tradenames, trademarks, logos or
graphic designs representing or relating to the Business, except such items
relating to Chainlink, and any part of Seller's business or other operations
which are not part of the Assets.
1.11. "Permits" shall mean all licenses, permits, franchises,
approvals, authorizations, consents or orders of, or filings with, any
governmental authority whether federal, state or local, or any other person
relating to the Business.
1.12. "Affiliate" shall mean any Person who is controlled by, or is
under common control with, a Party hereto. The term "control" (including, with
correlative meaning, the terms "controlled by" and "under common control with"),
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
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1.13. "Closing" shall mean the actual transaction at which the
Seller receives the consideration and other documents required to be given by
Netplex hereunder, and at which Netplex receives the documents required to be
given by Seller hereunder. Closing shall take place in Oklahoma City, Oklahoma.
1.14. "Closing Date" shall mean September 30, 1998 or such other
date as may be mutually agreed to by the parties.
1.15. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.16. "Knowledge" as to any party hereto shall mean the knowledge of
such party or any officer or director of such party after due investigation.
1.17. "Laws" shall mean the statutes, laws, rules, regulations,
ordinances, codes, directives, writs, injunctions, decrees, judgments, and
orders of any governmental (whether foreign, federal, state, local, or
otherwise) legislative, regulatory or administrative agency, court or other
governmental body, promulgated generally and not specifically directed to both
of the parties to this Agreement.
1.18. "Liabilities" shall mean liabilities, obligations or
commitments of any nature, absolute, accrued, contingent or otherwise, known or
unknown, whether matured or unmatured.
1.19. "Liens" shall mean mortgages, deeds of trust, collateral
assignments, security interests, conditional or other sales agreements, claims,
options, restrictions, liens, pledges, hypothecations, easements, rights of way,
encumbrances and adverse interests or other defects of title of any kind,
provided that "Liens" shall not mean liens for taxes not yet due and payable.
1.20. "Material Adverse Effect" shall mean, with respect to any
Person, any condition, occurrence or effect, which is materially adverse to the
value of the business, properties, assets, liabilities, capitalization,
stockholders' equity, financial condition, operations, licenses or other
franchises or results of operations of such Person, considered as a whole.
1.21. "Netplex Common Stock" shall mean the shares of Netplex common
stock, par value $.001 per share.
1.22. "Netplex Preferred Stock" shall mean the shares of Netplex
preferred stock, Class B, par value $.01 per share. The Certificate of
Designation which sets forth the rights and preferences of the Netplex Preferred
Stock is attached hereto as Exhibit A.
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1.23. "Person" shall mean any person or entity, whether an
individual, trustee, corporation, general partnership, limited partnership,
limited liability company, trust, unincorporated organization, business
association, firm, joint venture, governmental agency or authority.
1.24. "Taxes" shall mean any federal, state, local, foreign or other
tax, levy, fee, assessment or other government charge, including any penalties,
additions and interest with respect thereto.
1.25. "Work in Progress" shall mean, as to the Contracts being
transferred to Netplex under this Agreement as of the Closing Date, any
continuing or uncompleted obligation to provide goods and/or services to
Seller's customer(s), which obligations will be transferred to Netplex and
assumed thereby hereunder, to the extent the same are identified on Schedule
4.14.
ARTICLE 2
ASSET SALE AND PURCHASE
Netplex and Seller hereby agree that, subject to the terms and conditions
hereinafter set forth, (i) Seller shall sell, assign, transfer and otherwise
convey the Business and the Assets, free and clear of all Liens, Contracts and
Liabilities, except as have been, or will be, identified on schedules to this
Agreement; (ii) Netplex agrees to purchase, assume, and otherwise receive the
Assets; (iii) and Netplex agrees to pay to Seller the consideration set forth
herein for the Assets conveyed to Netplex.
ARTICLE 3
CLOSING
3.1. Consideration to Seller:
3.1.1. At Closing, Netplex shall deliver and pay to Seller (i)
the Cash Consideration of Three Million Dollars ($3,000,000) in certified funds
or bank wire transfer to an account designated by Seller; (ii) a stock
certificate representing the number of shares of Netplex Preferred Stock as
calculated below; (iii) the Certificate of Designation of the Preferred Shares.
3.1.2. The number of shares of Netplex Preferred Stock which
Seller shall receive from Netplex at Closing shall be calculated by dividing one
million (1,000,000) by the average reported closing price of the Netplex Common
Stock on the NASDAQ SmallCap Market for the twenty (20) days immediately prior
to September 1, 1998.
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3.1.3. At Closing, Seller and Netplex shall deliver to each
other the executed Earn-Out Agreement in the form substantially as set forth in
Exhibit B hereto, and such other Agreements Documents as are provided for by
this Agreement, all of which are incorporated by reference as if fully set forth
herein.
3.1.4. At Closing, Netplex shall deliver to Seller such other
documents as are reasonably necessary to effect the transactions contemplated by
this Agreement.
3.2. Consideration to Netplex. At Closing, Seller shall, subject to
the terms, covenants, and conditions of this Agreement, convey, transfer and
deliver to Netplex by an executed bill of sale, assignments, assignments of
contracts, and such other documents as are reasonably required to perfect the
transfer of the Business and the Assets to Netplex free and clear of all Liens,
Contracts and Liabilities, except to the extent identified on Schedule 3.2
hereto, which Schedule identifies the Liens, Contracts and Liabilities Netplex
agrees to assume
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Netplex as follows, which
representations and warranties have been relied upon by Netplex in entering into
this Agreement:
4.1. Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oklahoma, and is
qualified or registered to do business in each jurisdiction where it is required
to do so. Seller has full corporate power and authority to carry on its business
as now conducted and to enter into and to perform this Agreement. The address of
Seller's principal office, all of Seller additional places of business, and the
locations of all tangible personal property included in the Assets are listed on
Schedule 4.1. Except as set forth on Schedule 4.1, during the past five (5)
years, Seller has not been known by or used any corporate, partnership,
fictitious or other name in the conduct of the Business or in connection with
the use or operation of the Assets.
4.2. Corporate Authorization. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been, or will be prior to the Closing, duly authorized by Seller's board of
directors and shareholders.
4.3. Binding Agreement. This Agreement has been duly executed by
Seller and delivered to Netplex and constitutes the valid and binding agreement
of Seller, enforceable against Seller in accordance with its terms, except as
enforceability may be limited by
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bankruptcy, insolvency or other laws affecting creditors' rights generally and
the exercise of judicial discretion in accordance with general equitable
principles.
4.4. Subsidiaries and Affiliates. Except as set forth on Schedule
4.4, Seller does not own any capital stock or other equity securities of any
other corporation and does not have any other type of ownership interest in any
other corporation, partnership, joint venture or other business organization or
entity which relates to or is integral to the operation of the Business.
4.5. No Breach. Except as set forth in Schedule 4.5 or otherwise in
the Agreement Documents, the execution, delivery and performance of this
Agreement by Seller will not violate or conflict with Seller's Articles of
Incorporation or Bylaws or any Law to which Seller, or the Assets are subject,
or by which Seller or the Assets may be bound, or (with or without giving notice
or the lapse of time or both) breach or conflict with any contract, agreement,
or other commitment to which Seller is a party or by which Seller may be bound,
or result in the imposition of any Lien on the Assets other than such Liens as
have been identified on a Schedule to this Agreement.
4.6. Consents and Approvals. Except as set forth on Schedule 4.6
hereto, no filing or registration with, no permit, authorization, consent or
approval of, and no notice to, any federal, state or local government or any
court, administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign, or other public body or authority or
any other person is necessary or required in connection with the execution and
delivery of this Agreement by Seller or for the consummation by Seller of the
transactions contemplated by this Agreement.
4.7. Permits. Schedule 4.7 contains a true and complete list of all
Permits. Seller has all Permits required to conduct the Business as now being
conducted. All Permits are valid and in full force and effect. Except as set
forth on Schedule 4.7(a) or elsewhere in the Agreement Documents, no notice to,
declaration, filing or registration with, approval or permit from, any domestic
or foreign governmental or regulatory body or authority, or any other Person or
entity, is required to be made or obtained by Seller in connection with the
execution, delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby. Notwithstanding anything to the contrary in
the foregoing, Seller makes no representation as to whether any of said Permits
may be assumed, acquired, continued, or renewed by Netplex at or after the
Closing. It is specifically agreed and understood between the Parties hereto
that such Permits, to the extent such Permits cannot be transferred, are not
included in the Assets.
4.8. Compliance with Laws. Except as set forth in Schedule 4.8, Seller
has, to the best Knowledge of Seller, complied in all material respects with all
of the Laws applicable to
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the Business and the Assets, including, without limitation, all applicable Laws
relating to health and sanitation, environmental protection and occupational
safety the violation of which would have a Material Adverse Effect on its
Business or the Assets.
4.9. Title to and Sufficiency of the Assets. Seller has good and
marketable title to all of the Assets free and clear of all Liens, except for
Liens described on Schedule 4.9. The Assets onstitute all of the assets, rights
and properties that are used in the operation of the Business as it is now
conducted.
4.10. Fixed Assets and Tangible Personal Property. Schedule 4.10
contains a true and complete list of the Fixed Assets and Tangible Personal
Property which are being sold pursuant to this greement. Except as set forth on
Schedule 4.10, the Fixed Assets and Tangible Personal Property, are in good
operating condition and repair (reasonable wear and tear excepted), are
performing satisfactorily and are suitable for their intended uses.
4.11. Inventory. Schedule 4.11 contains a true and complete list of all
Inventory as of August 31, 1998 which is being sold pursuant to this Agreement.
Except as otherwise set forth on Schedule 4.11 and subject to Liens identified
in any of the Agreement Documents, all Inventory reflected on the Seller Balance
Sheet (as defined below), or acquired since the date of the Seller Balance
Sheet, was acquired and has been maintained in the ordinary course of business;
is of good and merchantable quality; consists substantially of a quality,
quantity and condition useable, leasable or saleable in the ordinary course of
business; is valued at reasonable amounts based on the ordinary course of
business and consistent with past practice; and is not subject to any write-down
or write-off. Seller is not under any liability or obligation with respect to
the return of Inventory in the possession of wholesalers, retailers or other
customers.
4.12. Intangible Property and AIG Marks. Schedule 4.12 contains a true
and complete list of the Intangible Property and AIG Marks to be conveyed to
Netplex pursuant to this Agreement. Seller has delivered to Netplex copies of
all documents (if any) establishing Seller's rights to use the Intangible
Property and AIG Marks, and any restrictions thereof. To the best of Seller's
Knowledge and except as otherwise identified in this Agreement or the Agreement
Documents, Seller has, and after Closing, Netplex will have, the right to use
all Intangible Property and AIG Marks, free and clear of any royalty or other
payment obligations. Except as set forth on Schedule 4.12 or in the documents
heretofore described in this section, to the best of Seller's Knowledge,
Seller's use of the Intangible Property does not conflict with, violate or
infringe any intellectual property or other rights of any other Person, no one
has claimed any such violation or infringement, and to Seller's best Knowledge,
no Person is currently violating or infringing any of Seller's intellectual
property or other rights with respect to the Intangible Property in any way that
would have a Material Adverse Effect on the Business.
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4.13. Protection of Intellectual Property. To the best of Seller's
Knowledge, all employees and consultants of Seller who have worked on or
contributed to the development of Seller's technology, trademarks, trade names,
copyrights and other intellectual property rights have effectively conveyed to
Seller all rights such employees or consultants may have had in such
intellectual property.
4.14. Contracts. Schedule 4.14 contains a true and complete list (and,
in the case of oral agreements, contracts or leases, a summary of the material
terms) of all Contracts and Works in Progress dated on or after January 1, 1996
or which represent Contracts of Seller and/or Works in Progress to be
transferred to Netplex pursuant to this Agreement. To Seller's best Knowledge,
the Contracts are valid, binding and enforceable by Seller in accordance with
their respective terms and are in full force and effect. To Seller's best
Knowledge, Seller has delivered to Netplex true and complete copies of the
Contracts and all amendments thereto, other than those oral agreements
summarized on Schedule 4.14. The Contracts are subject to any Liens and/or
Liabilities set forth on Schedule 4.14. Seller has complied in all material
respects with all of the Contracts and neither it nor any other party thereto is
in default, or has been notified of a threat of a default or any dispute, under
any of the Seller Contracts. The execution, delivery and performance of this
Agreement by Seller will not constitute a default or breach under any of the
Contracts, except as set forth in Schedule 4.14.
4.15. Litigation. Except as described on Schedule 4.15, there is no
litigation, proceeding (arbitral or otherwise), claim or investigation of any
nature pending or, to Seller's best Knowledge, threatened against Seller, the
Business or the Assets. There are no writs, injunctions, decrees, arbitration
decisions, unsatisfied judgments or similar orders outstanding against Seller
with respect to the Business or the Assets.
4.16. Seller Financial Statements.
(a) Schedule 4.16(a) sets forth true, correct and complete copies of (i) the
audited balance sheet of Seller as of December 31, 1997
(the "Seller Balance Sheet"); (ii) the statement of
income of Seller for the one year period ended December
31, 1997 (collectively with the balance sheet described
in Subsection (i) hereof, the "Seller Annual
Financials"); (iii) the unaudited balance sheet of Seller
as of June 30, 1998 and the statement of income of Seller
for the period January 1 through June 30, 1998 (the
"Seller Quarterly Financials"); and (iv) the unaudited
balance sheet of Seller as of August 31, 1998 and the
statement of income for the interim period from July 1,
1998 through August 31, 1998 (the "Seller Monthly
Financials" and, together with the Seller Annual
Financials and the Seller Quarterly Financials, the
"Seller Financial Statements"). The Seller Financial
Statements have been prepared in accordance with
generally
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accepted accounting principles consistently applied, and
present fairly and accurately the financial condition of
Seller at the respective dates thereof.
(b) Schedule 4.16(b) sets forth true, correct and complete copies of (i) the
unaudited balance sheet of the Business as of December
31, 1997 (the "Business Balance Sheet"); (ii) the
unaudited statement of income of the Business for the one
year period ended December 31, 1997 (collectively with
the balance sheet described in Subsection (i) hereof, the
"Business Annual Financials"); (iii) the unaudited
balance sheet of the Business as of June 30, 1998 and the
statement of income of the Business for the period
January 1 through June 30, 1998 (the "Business Quarterly
Financials"); and (iv) the unaudited balance sheet of the
Business as of August 31, 1998 and the statement of
income for the interim period from July 1, 1998 through
August 31, 1998 (the "Business Monthly Financials" and,
together with the Business Annual Financials and the
Business Quarterly Financials, the "Business Financial
Statements"). It is specifically agreed and understood by
the Parties hereto that the Business Balance Sheet was
prepared for the purposes of this Agreement with Seller's
best efforts to fairly and accurately present the
financial condition and the results of the operations of
the Business at the respective dates thereof, and such
Business Balance Sheet was not necessarily calculated or
kept by Seller in the ordinary course of its business.
4.17. Absence of Material Adverse Changes. Since December 31, 1997,
there have been no changes or conditions constituting a Material Adverse Effect
on the Assets or Business which have not been disclosed in writing to Netplex.
4.18. Liabilities. Except as disclosed on Schedule 4.18 attached hereto
or disclosed elsewhere in the Agreement Documents, Seller has no material
Liabilities of any nature relating to the Business, including without
limitation, Tax liabilities due or to become due, except iabilities that are
reflected and reserved against on the Seller Financial Statements or otherwise
disclosed pursuant to this Agreement.
4.19. Tax Matters. Neither Seller, nor any entity to whose liabilities
Seller has succeeded, has filed or been included in a consolidated, unitary, or
combined tax return with another Person. Except as disclosed on Schedule 4.19
hereto: (a) Seller has filed all tax returns and reports ("Seller Tax Returns")
required to have been filed by or for it (except for those tax returns and
reports for which it has obtained an extension, which it will file in a timely
manner); (b) Seller has paid or made adequate provision for all Taxes payable by
Seller, and there is no Tax due and payable, the non-payment of which would
adversely affect any of the Assets or the
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use thereof, or could cause Netplex to incur any liability; (c) no unpaid Tax
deficiency has been asserted against or with respect to Seller by any taxing
authority; (d) Seller is in compliance with, and its Business Records contain
all information and documents necessary to comply with, all applicable
information reporting and Tax withholding requirements; (e) Seller has not
granted, nor is it subject to, any waiver of the period of limitations for the
assessment of Tax for any currently open taxable period; and (f) Seller has not
entered into, and holds no asset subject to, a "safe harbor lease" subject to
former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended before
the Tax Reform Act of 1986, and the regulations thereunder; (g) all material
information set forth in the Seller Tax Returns is accurate and complete; (h)
the Seller Balance Sheet fully and properly reflects, as of the date thereof,
the Liabilities of Seller for all accrued taxes, additions to tax, penalties,
and interest; (i) for periods ending after the date of the most recent Seller
Financial Statements, the books and records of Seller fully and properly reflect
its liability for all accrued taxes, additions to tax, penalties and interest;
(j) Seller has not made or entered into, and holds no asset subject to, a
consent filed pursuant to Section 341(f) of the Code and the regulations
thereunder; and (k) Seller is not required to include in income any amount for
an adjustment pursuant to Section 481 of the Code or the regulations thereunder.
Schedule 4.19 describes all material tax elections, consents, and agreements
affecting Seller, and lists all types of taxes paid and tax returns filed by
Seller. Seller is not a "foreign person" for purposes of Section 1445 of the
Code.
4.20. Insolvency Proceedings. Neither Seller nor any of the Seller's
Assets being transferred under this Agreement is the subject of any pending or,
to Seller's best Knowledge, threatened, insolvency proceedings of any character.
Seller has not made an assignment for the benefit of creditors or taken any
action with a view to or that would constitute a valid basis for the institution
of any such insolvency proceedings. Seller is not insolvent and will not become
insolvent as a result of entering into this Agreement.
4.21. Employee Benefit Plans.
(a) Schedule 4.21 hereto includes a complete and correct schedule of (i)
all employee pension benefit plans (as defined in Section 3(2) of
ERISA) and employee welfare benefit plans (as defined in Section 3(1)
of ERISA) of Seller and any other Person or entity that together with
Seller, is treated as a single employer under Code Section 414(b), (c),
(m) or (o) (each such Person or entity being referred to herein as an
"ERISA Affiliate"), (ii) all plans, programs, agreements and
arrangements that provide benefits to employees of Seller or any ERISA
Affiliate as a result of the transactions contemplated by this
Agreement or that provide for the payment of separation, severance,
termination or similar benefits to such employees, (iii) all trust
agreements established for the purposes of funding any compensation or
benefit plan, program, agreement or arrangement, in each case currently
maintained for the benefit of, or relating to, any current or former
employee, officer, director or independent contractor of Seller or any
ERISA Affiliate, and (iv) all other plans, programs, contracts or
arrangements pertaining to or including any current or former employee,
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officer, director or independent contractor of Seller or any ERISA
Affiliate (these plans, programs, agreements and arrangements together
with all other employee benefit plans, programs, agreements and
arrangements of Seller or any ERISA Affiliate (including, but not
limited to, all "employee benefit plans" within the meaning of Section
3(3) of ERISA) for the benefit of, or relating to, any current or
former employee, officer, director or independent contractor of Seller
or any ERISA Affiliate, being collectively referred to herein as the
"Seller Plans"). Neither Seller nor any ERISA Affiliate maintains or
participates in, nor has Seller or any ERISA Affiliate ever maintained
or participated in, any defined benefit plans or any "multiemployer
plans" as defined in Section 3(37) of ERISA. Except as set forth in
Schedule 4.21 hereto, neither Seller nor any ERISA Affiliate has ever
maintained or participated in any other employee benefit plans or other
like plans, programs or arrangements under which Seller or any ERISA
Affiliate has any obligation to any of their current or former
employees, officers, directors, or independent contractors, nor has
Seller or any ERISA Affiliate made any commitments or agreements to
establish or extend any such plans, programs or arrangements for their
benefit.
(b) Seller has previously provided to Netplex true, correct and complete
copies of (i) each Seller Plan (or, in the case of any unwritten Seller
Plan, a description thereof), (ii) actuarial reports and financial
statements prepared in connection therewith for the 3 previous years,
(iii) each trust agreement and/or insurance contract with respect to
each Seller Plan, (iv) annual reports on Form 5500 filed with the
Internal Revenue Service with respect to each Seller Plan (if required)
for the 3 previous years, (v) the most recent summary plan description
for each Plan for which such summary plan description is required; and
(vi) all IRS determination letters obtained for any Seller Plan.
(c) To the Knowledge of Seller, each Seller Plan is now and has been
operated, administered and maintained in all material respects in
compliance with its terms and the requirements of all applicable law,
including, without limitation, ERISA and the Code. All contributions
required to be made to any Seller Plan have been made on or before
their due dates and no Seller Plan has incurred a funding deficiency
under Section 412 of the Code. No legal action, suit or claim is
pending or, to the Knowledge of Seller, threatened with respect to any
Seller Plan (other than claims for benefits in the ordinary course).
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(d) Each Seller Plan that is intended to be qualified under Section 401(a)
of the Code or Section 401(k) of the Code has received a favorable
determination letter from the Internal Revenue Service that the form of
such Seller Plan is so qualified and each trust established in
connection with any Seller Plan which is intended to be exempt from
federal income taxation under Section 501(a) of the Code has received a
determination letter from the Internal Revenue Service that it is so
exempt from federal income taxation. No such determination letter has
been revoked nor has revocation of any such determination letter been
threatened, nor has any such Seller Plan been amended since the date of
its most recent determination letter or application therefor in any
respect that would adversely affect its qualified status or materially
increase its costs (provided that for purposes of this sentence the
term "materially" shall mean, with regard to each occurrence, an amount
in excess of $10,000.00 or $100,000.00 in the aggregate).
(e) To the Knowledge of Seller, there has been no prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the
Code) or other breach of fiduciary responsibility with respect to any
Seller Plan that could give rise to any tax or penalty under Section
4975 of the Code, Title I of ERISA or other applicable law.
(f) With respect to each Seller Plan which is a group health plan (as
defined in Code Section 4980B and ERISA Section 607), Seller and each
ERISA Affiliate have taken all necessary actions to satisfy the notice
and benefit requirements under Code Section 4980B and Part 6 of Title I
of ERISA with respect to employees, former employees and independent
contractors of Seller and any ERISA Affiliate (and their spouses and
dependent children) who have had a "qualifying event" as defined in
Code Section 4980B and ERISA Section 603 with respect to any such
Seller Plan on or before the Closing, or as a result of the instant
transaction. Except as set forth in Schedule 4.21 hereto, there are
currently no employees, former employees or independent contractors of
Seller or any ERISA Affiliate (or their spouses and dependent children)
(i) who have elected continuation coverage under Code Section 4980B or
Part 6 of Title I or ERISA, or (ii) who are eligible to elect such
continuation coverage with respect to any of Seller' or any ERISA
Affiliate's group health plans for a "qualifying event" (as defined
above) that occurred prior to the date of this Agreement.
(g) Except as set forth in Schedule 4.21, there is no material debt,
liability, claim or obligation resulting (or which may result) from any
claim incurred or asserted under any Seller Plan, or which, to the
Knowledge of Seller, may be incurred or asserted before, on or after
the Closing under any Seller Plan, by any employees, former employees
or independent contractors of Seller or any ERISA Affiliate (or
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their covered dependents), whether as retirees, disabled persons or
otherwise, which is not fully and totally funded for by a separate
trust or insurance policy or fully and totally reserved for on the
Financial Statements as of the Closing (in which case, the amount of
such debt, liability, claim or obligation and the actuarial methods and
assumptions are stated in Schedule 4.18).
(h) Notwithstanding anything to the contrary in this Agreement, Netplex is
not acquiring any interest in any Employee Benefit Plan or insurance
policies of Seller.
4.22. Employees. Seller has provided Netplex with a complete and
accurate list of all employees of Seller employed in the Business, showing for
each: name, current job title or description, current salary level (including
any bonus or deferred compensation arrangements) and any bonus, commission or
other remuneration paid or payable since December 31, 1997 (other than any
bonuses paid to salespersons in the ordinary course of the Business), and
describing any existing contractual arrangement with such employee. Except as
set forth in Schedule 4.22 hereto, Seller has not maintained, does not maintain
and has not announced to the employees listed on Schedule 4.22 any plan to
maintain any written or other policy with respect to severance or termination
pay. Except as set forth in Schedule 4.22 and other than usual and customary
wage and salary or employment practices, since December 31, 1997, Seller has
made no commitments or agreements to increase the wages or to modify the
conditions or terms of employment of any of the employees listed on said
Schedule. There are no collective bargaining agreements applicable to the
Business and there have been no union organizing efforts conducted with respect
to such employees or any work stoppages experienced by Seller during the last
three years.
4.23. Insurance. Schedule 4.23 lists all insurance policies (by policy
number, insurer, location or property insured, annual premium, premium payment
dates, expiration date and type of coverage) held by Seller relating to the
business, properties and employees of the Business, copies of which have been
provided to Netplex. All such insurance policies are in full force and effect
and in such amounts and provide coverages that are reasonable and customary in
light of the business, operations and properties of Business.
4.24. Environmental Matters.
(a) As used in this Agreement "Hazardous Material" shall mean: (i) any
"hazardous substance" as now defined pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. ss. 9601(14); (ii) any "pollutant or contaminant" as defined in
42 U.S.C. ss. 9601(33); (iii) any material now defined as "hazardous
waste" pursuant to 40 C.F.R. Part 261; (iv) any petroleum, including
crude oil and any fraction thereof; natural or
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synthetic crude oil and any fraction thereof; (v) natural or synthetic
gas usable for fuel; (vi) any "hazardous chemical" as defined pursuant
to 29 C.F.R. Part 1910; (vii) any asbestos, polychlorinated biphenyl,
or isomer of dioxin, or any material or thing containing or composed of
such substance or substances; (viii) any infectious organism or
biological or medical waste; or (ix) any other substance, regardless of
physical form, that is subject to any Environmental Laws.
(b) As used in this Agreement, "Environmental Laws" shall mean any
statutes, regulations, requirements, orders, ordinances, rules of
liability or standards of conduct of any foreign, federal, state, local
government, or common law relating to the protection of human health,
plant life, animal life, natural resources, the environment or property
from the presence in the environment of any solid, liquid, gas, odor or
any form of energy, from whatever source, including, without
limitation, any emissions, discharges, releases, or threatened releases
of Hazardous Material into the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface or building structures), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
generation, disposal, transport or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances
or wastes.
(c) To the knowledge of Seller, except as set forth on Schedule 4.24, (i)
there are no environmental conditions related to the Seller Real
Property Leases (as defined herein) or Seller' business and other
assets of Seller that could have a Material Adverse Effect on Seller,
including any such conditions relating to the use, treatment, storage,
release or disposal of any Hazardous Material; (ii) Seller has not
manufactured, processed, distributed, used, treated, stored, disposed
of, transported or handled any Hazardous Material in a manner that
could have a Material Adverse Effect on Seller; (iii) there is no
ambient air, surface water, groundwater or land contamination or
contamination within building structures, within, under, originating
from or relating to any real property which is the subject of the
Seller Real Property Leases, or any other location related to the
Seller Real Property Leases such that the contamination affects such
other locations and none of such properties has been used for the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any Hazardous Material in a manner
that could have a Material Adverse Effect on Seller; and (iv) Seller
has no obligation or liability, known or unknown, matured or not
matured, absolute or contingent, assessed or unassessed, imposed or
based upon the failure to comply with any provision under any federal,
state or local law, rule, or regulation or common law, or under any
code, order, decree, judgment or injunction applicable to Seller, and
Seller has not received any notice, or request for information issued,
promulgated, approved or entered
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thereunder, or under the common law, or any tort, nuisance or absolute
liability theory, relating to public health or safety, worker health or
safety, or pollution, damage to or protection of the environment,
including, without limitation, the Environmental Laws, where such
obligation or liability could have a Material Adverse Effect on Seller.
(d) Seller possesses and is in compliance in all material respects with all
permits, licenses, certificates, franchises and other authorizations
relating to the Environmental Laws necessary to conduct Seller's
business or required by environmental regulations.
4.25. Seller Real Property Leases. Schedule 4.25 lists the real
property leases to which Seller is a party. Seller has a valid leasehold
interest in all real property it uses or occupies pursuant to real property
leases included within the Contracts (the "Seller Real Property Leases").
Seller's leasehold interest in all Seller Real Property Leases is free and clear
of all Liens, except for (i) easements and other rights or restrictions of
record that do not materially impair the use or value of the Seller Real
Property Leases as they are now used by Seller, and (ii) except for Liens set
forth on Schedule 4.9. To the best of Seller's Knowledge, the buildings,
improvements and fixtures that are included in the Seller Real Property Leases
are in good operating condition and repair (reasonable wear and tear excepted),
free of structural defects and are suitable for their intended uses. To the best
of Seller's Knowledge, the real property which is the subject of the Seller Real
Property Leases, the improvements located thereon, and the furniture, fixtures
and equipment relating thereto (including plumbing, heating, air conditioning
and electrical systems), conform to any and all applicable health, fire, safety,
zoning, environmental, land use and building laws, ordinances and regulations.
Seller is current with respect to all rental payments under the Seller Real
Property Leases and is not in default under any of the Seller Real Property
Leases. In addition, with respect to all Liens listed on Schedule 4.9, to
Seller's Knowledge, there are no facts or circumstances which would give rise to
a claim under the Seller Real Property Leases in connection with any such Lien.
Seller owns no real property and has no other interests therein, other than its
leasehold interests in the Seller Real Property Leases.
4.26. Brokers. Other than Ampton Investments, Inc., Seller has not
dealt with, or made any arrangements or agreements with any third party in
connection with the transactions contemplated by this Agreement so as to give
rise to any claims for brokerage commissions, finders fees or similar
compensation.
4.27. No Other Agreements to Merge or Sell. Seller has no legal
obligation, absolute or contingent, to any other Person to sell the Assets or
the Business (in whole or in part), or effect any merger, consolidation or other
reorganization of Seller, or to enter into any agreement with respect thereto.
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4.28. Financing Statements. Except as set forth on Schedule 4.28, all
of the Assets are and have been located in the State of Oklahoma since the
Assets were acquired by Seller. To Seller's best Knowledge, all Uniform
Commercial Code financing statements, if any, filed by any person with respect
to the Assets are listed on Schedule 4.28.
4.29. Transactions with Certain Persons; Interest in Customers,
Suppliers or Competitors. To Seller's best Knowledge, except as set forth on
Schedule 4.29, no officer, director or employee of Seller nor any member of any
such person's immediate family ("Interested Person") is, or has within the past
five (5) years been, a party to any transaction with Seller relating to the
Business, other than for services as officers, directors or employees of Seller,
or transactions in the ordinary course of business, which transaction provides
or provided for: (a) furnishing of services by such Interested Person, (b)
rental of real or personal property from such Interested Person, or (c) payments
to such Interested Person or a corporation, partnership, trust or other entity
in which any such Interested Person has a controlling interest as a shareholder,
officer, director, trustee or partner. No Interested Person has any direct or
indirect controlling interest in any competitor, supplier or customer of the
Business or in any Person from whom or to whom Seller leases any Real Property
or personal property, or in any other Person with whom Seller is doing business.
4.30. Accounts Receivable. Schedule 4.30 contains a true and complete
aging report of all of the Accounts Receivable relating to the Business as of
August 31, 1998. All Accounts Receivable relating to the Business, except as set
forth on Schedule 4.30, represent bona fide claims of Seller against debtors for
sales, services performed or other charges arising on or before August 31, 1998,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. The Accounts Receivable are subject to no
defenses, counterclaims or rights of setoff and are fully collectible in the
ordinary course of Seller's business without cost in collection efforts
therefor, except as set forth on Schedule 4.30 and except to the extent of the
appropriate reserves for bad debts on the Accounts Receivable as set forth in
the Seller Financial Statements.
4.31. Material Misstatements Or Omissions. No representations or
warranties by Seller in this Agreement, nor in any of the Agreement Documents,
contain or will contain any untrue statement of a material fact, or omit or will
omit to state any material fact necessary to make the statements or facts
contained therein not misleading.
4.32. Acquisition for Own Account. The Netplex Preferred Stock to be
acquired by Seller hereunder will be acquired for investment for Seller's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"), and Seller has no present intention of selling,
granting any participation in, or otherwise distributing the same.
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4.33. Restricted Securities. Seller understands that the shares of
Netplex Preferred Stock are characterized as "restricted securities" under the
1933 Act inasmuch as they are being acquired from Netplex in a transaction not
involving a public offering and that under the 1933 Act and applicable
regulations thereunder such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, Seller
represents that it is familiar with Rule 144 of the Securities and Exchange
Commission ("SEC"), as presently in effect, and understands such resale
limitations imposed thereby and by the 1933 Act.
4.34. Legends. Seller understands that the instruments and certificates
evidencing the shares of Netplex Preferred Stock will bear the legend
substantially as set forth below:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF
ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS
IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed by Netplex from any certificate
or instrument evidencing the Shares upon delivery to Netplex of an opinion by
counsel, reasonably satisfactory to Netplex, that a registration statement under
the 1933 Act is at that time in effect with respect to the legended security or
that such security can be freely transferred in a public sale without such a
registration statement being in effect and that such transfer will not
jeopardize the exemption or exemptions from registration pursuant to which
Netplex issued the Shares.
4.35. No Owned Software or Patents. Except as set forth on Schedule
4.35, or transferred as part of the Assets, Seller owns no software or patents
which are used or required for use in the operation of the Business as it is
presently being conducted.
4.36. No Customer Complaints. To Seller's Knowledge and except as set
forth on Schedule 4.36, there are no currently pending complaints from customers
of the Business which are substantially likely to have a Material Adverse Effect
on the Business, and no
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customer of the Business with any pending complaint or claim has threatened to
file suit against or refused to pay Seller for products or services sold to a
customer in the ordinary course of the Business.
4.37. Business Records. Seller has delivered, or will deliver, to
Netplex copies of all of the Business Records and copies of all customer lists
and accounts of Seller. The customer list as set forth in Schedule 4.37 is a
complete list of all current customers of Seller relating to the Business as of
August 31, 1998.
4.38. Year 2000 Compliance. Seller's "RSA," "Chainlink" and "IDP"
software products ("Compliant Products"), subject to the disclaimer below, will
not produce errors processing date data in connection with the year change from
December 31, 1999 to January 1, 2000 when used with accurate date data in
accordance with the documentation for the Compliant Products, provided all other
products (including, without limitation, other software, firmware, hardware, and
operating systems) used with it properly exchange date data with the Seller's
Compliant Products. Said Compliant Products will recognize the year 2000 as a
leap year. DISCLAIMER: The foregoing statement refers to the Seller's identified
Compliant Products as delivered by Seller, and does not apply to user initiated
modifications, user customizable features or third party add-on features or
products, including items such as macros and custom programming and formatting
features, and further does not constitute a warranty or extend the terms of any
existing warranty. The warranties for the Compliant Products, if any, are set
forth in the license agreement(s) that were signed by Seller's customer in
conjunction with the licensing of the Compliant Product. Except as to the
Compliant Products, no representation or warranty is made by Seller concerning
the compatibility or functionality of any other program or software product
included in any way in the Assets, including, without limitation, any items of
software, operating systems, or hardware with which the Compliant Products may
interact, nor does Seller make or extend any warranty or representation
concerning "year-2000 compliance" of any kind with regard to any product or item
created or provided by any third party, whether owned or licensed, that is to be
transferred to Netplex as an Asset pursuant to this Agreement, or any other item
of software created or provided by Seller.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF NETPLEX
Netplex hereby represents and warrants to Seller as follows, which
representations and warranties have been relied upon by Seller in entering into
this Agreement:
5.1. Organization. Netplex is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, and is
qualified or registered to do business in each jurisdiction where it is required
to do so. Netplex has full corporate power and
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authority to carry on its business as now conducted and to enter into and to
perform this Agreement.
5.2. Corporate Authorization. The execution and delivery of this
Agreement, the issuance of the Netplex Preferred Stock as provided herein and
the consummation of all the transactions contemplated hereby have been duly
authorized by all requisite corporate action with respect to Netplex, including,
without limitation, approval by Netplex's board of directors.
5.3. Binding Agreement. This Agreement has been duly executed by
Netplex and delivered to Seller and constitutes the valid and binding agreement
of Netplex, enforceable against Netplex in accordance with its respective terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting creditors' rights generally and the exercise of judicial discretion in
accordance with general equitable principles.
5.4. No Breach. The execution, delivery and performance of this
Agreement by Netplex and the issuance of any Netplex stock pursuant to this
Agreement and the Agreement Documents will not violate Netplex's Certificate of
Incorporation, as amended, or Bylaws or any Law to which Netplex is subject or
by which Netplex may be bound, or (with or without giving notice or the lapse of
time or both) breach or conflict with any contract, agreement, or other
commitment to which either of Netplex is a party or by which Netplex is or may
be bound, or result in the creation or imposition of any Lien against or upon
the Shares or any of the assets or properties owned or leased by either of
Netplex or the Business.
5.5. Litigation; Compliance with Law. Other than as disclosed in its
public filings, there is no litigation, proceeding (arbitral or otherwise),
claim or investigation of any nature, pending or, to Netplex's best Knowledge,
threatened, against Netplex that reasonably could be expected to adversely
affect Netplex's ability to perform in accordance with the terms of this
Agreement. Neither Netplex nor any officer, director, partner or employee of
Netplex has been permanently or temporarily enjoined or barred by any legal
judgment from engaging in or continuing any conduct or practice in connection
with the activities of Netplex as currently conducted; and there is not in
existence any legal judgment requiring Netplex to take any action of any kind
with respect to the assets or properties owned or leased by it, or its
activities, or to which Netplex or its activities, properties or assets are
otherwise subject or by which they are otherwise bound or affected. The conduct
by Netplex of its activities as currently conducted does not violate or infringe
any Laws currently in effect, or, to the Knowledge of Netplex, proposed to
become effective; and Netplex has not received any notice of any violation by
Netplex of any Laws applicable to Netplex or their respective activities as
currently conducted; and Netplex does not know of any basis for the allegation
of any such violation.
5.6. Brokers. Other than Zanett Securities Corporation, Buyer has
not dealt with, or made any arrangements or agreements with any third party in
connection with the
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transactions contemplated by this Agreement so as to give rise to any claims for
brokerage commissions, finders fees or similar compensation..
5.7. Capitalization. Netplex has authorized and outstanding the
capital stock set forth on Schedule 5.7. Except as set forth on Schedule 5.7,
there are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from Netplex of
any shares of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of Netplex's capital stock.
5.8. Certificate of Incorporation; Certificate of Designation.
Schedule 5.8 includes true, complete and current copies of Netplex's
Certificates of Incorporation, as amended, and Netplex's Certificate of
Designation, respectively, to be filed with the Secretary of State of the State
of New York.
5.9. Consents and Approvals. Except as set forth on Schedule 5.9
hereto, no filing or registration with, no permit, authorization, counsel or
approval of, and no notice to, any federal, state or local government or any
court, administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign, or other public body or authority or
any other Person is necessary or required in connection with the execution and
delivery of this Agreement by Netplex or for the consummation by Netplex of the
transactions contemplated by this Agreement.
5.10. Valid Issuance of Preferred Shares. The Preferred Shares, when
issued and delivered in accordance with the terms of this Agreement for the
consideration provided for herein, will be duly and validly issued, fully paid
and nonassessable and shall not be subject to, or bound or affected by, any
proxies, voting agreements, or other restrictions on the incidents of ownership
or Liens of any nature.
5.11. Permits of Netplex. Netplex represents and warrants that, at
its expense, it has or shall obtain at or prior to Closing all Permits required
to conduct the Business as now being conducted. In the event Netplex is required
to obtain any Permit other than by receipt of the same from Seller, Netplex
shall bear the cost of obtaining it. Until the expiration of nine quarters after
the Closing, all Permits shall be maintained by Netplex as valid and in full
force and effect until December 31, 2000. Except as set forth on Schedule 5.11,
no notice to, declaration, filing or registration with, approval or permit from,
any domestic or foreign governmental or regulatory body or authority, or any
other Person or entity, is required to be made or obtained by Netplex in
connection with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated hereby.
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5.12. Compliance with Laws. Netplex has and shall continue until
December 31, 2000 to comply in all material respects with all of the Laws
applicable to the Business and the Assets, including, without limitation, all
applicable Laws relating to health and sanitation, employment and employment
benefits, equal opportunity, discrimination, environmental protection and
occupational safety, the violation of which would have a Material Adverse Effect
on the Business or the Assets.
5.13 Absence of Material Adverse Changes. Since December 31, 1997,
there have been no changes or conditions constituting a Material Adverse Effect
on Netplex which has not been disclosed in writing to Seller.
ARTICLE 6
COVENANTS OF SELLER
Between the date of this Agreement and the Closing, Seller hereby
covenants:
6.1. Maintenance of the Business. Seller shall conduct the Business
and use the Assets only in the ordinary course of business, consistent with past
practices, which shall include compliance in all respects with all Laws,
regulations and administrative orders of any federal, state or local
governmental authority that are applicable to Seller with respect to the Assets
or Business, with the intent of preserving the ongoing operations of the Assets
and Business and which shall also include, without limitation, not selling,
transferring or disposing of any assets or properties currently owned by Seller,
as applicable, nor making any distributions of cash or other property to
shareholders or incurring any indebtedness for borrowed money without Netplex's
consent, other than accounts payable consistent with past practices.
6.2. Adverse Developments. Seller shall promptly notify Netplex of
any materially adverse developments that occur prior to Closing with respect to
the Assets or the operation of the Business. Seller shall keep Netplex informed
of all material operational matters and business developments with respect to
the Business and its markets, including any competitive changes.
6.3. Access. Seller will provide Netplex, its counsel, accountants,
financing sources and other representatives ("Netplex's Representatives") with
access to the Business Records, to the Assets, and to the officers, employees,
agents and accountants of each with respect to matters relating to the Business
during normal business hours, upon reasonable notice
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and at a mutually agreeable time; provided that such access does not materially
disrupt the operations of the Business, and Seller will provide Netplex's
Representatives with such information concerning the Assets and the Business as
they reasonably may request for the purpose of allowing Netplex to perform a due
diligence review of Seller. Seller shall instruct its representatives to
cooperate fully with the review by Netplex's Representatives of the Business
Records.
6.4. Financial Statements and Other Reports. Between the date of
this Agreement and the Closing, as soon as the same are available, Seller will
provide Netplex with copies of the Business' regularly prepared sales reports
and any regularly prepared periodic financial statements or reports.
6.5. No Negotiations. Seller will refrain, and will cause each other
Person acting for or on behalf of Seller, to refrain, from taking, directly or
indirectly, any action (a) to merge, consolidate, or combine, or to permit any
other Person to merge, consolidate or combine, with Seller in a manner which
affects the Business; and (b) to seek or encourage any offer or proposal from
any Person to acquire the Business or any Assets (other than in the ordinary
course of business consistent with past practices).
6.6. Third Party Consents. Seller shall use its best efforts to
obtain any third party consents required for performance under this Agreement
and the consummation of the transactions contemplated hereby.
6.7. Satisfaction of Conditions. Seller shall in good faith use its
reasonable best efforts to satisfy all conditions to its obligations to close
and consummate the transactions contemplated by this Agreement.
ARTICLE 7
COVENANTS OF NETPLEX
Between the date of this Agreement and the Closing, Netplex hereby
covenants:
7.1. Adverse Developments. Netplex shall promptly notify Seller of
any materially adverse developments that occur prior to Closing with respect to
the operation of its business.
7.2. Access. Netplex will provide Seller, its counsel, accountants,
financing sources and other representatives ("Seller's Representatives") with
access to its business records, and to its officers, employees, agents and
accountants with respect to matters relating to its business during normal
business hours, upon reasonable notice and at a mutually agreeable time;
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provided that such access does not materially disrupt the operations of
Netplex's business, and Netplex will provide Seller's Representatives with such
information concerning its business as they reasonably may request for the
purpose of allowing Seller to perform a due diligence review of Netplex. Netplex
shall instruct its representatives to cooperate fully with the review by
Seller's Representatives.
7.3. Financial Statements and Other Reports. Between the date of
this Agreement and the Closing, as soon as the same are available, Netplex will
provide Seller with copies of its regularly prepared sales reports and any
regularly prepared periodic financial statements or reports.
7.4. Third Party Consents. Netplex shall use its best efforts to
obtain any third party consents required for performance under this Agreement
and the consummation of the transactions contemplated hereby.
7.5. Financial Statements and Other Reports. Between the date of
this Agreement and the Closing, as soon as the same are available, Netplex will
provide Seller with copies of Netplex's regularly prepared periodic financial
statements or reports.
7.6. Third Party Consents. Netplex shall obtain any and all third
party consents required for performance under this Agreement and the
consummation of the transactions contemplated hereby.
7.7. Satisfaction of Conditions. Netplex shall in good faith use its
reasonable best efforts to satisfy all conditions to its obligations to close
and consummate the transactions contemplated by this Agreement.
ARTICLE 8
OTHER COVENANTS
8.1. Governmental Consents. Promptly following the execution of this
Agreement, Seller and Netplex shall proceed to prepare and file with the
appropriate governmental authorities such requests for approvals or waivers,
reports or notifications as may be required in connection with this Agreement.
Notwithstanding anything to the contrary in the foregoing, Seller's obligations
under this section 8.1 shall be construed under and limited to any requests,
waivers, reports or notifications as a required specifically by Oklahoma or
federal law.
8.2. Confidentiality. Netplex and Seller shall each keep
confidential and not, directly or indirectly, reveal, report, publish, disclose
or transfer any information obtained by it with respect to the others in
connection with this Agreement and the negotiations preceding this Agreement
(the "Confidential Information"). Each will use such Confidential Information
solely
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in connection with the transactions contemplated by this Agreement, and if the
transactions contemplated hereby are not consummated for any reason, each shall
return to the others, without retaining any copies thereof, any schedules,
documents or other written information obtained from the other in connection
with this Agreement and the transactions contemplated hereby and shall cause all
of its officers, employees, agents, accountants, attorneys and other
representatives to whom it may have disclosed such Confidential Information to
do the same. Notwithstanding the foregoing limitation, neither party shall be
required to keep confidential or return any Confidential Information that (a) is
known or available through other lawful sources, not bound by a confidentiality
agreement with the disclosing party, (b) is or becomes publicly known or
generally known in the industry through no fault of the receiving party or its
agents, (c) is required to be disclosed pursuant to Law (provided the other
parties are given reasonable prior notice), and (d) is developed by the
receiving party independently of the disclosure by the disclosing party. This
Section 8.2 shall survive the termination of this Agreement.
8.3. No Inconsistent Action. Each of Netplex and Seller shall not
take any action which is materially inconsistent with its obligations under this
Agreement or that would hinder or delay the consummation of the transactions
contemplated by this Agreement.
8.4. Non-competition by Seller.
(a) For a period of four (4) years after the Closing Date, Seller and
any of its subsidiaries, Affiliates, successors or assigns (except as
hereinafter stated) shall not, directly or indirectly, alone, or as a
partner, partial owner, consultant, or agent (of any other corporation,
partnership or other business organization), engage in the delivery of
technology consulting services and solutions to the retail and
distribution industries other than as is reasonably necessary for the
sale, licensing, installation, integration, use, implementation and
support of viaLink products and services. Seller and Netplex agree that
the viaLink business is defined as substantially building, marketing
and implementing proprietary software products, information content and
related services to facilitate electronic commerce. If Seller sells,
assigns, or otherwise disposes of its viaLink business to a buyer who
is not under the control of Seller, and such Buyer is already in
competition with Netplex or any of its Affiliates, then this Section
8.4(a) shall not apply.
(b) For a period of four (4) years after the Closing Date, Seller and
any of its subsidiaries, Affiliates, successors or assigns shall not,
directly or indirectly, alone, or as a partner, partial owner,
consultant, or agent of any other corporation, partnership or other
business organization,
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knowingly solicit the employment of, or knowingly hire, any employee of
Netplex, or any Netplex subsidiary, or intentionally cause any such
employee to terminate the employee's relationship with Netplex or any
Netplex subsidiary, without the prior written approval of Netplex.
(c) For a period of four (4) years after the Closing Date, Seller and
any of its subsidiaries, Affiliates, successors or assigns (except as
hereinafter stated) shall not, directly or indirectly, alone, or as a
partner, partial owner, consultant or agent (of any other corporation,
partnership or other business organization), knowingly solicit any of
the accounts of Netplex relating to the retail and distribution
industries unless such solicitation is undertaken on behalf of a
business venture which does not engage in the delivery of information
technology services and solutions to the retail and distribution
industries other than as is reasonably necessary for the sale,
licensing, installation, integration, use, implementation and support
of viaLink products and services. Seller and Netplex agree that the
viaLink business is defined as substantially building, marketing and
implementing proprietary software products, information content and
related services to facilitate electronic commerce. If Seller sells,
assigns, or otherwise disposes of its viaLink business to a buyer who
is not under the control of Seller, and such Buyer is already in
competition with Netplex or any of its Affiliates, then this Section
8.4(c) shall not apply.
(d) The parties agree that any breach of this Section 8.4 of this
Agreement may cause irreparable injury to Netplex and that money
damages may not provide an adequate remedy. Accordingly, Netplex shall,
in addition to other remedies provided by law, be entitled to such
equitable and injunctive relief as may be necessary to enforce the
provisions of this Section 8.4 against Seller or any of its
subsidiaries or Affiliates, or any person or entity participating in
such breach or threatened breach. Nothing contained herein shall be
construed as prohibiting Netplex from pursuing any other and additional
remedies available to it, at law or in equity, for such breach or
threatened breach including any recovery of damages from Seller or any
other person or entity participating in such breach or threatened
breach.
8.5. Piggyback Registration. Seller understands that Netplex is
under no obligation to register any of the Netplex Preferred Stock sold
hereunder. However, Netplex, at its
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sole cost and expense, agrees to either: (i) include in its next registration
statement, or (ii) register no later than 12 months after Closing, whichever
first occurs, sufficient Netplex Common Stock to permit the conversion of the
Netplex Preferred Stock and to maintain effectiveness of such registration
statement until such time as the Netplex Common Stock underlying the Netplex
Preferred Stock may be sold pursuant to Rule 144(k) of the SEC upon conversion
of the Netplex Preferred Stock to Netplex Common Stock.
8.6 Compensation of Broker - Netplex. If Netplex has or is alleged
to have any liability to any Person who has or claims to have acted on Netplex's
behalf as a finder, broker, intermediary or otherwise in connection with this
Agreement or the transactions contemplated hereby, then Netplex shall be totally
responsible for payment of any amounts due to the Person and shall fully
indemnify and hold Seller harmless from any claim, expense (including attorney's
fees) and Liabilities to such Person arising out of or related to such Person's
claims.
8.7. Compensation of Broker - Seller. If Seller has or is alleged to
have any liability to any Person who has or claims to have acted on Seller's
behalf as a finder, broker, intermediary or otherwise in connection with this
Agreement or the transactions contemplated hereby, then Seller shall be totally
responsible for payment of any amounts due to the Person and shall fully
indemnify and hold Netplex harmless from any claim, expense (including
attorney's fees) and Liabilities to such Person arising out of or related to
such Person's claims.
8.8. Schedules. The parties shall have completed and/or updated the
schedules attached to this Agreement so that such schedules are complete and
accurate as of the Closing Date.
8.9. Assignment of Assets and Contracts. The parties shall assist
each other in good faith in securing the consent of any third parties to the
transfer and/or assignment of any Assets and Contracts.
8.10. Earned Compensation. All compensation which represents payment
of any amounts earned by Seller for any previously completed work for any
customer or any Contract obligations for which payment was earned at any time
prior to Closing shall be Seller's. If such compensation is received by Netplex
or the Business after the Closing, it shall promptly be accounted for and paid
or delivered to Seller and shall not be included in any calculation of earnings
or expenses for the business for any period subsequent to the Closing. Any
compensation collected by Seller which represents payment for Work in Progress
earned after Closing through continuation or completion of such work by the
Business after the Closing shall be paid to Netplex. Compensation due to either
Party under this section, or any other compensation due to either Party due to
audit adjustments, credits for
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prepaid assets, credits for prepaid expenses, vacation liabilities or other
amounts agreed to by the parties, to the extent such amounts to be received are
known at or before the Closing, are set forth on Schedule 8.10.
8.11. Receipt of Payments/Property. If one party for any reason
receives any payment or property which belongs to the other party, the party
receiving the funds or property shall immediately notify the other, and shall
immediately forward such funds or property to the other party.
8.12. Sales and Transfer Taxes. Seller shall any sales and transfer
taxes relating to the sale and transfer of the Assets, and shall hold Netplex
harmless therefrom.
8.13. Filings. If required by Law, Seller shall comply with any Bulk
Sales Act or similar requirements necessary to consummate the transactions
contemplated herein.
8.14. Material Misstatements Or Omissions. No representations or
warranties by Netplex in this Agreement, nor any document, exhibit, statement,
certificate or Schedule heretofore or hereinafter furnished to Seller pursuant
hereto, or in connection with the transactions contemplated hereby, including,
without limitation, the Agreement Documents, contain or will contain any untrue
statement of a material fact, or omit or will omit to state any material fact
necessary to make the statements or facts contained therein not misleading.
8.15. Compliance With Constituent Agreements. Netplex shall comply
with all terms and provisions and shall meet all of Netplex's obligations
contained in the Earn-Out Agreement, the Certification of Designation, and each
and all of the Agreement Documents, the breach or default of any of which shall
constitute a material breach of this Agreement.
8.16. Adverse Developments. Netplex shall promptly notify Seller of
any materially adverse developments that occur subsequent to Closing with
respect to the Assets or the operation of the Business until all compensation
due to Seller under the Agreement Documents has been paid. Seller shall keep
Netplex informed of all material operational matters and business developments
with respect to the Business and its markets, including any competitive changes
during such time.
8.17. Access. Netplex will provide Seller, its counsel, accountants,
financing sources and other representatives ("Seller's Representatives") with
access to the Business Records and ssets during normal business hours, upon
reasonable notice and at a mutually agreeable time; provided that such access
does not materially disrupt the operations of the Business, and Netplex will
provide Seller's Representatives with such information concerning the Business
Records, Assets and Business as they reasonably may request for the purposes of
(i) allowing Seller to reasonably audit the Business while any compensation due
under the
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Agreement Documents remains due; and (ii) to defend, counter, or respond to any
claim, complaint, or litigation matter which may arise involving Seller and any
Person.
8.18. In addition to Netplex's other confidentiality obligations as
set forth in this Agreement or any of the Agreement Documents, Netplex adopts,
assumes, and shall remain bound by any and all agreements of Seller or
provisions contained in the Contracts or elsewhere disclosed in the Agreement
Documents that provide for any continuing obligation of Seller to maintain or
protect the confidentiality of any information of any customer, client, or other
Person with whom Seller has had any commercial dealings. This Section 8.16 shall
survive termination of this Agreement.
8.19. Netplex shall not impair the rights or the value of the
Netplex Preferred Stock to be issued to Seller by the Agreement or the Agreement
Documents.
ARTICLE 9
CONDITIONS PRECEDENT TO CLOSING
9.1. Conditions Precedent to Each Party's Obligation to Effect the
Closing. The respective obligations of each party to consummate the Agreement
are subject to the satisfaction at or prior to the Closing of the following
conditions precedent:
(a) This Agreement, the Agreement Documents, and the transactions
contemplated hereby shall have been authorized and approved by the
each Party's Board of Directors and shareholders in accordance
with all applicable Laws and regulations.
(b) No order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any court of competent jurisdiction or
any governmental authority which prohibits the Closing; provided,
however, that the parties hereto shall use their best efforts to
have any such order, decree or injunction vacated or reversed.
(c) No action, claim, suit or proceeding seeking to enjoin, restrain,
or prohibit the consummation of this Agreement shall be pending
before any court or any other governmental authority; provided,
however, that this condition may not be invoked by a party if any
such action, suit, or proceeding was solicited or encouraged by,
or instituted as a result of any act or omission of such party.
(d) Netplex and each of Robert Barcum, Larry Davenport, and David
North shall have executed employment agreements in substantially
the form attached as Exhibit C hereto (the "Employment
Agreements").
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(e) The parties shall have obtained all required regulatory approvals
in connection with this Agreement and the transactions
contemplated herein.
(f) The parties shall have obtained consent from Seller's lessor and
Netplex shall have entered into a sublease with Seller, on terms
mutually satisfactory to both Parties, for a portion of the real
property currently used in the Business.
(g) Subject to the terms of this Agreement, All Contracts and Works in
Progess shall have been assigned to Netplex or the same shall have
been modified, amended or novated so that Netplex has been
substituted for Seller.
(h) All Agreement Documents shall have been completed and/or executed
by the Parties.
(i) The parties shall have entered into a Remarketing Agreement for
Seller's ChainLink software product, on terms mutually
satisfactory to both Parties.
(j) The parties shall have entered into an agreement for office
support and other administrative services to be provided by Seller
to Netplex, on terms mutually satisfactory to both Parties.
(k) The parties shall have entered into a computer equipment lease
agreement, on terms mutually satisfactory to both Parties.
(l) The closing or closings of a financing transaction with First
Union Bank pursuant to which First Union Bank loans to Netplex up
to 80% of Netplex's accounts receivable and the sale of equity
securities to Zanett Securities for $1,500,000 and the receipt of
said proceeds of the sale transaction, or any similar financing
arrangement.
(m) The Parties mutually agree as to which Liens, Liabilities and
Contracts regarding the Assets, if any, will be assumed by
Netplex.
(n) The parties acknowledge that at the time of signing this
Agreement, the Schedules and Exhibits have not been completed and
annexed to the Agreement. In the event that any qualification of a
representation which is reflected on a Schedule is unacceptable to
either party, that Party shall have the right to terminate this
Agreement.
9.2. Conditions Precedent to Obligations of Netplex. The obligations
of Netplex to consummate the Agreement are subject to the satisfaction or waiver
at or prior to the Closing of the following conditions precedent;
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(a) The representations and warranties of Seller contained in Article
4 that are qualified as to materiality shall be true and correct
and the representations and warranties of Seller contained in
Article 4 that are not qualified as to materiality shall be true
and correct in all material respects in each case when made, and
at and as of the Closing, with the same force and effect as if
those representations and warranties had been made at and as of
such time (with such exceptions if any, necessary to give effect
to events or transactions expressly permitted herein).
(b) Seller shall, in all material respects, have performed all
obligations and complied with all covenants contemplated herein
that are required by this Agreement to be performed or complied
with by Seller on or before the Closing.
(c) Netplex shall have received a certificate of the President or Vice
President of Seller, in form satisfactory to counsel for Netplex,
certifying fulfillment of the matters referred to in paragraphs
(a) and (b), respectively, and (d), (e), (f), (g) and (i) of this
Section 9.2.
(d) Seller shall have obtained all necessary consents of third parties
to the transactions contemplated by this Agreement, including
without limitation, any governmental consents or approvals and any
consents required to prevent a default under any Contract as a
result of the transactions contemplated in this Agreement.
(e) Netplex shall have completed and been satisfied with the results
of its due diligence review of Seller as being consistent with the
representations and warranties contained herein.
(f) All necessary agreements and approvals by the holders of the
shares of Seller Capital Stock shall have been obtained in order
to consummate this Agreement.
(g) Seller shall not have suffered any material adverse change with
respect to its financial condition or its properties since
December 31, 1997 (regardless of whether such material adverse
change shall have been reflected on the updated Disclosure
Schedules to be delivered to Netplex by Seller at the Closing);
and
(h) Netplex shall have received good standing certificates with
respect to Seller in Oklahoma, and in each other jurisdiction
where Seller is qualified as a foreign corporation.
(i) Seller shall have changed its corporate name in Oklahoma and in
each other jurisdiction where Seller is qualified as a foreign
corporation.
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(j) Seller shall have delivered to Netplex copies of all Business
Records and all current customer lists and accounts of the
Business.
(k) Netplex shall have (i) extended offers of employment to each
Person listed on Schedule 4.22 at the compensation rates set forth
in said Schedule and with an effective date of hire equal to the
Closing Date; (ii) offered to such Person the usual and customary
benefits provided by Netplex to its employees; (iii) for purposes
of determining vacation and sick leave benefits, credited such
employee's prior service as an employee of Seller toward such
employee's entitlement to any such benefits as an employee of
Netplex; (iv) provided vested vacation and/or sick leave benefits
equal to any such benefit accrued and unused while such employee
was employed with Seller prior to the Effective Date hereof; and
(v) complied with all applicable Laws regarding the hiring of said
Employees, including, without limitation, any Laws relating to
employee benefits.
(l) All of Seller's employees involved in the operation of the
Business shall have been offered employment as in (j) above and
shall have accepted such offer of employment with Netplex.
(m) Netplex shall have received an opinion of Seller's outside
counsel, in form satisfactory to counsel for Netplex, to the
effect all necessary approvals of shareholders and/or the Board of
Directors of Seller have been obtained for the transaction.
9.3. Conditions Precedent to the Obligations of Seller. The
obligation of Seller to consummate the Agreement is subject to the satisfaction
or waiver at or prior to the Closing of the following conditions precedent:
(a) The representations and warranties of Netplex contained in Article
5 shall have been true and correct in all material respects when
made, and as of the Closing with the same force and effect as if
those representations and warranties had been made at and as of
such time (with such exceptions, if any, necessary to give effect
to events or transactions expressly permitted herein).
(b) Netplex shall, in all material respects, have performed all
obligations and complied with all covenants contemplated herein
that are required by this Agreement to be performed or complied
with by Netplex on or before the Closing;
(c) Seller shall have received certificates of the President or Vice
President of Netplex, in form satisfactory to counsel for Seller,
certifying fulfillment of the matters referred to in paragraphs
(a) and (b), respectively, and (d), (e), and (f) of this Section
9.3.
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(d) Netplex shall have obtained all necessary consents of third
parties to the transactions contemplated by this Agreement,
including without limitation, any governmental consents or
approvals and any consents required to prevent a default or breach
under any contract as a result of the transactions contemplated in
this Agreement.
(e) All necessary agreements and approvals by the holders of the
shares of Netplex stock shall have been obtained in order to
consummate this Agreement.
(f) Netplex shall not have suffered any material adverse change with
respect to its financial condition or its properties since
December 31, 1997; and
(g) Seller shall have received good standing certificates with respect
to Netplex in New York, and in each other jurisdiction where
Netplex is qualified as a foreign corporation.
(h) Seller shall have received an opinion of Netplex's outside
counsel, in form satisfactory to counsel for Seller, to the effect
that the Certificate of Designation of the Preferred Stock of
Netplex fully complies with all applicable Laws and that all
necessary approvals of shareholders and/or the Board of Directors
of Netplex have been obtained both for the Certificate of
Designation and for the transactions contemplated hereby.
(i) Seller shall have received a fairness opinion concerning the
contemplated transactions from Seidman & Co., Inc.
(j) To the extent Netplex expressly agrees to do so in accordance with
the terms and conditions as set forth in the Agreement or a
Schedule to this Agreement, Netplex expressly shall have assumed,
adopted and accepted as its own obligations all Liabilities to
Seller's customers contained in all Contracts, Works in Progress,
and in any of the Agreement Documents, whether express or implied
by law, relating to the Contracts or the Assets, to the extent
identified on a Schedule to this Agreement.
(k) The Certificate of Designation, its approval, and all necessary
filings related thereto shall be satisfactory to Seller; or
Netplex, in a form satisfactory to Seller, has agreed to issue to
Seller an equivalent number of shares of Netplex Common Stock upon
similar terms and conditions a those relating to the Netplex
Preferred Stock.
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ARTICLE 10
TERMINATION; AMENDMENT; WAIVER
10.1. Termination. This Agreement may be terminated without
liability of any Party, each to the other, and the Closing contemplated hereby
may be abandoned at any time notwithstanding approval thereof by the
shareholders of Seller, but prior to the Closing:
(a) by mutual written consent of Seller and Netplex;
(b) by Netplex, or Seller, if the Closing shall not have occurred on
or before September 30, 1998 (provided that the right to terminate
this Agreement under this Section 9.1 shall not be available to
any party whose failure to fulfill any obligation under this
Agreement has been the cause of or has resulted in the failure of
the Closing to occur on or before such date); or
(c) by either Party, if prior to the Closing, the Board of Directors
of either Party shall have withdrawn, or modified in a manner
adverse to the other Party, its approval or recommendation of the
Agreement, or shall have recommended another offer or shall have
resolved to do any of the foregoing;
(d) by Netplex or Seller, if any court of competent jurisdiction in
the United States or other United States governmental body shall
have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Agreement and
such order, decree, ruling or other action shall have become final
and nonappealable;
(e) by Netplex or Seller if there shall be pending any suit, action or
proceeding, which has a reasonable possibility of success, or
there shall be pending by any other Person any suit, action or
proceeding, which has a substantial likelihood of success, (i)
seeking to restrain or prohibit the consummation of the Agreement
or the performance of any of the other transactions contemplated
by this Agreement, or (ii) which otherwise is reasonably likely to
have a Material Adverse Effect on the business, properties,
assets, condition (financial or otherwise), results of operations
or prospects of Seller.
(f) by Netplex or Seller, if there shall be pending any suit, action
or proceeding which has a reasonable possibility of success, or
there shall be pending by any other Person any suit, action or
proceeding, which has a
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substantial likelihood of success, (i) seeking to prohibit or
limit the ownership or operation by Seller, Netplex of a material
portion of the Business or Assets, (ii) seeking to impose material
limitations on the ability of Netplex to exercise full rights of
ownership of the Assets, or (iii) seeking to prohibit Netplex from
effectively controlling in any material respect the Business.
10.2. Effect of Termination. If this Agreement is so terminated and
the Agreement is not consummated, this Agreement shall forthwith become void and
have no effect, without any liability on the part of any party or its directors,
officers or shareholders, other than the provisions of this Section 10.2 and the
provisions of this Agreement which are indicated herein as surviving such
termination. Nothing contained in this Section 10.2 shall relieve any party from
liability for any breach of this Agreement.
10.3. Amendment. This Agreement may not be amended except by an
instrument in writing signed by both Parties.
10.4. Extension; Waiver. At any time prior to the Closing, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document, certificate
or writing delivered pursuant hereto or (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE 11
INDEMNIFICATION
11.1. From and after the Closing, Seller shall indemnify, defend,
protect and hold harmless Netplex, from and against all losses, liabilities,
obligations, damages, deprivation of benefits, costs and expenses (including
reasonable attorneys' fees) (collectively hereinafter "Losses"), which result
from or arise in connection with: (a) any breach of any warranty made by Seller
in the Agreement or any representation in any of the Agreement Documents, not
being true when made or when required by this Agreement to be true in all
material respects, or in any certificate or other instrument delivered by or on
behalf of Seller pursuant thereto not being true when made or when required by
this Agreement to be true in all material respects; or (b) any breach of any
covenant set forth in this Agreement or any Agreement Documents to be performed
(prior to or after the Closing) by Seller; or (c) the Liabilities of Seller
which are not assumed or acquired by Netplex pursuant to this Agreement or the
Agreement Documents.
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The parties anticipate that a claim for indemnification may be made
under any or all of subsections (a) through (c) above; in any such case, each
such clause and sub-clause shall be independently effective to provide Netplex
with a right to indemnification.
11.2. From and after the Closing, Netplex, shall indemnify, defend,
protect and hold harmless Seller, from and against all Losses as defined in
Section 11.1, which result from, or arise in connection with: (a) any breach of
any warranty made by Netplex in the Agreement or any representation in any of
the Agreement Documents, not being true when made or when required by this
Agreement to be true in all material respects, or in any certificate or other
instrument delivered by or on behalf of Netplex pursuant thereto not being true
when made or when required by this Agreement to be true in all material
respects; (b) any breach of any covenant set forth in this Agreement or the
Agreement Documents to be performed (prior to or after the Closing) by Netplex;
or (c) any of the Liabilities assumed by Netplex pursuant to this Agreement or
the Agreement Documents .
The parties anticipate that a claim for indemnification may be made
under any or all of subsections (a) through (c) above; in any such case, each
such clause and sub-clause shall be independently effective to provide Seller
with a right to indemnification.
11.3. Whenever any claim shall arise for indemnification hereunder,
the party entitled to such indemnification (the "Indemnitee") shall notify the
party from whom indemnification is sought (the "Indemnitor") of such claim in
writing promptly and in no case later than ninety (90) days after such
Indemnitee has received actual written notice of the facts constituting the
basis for such claim; each Indemnitee shall also so notify the Indemnitor
promptly and in no case later than fifteen (15) days after the commencement of
any legal proceedings with respect to any such claim. The failure to notify the
Indemnitor will not relieve the Indemnitor from any liability which it may have
to any Indemnitee to the extent the Indemnitor is not prejudiced as a proximate
result of such failure. Such notice shall specify, in reasonable detail, the
facts known to such Indemnitee giving rise to the indemnification sought . Such
notice shall also include photocopies of all relevant communications received
from third party claimants and their attorneys.
11.4. If the facts giving rise to any indemnification provided for
in this Agreement shall involve any actual or threatened claim or demand by any
person other than a party to the Agreement or its successors or permitted
assigns (a "Third Party") against any Indemnitee, the Indemnitor shall be
entitled, upon its election, by written notice given to the Indemnitee as soon
as reasonably practicable and in any case within thirty (30) days after the date
on which notice of the claim or demand is given to the Indemnitor (without
prejudice to the right of such Indemnitee to participate at its expense through
counsel of its own choosing), to assume the defense of such claim and any
litigation resulting therefrom at its expense and through counsel of its own
choosing; provided, however, that if by reason of the claim of such
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Third Party a Lien, attachment, garnishment or execution is placed upon any of
the property or assets of such Indemnitee, the Indemnitor, if it desires to
exercise its right to defend such claim or litigation, shall furnish an
indemnity bond or other form of security reasonably satisfactory to the
Indemnitee to obtain the prompt release of such Lien, attachment, garnishment or
execution. If the Indemnitor assumes the defense of any such claim or
litigation, it shall take all steps reasonably necessary in the defense or
settlement of such claim or litigation. In any such suit, action or proceeding,
the Indemnitee shall have the right to control its own defense through its own
counsel, but the fees and expenses of such counsel shall be at its own expense
unless (i) the parties shall have mutually agreed to the retention of such
counsel or (ii) the named parties to such suit, action or proceeding (including
any impleaded parties) shall include an Indemnitee and an Indemnitor and the
representation of both parties by the same counsel would present a conflict of
interest as reasonably determined by counsel to the Indemnitee, in which event
the Indemnitor shall pay such counsel's fees and expenses. If the Indemnitor has
timely assumed defense, the Indemnitor shall not be liable for any settlement
effected without its consent, which consent shall not be unreasonably withheld
or delayed. The Indemnitor may settle any claim without the consent of any
Indemnitee, but only if the sole relief awarded is money damages that are paid
in full by the Indemnitor and either (i) the consent to the entry of any
judgment or settlement includes as an unconditional term thereof the giving to
the Indemnitee of a release from all liability in respect to such claim or
litigation or (ii) the litigation against the Indemnitee is dismissed with
prejudice; otherwise, the Indemnitor may not settle any claim against an
Indemnitee without the consent of the Indemnitee, which consent shall not
unreasonably withheld or delayed. The parties shall cooperate in the defense of
any such claim or litigation. If the Indemnitor does not timely assume the
defense of any such claim or litigation, the Indemnitee may defend against such
claim or litigation in such manner as it may deem appropriate and may settle
such claim or litigation, after giving written notice thereof to the Indemnitor,
on such terms as such Indemnitee may deem appropriate; and the Indemnitor will
promptly reimburse such Indemnitee for the Losses incurred as a result of such
settlement. If no settlement of such claim or litigation is made, the Indemnitor
shall promptly reimburse such Indemnitee for the amount of any judgment rendered
with respect to such claim or such litigation and for all expenses, legal and
other, incurred by such Indemnitee in connection with any such judgment for
which the Indemnitee has been so reimbursed pursuant hereto; provided, however,
that if such judgment is appealable and such Indemnitee notifies the Indemnitor
of its intention not to appeal, the Indemnitor may prosecute such appeal, at its
sole cost and expense and subject to the obligations set forth herein.
11.5. Each amount determined to be payable by an Indemnitor to an
Indemnitee under the terms hereof ("Indemnity") shall be paid in cash to the
Indemnitee within thirty (30) days after the date on which the Indemnitor is
notified in writing of the amount of such Indemnity, as finally determined in
accordance with the terms hereof. Each such notice shall contain an itemization
of the damages, expenses, costs and liabilities comprising the Indemnity,
certified to be true and correct by the Indemnitee or its legal representative.
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<PAGE>
11.6. Indemnification Threshold. Neither party shall have any
indemnification payment obligations under this Agreement unless and until all
such obligations exceed One Thousand Dollars ($1,000) in aggregate, and then
only to the extent that such obligations exceed One Thousand Dollars ($1,000) in
the aggregate.
ARTICLE 12
MISCELLANEOUS
12.1. Further Assurances. From time to time at or after the Closing,
at the request of the other, Seller and Netplex, as necessary, will execute and
deliver such other instruments and take such other action as is reasonably
necessary to consummate, complete and carry out the purposes of the transactions
contemplated hereby.
12.2. Benefit and Assignability. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other person or entity shall have any
right (whether third party beneficiary or otherwise) hereunder. This Agreement
may not be assigned by any party without the prior written consent of the other
party.
12.3. Notices. All notices demands and other communications
pertaining to this Agreement ("Notices") shall be in writing addressed as
follows:
If to Seller:
Robert N. Baker, Vice President
viaLink
13800 Benson Road
Edmond, OK 73013-6417
with a copy to:
Richard M. Klinge, Esq.
Richard M. Klinge & Associates, P.C.
228 Robert S. Kerr, Suite 940
Oklahoma City, OK 73102
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<PAGE>
If to Netplex:
The Netplex Group, Inc.
Attention: Gene F. Zaino, President
8260 Greensboro Drive, 5th Floor
McLean, Virginia 22102
with a copy to:
Attn: Edward J. Walsh, Jr., Esq.
Vedder Price Kaufman & Day
22nd Floor
805 Third Avenue
New York, NY 10022
Notices shall be deemed given five (5) business days after being mailed by
certified or registered United States mail, postage prepaid, return receipt
requested, or on the first business day after being sent, prepaid, by nationally
recognized overnight courier that issues a receipt or other confirmation of
delivery to the appropriate recipient of such Notice. Any party may change the
address to which Notices under this Agreement are to be sent to it by giving
written notice of a change of address in the manner provided in this Agreement
for giving Notice.
12.4. Waiver. Unless otherwise specifically agreed in writing to the
contrary: (a) the failure of any party at any time to require performance by the
other of any provision of this Agreement shall not affect such party's right
thereafter to enforce the same; (b) no waiver by any party of any default by any
other shall be valid unless in writing and acknowledged by an authorized
representative of the nondefaulting party, and no such waiver shall be taken or
held to be a waiver by such party of any other preceding or subsequent default;
and (c) no extension of time granted by any party for the performance of any
obligation or act by any other party shall be deemed to be an extension of time
for the performance of any other obligation or act hereunder.
12.5. Entire Agreement. This Agreement and the Agreement Documents
as defined herein constitutes the entire agreement between the parties with
respect to the subject matter hereof and referenced herein, and supersedes and
terminates any prior agreements or representations between the parties (written
or oral) with respect to the subject matter hereof. This Agreement may not be
altered or amended except by an instrument in writing signed by the party
against whom enforcement of any such change is sought.
12.6. Counterparts; Facsimile. This Agreement may be signed in any
number of counterparts with the same effect as if the signature on each such
counterpart were on the same
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<PAGE>
instrument. This Agreement and any counterparts may be executed by facsimile
with the same effect as if the signature were an original.
12.7. Construction. The headings of the Articles and Sections of
this Agreement are for convenience only and in no way modify, interpret or
construe the meaning of specific provisions of the Agreement.
12.8. Agreement Documents. The Agreement Documents are a material
part of this Agreement.
12.9. Severability. In case any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality, and enforceability of the remaining
provisions will not in any way be affected or impaired. Any illegal or
unenforceable term shall be deemed to be void and of no force and effect only to
the minimum extent necessary to bring such term within the provisions of
applicable Laws and such term, as so modified, and the balance of this Agreement
shall then be fully enforceable.
12.10. Choice of Law. The obligations, representations, covenants
and warranties entered into by the Parties under this Agreement shall be
construed and governed by the Laws of the State of Oklahoma, without regard for
the choice of law rules of that State.
12.11. Survival and Limitation of Actions. The representations,
warranties and covenants of Seller and Netplex contained in the Agreement
Documents shall survive the consumation of the transactions contemplated hereby.
Any claims or causes of action for breach or default, or for indemnification,
under this Agreement or any of the Agreement Documents, must be commenced by
either party hereto no later two years after such Party discovers or reasonably
should have discovered the existence of any such claim or cause of action. For
any action between the parties not otherwise subsumed in the foregoing, such
action may be commenced no later than within the time permitted by the statute
of limitations provided by applicable Law.
12.12. Public Statements. Prior to the Closing, neither Seller nor
Netplex shall, without the prior written approval of the other party, make any
press release or other public announcement concerning the transactions
contemplated by this Agreement, except that (a) Seller and Netplex shall issue a
mutually agreeable press release promptly after the signing of this Agreement;
and (b) Seller and Netplex shall be permitted to make public announcements to
the extent required by Law, in which case the other party shall be so advised as
far in advance as possible.
12.13. Attorneys' Fees. If either party initiates any litigation
against the other party involving this Agreement, the prevailing party in such
action shall be entitled to receive reimbursement from the other party for all
reasonable attorneys' fees and other costs and
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expenses incurred by the prevailing party in respect of that litigation,
including any appeal, and such reimbursement may be included in the judgment or
final order issued in that proceeding.
12.14. Expenses. Seller shall be responsible for the legal,
accounting and other expenses incurred by Seller in connection with this
Agreement and the transactions contemplated hereby. Netplex shall be responsible
for the legal, accounting and other expenses incurred by Netplex in connection
with this Agreement and the transactions contemplated hereby.
12.15. Counsel. Each party has been represented by its own counsel
in connection with the negotiation and preparation of this Agreement and,
consequently, each party hereby waives the application of any rule of law that
would otherwise be applicable in connection with the interpretation of this
Agreement, including, but not limited to, any rule of law to the effect that any
provision of this Agreement shall be interpreted or construed against the party
whose counsel drafted that provision.
12.16. De Minimus violations. Any act, omission, or
misrepresentation which does not materially result in any measurable damage or
liability to either party shall not be deemed or considered a breach or default
of this Agreement by either party.
12.17 Remedies Nonexclusive. The rights and remedies provided to the
Parties in this Agreement are in addition to and not in lieu of any other right
or remedy which may exist at law or in equity according to applicable Laws.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE NETPLEX GROUP, INC.
By:
Name:
Title:
APPLIED INTELLIGENCE GROUP, INC.
By:
Name:
Title:
41
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") made as of this 30th
day of September, 1998 by and between THE NETPLEX, GROUP INC., a New York
corporation with its principal place of business at 8260 Greensboro Drive,
McLean, Virginia 22102 ("Netplex"), and Robert Barcum (the "Employee").
WHEREAS, Netplex and Applied Intelligence Group, Inc.
("Seller") have entered into an Asset Acquisition Agreement dated the 31st day
of August, 1998, and
WHEREAS, Employee was an officer and employee of Seller, and
WHEREAS, as a material part of the consideration of said Asset
Acquisition Agreement, Employee was to be employed by Netplex during the
Earn-Out Period ("Earn-Out Period") as defined in the Earn-Out Agreement
("Earn-Out Agreement") executed between Seller and Netplex pursuant to the Asset
Acquisition Agreement to assist in accomplishing the goals and intent of said
Earn-Out Agreement as further set forth in said Earn-Out Agreement, and
WHEREAS the employment of Employee was a substantial portion
of the consideration received by Netplex, without which Netplex would not have
consummated the Asset Acquisition Agreement, and
WHEREAS, Netplex desires to employ the Employee and the
Employee is willing to undertake such employment, and the parties hereto wish to
set forth certain terms of the Employee's employment with Netplex.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto do agree as follows:
1. Employment. Netplex hereby employs the Employee, and the Employee
hereby accepts such employment, as the President of AIG, a division of
Netplex, upon the terms and subject to the conditions contained herein.
2. Duties.
A. The Employee shall perform all duties commensurate with the
Employee's position and which are assigned by the President of
Netplex, or his designee; provided however and notwithstanding
anything to the contrary herein, during said Earn-Out Period,
Employee shall be assigned such duties as are reasonably
necessary to carry out the terms and conditions of the
Earn-Out Agreement. Said Earn-Out Agreement is incorporated
herein by reference and Employee shall not be assigned any
duties which are contrary to the terms and conditions of said
Earn-Out Agreement.
B. Throughout his employment hereunder, but subject to the
limitations set forth in paragraph 2(A) above, the Employee
shall devote his full time, attention, knowledge
<PAGE>
and skills during normal business hours in furtherance of the
business of Netplex and will faithfully, diligently, and to
the best of his ability, perform the duties described above
and further Netplex's best interests.
C. During his employment, the Employee shall not knowingly
engage, and shall not knowingly solicit any employees of
Netplex, or its subsidiaries or other affiliates to engage, in
any commercial activities which are in any way in competition
with the activities of Netplex, or which in any way materially
interfere with the performance of his duties or
responsibilities to Netplex.
D. Subject to the limitations set forth in paragraph 2(A) of this
Agreement, the Employee shall at all times be subject to,
observe and carry out such reasonable rules, regulations,
polices, directions and restrictions as Netplex, consistent
with Employee's rights and duties under this Agreement, may
from time to time establish and those imposed by law, provided
that the same are generally applicable to all similarly
situated employees.
3. Employee Covenants. In order to induce the Company to enter into this
Agreement, the Employee hereby agrees as follows:
A. Except when he is directed to do otherwise by the President of
Netplex, his designee, or any successor to him, and except as
required by law, court order or subpoena, the Employee shall
keep confidential and shall not divulge to any other person or
entity, during the term of the Employee's employment or
thereafter, any of the business secrets or other confidential
information regarding Netplex or its subsidiaries (i) which
have not otherwise become public knowledge, (ii) which were
already known to Employee or learned by Employee from
independent sources, or which have been disclosed by Netplex
to others without substantial restriction on further
disclosure.
B. All papers, books and records of every kind and description
relating to the business and affairs of Netplex, whether or
not prepared by the Employee, shall be the sole and exclusive
property of Netplex, and the Employee shall surrender them to
Netplex at any time upon request by the President.
C. Subject to the limitations set forth in paragraph 2(A) above,
during the term of employment by Netplex or one of its
subsidiary companies, Employee shall devote substantially all
of his time, attention and energies during normal working
hours to the performance of the business of Netplex, and
Employee shall not, directly or indirectly, alone or as a
partner, officer, director, employee, stockholder, consultant
or agent of any other corporation, partnership or other
business organization, be actively engaged in or concerned
with any other duties or pursuits which materially interfere
with the performance of his duties as an Employee of Netplex.
4. Compensation. As full compensation for Employee's services hereunder
and in exchange for his promises contained herein, the Company shall compensate
the Employee in the manner set
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forth below. The amounts set forth below shall be subject to any withholding or
other deductions required by law.
A. For the period beginning on October 1, 1998 and ending
December 31, 2000, Employee shall receive a biweekly salary of
$6,730.77 ($175,000 per year), paid one week in arrears.
Netplex may increase Employee's salary during the term of this
Agreement in Netplex's sole discretion.
B. Bonuses. Employee shall be eligible to receive quarterly
bonuses based on the Net Profit of AIG, a Division of Netplex
(as "Net Profit" is defined in said Earn-Out Agreement.)
Employee's quarterly bonus will equal three percent (3%) of
the quarterly Net Profit, plus an additional one and one-half
percent (1.5%) of the Net Profit above the quota for the
quarter. Losses from the previous quarter will carry forward
to the next quarter for the purposes of calculating any bonus
hereunder. No bonus will be paid for a quarter if the
cumulative minimum Net Profit for the AIG operations is less
than the minimum set forth in the attached Quota Schedule. The
payment due for each quarter under this Section 4.B. shall be
paid on the next regular payroll after sixty (60) days after
the end of each quarter for which a bonus is earned. On or
before the first payroll date after December 1, 1998, Employee
shall receive from Netplex a bonus equal to three percent (3%)
of the Net Profit in excess of $50,000 for the month of
September, 1998, plus an additional one and one-half percent
(1.5%) of any Net Profit for September, 1998 above $200,000.
C. Vacation. Employee shall accrue vacation at the rate of 6.154
hours per biweekly pay period beginning October 1, 1998.
Employee shall be credited with any prior service and with any
vacation which was accrued and unused as of September 30,
1998.
D. Benefits. Employee shall be eligible for Netplex's customary
group benefits programs.
E. Stock Options. Upon execution of this agreement, Netplex shall
grant to Employee options to purchase sixty-five thousand
(65,000) shares of Netplex Common Stock in accordance with the
Stock Option Agreement attached hereto as Exhibit 1.
5. Non-competition.
A. If Employee terminates his employment, then for a period of
one (1) year after such termination of this Agreement, or
after cessation of Employee's employment with Netplex for any
reason (including termination of employment by Netplex without
Cause), whichever period is longer, Employee shall not,
directly or indirectly, alone, or as a partner, officer,
director, employee, stockholder, consultant or agent of any
other corporation, partnership or other business organization,
engage in any business activity which is directly or
indirectly in competition with the products or services owned,
sold, manufactured, marketed, provided or developed by Netplex
and its
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<PAGE>
subsidiaries during Employee's employment by Netplex. Employee
acknowledges and agrees that his employment may extend beyond
the termination date of this Agreement, and that Employee's
obligations hereunder begin upon termination of employment,
and not upon the expiration date of this Agreement.
B. If Netplex terminates Employee's employment without Cause, the
provisions of this Agreement shall be enforceable against the
Employee only as long as Employee is receiving the
compensation set forth in Paragraph 4.A and 4.E above, but in
no event past December 31, 2000. The provisions of this
Agreement shall not apply if Employee is no longer receiving
any such compensation.
C. In any event, for a period of two (2) year after the
termination of this Agreement or for a period of two (2) years
after cessation of Employee's employment with Netplex for any
reason (including termination of employment by Netplex without
Cause), whichever period is longer, Employee shall not,
directly or indirectly, alone, or as a partner, officer,
director, employee, stockholder, consultant or agent of any
other corporation, partnership or other business organization,
knowingly solicit the employment of, or hire, any employee of
Netplex, or any Netplex subsidiary, or cause any such employee
to terminate the employee's relationship with Netplex or any
Netplex subsidiary, without the prior written approval of
Netplex. Employee acknowledges and agrees that his employment
may extend beyond the termination date of this Agreement, and
that Employee's obligations hereunder begin upon termination
of employment, and not upon the expiration date of this
Agreement.
D. In any event, for a period of two (2) years after the
termination of this Agreement or for a period of two (2) years
after cessation of Employee's employment with Netplex for any
reason (including termination of employment by Netplex without
Cause), whichever period is longer, but only if during such
period Netplex shall continue to pay employee the greater of
(i) his salary at the time of his termination or cessation of
employment or (ii) the salary set forth in Section 4A above,
Employee shall not, directly or indirectly, alone, or as a
partner, officer, director, employee, stockholder, consultant
or agent of any other corporation, partnership or other
business organization, knowingly solicit any of the accounts
of Netplex which were customers of the Employee's business
unit or which were directly or indirectly managed by the
Employee unless such solicitation is undertaken on behalf of a
business venture which does not compete, directly or
indirectly, with the products or services owned, sold,
manufactured, marketed, provided or developed by Netplex and
its subsidiaries during Employee's employment by Netplex. For
the purposes of this subsection, a business shall be deemed to
be in competition with Netplex and its subsidiaries only if
the products or services of such business are substantially
similar in purpose, function or capability to the products or
services then being developed, manufactured, marketed,
provided or sold by Netplex or a Netplex subsidiary. Employee
acknowledges and agrees that his employment may extend beyond
the termination date of this Agreement, and that Employee's
obligations hereunder begin upon termination of employment,
and not upon the expiration date of this Agreement.
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<PAGE>
E. The parties agree that the Employee's services are unique,
that this Agreement is being entered into in connection with
Asset Acquisition Agreement dated August 31, 1998 between
Netplex and Applied Intelligence Group, Inc., and that any
breach or threatened breach of the provisions of this
Agreement will cause irreparable injury to Netplex and that
money damages will not provide an adequate remedy.
Accordingly, Netplex shall, in addition to other remedies
provided by law, but subject nonetheless to the terms and
conditions of this Agreement, be entitled to such equitable
and injunctive relief as may be necessary to enforce the
provisions of this agreement against the Employee or any
person or entity participating in such breach or threatened
breach. Nothing contained herein shall be construed as
prohibiting Netplex from pursuing any other and additional
remedies available to it, at law or in equity, for such breach
or threatened breach including any recovery of damages from
the Employee and the immediate termination of his employment.
F. Nothwithstanding anything to the contrary in this Agreement,
Netplex acknowledges and agrees that Employee engages in
certain activities, to wit: (i) Employee shall continue to
serve on the board of directors of Applied Intelligence Group,
Inc., which shall become known as The viaLink Company, (ii)
Employee shall continue to serve on the board of directors of
Duckwalls-Alco Stores, Inc., and (iii) Employee shall retain
certain other private business interests. Netplex agrees and
acknowledges that the foregoing activities shall not be
construed or claimed by Netplex to constitute a conflict of
interest with regard to Employee's duties toward Netplex.
The provisions of this Section 5 shall survive termination of this Agreement.
6. Duration and Termination.
A. Duration. The term of this Agreement shall commence on October
1, 1998, and shall terminate on December 31, 2000, unless
earlier terminated pursuant to the provisions hereof.
B. Termination Upon Death of Employee. This Agreement shall
immediately terminate, and all rights, benefits and
obligations hereunder shall cease, in the event of the
Employee's death, except such rights of Employee which have
accrued as of the date of death.
C. Termination Upon Disability of Employee. In the event that a
mutually acceptable physician determines that the Employee is
unable to substantially perform his usual and customary duties
under this Agreement for more than two (2) months in any
calendar year, this Agreement shall immediately terminate and
all rights, benefits and obligations hereunder shall cease,
except such rights of Employee which have accrued as of the
date of disability.
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<PAGE>
D. Termination by the Company for Reasons Other Than Cause. In
the event of the termination of this Agreement by the Company
for any reason other than "Cause" (as hereinafter defined),
the Employee shall be entitled (without any obligation on the
part of the Employee to mitigate damages) to continuation of
the salary and the benefits provided hereunder, and for each
remaining quarter of the term of this Agreement, Employee
shall also receive the greater of (i) the Employee Bonuses due
pursuant to Section 4.B. of this Agreement or (ii) fifteen
percent (15%) of the salary paid to Employee for such quarter.
Continuation of the salary and the benefits hereunder shall
not constitute continuation of employment for the purposes of
Paragraph 5.
E. Termination by the Company for Cause. The Company shall have
the right to terminate this Agreement in any of the following
events, each of which shall constitute "Cause". Termination
under this subsection (E) shall be without damages or
liability to the Employee for compensation and other benefits
which would have accrued hereunder after termination; provided
however, and notwithstanding anything to the contrary herein,
any rights and benefits of Employee which have accrued prior
to such termination shall not be affected by such termination.
Cause is defined as:
(i) the Employee's willful and material breach in
respect of his duties under this Agreement if such
breach continues unremedied for fifteen (15) days
after written notice thereof to the Employee
specifying the acts constituting the breach and
requesting that they be remedied; (ii) fraud
committed in connection with Employee's employment,
or theft, misappropriation or embezzlement of
Netplex's funds;
(iii) a conviction, plea of nolo contendere, plea to a
lesser charge in lieu of a felony, of a felony, a
crime involving fraud or misrepresentation, or any
other crime, the effect of which is likely to
materially adversely affect Netplex;
(iv) intentional violation of any Law which results in
material liability to Netplex;
(v) abuse of alcohol or other drugs, or the illegal use
of drugs, which materially interferes with the
performance by Employee of his duties hereunder; or
(vi) failure of the Business to achieve the Minimum Net
Profit, as specified on the Quota Schedule attached
hereto, for any two quarters after the last quarter
of 1998; provided however, if the Net Profit of the
last Quarter of 1998 is less than one hundred
thousand dollars ($100,000), then the last Quarter
of 1998 would be counted as one of the Quarters
under this paragraph.
7. Successors and Assigns. The rights and obligations of Netplex hereunder
shall run in favor of and shall be binding upon Netplex, its
successors, assigns, nominees or other legal representatives.
Termination of Employee's employment shall not operate to relieve him
of any remaining obligations hereunder. Subject to the limitations set
forth in paragraph 2(A) of
6
<PAGE>
this Agreement, Employee acknowledges that Netplex may assign its
obligations under this agreement to a Netplex subsidiary without the
consent of Employee, provided however that the assignee agrees to be
bound by the terms and conditions of this agreement; and provided
further that Netplex in the event of any such assignment shall not be
relieved of its obligations under this Agreement. Employee may not
assign his rights and obligations hereunder.
8. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly
given upon receipt if delivered by hand, sent by telecopier or courier,
or three (3) days after such communication is mailed within the
continental United States by first class certified mail, return receipt
requested, postage prepaid, to the other party, in each case addressed
as follows:
A. if to Netplex, to President, The Netplex Group, Inc., 8260
Greensboro Drive, Fifth Floor, McLean, Virginia 22102; and
B. if to the Employee, to Robert Barcum, 10901 Greenbriar Chase,
Oklahoma City, Oklahoma, 73170.
Addresses may be changed by written notice sent to the other party at
the last recorded address of that party.
9. Severability. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for
any reason, such judgment shall not affect, impair or invalidate the
remainder of this Agreement.
10. Prior Understanding. This Agreement embodies the entire understanding
of the parties hereto, and supersedes all other oral or written
agreements or understandings between them regarding the subject matter
hereof, except for the Asset Acquisition Agreement. No change,
alteration or modification hereof may be made except in a writing,
signed by both parties hereto. The headings in this Agreement are for
convenience and reference only and shall not be construed as part of
this Agreement or to limit or otherwise affect the meaning hereof.
11. Execution in Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed to be
original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
12. Choice of Laws. Jurisdiction over disputes with regard to this
Agreement shall be exclusively in the courts of the State of Oklahoma,
and this Agreement shall be construed in accordance with and governed
by the laws of the state of Oklahoma without giving effect to
principles of conflicts of law thereunder.
13. Attorney Fees. In the event of any litigation between the parties
hereto, the prevailing party shall be entitled to all of its costs
incurred in such litigation, including reasonable attorneys' fees.
7
<PAGE>
14. Nonwaiver. The waiver of any violation or breach of this Agreement by
either party hereto shall not be deemed to be a waiver of any
continuing violation or breach or a waiver of any other violation or
breach of this Agreement.
SIGNATURE PAGE FOLLOWS
8
<PAGE>
Signature Page
EMPLOYMENT AGREEMENT
Robert Barcum
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above written.
THE NETPLEX GROUP, INC. EMPLOYEE
By: __________________________ ___________________________
Its: ___________________________
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<PAGE>
QUOTA SCHEDULE
Quarter Minimum Net Profit (cumulative) Quota
Sept. 98 $50,000 $200,000
4Q 1998 $2500,000 $400,000
1Q 1999 $4837,500 $475,000
2Q 1999 $7612,500 $550,000
3Q 1999 $1,0725,000 $625,000
4Q 1999 $1,42375,000 $700,000
1Q 2000 $1,81762,500 $775,000
2Q 2000 $2,23187,500 $850,000
3Q 2000 $2,70650,000 $925,000
4Q 2000 $3,20150,000 $1,000,000
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") made as of this 30th
day of September, 1998 by and between THE NETPLEX GROUP, INC., a New York
corporation with its principal place of business at 8260 Greensboro Drive,
McLean, Virginia 22102 ("Netplex"), and David North (the "Employee").
WHEREAS, Netplex and Applied Intelligence Group, Inc.
("Seller") have entered into an Asset Acquisition Agreement dated the 31st day
of August, 1998, and
WHEREAS, Employee was an officer and employee of Seller, and
WHEREAS, as a material part of the consideration of said Asset
Acquisition Agreement, Employee was to be employed by Netplex during the
Earn-Out Period ("Earn-Out Period") as defined in the Earn-Out Agreement
("Earn-Out Agreement") executed between Seller and Netplex pursuant to the Asset
Acquisition Agreement to assist in accomplishing the goals and intent of said
Earn-Out Agreement as further set forth in said Earn-Out Agreement, and
WHEREAS the employment of Employee was a substantial portion
of the consideration received by Netplex, without which Netplex would not have
consummated the Asset Acquisition Agreement, and
WHEREAS, Netplex desires to employ the Employee and the
Employee is willing to undertake such employment, and the parties hereto wish to
set forth certain terms of the Employee's employment with Netplex.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto do agree as follows:
1. Employment. Netplex hereby employs the Employee, and the Employee
hereby accepts such employment, as the Vice President of Consulting of
AIG, a division of Netplex, upon the terms and subject to the
conditions contained herein.
2. Duties.
A. The Employee shall perform all duties commensurate with the
Employee's position and which are assigned by the President of
Netplex, or his designee; provided however and notwithstanding
anything to the contrary herein, during said Earn-Out Period,
Employee shall be assigned such duties as are reasonably
necessary to carry out the terms and conditions of the
Earn-Out Agreement. Said Earn-Out Agreement is incorporated
herein by reference and Employee shall not be assigned any
duties which are contrary to the terms and conditions of said
Earn-Out Agreement.
B. Throughout his employment hereunder, but subject to the
limitations set forth in paragraph 2(A) above, the Employee
shall devote his full time, attention, knowledge
<PAGE>
and skills during normal business hours in furtherance of the
business of Netplex and will faithfully, diligently, and to
the best of his ability, perform the duties described above
and further Netplex's best interests.
C. During his employment, the Employee shall not knowingly
engage, and shall not knowingly solicit any employees of
Netplex, or its subsidiaries or other affiliates to engage, in
any commercial activities which are in any way in competition
with the activities of Netplex, or which in any way materially
interfere with the performance of his duties or
responsibilities to Netplex.
D. Subject to the limitations set forth in paragraph 2(A) of this
Agreement, the Employee shall at all times be subject to,
observe and carry out such reasonable rules, regulations,
polices, directions and restrictions as Netplex, consistent
with Employee's rights and duties under this Agreement, may
from time to time establish and those imposed by law, provided
that the same are generally applicable to all similarly
situated employees.
3. Employee Covenants. In order to induce the Company to enter into this
Agreement, the Employee hereby agrees as follows:
A. Except when he is directed to do otherwise by the President of
Netplex, his designee, or any successor to him, and except as
required by law, court order or subpoena, the Employee shall
keep confidential and shall not divulge to any other person or
entity, during the term of the Employee's employment or
thereafter, any of the business secrets or other confidential
information regarding Netplex or its subsidiaries (i) which
have not otherwise become public knowledge, (ii) which were
already known to Employee or learned by Employee from
independent sources, or which have been disclosed by Netplex
to others without substantial restriction on further
disclosure.
B. All papers, books and records of every kind and description
relating to the business and affairs of Netplex, whether or
not prepared by the Employee, shall be the sole and exclusive
property of Netplex, and the Employee shall surrender them to
Netplex at any time upon request by the President.
C. Subject to the limitations set forth in paragraph 2(A) above,
during the term of employment by Netplex or one of its
subsidiary companies, Employee shall devote substantially all
of his time, attention and energies during normal working
hours to the performance of the business of Netplex, and
Employee shall not, directly or indirectly, alone or as a
partner, officer, director, employee, stockholder, consultant
or agent of any other corporation, partnership or other
business organization, be actively engaged in or concerned
with any other duties or pursuits which materially interfere
with the performance of his duties as an Employee of Netplex.
4. Compensation. As full compensation for Employee's services hereunder and in
exchange for his promises contained herein, the Company shall compensate the
Employee in the manner set
2
<PAGE>
forth below. The amounts set forth below shall be subject to any withholding or
other deductions required by law.
A. For the period beginning on October 1, 1998 and ending
December 31, 2000, Employee shall receive a biweekly salary of
$5,000 ($130,000 per year), paid one week in arrears. Netplex
may increase Employee's salary during the term of this
Agreement in Netplex's sole discretion.
B. Bonuses. Employee shall be eligible to receive quarterly
bonuses based on the Net Profit of AIG, a Division of Netplex
(as "Net Profit" is defined in said Earn-Out Agreement.)
Employee's quarterly bonus will equal three percent (3%) of
the quarterly Net Profit, plus an additional one and one-half
percent (1.5%) of the Net Profit above the quota for the
quarter. Losses from the previous quarter will carry forward
to the next quarter for the purposes of calculating any bonus
hereunder. No bonus will be paid for a quarter if the
cumulative minimum Net Profit for the AIG operations is less
than the minimum set forth in the attached Quota Schedule. The
payment due for each quarter under this Section 4.B. shall be
paid on the next regular payroll after sixty (60) days after
the end of each quarter for which a bonus is earned. On or
before the first payroll date after December 1, 1998, Employee
shall receive from Netplex a bonus equal to three percent (3%)
of the Net Profit in excess of $50,000 for the month of
September, 1998, plus an additional one and one-half percent
(1.5%) of any Net Profit for September, 1998 above $200,000.
C. Vacation. Employee shall accrue vacation at the rate of 6.154
hours per biweekly pay period beginning October 1, 1998.
Employee shall be credited with any prior service and with any
vacation which was accrued and unused as of September 30,
1998.
D. Benefits. Employee shall be eligible for Netplex's customary
group benefits programs.
E. Stock Options. Upon execution of this agreement, Netplex shall
grant to Employee options to purchase fifty thousand (50,000)
shares of Netplex Common Stock in accordance with the Stock
Option Agreement attached hereto as Exhibit 1.
5. Non-competition.
A. If Employee terminates his employment, then for a period of
one (1) year after such termination of this Agreement, or
after cessation of Employee's employment with Netplex for any
reason (including termination of employment by Netplex without
Cause), whichever period is longer, Employee shall not,
directly or indirectly, alone, or as a partner, officer,
director, employee, stockholder, consultant or agent of any
other corporation, partnership or other business organization,
engage in any business activity which is directly or
indirectly in competition with the products or services owned,
sold, manufactured, marketed, provided or developed by Netplex
and its
3
<PAGE>
subsidiaries during Employee's employment by Netplex. Employee
acknowledges and agrees that his employment may extend beyond
the termination date of this Agreement, and that Employee's
obligations hereunder begin upon termination of employment,
and not upon the expiration date of this Agreement.
B. If Netplex terminates Employee's employment without Cause, the
provisions of this Agreement shall be enforceable against the
Employee only as long as Employee is receiving the
compensation set forth in Paragraph 4.A and 4.E above, but in
no event past December 31, 2000. The provisions of this
Agreement shall not apply if Employee is no longer receiving
any such compensation.
C. In any event, for a period of two (2) year after the
termination of this Agreement or for a period of two (2) years
after cessation of Employee's employment with Netplex for any
reason (including termination of employment by Netplex without
Cause), whichever period is longer, Employee shall not,
directly or indirectly, alone, or as a partner, officer,
director, employee, stockholder, consultant or agent of any
other corporation, partnership or other business organization,
knowingly solicit the employment of, or hire, any employee of
Netplex, or any Netplex subsidiary, or cause any such employee
to terminate the employee's relationship with Netplex or any
Netplex subsidiary, without the prior written approval of
Netplex. Employee acknowledges and agrees that his employment
may extend beyond the termination date of this Agreement, and
that Employee's obligations hereunder begin upon termination
of employment, and not upon the expiration date of this
Agreement.
D. In any event, for a period of two (2) years after the
termination of this Agreement or for a period of two (2) years
after cessation of Employee's employment with Netplex for any
reason (including termination of employment by Netplex without
Cause), whichever period is longer, but only if during such
period Netplex shall continue to pay employee the greater of
(i) his salary at the time of his termination or cessation of
employment or (ii) the salary set forth in Section 4.A above,
Employee shall not, directly or indirectly, alone, or as a
partner, officer, director, employee, stockholder, consultant
or agent of any other corporation, partnership or other
business organization, knowingly solicit any of the accounts
of Netplex which were customers of the Employee's business
unit or which were directly or indirectly managed by the
Employee unless such solicitation is undertaken on behalf of a
business venture which does not compete, directly or
indirectly, with the products or services owned, sold,
manufactured, marketed, provided or developed by Netplex and
its subsidiaries during Employee's employment by Netplex. For
the purposes of this subsection, a business shall be deemed to
be in competition with Netplex and its subsidiaries only if
the products or services of such business are substantially
similar in purpose, function or capability to the products or
services then being developed, manufactured, marketed,
provided or sold by Netplex or a Netplex subsidiary. Employee
acknowledges and agrees that his employment may extend beyond
the termination date of this Agreement, and that Employee's
obligations hereunder begin upon termination of employment,
and not upon the expiration date of this Agreement.
4
<PAGE>
E. The parties agree that the Employee's services are unique,
that this Agreement is being entered into in connection with
Asset Acquisition Agreement dated August 31, 1998 between
Netplex and Applied Intelligence Group, Inc., and that any
breach or threatened breach of the provisions of this
Agreement will cause irreparable injury to Netplex and that
money damages will not provide an adequate remedy.
Accordingly, Netplex shall, in addition to other remedies
provided by law, but subject nonetheless to the terms and
conditions of this Agreement, be entitled to such equitable
and injunctive relief as may be necessary to enforce the
provisions of this agreement against the Employee or any
person or entity participating in such breach or threatened
breach. Nothing contained herein shall be construed as
prohibiting Netplex from pursuing any other and additional
remedies available to it, at law or in equity, for such breach
or threatened breach including any recovery of damages from
the Employee and the immediate termination of his employment.
The provisions of this Section 5 shall survive termination of this Agreement.
6. Duration and Termination.
A. Duration. The term of this Agreement shall commence on October
1, 1998, and shall terminate on December 31, 2000, unless
earlier terminated pursuant to the provisions hereof.
B. Termination Upon Death of Employee. This Agreement shall
immediately terminate, and all rights, benefits and
obligations hereunder shall cease, in the event of the
Employee's death, except such rights of Employee which have
accrued as of the date of death.
C. Termination Upon Disability of Employee. In the event that a
mutually acceptable physician determines that the Employee is
unable to substantially perform his usual and customary duties
under this Agreement for more than two (2) months in any
calendar year, this Agreement shall immediately terminate and
all rights, benefits and obligations hereunder shall cease,
except such rights of Employee which have accrued as of the
date of disability.
D. Termination by the Company for Reasons Other Than Cause. In
the event of the termination of this Agreement by the Company
for any reason other than "Cause" (as hereinafter defined),
the Employee shall be entitled (without any obligation on the
part of the Employee to mitigate damages) to continuation of
the salary and the benefits provided hereunder, and for each
remaining quarter of the term of this Agreement, Employee
shall also receive the greater of (i) the Employee Bonuses due
pursuant to Section 4.B. of this Agreement or (ii) fifteen
percent (15%) of the salary paid to Employee for such quarter.
Continuation of the salary and the benefits hereunder shall
not constitute continuation of employment for the purposes of
Paragraph 5.
5
<PAGE>
E. Termination by the Company for Cause. The Company shall have
the right to terminate this Agreement in any of the following
events, each of which shall constitute "Cause". Termination
under this subsection (E) shall be without damages or
liability to the Employee for compensation and other benefits
which would have accrued hereunder after termination; provided
however, and notwithstanding anything to the contrary herein,
any rights and benefits of Employee which have accrued prior
to such termination shall not be affected by such termination.
Cause is defined as:
(i) the Employee's willful and material breach in respect
of his duties under this Agreement if such breach
continues unremedied for fifteen (15) days after
written notice thereof to the Employee specifying the
acts constituting the breach and requesting that they
be remedied; or
(ii) fraud committed in connection with Employee's
employment, or theft, misappropriation or
embezzlement of Netplex's funds; or
(iii) a conviction, plea of nolo contendere, plea to a
lesser charge in lieu of a felony, of a felony, a
crime involving fraud or misrepresentation, or any
other crime, the effect of which is likely to
materially adversely affect Netplex; or
(iv) intentional violation of any Law which results in
material liability to Netplex;
(v) abuse of alcohol or other drugs, or the illegal use
of drugs, which materially interferes with the
performance by Employee of his duties hereunder; or
(vi) failure of the Business to achieve the Minimum Net
Profit, as specified on the Quota Schedule attached
hereto, for any two quarters after the last quarter
of 1998; provided however, if the Net Profit of the
last Quarter of 1998 is less than one hundred
thousand dollars ($100,000), then the last Quarter of
1998 would be counted as one of the Quarters under
this paragraph.
7. Successors and Assigns. The rights and obligations of Netplex hereunder
shall run in favor of and shall be binding upon Netplex, its
successors, assigns, nominees or other legal representatives.
Termination of Employee's employment shall not operate to relieve him
of any remaining obligations hereunder. Subject to the limitations set
forth in paragraph 2(A) of this Agreement, Employee acknowledges that
Netplex may assign its obligations under this agreement to a Netplex
subsidiary without the consent of Employee, provided however that the
assignee agrees to be bound by the terms and conditions of this
agreement; and provided further that Netplex in the event of any such
assignment shall not be relieved of its obligations under this
Agreement. Employee may not assign his rights and obligations
hereunder.
8. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly
given upon receipt if delivered by hand, sent by telecopier or courier,
or three (3) days after such communication is mailed within the
6
<PAGE>
continental United States by first class certified mail, return receipt
requested, postage prepaid, to the other party, in each case addressed
as follows:
A. if to Netplex, to President, The Netplex Group, Inc., 8260
Greensboro Drive, Fifth Floor, McLean, Virginia 22102; and
B. if to the Employee, to David North, 3113 Fisher Rd., Edmond,
Oklahoma 73013.
Addresses may be changed by written notice sent to the other party at
the last recorded address of that party.
9. Severability. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for
any reason, such judgment shall not affect, impair or invalidate the
remainder of this Agreement.
10. Prior Understanding. This Agreement embodies the entire understanding
of the parties hereto, and supersedes all other oral or written
agreements or understandings between them regarding the subject matter
hereof, except for the Asset Acquisition Agreement. No change,
alteration or modification hereof may be made except in a writing,
signed by both parties hereto. The headings in this Agreement are for
convenience and reference only and shall not be construed as part of
this Agreement or to limit or otherwise affect the meaning hereof.
11. Execution in Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed to be
original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
12. Choice of Laws. Jurisdiction over disputes with regard to this
Agreement shall be exclusively in the courts of the State of Oklahoma,
and this Agreement shall be construed in accordance with and governed
by the laws of the state of Oklahoma without giving effect to
principles of conflicts of law thereunder.
13. Attorney Fees. In the event of any litigation between the parties
hereto, the prevailing party shall be entitled to all of its costs
incurred in such litigation, including reasonable attorneys' fees.
14. Nonwaiver. The waiver of any violation or breach of this Agreement by
either party hereto shall not be deemed to be a waiver of any
continuing violation or breach or a waiver of any other violation or
breach of this Agreement.
SIGNATURE PAGE FOLLOWS
7
<PAGE>
Signature Page
EMPLOYMENT AGREEMENT
David North
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above written.
THE NETPLEX GROUP, INC. EMPLOYEE
By: __________________________ ___________________________
Its: ___________________________
8
<PAGE>
QUOTA SCHEDULE
Quarter Minimum Net Profit (cumulative) Quota
4Q 1998 $200,000 $400,000
1Q 1999 $437,500 $475,000
2Q 1999 $712,500 $550,000
3Q 1999 $1,025,000 $625,000
4Q 1999 $1,375,000 $700,000
1Q 2000 $1,762,500 $775,000
2Q 2000 $2,187,500 $850,000
3Q 2000 $2,650,000 $925,000
4Q 2000 $3,150,000 $1,000,000
EARN-OUT AGREEMENT
This Earn-Out Agreement is made as of this 30th day of
September, 1998 by and between The Netplex Group, Inc., a New York corporation
("Netplex"), and Applied Intelligence Group, Inc., an Oklahoma corporation
("Seller").
WHEREAS, Seller and Netplex have entered into an Asset Acquisition Agreement
dated as of August 31, 1998 and amended September 9, 1998 ("Asset Agreement");
and
WHEREAS, pursuant to the terms of said Asset Agreement, Seller may be entitled
to receive from Netplex monetary compensation in addition to that which was paid
Seller at the Closing of said Asset Agreement ("Additional Compensation"), and
WHEREAS, pursuant to the terms of said Asset Agreement, Seller may be entitled
to an increase in the number of shares of Netplex Class B Preferred Stock
received from Netplex ("Additional Preferred Shares"); and
WHEREAS, the parties hereto desire to establish a means and method for
determining what amount of Additional Compensation and/or Additional Preferred
Shares Seller is entitled to receive as additional consideration for the
contemplated sale.
NOW, THEREFORE, the parties hereto, in consideration of the above premises and
in consideration of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, agree as follows:
1. Nature and Purpose of Earn-Out Agreement. This Earn-Out Agreement is
established for the purpose of determining what Additional Compensation
and/or Additional Preferred Shares Seller is entitled to receive
pursuant to the terms of the Asset Agreement and the Additional
Documents executed thereunder. The amount of Additional Compensation
and the Additional Preferred Shares shall be determined and paid as set
forth in this Earn-Out Agreement.
2. Definitions. The following terms as used in this Earn-Out Agreement
shall have the definitions set forth below:
2.1. "AIG" shall mean the division or subsidiary of Netplex which will be
established by Netplex contemporaneously with the Closing to operate a
technical consulting services and solutions business substantially
similar to that operated by Seller prior to the Closing of said Asset
Agreement.
2.2. "Net Profit" shall mean, for each applicable quarter, the earnings of
AIG before interest, taxes, depreciation and amortization (hereinafter
"EBITDA") for that quarter, less any losses from prior quarters
determined after Closing on that same basis, which have not previously
been deducted in arriving at a calculation of Net Profit for purposes
of this Earn-Out Agreement. The parties further agree and understand
that generally accepted accounting principles shall be used by Netplex
during the Earn-out Period for purposes of determining EBITDA for this
Earn-out Agreement.
2.3. "Performance Forecast" shall mean the projected plan agreed to by the
parties hereto for the operation of AIG after the Closing, which is
attached hereto and incorporated herein by reference as Exhibit 1.
<PAGE>
2.4. "Earn-Out Period" shall mean that period of time from and after
September 1, 1998 and through and including December 31, 2000.
2.5. Any terms defined in the Asset Agreement used herein and not otherwise
defined in this Earn-Out Agreement shall have the meaning for such term
that is provided in the Asset Agreement.
3. Determination of Earn-Out Amounts.
3.1. Additional Compensation. On or before the 60th day following the
conclusion of each of the next seven (7) calendar quarters, beginning
with the quarter ending September 30, 1998, Netplex shall determine the
Net Profit of AIG for the calendar quarter just ended. For purposes of
this calculation, the parties agree and understand that the quarter
ending September 30, 1998 only includes the month of September, 1998.
The amount of Additional Compensation to which Seller is entitled to
receive for each of said calendar quarters shall be a sum equal to
fifty percent (50%) of the Net Profit for that quarter, provided
however, that the cumulative sum of all of such Additional Compensation
shall not exceed One Million Five Hundred Thousand Dollars
($1,500,000). Netplex shall pay Seller the Additional Compensation
within ten (10) days after the calculation of Additional Compensation
is made for each of such calendar quarters.
3.2. Additional Preferred Shares. If the aggregate Net Profit of AIG for the
ten (10) quarters beginning with the quarter ending September 30, 1998
exceeds $5,000,000, then Netplex, within ten (10) days after the
calculation made pursuant to this paragraph, will issue to Seller or
its designee(s) either (i) additional shares of Netplex Preferred
Stock, (as the same is defined in the Asset Agreement), or (ii) Netplex
Common Stock, at Netplex's option, as is determined by the formula
hereinafter set forth. For purposes of this calculation, the parties
agree and understand that the quarter ending September 30, 1998 only
includes the month of September, 1998. Such determination shall be made
on or before March 1, 2001. The number of such additional shares of
Netplex Preferred Stock shall be calculated in accordance with the
formula below (hereinafter "Additional Preferred Share Calculation"):
[(The sum of the Net Profit for the ten
consecutive quarters defined above, or $9,000,000,
whichever is less) minus $5,000,000] divided by
$4,000,000, the quotient of which is then multiplied
by [the number of shares of Netplex Preferred Stock
issued to Seller pursuant to Article 3 of the Asset
Agreement less the amount of such Netplex Preferred
Stock converted to Netplex Common Stock and no
longer owned by Seller prior to December 31, 2000].
4. Duties of Netplex Regarding Earn-Out Amounts.
2
<PAGE>
4.1. With the payment of the Additional Compensation, Netplex shall deliver
to Seller Netplex's calculation of the Net Profit and Additional
Compensation payable, and all documents reasonably requested by Seller
to verify the amount of such compensation (the "Payment Calculation").
4.2. Netplex shall afford Seller's accountants and representatives
reasonable access to the books and records of Netplex during normal
business hours for the purpose of reviewing the Payment Calculation.
However, and notwithstanding the foregoing, in the event there is any
change in the control of Seller such that Seller is acquired or becomes
controlled by a direct competitor of Netplex, then said access to the
books and records of Netplex shall be provided to either an Independent
Accounting Firm selected and/or determined in the manner provided for
in Section 4.6, and such Independent Accounting Firm's opinion
regarding the Payment Calculation shall be provided to both parties. If
either party is not satisfied with such opinion, or if an Independent
Accounting Firm cannot be selected, such party may seek arbitration
pursuant Section 4.6. In any event, Netplex may seek a protective order
from either a court of competent jurisdiction or the arbitration panel
regarding the confidentiality of any books and records to be disclosed
as required by this Section 4.2. 4.3. Each of the parties shall bear
its or their own costs in preparation and review of the Payment
Calculation. 4.4. On or prior to the 30th day after receipt of the
Payment Calculation, Seller may give Netplex a written notice stating
in reasonable detail Seller's objections (an "Objection Notice") to the
Payment Calculation. If Seller does not give Netplex an Objection
Notice within such 30-day period, then the Payment Calculation will be
conclusive and binding upon the parties as of the end of such 30-day
period. 4.5. If Seller timely gives an Objection Notice, then Seller
and Netplex will make reasonable efforts to resolve their disputes as
reflected in the Objection Notice, and any amount agreed to in writing
by Seller and Netplex as the Payment Calculation as a result of such
efforts will be conclusive and binding upon the parties. 4.6. If Seller
and Netplex do not resolve all disputes as reflected in the Objection
Notice on or prior to the 15th day after the Objection Notice is given,
then Seller and Netplex will, within ten days after the 15 day period,
retain a mutually acceptable, nationally recognized accounting firm
(the "Independent Accounting firm") to determine the Net Profit as soon
as practicable and, in any event, within 30 days of such engagement,
all in accordance with the standards and definitions set forth herein.
The Net Profit for such quarter determined by the Independent
Accounting Firm will be conclusive and binding upon the parties. The
fees and expenses of the Independent Accounting Firm will be paid 50%
by Netplex and 50% by Seller. In the event Seller and Netplex fail to
reach mutual agreement as to the Independent Accounting Firm within
such ten-day period (except as extended by written agreement between
the parties), Arthur Anderson, or any successor firm, is deemed to be a
mutually acceptable Independent Accounting Firm, provided such firm is
not otherwise then engaged by Seller or Netplex. In the event that
Arthur Anderson is not eligible to resolve such dispute as provided
above, then the parties shall submit such dispute to arbitration before
a panel designated by the New York City office of the American
Arbitration Association as provided in sections 4.6.1 to 4.6.5 below.
4.6.1. In the event such dispute is submitted to arbitration, it shall
be decided by arbitration in accordance with the then current
Rules of the American Arbitration Association.
4.6.2. Notice of the demand for arbitration shall be filed in writing
with the other party to this Earn-Out Agreement and with the New
York City office of the American Arbitration Association. The
demand for arbitration shall be made within the time set forth
in this Earn-Out Agreement for referral of the dispute. Unless
otherwise agreed in writing, all obligations of the parties to
this Earn-Out Agreement shall continue during any such
Arbitration according to the terms of this Earn-Out Agreement.
4.6.3. The foregoing agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law.
4.6.4. The award, if any, rendered by the arbitrators shall be final,
and judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction thereof.
4.6.5. Costs and attorneys fees shall be paid or imposed as part of the
arbitration award.
4.7. If the Independent Accounting Firm or Arbitration panel, as the case
may be, determines that the Net Profit was calculated incorrectly, then
Netplex will pay any amounts owed to Seller within five (5) business
days of the determination. Provided the overpayment does not cause the
Additional Compensation to exceed $1,500,000, Seller will not be
required to remit to Netplex any overpayment made to Seller. If the
overpayment causes the Additional Compensation to exceed $1,500,000,
then the Seller shall remit to Netplex any overpayment made to Seller.
4.8. During the Earn-Out Period, and to the extent not already delivered
pursuant to Section 4.1, Netplex shall deliver to Seller Netplex's
calculation of the Net Profit for each quarter and all documents
reasonably requested by Seller to verify the amount of such Net Profit.
In the event that Seller disputes the Additional Preferred Share
Calculation, Seller shall have the same rights and remedies, and the
parties shall be subject to the same procedures, as provided by
sections 4.4 through 4.7 of this Earn-Out Agreement.
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<PAGE>
5. Covenants of Netplex. During the Earn-Out Period, Netplex covenants and
agrees as follows:
5.1. Netplex shall separately account for the AIG's Net Profit in accordance
with this Earn-Out Agreement.
5.2. Netplex shall comply in all respects with all Laws, regulations and
administrative orders of any federal, state or local governmental
authority that are applicable to the operation of AIG.
5.3. Netplex shall take all steps which are reasonably necessary to continue
to operate AIG in a manner which allows Seller the opportunity to earn
the maximum potential Additional Compensation and Additional Preferred
Shares contemplated under this Earn-Out Agreement.
5.4. Netplex shall not, without the written consent of Seller, have any
right to allocate any corporate or other expenses to AIG for purposes
of arriving at the EBITDA calculation except to the extent that the
same are shown on the Performance Forecast.
5.5. During the first two quarters of the Earn-Out Period, Netplex shall
provide to AIG such cash funds as are necessary to allow AIG to meet
its expense obligations under the plan for the operation of AIG. Such
amount shall not be charged as an expense or liability, counted as
revenue, deducted from any calculation of Net Profit, or deducted from
any amount owing to Seller under this Earn-Out Agreement.
5.6. Netplex shall not include in or deduct from the calculation of Net
Profit: (i) any corporate overhead or administrative expense of Netplex
or any of its subsidiaries or Affiliates; (ii) any reserves or
contingencies for any item covered by the Asset Agreement for which
either party has indemnification requirements, obligations or liability
to the other party hereto; (iii) any amount of any kind or character
not substantially similar to those included in the Performance
Forecast; (iv) compensation or fringe benefit expenses for any employee
of Netplex or any of its Affiliates or subsidiaries who are not
directly engaged in the Business; (v) third party professional services
and legal expenses incurred by Netplex in relation to acquiring AIG or
managing any of AIG's operations, provided however that third party
services and legal expenses caused by the AIG operations shall be
included in the calculation of Net Profit; (vi) any charges, fees, or
interest of any kind or character incurred by Netplex for any Lien
incurred by it against any of the assets or value of AIG; (vii) any
interest on the money Netplex is required to provide to AIG pursuant to
this Earn-Out Agreement.
5.7. Netplex shall continue to operate AIG in good faith so as to maximize
the Net Profit of AIG during the Earn-Out Period, and, provided AIG
continues to achieve the Minimum Net Profit, as specified on the Quota
Schedule attached hereto
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as Exhibit 2 for six of the eight quarters after the last quarter of
1998 [or for seven of the nine quarters, starting with the last quarter
of 1998, if the Net Profit for the last quarter of 1998 is less than
one hundred thousand dollars ($100,000)], Netplex shall provide the
employees of AIG, including, without limitation, the employees retained
by the Employment Agreements, such discretion and authority as
necessary to operate AIG as necessary to fulfill the intent of the
Agreement Documents and to maximize Seller's ability to earn the
Additional Compensation and Additional Preferred Shares.
5.8. Not later than ninety (90) days after the Additional Preferred Shares
is issued pursuant to this Earn-Out Agreement, Netplex shall file an
appropriate registration statement for sufficient Netplex Common Stock
to permit the conversion of the Additional Preferred Shares and shall
maintain effectiveness of such registration statement until such time
as the Netplex Common Stock underlying the Netplex Preferred Stock may
be sold pursuant to Rule 144(k) of the SEC Rules upon conversion of the
Netplex Preferred Stock to Netplex Common Stock.
6. Termination and Breach.
6.1. In the event that (i) AIG ceases to be accounted for by Netplex to
Seller as a discrete business enterprise; (ii) Netplex sells
substantially all of AIG or a substantial portion thereof; or (iii)
Netplex breaches the Asset Agreement or this Earn-Out Agreement or (iv)
Netplex terminates any of the Employment Agreements executed pursuant
to section 9.1(d) of the Asset Agreement for any reason other than for
Cause, then the remaining balance of the maximum Additional
Compensation and the maximum Additional Preferred Shares provided for
under this Earn-Out Agreement shall be immediately deemed earned, and
shall be forthwith paid and delivered, as the case may be, to Seller.
Upon satisfaction of such obligation, Netplex shall not have any
further liability to Seller under this Earn-Out Agreement.
6.2. Netplex acknowledges and agrees that any material breach of its
obligations hereunder shall represent a Material Adverse Effect upon
Seller, that the total amount of damages Seller will suffer in such
event will not be subject to reasonable calculation, and that Seller
shall in such event be entitled to the remedies that appear in this
Earn-Out Agreement in addition to, and not in lieu of, any other remedy
to which Seller may be entitled as a result of Netplex's breach,
whether at Law or equity, and to include, without limitation,
injunctive relief.
6.3. In the event that Netplex fails to make any payment when due, Netplex
will pay interest on said sum until paid in full. The annual interest
rate thereon shall be equal to the prime rate at Nationsbank in
Oklahoma City, Oklahoma, or its successor in interest, plus three
quarters of one point, as of the date such payment is due.
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<PAGE>
7. Miscellaneous.
7.1. Benefit and Assignability. This Earn-Out Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and no other person or
entity shall have any right (whether third party beneficiary or
otherwise) hereunder. This Earn-Out Agreement may not be assigned by
any party without the prior written consent of the other party, which
consent shall not unreasonably be withheld.
7.2. Notices. All notices demands and other communications pertaining to
this Earn-Out Agreement ("Notices") shall be in writing addressed as
follows:
If to Seller:
Robert N. Baker, Vice President
viaLink
13800 Benson Road
Edmond, OK 73013-6417
with a copy to:
Richard M. Klinge, Esq.
Richard M. Klinge & Associates, P.C.
228 Robert S. Kerr, Suite 940
Oklahoma City, OK 73102
If to Netplex:
The Netplex Group, Inc.
Attention: Gene F. Zaino, President
8260 Greensboro Drive, 5th Floor
McLean, Virginia 22102
with a copy to:
Attn: Edward J. Walsh, Jr., Esq.
Vedder Price Kaufman & Day
22nd Floor
805 Third Avenue
New York, NY 10022
Notices shall be deemed given five (5) business days after being mailed
by certified or registered United States mail, postage prepaid, return
receipt requested, or on the first business day after being sent,
prepaid, by nationally recognized overnight courier that issues a
receipt or other confirmation of delivery to the appropriate recipient
of such Notice. Any party may change the address to which Notices under
this Earn-Out Agreement are to be sent to it by giving written notice
of a change of address in the manner provided in this Earn-Out
Agreement for giving Notice.
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<PAGE>
7.3. Counterparts; Facsimile. This Earn-Out Agreement may be signed in any
number of counterparts with the same effect as if the signature on each
such counterpart were on the same instrument. This Earn-Out Agreement
and any counterparts may be executed by facsimile with the same effect
as if the signature were an original.
7.4. Waiver. Unless otherwise specifically agreed in writing to the
contrary: (a) the failure of any party at any time to require
performance by the other of any provision of this Earn-Out Agreement
shall not affect such party's right thereafter to enforce the same; (b)
no waiver by any party of any default by any other shall be valid
unless in writing and acknowledged by an authorized representative of
the nondefaulting party, and no such waiver shall be taken or held to
be a waiver by such party of any other preceding or subsequent default;
and (c) no extension of time granted by any party for the performance
of any obligation or act by any other party shall be deemed to be an
extension of time for the performance of any other obligation or act
hereunder.
7.5. Construction. The headings of the Sections of this Earn-Out Agreement
are for convenience only and in no way modify, interpret or construe
the meaning of specific provisions of this Earn-Out Agreement.
7.6. Severability. In case any one or more of the provisions contained in
this Earn-Out Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions will not in any way be
affected or impaired. Any illegal or unenforceable term shall be deemed
to be void and of no force and effect only to the minimum extent
necessary to bring such term within the provisions of applicable Laws
and such term, as so modified, and the balance of this Earn-Out
Agreement shall then be fully enforceable.
7.7. Choice of Law. The obligations, representations, covenants and
warranties entered into by the Parties under this Earn-Out Agreement
shall be construed and governed by the Laws of the State of Oklahoma,
without regard for the choice of law rules of that State.
7.8. Survival and Limitation of Actions. In addition to such terms and
provisions which survive the termination of this Earn-Out Agreement as
stated heretofore in this Earn-Out Agreement, the representations and
warranties of Netplex contained herein shall survive the termination of
this Earn-Out Agreement. Any claims or causes of action for breach or
default, or for indemnification, under this Earn-Out Agreement must be
commenced by either party hereto no later two years after such Party
discovers or reasonably should have discovered the existence of any
such claim or cause of action. For any action between the parties not
otherwise subsumed in the foregoing, such action may be commenced no
later than within the time permitted by the statute of limitations
provided by applicable Law.
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<PAGE>
7.9. Attorneys' Fees. Except to the extent otherwise specified in this
Earn-Out Agreement, if either party initiates any litigation against
the other party involving this Earn-Out Agreement, the prevailing party
in such action shall be entitled to receive reimbursement from the
other party for all reasonable attorneys' fees and other costs and
expenses incurred by the prevailing party in respect of that
litigation, including any appeal, and such reimbursement may be
included in the judgment or final order issued in that proceeding.
7.10. Complementary Terms. This Earn-out Agreement is a material part of the
Asset Agreement, and is intended to be interpreted and applied
consistently therewith. In the event that any material conflict exists
between the application of the provisions of this Earn-Out Agreement
and the provisions of the Asset Agreement, the language of this
Earn-Out Agreement shall control and supercede any conflicting
provision of the Asset Agreement, without voiding or invalidating any
other provision of either this Earn-Out Agreement or the Asset
Agreement.
SIGNATURE PAGE FOLLOWS
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WHEREFORE, the parties hereto have executed this Earn-Out Agreement as
of the date first above written.
THE NETPLEX GROUP, INC. APPLIED INTELLIGENCE GROUP, INC.
- ------------------------- --------------------------
Gene F. Zaino
President its _____________
10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") made as of this 30th day of
September, 1998 by and between THE NETPLEX GROUP, INC., a New York corporation
with its principal place of business at 8260 Greensboro Drive, McLean, Virginia
22102 ("Netplex"), and Larry Davenport (the "Employee").
WHEREAS, Netplex and Applied Intelligence Group, Inc. ("Seller") have
entered into an Asset Acquisition Agreement dated the 31st day of August, 1998,
and
WHEREAS, Employee was an officer and employee of Seller, and
WHEREAS, as a material part of the consideration of said Asset
Acquisition Agreement, Employee was to be employed by Netplex during the
Earn-Out Period ("Earn-Out Period") as defined in the Earn-Out Agreement
("Earn-Out Agreement") executed between Seller and Netplex pursuant to the Asset
Acquisition Agreement to assist in accomplishing the goals and intent of said
Earn-Out Agreement as further set forth in said Earn-Out Agreement, and
WHEREAS the employment of Employee was a substantial portion of the
consideration received by Netplex, without which Netplex would not have
consummated the Asset Acquisition Agreement, and
WHEREAS, Netplex desires to employ the Employee and the Employee is
willing to undertake such employment, and the parties hereto wish to set forth
certain terms of the Employee's employment with Netplex.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto do agree as follows:
1. Employment. Netplex hereby employs the Employee, and the Employee
hereby accepts such employment, as Vice President of Sales and
Marketing of AIG, a division of Netplex, upon the terms and subject to
the conditions contained herein.
2. Duties.
A. The Employee shall perform all duties commensurate with the
Employee's position and which are assigned by the President of
Netplex, or his designee; provided however and notwithstanding
anything to the contrary herein, during said Earn-Out Period,
Employee shall be assigned such duties as are reasonably
necessary to carry out the terms and conditions of the
Earn-Out Agreement. Said Earn-Out Agreement is incorporated
herein by reference and Employee shall not be assigned any
duties which are contrary to the terms and conditions of said
Earn-Out Agreement.
B. Throughout his employment hereunder, but subject to the
limitations set forth in paragraph 2(A) above, the Employee
shall devote his full time, attention, knowledge
<PAGE>
and skills during normal business hours in furtherance of the
business of Netplex and will faithfully, diligently, and to
the best of his ability, perform the duties described above
and further Netplex's best interests.
C. During his employment, the Employee shall not knowingly
engage, and shall not knowingly solicit any employees of
Netplex, or its subsidiaries or other affiliates to engage, in
any commercial activities which are in any way in competition
with the activities of Netplex, or which in any way materially
interfere with the performance of his duties or
responsibilities to Netplex.
D. Subject to the limitations set forth in paragraph 2(A) of this
Agreement, the Employee shall at all times be subject to,
observe and carry out such reasonable rules, regulations,
polices, directions and restrictions as Netplex, consistent
with Employee's rights and duties under this Agreement, may
from time to time establish and those imposed by law, provided
that the same are generally applicable to all similarly
situated employees.
3. Employee Covenants. In order to induce the Company to enter into this
Agreement, the Employee hereby agrees as follows:
A. Except when he is directed to do otherwise by the President of
Netplex, his designee, or any successor to him, and except as
required by law, court order or subpoena, the Employee shall
keep confidential and shall not divulge to any other person or
entity, during the term of the Employee's employment or
thereafter, any of the business secrets or other confidential
information regarding Netplex or its subsidiaries (i) which
have not otherwise become public knowledge, (ii) which were
already known to Employee or learned by Employee from
independent sources, or which have been disclosed by Netplex
to others without substantial restriction on further
disclosure.
B. All papers, books and records of every kind and description
relating to the business and affairs of Netplex, whether or
not prepared by the Employee, shall be the sole and exclusive
property of Netplex, and the Employee shall surrender them to
Netplex at any time upon request by the President.
C. Subject to the limitations set forth in paragraph 2(A) above,
during the term of employment by Netplex or one of its
subsidiary companies, Employee shall devote substantially all
of his time, attention and energies during normal working
hours to the performance of the business of Netplex, and
Employee shall not, directly or indirectly, alone or as a
partner, officer, director, employee, stockholder, consultant
or agent of any other corporation, partnership or other
business organization, be actively engaged in or concerned
with any other duties or pursuits which materially interfere
with the performance of his duties as an Employee of Netplex.
4. Compensation. As full compensation for Employee's services hereunder
and in exchange for his promises contained herein, the Company shall
compensate the Employee in the manner set forth below. The amounts set
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<PAGE>
forth below shall be subject to any withholding or other deductions
required by law.
A. For the period beginning on October 1, 1998 and ending
December 31, 2000, Employee shall receive a biweekly salary of
$4,476.92 ($116,400 per year), paid one week in arrears.
Netplex may increase Employee's salary during the term of this
Agreement in Netplex's sole discretion.
B. Bonuses. Employee shall be eligible to receive quarterly
bonuses based on the Net Profit of AIG, a Division of Netplex
(as "Net Profit" is defined in said Earn-Out Agreement.)
Employee's quarterly bonus will equal three percent (3%) of
the quarterly Net Profit, plus an additional one and one-half
percent (1.5%) of the Net Profit above the quota for the
quarter. Losses from the previous quarter will carry forward
to the next quarter for the purposes of calculating any bonus
hereunder. No bonus will be paid for a quarter if the
cumulative minimum Net Profit for the AIG operations is less
than the minimum set forth in the attached Quota Schedule. The
payment due for each quarter under this Section 4.B. shall be
paid on the next regular payroll after sixty (60) days after
the end of each quarter for which a bonus is earned. On or
before the first payroll date after December 1, 1998, Employee
shall receive from Netplex a bonus equal to three percent (3%)
of the Net Profit in excess of $50,000 for the month of
September, 1998, plus an additional one and one-half percent
(1.5%) of any Net Profit for September, 1998 above $200,000.
C. Vacation. Employee shall accrue vacation at the rate of 3.077
hours per biweekly pay period beginning October 1, 1998.
Employee shall be credited with any prior service and with any
vacation which was accrued and unused as of September 30,
1998.
D. Benefits. Employee shall be eligible for Netplex's customary
group benefits programs.
E. Stock Options. Upon execution of this agreement, Netplex shall
grant to Employee options to purchase fifty thousand (50,000)
shares of Netplex Common Stock in accordance with the Stock
Option Agreement attached hereto as Exhibit 1.
5. Non-competition.
A. If Netplex terminates Employee's employment without Cause, the
provisions of this Agreement shall be enforceable against the
Employee only as long as Employee is receiving the
compensation set forth in Paragraph 4.A and 4.E above, but in
no event past December 31, 2000. The provisions of this
Agreement shall not apply if Employee is no longer receiving
any such compensation.
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<PAGE>
B. In any event, for a period of two (2) year after the
termination of this Agreement or for a period of two (2) years
after cessation of Employee's employment with Netplex for any
reason (including termination of employment by Netplex without
Cause), whichever period is longer, but only if during such
period Netplex shall continue to pay employee the greater of
(i) his salary at the time of his termination or cessation of
employment or (ii) the salary set forth in Section 4A above,
Employee shall not, directly or indirectly, alone, or as a
partner, officer, director, employee, stockholder, consultant
or agent of any other corporation, partnership or other
business organization, knowingly solicit the employment of, or
hire, any employee of Netplex, or any Netplex subsidiary, or
cause any such employee to terminate the employee's
relationship with Netplex or any Netplex subsidiary, without
the prior written approval of Netplex. Employee acknowledges
and agrees that his employment may extend beyond the
termination date of this Agreement, and that Employee's
obligations hereunder begin upon termination of employment,
and not upon the expiration date of this Agreement.
C. In any event, for a period of two (2) years after the
termination of this Agreement or for a period of two (2) years
after cessation of Employee's employment with Netplex for any
reason (including termination of employment by Netplex without
Cause), whichever period is longer, Employee shall not,
directly or indirectly, alone, or as a partner, officer,
director, employee, stockholder, consultant or agent of any
other corporation, partnership or other business organization,
knowingly solicit any of the accounts of Netplex which were
customers of the Employee's business unit or which were
directly or indirectly managed by the Employee unless such
solicitation is undertaken on behalf of a business venture
which does not compete, directly or indirectly, with the
products or services owned, sold, manufactured, marketed,
provided or developed by Netplex and its subsidiaries during
Employee's employment by Netplex. For the purposes of this
subsection, a business shall be deemed to be in competition
with Netplex and its subsidiaries only if the products or
services of such business are substantially similar in
purpose, function or capability to the products or services
then being developed, manufactured, marketed, provided or sold
by Netplex or a Netplex subsidiary. Employee acknowledges and
agrees that his employment may extend beyond the termination
date of this Agreement, and that Employee's obligations
hereunder begin upon termination of employment, and not upon
the expiration date of this Agreement.
D. The parties agree that the Employee's services are unique,
that this Agreement is being entered into in connection with
Asset Acquisition Agreement dated August 31, 1998 between
Netplex and Applied Intelligence Group, Inc., and that any
breach or threatened breach of the provisions of this
Agreement will cause irreparable injury to Netplex and that
money damages will not provide an adequate remedy.
Accordingly, Netplex shall, in addition to other remedies
provided by law, but subject nonetheless to the terms and
conditions of this Agreement, be entitled to such equitable
and injunctive relief as may be necessary to enforce the
provisions of this agreement against the Employee or any
person or entity participating in such breach or threatened
breach. Nothing contained herein shall be construed as
prohibiting Netplex from pursuing any other and additional
remedies available to it, at law or in equity, for such breach
or threatened breach including any recovery of damages from
the Employee and the immediate termination of his employment.
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<PAGE>
The provisions of this Section 5 shall survive termination of this Agreement.
6. Duration and Termination.
A. Duration. The term of this Agreement shall commence on October
1, 1998, and shall terminate on December 31, 2000, unless
earlier terminated pursuant to the provisions hereof.
B. Termination Upon Death of Employee. This Agreement shall
immediately terminate, and all rights, benefits and
obligations hereunder shall cease, in the event of the
Employee's death, except such rights of Employee which have
accrued as of the date of death.
C. Termination Upon Disability of Employee. In the event that a
mutually acceptable physician determines that the Employee is
unable to substantially perform his usual and customary duties
under this Agreement for more than two (2) months in any
calendar year, this Agreement shall immediately terminate and
all rights, benefits and obligations hereunder shall cease,
except such rights of Employee which have accrued as of the
date of disability.
D. Termination by the Company for Reasons Other Than Cause. In
the event of the termination of this Agreement by the Company
for any reason other than "Cause" (as hereinafter defined),
the Employee shall be entitled (without any obligation on the
part of the Employee to mitigate damages) to continuation of
the salary and the benefits provided hereunder, and for each
remaining quarter of the term of this Agreement, Employee
shall also receive the greater of (i) the Employee Bonuses due
pursuant to Section 4.B. of this Agreement or (ii) fifteen
percent (15%) of the salary paid to Employee for such quarter.
Continuation of the salary and the benefits hereunder shall
not constitute continuation of employment for the purposes of
Paragraph 5.
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E. Termination by the Company for Cause. The Company shall have
the right to terminate this Agreement in any of the following
events, each of which shall constitute "Cause". Termination
under this subsection (E) shall be without damages or
liability to the Employee for compensation and other benefits
which would have accrued hereunder after termination; provided
however, and notwithstanding anything to the contrary herein,
any rights and benefits of Employee which have accrued prior
to such termination shall not be affected by such termination.
Cause is defined as:
(i) the Employee's willful and material breach in
respect of his duties under this Agreement if such
breach continues unremedied for fifteen (15) days
after written notice thereof to the Employee
specifying the acts constituting the breach and
requesting that they be remedied; or
(ii) fraud committed in connection with Employee's
employment, or theft, misappropriation or
embezzlement of Netplex's funds; or
(iii) a conviction, plea of nolo contendere, plea to a
lesser charge in lieu of a felony, of a felony, a
crime involving fraud or misrepresentation, or any
other crime, the effect of which is likely to
materially adversely affect Netplex; or
(iv) intentional violation of any Law which results in
material liability to Netplex; or
(v) abuse of alcohol or other drugs, or the illegal use
of drugs, which materially interferes with the
performance by Employee of his duties hereunder; or
(vi) failure of the Business to achieve the Minimum Net
Profit, as specified on the Quota Schedule attached
hereto, for any two quarters after the last quarter
of 1998; provided however, if the Net Profit of the
last Quarter of 1998 is less than one hundred
thousand dollars ($100,000), then the last Quarter
of 1998 would be counted as one of the Quarters
under this paragraph.
7. Successors and Assigns. The rights and obligations of Netplex hereunder
shall run in favor of and shall be binding upon Netplex, its
successors, assigns, nominees or other legal representatives.
Termination of Employee's employment shall not operate to relieve him
of any remaining obligations hereunder. Subject to the limitations set
forth in paragraph 2(A) of this Agreement, Employee acknowledges that
Netplex may assign its obligations under this agreement to a Netplex
subsidiary without the consent of Employee, provided however that the
assignee agrees to be bound by the terms and conditions of this
agreement; and provided further that Netplex in the event of any such
assignment shall not be relieved of its obligations under this
Agreement. Employee may not assign his rights and obligations
hereunder.
8. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly
given upon receipt if delivered by hand, sent by telecopier or courier,
or three (3) days after such communication is mailed within the
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<PAGE>
continental United States by first class certified mail, return receipt
requested, postage prepaid, to the other party, in each case addressed
as follows:
A. if to Netplex, to President, The Netplex Group, Inc., 8260
Greensboro Drive, Fifth Floor, McLean, Virginia 22102; and
B. if to the Employee, to Larry Davenport, 205 Cricket Hollow,
Edmond, Oklahoma, 73034.
Addresses may be changed by written notice sent to the other
party at the last recorded address of that party.
9. Severability. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for
any reason, such judgment shall not affect, impair or invalidate the
remainder of this Agreement.
10. Prior Understanding. This Agreement embodies the entire understanding
of the parties hereto, and supersedes all other oral or written
agreements or understandings between them regarding the subject matter
hereof, except for the Asset Acquisition Agreement. No change,
alteration or modification hereof may be made except in a writing,
signed by both parties hereto. The headings in this Agreement are for
convenience and reference only and shall not be construed as part of
this Agreement or to limit or otherwise affect the meaning hereof.
11. Execution in Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed to be
original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
12. Choice of Laws. Jurisdiction over disputes with regard to this
Agreement shall be exclusively in the courts of the State of Oklahoma,
and this Agreement shall be construed in accordance with and governed
by the laws of the state of Oklahoma without giving effect to
principles of conflicts of law thereunder.
13. Attorney Fees. In the event of any litigation between the parties
hereto, the prevailing party shall be entitled to all of its costs
incurred in such litigation, including reasonable attorneys' fees.
14. Nonwaiver. The waiver of any violation or breach of this Agreement by
either party hereto shall not be deemed to be a waiver of any
continuing violation or breach or a waiver of any other violation or
breach of this Agreement.
SIGNATURE PAGE FOLLOWS
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Signature Page
EMPLOYMENT AGREEMENT
Larry Davenport
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above written.
THE NETPLEX GROUP, INC. EMPLOYEE
By: __________________________ ___________________________
Its: ___________________________
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<PAGE>
QUOTA SCHEDULE
Quarter Minimum Net Profit (cumulative) Quota
4Q 1998 $200,000 $400,000
1Q 1999 $437,500 $475,000
2Q 1999 $712,500 $550,000
3Q 1999 $1,025,000 $625,000
4Q 1999 $1,375,000 $700,000
1Q 2000 $1,762,500 $775,000
2Q 2000 $2,187,500 $850,000
3Q 2000 $2,650,000 $925,000
4Q 2000 $3,150,000 $1,000,000
SOFTWARE REMARKETING AND RESELLING AGREEMENT
This Software Remarketing and Reselling Agreement
("Agreement") is made effective September 1, 1998 by and between The Netplex
Group, Inc., a New York corporation ("Netplex") and Applied Intelligence Group,
Inc., an Oklahoma corporation ("viaLink").
WHEREAS, viaLink is the owner of a certain software product
known as ChainLink(TM) which viaLink uses in its technical consulting business
(the "Licensed Software");
WHEREAS, Netplex has paid viaLink substantial consideration
for viaLink's technical consulting business, and Netplex desires to secure a
license to remarket and resell the Licensed Software for use in the technical
consulting business;
NOW THEREFORE, the parties agree as follows:
A. Definitions.
1. Licensed Software. The term "Licensed Software" means any copy of the
source code or object code version of the proprietary computer
software known as ChainLink(R)and all Enhancements to such software
and any and all Derivative Works or compilations based on or
incorporating said software.
2. Enhancements. The term "Enhancements" shall refer to all modifications
to the Licensed Software of any kind (including Derivative Works), if
any, made by either party to this Agreement. viaLink retains the
ownership rights to and in any Enhancements.
3. Derivative Work. The term "Derivative Work" means a work created by
Netplex and based on or incorporating the Licensed Software and/or the
Documentation, including but not limited to translations,
abridgements, condensations, improvements, updates, enhancements, or
any other form in which the Licensed Software and/or the Documentation
may be recast, transformed, adapted, or revised. viaLink retains the
ownership rights to and in any Derivative Works.
4. Documentation. The term "Documentation" means the manuals and/or other
support documents for the Licensed Software prepared by viaLink.
5. Customer. The term "Customer" means any end user to whom Netplex or
one of its sublicensees sublicenses an object copy of the Licensed
Software or Derivative Work.
6. Term. The term "Term" shall have the meaning set forth in Section C of
this Agreement.
7. Affiliate. The term "Affiliate" shall have the same meaning as set
forth in the Asset Acquisition Agreement.
8. Control. The term "Control" shall have the same meaning as set forth
in the Asset Acquisition Agreement.
9. Sublicense Agreement. The term "Sublicense Agreement" means a contract
between Netplex and a Customer whereby the Customer is granted the
right to use all or a part of an object code version of the Licensed
Software or Derivative Works.
10. Asset Acquisition Agreement. The term "Asset Acquisition Agreement"
shall refer to the Asset Acquisition Agreement executed between the
parties as of August 31, 1998, as amended.
<PAGE>
11. Earn-Out Agreement. The term "Earn-Out Agreement" shall refer to the
Earn-Out Agreement, which was executed between the parties pursuant to
the Asset Acquisition Agreement, and any amendments thereto.
B. Grant of License.
1. Subject to the terms of this Agreement, viaLink hereby grants to
Netplex for the Term of this Agreement, the nonexclusive,
nontransferable license to use, copy and distribute throughout the
world the Licensed Software, the Documentation, and to modify the
Licensed Software and Documentation to create Derivative Works. During
the Term of this Agreement, viaLink and any of its subsidiaries,
Affiliates, successors or assigns (except as hereinafter stated) shall
not, directly or indirectly, alone or as a partner, partial owner,
consultant, or agent (of any other corporation, partnership or other
business organization), engage in the sale, use or delivery of
Chainlink(R) to the retail and distribution industries other than as
is reasonably necessary for the sale, licensing, installation,
integration, use, implementation and support of viaLink products and
services. viaLink and Netplex agree that the viaLink business is
defined as substantially building, marketing and implementing
proprietary software products, information content and related
services to facilitate electronic commerce. Subject to these
limitations, viaLink specifically reserves the right to itself, its
agents and its successors and assigns the limited right to license,
use, copy and sublicense Chainlink(R), but only to the extent
reasonably necessary in the sale, licensing, installation,
integration, use, implementation and support of viaLink products and
services.
2. Subject to the terms of this Agreement, viaLink hereby grants to
Netplex for the Term of this Agreement the nonexclusive,
nontransferable right to sublicense to Customers throughout the world
an executable version or object library version of the Licensed
Software, the Documentation, and/or any Derivative Works. The rights
granted hereunder also include the right of Netplex to grant
permission to its sublicensees to also market and grant sublicenses in
and to Chainlink(R), provided that such sublicensees execute a
sublicense agreement satisfactory to viaLink.
3. Subject to the terms of this Agreement, viaLink hereby grants to
Netplex for the Term of this Agreement the right to create
Enhancements and/or Derivative Works, provided however, that viaLink
retains all ownership rights in and to any such Enhancements and
Derivative Works.
4. Subject to the terms of this Agreement, viaLink hereby grants to
Netplex during the Term of this Agreement, the right to use the
Chainlink(R)trademark owned by viaLink. Such trademark shall only be
used by Netplex in conjunction with the rights granted in this
Agreement in the following form: "Chainlink(R)". Netplex shall not use
said trademark in any other form without the prior, written consent of
viaLink.
E. Term. The term of this Agreement shall begin on September 1, 1998 and
end on December 31, 2003, unless earlier terminated pursuant to the
terms hereof. Notwithstanding anything else to the contrary herein, it
is agreed and understood that this Agreement shall automatically
terminate if the Closing of the Asset Acquisition Agreement does not
occur, as such Closing is defined in such Asset Acquisition Agreement
as amended.
F. Fees and Payments.
1. Sublicense Fee. In return for Netplex's maintenance and support
obligations hereunder, viaLink shall not be entitled to any Sublicense
fees for the first 100 Sublicenses to Netplex's customers during each
year of this Agreement. For each Sublicense in excess of 100 each year
of this Agreement, within thirty (30) days after delivery of a copy of
the executable version or object library version of the Licensed
Software or Derivative Work to a properly sublicensed Customer,
Netplex shall pay viaLink the sum of $2,500 per Sublicense.
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2. Returns. viaLink will refund to Netplex any sublicense fees paid to
viaLink if the Customer returns all Licensed Software, Documentation,
and Derivative Works to Netplex, and Netplex returns to the Customer
all sublicense fees paid by the Customer to Netplex. Such refund will
be made by viaLink within thirty (30) days after receipt of full
documentation substantiating the return of the Licensed Software,
Documentation, and Derivative Works.
3. Taxes. Netplex will pay all taxes of any type that are imposed on this
Agreement or on the use, modification or sublicensing of the Licensed
Software or Derivative Works by Netplex.
4. Late Charges. Any payment or part of a payment that is not paid when
due shall bear interest at the rate of 1.5% per month from its due
date until paid.
5. Records and Audit. Netplex shall maintain accurate records relating to
the copying, modification, distribution, and sublicensing of the
Licensed Software and Derivative Works, so as to establish the
payments due hereunder, to identify the location of all copies of the
Licensed Software and Derivative Works, to identify all Sublicenses,
and to otherwise verify Netplex's compliance with the terms of this
Agreement. Such books and records shall be available for inspection by
viaLink at their normal place of keeping during reasonable business
hours upon seven (7) days written notice to Netplex.
F. Delivery. viaLink shall deliver to Netplex copies of the source code
and object code of the Licensed Software and a copy of the
Documentation upon execution of this Agreement. viaLink shall also
deliver to Netplex any subsequent versions of the Licensed Software
which it may develop in the future. Netplex shall be responsible for
delivering the object code version of the Licensed Software, the
Documentation and the Derivative Works to its Customers.
G. Maintenance and Support. Netplex shall be responsible for maintaining
the Licensed Software, the Documentation, and all Enhancements and
Derivative Works and for providing any technical support relating to
the Licensed Software to its Customers. Notwithstanding anything to
the contrary in this Agreement, viaLink shall not have any
responsibility or obligation to maintain or support the Licensed
Software for Netplex or any of Netplex's Customers. Notwithstanding
the foregoing, during the term of this Agreement, if viaLink develops
Enhancements or Derivative Works or otherwise changes the Licensed
Software or Documentation, then viaLink shall make the Enhancements,
Derivative Works, or changes available to Netplex under this
Agreement.
H. Ownership and Notices. Netplex acknowledges that the Licensed
Software, Enhancements, and Documentation, as delivered hereunder and
as modified by viaLink, including Derivative Works, are the sole and
exclusive property of viaLink and that Netplex has no rights in the
foregoing except as set forth in this Agreement. To the extent Netplex
may have any rights in the Enhancements or Derivative Works, Netplex
hereby assigns such rights, including copyrights, to viaLink. Netplex
shall not remove, alter, cover or obfuscate any copyright notice or
other proprietary rights notice placed in machine readable language or
human readable form on the Licensed Software or Documentation. Netplex
shall insure that such notices continue to appear or exist in any
Derivative Work Netplex develops. Notwithstanding anything to the
contrary in this Agreement or in the Asset Acquisition Agreement, and
further notwithstanding any exercise of any option granted to Netplex
pursuant to this Agreement, Netplex acknowledges and agrees that
Netplex does not obtain and shall not acquire by the terms of any of
the foregoing or otherwise, any right, title, interest, or option of
any kind or nature in or to any of the other products or services of
viaLink.
I. Option to Purchase. Because Netplex has the responsibility to maintain
and support the Licensed Software, viaLink hereby grants to Netplex
the irrevocable option to purchase the Licensed Software, the
Documentation, all Enhancements and all Derivative Works. The option
shall be exercisable upon ten (10) days written notice by Netplex to
viaLink ("Option To Purchase"). The Option To Purchase may only be
exercised on or after January 1, 2002. The Option To Purchase shall
expire on December 31, 2003. The price shall be the lesser of (a) an
amount equal to ten percent (10%) of the
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<PAGE>
difference between the total revenue earned by Netplex from the
sublicensing and/or maintenance of Licensed Software less the cost
directly incurred by Netplex to maintain and support the Licensed
Software, or (b) one hundred thousand dollars ($100,000).
Notwithstanding anything to the contrary herein, Netplex's right to
exercise such Option To Purchase is subject to the following: (i)
Netplex must grant viaLink and/or its successors or assigns the
nonexclusive, perpetual, transferable limited right to license, use,
copy, to make Enhancements and Derivative Works and to sublicense
Chainlink(R), but only to the extent reasonably necessary for the
sale, licensing installation, integration, use, implementation and
support of viaLink products and services; (ii) Netplex must grant to
viaLink and its successors and assigns the nonexclusive, perpetual,
transferable right and license to use the source code and executable
code and continue to support or otherwise address any issues raised by
any licensees of Chainlink(R)which were granted licenses by viaLink
prior at the time that Netplex exercised its Option To Purchase.
Moreover, the exercise of the Option To Purchase shall not affect the
rights of any licensee of viaLink to continue to use the Licensed
Software pursuant to the license agreement by which such licensee
acquired the right to use the same. In the event that Neptlex
exercises its Option To Purchase, viaLink shall be entitled to retain
and use a copy of the then current source code and executable code for
the Licensed Software. In the event that said Option To Purchase is
exercised, the rights granted to viaLink, its licensees and successors
and assigns hereunder shall survive the termination of this Agreement.
In the event that Netplex does not elect to purchase Chainlink(R)or if
this Agreement is terminated for any reason, viaLink shall not have
any liability for any of the licenses or sublicenses for
Chainlink(R)executed by Netplex or its sublicensees during the term of
this Agreement. Netplex shall indemnify, defend and hold viaLink
harmless from any of the claims, damages or causes of action arising
out of any licenses or sublicenses executed by Netplex during the term
of this Agreement, except to the extent that any such claim or cause
of action is covered by Section L(2) hereof.
J. Confidentiality. Netplex acknowledges that the Licensed Software,
Derivative Works, and the Documentation contain valuable trade secrets
which are the sole and exclusive property of viaLink. Netplex agrees
that it will not disclose this information to anyone other than its
own employees or the employees of its affiliates, subsidiaries or
related companies, that it will protect the confidentiality of this
information, and that it will take reasonable precautions to prevent
any unauthorized use or disclosure of this information.
Notwithstanding anything to the contrary herein, Netplex's obligations
under this Section shall survive the termination of this Agreement.
K. Warranty and Disclaimer.
1. Year 2000 Compliance. viaLink warrants and represents that the
Licensed Software will not produce errors processing date data in
connection with the year change from December 31, 1999 to January 1,
2000 when used with accurate date data in accordance with the
documentation therefore, provided all other products (including,
without limitation, other software, firmware, hardware, and operating
systems) used with it properly exchange date data with the Licensed
Software. The Licensed Software will recognize the year 2000 as a leap
year. The foregoing warranty and representation refers only to the
Licensed Software as delivered by Seller at the execution of this
Agreement, and does not apply to user initiated modifications, user
customizable features or third party add-on features or products,
including items such as macros and custom programming and formatting
features, and further does not constitute a warranty or extend the
terms of any existing warranty.
2. Other Warranties. THE WARRANTIES SET FORTH IN SECTION (J)(1) AND IN
SECTION (L)(1) OF THIS AGREEMENT ARE THE ONLY WARRANTIES MADE BY
viaLink IN REGARDS TO THE LICENSED SOFTWARE AND viaLink SPECIFICALLY
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. EXCEPT FOR SAID WARRANTIES SET FORTH IN SECTION
(J)(1) AND IN SECTION (L)(1) OF THIS AGREEMENT, THE LICENSED SOFTWARE
IS DELIVERED TO NETPLEX AS IS, WHERE IS.
<PAGE>
C. Limitation of Liability. IT IS UNDERSTOOD AND AGREED THAT viaLink's
LIABILITY FOR ANY DAMAGES SUFFERED BY NETPLEX OR ITS CUSTOMERS, WHETHER
IN CONTRACT, IN TORT, UNDER ANY WARRANTY THEORY, IN NEGLIGENCE, OR
OTHERWISE SHALL BE LIMITED TO THE AMOUNT PAID TO viaLink BY NETPLEX
PURSUANT TO THIS AGREEMENT. UNDER NO CIRCUMSTANCES SHALL viaLink BE
LIABLE FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING
LOST PROFITS) OF NETPLEX, ANY CUSTOMER, OR ANY THIRD PARTY, EVEN IF
viaLink HAS BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
NO ACTION, REGARDLESS OF FORM, ARISING OUT OF THE TRANSACTIONS UNDER
THIS AGREEMENT MAY BE BROUGHT BY EITHER PARTY MORE THAN TWO (2) YEARS
AFTER SUCH PARTY KNEW OR SHOULD HAVE KNOWN OF THE OCCURRENCE OF THE
EVENT(S) WHICH GAVE RISE TO THE CAUSE OF ACTION.
D. Patent, Copyright and Trade Secret Indemnity.
1. Representation. viaLink represents that it owns all patented or
copyrighted material contained in and all trade secrets with respect
to the Licensed Software and Documentation as the same were delivered
to Netplex at the execution of this Agreement.
2. Indemnification by viaLink. In the event any suit is brought against
Netplex or one of its Customers based on a claim that the unmodified
version of the Licensed Software originally delivered by viaLink at
the execution of this Agreement infringes any existing patent,
copyright, or trade secret, viaLink agrees that it will:
a. to the extent that the claims or proofs of the suit involve claims
or factual allegations that the unmodified Licensed Software infringes
any existing patent, copyright, or trade secrets, defend the suit at
its expense and hold Netplex and/or its Customers harmless therefrom,
as long as viaLink is promptly notified in writing and is given
complete authority and information required to defend the suit;
b. to the extent that any judgment in any such suit is based on proof
that the unmodified Licensed Software infringes any existing patent,
copyright, or trade secrets, pay all damages and costs awarded against
Netplex and/or its Customers related thereto; provided that viaLink
shall not be responsible for any cost, expense, or compromise made or
incurred by Netplex and/or its Customers without viaLink's written
consent;
c. allow Netplex to participate in the defense of the suit at its own
expense, if it so elects.
3. Indemnification by Netplex. In the event any suit is brought against
viaLink or one of its Customers based on a claim that the Licensed
Software, as modified by or on behalf of Netplex or any of its
sublicensees or their sublicensees, infringes any existing patent,
copyright, or trade secret, Netplex agrees that it will:
a. to the extent that the claims or proofs of the suit involves claims
or factual allegations that the Licensed Software as a result of the
modifications, infringes any existing patent, copyright, or trade
secrets, defend the suit at its expense and hold viaLink and/or its
customers harmless therefrom, as long as Netplex is promptly notified
in writing and is given complete authority and information required to
defend the suit;
b. to the extent that any judgment in any such suit is based on proof
that the Licensed Software as a result of the modifications, infringes
any existing patent, copyright, or trade secrets pay all damages and
costs awarded against viaLink and/or its Customers and hold viaLink
harmless therefrom;
<PAGE>
provided that Netplex shall not be responsible for any cost, expense,
or compromise made or incurred by viaLink and/or its customers without
Netplex's written consent;
c. allow viaLink to participate in the defense of the suit at its own
expense, if it so elects.
4. viaLink's Options. During the Term of this Agreement, should the
Licensed Software or any part thereof, before any modifications or
Enhancements thereto or Derivative Works therefrom are made by or on
behalf of Netplex or any of Customers, become, or in viaLink's
opinion, be likely to become, the subject of a claim for infringement,
viaLink shall, at its own expense and option, either procure for
Netplex the right to continue using such Licensed Software or replace
the same with non-infringing software or modify the Licensed Software
so that it becomes non-infringing. If neither of these options is
reasonably practical, viaLink may require that the Licensed Software
and all Derivative Works be returned and this Agreement terminated
upon a refund to Netplex for all Sublicense Fees paid hereunder,
without deduction for use, and upon reimbursement to Netplex for the
costs of all maintenance and support provided by Netplex. Moreover,
viaLink shall have no obligation with respect to any such claim based
upon Netplex or its Customer combining, operating or using the
Licensed Software with equipment, data or software not furnished by
viaLink. Netplex shall have the option to procure continued use at its
own expense. After the Term of this Agreement or in the event that any
modifications or Enhancements or Derivative Works are made to the
Licensed Software by or on behalf of Netplex or any of its Customers,
viaLink shall not have any obligation under this Section (K)(4).
M. Termination.
1. By viaLink. viaLink may terminate this Agreement prior to its
expiration on the occurrence of any of the following events:
a. The failure of Netplex to pay any sum when due hereunder, provided
however, that viaLink shall have given Netplex written notice of
its intent to terminate this Agreement, and Netplex has not paid
the amounts due within thirty (30) days after receipt of the
notice.
b. Any other material default by Netplex under this Agreement, the
Asset Acquisition Agreement or the Earn-Out Agreement which has
not been cured within thirty (30) days of written notice given by
viaLink to Netplex.
2. By Netplex. Netplex may terminate this Agreement upon ninety (90) days
written notice to viaLink.
3. Duties upon Termination. Upon expiration or termination of this
Agreement, Netplex agrees to cease using, modifying, and sublicensing
the Licensed Software, Derivative Works, and Documentation, and to
return to viaLink all copies thereof. The obligation of
confidentiality set forth in this Agreement shall remain in effect
notwithstanding any termination of this Agreement. Netplex shall
retain all sublicense agreements and records relating to sublicense
agreements for a period of two (2) years after termination and shall
deliver copies of the same to viaLink upon request. In the event of
termination by either Netplex or by viaLink, Netplex, at viaLink's
option, shall assign and transfer to viaLink all of Netplex's right
and interest in all sublicenses of the Licensed Software.
4. Customer Rights Upon Termination. Termination shall not affect the
rights of any Customer to use the Licensed Software; subject however
to the terms, covenants and conditions of the sublicenses under which
such Customers obtained the right to use the Licensed Software.
F. Assignment. This Agreement may not be assigned by viaLink or Netplex
without the prior written approval of the other party, which approval
shall not be unreasonably withheld.
G. Entire Agreement. The parties agree that this Agreement constitutes
the complete and exclusive statement of the agreement between them
with regards to the subject matter of this Agreement which
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<PAGE>
supercedes all proposals, oral or written, and all other
communications between them relating to the license and use of the
Licensed Software; provided however, and notwithstanding anything to
the contrary herein, to the extent that there is any conflict between
the terms of the Asset Acquisition Agreement and this Agreement in
regards to the use of Chainlink(R), the terms and conditions of this
Agreement shall prevail in regards thereto.
H. Amendments. This Agreement may only be amended, modified or changed in
a writing signed by both parties.
I. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma.
J. No Waiver. The failure of either party to enforce any of the
provisions hereof shall not be construed to b a waiver of the right of
such party thereafter to enforce such provisions.
K. Attorney's Fees and Costs. In any action to enforce any rights or
obligations hereunder, the prevailing party shall be entitled to
receive its costs and attorneys fees expended in such an action from
the other party.
L. Relationship of the Parties. Each party is acting as an independent
contractor and not as agent, partner, or joint venturer with the other
party for any purpose. Except as provided in this Agreement, neither
party shall have any right, power, or authority to act or to create
any obligation, express or implied, on behalf of the other.
M. Notices. All notices demands and other communications pertaining to
this Services Agreement ("Notices") shall be in writing addressed as
follows:
If to viaLink:
Robert N. Baker, Vice President
viaLink
13800 Benson Road
Edmond, OK 73013-6417
with a copy to:
Richard M. Klinge, Esq.
Richard M. Klinge & Associates, P.C.
228 Robert S. Kerr, Suite 940
Oklahoma City, OK 73102
If to Netplex:
The Netplex Group, Inc.
Attention: Gene F. Zaino, President
8260 Greensboro Drive, 5th Floor
McLean, Virginia 22102
with a copy to:
Attn: Edward J. Walsh, Jr., Esq.
Vedder Price Kaufman & Day
22nd Floor
805 Third Avenue
New York, NY 10022
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<PAGE>
Notices shall be deemed given five (5) business days after being
mailed by certified or registered United States mail, postage prepaid,
return receipt requested, or on the first business day after being
sent, prepaid, by nationally recognized overnight courier that issues
a receipt or other confirmation of delivery to the appropriate
recipient of such Notice. Any party may change the address to which
Notices under this Services Agreement are to be sent to it by giving
written notice of a change of address in the manner provided in this
Services Agreement for giving Notice.
N. Remedies. The rights and remedies granted to viaLink in this Agreement
are in addition to and not in lieu of any other rights and remedies
which viaLink may have at law or in equity of any breach of default by
Netplex of this Agreement, including without limitation the right to
obtain appropriate injunctive relief without the necessity of bond to
enforce this Agreement against any breach of threatened breach hereof.
The rights and remedies granted Netplex in this Agreement are
exclusive.
O. Binding. This Agreement is binding on the successors and assigns of
the parties hereto.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the undersigned have signed this Software
Remarketing and Reselling Agreement as of the date first above written.
THE NETPLEX GROUP, INC.
- ---------------------------------
Gene F. Zaino
President
APPLIED INTELLEGENCE GROUP, INC.
By: ___________________________________
Name: _________________________________
Title: __________________________________
9
SUBLEASE
This Sublease is entered into this _____ day of September, 1998 by and
between Applied Intelligence Group, Inc., 13800 Benson Road, Edmond, Oklahoma
73013, an Oklahoma corporation ("Seller") and The Netplex Group, Inc., 8260
Greensboro Drive, Fifth Floor, McLean, Virginia 22102, a New York corporation
("Netplex").
RECITALS
Whereas, Seller is selling to Netplex the assets of its information
technology services business pursuant to an Asset Acquisition Agreement executed
between the parties on August 31, 1998; and
Whereas Seller is lessee of a building and land ("Leased Premises")
pursuant to a lease between Oklahoma Christian Investment Corporation ("OCIC")
entered into October 3, 1994, the Amendment No. 1 thereto dated January 26,
1995, and the Amendment No. 2 dated June 2, 1995, a copy of which is attached
hereto as Exhibit A (collectively hereinafter the "Main Lease") and incorporated
herein for reference purposes; and
Whereas, Seller desires to sublease to Netplex and Netplex desires to
sublet from Seller a portion of said Leased Premises.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained the parties agree as follows:
ARTICLE I - Subleased Premises and Term
1.1 Subleased Premises
Seller hereby subleases to Netplex and Netplex subleases from Seller
that portion of the Leased Premises identified on Exhibit B hereto identified as
AIG/Netplex ("Subleased Premises") for use by Netplex as offices, subject and
subordinate, however, in all respects to all of the terms, covenants, conditions
and provisions of the Main Lease. Seller also grants the right to Netplex the
right to jointly use during the term of this Sublease with Seller the Common
Area identified on said Exhibit B. The parties agree that at execution of this
Sublease, the Subleased Premises represent sixty-one percent (61%) of the
Leasable Area (as hereinafter defined) of the Leased Premises, which percentage
is hereinafter referred to as "Netplex's Proportionate Share". For purposes of
this Sublease, the term "Leasable Area" shall be defined as the sum of the
AIG/Netplex Space shown on Exhibit B hereto plus the total square footage of The
viaLink Company Space shown on said Exhibit B as the same may be amended from
time to time. For purposes of determining the Leasable Space, the Common Areas
space shown on Exhibit B shall not be considered in the calculation. The Netplex
Proportionate Share of the Leasable Area at any given time during the Term of
this Sublease is equal to the quotient of the then current total square footage
of the AIG/Netplex space shown on Exhibit B hereto divided by the Leasable Area.
<PAGE>
0.2 Netplex Obligations
Netplex agrees to perform all obligations required to be performed by
Seller as "Tenant" under the Main Lease with respect to the area comprising the
Subleased Premises except to the extent expressly modified by this Sublease and
with the exception of those provisions of the Main Lease set forth in Section
1.3 concerning the term, and Sections 2.1 through 2.6 of Article II concerning
the rent, additional rent and security deposit. Netplex shall not perform any
act which would cause a default by Seller under the Main Lease.
1.3 Term
Subject to earlier termination or expiration pursuant to the terms or
conditions of this Sublease or as a matter of law, the Term of this Sublease
shall commence on the Closing of the Asset Acquisition Agreement as such term is
defined therein, and shall end one day prior to the expiration of the present
term of the Main Lease, or, if this Sublease is extended by the mutual agreement
of Seller and Netplex, then one day prior to the date of expiration of any such
extended term. Notwithstanding anything to the contrary herein, in the event
that Closing (as defined in the Asset Acquisition Agreement) does not occur,
then this Sublease shall be null and void, and all payments made by Netplex to
Seller hereunder shall be returned to Netplex. In the event that the Main Lease
is terminated for any reason, this Sublease shall be automatically terminated.
ARTICLE II - Rental
2.1 Rental
Netplex covenants and agrees to pay, as annual minimum rent for the
Subleased Premises, its then current Proportionate Share of the rent payable
under Article 2.1 of the Main Lease as the same is adjusted from time to time
pursuant to the terms thereof. Netplex agrees to pay to Seller said rent, in
legal tender, to Seller at the address indicated above or such other address as
may be authorized by notice from Seller to Netplex, in equal monthly
installments in advance on the first day of each calendar month during the term
hereof. Rent for any partial month hereunder shall be pro-rated on a per diem
basis and paid on the first day of the following calendar month. Moreover, if
Netplex exercises its rights to expand the size of the Subleased Premises, the
Proportionate Share shall be adjusted to reflect said expansion, and the
payments due pursuant to this Section shall be adjusted as of the date such
expansion becomes effective. The parties shall execute such documents as are
reasonably necessary to reflect the expansion of Netplex's space.
2.2 Additional Rent
Netplex shall pay its then current Proportionate Share of increases in
ad valorem taxes, insurance premiums and utility costs payable by Tenant under
the Main Lease pursuant to Articles 2.2, 2.3 and 2.4 of the Main Lease and the
Landlord Funded Tenant Improvements under said Amendment No. 2 to the Main
Lease.
<PAGE>
1.3 The provisions of Section 7.2 of the Main Lease shall apply equally to
payments due by Netplex to Seller pursuant to the terms of this
Sublease.
1.4 Upon the written request of OCIC, Netplex will pay the rent and
additional rent due under this sublease directly to OCIC.
ARTICLE III - OCIC's Approval
3.1 Sublease Contingent on Approval
This Sublease is not subject to and contingent upon the approval of
OCIC; provided however, Seller agrees to use its best efforts to obtain OCIC's
approval of this Sublease and Netplex agrees to cooperate fully with all
reasonable requests of Seller and OCIC for information in connection with
obtaining said approval.
ARTICLE IV - Seller's Obligations
4.1 Main Lease
4.1.1 Seller covenants and agrees to perform in a timely manner all
obligations on its part to be performed under the Main Lease.
4.1.2 Seller agrees to take no action to amend or modify the Main Lease
without the consent of Netplex, which consent shall not be unreasonably
withheld.
3.0.3 Seller agrees to notify Netplex promptly in writing of any
default on Seller's part or OCIC's part and to deliver
promptly to Netplex any and all notices of default received by
Seller from OCIC or notices of default delivered by Seller to
OCIC. In the event of a default by Seller or the receipt by
Seller of a notice of default from OCIC, Seller agrees that
Netplex may (i) make any payments required of Netplex under
this Sublease directly to OCIC and to offset such payments
against any rent due hereunder. In the event of a default by
OCIC in the performance of its obligations under the Main
Lease, Seller agrees, at its sole cost and expense to take
such steps as are necessary to compel performance including,
but not limited to, litigation against OCIC. In the event that
Seller fails to pursue such claim on a timely basis, Seller
agrees that Netplex may pursue such claim in its own name or
in the name of Seller against OCIC provided that such claim
shall be prosecuted at Seller's sole cost and expense, and
that Seller shall indemnify and hold Netplex harmless from any
and all costs, losses and expenses (including reasonable
attorneys' fees and expenses) which may arise out of or relate
to such claim.
3.0.4 In the event that Seller's default under the Main Lease arises
out of or is as a result of the breach of this Sublease by
Netplex, then and in that event, Netplex shall defend,
indemnify and hold Seller harmless from and against any claims
or losses incurred by Seller as a result of any such breach of
this Sublease by Netplex.
4.2 Delivery, Possession, Quiet Enjoyment
Seller covenants and agrees to deliver the Subleased Premises to
Netplex AS IS no later than the commencement of the Term of this Sublease.
Subject to the terms, covenants and conditions of this Sublease, including
without limitation the following Subsections, Seller agrees
<PAGE>
that so long as Netplex is not in default in the performance of any covenant of
this Sublease, Netplex shall quietly enjoy the Subleased Premises, the joint use
of the common areas and parking areas in accordance with this Sublease.
3.1.1 During the Term of this Sublease, Netplex shall not remodel or
install any telephone lines or computer cables on the
Subleased Premises or mount any external communications
devices on the roof of the Subleased Premises without the
prior written, consent of Seller. Moreover, in the event that
Seller gives such consent, Netplex's right to remodel the
Subleased Premises shall be subject to the terms and
conditions of Section 4.3 of the Main Lease.
3.1.2 During the term of this Sublease, Netplex shall not have the
right to assign this Sublease or to sublease any portion of
the Subleased Premises without the prior written consent of
Seller, which consent shall not be unreasonably withheld. Any
permission granted Netplex by Seller to sublease or to assign
this Sublease shall not relieve Netplex from liability for the
payment of rental or from the performance of any of the
covenants of this Sublease.
3.1.3 Netplex shall return the Subleased Premises at the expiration
or earlier termination of the Term hereof to Seller in the
same condition that Seller is required to return its Leased
Premises to OCIC pursuant to Section 4.7 of the Main Lease and
subject to the same exceptions contained therein.
3.1.4 Netplex shall abide by the terms of Section 4.6 as it related
to the Subleased Premises.
3.1.5 Netplex shall place all trash and refuse only in containers
provided for such, and Seller may clean up any trash or reuse
not so disposed of and charge the cot thereof to Netplex.
3.1.6 Notwithstanding anything to the contrary in this Sublease,
Netplex acknowledges that its right to use the Subleased
Premises are subject to the provisions of Section 4.2.1 and ,
4.2.2 of the Main Lease.
3.1.7 Netplex agrees to comply with the rules and regulations
promulgated from time to time by OCIC which affect the
Subleased Premises.
3.1.8 During the Term of this Sublease, Netplex shall carry, at
Netplex's expense, fire, extended coverage, vandalism and
malicious mischief, all risk with replacement cost endorsement
insurance for its furniture, trade fixtures, equipment,
Leasehold improvements, interior and exterior signs, interior
or exterior glass, and inventory. Netplex shall carry
comprehensive general liability insurance on the Subleased
Premises, with limits of not less that $1,000,000 combined
single limit for bodily injury and property damage, naming
OCIC and Seller as additional named insureds and providing
certificates of insurance reflecting such. Said certificates
shall be furnished to OCIC and Seller prior to the beginning
of the Term of this Sublease and at least thirty days prior to
the expiration of the policy of insurance evidenced thereby.
All such policies shall provide
<PAGE>
for thirty days notice to OCIC and Seller prior to
cancellations and be so reflected on the certificate(s) of
insurance. The parties hereto agree that each party hereby
waives and releases and all claims, demands against the other
for damage to loss of any part of the Subleased Premises or
any of the contents and leasehold improvements therein
belonging to Netplex arising from perils insured against
ordinarily under standard fire and extended coverage,
vandalism and malicious mischief, all risk, insurance policies
issued in the state of Oklahoma whether such damage or loss is
occasioned by the negligence of the parties hereto, their
agents, servants and employees, or otherwise, and that all of
the policies of insurance written to insure buildings,
improvement and contents shall contain a proper provision, by
endorsements or otherwise, whereby the insurance carriers
issuing her same shall acknowledge the insured has so waived
and released its right of recovery against Seller and/or OCIC
hereto, and shall waive the right of subrogation which such
carrier might otherwise have had against Seller and/or OCIC,
all without impairment or invalidation of such insurance.
Seller shall hold Netplex harmless against all claims,
judgments and demands of any person or persons whomsoever on
account of injuries or accidents occurring in, or about the
Subleased Premises resulting from willful or negligent acts or
omissions of Seller, Seller's employees, agents or
representatives, or the breach of any obligation of the Seller
as set out in this Sublease. Netplex shall hold Seller
harmless against all claims, judgments and demand of any
person or persons, whomsoever on account of any injuries or
accidents occurring on the Subleased Premised as a result of
willful or negligent acts or omissions of Netplex, Netplex's
employees, agents, or representatives, or the breach of any
obligation of Netplex as set out in this Sublease.
3.1.9 Netplex shall be bound by the terms and conditions of Sections
6.1, 6.2, and 6.7 of the Main Lease. Section 6.2.1 of the Main
Lease shall not be applicable to Netplex.
3.1.6 Notwithstanding anything to the contrary in this Sublease,
Netplex takes the Sublease subject to the terms and conditions
of Sections 6.5 and 6.6 of the Main Lease.
3.1.7 The term of this Sublease is subject to the provisions of
Section 6.3 of the Main Lease.
3.1.8 Netplex takes this Sublease subject to the terms of Section
7.9 of the Main Lease.
3.1.9 Netplex's Default. the following events will be deemed to be
an event(s) of default by Netplex under this Sublease:
3.1.8.1 In the event Netplex should default in payment of
rental, Seller shall give Netplex written notice of
such default by certified Mail and Netplex shall have
Ten (10) days from the date of receiving such notice
to correct the same. Should Netplex fail to correct
such default in said period, Seller may, in addition
to all other
<PAGE>
rights available to Seller under the laws of the
State of Oklahoma, at its option, terminate this
Sublease.
3.1.8.2 Subject to the terms and conditions of Subsection
4.2.9.2.1 of this Sublease, in the event that Netplex
should fail to comply with any other provision of
this Sublease, Seller shall give Netplex written
notice of such default by certified mail. Such notice
shall state with specificity the type and nature of
such default. Should such default continue to exist
at the expiration of Sixty (60) days after receipt of
such notice, or should Netplex not be proceeding with
due diligence to correct the same, in the case of a
default which with due diligence could not be cured
within Sixty (60) days after receipt of such notice,
Seller shall then give Netplex second written notice
by certified mail, and five (5) days from the receipt
of such second notice, Seller may, in addition to all
other rights and remedies available to Seller under
the laws of the State of Oklahoma, at its option,
terminate this Sublease if such default is not cured
with such five days. Should Netplex correct its
default with the time provided, then Netplex's rights
hereunder shall be re-established as though said
default had not occurred.
3.1.8.2.1 Notwithstanding anything to the contrary
in Subsection 4.2.9.2 of this Sublease, if
Seller receives a notice of default from
OCIC under the Main Lease and such default
arises out of a default by Netplex under
this Sublease, then and in that event,
Netplex shall only have the time to cure
such default that Seller has to cure the
same under the terms and conditions of the
Main Lease.
4.3 Exclusive Expansion Option
Seller covenants and agrees to notify Netplex on or before the date
which is twelve (12) months prior to the end of the sixtieth (60th) month of the
Term of the Main Lease, whether Seller intends to exercise its Exclusive
Expansion Option, as that term is defined in the Main Lease. If Seller notifies
Netplex that it does not intend to exercise said Exclusive Expansion Option,
Seller shall have no objection to Netplex negotiating with OCIC regarding the
area that would have been affected by the expansion option.
4.4 Assignment and Subletting, Right of First Refusal, Option to Sublease
Additional Space
4.4.1 Seller shall not sublet any portion of the Leased Premises not
subleased to Netplex pursuant to this Sublease, nor shall it
assign any lease for the Expansion Area, as that term is
defined in the Main Lease, nor shall it sublet such Expansion
Area, unless and until (i) it offers in writing such
assignment or sublease to Netplex first on the same terms and
conditions offered to or proposed by any third
<PAGE>
party and (ii) Netplex fails or refuses to accept said offer
within thirty (30) days of receipt of Seller's written offer.
3.3.2 Netplex shall not (i) assign this Sublease, (ii) permit this
Sublease to be assigned by operation of law or otherwise,
(iii) further sublease all or any part of the Subleased
Premises, or (iv) mortgage, hypothecate or otherwise encumber
in any respect, Netplex's interest in this Sublease, without
the prior written consent of Seller in each instance, which
Seller may grant or withhold, provided such withholding shall
be reasonable, and, in any such event, any such proposed
assignment and/or further sublease of all or any part of the
Subleased Premises shall be expressly subject to, and shall be
in accordance with, the provisions of the Main Lease and this
Sublease. Netplex covenants and agrees that, notwithstanding
any permitted assignment or further sublease, Netplex shall
remain fully liable to Seller for the payment of the annual
fixed rent and additional rental hereunder and for all other
obligations of this Sublease on the part of Netplex to be
performed or observed. The sums payable hereunder shall be
paid to Seller as and when payable by the assignee or further
subtenant to Netplex.
3.3.3 For the Term of this Sublease, Netplex, subject to the terms
of Section 4.4.4 of this Sublease, shall have the option to
sublease such portion of the Leased Premises not already
subleased to Netplex pursuant to this Sublease to the extent
that viaLink or its other subleasees or assigns are not using
or have use for The viaLink Company space shown on the then
current Exhibit B.
3.3.4 Beginning January 1, 2000 and for the duration of this
Sublease, and notwithstanding anything to the contrary herein,
if Netplex (i) desires to lease more than seventy percent
(70%) of the Leasable Space and (ii) if such amount of the
Leasable Space desired by Netplex is more than the space
determined by Seller at such time, in its sole discretion, to
be not needed for the operations of Seller, and (iii) if
Netplex and OCIC have agreed to a new lease between them
concerning the leased premises wherein, inter alia, Seller is
released from its obligations under the Main Lease, then
Netplex must elect to lease all of the Leased Premises.
Further, in order to make such election, Netplex on or after
January 1, 2000 shall give Seller nine months written notice
of such election. The effective of such election will be nine
months after receipt of such notice by Seller. If Netplex
makes the election in this Section 4.4.4 but is unable to
satisfy precondition (iii) above within sixty (60) days after
giving notice to Seller as required in this Section 4.4.4,
Seller will nonetheless sublease all of its remaining space to
Netplex on the terms and conditions of this sublease.
Furthermore, if Netplex is unable to satisfy condition (iii)
above and Netplex elects to take all of Seller's remaining
space, Netplex shall reimburse Seller for the reasonable costs
incurred by Seller for the following: (i) in moving its
office, workstation and conference room, (ii) its in moving
office and workstation computer hardware and fixtures, (iii)
in de-installing, moving and reinstalling data centers and
<PAGE>
computer labs, (iv) in purchasing and installing a similar LAN
environment using voice/data wiring of a AT&T Systimax
Category 5 cable or better, (v) in installing and relocating
voice, data and ISP carrier services, (vi) any costs incurred
for early termination of services with support vendors, (vii)
in purchasing and installing a security system comparable to
the existing system, (viii) in de-installing, moving, and
reinstalling phone switches, (ix) any costs associated with
the moving or replacement of any future installed hardware,
equipment, or services as mutually agreed to by both parties,
and (x) the buildout costs incurred by Seller in
reestablishing an establishment comparable to the then
existing space occupied by Seller. Netplex shall pay Seller
for such costs within thirty (30) days after an invoice(s) is
received for the same. Netplex shall not have any duty to
reimburse Seller for such costs and expenses if Netplex
satisfies precondition (iii) above.
ARTICLE V - General Provisions
5.1 Entire Agreement
Seller and Netplex agree that this Sublease contains and is the entire
agreement between the parties hereto, and takes the place of any prior
negotiations regarding the subject matter or any portion of the terms hereof,
and that no alterations, changes or modifications of this Sublease shall be
effective unless made in writing and exercised on behalf of each of them by
their appropriate corporate officers and the corporate seal of each party
affixed thereto.
5.2 Invalidity
Should any clause or provision of this Lease be invalid or void for any
reason, such invalid or void clause or provision shall not affect the whole of
this instrument, but the balance of the provisions hereof shall remain in full
force and effect.
5.3 Notices
Any notice, statement, demand or other communication required or
permitted to be given, rendered or made by either party to the other, pursuant
to this Sublease or pursuant to any applicable law or requirement of public
authority, shall be in writing (whether or not so stated elsewhere in this
Sublease) and shall be deemed to have been properly given, rendered or made, if
sent by registered or certified mail, return receipt requested, addressed as
follows:
if to Seller:
Applied Intelligence Group, Inc.
13800 Benson Road
Edmond, Oklahoma 73013
Attention: Robert Baker
with copies to:
Richard M. Klinge, Esq.
<PAGE>
Richard M. Klinge Associates, P.C.
228 Robert S. Kerr Avenue, Suite 940
Oklahoma City, OK 73102
if to Netplex:
The Netplex Group, Inc.
8260 Greensboro Drive
McLean, VA 22102
Attention: Gene Zaino, President
with copies to:
Vedder Price Kaufman Kammholz & Day
805 Third Avenue
New York, NY 10022
Attention: Edward J. Walsh, Jr., Esq.
5.4 Binding Effect
This agreement shall be binding upon and inure to the benefit of the
parties hereto, their successors and (subject to the provisions hereof) their
permitted assigns.
5.5 Time Is Of The Essence.
Time is of the essence as to each and every condition, obligations,
agreement and covenant in this Sublease.
5.6 Miscellaneous
5.6.1 Netplex makes the same representation and warranty to
Seller as Seller made to OCIC in Section 7.5 of the Main Lease.
Said Section 7.5 is incorporated by reference into this
Sublease. 5.6.2 Netplex and Seller make the same covenants and
agreements as to this Sublease that OCIC and Seller made in
Section 7.4 of the Main Lease. Said Section 7.4 of the Main
Lease is incorporated herein by reference. 5.6.3 This Sublease
shall not be filed of record. Netplex may file a Memorandum of
this Sublease of record in substantially the same form as the
Memorandum of Lease attached to the Main Lease as Exhibit G.
SIGNATURE PAGE FOLLOWS
<PAGE>
SUBLEASE
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Sublease as
of the day and year first above written.
"Seller":
APPLIED INTELLIGENCE GROUP, INC.
By: _________________________________
Its: ________________________________
"Netplex":
THE NETPLEX GROUP, INC.
By: _________________________________
Its: ________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S
10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,291,145
<SECURITIES> 0
<RECEIVABLES> 9,313,383
<ALLOWANCES> (441,081)
<INVENTORY> 0
<CURRENT-ASSETS> 10,591,403
<PP&E> 3,017,335
<DEPRECIATION> (1,612,823)
<TOTAL-ASSETS> 18,486,030
<CURRENT-LIABILITIES> (10,035,028)
<BONDS> 0
0
(31,309)
<COMMON> (10,259)
<OTHER-SE> (13,908,331)
<TOTAL-LIABILITY-AND-EQUITY> (18,486,030)
<SALES> (43,755,189)
<TOTAL-REVENUES> (43,755,189)
<CGS> 36,061,828
<TOTAL-COSTS> 9,997,798
<OTHER-EXPENSES> (118,941)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,423,378)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,423,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,423,378)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
