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.
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.
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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), ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, 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
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 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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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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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:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President
viaLink
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Associates, P.C.
▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
If to Netplex:
The Netplex Group, Inc.
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., Esq.
▇▇▇▇▇▇ Price ▇▇▇▇▇▇▇ & Day
22nd Floor
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
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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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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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.
------------------------- --------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
President its _____________
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