APPENDIX A-3
EXHIBIT B
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 ("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 sale of assets.
NOW, THEREFORE, the parties hereto in
consideration of the above premises and in
consideration of other good and valuable
consideration, the receipt and sufficiency
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 Acquisition 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
Acquisition 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) additional shares of Netplex
Preferred Stock, (as the same is defined in the
Asset Agreement) 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 Acquisition Agreement less the
amount of such Netplex Preferred Stock
converted by Seller to Netplex Common Stock
prior to December 31, 2000].
4. Duties of Netplex Regarding Earn-Out Amounts.
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,
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
15th 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.
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 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 purusant 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 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
Acquisition 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.
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.
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 Articles and
Sections of this Earn-Out Agreement are for convenience only
and in no way modify, interpret or construe the meaning of
specific provisions of the 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 EarnOut
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.
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 are 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 Acquisition Agreement, the language of this Earn-
Out Agreement shall control and supercede any conflicting
provision of the Asset Acquisition Agreement, without voiding
or invalidating any other provision of either this Earn-Out
Agreement or the Asset Agreement.
SIGNATURE PAGE FOLLOWS
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 by its _____________