SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
netGuru, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The
proposed transaction is valued at $23,750,000, which is the
consideration payable to the Registrant in the asset sale transaction
described in the proxy statement.
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(4) Proposed maximum aggregate value of transaction:
$23,750,000
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(5) Total fee paid:
$4,750
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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NETGURU, INC.
22700 SAVI RANCH PARKWAY
YORBA LINDA, CALIFORNIA 92887
October 7, 2005
To Our Stockholders:
You are cordially invited to attend the 2005 annual meeting of
stockholders of netGuru, Inc., which will be held at 10:00 a.m. on November 17,
2005, at our executive offices located at 22700 Savi Ranch Parkway, Yorba Linda,
California 92887. All holders of our outstanding common stock as of the close of
business on September 20, 2005 are entitled to vote at the annual meeting.
Enclosed are a copy of the notice of annual meeting of stockholders, a
proxy statement and a proxy card. A current report on our business operations
will be presented at the meeting, and stockholders will have an opportunity to
ask questions.
We hope you will be able to attend the annual meeting. Whether or not
you expect to attend, it is important that you complete, sign, date and return
the proxy card in the enclosed envelope in order to make certain that your
shares will be represented at the annual meeting.
Sincerely,
/s/ Amrit K. Das
Amrit K. Das
Chief Executive Officer
NETGURU, INC.
22700 SAVI RANCH PARKWAY
YORBA LINDA, CALIFORNIA 92887
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 2005
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NOTICE IS HEREBY GIVEN that the 2005 annual meeting of stockholders of
netGuru, Inc. will be held at 10:00 a.m. local time, on November 17, 2005, at
our executive offices located at 22700 Savi Ranch Parkway, Yorba Linda,
California 92887, for the following purposes:
1. To elect five nominees to our board of directors;
2. To approve the sale of our Research Engineers International
("REI") business and our STAAD product lines for a purchase
price of approximately $23.5 million under the terms of an
asset purchase agreement dated August 19, 2005, as described
in more detail in the attached proxy statement, which asset
sale may be deemed to be a sale of substantially all of our
assets;
3. To ratify certain issuances of equity securities for
compensatory purposes, as described in more detail in the
attached proxy statement;
4. To ratify the appointment of Haskell & White LLP, independent
registered public accounting firm, to audit our consolidated
financial statements for the fiscal year ending March 31,
2006; and
5. To transact such other business as may properly come before
the annual meeting or any adjournments or postponements of the
meeting.
Our board of directors has fixed the close of business on September 20,
2005, as the record date for the determination of stockholders entitled to
notice of and to vote at the annual meeting. Only holders of our common stock at
the close of business on the record date are entitled to vote at the meeting. A
list of stockholders entitled to vote at the meeting will be available for
inspection at our executive offices. Stockholders attending the meeting whose
shares are held in the name of a broker or other nominee should bring with them
a proxy or letter from that firm confirming their ownership of shares.
By Order of the Board of Directors
/s/ Clara Y.M. Young
Clara Y.M. Young
Secretary
Yorba Linda, California
October 7, 2005
YOUR VOTE IS IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, EVEN
IF YOU DO PLAN TO ATTEND, PLEASE PROMPTLY FILL IN, DATE, SIGN AND MAIL THE
ENCLOSED PROXY IN THE RETURN ENVELOPE FURNISHED FOR THAT PURPOSE AS PROMPTLY AS
POSSIBLE. RETURNING A SIGNED PROXY CARD WILL NOT PREVENT YOU FROM VOTING IN
PERSON AT THE MEETING, IF YOU SO DESIRE, BUT WILL HELP US SECURE A QUORUM AND
REDUCE THE EXPENSE OF ADDITIONAL PROXY SOLICITATION. IF YOU LATER DESIRE TO
REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE
ATTACHED PROXY STATEMENT.
TABLE OF CONTENTS
Page
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Introduction................................................................................................1
Summary Term Sheet Regarding Proposal 2 - Sale of REI Business and STAAD Product Lines......................4
Cautionary Statement Regarding Forward-Looking Statements...................................................9
Proposal 1 - Election of Directors.........................................................................10
Proposal 2 - Approval of Sale of REI Business and STAAD Product Lines......................................30
Proposal 3 - Ratification of Certain Issuances of Equity Securities For Compensatory Purposes..............56
Proposal 4 - Ratification of Appointment of Independent Registered Public Accounting Firm..................58
Stockholder Proposals......................................................................................59
Annual, Quarterly and Current Reports......................................................................60
Available Information......................................................................................61
Other Matters..............................................................................................61
Appendix A - Asset Purchase Agreement.....................................................................A-1
Appendix B - Form of Transition Services Agreement........................................................B-1
Appendix C - Fairness Opinion.............................................................................C-1
Appendix D - Pro Forma Financial Information..............................................................D-1
Appendix E - Unaudited Historical Financial Information...................................................E-1
i
NETGURU, INC.
22700 SAVI RANCH PARKWAY.
YORBA LINDA, CALIFORNIA 92887
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PROXY STATEMENT
2005 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 2005
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INTRODUCTION
DATE, TIME, PLACE AND PURPOSE
This proxy statement is being furnished to holders of common stock of
netGuru, Inc., a Delaware corporation, in connection with the solicitation of
proxies by our board of directors for use at the 2005 annual meeting of our
stockholders to be held at 10:00 a.m. local time on November 17, 2005, at our
executive offices located at 22700 Savi Ranch Parkway, Yorba Linda, California
92887, and at any adjournments or postponements of the meeting. At the annual
meeting, stockholders will be asked to consider and vote upon the proposals
described in the accompanying notice of meeting and any other matters that may
properly come before the meeting. We anticipate that this proxy statement and
accompanying proxy card will first be mailed on or about October 18, 2005 to
all stockholders entitled to vote at the annual meeting.
VOTING RIGHTS AND VOTES REQUIRED FOR APPROVAL
We have one class of capital stock outstanding, common stock. At the
close of business on September 20, 2005, the record date for determining
stockholders entitled to notice of and to vote at the annual meeting, we had
issued and outstanding 19,117,154 shares of common stock. Each share of common
stock entitles the holder of that share to one vote on any matter coming before
the annual meeting and any adjournments or postponements of the annual meeting.
Under Delaware law and our bylaws, a majority of the shares entitled to
vote, represented in person or by proxy, will constitute a quorum at a meeting
of stockholders. Shares of our common stock represented in person or by proxy
(regardless of whether the proxy has authority to vote on all matters), as well
as abstentions and broker non-votes, will be counted for purposes of determining
whether a quorum is present at the meeting.
An "abstention" is the voluntary act of not voting by a stockholder who
is present at a meeting and entitled to vote. "Broker non-votes" are shares of
voting stock held in record name by brokers and nominees concerning which: (i)
instructions have not been received from the beneficial owners or persons
entitled to vote; (ii) the broker or nominee does not have discretionary voting
power under applicable rules or the instrument under which it serves in such
capacity; or (iii) the record holder has indicated on the proxy or has executed
a proxy and otherwise notified us that it does not have authority to vote such
shares on that matter.
Votes cast at the meeting will be tabulated by the person or persons
appointed by us to act as inspectors of election for the meeting. Directors will
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, which means that the five candidates receiving the highest number of
affirmative votes of the shares entitled to be voted for them will be elected.
1
Approval of proposal 2, the proposed sale of assets, requires for
approval the affirmative vote of the majority of shares entitled to vote at the
meeting. Proposals 3 and 4, the ratification of issuances of equity securities
and the ratification of the appointment of our independent registered public
accounting firm, each require for approval the affirmative vote of a majority of
the shares of our common stock present in person or represented by proxy at the
meeting and entitled to vote on those proposals. In all other matters that may
properly come before the meeting, unless otherwise expressly provided by
applicable statute or by our certificate of incorporation or bylaws, the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the proposal will constitute the
act of the stockholders.
On proposals such as proposals 3 and 4, which require for approval the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the proposal, abstentions but not
broker non-votes will be treated as shares present and entitled to vote on the
proposal. Applying that standard, an abstention will be counted as a vote
"against" the proposal, and a broker non-vote will reduce the absolute number
(although not the percentage) of the affirmative votes needed for approval of
the proposal. However, on proposals such as proposal 2, the effect of either an
abstention or a broker non-vote will be the same as a vote "against" the
proposal, because an absolute number of affirmative votes is required,
regardless of how many votes are cast, and abstentions and broker non-votes are
not affirmative votes.
SOLICITATION OF PROXIES
The proxy card accompanying this proxy statement is solicited on behalf
of our board of directors for use at the meeting. Stockholders are requested to
complete, date and sign the accompanying proxy card and promptly return it in
the accompanying envelope or otherwise mail it to us. All proxies that are
properly executed and returned, and that are not revoked, will be voted at the
meeting in accordance with the instructions indicated on the proxies or, if no
direction is indicated, "for" each of the proposals described on the proxy card.
A stockholder who has given a proxy may revoke it at any time before it
is exercised at the meeting, by:
o delivering to our secretary (by any means, including
facsimile), a written notice, bearing a date later than the
date of the proxy, stating that the proxy is revoked;
o signing and delivering to our secretary (by any means,
including facsimile) a proxy relating to the same shares and
bearing a later date prior to the vote at the meeting; or
o attending the meeting and voting in person (although
attendance at the meeting will not, by itself, revoke a
proxy).
Our board of directors does not presently intend to bring any business
before the meeting of our stockholders other than the proposals referred to in
this proxy statement and specified in the notice of meeting. So far as is known
to our board of directors, no other matters are to be brought before the
meeting. As to any business that may properly come before the meeting, however,
it is intended that shares represented by proxies held by management will be
voted in accordance with the judgment of the persons voting the shares.
2
We contemplate that the solicitation of proxies will be made primarily
by mail. We will make arrangements with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material to the beneficial
owners of shares of our common stock and will reimburse them for their expenses
in so doing. We have no present plans to hire special employees or paid
solicitors to assist us in obtaining proxies, but we reserve the right to do so
if we believe it is necessary to secure a quorum.
RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors unanimously recommends that our stockholders
vote "for" each of the proposals described in this proxy statement and the
accompanying notice of meeting.
THE PROPOSALS TO BE VOTED UPON AT THE MEETING ARE DISCUSSED IN DETAIL
IN THIS PROXY STATEMENT. YOU ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY
THIS PROXY STATEMENT AND ITS APPENDICES IN THEIR ENTIRETY.
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SUMMARY TERM SHEET REGARDING PROPOSAL 2 -
SALE OF REI BUSINESS AND STAAD PRODUCT LINES
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT
RELATING TO PROPOSAL 2. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU MAY
CONSIDER TO BE IMPORTANT IN DETERMINING HOW TO VOTE ON PROPOSAL 2, OUR SALE OF
CERTAIN ASSETS. YOU SHOULD CAREFULLY READ THE ENTIRE PROXY STATEMENT AND OTHER
DOCUMENTS TO WHICH WE REFER. THESE WILL GIVE YOU A MORE DETAILED DESCRIPTION OF
THE TRANSACTIONS CONTEMPLATED BY PROPOSAL 2. WE HAVE INCLUDED PAGE REFERENCES IN
PARENTHESES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS PRESENTED
IN THIS SUMMARY.
THE PROPOSAL (SEE PAGE 30)
At the annual meeting, you will be asked to consider and vote upon a
proposal to approve the sale of our Research Engineers International ("REI")
business and STAAD product lines to Bentley Systems, Incorporated ("Bentley")
pursuant to an asset purchase agreement dated August 19, 2005 between us and
Bentley. This proposed asset sale may be deemed to be a sale of substantially
all of our assets. The asset purchase agreement is the document that controls
the proposed transaction between the companies. We encourage you to read the
entire asset purchase agreement, which is attached to this proxy statement as
APPENDIX A and is described beginning on page 33 of this proxy statement.
PARTIES TO THE ASSET SALE
We are an engineering information technology ("IT") and services
company offering engineering analysis and design software, collaborative
software solutions, and professional and technical information technology
services and support to businesses worldwide. We serve our global markets and
clients through offices located in the United States, Europe, Asia, and the
Middle East, and through distributors in 40 countries. We license our
engineering software and solutions to more than 19,000 businesses in 100
countries. Our principal executive offices are located at:
netGuru, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
For more information regarding our business, please see page 46 of this
proxy statement under the heading "Use of Proceeds and Operations Following the
Closing" and also refer to our accompanying annual report on Form 10-K for the
fiscal year ended March 31, 2005 and our Form 10-Q for the three months ended
June 30, 2005, which reports accompany this proxy statement.
Bentley is a privately-held company that is a leading provider of
infrastructure software for the architecture, engineering, and construction
markets. Its principal executive offices are located at:
Bentley Systems, Incorporated
685 Stockton Drive
Exton, PA 19341-0678
ASSETS TO BE SOLD (SEE PAGE 33)
The assets we propose to sell pursuant to the asset purchase agreement
are our REI business and our STAAD product lines. Bentley would acquire the
worldwide operations associated with REI, including the STAAD structural
analysis and design product line, software and product development, customer
support and relationships, and offices associated with the worldwide business,
including offices in Yorba Linda, California; Bristol, United Kingdom; and
Kolkata, India; as well as REI sales offices in other parts of Europe and Asia.
4
This business and these product lines accounted for approximately 70.0%
and 73.0% of our revenues for the fiscal year ended March 31, 2005 and the three
months ended June 30, 2005, respectively. We would retain our collaborative
software operations and products, including eReview and ForReview, and our
information technology and engineering business process outsource ("EBPO")
services businesses.
PURCHASE PRICE (SEE PAGE 35)
Bentley has agreed to pay a total cash purchase price of $23.5 million
(subject to an adjustment based upon post-closing collection of accounts
receivable). Bentley has also agreed to reimburse us at the closing for up to
$250,000 of legal and financial expenses we incur in connection with the asset
sale.
VOTING REQUIREMENTS FOR THE ASSET SALE (SEE PAGE 55)
In order to consummate the asset sale, the holders of a majority of the
outstanding shares of our common stock as of the record date must approve the
asset sale. Holders of our common stock will be entitled to cast one vote per
share owned as of the record date for the annual meeting at which the proposal
to approve the asset sale under the terms of the asset purchase agreement will
be presented and voted upon. We anticipate that the shares covered by the voting
agreements described below will be voted in favor of proposal 2.
CONDITIONS TO COMPLETION OF THE ASSET SALE (SEE PAGE 36)
Our and Bentley's obligations to complete the asset sale are subject to
specified conditions described at page 36 of this proxy statement. We and
Bentley expect to complete the asset sale as soon as practicable after all of
the conditions to completion contained in the asset purchase agreement have been
satisfied or waived. We and Bentley are working toward satisfying these
conditions to closing and completing the asset sale as soon as practicable. We
currently plan to complete the asset sale as soon as practicable following the
annual meeting but no later than December 31, 2005, assuming that our
stockholders approve the asset sale and that the other conditions to closing are
satisfied or waived. However, because the asset sale is subject to specified
conditions, some of which are beyond the control of us or Bentley, the exact
timing of the completion of the asset sale cannot be predicted.
PROHIBITION ON SOLICITING OTHER OFFERS (SEE PAGE 40)
Except as expressly permitted in connection with a superior proposal,
until the asset sale is completed or the asset purchase agreement is terminated,
we have agreed not to, and not to authorize any of our or our affiliates'
officers, directors, employees, representatives or agents, and not to permit any
such person or any of its subsidiaries to directly or indirectly encourage,
solicit, or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
concerning any merger, sale of asset, sale of any equity interest in us or
similar transaction involving us, or a division of our company, or any other
transaction that would involve the transfer or potential transfer of control of
our company.
5
TERMINATION OF THE ASSET PURCHASE AGREEMENT AND PAYMENT OF TERMINATION AND
BREAK-UP FEES (SEE PAGE 42)
We or Bentley may terminate the asset purchase agreement by mutual
agreement and under other circumstances specified in the asset purchase
agreement. If the asset purchase agreement is terminated under certain
circumstances described at page 42 of this proxy statement, then we may be
required to pay Bentley a termination fee equal to their fees and expenses
expended in connection with the asset purchase agreement or a $1 million
break-up fee.
ACCOUNTING TREATMENT OF THE ASSET SALE (SEE PAGE 55)
If the asset purchase agreement and the asset sale are approved by our
stockholders as described in this proxy statement, we will record the asset sale
in accordance with accounting principles generally accepted in the United
States. Upon completion of the asset sale, we will recognize a financial
reporting gain equal to the net proceeds (the sum of the purchase price
received less the expenses relating to the asset sale) less the net book value
of the assets sold and the fair value of the indemnification liability retained.
REGULATORY APPROVALS REQUIRED TO COMPLETE THE ASSET SALE (SEE PAGE 55)
There are no material United States federal or state regulatory
approvals required for completion of the asset sale other than the approval of
the asset sale by our stockholders under the corporate law of the State of
Delaware.
SHARE OWNERSHIP OF OUR DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS (SEE
PAGE 22)
At the close of business on the record date for the annual meeting, our
directors, director nominees and executive officers collectively owned
approximately 27.4% of the outstanding shares of our common stock entitled to
vote at the annual meeting. This does not include 697,507 shares of our common
stock issuable upon exercise of options these persons beneficially owned and
were eligible to exercise within 60 days after the record date. If all of these
options had been exercised prior to the record date, these persons would have
collectively beneficially owned approximately 30.0% of the outstanding shares
of our common stock entitled to vote at the annual meeting.
BOARD RECOMMENDATION TO STOCKHOLDERS AND REASONS FOR THE ASSET SALE
RECOMMENDATION OF OUR BOARD OF DIRECTORS (SEE PAGE 55)
After careful consideration, our board of directors unanimously
determined that it is advisable and in the best interests of us and our
stockholders to approve the asset sale under the terms of the asset purchase
agreement. Accordingly, our board of directors unanimously approved the asset
purchase agreement and the asset sale and recommends that our stockholders vote
"for" proposal 2.
OUR REASONS FOR THE ASSET SALE (SEE PAGE 44)
In reaching its decision to approve the asset purchase agreement and
the asset sale, our board of directors considered several potential benefits and
material factors pertaining to the asset sale, including the belief that the
asset sale represents the most favorable alternative currently available to us
to maximize stockholder value. Our board of directors also considered a number
of potentially negative factors in reaching its decision to approve the asset
purchase agreement and asset sale, including the potential negative effect on
our stock price as a result of the public announcement of or consummation of the
asset sale.
6
OPINION OF FINANCIAL ADVISOR (SEE PAGE 47)
In deciding to approve the asset sale, our board of directors
considered, among other things, an opinion from its financial advisor, B. Riley
& Co., Inc., that as of August 16, 2005, the consideration to be paid to us
pursuant to the asset purchase agreement was fair, from a financial point of
view, to holders of our common stock. Our board of directors also was of the
view that the material information and data upon which B. Riley's fairness
opinion is based did not materially change between that date and August 19,
2005, the date the asset purchase agreement was executed.
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE ASSET SALE (SEE PAGE
51)
Some of our directors and officers have interests in the asset sale
that are different from, or in addition to, those of our stockholders generally.
Our board of directors was aware of these interests when it approved the asset
purchase agreement. For instance, some of our executive officers may be entitled
to severance or change in control payments following the completion of the asset
sale under certain circumstances pursuant to the terms of their employment
agreements or change in control and retention agreements entered into with us.
Our directors and executive officers may be entitled to immediate vesting of
their outstanding stock options if a change in control occurs as a result of the
asset sale. If the asset sale is consummated, some of our executive officers
will receive cash bonuses for their extraordinary efforts in support of our
activities relating to the asset sale.
Bentley is required under the asset purchase agreement to make
offers of employment to Santanu K. Das, Bruce K. Nelson, Clara Y.M. Young and
Biren Parikh that include total compensation arrangements no less favorable than
the total compensation arrangements those employees received from us for the
twelve-month period prior to the date of the asset purchase agreement (excluding
any severance payment obligations). Also, it is a condition to closing that
Santanu K. Das and not less than 90% of our employees to whom Bentley makes an
offer of employment accept those offers.
In addition, some of our directors are receiving compensation for their
agreement to serve on a special committee of our board of directors charged with
the task of assisting in establishing a specific course of action for us to take
after the consummation of the asset sale. Mr. Ben Eazzetta, one of our
directors, is an executive officer and shareholder of Intergraph Corporation, a
publicly-held company that owned approximately 29% of the outstanding shares of
common stock of Bentley as of the date of the asset purchase agreement. However,
Mr. Eazzetta is not a party to any arrangement pursuant to which he anticipates
benefiting directly or materially from our asset sale to Bentley.
LIABILITIES TO BE ASSUMED BY BENTLEY OR RETAINED BY US (SEE PAGE 34)
At the closing, Bentley will assume only certain of our liabilities,
including certain trade accounts payable, certain contractual liabilities and
obligations to be performed or discharged after the closing, and certain
employee-related liabilities. We will retain all liabilities not assumed by
Bentley.
USE OF PROCEEDS AND OPERATIONS FOLLOWING THE CLOSING (SEE PAGE 46)
We propose to use the proceeds from this transaction as follows:
o approximately $3.6 million will be paid to satisfy our
outstanding debts and other liabilities;
o approximately $2.77 million (including approximately $250,000
to be reimbursed to us by Bentley at the closing in connection
with our legal and financial expenses relating to the asset
sale) will be paid to satisfy the expenses (including
severance payments) and taxes, related to this transaction;
and
7
o the remaining approximate $17.13 million in proceeds will be
available for working capital and general corporate purposes
and for other uses our board may determine. This figure
includes a reserve required to be held for six months and one
day after the closing of the asset sale as described at page
35 of this proxy statement.
We currently intend to continue to operate our retained businesses
during the immediate future, which consist of our Web4 division, our IT services
division, and our EBPO operations. We are reviewing alternatives for the
ultimate use and disposition of our remaining assets, which may include pursuing
a plan of complete liquidation and dissolution (possibly including the sale of
our remaining assets and businesses). In the event of a liquidation we would
incur additional costs related to the disposal of our remaining assets and
businesses, which would reduce the cash available to distribute to our
stockholders. Alternatively, we may decide to pursue selling our remaining
assets and businesses outside of a liquidation and dissolution, to repurchase
shares of our common stock or make a tender offer or distributions of cash to
our stockholders, to explore other strategic alternatives, such as a business
combination with another party, and/or to continue as an independent stand-alone
company focusing on business opportunities relating to our retained businesses
or to new business opportunities unrelated to our retained or historical
businesses. Any business combination transaction is likely to have a dilutive
effect on the interests of our stockholders, reducing each stockholder's
proportionate ownership and voting power. At this time, our board of directors
has not made any final decision to pursue any one of these options. You should
review the "Risk Factors" section beginning on page 52 for a discussion of some
of the risks related to our future operations.
The asset purchase agreement contains three-year non-competition,
non-solicitation and inventions assignment provisions covering us and Amrit K.
Das and Santanu K. Das, who are two directors, director nominees, executive
officers and beneficial owners of more than 5% of our outstanding common stock.
These provisions relate to the business and assets being sold in the asset sale.
OTHER AGREEMENTS RELATING TO THE ASSET SALE (SEE PAGE 44)
In connection with the asset sale, we and Bentley and various other
parties have entered or will enter into a transition services agreement, a stand
still agreement and voting agreements.
TRANSITION SERVICES AGREEMENT
Under the terms of the transition services agreement to be entered into
at the closing between us and Bentley, among other things, we would provide
information systems migration and shared infrastructure services to Bentley for
up to one year, and would lease a portion of the Kolkata, India facility to
Bentley for two years, with two one-year renewal options. Bentley would provide
to us STAAD suite licenses and access to infrastructure at the Kolkata and Yorba
Linda facilities for up to one year and would sublease to us a portion of the
Yorba Linda, California facility for one year, with a one-year renewal option.
STAND STILL AGREEMENT
In connection with the asset purchase agreement, Laurus Master Fund,
Ltd. ("Laurus") and we entered into a stand still agreement dated as of August
19, 2005. Laurus is a secured creditor of ours and a beneficial owner of more
than 5% of our outstanding common stock. Under the stand still agreement, Laurus
consented to our entry into and consummation of the transactions contemplated by
the asset purchase agreement and agreed to release its security interest in the
assets being sold, subject to Laurus being paid in full at the closing all of
our obligations under the convertible promissory notes held by Laurus. Laurus
also temporarily agreed not to exercise any of its warrants to purchase shares
of our common stock. In addition, Laurus agreed not to interfere with the
transactions contemplated by the asset purchase agreement. The stand still
agreement does not, however, limit the right of Laurus to transfer or vote
shares of our common stock.
8
VOTING AGREEMENTS
Two of our significant stockholders, one of whom is Chief Operating
Officer and a director of our company, held an aggregate of approximately 29.0%
of our total outstanding shares as of the record date. Pursuant to voting
agreements dated August 19, 2005, both individuals have granted irrevocable
proxies that empower two executive officers of Bentley to vote shares of common
stock owned by these two individuals in favor of approval of the asset sale.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement and the documents accompanying or incorporated by
reference into this proxy statement contain forward-looking statements about the
asset sale and our company within the meaning of Section 27A of the Securities
Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). These forward-looking
statements generally include the plans and objectives of management for future
operations, including plans and objectives relating to our future economic
performance, and can generally be identified by the use of the words "believe,"
"intend," "plan," "expect," "forecast," "project," "may," "should," "could,"
"seek," "pro forma," "goal," "estimates," "continues," "anticipate" and similar
words. Other forward-looking statements include those concerning the value of
the assets to be transferred to Bentley in the asset sale, the aggregate net
consideration to be received by us in the asset sale, the likelihood of
stockholder value resulting from the asset sale, which may be deemed a sale of
substantially all of our operating assets, and the business operations of our
company following the closing of, or in the event the asset sale is not
completed, in lieu of, the asset sale.
These forward-looking statements necessarily depend upon assumptions
and estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the
forward-looking statements.
We intend the forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and are including this statement for
purposes of invoking these safe harbor provisions. Such statements are based
upon current expectations and beliefs and are subject to risks, uncertainties
and changes in condition, significance, value and effect, including those
discussed in the sections entitled "Risk Factors" beginning on page 52 of this
proxy statement and beginning on page 26 of our annual report on Form 10-KSB for
the fiscal year ended March 31, 2005 in the section entitled "Management's
Discussion and Analysis or Plan of Operation." Such risks, uncertainties and
changes in condition, significance, value and effect could cause our actual
results to differ materially from those anticipated events. Except as may be
required under federal law, we undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur.
9
PROPOSAL 1
ELECTION OF DIRECTORS
Our bylaws provide that our board of directors shall consist of not
less than five nor more than eight directors, with the exact number of directors
that constitutes our board of directors to be set by our board of directors
subject to the provisions of our certificate of incorporation. The number of
directors on our board of directors is set at five, and there are no vacancies
on our board of directors.
Directors are elected annually and hold office until the next annual
meeting of stockholders or until their respective successors are elected and
qualified. It is intended that the proxies solicited by the board of directors
will be voted "for" election of the five nominees listed in this proxy statement
unless a contrary instruction is made on the proxy. If, for any reason, one or
more of these nominees is unavailable as a candidate for director, an event that
we do not anticipate, the proxies held by management may be voted for a
substitute nominee or nominees, if any, as recommended by management. In no
event, however, shall the proxies be voted for a greater number of persons than
the number of nominees named. All of the nominees for director are currently
directors of netGuru.
DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below is certain information as of September 20, 2005
regarding our directors, who are all nominees for re-election, and our executive
officers and key employees.
Name Age Position
---- --- --------
Amrit K. Das 60 Chairman of the Board, Chief
Executive Officer, President
and Director
Santanu K. Das 32 Executive Vice President,
Chief Operating Officer and
Director
Stephen W. Owen 45 Corporate Vice President,
President of European
Operations
Bruce K. Nelson 51 Chief Financial Officer
Clara Y.M. Young 51 Corporate Vice President,
Chief Administrative Officer
and Secretary
Biren Parikh 37 Corporate Vice President,
Global Sales and Marketing
D. Dean McCormick III (1)(2)(3)(4) 52 Director
Stanley W. Corbett (1)(2)(4) 71 Director
Benedict A. Eazzetta (1)(2)(3)(4) 41 Director
- ----------------------------
(1) Member of audit committee.
(2) Member of compensation committee.
(3) Member of nominating and corporate governance committee.
(4) Member of special committee.
DIRECTORS AND EXECUTIVE OFFICERS
AMRIT K. DAS is the founder of our company. He has served as our Chief
Executive Officer and Chairman of our board of directors since our inception in
1981 and as our President since November 2003. Mr. Das also served as our
President from our inception until March 1999. Mr. Das holds a B.S. in
Civil/Structural Engineering from Calcutta University, India, and an M.S. in
Structural Engineering from the University of South Carolina. Mr. Das is the
father of Santanu K. Das.
10
SANTANU K. DAS has served as our Executive Vice President and Chief
Operating Officer and Director since November 2003. Prior to that, he served as
Corporate Vice President and President of Engineering and Collaborative Software
from April 2002 to November 2003, as our Vice President of New Technology from
July 1999 to November 2003 and as a director from September 1996 to July 2003.
Prior to that, Mr. Das served as our Corporate Vice President and President of
Engineering and Animation Software and ASP from January 2001 to March 2002.
Prior to that, Mr. Das served as our Manager of New Technology from May 1997
until June 1999, and as a Senior Engineering Analyst for our company from 1991
to April 1997. Mr. Das holds a B.S. in Structural Engineering from the
University of Southern California and an M.S. in Structural Engineering from the
Massachusetts Institute of Technology. Santanu Das is the son of Amrit K. Das.
STEPHEN W. OWEN has served as our Corporate Vice President since
September 2001 and as President of European Operations since October 1999. He
served as a director of netGuru from September 2001 to July 2003. Prior to that,
he served as our Director of European Operations from 1987 to 1999. Mr. Owen
holds a B.S. in Civil Engineering from the University College Swansea, United
Kingdom and is a Chartered Engineer for both Civil and Marine Technology
Engineering.
BRUCE K. NELSON has served as our Chief Financial Officer since April
2002. Prior to joining us, Mr. Nelson served as Chief Financial Officer of
Millennium Information Technologies, Inc. from 1997 to April 2002. From 1992 to
1997, he was co-founder and President of Comprehensive Weight Management, a
healthcare marketing company. From 1985 to 1992, Mr. Nelson served as Treasurer
of Comprehensive Care Corporation, a NYSE-traded national service company. Mr.
Nelson holds a B.S. in Finance from University of Southern California and an
M.B.A. from Bryant College in Smithfield, Rhode Island.
CLARA Y.M. YOUNG has served as our Corporate Vice President and Chief
Administrative Officer since January 2001 and as our Secretary since March 2001.
Ms. Young served as our Vice President, Administration from December 1987 to
December 2000. Prior to that, Ms. Young served as program analyst with The
Technical Group, Inc. from December 1982 to December 1987. Ms. Young holds a
B.S. in Computer Science from California State University, Fullerton.
D. DEAN MCCORMICK III has served as one of our directors since July
2003. Mr. McCormick is a certified public accountant and has been president of
the consulting and accounting firm of McCormick Consulting, Inc. since July
1993. He has been a member of the Audit and Budget Committee for the Catholic
Diocese of Orange since February 2004. Mr. McCormick has been a member of the
Forum for Corporate Directors since June 2003 and an advisor to the Family
Business Program at the University of Southern California since September 2003.
He served as president of the Orange County Chapter of the Association for
Corporate Growth from 1995 to 1996. Mr. McCormick holds a B.A. in Economics from
the University of Redlands and an M.B.A. from the University of Southern
California.
STANLEY W. CORBETT has served as one of our directors since July 2002.
Mr. Corbett is a manufacturing executive in the aerospace industry. Since 1989,
Mr. Corbett has been providing consulting services for software system
implementations to first and second tier defense contractors as well as
commercial manufacturers. As a consultant, he also has provided solutions to a
large variety of manufacturing problems. Mr. Corbett holds a B.S. in Mechanical
Engineering from Lehigh University and an M.S. in Industrial Engineering from
Stanford University and has completed the University of California at Los
Angeles Executive Program.
BENEDICT A. EAZZETTA has served as one of our directors since July 2003
and as president of Intergraph Public Safety, Inc., a division of Intergraph
Corporation (Nasdaq NM:INGR), since August 2004. Prior to that, he served as the
chief operating officer of Intergraph Process Power & Offshore, an engineering
software and services business segment of Intergraph Corporation, and executive
11
vice president of Intergraph Corporation, since May 2001. He co-founded and then
served from January 2000 to April 2001 as vice president of product management
for Industria Solutions, a privately held software and services company. Mr.
Eazzetta served as an engineering executive at ExxonMobil from January 1996 to
January 2000. Prior to that, he served in several engineering, staff and
management positions, including downstream planning and development, economics
and planning, and various operational supervisory roles. Mr. Eazzetta earned a
B.S. in Nuclear Engineering and an M.S. in Mechanical Engineering from Georgia
Tech.
KEY EMPLOYEE
BIREN PARIKH has served as our Vice President of Global Sales and
Marketing since June of 2005. Prior to that, he served as our Director of
Corporate Sales and Marketing since April 2000. Prior to joining netGuru, Mr.
Parikh served as director of marketing for Infosys Corporation, which serves the
e-Business markets. Prior to that, Mr. Parikh launched Digitech International,
Inc., which serves the GIS/engineering markets and served as its president. Mr.
Parikh holds a B.S. in Information Systems Management from the University of San
Francisco.
TERM OF OFFICE AND FAMILY RELATIONSHIPS
Our directors hold office until the next annual stockholders' meeting,
until their respective successors are elected or until their earlier death,
resignation or removal. Our officers are appointed by, and serve at the
discretion of, our board of directors. Mr. Santanu K. Das, a director and
director nominee, is the son of our chairman, director and director nominee, Mr.
Amrit K. Das.
BOARD OF DIRECTORS AND COMMITTEES
Our board of directors held seven meetings during the fiscal year ended
March 31, 2005, and took action by unanimous written consent on seven occasions.
Our board of directors currently has an audit committee, a compensation
committee and a nominating and corporate governance committee. During the fiscal
year ended March 31, 2005, no incumbent director attended fewer than 75% of the
aggregate of the total number of meetings of the board of directors held during
the period for which he was a director and the total number of meetings held by
all committees of the board on which he served during the periods that he
served.
AUDIT COMMITTEE
Our audit committee is responsible for the appointment of our
independent auditors, reviews the results and scope of the audit and other
services provided by our independent auditors, reviews our consolidated
financial statements for each interim period, and reviews and evaluates our
internal control functions. Our audit committee is governed by a written
charter, which was amended and restated on October 7, 2004. A copy of the
amended and restated audit committee charter was attached as Appendix A to our
definitive proxy statement for our 2004 annual meeting of stockholders and is
available on our Internet site at the following address:
http://www.netguru.com/netGuruPolicies.asp.
Since July 25, 2003, our audit committee has consisted of Messrs.
Corbett, Eazzetta and McCormick, with Mr. McCormick holding the position of
chairman of that committee. Our board of directors has determined that Mr. D.
Dean McCormick is an "audit committee financial expert" and meets the NASD's
professional experience requirements, and that each of the members of our audit
committee is "independent" within the meaning of NASD Marketplace Rule
4200(a)(15). Our audit committee held nine meetings during the fiscal year ended
March 31, 2005.
12
COMPENSATION COMMITTEE
Our compensation committee makes recommendations to our board of
directors concerning salaries and incentive compensation for our employees and
consultants and also selects the persons to receive options under our stock
option plans and establishes the number of shares, exercise price, vesting
period and other terms of the options granted under these plans. Since July 25,
2003, our compensation committee has consisted of Messrs. McCormick, Eazzetta
and Corbett, with Mr. Eazzetta holding the position of chairman of that
committee.
Our board of directors has determined that each member of the
compensation committee meets NASD independence requirements. The compensation
committee held five meetings during the fiscal year ended March 31, 2005. Based
upon recommendations from our compensation committee our board of directors took
action relating to our stock option plans by written consent on two occasions
during the fiscal year ended March 31, 2005. No executive officer of netGuru has
served as a director or member of the compensation committee of any other entity
whose executive officers served as a director of netGuru.
Our compensation committee's amended and restated charter was attached
as Appendix B to our definitive proxy statement for our 2004 annual meeting of
stockholders and is available on our Internet site at
http://www.netguru.com/netGuruPolicies.asp.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Nasdaq rules require that board of director nominees must be either
selected, or recommended for the board's selection, by either a nominating
committee comprised solely of independent directors or by a majority of our
independent directors. Effective as of April 30, 2004, we formed the nominating
and corporate governance committee to be composed entirely of non-employee
directors who meet Nasdaq independence standards. The committee currently is
comprised of Messrs. Eazzetta and McCormick, with Mr. Eazzetta serving as
committee chairman. The nominating and corporate governance committee assists
our board of directors with its nominating function and with reviewing and
evaluating our compliance with corporate governance requirements as described in
the committee's charter referenced below.
The committee utilizes a variety of methods for identifying and
evaluating nominees for director, including candidates that may be referred by
our stockholders. Stockholders who desire to recommend candidates for the board
for evaluation may do so by contacting us in writing, identifying the potential
candidate and providing background information. See "Security Holder
Communications with Our Board of Directors." Candidates may also come to the
attention of the committee through current board members, professional search
firms and other persons. In evaluating potential candidates, the committee will
take into account a number of factors, including among others, the following:
o independence from management;
o whether the candidate has relevant business experience;
o judgment, skill, integrity and reputation;
o existing commitments to other businesses;
o corporate governance background;
13
o financial and accounting background, to enable the nominating
and corporate governance committee to determine whether the
candidate would be suitable for audit committee membership;
and
o the size and composition of the board.
The committee operates pursuant to an amended and restated charter approved by
our board of directors and the committee. A copy of the charter was attached as
Appendix C to our definitive proxy statement for our 2004 annual meeting of
stockholders and is available on our Internet site at
http://www.netGuru.com/netGuruPolicies.asp.
SPECIAL COMMITTEE
On August 31, 2005, our board of directors appointed Messrs. McCormick,
Eazzetta and Corbett to a special committee charged with the task of assisting
the board of directors in establishing a specific course of action for us to
take after the consummation of the asset sale described in proposal 2. In
consideration for their agreement to serve on the special committee, the board
of directors and compensation committee approved cash payments totaling $42,000
for each special committee member. The payments to each member are being made in
five equal monthly installments of $8,400 each, beginning August 31, 2005.
DIRECTORS' COMPENSATION
From July 2003 to December 2003, Messrs. McCormick, Eazzetta and
Corbett, our non-employee directors, were eligible to receive $1,000 per month,
each, in consideration for their services on our board of directors. This amount
was increased to $1,500 per month in January 2004 and to $2,000 per month
effective June 1, 2005. In addition, effective June 1, 2005, the chairman of the
audit committee receives an additional $500 per month in consideration for his
services as audit committee chairman. Non-employee directors are reimbursed for
certain expenses in connection with attendance at board of directors and
committee meetings. Special committee members are receiving cash compensation as
described above.
We also periodically award options to our directors under our existing
stock option plans and otherwise. During fiscal 2005, we granted fully vested
non-qualified stock options to purchase 10,000 shares of common stock each to
Dean McCormick III, Benedict A. Eazzetta and Stanley W. Corbett. The options
have an exercise price of $1.45 per share (which price was the fair market value
of a share of our common stock on the date of the grant), vested immediately on
the date of the grant, which was July 7, 2004, and expire July 7, 2014. In
addition, the vesting of outstanding options granted to non-employee directors
shall be accelerated under the circumstances described below with regard to a
change in control.
Effective June 1, 2005, each non-employee director became eligible to
receive annual grants of non-qualified stock options to purchase up to 15,000
shares of our common stock on the following terms:
o The annual grants were effective automatically on June 7, 2005
and will be effective on each April 1 thereafter.
o The options will be granted under one of our stock option
plans to the extent shares are then available under a plan and
the grants under a plan can be made in compliance with
applicable securities laws.
14
o The exercise price of the options will be equal to the Fair
Market Value of a share of our common stock as defined in the
applicable stock option plan or, if the options are being
granted outside of a plan, then the exercise price of the
options will be equal to the Fair Market Value of a share of
our common stock as defined in our stock option plan most
recently approved by our stockholders ("Recent Plan").
o The expiration date of the options shall be ten years after
their date of grant or such earlier date as is provided for
non-employee directors (or if there is no such provision for
non-employee directors, then as is provided for employee
optionees) in the applicable stock option plan or, if there is
no applicable stock option plan, then in the Recent Plan.
o The options shall vest and become exercisable in nine equal
monthly installments commencing one month after their date of
grant.
o If the director's service on the board of directors terminates
as a result of, and concurrently or within three months
following the consummation of, a Change in Control, then the
unvested and unexpired options shall vest immediately prior to
termination of the director's service. A "Change in Control"
means a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act, whether or
not we are then subject to such reporting requirement;
provided that, without limitation, a Change in Control will be
deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than a trustee
or other fiduciary holding securities under an
employee benefit plan of our company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of our company representing 35% or more of
the combined voting power of our company's then
outstanding voting securities;
(ii) there is a merger or consolidation of our company in
which our company does not survive as an independent
public company;
(iii) business or businesses of our company that generated
at least 50% of our consolidated revenues for the
then most recently completed fiscal year are disposed
of by us pursuant to a partial or complete
liquidation of our company, a sale of assets
(including stock of a subsidiary) of our company, or
otherwise; or
(iv) during any period of two consecutive years during the
term of the option, individuals who, at the beginning
of such period constitute the board of directors,
cease for any reason to constitute at least a
majority thereof, unless the election of each
director who was not a director at the beginning of
such period has been approved in advance by directors
representing at least two-thirds of the directors
then in office who were directors at the beginning of
the period. However, no transaction that effects a
mere reincorporation of our company, or reorganizes
our company, will be considered a "Change in Control"
for purposes of the options.
In addition, effective June 1, 2005, our board of directors and audit
committee resolved that the vesting of outstanding options previously granted to
non-employee directors shall be accelerated under the circumstances described
above.
15
SECURITY HOLDER COMMUNICATIONS WITH OUR BOARD OF DIRECTORS
Our board of directors has established a process to receive
communications from security holders. Security holders and other interested
parties may contact any member (or all members) of our board of directors, or
the independent directors as a group, any committee of our board of directors or
any chair of any such committee, by mail or electronically. To communicate with
our board of directors, any individual directors or any group or committee of
directors, correspondence should be addressed to our board of directors or any
such individual directors or group or committee of directors by either name or
title. All such correspondence should be sent "c/o Secretary" at 22700 Savi
Ranch Parkway, Yorba Linda, California 92887. To communicate with any of our
directors electronically, security holders should send an e-mail "c/o
Secretary," at info@netguru.com.
All communications received as set forth in the preceding paragraph
will be opened by our Secretary for the sole purpose of determining whether the
contents represent a message to our directors. Any contents that are not in the
nature of advertising, promotions of a product or service, patently offensive
material or matters deemed inappropriate for our board of directors will be
forwarded promptly to the addressee. In the case of communications to our board
of directors or any group or committee of directors, our Secretary will make
sufficient copies (or forward such information in the case of e-mail) of the
contents to send to each director who is a member of the group or committee to
which the envelope or e-mail is addressed.
POLICY WITH REGARD TO BOARD MEMBERS' ATTENDANCE AT ANNUAL MEETINGS
It is our policy that our directors are invited and encouraged to
attend all of our annual meetings. At the time of our 2004 annual meeting of
stockholders, we had five directors, all of whom were in attendance at our 2004
annual meeting of stockholders.
16
CODE OF BUSINESS CONDUCT AND ETHICS
Our code of business conduct and ethics, as approved by our board of
directors, can be obtained from our Internet site at
http://www.netGuru.com/netGuruPolicies.asp.
We intend to satisfy the disclosure requirement under Item 5.05 of Form
8-K relating to amendments to or waivers from provisions of the code that relate
to one of more of the items set forth in Item 406(b) of Regulation S-B, by
describing on our Internet site, within five business days following the date of
a waiver or a substantive amendment, the date of the waiver or amendment, the
nature of the amendment or waiver, and the name of the person to whom the waiver
was granted.
Information on our Internet site is not, and shall not be deemed to be,
a part of this proxy statement or incorporated into any other filings we make
with the Commission ("Commission").
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and
directors, and persons who beneficially own more than 10% of a registered class
of our common stock, to file initial reports of ownership and reports of changes
in ownership with the Commission. These officers, directors and stockholders are
required by Commission regulations to furnish us with copies of all such reports
that they file.
Based solely upon a review of copies of such reports furnished to us
during the fiscal year ended March 31, 2005 and thereafter, or any written
representations received by us from reporting persons that no other reports were
required, we believe that, during our fiscal 2005, all Section 16(a) filing
requirements applicable to our reporting persons were met.
BOARD AUDIT COMMITTEE REPORT
The audit committee of netGuru's board of directors reviewed and
discussed with the independent auditors all matters required by generally
accepted auditing standards, including those described in Statement on Auditing
Standards No. 61, as amended, "Communication with Audit Committees," and
reviewed and discussed the audited consolidated financial statements of netGuru,
both with and without management present. In addition, the audit committee
obtained from the independent auditors a formal written statement describing all
relationships between the auditors and netGuru that might bear on the auditors'
independence consistent with Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and discussed with the
auditors any relationships that may impact their objectivity and independence
and satisfied itself as to the auditors' independence. Based upon the audit
committee's review and discussions with management, the audit committee
recommended to the board of directors that the audited consolidated financial
statements of netGuru be included in netGuru's annual report on Form 10-KSB for
the fiscal year ended March 31, 2005, for filing with the Commission. The audit
committee also recommended appointment of new independent auditors, and the
board of directors concurred with such selection.
AUDIT COMMITTEE:
D. Dean McCormick III, Chairman
Stanley W. Corbett
Benedict A. Eazzetta
17
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services rendered during the last three fiscal years
to our company in all capacities as an employee by our Chief Executive Officer
and our other executive officers whose aggregate cash compensation exceeded
$100,000 (collectively, the "named executive officers") during fiscal 2005 shown
below.
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- ----------- -----------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
------------------------------ SALARY BONUS COMPENSATION (1) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
Amrit K. Das 2005 217,000 --- --- --- 11,749(3)
Chairman, Chief Executive 2004 330,462 --- --- --- 12,324(4)
Office, President 2003 335,513 --- 34,259(2) --- 15,524(5)
Santanu K. Das 2005 120,000 --- --- --- 8,750(6)
Corporate Vice President, 2004 121,615 --- --- --- 8,750(7)
Chief Operating Officer 2003 120,150 --- --- --- 11,242(8)
Bruce K. Nelson 2005 102,423 --- --- 20,000 3,073(9)
Chief Financial Officer 2004 93,923 --- --- --- 2,301(9)
2003 83,156 --- --- 30,000 ---
Clara Y.M. Young 2005 111,370 --- --- --- 3,613(10)
Corp. Vice President, 2004 126,231 --- --- 12,000 3,910(11)
Chief Administrative 2003 128,682 --- --- --- 6,340(12)
Officer
Stephen W. Owen 2005 159,904 9,243 --- 7,500 3,376(13)
Corporate Vice President, 2004 157,477 --- --- --- 767(13)
President, European 2003 142,610 --- 492(14) --- 680(13)
Operations
(1) The costs of certain benefits are not included because they did not
exceed, in the case of each named executive officer, the lesser of
$50,000 or 10% of the total annual salary and bonus as reported above.
(2) Represent personal expenses paid on behalf of the named executive
officer, none of which expenses exceeded 25% of the total expenses
reported.
(3) Includes $6,324 in premiums paid by us pursuant to a split-dollar life
insurance policy established for the benefit of Amrit Das and $5,425 in
company contributions to the 401(k) plan.
(4) Includes $6,324 in premiums paid by us pursuant to a split-dollar life
insurance policy established for the benefit of Amrit Das and $6,000 in
company contributions to the 401(k) plan
(5) Includes $6,324 in premiums paid by us pursuant to a split-dollar life
insurance policy established for the benefit of Amrit Das and $9,200 in
company contributions to the 401(k) plan.
(6) Includes $5,150 in premiums paid by us pursuant to a life insurance
policy established for the benefit of Santanu Das and $3,600 in company
contributions to the 401(k) plan.
(7) Includes $5,150 in premiums paid by us pursuant to a life insurance
policy established for the benefit of Santanu Das and $3,600 in company
contributions to the 401(k) plan.
(8) Includes $5,150 in premiums paid by us pursuant to a life insurance
policy established for the benefit of Santanu Das and $6,092 in company
contributions to the 401(k) plan.
(9) Represent company contributions to the 401(k) plan.
18
(10) Includes $400 in premiums paid by us pursuant to a long-term disability
insurance policy for the benefit of Clara Young and $3,213 in company
contributions to the 401(k) plan.
(11) Includes $400 in premiums paid by us pursuant to a long-term disability
insurance policy for the benefit of Clara Young and $3,510 in company
contributions to the 401(k) plan.
(12) Includes $400 in premiums paid by us pursuant to a long-term disability
insurance policy for the benefit of Clara Young and $5,940 in company
contributions to the 401(k) plan.
(13) Represents premiums paid by us pursuant to a life insurance policy for
the benefit of Stephen Owen. (14) Represents imputed interest for
Stephen Owen's non-interest bearing loan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding options granted in
fiscal 2005 to the named executive officers. We have never granted any stock
appreciation rights.
PERCENT
OF TOTAL
OPTIONS
NUMBER OF GRANTED TO
SECURITIES EMPLOYEES EXERCISE
GRANT UNDERLYING IN FISCAL PRICE PER EXPIRATION
NAME DATE OPTIONS GRANTED YEAR (1) SHARE DATE
- ---------------------------- -------- --------------- -------- --------- ----------
Bruce K. Nelson............. 7/7/2004 20,000 (2) 9.2% $ 1.45 7/7/2014
Stephen W. Owen............. 7/7/2004 7,500 (3) 3.4 % $ 1.45 7/7/2014
- ----------------------------
(1) Based on options to purchase 218,190 shares granted to our employees
during fiscal 2005.
(2) The option vested and became exercisable immediately.
(3) The option vests and become exercisable in three equal annual
installments commencing on the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table provides information regarding the number of shares
of our common stock underlying exercisable and unexercisable in-the-money stock
options held by the named executive officers and the values of those options at
fiscal year-end. An option is "in-the-money" if the fair market value for the
underlying securities exceeds the exercise price of the option. The named
executive officers did not hold any stock appreciation rights or exercise any
options during fiscal 2005.
NUMBER OF SECURITIES
-------------------------------- VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Amrit K. Das --- --- 200,000 --- --- ---
Clara Y.M. Young --- --- 90,000 8,000 --- ---
Stephen W. Owen --- --- 92,000 7,500 --- ---
Santanu K. Das --- --- 200,000 --- --- ---
Bruce K. Nelson --- --- 50,000 --- --- ---
19
- -------------------
(1) Based on the $1.11 closing price of our common stock on The Nasdaq
Capital Market (then known as The Nasdaq SmallCap Market)
on March 31, 2005, the last trading of fiscal year 2005, less the
exercise price of the options.
LONG-TERM INCENTIVE PLAN AWARDS
In fiscal 2005, no awards were made to the named executive officers
under long-term incentive plans.
REPRICING OF OPTIONS AND SARS
No adjustments to or repricing of stock options previously awarded to
the named executive officers occurred in fiscal 2005.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In June 2001, we entered into five-year employment agreements with each
of Amrit Das, our Chairman, Chief Executive Officer and President; Santanu Das,
our Chief Operating Officer and Executive Vice President; and Clara Young, our
Corporate Vice President, Chief Administrative Officer and Secretary.
The agreements provide that Mr. Amrit Das, Mr. Santanu Das and Ms.
Young will receive minimum base annual salaries of $312,000, $120,000, and
$117,000, respectively. Each agreement also provides for the grant of an annual
bonus in the discretion of the compensation committee of the board of directors.
The annual salaries may be adjusted upward in the discretion of the compensation
committee. Each employment agreement will terminate prior to its expiration if
the employee dies or becomes permanently disabled, if we cease to conduct
business, or at our election for good cause as defined in the agreements. If we
terminate an agreement other than for good cause, the employee shall (a)
continue to be paid base salary and bonuses for the remainder of the term of the
agreement, (b) continue to receive all benefits and perquisites which he or she
had been receiving immediately prior to such termination for the remainder of
the term of the agreement, and (c) be immediately vested in all stock options to
which he or she would have been entitled during the full term of the agreement
had the termination not occurred.
Each of the agreements contains provisions for confidentiality and
assignments of intellectual property rights. In addition, each of the agreements
prohibits the employees from competing with us and from recruiting our
employees, suppliers or independent contractors within one year after
termination of the agreements.
In December 2003, Amrit Das voluntarily agreed to reduce his annual
salary by $100,000, effective April 2004. The $100,000 is to be used toward the
expansion of our EBPO services, which Mr. Das is managing from India. Every pay
period, $3,846 is transferred into a separate bank account set aside
specifically for EBPO service expenses. We anticipate that after our EBPO
services reach annual targeted revenues, we may award Mr. Das in future periods
all or any portion of the amount by which his salary has been reduced. In March
2004, Ms. Young voluntarily agreed to reduce her annual salary by $6,000 from
$117,000 to $111,000 effective April 2004.
In June 2005, the annual salaries of Mr. Santanu Das and Ms. Young were
increased to $165,000 and $123,000, respectively. In addition, the annual salary
of Mr. Bruce Nelson, Chief Financial Officer was increased to $127,000. Each of
Mr. Amrit Das, Mr. Santanu Das, Mr. Nelson and Ms. Young (collectively, the
"Executives"), may also receive an annual bonus at the discretion of the
compensation committee of the board of directors based upon achievement of
certain operating income targets and contribution of the recipient to
profitability during fiscal 2006. The annual discretionary bonuses may be up to
50% of Mr. Santanu Das' base salary or up to 30% of the annual base salaries of
the other three Executives.
20
In addition, in June 2005, we also entered into Change in Control and
Executive Retention Agreements with each of the Executives. The retention
agreements will continue in effect through March 31, 2006. Commencing on April
1, 2006 and each April 1 thereafter, the term of the retention agreements shall
automatically be extended for one additional year unless, not later than
December 31 of the preceding year, we give notice to each or all of the
Executives of our intention not to continue the retention agreements.
The retention agreements generally provide for payment of severance
benefits if the Executives are terminated following a change in control during
the term of the retention agreements, unless the termination is due to an
Executive's death or disability, is made by us for cause, or is made by an
Executive other than for good reason. The retention agreements also contain
certain provisions regarding a "Change in Control" as defined Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or
not we are then subject to such reporting requirement. A Change in Control will
be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than a trustee or other fiduciary
holding securities under our employee benefit plan is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of our securities
representing 35% or more of the combined voting power of our
then outstanding voting securities;
(ii) there is a merger or consolidation of our company in which our
company does not survive as an independent public company;
(iii) the business or businesses of our company for which the
services principally performed by any of the Executives are
disposed of by us pursuant to a partial or complete
liquidation of our company, a sale of assets (including stock
of a subsidiary) of our company, or otherwise; or
(iv) during any period of two consecutive years during the term of
the agreements, individuals who, at the beginning of such
period constitute the board of directors, cease for any reason
to constitute at least a majority thereof, unless the election
of each director who was not a director at the beginning of
such period has been approved in advance by directors
representing at least two-thirds of the directors then in
office who were directors at the beginning of the period.
However, no transaction that effects a mere reincorporation of
our company or reorganizes our company will be considered a
"Change in Control" for purposes of these agreements.
Following a Change in Control during the term of the retention
agreements, each Executive will be entitled to:
(a) during a period of disability, receive base salary at the rate in
effect at the commencement of the disability period until we terminate the
retention agreement in accordance with its terms;
(b) if termination is by us for cause, by an Executive other than for
good reason, or due to death, disability or retirement, receive full base salary
plus other amounts otherwise due through the date of termination;
21
(c) if termination is by us other than for cause, retirement or
disability, or by an Executive for good reason, receive:
o full base salary plus other amounts otherwise due through the
date of termination;
o vesting of all unvested benefits the Executive has accrued
under any stock option, retirement or deferred compensation
plan, program or agreement of our company in which the
Executive participates, payable subject to the same actuarial
and interest factors applicable and in accordance with the
options available and selected by the Executive under such
plans or programs;
o a lump sum severance payment equal to the sum of the
Executive's annual base salary in effect immediately prior to
the occurrence of the circumstance that gives rise to the
termination ("Circumstance") plus the bonus paid to the
Executive during the twelve calendar months preceding the
Circumstance;
o for twelve months after termination, receive for the Executive
and its dependents life, disability, accident and health
insurance benefits substantially similar to those received
immediately prior to the notice of termination, provided that
the Executive must continue to make the required employee
contribution payments; and
o payment of legal fees and expenses incurred by the Executive
as a result of the termination.
The retention agreements provide that the severance payment to an
Executive will be reduced if and to the extent that any payment or benefit
received or to be received by the Executive in connection with a change in
control or the termination of the Executive's employment following a change in
control would constitute an excess parachute payment as defined in Section
280G(b) of the Internal Revenue Code.
SPECIAL CASH BONUS COMPENSATION
Our board of directors and compensation committee have approved the
payment of special one-time cash bonuses of $25,000 and $8,333 to Bruce K.
Nelson and Clara Y.M. Young, respectively, for their extraordinary efforts and
performance on our behalf in connection with the asset sale described in
proposal 2. These bonus payments are contingent upon and will become payable
within five business days following the closing of the asset sale.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
GENERAL
As of the close of business on the record date, September 20, 2005,
19,117,154 shares of our common stock were outstanding. The following table
sets forth information as of that date regarding the beneficial ownership of our
common stock by:
o each of our directors and director nominees;
o each of our current named executive officers listed in the
summary compensation table;
o all of our directors and executive officers as a group; and
22
o each person known by us to beneficially own 5% or more of the
outstanding shares of our common stock as of the date of the
table.
Except as indicated below, the address for each named beneficial owner
is the same as ours. The information with respect to each person is as supplied
or confirmed by such person or based upon statements filed with the Commission.
The inclusion of shares in this table as beneficially owned is not an admission
of beneficial ownership. Percentages shown as an asterisk represent less than
1.00%.
Beneficial ownership is determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act and generally includes
voting or investment power with respect to securities. Except as indicated
below, we believe each holder possesses sole voting and investment power with
respect to all of the shares of common stock shown below as owned by that
holder, subject to community property laws where applicable. In computing the
number of shares beneficially owned by a holder and the percentage ownership of
that holder, shares of common stock subject to options or warrants or underlying
notes held by that holder that are currently exercisable or convertible or are
exercisable or convertible within 60 days after the date of the table are deemed
outstanding. Those shares, however, are not deemed outstanding for the purpose
of computing the percentage ownership of any other person or group.
SHARES BENEFICIALLY OWNED BY LAURUS MASTER FUND, LTD.
Laurus Master Fund, Ltd. ("Laurus") is a security holder named in the
table below. Laurus holds a warrant to purchase up to 200,000 shares of our
common stock that we issued in December 2002 ("2002 Warrant") in connection with
the issuance of a secured convertible note ("2002 Note"). Laurus also holds a
warrant to purchase up to 180,000 shares of our common stock that we issued in
July 2003 ("2003 Warrant") in connection with a revolving credit facility and a
convertible note ("2003 Note"). Laurus also holds a warrant to purchase up to
130,000 shares of our common stock that we issued in April 2004 ("2004 Warrant")
in connection with the 2004 Note described below. The 2002 Warrant, 2003 Warrant
and 2004 Warrant (collectively, "Laurus Warrants") are exercisable at various
fixed exercise prices. The exercise prices and number of shares underlying those
warrants are subject to anti-dilution adjustments in connection with mergers,
acquisitions, stock splits, dividends and the like.
The 2003 Note was amended and restated in April 2004 to include
$1,000,000 in additional borrowings ("Amended and Restated 2003 Note"). The
Amended and Restated 2003 Note is convertible at a fixed conversion price of
$1.30 per share, subject to anti-dilution adjustments in connection with
mergers, acquisitions, stock splits, dividends and the like, and in connection
with future issuances of our common stock at prices per share below the
then-applicable conversion price. However, under certain circumstances, such as
if we are in default under the note or if a conversion occurs pursuant to a call
notice, an alternate conversion price based on a discount from the market price
of our common stock may apply. As of the date of the table, the outstanding
principal balance of the Amended and Restated 2003 Note was $1,360,000. For
purposes of calculating the number of shares shown in the table as underlying
the note, we have used a conversion price of $1.30.
The 2004 Note is convertible at a fixed conversion price of $1.29 per
share, subject to anti-dilution adjustments in connection with mergers,
acquisitions, stock splits, dividends and the like, and in connection with
future issuances of our common stock at prices per share below the
then-applicable conversion price. However, under certain circumstances, such as
if we are in default under the note or if a conversion occurs pursuant to a call
notice, an alternate conversion price based on a discount from the market price
of our common stock may apply. As of the date of the table, the outstanding
principal balance of the 2004 Note was $880,000. For purposes of calculating the
number of shares shown in the table as underlying the note, we have used a
conversion price of $1.29.
23
Laurus is subject to various beneficial ownership and conversion volume
limitations with regard to the Laurus Notes and the Laurus Warrants. Laurus may
not on any given date exercise or convert these instruments if, and to the
extent, that the exercise or conversion would result in the issuance of a number
of shares of common stock with a dollar value that exceeds 25% of the aggregate
dollar trading volume of our common stock during the preceding 30 trading days.
However, Laurus may make a series of smaller exercises or conversions that do
not exceed this limitation.
In addition, Laurus is subject to a contractual 4.99% beneficial
ownership limitation that prohibits Laurus from converting the Laurus Notes and
exercising the Laurus Warrants if and to the extent that the conversion or
exercise would result in Laurus, together with its affiliates, beneficially
owning more than 4.99% of our outstanding common stock. However, this 4.99%
limitation automatically becomes void upon an event of default under the Laurus
Notes, and can be waived by Laurus upon 75 days' advance notice to us. In
addition, this 4.99% limitation does not prevent Laurus from converting the
Laurus Notes into or exercising the Laurus Warrants for shares of common stock
and then reselling those shares in stages over time where Laurus and its
affiliates do not, at any given time, beneficially own shares in excess of the
4.99% limitation. Further, a contractual limitation that prohibits Laurus from
converting the Laurus Notes or exercising the Laurus Warrants if, and to the
extent, the conversion or exercise would result in Laurus and its affiliates
beneficially owning more than 3,565,514 shares of our common stock, will be
removed if and when we obtain stockholder approval at Laurus' request or if an
exemption from applicable Nasdaq corporate governance rules becomes available.
In addition to agreeing to the limitations described above, Laurus
entered into a stand still agreement with us in August 2005 in connection with
our asset sale described in proposal 2 of this proxy statement. The stand still
agreement provides, among other things, that Laurus will not exercise any of its
warrants to purchase shares of our common stock until the earlier to occur of
the closing of the asset purchase agreement, the termination of the purchase
agreement, or February 15, 2006.
To our knowledge, Laurus has sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by it, except
that Laurus Capital Management, LLC, a Delaware limited liability company, may
be deemed a control person of the shares held by Laurus. David Grin and Eugene
Grin are directors of Laurus and the sole members of Laurus Capital Management,
LLC, and their address is 825 3rd Avenue, 14th Floor, New York, New York 10022.
24
NAME AND ADDRESS AMOUNT AND NATURE OF BENEFICIAL PERCENT OF CLASS
OF BENEFICIAL OWNER OWNERSHIP OF COMMON STOCK OF COMMON STOCK
- ------------------- ------------------------- ---------------
Amrit K. Das 2,770,018(1) 14.3%
Santanu K. Das 2,750,900(2) 14.2%
Bruce K. Nelson 50,000(3) *
Clara Y.M. Young 129,372(4) *
Stephen W. Owen 178,024(5) *
D. Dean McCormick III 17,669(3) *
Benedict A. Eazzetta 17,669(3) *
Stanley W. Corbett 23,669(3) *
Sormistha Das 1,877,924(6) 9.8%
Peter Kellogg 3,835,800(7) 20.1%
Diker Management, LLC 967,424(8) 5.1%
Laurus Master Fund, Ltd. 2,259,749(9) 10.6%
All directors and executive officers
as a group (8 persons) 5,937,321(10) 30.0%
- ---------------
* Represents less than 1.0%.
(1) Includes 1,279,759 shares of common stock held by the A. and P. Das
Living Trust, of which trust Amrit Das is the trustee, and 200,000
shares of common stock underlying options. Also includes 50,000 shares
of common stock held by the Purabi Das Foundation, Inc., of which
foundation Amrit Das is the trustee. Mr. Das disclaims beneficial
ownership of the shares held by the foundation.
(2) Includes 200,000 shares of common stock underlying options.
(3) Represents shares of common stock underlying options.
(4) Includes 94,000 shares of common stock underlying options.
(5) Includes 38,202 shares of common stock held indirectly through Mr.
Owen's spouse and 94,500 shares of common stock underlying options.
(6) Includes 15,000 shares of common stock underlying options.
(7) The address for Mr. Kellogg is 120 Broadway, New York, New York, 10271.
(8) Power to dispose of the shares beneficially owned by the Diker
Management, LLC is held by Messrs. Charles M. Diker and Mark N. Diker
as Managing Members. The address for Diker Management, LLC, is 745
Fifth Avenue, Suite 1409, New York, NY 10151 as reported on a Schedule
13G filed April 20, 2005.
(9) Represents 510,000 shares of common stock underlying warrants and
1,749,749 shares of common stock underlying convertible promissory
notes. Figures shown in the table disregard contractual stand still and
beneficial ownership limitations described above.
(10) Includes 697,507 shares of common stock underlying options, 50,000
shares of common stock that are held indirectly by Amrit Das and as to
which Mr. Das disclaims beneficial ownership, and 38,202 shares of
common stock that are held indirectly by Mr. Owen's spouse.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described above under the heading "Security Ownership of Certain
Beneficial Owners and Management," we are a party to two credit facilities with,
and have issued or may become obligated to issue certain securities to, Laurus
Master Fund, Ltd. In December 2002, we entered into a securities purchase
agreement with Laurus, which was amended on August 4, 2003. Pursuant to that
amended agreement, we issued to Laurus the 2002 Note and 2002 Warrant. The net
proceeds from the 2002 Note were used for general working capital. In connection
with this financing, we paid a $200,000 fee to an affiliate of Laurus.
On July 31, 2003, we obtained a three-year, renewable, $4,000,000
revolving accounts receivable credit facility ("Facility") from Laurus. In
connection with this financing, we issued to Laurus the 2003 Warrant. The amount
available under this revolving credit facility is reduced by the balances
outstanding on the Amended and Restated 2003 Note and the 2004 Note described
below.
On December 4, 2003, we issued to Laurus a three-year, 5% secured
convertible note ("2003 Note"), which consisted of $900,000 that we had borrowed
under the credit facility and $500,000 in additional borrowings. The net
proceeds from the 2003 Note were used for general working capital. At March 31,
2005, we had no borrowings under the Facility. The interest rate on the 2003
Note was equal to the greater of 5% or prime rate plus 1%. The 2003 Note was to
mature on December 3, 2006. The fixed conversion price, upon which potential
issuances of the Company's common stock to satisfy the obligations of the 2003
Note were based, was $1.30. In connection with this financing, we paid a
$140,000 fee to an affiliate of Laurus.
In April 2004, the 2003 Note was amended and restated ("Amended and
Restated 2003 Note") to include $1,000,000 in additional borrowings. The Amended
and Restated 2003 Note requires monthly principal payments of $50,000 plus
accrued interest (payable in arrears) commencing August 1, 2004, with the entire
remaining principal balance becoming due on December 3, 2006. At March 31, 2005,
the Company had an outstanding balance of $1,641,000, excluding unamortized fees
and unamortized beneficial conversion adjustments, under the Amended and
Restated 2003 Note.
On December 23, 2004, we issued to Laurus a secured convertible note
(the "2004 Note") in the amount of $1,000,000. In connection with the financing,
we issued the 2004 Warrant. The net proceeds from the 2004 Note were used for
general working capital. The 2004 Note matures on December 23, 2007. The fixed
conversion price, upon which potential issuances of our common stock to satisfy
the obligations of the 2004 Note are based, is $1.29. The 2004 Note, which is
being amortized over a 36-month period terminating on December 23, 2007, must be
27
repaid through the issuance of shares our common stock under certain conversion
criteria. Any amount of the 2004 monthly payment that cannot be converted into
our common stock due to failure to meet the conversion criteria must be paid in
cash at a rate of 102% of the monthly principal amount. Beginning with July 1,
2005, through November 2007, we are required to pay principal payments of
$30,000 plus accrued interest. On December 23, 2007, we are required to pay the
entire remaining balance of the 2004 Note plus accrued interest. In connection
with this financing, we paid a $140,000 fee to an affiliate of Laurus. As of
March 31, 2005, the outstanding principal balance on the 2004 Note was
$1,000,000.
As a result of these transactions, Laurus became the beneficial owner
of more than 5% of our outstanding common stock if contractual beneficial
ownership and conversion limitations and a stand still agreement described above
are disregarded.
In October 2003, we borrowed $100,000 from Mr. Amrit Das, our Chief
Executive Officer, and issued to him a 7.25% interest bearing unsecured
promissory note. The proceeds were used for working capital. The principal along
with the accrued interest are due on or before March 31, 2006. As of March 31,
2005, the total outstanding principal balance on this note was $100,000.
In December 2004, Mr. Amrit Das personally guaranteed a term loan from
a bank in India. The term loan is secured by substantially all of our assets
located in India. The loan bears an annual interest of 9.5% payable monthly. The
principal is payable in quarterly installments beginning January 2005 and ending
December 2009. At March 31, 2005, the balance on this loan was $440,000. In
addition to this, we had obtained overdraft facilities for meeting our working
capital requirement in India. These overdraft facilities are also secured by
substantially all our assets located in India. The loan bears an annual interest
of 11% payable monthly on the facility availed. As at March 31, 2005, the
balance on this loan was $562,000.
We are a party to director and executive officer compensation
arrangements, employment, change in control and separation agreements with
related parties, as more particularly described elsewhere in this proxy
statement. In addition, Sormistha Das, who beneficially owned approximately 9.8%
of our outstanding shares of common stock as of September 20, 2005, and is the
daughter of Mr. Amrit Das and sister of Santanu K. Das, serves as our interim
controller.
On June 28, 2005, we entered into a waiver and extension with Laurus,
pursuant to which we agreed to amend the definition of "Effectiveness Date"
contained in a registration rights agreement (the "Agreement") dated December
23, 2004 that we entered into simultaneously with the issuance of the 2004 Note
and the 2004 Warrant. Pursuant to the Agreement, we were required to file by a
January 22, 2005 initial filing date a resale registration statement with the
Commission covering the shares of common stock issuable upon conversion of the
2004 Note and upon exercise of the 2004 Warrant. We were also required to obtain
effectiveness of the registration statement by a May 22, 2005 initial
Effectiveness Date.
The Agreement provides that:
o if a registration statement is not filed on or prior to the
initial filing date, or
o if the registration statement is not declared effective by the
Commission by the Effectiveness Date, or
o if after the registration statement is filed with and declared
effective by the Commission , the registration statement
ceases to be effective as to all registrable securities to
28
which it is required to relate at any time prior to the time
that all of the registrable securities have been sold or may
be sold without volume restrictions under Rule 144(k) of the
Securities Act, or
o if trading of our common stock is suspended for more than
three trading days,
then subject to certain grace periods, until the event described above is cured,
we must pay to Laurus cash liquidated damages equal to 1.0% for each 30-day
period (prorated for partial periods) of the original principal amount of the
2004 Note.
We were unable to meet either the initial filing deadline or the
initial Effectiveness Date. Accordingly, we and Laurus entered into the June 28,
2005 waiver and extension. The waiver and extension provides that the January
22, 2005 initial filing deadline is waived. The waiver and extension also
provides that the amended Effectiveness Date for the initial registration
statement filed under the Agreement is September 1, 2005, and with respect to
each additional registration statement that may be required to be filed in the
future, a date no later than 30 days following the applicable filing date. We
paid $10,000 in liquidated damages for the delay in the registration statement
being declared effective by the Commission.
In connection with the asset sale described in proposal 2, we entered
into various agreements and arrangements with related parties, as more
particularly described in the discussion of proposal 2 below.
29
PROPOSAL 2
APPROVAL OF SALE OF REI BUSINESS AND STAAD PRODUCT LINES
The following is a description of material aspects of the asset sale to
Bentley and related transactions, including the asset purchase agreement and
certain other agreements entered into or to be entered into in connection with
the asset purchase agreement. While we believe the following description covers
the material terms of the asset sale, the asset purchase agreement and the
related transactions and agreements, the description may not contain all of the
information that is important to you. You should carefully read this document
and the other documents to which we refer for a more complete understanding of
the asset sale and related transactions. In particular, the following summaries
of the asset purchase agreement and related agreements are not complete and are
qualified by reference to the copies of those agreements attached as appendices
to this proxy statement and incorporated herein by reference.
Investors and security holders should be aware, however, that those
agreements, including without limitation, the representations and warranties
contained in those agreements, are not intended as documents for investors and
security holders to obtain factual information about the current state of
affairs of the parties to those agreements. Rather, copies of those agreements
are included to provide investors and security holders with additional
information regarding the terms of those agreements. Investors and security
holders should look to the factual disclosures contained in this proxy statement
or in our reports under the Exchange Act for factual information about us. The
representations and warranties in the attached agreements were made by the
parties to those agreements solely for the benefit of one another. The
assertions embodied in those representations and warranties are qualified by
information contained in confidential disclosure schedules that the parties have
exchanged in connection with signing the agreements. Accordingly, investors and
security holders should not rely on the representations and warranties as
characterizations of the actual state of facts, since they were only made as of
the date of those agreements and are modified in important part by the
underlying disclosure schedules. Moreover, information concerning the subject
matter of the representations and warranties may change after the date of those
agreements, and subsequent information may or may not be fully reflected in our
public disclosures.
BACKGROUND OF THE ASSET SALE
During the second half of calendar 2004, we began an initial review of
strategic alternatives, including the sale of some or all of our business
operations, acquisitions of other companies, reverse merger candidates, and
going private. During this time, our management and board of directors met with
various consultants and advisors, including three investment banking firms
specializing in providing strategic services to public companies in the
technology sector.
In February 2005, we instructed one of our advising investment bankers,
ISI Capital Partners ("ISI"), to approach a select group of potential buyers for
either our entire company, or one or more of our wholly-owned subsidiaries -
Research Engineers and/or Web4. ISI initiated contact with the potential buyers,
which included leading civil engineering software firms. During February 2005,
ISI contacted Bentley to explore its interest in a potential business
combination. Discussions with potential buyers continued throughout February,
March and April 2005. During these months, our management directed ISI and other
investment banking firms to enter into dialogue with every potential large firm
known in the industry that may have an interest in some form of business
combination with us. Both domestic and international firms were approached.
ISI had contacted Bentley on February 18, 2005 via e-mail and received
a response on February 22, 2005 that Bentley had an interest in exploring a
possible acquisition of our REI division. ISI informed us of Bentley's
indication of interest and continued its efforts in contacting other potential
buyers.
30
On March 3, 2005, we and Bentley executed a mutual non-disclosure
agreement. We provided Bentley with some preliminary information regarding REI's
operations over the next several weeks. Bentley reconfirmed its interest in
exploring a possible acquisition of the REI operations after Bentley's
international user conference in May. Bentley suggested that its interest, if
any, would be for an all-cash, asset purchase transaction, but withheld its
indication of value until further due diligence could be conducted. No
definitive documentation was entered into by the parties.
At the April 13, 2005 meeting of our board of directors, Mr. Santanu
Das indicated that we had received inquiries concerning merger and acquisition
("M&A") activity and potential opportunities for us. In response to these
inquiries, our management had obtained proposals from three investment banking
firms, which proposals were provided to our board members. Mr. Ben Eazzetta
stated that he would excuse himself if at any point it is felt that he may have
any conflict of interest due to his executive position with Intergraph
Corporation (Mr. Eazzetta is an executive officer and shareholder of Intergraph
Corporation, a publicly-held company that owns approximately 29% of the
outstanding common stock of Bentley). Mr. Nelson, our Chief Financial Officer,
briefly explained the merits and working history of each of the investment
banking firms and indicated that he had arranged for two of the firms to make
presentations to the board of directors after the conclusion of the board
meeting. Mr. McCormick remarked that any strategic planning should explore the
possibility of taking our company private. Mr. Nelson went on to explain that he
had conversations with each of the investment banking firms and that M&A
activity in the software industry had significantly increased in the last 90 to
120 days. Valuations for software companies had also increased recently, which
could provide opportunities for strategic action by us. The board instructed Mr.
Nelson to continue to investigate and refine the proposals from the investment
banking firms and to report back to the board. Mr. Nelson indicated that he
would work with one of the investment banking firms in any dealings with any M&A
candidates. Mr. Santanu Das also indicated that he had been in dialogue with
potential business partners and that there appeared to be a genuine interest in
strategic positioning with us.
On April 17, 2005, our management team informed our board of directors
of the various levels of interest from the potential buyers. Our management team
then asked ISI to arrange a meeting with Bentley.
On May 27, 2005, Mr. Santanu Das, our Chief Operating Officer, and Mr.
Nelson, our Chief Financial Officer, and Mr. Mulvaney from ISI met for the first
time with various members of Bentley's management team at Bentley's headquarters
in Exton, Pennsylvania. During this meeting Mr. Das provided an overview of our
company and specifics regarding REI worldwide operations. Bentley's management
team provided an overview and history of Bentley. Both parties entered into a
general discussion of the merits of a business combination between the two
companies.
Subsequent to interviewing a number of other investment banking firms
during late April and early May 2005, we formally engaged ISI on June 1, 2005 to
represent us as our financial advisor in the disposition of any assets,
including our REI division, with the authorization to pursue Bentley and three
other potential buyers that had indicated interest in pursuing a transaction.
On June 7, 2005, Mr. Santanu Das met with a Bentley executive
responsible for Asia at our offices in Kolkata, India. Mr. Das provided the
executive with an overview of our Indian and Asian operations.
During June and July 2005, we and Bentley participated in numerous
discussions, conference calls and exchanges of documents, including financial
and business due diligence. However, no definitive documentation was entered
into by the parties at that time.
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On July 10, 2005, Bentley provided us with a non-binding, verbal offer
to acquire our REI division and STAAD product lines. After a series of
discussions and negotiations, on July 15, 2005 the offer terms were further
clarified including the proposed purchase price of $23.5 million in cash. Other
key terms and conditions were not finalized at this time.
On July 18, 2005, Bentley's legal counsel delivered a draft asset
purchase agreement to netGuru's legal counsel, which draft provided additional
details of the proposed offer. The proposed terms included an escrow amount,
non-compete agreements, shareholder voting agreements, break-up fee and
indemnification terms.
On July 24, 2005 netGuru held a Board meeting to discuss the offer from
Bentley. ISI provided a summary of the discussions with all the potential buyers
for our company or our REI division and a summary of the discussions and
negotiations with Bentley. Our board of directors then instructed Mr. Mulvaney
of ISI to inform Bentley that we were prepared to continue discussions, with
certain additional terms and conditions such as a reduction of the proposed
break-up fee, changes to the indemnification terms and transaction expense
reimbursement.
On July 26 and July 27, 2005 the management teams and legal counsel for
both Bentley and us negotiated the final terms of the asset purchase and
transition services agreements. During this time, all members of our board of
directors were kept apprised of the terms and conditions being discussed.
On July 27, 2005, we engaged the services of an investment banking
firm, B. Riley & Co., Inc. ("B. Riley"), to render a "fairness opinion" on the
potential sale of asset transaction contemplated with Bentley.
At the August 16, 2005 meeting of our board of directors, Mr. Mulvaney
of ISI (by telephone conference), Mr. Mike Lowell of B. Riley (by telephone
conference), and Mr. Gregory Presson and Mr. Scott Witter of B. Riley were in
attendance at our management's request. Our board of directors requested
information concerning the proposed transaction with Bentley. B. Riley's staff,
Mr. Lowell, Mr. Presson and Mr. Witter, presented to our board of directors a
detailed report in support of their fairness opinion proposed to be rendered for
the sale of assets to Bentley and answered questions posed by our board of
directors and management. Prior to the board meeting, Mr. Corbett, Mr. Eazzetta
and Mr. McCormick conferred telephonically with our legal counsel, Mr. Gregg
Amber of Rutan & Tucker, LLP. After the presentation at the board meeting, the
board again discussed the pros and cons of the proposed sale of REI. The
potential risks and liabilities to us after the transaction were also discussed.
Based on the report prepared by B. Riley and all other information received and
deliberations made to that date, all of the members of the board of directors
expressed general support for the potential sale of REI to Bentley. In order to
more fully evaluate the decision, however, the board of directors postponed any
final decision until an August 18, 2005 board meeting and requested B. Riley to
perform additional analyses to be considered by the board in its evaluation of
the proposed asset sale, including a limited analysis regarding the remaining
assets and liabilities to be retained by us after the proposed asset sale.
At the August 18, 2005 meeting of the board of directors, our legal
counsel, Ms. Cristy Parker of Rutan & Tucker, LLP, and Mr. Mulvaney of ISI were
present by telephone conference at the request of the board of directors. Our
board of directors requested Ms. Parker to describe the current draft of the
termination and break-up fee provisions contained in the draft asset purchase
agreement with Bentley. The board members then discussed these fee provisions,
the presentations previously provided by B. Riley, and supplemental information
provided by B.Riley to the board members prior to the meeting. After further
deliberation, our board of directors unanimously approved the proposed sale of
assets to Bentley and directed our management to finalize and execute the asset
purchase agreement and related documentation.
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After the close of business on August 19, 2005, the parties exchanged
signatures on the asset purchase agreement, voting agreements and stand still
agreement. Before the opening of business on August 22, 2005 (the next business
day), we issued a press release announcing the transaction.
THE ASSET PURCHASE AGREEMENT
The following section of this proxy statement summarizes the material
terms of the asset purchase agreement entered into by Bentley and us on August
19, 2005. The asset purchase agreement is attached as APPENDIX A to this proxy
statement. You are urged to, and should, read the asset purchase agreement
carefully and in its entirety for a description of the terms of the proposed
sale of substantially all of our assets.
GENERAL
Under the terms of the asset purchase agreement, we have agreed to sell
our REI business and STAAD product lines to Bentley in exchange for $23.5
million in cash (subject to an adjustment based upon post-closing collection of
accounts receivable, as described below). The sale is subject to various closing
conditions, including approval by our stockholders and compliance with
regulatory requirements. If approved by our stockholders, the sale is expected
to close as soon as practicable following the annual meeting but no later than
December 31, 2005. A portion of the sale proceeds is expected to be allocated to
transaction costs (subject to reimbursement by Bentley of up to $250,000 of such
costs at closing), applicable taxes and the retirement of outstanding debt.
ASSETS TO BE SOLD
We have agreed to sell to Bentley substantially all of the assets
relating to our REI business and STAAD product lines, including:
o intellectual property, intellectual property rights and
goodwill;
o receivables by us with third parties;
o inventory, including raw materials, work in process and
finished goods;
o vehicles, furniture, equipment, computers and peripherals,
books and records;
o all leases for real property to which we are a party and that
relates to the REI business;
o all authorizations that relate to the REI business; and
o all unperformed commitments or obligations owing to us that
pertain to the REI business and all other rights, claims and
causes of action of ours that pertain to any of the purchased
assets and assumed liabilities by Bentley.
ASSETS TO BE RETAINED
We are not selling to Bentley, and we will retain, the following assets
following the closing of the asset sale:
o cash and cash equivalents;
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o rights that accrue or will accrue to us under the asset
purchase agreement, including the consideration to be
delivered to us;
o any claims and rights against third parties to the extent they
relate to the assets and liabilities to be retained by us as
contemplated in the asset purchase agreement;
o all tangible and intangible assets that are used by the
business retained by us as contemplated in the asset purchase
agreement;
o all real property owned or leased by us, including all
structures and improvements, except for specifically
enumerated real property leases and subleases;
o any claim for refund of taxes on behalf of ourselves;
o any other rights, properties, claims or assets, including our
Kolkata real property lease (all land in Kolkata is the
property of the government; we leased the land pursuant to a
99-year lease and own the buildings and other improvements on
the land covered by the Kolkata lease); and
o all contracts other than the contracts assumed or to be
assumed by Bentley; all authorizations other than the
authorizations relating to the REI business, and all rights
under such authorizations; all books and records; all
unperformed commitments or obligations owing to us; and all
other intangible assets relating to assets and liabilities not
being purchased or assumed by Bentley.
LIABILITIES TO BE ASSUMED
Bentley will assume only certain of our liabilities related to the REI
business, as follows:
o any trade account payable relating to the REI business that
remains unpaid and is not delinquent as of the closing of this
transaction;
o the liabilities and obligations to be performed or discharged
after the closing of the asset sale pursuant to the contracts
included in the assets to be purchased by Bentley, certain
real property leases, certain automobile loans, certain
equipment leases and certain contracts and licenses; and
o the liabilities and obligation related to the accrued but
unpaid vacation, sick leave, severance and other benefits
assumed by Bentley from us with respect to the employees of
the REI business.
LIABILITIES TO BE RETAINED
We will retain all liabilities not specifically assumed by Bentley
following the closing of the asset sale, including without limitation:
o all liabilities relating to or arising out of the business
retained by us or based upon our acts or omissions occurring
after the closing;
o any of our liabilities or obligation existing as a result of
any act, failure to act or other state of facts or occurrence
that constitutes a breach or violation of any of our
representations, warranties, covenants or agreements contained
in the asset purchase agreement;
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o any products liability claim of any nature in respect of
products of our business manufactured and sold or licensed by
or for us prior to the closing of the asset sale;
o any liability or obligation arising under any contract that
(i) is not transferred to Bentley as part of the asset
purchase or (ii) relates to any breach or default under any
contract or to any goods or services provided or to be
provided by us prior to the closing of the asset sale;
o any of our liabilities or obligations to indemnify our
officers, directors, employees or agents or any other
liabilities or obligations of our business to any of our
affiliates;
o except for the employee benefits to be assumed by Bentley, any
liabilities relating to employee benefits or under any
employment, severance, retention, termination or similar
agreement with any current or former employee of ours or any
of our affiliates; and
o any of our other liabilities or obligations, including any
liability directly or indirectly arising out of or relating to
the operation of our business prior to the closing of the
asset sale, except for liabilities to be assumed by Bentley.
PURCHASE PRICE
The purchase price to be paid by Bentley is $23.5 million, subject to
an adjustment based upon post-closing collection of accounts receivable, as
described in the following paragraph. Bentley also agreed to reimburse us at the
closing for up to $250,000 of expenses relating to legal and financial services
in connection with the asset sale. The purchase price and the reimbursement of
expenses are payable by Bentley by wire transfer of immediately available funds
at the closing of the asset sale.
The purchase price adjustment provisions contained in Section 2.2 of
the asset purchase agreement require that we estimate and deliver to Bentley at
the closing of the asset sale an adjustment statement detailing the amount of
assigned current assets (which include the assigned accounts receivable and the
prepaid assets being sold to Bentley) and the amount of the assumed current
liabilities. Bentley is to collect the assigned accounts receivable after the
closing and has agreed to retain all amounts received by Bentley as payment for
assigned accounts receivable until the later of six months after the closing or
the date that the aggregate amount actually received by Bentley as assigned
current assets equals the aggregate amount of the assumed current liabilities
("AR Payoff Date").
At the AR Payoff Date, Bentley will pay to us the amount of the
difference, if any, between the assigned current assets and the assumed current
liabilities, and then is to remit to us any additional assigned accounts
receivable collected after that date. However, if the AR Payoff Date does not
occur before six months after the closing, then we must pay to Bentley an amount
equal to the difference between the aggregate assumed current liabilities and
the aggregate amounts received by Bentley as assigned current assets (either as
prepaid assets assigned at the closing or as assigned accounts receivable for
which payments have been received) as of the date that is six months after the
closing.
To help ensure that we can satisfy any accounts receivable payment
obligation and any indemnification or other payment obligations we may have
under the asset purchase agreement, we have agreed to establish a reserve
account in an amount equal to the amount that the assigned current assets (as
set forth on the adjustment statement provided to Bentley at the closing) minus
the assumed current liabilities (as set forth on the adjustment statement) is
less
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than $1 million. We may transfer, withdraw or expend any amounts
remaining in the reserve account on the day after the end of a six-month and
one-day reserve period, provided that prior to that date, we have satisfied all
of our obligations to Bentley and Bentley has not provided us with written
notice regarding any outstanding obligations of ours under the asset purchase
agreement.
CLOSING
The closing of the asset sale is expected to take place as soon as
practicable after the annual meeting is held (assuming approval of the asset
sale by our stockholders) and all conditions to closing specified in the asset
purchase agreement are satisfied or waived, but will be no later than December
31, 2005.
REPRESENTATIONS AND WARRANTIES
We have made a number of customary representations and warranties,
subject in some cases to qualifications, to Bentley in the asset purchase
agreement regarding aspects of our business, financial condition, structure,
customer contracts, intellectual property, and other facts pertinent to the
asset sale.
Bentley made a number of customary representations and warranties,
subject in some cases to qualifications, to us in the asset purchase agreement
regarding Bentley's corporate organization, its authority to enter into the
asset sale, and other facts pertinent to the asset sale.
The representations and warranties made by both Bentley and us will
survive the consummation of the asset sale.
CONDITIONS TO CLOSING
Bentley's obligations to complete the asset sale are subject to the
satisfaction or waiver at or prior to the closing to each of the following:
o each of our representations and warranties must have been
accurate in all material respects as of the closing of the
asset sale as if made on such date, except where the failure
to be accurate does not adversely affect our business;
o we must have performed, or complied in all material respects
with all of the covenants and obligations required to be
performed or complied with by us under the terms of the asset
purchase agreement;
o the asset sale must have been approved by the requisite vote
of our stockholders;
o we must have obtained all required consents in connection with
the asset sale, and such consent must be in full force and
effect;
o we must deliver the following documents to Bentley:
(1) bill of sale;
(2) assignments of contracts and authorizations;
36
(3) certified resolutions of our board of directors and
stockholder approval of the asset sale;
(4) an officers' certificate certifying our satisfaction
of the closing conditions set out above;
(5) a statement of the amount of the assigned current
assets and the assumed current liabilities;
(6) a certificate of incumbency of officers;
(7) a certificate of good standing; and
(8) all other instruments and documents which are
reasonably necessary to satisfy the conditions
contemplated in the asset purchase agreement.
o no provision of any applicable law shall restrain, prohibit or
otherwise interfere with the consummation of the transactions
contemplated by the asset purchase agreement and the related
documents or the effective conduct of business by Bentley;
o no order or decree of any court or governmental body and no
legal requirements may have been enacted or deemed applicable
to the asset sale that makes the completion of the asset sale
illegal;
o Santanu K. Das and not less than 90% of our employees to whom
Bentley has made an offer of employment shall have accepted
such offers;
o Bentley must receive a legal opinion from Rutan & Tucker, LLP,
our legal counsel;
o we must have delivered to Bentley duly executed releases or
terminations of financing statements, or other evidence
satisfactory to Bentley that all liens on any assets to be
purchased have been released and terminated; and
o there shall be no material adverse change and no event shall
have occurred and no condition or circumstances shall exist
that could reasonably be expected to give rise to any such
material adverse effect.
Our obligations to complete the asset sale are subject to the
satisfaction or waiver at or prior to the closing of the asset sale of each of
the following conditions:
o each of Bentley's representations and warranties must have
been accurate in all material respects as of the closing of
the asset sale as if made on such date, except where the
failure to be so accurate does not have a material adverse
effect on us;
o Bentley must have performed, or complied in all material
respects with all of with all of the covenants and obligations
required to be performed or complied with by Bentley under the
terms of the asset purchase agreement;
o no order or decree of any court or governmental body and no
legal requirements may have been enacted or deemed applicable
to the asset sale that makes the completion of the asset sale
illegal;
37
o Bentley shall have entered into the bill of sale, general
assignment and assumption agreement;
o we must have the required stockholder approval of the asset
sale; and
o we must have received a federal wire transfer confirmation
number confirming the satisfaction of Bentley's obligation to
pay the consideration of the asset sale;
POST-SIGNING AND POST-CLOSING COVENANTS
Both parties have also agreed to perform various obligations from and
after the signing or the closing of the asset sale, including the following:
o we will forward or refer to Bentley any orders, inquiries and
bid requests received by us relating to the REI business;
o we and Bentley will promptly remit to the other, in the form
received but with any appropriate endorsements, any payment
that each or any affiliate may receive that properly belong to
the other;
o Bentley shall furnish to us within 20 days after the end of
each month that any assigned accounts receivable remains
outstanding a statement setting forth the assigned accounts
receivable collected during such month and a trial balance of
the uncollected assigned accounts receivable;
o we shall be responsible for all liabilities, obligations,
duties and contingencies created or owing as a consequence of
the cessation of any employee's employment with us, except for
those employees to whom Bentley has agreed to make offers of
employment;
o Bentley shall make offers of employment to certain employees
of the REI business. In addition, the employment offers made
to Santanu K. Das, Bruce K. Nelson, Clara Y.M. Young and Biren
Parikh shall include total compensation arrangements no less
favorable than the total compensation arrangements such
employees received from us for the twelve-month period prior
to the date of such offers. Bentley shall allow all employees
to participate in benefit programs of Bentley to the extent
permitted by law;
o we and Amrit K. Das and Santanu K. Das shall keep confidential
and shall not disclose to any third party, any confidential or
proprietary information or trade secret relating to the REI
business, the assets to be purchased by Bentley or Bentley or
any of Bentley's affiliates, unless such confidential
information has become generally available to the public
without breach of any obligation by us or if we are required
in the course of judicial or administrative proceedings or
governmental inquiries to disclose the confidential
information;
o we and Amrit K. Das and Santanu K. Das agree that, for three
years following the closing of the asset sale, we will not
directly or indirectly, through any affiliate:
(1) own, manage, market, operate, control, consult with,
participate in, or be connected in any manner with
the ownership management, operation, or control of
any business that engages, directly or indirectly, in
any business that is the same or similar to the
business being purchased by Bentley from us;
38
(2) be or become a stockholder, partner, owner, agent of,
or consultant to or give financial or other
assistance to any person or entity considering
engaging or engaging in any such activities;
(3) seek in competition with the business to be purchased
by Bentley from us to procure orders from or do
business with any customer of Bentley or its
affiliates for the twelve months preceding the
closing of the asset sale;
(4) solicit, or contact with a view to the engagement or
employment, employees or contractors of Bentley or
its affiliates;
(5) for a period of one year following the closing of the
asset sale hire any employee or contractor of
Bentley;
(6) seek to contact with or engage any person or entity
who has been contracted with or engaged to
manufacture, assemble, supply or provide products,
goods, materials or services to Bentley or its
affiliates; and
(7) engage in or participate in any effort or act to
induce any of the customers, associates, consultants
or employees of Bentley or its affiliates to take any
action that is materially adverse to Bentley or its
affiliates;
Bentley is entitled to damages incurred and injunctive relief
of any breach of the above by us or Amrit K. Das and Santanu
K. Das;
o from the after the closing of the asset sale, we, Amrit K. Das
and Santanu K. Das and our affiliates will not use any name
including words "STAAD," "STAAD.Pro," and "STAAD.etc,"
"STAAD,foundation" or any derivative of these words;
o if any party learns of any breach or potential breach of the
asset purchase agreement, that party shall immediately notify
the other party;
o each of Amrit K. Das and Santanu K. Das, without additional
compensation, will irrevocably assign to Bentley at the
closing of the asset sale, all of his right, title and
interest in all intellectual properties, and technical or
business innovations or methods or processes and every other
item of knowledge made, conceived or reduced to practice by
our stockholders at any time prior to the closing of the asset
sale;
o each of Amrit K. Das and Santanu K. Das covenants that at and
after the closing of the asset sale, he will promptly:
(1) disclose fully to Bentley in writing any intellectual
property, and technical or business innovation or
method or process and every other item of knowledge
made, conceived or reduced to practice by our
stockholders at any time prior to the closing of the
asset sale;
(2) execute and deliver to Bentley all applications,
assignments, and other documents as Bentley may
request in order to apply for and obtain patents or
other registrations or assignments with respect to
any intellectual property; and
39
(3) execute all other documents necessary or helpful to
Bentley to carry out the above obligations;
o we agreed to call and hold a meeting of our stockholders in
accordance with the applicable Delaware law, at which meeting
our stockholders will be asked to consider and to vote upon
and approve the asset sale;
o two of our major stockholders, Santanu K. Das and Peter R.
Kellogg, have entered into voting agreements and granted
irrevocable proxies to Bentley executives which provide that
their shares will be voted in favor of the asset sale;
o except as expressly permitted in connection with a superior
proposal, until the asset sale is completed or the asset
purchase agreement is terminated, we have agreed not to, and
not to authorize any of our or our affiliates' officers,
directors, employees, representatives or agents, and not to
permit any such person or any of its subsidiaries to directly
or indirectly encourage, solicit, or initiate discussions or
negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group
concerning any merger, sale of asset, sale of any equity
interest in us or similar transaction involving us, or
division of us or any other transaction that would involve the
transfer or potential transfer of control of our company;
o we and Bentley shall enter into a transition services
agreement which shall include grants of cross licenses,
infrastructure and systems support, access and services
relating to the business to be purchased by Bentley and
business to be retained by us; and
o we shall operate our business in the ordinary course and in
the same manner as operations have previously been conducted
until the close of the asset sale.
INDEMNIFICATION
We have agreed to indemnify, defend and hold Bentley, its affiliates
and their officer, directors, employees, stockholders, members, agents and other
representatives harmless against and in respect of any and all losses, costs,
expenses, claims, damages, actions, suits, proceedings, hearings,
investigations, changes, complaints, demands, injunctions, judgments, orders,
decrees, rulings, directions, penalties, fines, amounts paid in settlements,
liabilities, obligations, taxes, liens and reasonable attorneys fees and
disbursements, arising out of, based upon or otherwise in respect of:
o any breach of representations and warranties made by us in the
asset purchase agreement or any other related documents;
o any breach or non-fulfillment of any covenant or obligation of
ours contained in the asset purchase agreement;
o liabilities other than the liabilities to be assumed by
Bentley in the asset sale;
o all of our tax liabilities that are due or accrue on or before
the closing of the asset sale; and
o all liabilities relating to or arising from the termination of
our employees in connection with the asset sale.
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Bentley shall indemnify, defend and hold us, Amrit K. Das, Santanu K.
Das and our respective affiliates, officers, directors, employees, agents and
other representatives harmless against and in respect of any and all damages
arising out of:
o any breach of any representation and warranty of Bentley
pursuant to the asset purchase agreement;
o any breach or non-fulfillment of any covenant or obligation of
Bentley contained in the asset purchase agreement or any other
related documents;
o failure by Bentley timely to pay in full or fulfill all
liabilities Bentley as agreed to assumed pursuant to the asset
purchase agreement or any related documents; and
o the operation of business of the purchased assets after the
closing of the asset sale.
The parties also agreed to limitations on the indemnification rights
set out in the asset purchase agreement, including the following:
o no claims arising out of or based on any inaccuracy in or
breach of any representation or warranty contained in the
asset purchase agreement and other related documents shall be
made unless written notice is delivered to the indemnifying
party within six months after the closing of the asset sale,
except that:
(1) claims relating to organization and good standing,
capitalization, power and authorization, no
conflicts, ownership of the assets, taxes and
environmental matters may be made at any time; and
(2) claims relating to compliance with laws, software,
employee benefits or employees may be made at any
time before the expiration of the applicable statute
of limitations;
o the indemnification obligations of Bentley contained in the
asset purchase agreement are not intended to waive or preclude
any other claims, rights or remedies that may exist in equity
with respect to the matter covered by the indemnification;
o the amount for which any indemnifying party may be liable for
an indemnification claim shall be net of any insurance
proceeds actually received by the party being indemnified in
connection with facts giving rise to such claim;
o Bentley agreed that its indemnified persons shall have no
right to indemnity for claims arising out of the breach of
representations and warranties by us under the purchase
agreement unless and until the aggregate amount of damages
from these claims exceeds $250,000, at which time the full
amount of damages will be subject to indemnification;
o the maximum aggregate amount payable by us for any and all
damages or any other matter arising out of , related to, or in
connection with the asset purchase agreement is $15,000,000,
except in the case of actual fraud, in which case the cap will
be the amount we actually receive from Bentley pursuant to the
asset purchase agreement; and
o there shall not be multiple recovery for any damages.
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TERMINATION
The asset purchase agreement may be terminated in accordance with its
terms at any time prior to the closing of the asset sale, whether before or
after the approval of the asset sale by our stockholders at our annual meeting
of stockholders:
o by either party, if the asset sale is not consummated by
December 31, 2005;
o by either party if a court of competent jurisdiction or other
governmental body shall have issued a final and non-appealable
order, decree or ruling or have taken any other action, having
the effect of permanently restraining, enjoining or otherwise
prohibiting the asset sale;
o by either party if the asset sale is not approved at the
stockholders; meeting;
o by us if our board of directors by a majority vote determines
that the consummation of the asset sale would constitute a
breach of the board's fiduciary duty to our stockholders;
o by Bentley if any of our representations and warranties
contained in the asset purchase agreement is inaccurate as of
the date of the asset purchase agreement or later becomes
inaccurate or we breach our covenants, such that there is a
material adverse effect on the business being sold; and
o by us if any of Bentley's representations and warranties
contained in the asset purchase agreement is inaccurate as of
the date of the asset purchase agreement or becomes inaccurate
as of a date subsequent to the date of the asset purchase
agreement or Bentley breaches its covenants, such that there
is a material adverse effect on us.
The terminating party must deliver to the non-terminating party a
written notice stating that it is terminating the asset purchase agreement and
setting forth a brief description of the basis on which it is terminating the
asset purchase agreement. Upon termination of the asset purchase agreement, all
further obligations of the parties under the agreement shall terminate, except
that the termination and break-up fee provisions apply and no party shall be
relieved of any obligations or other liabilities arising from any breach by such
party of any provisions of the asset purchase agreement and the parties shall
remain bound by and continue to be subject to any obligations regarding
confidentiality and non-disclosure of information that may continue pursuant to
their terms.
TERMINATION AND BREAK-UP FEES
We agreed to pay to Bentley an amount equal to the aggregate amount of
all reasonable fees and expenses (including all reasonable attorney's fees,
accountant's fees and filing fees) that have been paid or that may become
payable by or on behalf of Bentley in connection with the preparation and
negotiation of the asset purchase agreement, if Bentley terminates the asset
purchase agreement because our representations and warranties contained in the
asset purchase agreement were inaccurate as of the date of the asset purchase
agreement or later become inaccurate or we breach our covenants, such that there
is a material adverse effect on the business being sold.
We must pay to Bentley a $1 million break-up fee if the asset purchase
agreement is terminated because of the following:
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o our failure to obtain the required stockholder vote or to hold
a stockholders meeting as contemplated by the asset purchase
agreement; or
o a decision by our board of directors that its fiduciary
obligations require that we do not complete the asset sale as
contemplated for any reason.
If the termination of the asset purchase agreement is initiated by
Bentley providing notice to us, the termination fee shall be paid to Bentley
within two business days of our receipt of the termination notice.
Bentley shall make a non-refundable cash payment to us in an aggregate
amount equal to all reasonable fees and expenses (including all reasonable
attorney's fees, accountant's fees and filing fees) that have been paid or that
may become payable by or on behalf of us in connection with the preparation and
negotiation of the asset purchase agreement, if the asset purchase agreement is
terminated because Bentley's representations and warranties contained in the
asset purchase agreement were inaccurate when made or become inaccurate as of
the date subsequent to the date of the asset purchase agreement or Bentley
breaches its covenants, such that there is a material adverse effect on us.
If the termination is initiated by our providing notice to Bentley, the
termination fee shall be paid to us simultaneously with the receipt of our
notice to terminate the asset purchase agreement.
EXPENSES
Except with respect to termination fees payable under certain
circumstances described in the section above entitled "Termination Fees," and
except that Bentley has agreed to reimburse us for reasonable fees and expenses
incurred by us relating to the legal and financial services up to $250,000, each
party has agreed to pay its own expenses and costs incurred in connection with
this asset sale.
Our consummation of the transactions contemplated by the asset purchase
agreement will involve various exit and disposal charges. We estimate future
cash expenditures related to the sale to be approximately $3.02 million,
including the $250,000 Bentley has agreed to reimburse us for legal and
financial expenses upon closing of the sale. Therefore, our approximate net cost
is anticipated to be $2.77 million. We anticipate the charges to be made up of
approximately $1.5 million in taxes, approximately $535,000 in investment
banking fees associated with the actual sale, approximately $317,000 to $697,000
in severance and termination benefits, approximately $150,000 in legal and
accounting fees , approximately $88,000 in pre-payment penalty fees relating to
the Laurus debt, and $50,000 of estimated other costs. We expect to incur
substantially all of the charges in our second and third quarters of fiscal
2006.
ASSIGNMENT AND BENEFIT
Bentley may assign the asset purchase agreement in whole or in part to
any of its subsidiaries or affiliates or any person or entity that becomes a
successor in interest to Bentley. We may not assign the asset purchase agreement
or any rights under the agreement.
AMENDMENTS, MODIFICATION AND WAIVER
The parties may amend or modify the asset purchase agreement in any
respect in writing. A waiver by any party of a provision contained in the asset
purchase agreement shall not constitute a waiver of other provisions contained
in the asset purchase agreement. The failure to enforce any provision of the
asset purchase agreement shall not operate as a waiver of such provision or any
other provisions within the asset purchase agreement.
43
TRANSITION SERVICES AGREEMENT
Under the terms of a transition services agreement to be entered into
between us and Bentley at the closing, among other things, we would provide
information systems migration and shared infrastructure services to Bentley for
up to one year, and would lease a portion of the Kolkata, India facility to
Bentley for two years, with two one-year renewal options. Bentley would provide
to us STAAD suite licenses and access to infrastructure at the Kolkata and Yorba
Linda facilities for up to one year and would sublease to us a portion of the
Yorba Linda, California facility for one year, with a one-year renewal option.
The form of transition services agreement is attached to this proxy statement as
APPENDIX B.
STAND STILL AGREEMENT
In connection with the asset purchase agreement, Laurus Master Fund,
Ltd. and we entered into a stand still agreement dated as of August 19, 2005.
Laurus is a secured creditor of ours and a beneficial owner of more than 5% of
our outstanding common stock. Under the stand still agreement, Laurus consented
to our entry into and consummation of the transactions contemplated by the asset
purchase agreement and agreed to release its security interest in the assets
being sold, subject to Laurus being paid in full at the closing all of our
obligations under the convertible promissory notes held by Laurus. Laurus also
agreed not to exercise any of its warrants to purchase shares of our common
stock until the earlier to occur of the closing of the asset purchase agreement,
the termination of the asset purchase agreement or February 15, 2006. In
addition, Laurus agreed not to interfere with the transactions contemplated by
the asset purchase agreement through involvement in any merger, sale of assets,
sale of equity or similar transaction involving us or any of our divisions or
any other transaction that would involve the transfer or potential transfer of
control of our company. The stand still agreement does not, however, limit the
right of Laurus to transfer or vote shares of our common stock.
VOTING AGREEMENTS
On August 19, 2005, Peter R. Kellogg, a beneficial owner of more than
5% of our outstanding common stock, and Santanu K. Das, a director and the Chief
Operating Officer of our company, each entered into a voting agreement with
Bentley. Pursuant to the voting agreements, Mr. Kellogg and Mr. Das each
delivered to Bentley irrevocable proxies that empower two executive officers of
Bentley to vote shares of common stock owned by Mr. Kellogg and Mr. Das, at any
time prior to the earlier to occur of the consummation or termination of the
asset purchase agreement, in favor of approval and adoption of the asset
purchase agreement and approval of the asset sale contemplated by the asset
purchase agreement, against approval of any proposal that would result in a
breach by us of the asset purchase agreement, and against any proposal made in
opposition to, or in competition with, consummation of the asset sale
contemplated by the asset purchase agreement.
REASONS FOR THE ASSET SALE
In reaching its decision to approve the asset purchase agreement and
the asset sale, our board of directors considered several potential benefits and
material factors pertaining to the asset sale, including the following:
o the belief that, after reviewing our ongoing financial
condition, results of operations and business and earning
prospects, and notwithstanding the concerted efforts of
management and our board of directors to scale our business
and increase revenues and profitability, remaining an
independent operating company focusing on our core historical
business was not reasonably likely to create greater value for
our stockholders than the prospects presented by the asset
sale;
44
o the belief that the asset sale represents the most favorable
alternative currently available to us to maximize stockholder
value;
o the opinion of B. Riley, financial advisor to our board of
directors, to the effect that as of August 16, 2005, the
purchase price set forth in the asset purchase agreement was
fair, from a financial point of view, to holders of our common
stock, and our board of directors' view that the material
information and data upon which B. Riley's fairness opinion is
based did not materially change between that date and August
19, 2005, the date the asset purchase agreement was executed;
o the belief that the asset sale will likely be approved by our
stockholders based upon the potential benefits of the asset
sale to us and our stockholders and the voting agreements
described above;
o the belief that the benefits to us contemplated in connection
with the asset sale, including the receipt of the purchase
price at closing, are likely to be achieved within a
reasonable time frame;
o the due diligence and negotiation process undertaken by
Bentley in connection with the negotiation of the asset
purchase agreement;
o the amount and form of the consideration to be paid in the
asset sale;
o the terms of the asset purchase agreement, including our
ability to terminate the asset purchase agreement under
certain circumstances, including in connection with certain
unsolicited third party superior offers, and the limitation on
our potential indemnification, compensation and reimbursement
obligations for breaches of our representations and warranties
to Bentley under the terms of the asset purchase agreement;
o the potential cost savings through the transfer of customer
contracts and assets and reduction of workforce; and
o the positive treatment of many of our employees through
possible employment by Bentley following the asset sale, as
well as continued employment for many retained employees
following the asset sale.
Our board of directors also considered a number of potentially negative
factors in reaching its decision to approve the asset purchase agreement and
asset sale, including the following:
o the risk that the potential benefits of the asset sale may not
be realized, in part or at all, including the risk that we
could have to satisfy indemnification and reimbursement
obligations under the asset purchase agreement under certain
circumstances;
o the risk that the asset sale may not be consummated, including
the risks associated with obtaining the necessary approval of
our stockholders required to complete the asset sale,
notwithstanding the voting agreements obtained from holders of
approximately 29.0% of our outstanding common stock as of the
record date;
o the risk of management and employee disruption associated with
the asset sale and the transition services agreement,
including the risk that key technical, marketing and
45
management personnel might not remain employed by us through
the consummation of the asset sale or the term of the
transition services agreement;
o the asset purchase agreement permits Bentley to terminate the
asset purchase agreement if, among other things, our board of
directors withdraws its recommendation in favor of the asset
sale or recommends another acquisition proposal;
o the asset purchase agreement requires us to pay termination or
break-up fees to Bentley if the asset purchase agreement is
terminated under some circumstances;
o the interests of our directors and officers that are different
from, or in addition to, those of our stockholders generally,
including the potential receipt of change in control or
severance payments by certain of our executive officers under
change in control and retention agreements and employment
agreements;
o the potential impact of the asset sale on our employees who
are not offered employment by Bentley;
o our obligations to provide services to Bentley for a period of
time following the closing pursuant to the terms of the
transition services agreement, and the need to continue to
retain our employees and maintain our facilities and
information technology infrastructure in order to fulfill
these obligations;
o the significant costs involved in consummating the asset sale;
o the indemnification, compensation and reimbursement
obligations under the terms of the asset purchase agreement
that would extend to the entire amount we receive under the
asset purchase agreement in case of actual fraud in connection
with the asset purchase agreement; and
o the potential negative effect on our stock price as a result
of the public announcement of or consummation of the asset
sale.
USE OF PROCEEDS AND OPERATIONS FOLLOWING THE CLOSING
We propose to use the proceeds from this transaction as follows:
o approximately $3.6 million will be paid to satisfy our
outstanding debts and other liabilities;
o approximately $2.77 million (including approximately $250,000
to be reimbursed to us by Bentley at the closing in connection
with our legal and financial expenses relating to the asset
sale) will be paid to satisfy the expenses (including
severance payments)and taxes, related to this transaction; and
o the remaining approximate $17.13 million in proceeds will be
available for working capital and general corporate purposes
and for other uses our board may determine. This figure
includes the reserve required to be held for six months and
one day after the closing of the asset sale as described
above.
46
The asset purchase agreement contains three-year non-competition,
non-solicitation and inventions assignment provisions covering us and Amrit K.
Das and Santanu K. Das, who are two directors, director nominees, executive
officers and beneficial owners of more than 5% of our outstanding common stock.
These provisions relate to the business and assets being sold in the asset sale.
We currently intend to continue to operate our retained businesses
during the immediate future. Upon the completion of the asset sale, our retained
businesses will consist of:
o our Web4 division, consisting primarily of our eReview
software;
o our IT services division, operating primarily our of our
Boston office; and
o our EBPO (engineering business process outsourcing)
operations, located in our Kolkata, India office.
Historically, these operations contributed $4.8 million of our $15.8
million total net revenues for the fiscal year ended March 31, 2005, and $1.0
million of our $3.8 million total net revenues for the three months ended June
30, 2005. Therefore, as a consequence of the asset sale, we will be operating at
a significantly reduced revenue volume as compared to prior periods.
Sales in our Web4 division consist almost entirely of sales of our
eReview software. Once installed at a host location, our eReview collaborative
software enables a host and other participants to engage in real-time Web-based
conferencing and document sharing anywhere and anytime in over 150 widely used
document formats. eReview allows our customers to bridge physical distances in
their global business environments by enabling decision makers to communicate
without costly and time consuming travel to geographically dispersed locations.
Complementing eReview, our WebWorks software provides comprehensive
project-based document and team management functions. Our collaborative products
can be implemented as stand-alone enterprise solutions or as an integrated
system working in concert with other products. For example, we are working with
BIW Technologies of United Kingdom utilizing our collaboration and review
expertise to enhance BIW's visual interface. We have secured document
collaboration projects with Sharp Laboratories of America and Amtrak. Due to our
engineering experience, our collaborative software is ideally suited for
multi-faceted architecture/ engineering/ construction projects. However, our
collaborative software also has direct application for many other industries. We
have also developed workflow management solutions by embedding our collaborative
software in the software of our major original equipment manufacturer partners,
such as FileNet Corporation and Oracle Corporation, who then market the combined
solution to their customers.
Our IT services division has provided contracted IT services and
software solutions to a wide variety of vertical industry markets (that is, a
particular industry or group of enterprises to whom similar goods and services
can be sold), with an emphasis on engineering, aerospace, e-commerce,
semiconductors, finance, education, insurance, manufacturing, distribution,
retail, government, pharmaceuticals and healthcare. As a total service provider,
we provide our business-to-business clients with services that involve
integration of multiple existing third party software. We also offer value-added
IT services by incorporating and customizing our proprietary collaborative
software technology and/or our engineering software into enterprise solutions
designed to accomplish our clients' current objectives and grow with our
clients' enterprises. We specialize in providing IT services that involve
mission critical applications that deliver round-the-clock performance.
Our Kolkata, India office will continue to operate our EBPO operations,
where we offer full engineering technical support to other non-competing
engineering software companies, as well as to steel detailing and fabrication
companies in North America, a qualified labor pool of experienced engineers and
detailers at our wholly-owned subsidiary in India to expedite the production of
erection drawings necessary to construct a structure. Our model focuses on our
core engineering competencies rather than financial services or general call
centers. Our goal is not to replace U.S. steel detailing companies but to
augment their current workforce. This allows our customers to extend their
organizational capabilities and capacities and in turn provides a faster
turnaround to their customers while controlling their costs. The production of
erection drawings is the ultimate phase in the engineering design chain.
The immediate effect of the asset sale will be a significant
improvement in our cash position. The approximately $17.13 million in net
proceeds, as described above, will be added to our operating cash balances at
the time of closing. However, we will then be operating at a cash deficit each
period as we continue to adjust to the greatly reduced revenue. We anticipate
that we will not be able to achieve profitability in the immediate future due
primarily to the administrative costs of operating as a public company.
Furthermore, our access to capital markets will also be greatly reduced due to
our reduced operations. However, we do not anticipate raising additional debt or
equity capital after the asset sale.
We are reviewing alternatives for the ultimate use and disposition of
our remaining assets, which may include pursuing a plan of complete liquidation
and dissolution (possibly including the sale of our remaining assets and
businesses). In the event of a liquidation we would incur additional costs
related to the disposal of our remaining assets and businesses, which would
reduce the cash available to distribute to our stockholders. Alternatively, we
may decide to pursue selling our remaining assets and businesses outside of a
liquidation and dissolution, to repurchase shares of our common stock or make a
tender offer or distributions of cash to our stockholders, to explore other
strategic alternatives, such as a business combination with another party,
and/or to continue as an independent stand-alone company focusing on business
opportunities relating to our retained businesses or to new business
opportunities unrelated to our retained or historical businesses. Any business
combination transaction is likely to have a dilutive effect on the interests of
our stockholders, reducing each stockholder's proportionate ownership and voting
power. At this time, our board of directors has not made any final decision to
pursue any one of these options. You should review the "Risk Factors" section
beginning on page 52 for a discussion of some of the risks related to our future
operations.
OPINION OF OUR FINANCIAL ADVISOR
We engaged B. Riley to provide a fairness opinion to our board of
directors in connection with the asset purchase agreement. On August 16, 2005,
B. Riley rendered its opinion, that as of that date and, based on and subject to
certain matters stated therein, the consideration to be paid to us by Bentley
pursuant to the asset purchase agreement was fair to our stockholders from a
financial point of view. Their opinion was based primarily on the cash
consideration to be paid to us under the asset purchase agreement. This opinion
was also based upon and incorporated information provided by our management,
which B. Riley assumed to be accurate in all material aspects.
In arriving at its opinion, B. Riley did not perform or obtain any
independent appraisal of the assets or liabilities (contingent or otherwise) of
REI, nor was B. Riley furnished with any such appraisals. B. Riley assumed that
the acquisition would be completed in a timely manner and in accordance with the
terms of the asset purchase agreement without any limitations, restrictions,
conditions, amendments or modifications, regulatory or otherwise, that
collectively would have a material effect on REI or us. B. Riley undertook no
obligation to update its opinion following its delivery on August 16, 2005. B.
Riley did not express any opinion as to the price or range of prices at which
our common stock may trade subsequent to the announcement of the asset purchase
agreement.
In the ordinary course of business, B. Riley and its affiliates may
actively trade our securities for their own account and for the accounts of
their customers and, accordingly, may at any time hold a long or short position
in our securities.
The following summary of the material financial analyses performed by
B. Riley in connection with evaluating the value of REI and rendering of their
fairness opinion to our board of directors may not expressly set forth all of
the information B. Riley used to arrive at its opinion.
47
SELECTED PRECEDENT TRANSACTIONS ANALYSIS
B. Riley evaluated the financial metrics of numerous selected precedent
transactions as part of the evaluation of the Transaction. B. Riley selected
these particular transactions based upon the relative size of the transaction in
comparison to REI, the timing of when the transactions occurred, the relative
financial conditions of the target companies and the target companies' industry
and market relevance to REI. Then using publicly available information, B. Riley
reviewed and analyzed certain financial and operating data relating to the
selected transactions such as transaction values as a multiple of a company's
revenue for a latest twelve-month ("LTM") period.
B. Riley used the sets of enterprise value to revenue ("EV/Revenue")
and enterprise value to earnings before interest taxes, depreciation and
amortization ("EV/EBITDA") multiples in its analysis to determine the valuation
of REI. "Enterprise value" is calculated as the sum of the value of the common
equity on a fully-diluted basis plus the value of net debt, any minority
interest and preferred stock, less cash.
SELECTED PRECEDENT TRANSACTION ANALYSIS (REI)
ANNOUNCED SELLER BUYER
-------------------------------------------------------------------------
June 24, 2005 CAD Potential INCAT International
(LSE:ICN)
May 17, 2005 ABAQUS Dassault Systemes SA
(NasdaqNM:DAST.Y)
March 28, 2005 Radix Company SA Ness Netherlands
January 3, 2005 Tecnomatix Technologies UGS Corp.
January 27, 2004 Mosaic Mapping Corp. Pulse Data
(TSX:PSD)
January 11, 2004 Optika Stellent
(NasdaqNM:STEL)
March 18, 2002 Mechanical Dynamics MSC Software Corp.
(OTCPK:MNSC)
February 15, 2002 LineSoft Corporation Itron
(NasdaqNM:ITRI)
January 14, 2002 Cimatron Koonras Technologies
(NasdaqSC:CIMT)
TRANSACTION VALUE MULTIPLES OF LTM REVENUE AND LTM EBITDA (REI)
EV/REVENUE EV/EBITDA
High (1): 2.9x 34.0x
Low (1): 0.8x 24.4x
Median: 2.0x 29.2x
Mean: 2.0x 29.2x
(1) High and low observations represent the 75th and 25th percentiles,
respectively.
48
B. Riley used both sets of median multiples in its analysis of the
valuation of REI. Based upon the selected precedent transaction analysis, B.
Riley determined that the consideration to be paid to us under the asset
purchase agreement is fair to our stockholders from a financial point of view.
COMPARABLE PUBLIC COMPANY ANALYSIS
B. Riley evaluated the financial metrics of several comparable public
companies as part of its evaluation of the asset sale. B. Riley selected the
comparable public companies based upon the relative sizes of the companies in
relationship to REI, the relative financial conditions and strengths of the
comparable companies, and the industry segments and the markets served by the
comparable public companies in relationship to REI. In performing this analysis,
B. Riley reviewed certain financial information relating to REI and compared
such information to the corresponding financial information of other
publicly-traded companies, which B. Riley deemed to be generally comparable to
REI.
B. Riley used the ratio of enterprise value to revenue and enterprise
value to EBITDA as of August 11, 2005 for the selected comparable public
companies to estimate the value of REI. The nine publicly-traded companies that
B. Riley deemed generally comparable to REI were:
o Ansoft Corp.
o Ansys, Inc.
o Agile Software Corp.
o Aspen Technology Inc.
o Intergraph Corp.
o International Microcomputer
Software Inc.
o Matrixone Inc.
o Moldflow Corp.
o Tekla Oyj
B. Riley calculated the low, mean, median and high multiples for the
above public comparable companies.
COMPARABLE PUBLIC COMPANY MULTIPLES OF LTM REVENUE AND LTM EBITDA
(REI)
EV/REVENUE EV/ EBITDA
High (1): 1.9x 34.3x
Low (1): 1.2x 14.3x
Mean: 2.4x 30.0x
Median: 1.5x 18.6x
(1) High and low observations represent the 75th and 25th percentiles,
respectively.
B. Riley used both sets of median multiples in its analysis of the
valuation of REI. Based upon the comparable public company analysis, B. Riley
determined that the consideration to be paid to us under the asset purchase
agreement is fair to our stockholders from a financial point of view.
DISCOUNTED CASH FLOW ANALYSIS
B. Riley performed a discounted cash flow analysis as part of its
valuation of REI, based upon the historical and projected financial results
provided by our management. The discounted cash flow analysis relates the value
of an asset or business to the present value of expected future cash flows to be
49
generated by that asset or business. Discounted cash flow has two components:
(1) the present value of the projected after-tax cash flows after payment of any
associated expenses and capital requirements necessary to generate the related
cash flows, which we refer to as after-tax free cash flows, for a determined
period and (2) the present value of the terminal value of the asset or business
at the end of the period. In the discounted cash flow analysis, the projected
after-tax free cash flows exclude the impact of interest income and interest
expense. The terminal EBITDA multiple methodology is utilized to calculate a
terminal value by applying a multiple to the EBITDA of the asset or business in
the last year of the relevant projections. The terminal value calculated is an
estimate for the value of the annual free cash flow of the asset or business
beyond the terminal year projected into perpetuity. In this discounted cash flow
valuation, the terminal value is determined using the range of EBITDA multiples
found in the comparable precedent transaction analysis.
B. Riley performed a discounted cash flow analysis assuming for REI, a
range of illustrative discount rates of 17% to 20% and a range of terminal
EBITDA multiples (based on estimated 2010 EBITDA) of 9x to 11x.
The calculation of cost of capital or discount rate was calculated on a
weighted-average cost of capital for REI based upon market returns, cost of debt
and the average comparable company beta (risk) factor. Based upon the discounted
cash flow analysis, B. Riley determined that the consideration to be paid to us
under the asset purchase agreement is fair to our stockholders from a financial
point of view.
MISCELLANEOUS
In connection with rendering its opinion, B. Riley performed a variety
of financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to a partial analysis
or summary description. Accordingly, notwithstanding the analyses summarized
above, B. Riley believes that its analyses must be considered as a whole and
that selecting portions of the analyses and factors considered by them, without
considering all such analyses and factors, or attempting to ascribe relative
weights to some or all such analyses and factors, could create an incomplete
view of the evaluation process underlying the opinion.
In performing its analyses, B. Riley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of REI, including, among
other assumptions, a moderately improving economy, no significant fundamental
changes in the underlying market segments served by REI and no rapid change in
interest rates and other factors affecting the cost of conducting business. The
analyses performed by B. Riley are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses. B. Riley did not draw any specific conclusions from
or with regard to any one method of analysis. With respect to the analysis of
comparable companies and the analysis of selected precedent transactions
summarized above, no public company utilized as a comparison is identical to
REI, and no transaction is identical to the REI transaction. Accordingly, an
analysis of publicly traded comparable companies and comparable business
combinations is not mathematical; rather, it involves considerations and
judgments concerning the differences in financial and operating characteristics
of the companies and other factors that could affect the public trading values
or announced merger transaction values, as the case may be, of REI and the
companies to which REI was compared. The analyses do not purport to be
appraisals or to reflect the prices at which any securities may trade at the
present time or at any time in the future. In addition, B. Riley's opinion was
just one of the many factors taken into consideration by our board of directors.
Consequently, B. Riley's analysis should not be viewed as determinative of the
decision of our board of directors or management with respect to the fairness of
the consideration as set forth in the asset purchase agreement.
50
B. Riley's engagement and its fairness opinion are for the benefit of
our board of directors in its capacity as representatives of our stockholders,
and its fairness opinion was rendered in connection with our board of directors'
consideration of the asset sale. The fairness opinion is not intended and does
not constitute a recommendation to any stockholder as to whether such
stockholder should vote to approve the asset sale.
B. Riley relied upon and assumed, without independent verification,
that the financial information provided to it was reasonably prepared and
reflected the best currently available estimates of the financial results and
condition of REI, and that there was no material change in the assets, financial
condition, business or prospects of REI since the date of the most recent
financial statements made available to B. Riley. B. Riley also assumed that the
asset sale would be consummated in accordance with the asset purchase agreement.
Without limiting the generality of the foregoing, B. Riley undertook no
independent analysis of any pending or threatened litigation, possible
unasserted claims or other contingent liabilities to which either REI was a
party or was subject, and B. Riley's fairness opinion makes no assumption
concerning, and therefore does not consider, the possible assertion of claims,
outcomes or damages arising out of any such matters. B. Riley did not
independently verify the accuracy and completeness of the information supplied
to it with respect to REI and does not assume any responsibility with respect to
it. B. Riley did not make any physical inspection or independent appraisal of
any of the properties or assets of REI. B. Riley's fairness opinion is
necessarily based on business, economic, market and other conditions as they
existed and could be evaluated by B. Riley at August 16, 2005.
B. Riley is an investment bank that since its inception has engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, leveraged buyouts and valuations for
estate, corporate and other purposes.
B. Riley was selected by our board of directors to render a fairness
opinion because of B. Riley's expertise and reputation in investment banking and
mergers and acquisitions and its familiarity with the engineering software
industry and our company. Also, B. Riley was recommended to us by ISI, and our
legal counsel, Rutan & Tucker, LLP, and some of our board members were familiar
with B. Riley. We and B. Riley entered into a letter agreement including
indemnification provisions, dated July 27, 2005, relating to the services to be
provided by B. Riley in connection with the transaction, under which we paid B.
Riley a fee of $90,000 upon rendering of its opinion. We also agreed to
reimburse B. Riley for certain out-of-pocket expenses incurred in connection
with the engagement.
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE ASSET SALE
Some of our directors and officers have interests in the asset sale
that are different from, or in addition to, those of our stockholders generally.
Our board of directors was aware of these interests when it approved the asset
purchase agreement.
For instance, some of our executive officers may be entitled to
severance or change in control payments following the completion of the asset
sale under certain circumstances pursuant to the terms of their employment
agreements or change in control and retention agreements entered into with us
(see page 20). Our directors and executive officers may be entitled to
immediate vesting of their outstanding stock options if a change in control
occurs as a result of the asset sale (see pages 14 and 20). If the asset sale is
consummated, Bruce K. Nelson and Clara Y.M. Young, who are our Chief Financial
Officer and our Chief Administrative Officer, respectively, will receive special
one-time cash bonuses of $25,000 and $8,333, respectively, for their
51
extraordinary efforts and performance on our behalf in connection with the asset
sale. These bonus payments are contingent upon and will become payable within
five business days following the closing of the asset sale.
Bentley is required under the asset purchase agreement to make
offers of employment to Santanu K. Das, Bruce K. Nelson, Clara Y.M. Young and
Biren Parikh that include total compensation arrangements no less favorable than
the total compensation arrangements those employees received from us for the
twelve-month period prior to the date of the asset purchase agreement (excluding
any severance payment obligations). Also, it is a condition to closing that
Santanu K. Das and not less than 90% of our employees to whom Bentley makes an
offer of employment accept those offers.
Mr. Ben Eazzetta, one of our directors, is an executive officer and
shareholder of Intergraph Corporation, a publicly-held company that owned
approximately 29% of the outstanding shares of common stock of Bentley as of the
date of the asset purchase agreement. However, Mr. Eazzetta is not a party to
any arrangement pursuant to which he anticipates benefiting directly or
materially from our asset sale to Bentley.
RISK FACTORS RELATING TO THE PROPOSED TRANSACTION AND TO OUR BUSINESS AFTER THE
PROPOSED TRANSACTION
CAUTIONARY STATEMENT
Please refer to the "Cautionary Statement Regarding Forward-Looking
Statements" at page 9 of this proxy statement. The discussion below highlights
some important risks we have identified in connection with the proposed asset
sale, but these should not be assumed to be the only factors that could affect
our future performance and condition, financial and otherwise. We do not have a
policy of updating or revising forward-looking statements, and silence by
management over time should not be assumed to mean that actual events are
bearing out as estimated in such forward-looking statements.
EVEN IF APPROVED BY OUR STOCKHOLDERS, THE ASSET SALE MAY NOT BE COMPLETED.
The completion of the asset sale is subject to certain conditions. Even
if our stockholders approve the asset sale, there can be no assurances that the
other conditions to closing will be met and that the asset sale will be
completed. If the asset sale is not completed, we will have spent a substantial
amount of time and financial resources in connection with the transaction
without realizing any gain.
IF THE ASSET SALE IS COMPLETED, WE WILL HAVE A GREATLY REDUCED PROVEN SOURCE OF
CONTINUING REVENUE, AND ANY NEW BUSINESS OPPORTUNITY THAT WE PURSUE WILL LIKELY
BE RISKY.
If the asset sale is completed, we will transfer to Bentley all of our
currently productive assets associated with the REI operation, with the
exception of the WEB4 division. We have not identified and have no commitments
to enter into or acquire a specific business opportunity after the asset sale.
Therefore, we cannot disclose the risks and hazards of any specific business or
opportunity that we may enter into. We expect that our remaining business after
the sale of our REI division and STAAD product lines will be risky. Our
acquisition of, or participation in, a business opportunity will likely be
illiquid and could result in a total loss to us and our stockholders if the
business or opportunity proves to be unsuccessful. See the discussions under the
heading "Use of Proceeds and Operations Following the Closing" at page 46 of
this proxy statement.
THERE HAS BEEN NO FINAL DECISION REGARDING THE DISTRIBUTION OF ANY OF THE
PROCEEDS OF THE ASSET SALE TO OUR STOCKHOLDERS. HOWEVER, THIS OPTION REMAINS
OPEN TO OUR BOARD OF DIRECTORS.
We have not yet determined what course of action we will follow after
the consummation of the proposed asset sale. Our board of directors is
considering options that include but are not limited to distribution of all or
some of the sale proceeds to our stockholders, and the use of our remaining cash
to operate the remaining businesses after the sale and possibly expand into
another business. While our management believes there are business opportunities
available, there can be no assurance that we will be successful in any pursuit.
If we are not successful in operating the remaining businesses and developing,
acquiring or merging with a new business, we could end up spending the net
proceeds of the asset sale without any gain to stockholders.
52
ANY NEW BUSINESS ACQUISITION WILL LIKELY BE DILUTIVE TO OUR EXISTING
STOCKHOLDERS.
Any subsequent business combinations involving netGuru will most likely
require our issuance of additional shares of common and/or preferred stock.
These issuances could result in substantial dilution to our existing
stockholders without their review or approval.
IF ALL OR A SUBSTANTIAL AMOUNT OF OUR CASH BALANCES ARE DISTRIBUTED IN SOME
FASHION TO OUR STOCKHOLDERS, WE MAY HAVE LIMITED CASH RESOURCES.
We have limited cash resources, and these resources may diminish in the
future. We recorded a net loss of $788,000 and consumed $ 210,000 of our cash in
operating activities during the year ended March 31, 2005. We recorded a net
loss of $334,000 and provided $415,000 in cash from operating activities during
the three months ended June 30, 2005. However, there is no assurance that we
will be able to provide operating cash in future quarters. We may not have
sufficient funds to achieve profitability. Thus, we would be forced to seek
additional capital in order to continue our operations. It may be difficult for
us to obtain additional equity or debt financing. Any terms of such a financing
may be dilutive and unfavorable to our current stockholders.
WE WILL CONTINUE TO INCUR THE EXPENSES OF COMPLYING WITH PUBLIC COMPANY
REPORTING REQUIREMENTS.
We have an obligation to continue to comply with the applicable
reporting requirements of federal and state securities laws, including but not
limited to, the Securities Exchange Act of 1934, as amended, even though
compliance with such reporting requirements is economically burdensome. We will
also have the added cost of the required compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 as a non-accelerated filer.
IF WE FAIL TO REGAIN OR MAINTAIN COMPLIANCE WITH NASDAQ RULES AND CONTINUED
LISTING STANDARDS, THEN WE COULD BE DELISTED FROM THE NASDAQ CAPITAL MARKET,
WHICH COULD REDUCE THE LIQUIDITY OF OUR COMMON STOCK AND INHIBIT OR PRECLUDE OUR
ABILITY TO RAISE ANY NEEDED WORKING CAPITAL FROM EQUITY INVESTORS.
As described in proposal 3, Nasdaq rules require that we obtain
stockholder approval of certain issuances of equity-based compensation. If we do
not obtain stockholder approval of proposal 3 or otherwise satisfactorily
maintain compliance with Nasdaq stockholder approval rules, we will be
delisted.
Also, Nasdaq's quantitative listing standards require, among other
things, that listed companies maintain a minimum closing bid price of $1.00. As
of October 5, 2005, our closing bid price had been below $1.00 for 30
consecutive business days. Nasdaq notified us that we have an initial grace
period of 180 calendar days to regain compliance with this requirement. We may
be delisted if we do not regain compliance with the closing bid price
requirement within any applicable grace period.
If we are delisted from The Nasdaq Capital Market, our stock price
could decline and the ability of our stockholders and of any potential or future
investors to achieve liquidity from our common stock could be severely limited.
This could inhibit, if not preclude, our ability to raise any needed additional
working capital through equity offerings on acceptable terms.
THE MARKET PRICE FOR OUR COMMON STOCK MAY BECOME MORE VOLATILE AFTER THE ASSET
SALE.
53
We estimate cash expenditures related to the asset sale to be
approximately $3.02 million. Of this amount Bentley, has agreed to reimburse
netGuru up to $250,000 for legal and financial expenses upon closing of the
sale. Therefore, we anticipate the approximate net cost to us to be
approximately $2.77 million. We anticipate the charges to be made up of
approximately $1.5 million in taxes, approximately $535,000 in investment
banking fees associated with the actual sale, approximately $317,000 to $697,000
in severance and termination benefits, approximately $150,000 in legal and
accounting fees , approximately $88,000 in pre-payment penalty fees relating to
the Laurus debt, and $50,000 of estimated other costs. Substantially all of
these charges are expected to be incurred in our second and third quarters of
fiscal 2006. Furthermore, we expect to operate at a loss after the asset sale is
consummated. It should be recognized that the price of our stock may be severely
depressed due to "going concern" issues. This may add to the volatility of our
stock price. The price of netGuru stock could further decline due to the impact
of any of the following factors:
o failure to meet sales goals or operating budget;
o decline in demand for our common stock;
o revenues and operating results failing to meet expectations of
securities analysts or investors in any quarter;
o downward revisions in operating performance estimates or
changes in general market conditions;
o technological innovations by competitors or in competing
technologies;
o investor perception of our industry or prospects; or
o general economic trends.
Market fluctuations are often unrelated to operating performance and
therefore are beyond our control.
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial statements included in APPENDIX D
give effect to the sale of our REI business and STAAD product lines to Bentley.
The historical information was derived from our unaudited balance sheet
as of June 30, 2005, our unaudited statement of operations for the three months
ended June 30, 2005, and our audited statement of operations for the fiscal year
ended March 31, 2005.
The unaudited pro forma balance sheet as of June 30, 2005 gives effect
to the disposal as if it had occurred on that date. The unaudited pro forma
statements of operations for the three months ended June 30, 2005 and for the
fiscal year ended March 31, 2005 assume that the disposal had occurred on the
first day of the fiscal period then ended.
The unaudited pro forma condensed consolidated financial statements
include specific assumptions and adjustments related to the disposition. These
pro forma adjustments have been made to illustrate the anticipated financial
effect of the disposition. The adjustments are based upon available information
and assumptions that we believe are reasonable as of the date of this proxy
statement. However, actual adjustments may differ materially from the
54
information presented. Assumptions underlying the pro forma adjustments are
described in the notes accompanying the pro forma financial statements and
should be read in conjunction with our historical financial statements and
related notes contained in our quarterly report on Form 10-QSB for the period
ended June 30, 2005 and our annual report on Form 10-KSB for the fiscal year
ended March 31, 2005. These pro forma condensed consolidated statements of
operations do not include the anticipated $20.1 million gain on the disposition.
The unaudited pro forma condensed consolidated financial information
presented in APPENDIX D is for information purposes only. It is not intended to
represent or be indicative of the consolidated results of operations or
financial position that would have been reported had the disposition been
completed as of the dates presented. The information is not representative of
our future results of operations or financial position.
HISTORICAL FINANCIAL STATEMENTS
Our audited historical financial statements as of and for the years
ended March 31, 2005 and 2004 and our unaudited historical financial statements
as of and for the three months ended June 30, 2005 and 2004 are incorporated
by reference into this proxy statement. See page 60 for further information.
Unaudited historical financial statements relating to the REI business
and STAAD product lines proposed to be sold under the asset purchase agreement
as of June 30, 2005 and March 31, 2005 and for the years ended March 31, 2005
and 2004 and the three months ended June 30, 2005 and 2004 are included in
APPENDIX E to this proxy statement.
ACCOUNTING TREATMENT OF THE ASSET SALE
If the asset purchase agreement and the asset sale are approved by our
stockholders as described in this proxy statement, we will record the asset sale
in accordance with accounting principles generally accepted in the United
States. Upon completion of the asset sale, we will recognize a financial
reporting gain equal to the net proceeds (the sum of the purchase price
received less the expenses relating to the asset sale) less the net book value
of the assets sold and the fair value of the indemnification liability retained.
REGULATORY APPROVALS REQUIRED TO COMPLETE THE ASSET SALE
There are no material United States federal or state regulatory
approvals required for completion of the asset sale other than the approval of
the asset sale by our stockholders under the corporate law of the State of
Delaware.
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of our common stock
entitled to vote on this proposal will constitute stockholder ratification of
this proposal. We anticipate that the shares covered by the voting agreements
described above will be voted in favor of proposal 2. If stockholder approval of
this proposal is not obtained, we will not be in a position to consummate the
transactions contemplated by asset purchase agreement and we will have to pay to
Bentley a $1 million break-up fee.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE ASSET SALE DESCRIBED IN THIS PROPOSAL 2.
55
PROPOSAL 3
RATIFICATION OF CERTAIN ISSUANCES OF EQUITY SECURITIES
FOR COMPENSATORY PURPOSES
DESCRIPTION OF ISSUANCES
From time to time, we have issued equity securities, including shares
of common stock or warrants or options to purchase shares of common stock, as
compensation for services rendered or to be rendered to us. Our common stock
currently is quoted and trades on The Nasdaq Capital Market. Nasdaq Marketplace
Rule 4350(i)(1)(A) generally requires that we obtain stockholder approval when
we establish or materially amend a stock option or purchase plan or other equity
compensation arrangement pursuant to which stock may be acquired by officers,
directors, employees or consultants. Also, Nasdaq Marketplace Rule
4310(c)(17)(A) requires that we file a Notification Form: Listing of Additional
Shares prior to establishing or materially amending any such plan or
arrangement.
On September 8, 2005, we verbally notified Nasdaq that we intended to
file a late Notification Form: Listing of Additional Shares and to seek required
stockholder approval or ratification of issuances of equity securities that were
made in the following private transactions governed by Rule 4350(i)(1)(A):
o In January 2004, we issued 10,000 shares of common stock to
Garret Vreeland, a former director, for director services
rendered. As of September 20, 2005, the market value of these
shares of common stock was $8,800.00 based on an $0.88 closing
sale price for a share of our common stock on The Nasdaq
Capital Market.
o In February 2005, we issued to the following persons five-year
non-qualified stock options to purchase shares of our common
stock at a per share exercise price of $1.12 (the closing sale
price of a share of netGuru's common stock on the day
immediately preceding the date of grant) in consideration for
software consulting services rendered. We also paid cash for
their services. As of September 20, 2005, the market value of
the shares of common stock underlying these options was
$5,271.20 based on an $0.88 closing sale price for a share of
our common stock on The Nasdaq Capital Market. The options
initially were scheduled to vest and become exercisable
immediately upon the date of grant and to expire on February
17, 2010.
Name Shares Underlying Options
---- -------------------------
Igor Aleksandrov........................ 1,200
Vladimir Startsev....................... 1,800
Alexander Pavlyuk....................... 900
Sergey Kuznetsov........................ 750
Alexey Kopylov.......................... 660
Eugeny Panov............................ 380
Arkadiy Ivanov.......................... 300
As of September 8, 2005, we entered into option agreement amendments
with the software consultants named above. The amendments revised the option
agreements so that the options would vest and become exercisable in full
immediately following stockholder approval or ratification of the issuance of
the options rather than vesting and becoming exercisable in full on the date of
grant.
As of September 8, 2005, we also entered into an agreement regarding
equity compensation with Mr. Vreeland. The agreement provides that the shares
issued to Mr. Vreeland as described above may not be transferred or voted and
shall not be entitled to receive any dividends that may be declared by us unless
and until such transfer, voting or receipt of dividends is permitted by and in
compliance with all applicable laws, rules and regulations, including without
limitation, the Nasdaq Marketplace Rules.
56
On September 12, 2005, we submitted to Nasdaq a late Notification Form:
Listing of Additional Shares and additional supporting materials describing the
actions we have taken or intend to take in order to regain compliance with
Nasdaq Marketplace Rules 4350(i)(1)(A) and 4310(c)(17)(A). On September 14, 2005
and September 16, 2005, we submitted to Nasdaq additional materials, including
a letter stating that if we are unable to obtain stockholder approval or
ratification of the issuances of equity securities described in this proposal,
then we will promptly cancel those equity securities and instead provide their
holders with other consideration consisting of cash and/or options to purchase
shares of common stock that are issued under a plan for which stockholder
approval has already been obtained.
On September 23, 2005, Nasdaq notified us in writing that subject to
our compliance with Nasdaq Marketplace Rule 4803(a), which requires us to issue
a press release regarding this matter, Nasdaq staff had determined that we had
regained compliance with Nasdaq Marketplace Rules 4350(c)(17)(A) and
4350(i)(1)(A). We issued a press release regarding this matter on September 28,
2005 and therefore believe we have regained compliance with the above-referenced
Nasdaq Marketplace Rules.
NEW PLAN BENEFITS
None of the equity security recipients named above is an officer,
director, director nominee or employee of ours, or an associate of any officer,
director or director nominee. Also, none of the equity security recipients named
above was an officer, director or employee of ours during our 2005 fiscal year.
Therefore, no officers, directors, director nominees or their associates, and no
employees are eligible to receive the equity securities described above.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF NON-QUALIFIED STOCK OPTIONS
Holders of non-qualified stock options do not realize income as a
result of a grant of the option, but normally realize taxable income upon
exercise of a non-qualified stock option to the extent that the fair market
value of the shares of common stock on the date of exercise of the non-qualified
stock option exceeds the exercise price paid. Upon a disposition of the shares
of common stock, any difference between the sale price and the exercise price
paid, to the extent not recognized as taxable income as discussed above, is
treated as long-term or short-term capital gain or loss, depending on the
holding period. We will be required to withhold taxes on ordinary income
realized by an optionee upon the exercise of a non-qualified stock option. This
summary contains general statements based on United States federal income tax
statutes, regulations and currently available interpretations thereof. This
summary is not intended to be exhaustive and does not describe state, local or
foreign tax consequences or the effect, if any, of gift, estate and inheritance
taxes.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about our common stock that may
be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of March 31, 2005. The existing equity
compensation plans include Research Engineers, Inc. 1996 Stock Option Plan (the
"1996 Plan"), Research Engineers, Inc. 1997 Stock Option Plan (the "1997 Plan"),
Research Engineers, Inc. 1998 Stock Option Plan (the "1998 Plan") netGuru, Inc.
2000 Stock Option Plan (the "2000 Plan"), netGuru, Inc. 2003 Stock Option Plan
(the "2003 Plan") and net Guru, Inc. 2004 Stock Option Plan (together "the
option plans").
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EQUITY COMPENSATION
ISSUED UPON EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS AND OUTSTANDING OPTIONS SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS (1) AND WARRANTS COLUMN (A))
- ------------------------ ------------------------- ------------------- -----------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders 1,725,000 $1.97 1,930,000
Equity compensation
plans not approved by
security holders (2) 947,500 $2.77 ---
------------------------- ------------------- -----------------------
Total 2,672,500 $2.26 1,930,000
========================= =================== =======================
- -------------
(1) Number of shares is subject to adjustment for changes in capitalization
for stock splits, stock dividends and similar events.
(2) Represents 745,000 warrants and 202,500 options outstanding under
equity compensation plans not approved by security holders.
Options outstanding under equity compensation plans that were not
approved by security holders at March 31, 2005, were 202,500 at a
weighted-average exercise price per share of $1.07, including an option to
purchase 200,000 shares granted to a former executive pursuant to a separation
agreement, and an option granted to a consultant to purchase 2,500 shares for
services to be rendered.
Warrants outstanding under equity compensation plans that were not
approved by security holders at March 31, 2005, were 745,000 at a
weighted-average exercise price per share of $3.73 issued as consideration for
investor relations and business advisory services.
Options outstanding under equity compensation plans approved by
security holders at March 31, 2005, were (see Note 4 "Stockholders' Equity" of
Notes to Consolidated Financial Statements included in our annual report on Form
10-KSB for the fiscal year ended March 31, 2005 for further information
regarding the option plans):
WEIGHTED-AVERAGE
EXERCISE PRICE
PLAN OPTIONS OUTSTANDING PER SHARE
------- ------------------- ---------
1996 291,000 $1.39
1997 268,000 $1.49
1998 412,000 $2.22
2000 591,000 $2.46
2003 163,000 $1.43
------- ------------------- ---------
Total 1,725,000 $1.97
======= =================== =========
The option plans permit grants of both incentive stock options and
non-qualified stock options. Options under all plans generally vest over three
years, though the vesting periods may vary from person to person, and are
exercisable subject to continued service and other conditions.
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of our common stock
present in person or represented by proxy at the meeting and entitled to vote on
this proposal will constitute stockholder ratification of the issuances of
equity securities described above.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION
OF THE ISSUANCES OF EQUITY SECURITIES AS DESCRIBED IN THIS PROPOSAL.
57
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our audit committee and board of directors have appointed the
independent accounting firm of Haskell & White LLP ("H&W") to audit our
consolidated financial statements for the fiscal year ending March 31, 2006, and
to conduct whatever audit functions are deemed necessary pursuant thereto. H&W
audited our fiscal 2005 consolidated financial statements included in our 2005
annual report to stockholders. A representative of H&W is expected to be present
at the annual meeting and will be given the opportunity to make a statement if
he or she so desires and to respond to appropriate questions.
CHANGE IN INDEPENDENT AUDITORS
On July 20, 2004, we notified KPMG LLP ("KPMG"), our then independent
accountants, that we had engaged new certifying accountants, and terminated our
relationship with KPMG.
Also on July 20, 2004, we engaged H&W as our new certifying
accountants. We had not consulted with H&W during the two most recent fiscal
years and through July 20, 2004 regarding the application of accounting
principles to a proposed or completed specified transaction or the type of audit
opinion that might be rendered on our consolidated financial statements, where
either a written report was provided or oral advice was provided that H&W
concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue or as to any disagreement
or reportable event as described in Item 304(a)(1)(iv) and Item 304(a)(1)(v) of
Regulation S-K under the Securities Act.
The audit reports of KPMG on our consolidated financial statements as
of and for the years ended March 31, 2004 and 2003, did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles, except that KPMG's audit
reports on the fiscal 2004 and 2003 consolidated financial statements made
reference to the fact that we changed our method of accounting for goodwill and
other intangible assets as required by Statement of Financial Accounting
standards No. 142, "Goodwill and Other Intangible Assets" on April 1, 2002.
Our decision to change accountants was approved by our audit committee
and board of directors. In connection with the audits of the two fiscal years
ended March 31, 2004, and during the subsequent interim period through July 20,
2004, there were no disagreements with KPMG on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures which disagreements, if not resolved to KPMG's satisfaction, would
have caused KPMG to make reference to the subject matter of the disagreement in
their report on the consolidated financial statements for such years. In
addition, there were no reportable events as described in Item 304(a)(1)(v) of
Regulation S-K under the Securities Act. We provided KPMG with a copy of the
disclosures we made in the required Form 8-K for July 20, 2004 and filed with
that Form 8-K KPMG's letter to the Commission dated July 27, 2004 regarding
these disclosures.
58
PRINCIPAL ACCOUNTING FIRM FEES
The following table presents fees for professional audit services
rendered by H&W for the fiscal year ended March 31, 2005 and by KPMG for the
fiscal year ended March 31, 2004.
2005 2004
-------- --------
Audit Fees (1) $144,000 $235,000
Audit-Related Fees (2) - -
Tax Fees (3) - -
All Other Fees (4) - -
Total $144,000 $235,000
- ------------------------
(1) Audit Fees: Includes fees for professional services (including $25,000
in fees for H&W that were approved by the audit committee subsequent to
the filing of our Form 10-KSB for fiscal 2005), for the audit of our
annual financial statements and review of financial statements included
in our Form 10-QSB filings for the fiscal year indicated, and services
that are normally provided in connection with statutory and regulatory
filings or engagement, such as the filing of Form S-3 or Form S-8.
(2) Audit-Related Fees: H&W and KPMG did not provide any audit-related
services.
(3) Tax Fees: H&W and KPMG did not provide any professional services with
respect to tax compliance, such as preparation and filing of original
and amended returns for us and our consolidated subsidiaries, refund
claims, payment planning, tax audit assistance and tax work stemming
from "Audit-Related" items.
(4) All Other Fees: H&W and KPMG did not provide other permissible work for
us that does not meet the above category descriptions.
PRE-APPROVAL POLICY
Our audit committee is responsible for approving all Audit,
Audit-Related, Tax and Other Services. The audit committee pre-approves all
auditing services and permitted non-audit services, including all fees and terms
to be performed for us by our independent auditor at the beginning of the fiscal
year. Non-audit services are reviewed and pre-approved by project at the
beginning of the fiscal year. Any additional non-audit services contemplated by
our company after the beginning of the fiscal year are submitted to the audit
committee chairman for pre-approval prior to engaging the independent auditor
for such services. Such interim pre-approvals are reviewed with the full audit
committee at its next meeting for ratification
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of our common stock
present in person or represented by proxy at the meeting and entitled to vote on
this proposal will constitute stockholder ratification of the appointment. If
stockholder approval of this proposal is not obtained, our audit committee and
board of directors may reconsider our selection of H&W as our independent
registered public accounting firm.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION
OF APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AS DESCRIBED
IN THIS PROPOSAL.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, proposals by
stockholders that are intended for inclusion in our proxy statement and proxy
card and to be presented at our next annual meeting must be received by us no
later than 120 calendar days in advance of the one-year anniversary of the date
of this proxy statement in order to be considered for inclusion in our proxy
materials relating to the next annual meeting. Such proposals shall be addressed
to our Secretary at our corporate headquarters and may be included in next
year's annual meeting proxy materials if they comply with rules and regulations
of the Commission governing stockholder proposals.
Proposals by stockholders that are not intended for inclusion in our
proxy materials may be made by any stockholder who timely and completely
complies with the notice procedures contained in our bylaws, was a stockholder
of record at the time of giving of notice and is entitled to vote at the
meeting, so long as the proposal is a proper matter for stockholder action and
the stockholder otherwise complies with the provisions of our bylaws and
applicable law. However, stockholder nominations of persons for election to our
board of directors at a special meeting may only be made if our board of
directors has determined that directors are to be elected at the special
meeting.
59
To be timely, a stockholder's notice regarding a proposal not intended
for inclusion in our proxy materials must be delivered to our Secretary at our
corporate headquarters not later than:
o In the case of an annual meeting, the close of business on the
45th day before the first anniversary of the date on which we
first mailed our proxy materials for the prior year's annual
meeting of stockholders. However, if the date of the current
year's meeting has changed more than 30 days from the date of
the prior year's meeting, then in order for the stockholder's
notice to be timely it must be delivered to our Secretary a
reasonable time before we mail our proxy materials for the
current year's meeting. For purposes of the preceding
sentence, a "reasonable time" coincides with any adjusted
deadline we publicly announce.
o In the case of a special meeting, the close of business on the
7th day following the day on which we first publicly announce
the date of the special meeting.
Except as otherwise provided by law, if the chairperson of the meeting
determines that a nomination or any business proposed to be brought before a
meeting was not made or proposed in accordance with the procedures set forth in
our bylaws and summarized above, the chairperson may prohibit the nomination or
proposal from being presented at the meeting.
ANNUAL, QUARTERLY AND CURRENT REPORTS
A copy of our annual report to the Commission on Form 10-KSB for
the year ended March 31, 2005 and a copy of our quarterly report to the
Commission on Form 10-QSB for the quarter ended June 30, 2005 are being
distributed to persons from whom the accompanying proxy is solicited. The
following reports and information are incorporated by reference into this
proxy statement:
o Our Amendment No. 1 to Form 8-K for September 8, 2005
filed with the Commission on September 29, 2005;
o Our Form 8-K for September 8, 2005 filed with the Commission
on September 14, 2005;
o Our Form 8-K for August 31, 2005 filed with the Commission
on September 6, 2005;
o Our Form 8-K for August 18, 2005 filed with the Commission
on August 24, 2005;
o Our Form 8-K for September 8, 2005 filed with the Commission
on September 14, 2005;
o Our Form 10-QSB for the quarter ended June 30, 2005 filed
with the Commission on August 15, 2005;
o Our Form 10-KSB for March 31, 2005 filed with the Commission
on July 14, 2005, which report contains audited financial
statements for the year ended March 31, 2005;
o Our Form 8-K for June 28, 2005 filed with the Commission
on July 5, 2005;
o Our Form 8-K for June 1, 2005 filed with the Commission on
June 7, 2005;
o Our Form 8-K for September 23, 2004 filed with the Commission
on April 29, 2005;
o Our Amendment No. 1 to Form 10-QSB for the quarter ended
December 31, 2004 filed with the Commission on April 20, 2005;
o Our Amendment No. 1 to Form 10-QSB for the quarter ended
September 30, 2004 filed with the Commission on April 20,
2005;
o Our Amendment No. 1 to Form 10-QSB for the quarter ended
June 30, 2004 filed with the Commission on April 20, 2005; and
o Our Form 8-K for April 1, 2005 filed with the Commission on
April 7, 2005.
60
Any statement in a document incorporated by reference into this proxy
statement is deemed to be modified or superseded to the extent that a statement
contained in this proxy statement, or in any other document we subsequently file
with the Commission, modifies or supersedes that statement. If any statement is
modified or superseded, it does not constitute a part of this proxy statement,
except as modified or superseded.
Not withstanding the above, information that is "furnished to" the
Commission shall not be deemed "filed with" the Commission and shall not be
deemed incorporated by reference into this proxy statement.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act.
In accordance with that act, we file reports, proxy statements and other
information with the Commission. These materials can be inspected and copied at
the Public Reference Room maintained by the Commission at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission at http://www.sec.gov.
An additional copy (without exhibits) of our annual report on Form
10-KSB for the year ended March 31, 2005 or our quarterly report on Form 10-QSB
for the quarter ended June 30, 2005 will be furnished by first class mail,
without charge to any person from whom the accompanying proxy is solicited upon
written or oral request to Investor Relations Department, netGuru, Inc., 22700
Savi Ranch Parkway, Yorba Linda, California 92887, telephone (714) 974-2500. If
exhibit copies are requested, a copying charge of $0.20 per page will be made.
In addition, all of our electronic public filings, including our latest annual
report and quarterly report, can be found on the Commission's Internet site at
http://www.sec.gov.
OTHER MATTERS
Our board of directors knows of no other matters to be brought before
the annual meeting. However, if other matters should properly come before the
annual meeting, it is the intention of each of the persons named in the proxy to
vote such proxy in accordance with his judgment on such matters.
STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN PROMPTLY THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
/s/ Amrit K. Das
Amrit K. Das
Chief Executive Officer
Yorba Linda, California
October 7, 2005
61
APPENDIX A
EXECUTION VERSION
ASSET PURCHASE AGREEMENT
by and between
BENTLEY SYSTEMS, INCORPORATED, as Buyer,
and
NETGURU, INC., as Seller,
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TABLE OF CONTENTS
PAGE
SECTION 1. ACQUISITION OF ASSETS, ASSUMPTION OF LIABILITIES...........................................1
1.1 Purchase and Sale of Assets....................................................................1
1.2 Nonassignability...............................................................................3
1.3 Excluded Assets................................................................................3
1.4 Assumed Liabilities............................................................................4
1.5 Excluded Liabilities...........................................................................5
1.6 Waiver of Bulk Sales Compliance................................................................6
SECTION 2. PURCHASE PRICE AND PAYMENT.................................................................6
2.1 Consideration; Closing Payment.................................................................6
2.2 Accounts Receivable Guaranty and Assumed Liabilities...........................................7
2.3 Tax Cooperation, Etc...........................................................................8
SECTION 3. CLOSING....................................................................................9
3.1 Time and Place of Closing......................................................................9
3.2 Deliveries at the Closing by Seller............................................................9
3.3 Deliveries at the Closing by Buyer.............................................................9
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER..................................................10
4.1 Organization and Good Standing; Capitalization................................................10
4.2 Power and Authorization.......................................................................10
4.3 No Conflicts..................................................................................10
4.4 Ownership of the Assets.......................................................................11
4.5 Subsidiaries..................................................................................12
4.6 Compliance with Laws..........................................................................12
4.7 Litigation....................................................................................12
4.8 SEC Reports and Financial Statements..........................................................12
4.9 Accounts Payable..............................................................................13
4.10 Software......................................................................................13
4.11 Personal Property.............................................................................14
4.12 List of Properties, Authorizations, Contracts, etc............................................15
4.13 Contracts.....................................................................................15
4.14 Intentionally Deleted.........................................................................16
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TABLE OF CONTENTS
(continued)
PAGE
4.15 Intellectual Property.........................................................................16
4.16 Customers and Suppliers.......................................................................17
4.17 Taxes.........................................................................................18
4.18 Employee Benefits.............................................................................18
4.19 Employees.....................................................................................19
4.20 Environmental Matters.........................................................................19
4.21 Affiliate Agreements..........................................................................20
4.22 Absence of Certain Changes and Events.........................................................20
4.23 Books and Records.............................................................................21
4.24 Brokers.......................................................................................21
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER...................................................21
5.1 Organization and Good Standing................................................................21
5.2 Power and Authorization.......................................................................21
5.3 No Conflicts..................................................................................22
5.4 Brokers.......................................................................................22
SECTION 6. CERTAIN CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.......................................22
6.1 Representations and Warranties................................................................22
6.2 Performance of Covenants......................................................................22
6.3 Receipt of Authorizations; Stockholder Approval...............................................22
6.4 Deliveries....................................................................................23
6.5 No Restraint..................................................................................24
6.6 Legal Matters.................................................................................24
6.7 Employee Matters..............................................................................24
6.8 Legal Opinion.................................................................................24
6.9 Releases of Liens.............................................................................24
6.10 No Material Adverse Change....................................................................24
SECTION 7. CERTAIN CONDITIONS PRECEDENT TO SELLER'S AND STOCKHOLDERS' OBLIGATIONS....................24
7.1 Representations and Warranties................................................................24
7.2 Performance of Covenants......................................................................24
7.3 Legal Matters.................................................................................24
7.4 Agreements....................................................................................25
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TABLE OF CONTENTS
(continued)
PAGE
7.5 Stockholder Approval..........................................................................25
SECTION 8. ADDITIONAL AND POST-CLOSING COVENANTS OF THE PARTIES; CERTAIN OTHER MATTERS...............25
8.1 Transition of Accounts; Remittance of Payments; Right to Offset...............................25
8.2 Provisions Relating to Employees..............................................................26
8.3 Confidentiality; Noncompetition; Inventions...................................................27
8.4 Stockholders' Meeting.........................................................................30
8.5 Voting Agreements.............................................................................30
8.6 Other Potential Bidders.......................................................................30
8.7 Proxy Statement...............................................................................31
8.8 Transition Matters............................................................................31
8.9 Operation of Business.........................................................................31
SECTION 9. INDEMNIFICATION...........................................................................31
9.1 Indemnification by Seller.....................................................................32
9.2 Indemnification by Buyer......................................................................32
9.3 Inter-Party Claims............................................................................32
9.4 Third Party Claims............................................................................33
9.5 Limitations and Requirements..................................................................33
SECTION 10. TERMINATION OF AGREEMENT..................................................................34
10.1 Termination Events............................................................................34
10.2 Termination Procedures........................................................................35
10.3 Effect of Termination.........................................................................36
10.4 Termination Fees; Break Up Fee................................................................36
10.5 Non-exclusivity of Termination Rights.........................................................36
SECTION 11. DEFINITIONS...............................................................................37
SECTION 12. MISCELLANEOUS.............................................................................38
12.1 Update of Exhibits............................................................................38
12.2 Construction..................................................................................39
12.3 Survival of Representations and Warranties....................................................39
12.4 Further Assurances............................................................................39
12.5 Costs and Expenses............................................................................40
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TABLE OF CONTENTS
(continued)
PAGE
12.6 Costs of Enforcement..........................................................................40
12.7 Notices.......................................................................................40
12.8 Assignment and Benefit........................................................................41
12.9 Amendment, Modification and Waiver............................................................41
12.10 Governing Law.................................................................................42
12.11 Jurisdiction..................................................................................42
12.12 Section Headings and Defined Terms............................................................42
12.13 Severability..................................................................................42
12.14 Counterparts..................................................................................42
12.15 Entire Agreement..............................................................................42
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THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT) is dated as of
August 19, 2005 by and between Bentley Systems, Incorporated, a Delaware
corporation ("BUYER"), netGuru, Inc., a Delaware corporation ("Seller").
BACKGROUND
Seller is engaged in the business of (i) developing,
marketing, distributing and licensing structural, civil and piping engineering
software products and services (and the performance of maintenance and other
services associated with such products) used in the worldwide architecture,
engineering and construction markets as such business is conducted by Seller's
REI division (collectively, the "BUSINESS"); and (ii) providing information
technology staffing and services to multiple industries including but not
limited to engineering, architectural, biotech, and financial services,
(iii)engineering business process outsourcing such as architectural, GIS, steel
detailing and estimating services, and other related consulting services (iv)
the Web4 division's collaborative software business and (v) other activities
including movie, digital media and animation production and distribution, and
travel and telephony services (clauses (ii) thru (v) collectively, the "RETAINED
BUSINESS"). The operations by Seller of the Business and the Retained Business
prior to the completion of the transactions contemplated herein are collectively
referred to in this Agreement as the "SELLER'S BUSINESS".
The parties hereto desire to provide for the acquisition by
Buyer of substantially all of the assets of the business and properties of
Seller related to the Business, all on the terms and conditions set forth in
this Agreement (the "ASSET SALE").
Capitalized terms used in this Agreement and not otherwise
defined in this Agreement have the meanings given to them in Section 11.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained, Seller
and Buyer, intending to be legally bound, hereby agree as follows:
SECTION 1. ACQUISITION OF ASSETS, ASSUMPTION OF LIABILITIES
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of, and on the basis of and in reliance upon the covenants,
agreements and representations and warranties set forth in this Agreement, at
the Closing (as defined in Section 3.1), Seller shall, and shall cause each of
its subsidiaries holding any of the Purchased Assets (as defined below) to,
sell, assign, transfer and convey to Buyer, free and clear of any and all Liens,
and Buyer shall purchase from Seller and each of its subsidiaries, all of
Seller's and such subsidiaries' right, title and interest in and to all assets,
properties, goodwill, rights and claims of every kind and description, personal
and mixed, tangible and intangible, known and unknown, actual and contingent and
wherever situated, that are owned, leased, licensed, held or used by Seller or
such subsidiaries in the Business (excluding only the Excluded Assets),
including, without limitation, each and all of the following (the "PURCHASED
ASSETS"):
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(a) (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent rights, patent applications, and patent disclosures
thereof, together with all reissuances, divisional, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof; (ii)
all trademarks, service marks, trade dress, logos, trade names, and product
name, (including the rights to use the names "STAAD", "STAAD.Pro" (R),
"STAAD.ETC" and "STAAD.FOUNDATION"), and other indications of origin, including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith in any jurisdiction; (iii) all copyrightable
works, all copyrights and works of authorship (whether copyrightable or not),
and all applications, registrations, and renewals in connection therewith; (iv)
all mask works and all applications, registrations, and renewals in connection
therewith in any jurisdiction; (v) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals, secret
processes and procedures, engineering, production, assembly, design,
installation, other technical drawings and specifications, working notes and
memos, market studies, consultants' reports, technical and laboratory data,
competitive samples, engineering prototypes, and all similar property of any
nature, tangible or intangible); (vi) all Software, including any licenses
related thereto; (vii) all databases; (viii) all other proprietary rights; (ix)
all copies and tangible embodiments of any of the foregoing (in whatever form or
medium); (x) all licenses relating to the foregoing; and (xi) all causes of
action relating to the foregoing; and (xii) including specifically, all Owned
Software (as defined in Section 4.10) and all rights in subclauses (i) through
(xi) to the extent they relate to the Owned Software (the items referred to in
this subsection (a) are collectively referred to in this Agreement as
"INTELLECTUAL PROPERTY");
(b) all advances by Seller to suppliers, all prepaid
expenses made by Seller, and all deposits and other receivables by Seller with
third parties other than those that are listed on or otherwise described on
EXHIBIT 1.1(B) (such exhibit to be updated and amended as may be required at
Closing);
(c) all inventory (including raw materials, work in
process and finished goods);
(d) all vehicles, furniture, equipment, computers and
peripherals, supplies, packaging, office materials, machinery, tools, parts,
trade fixtures and other articles of personal property wherever located and
including all items of tangible personal property listed on EXHIBIT 1.1(D) by
the location of such assets;
(e) all rights in, to and under each purchase order,
sales agreement, maintenance agreement, equipment lease, distribution agreement,
licensing agreement, franchise, bond, note, mortgage, indenture, guaranty,
release, instrument, contract, agreement, commitment and arrangement (in every
case, oral or written) (each a "CONTRACT," and collectively, "CONTRACTS") to
which Seller is a party and that relates to the Business;
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(f) all leases for real property listed on EXHIBIT
1.1(F) hereto to which Seller is a party and that relate to the Business (it
being understood that each such lease shall be deemed to be within the meaning
of the term "Contract" for the purposes of this Agreement);
(g) all Authorizations (as defined in Section 4.6(b))
that relate to the Business;
(h) all books and records relating to the Business
(other than Excluded Assets) (including such books and records as are contained
in computerized storage media), including, without limitation, all inventory,
purchasing, accounting, sales, export, import, manufacturing, banking and
shipping records, all personnel records of Continued Employees (as defined in
Section 8.2(a))(to the extent such records may lawfully be disclosed) and all
customer and supplier lists, files, records, literature and correspondence and
all advertising, marketing and public relations materials;
(i) all unperformed commitments or obligations owing
to Seller that pertain to the Business or any of the Purchased Assets or Assumed
Liabilities (as defined in Section 1.4(c)), and all other rights, claims and
causes of action of Seller that pertain to any of the Purchased Assets, Assumed
Liabilities or otherwise to the Business;
(j) all other tangible and intangible assets
(including all causes of action, claims (including claims for past infringement)
rights of action, contract rights and warranty and product liability claims
against third parties), that are used in or necessary to the operation of the
Business;
(k) all of the goodwill associated with the Business
as a going concern; and
(l) all accounts and notes receivable of Seller
relating to the Business.
1.2 NONASSIGNABILITY. Notwithstanding anything in this
Agreement to the contrary, if Seller cannot obtain by the Closing the consent,
approval or waiver of a third party that is required to transfer any Contract or
Authorization included in the Purchased Assets or that is required to transfer
Seller's right, title and interest in any Intellectual Property included in the
Purchased Assets, Buyer may, in its sole discretion, waive the requirement for
such consent, approval or waiver as a condition to the Closing and Seller shall
cooperate with Buyer in any arrangement designed by Buyer to provide for Buyer
the benefits under any such Contract, Authorization or Intellectual Property as
if such Contract, Authorization or Intellectual Property had been duly assigned
to Buyer, including enforcement for the benefit of Buyer of any and all rights
of Seller against any other party thereto, and provide to Seller the same
material benefits as if Seller's liabilities and obligations under any such
Contract, Authorization or Intellectual Property had been duly assumed by Buyer
as an Assumed Liability hereunder.
1.3 EXCLUDED ASSETS. Notwithstanding anything to the contrary
in this Agreement, the following specified rights, properties, claims and assets
shall not be included in the Purchased Assets (collectively the "EXCLUDED
ASSETS"):
(a) cash and cash equivalents;
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(b) rights that accrue or will accrue to Seller under
this Agreement or the Transaction Documents, including the consideration to be
delivered to Seller;
(c) Seller's corporate seals, minute books, stock
books, financial records and tax returns;
(d) any claims and rights against third parties
(including, without limitation, insurance carriers), to the extent they relate
to Excluded Liabilities (as defined in Section 1.5) or Excluded Assets and
listed on EXHIBIT 1.3(D);
(e) all tangible and intangible assets that are used
by the Retained Business and listed on EXHIBIT 1.3(E);
(f) all real property owned or leased by Seller,
including all structures and improvements thereon and all interests therein
other than the leases listed on EXHIBIT 1.1(F);
(g) any claims for refunds of Taxes (as defined in
Section 4.17(b)) on behalf of Seller;
(h) Any other rights, properties, claims or assets
specifically designated as "Excluded Assets" on EXHIBIT 1.3(H); and
(i) All Contracts other than the Contracts assumed or
to be assumed by Buyer pursuant to this Agreement, and all rights with respect
thereto; all Authorizations other than the Authorizations relating to the
Business, and all rights with respect thereto; and all books and records, all
unperformed commitments or obligations owing to Seller, and all other intangible
assets (including all causes of action, rights of action, contract rights and
warranty and product liability claims against third parties) related to any of
the Excluded Assets or Excluded Liabilities.
1.4 ASSUMED LIABILITIES. Subject to the terms and conditions
of, and on the basis of and in reliance upon the covenants, agreements and
representations and warranties set forth in this Agreement, at the Closing,
Buyer shall assume and agree to pay, perform, and discharge:
(a) any trade account payable relating to the
Business (other than a trade account payable to any Seller Affiliate) which
remains unpaid at and is not delinquent as of the Closing (the "ASSUMED TRADE
PAYABLES");
(b) the liabilities and obligations to be performed
or discharged after Closing pursuant to the Contracts included in the Purchased
Assets (other than any liability or obligation for breach or default that
occurred prior to the Closing or to pay money that accrued prior to Closing
unless it is an Assumed Trade Payable) and listed on EXHIBIT 1.4(B) or entered
into after the date hereof and being in the ordinary course, pursuant to the
written provisions of such Contracts the "ASSUMED CONTRACTS LIABILITIES"); and
(c) the liabilities and obligations related to
accrued but unpaid vacation, sick leave, severance and other benefits assumed by
Buyer from Seller, with respect to Continued Employees employed by Buyer, in the
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amounts set forth on EXHIBIT 1.4(C) or incurred in the ordinary course of
business after the date hereof (the "ASSUMED EMPLOYEE BENEFITS" and together
with the Assumed Trade Payables and the Assumed Contract Liabilities, the
"ASSUMED LIABILITIES").
1.5 EXCLUDED LIABILITIES. EXCEPT FOR THE ASSUMED LIABILITIES,
BUYER SHALL NOT ASSUME, OR IN ANY WAY BE LIABLE OR RESPONSIBLE FOR, ANY
LIABILITIES, OBLIGATIONS OR DEBTS OF SELLER OF ANY TYPE OR NATURE, KNOWN OR
UNKNOWN, CONTINGENT OR OTHERWISE (COLLECTIVELY, "EXCLUDED LIABILITIES"),
INCLUDING, WITHOUT LIMITATION, THE LIABILITIES LISTED BELOW, WHICH ARE BASED ON
ACTS OR OMISSIONS OF SELLER OCCURRING ON, BEFORE OR AFTER THE CLOSING. SELLER
AGREES TO RETAIN AND PAY OR DISCHARGE WHEN DUE ALL OF THE EXCLUDED LIABILITIES.
The Excluded Liabilities shall include all liabilities of
Seller other than the Assumed Liabilities, and shall include, without
limitation, the following:
(a) all liabilities relating to or arising out of the
Retained Business;
(b) any liability or obligation of Seller existing as
a result of any act, failure to act or other state of facts or occurrence that
constitutes a breach or violation of any of Seller's representations,
warranties, covenants or agreements contained in this Agreement;
(c) any product liability claim of any nature in
respect of products of the Seller's Business manufactured and sold or licensed
by or for Seller prior to the Closing Date (as defined in Section 3.1);
(d) all of Seller's liabilities for Taxes that have
been or may be incurred as a result of Seller's operation of the Seller's
Business or ownership of the Purchased Assets before the Closing Date, including
without limitation (i) any such Taxes imposed on Seller in connection with the
transfer of the Purchased Assets pursuant to this Agreement, and (ii) any
liability for deferred Taxes of any nature;
(e) any liability or obligation relating to or
arising out of any violations of any Laws prior to the Closing Date;
(f) any liability or obligation of Seller relating to
or arising out of any infringement, misuse or other violation of the
intellectual property rights of third parties incurred as a result of Seller's
operation of the Seller's Business or ownership of the Purchased Assets before
the Closing Date, including without limitation any intellectual property claims
relating to the Intellectual Property arising before the Closing Date;
(g) any liability or obligation arising under any
Contract that (i) is not transferred to Buyer as part of the Purchased Assets or
(ii) relates to any breach or default (or an event that might, with the passing
of time or the giving of notice or both, constitute a default) under any
Contract or to any goods or services provided or to be provided by Seller under
any such Contract arising out of or relating to periods prior to the Closing
Date;
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(h) any liabilities or obligations of Seller to
indemnify its officers, directors, employees or agents;
(i) any liabilities or obligations of the Seller's
Business to any of Seller's Affiliates;
(j) except for the Assumed Employee Benefits, any
liabilities relating to pension or retirement benefits (including any 401(k)
plan) and health care or other employee benefits or employee stock option or
other incentive plans for employees, former employees, directors, consultants or
independent contractors;
(k) except for the Assumed Employee Benefits, any
liability or obligation under any employment, severance, retention, termination
or similar agreement with any current or former employee of Seller or any of its
Affiliates;
(l) any obligation or liability arising out of or
related to any employee grievances commenced or relating to periods prior to the
Closing Date whether or not the affected employees become employees of Buyer;
(m) any obligation or liability of Seller to
distribute to its stockholders or otherwise to apply all or any part of the
consideration received hereunder;
(n) any obligation or liability of Seller arising out
of existing claims or litigation whether or not set forth in the Disclosure
Schedule, or any other claims or litigation arising out of, or relating to, an
occurrence or event happening before the Closing Date;
(o) any obligation or liability of Seller based upon
or relating to acts or omissions of Seller occurring after the Closing Date; and
(p) any other liability or obligation of Seller
including any liability directly or indirectly arising out of or relating to the
operation of the Seller's Business or ownership of the Purchased Assets prior to
the Closing Date whether contingent or otherwise, fixed or absolute, known or
unknown, matured or unmatured, present, future or otherwise, except for the
Assumed Liabilities.
1.6 WAIVER OF BULK SALES COMPLIANCE. The parties hereby waive
compliance with the bulk transfer or bulk sales provisions of the applicable
state Uniform Commercial Code provisions or any other similar Law, if any;
provided, however, that such waiver shall not constitute a limitation of the
rights of Buyer.
SECTION 2. PURCHASE PRICE AND PAYMENT.
2.1 CONSIDERATION; CLOSING PAYMENT. The aggregate
consideration paid by Buyer to Seller for the Purchased Assets (the "PURCHASE
PRICE") shall be $23,500,000. Buyer shall pay the Purchase Price, plus the
reimbursement of expenses as set forth in Section 12.5, by wire transfer of
immediately available funds pursuant to instructions previously given in writing
by Seller to Buyer at the Closing (the "CLOSING PAYMENT").
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2.2 ACCOUNTS RECEIVABLE GUARANTY AND ASSUMED LIABILITIES. At
and as of the Closing, Seller shall estimate and deliver to Buyer a statement of
the amount of the Assigned Current Assets (as defined herein) and the Assumed
Current Liabilities (as defined herein), all in accordance with generally
accepted accounting principles, consistently applied (the "ADJUSTMENT
STATEMENT"). The statement shall show all Assigned AR (as defined herein) by
account, related invoice, location for payment and aging. Buyer shall retain all
amounts received as payments for Assigned AR until the later of six months after
the Closing or such time that the aggregate amounts received by Buyer as
Assigned Current Assets (either as Prepaid Assets assigned to Buyer at the
Closing or as Assigned AR for which payments have been received) equals the
aggregate amount of the Assumed Current Liabilities (such later date, the "AR
PAYOFF"). At the date of the AR Payoff, Buyer will pay to Seller the amount of
the difference, if any, between the Assigned Current Assets and the Assumed
Current Liabilities and thereafter shall remit to Seller additional collections
of Assigned AR received by Buyer after the AR Payoff as provided by Section 8.1
of this Agreement. If AR Payoff has not occurred prior to the date six months
following the Closing, Seller shall pay to Buyer an amount equal to the
difference between the aggregate Assumed Current Liabilities and the aggregate
amounts received by Buyer as Assigned Current Assets (either as Prepaid Assets
assigned to Buyer at the Closing or as Assigned AR for which payments have been
received) as of such day six months from the Closing, and such payment to Buyer
shall be considered Assigned Current Assets for purposes of achieving AR Payoff.
The "ASSIGNED CURRENT ASSETS" shall mean the sum of (i) the total amount of the
accounts receivables included in the Purchased Assets (the "ASSIGNED AR") plus
(ii) the total amount of the prepaid assets, as finally determined pursuant to
Section 2.2(a) or (b), as applicable, included in the Purchased Assets (the
"PREPAID ASSETS"). The "ASSUMED CURRENT LIABILITIES" shall mean, as finally
determined pursuant to Section 2.2(a) or (b), as applicable, the sum of the
Assumed Liabilities that would be properly reflected in the liability section on
the face of a balance sheet prepared in accordance with GAAP, consistently
applied, such as accounts payable, accrued liabilities, accrued expenses and
deferred revenue.
(a) POST CLOSING STATEMENT. Ninety days after the
Closing Date, Buyer shall prepare a true up certification as to any increases or
decreases that may be required to the Prepaid Assets and the Assumed Current
Liabilities based upon the actual amount of the Assumed Current Liabilities and
Prepaid Assets as of the Closing (the "POST CLOSING STATEMENT"). Following
receipt of the Post Closing Statement, Seller shall be afforded a period of
thirty days to review the Post Closing Statement. At or before the end of the
thirty day review period, Seller shall either (i) accept the Post Closing
Statement in its entirety or (ii) deliver to Buyer a written notice setting
forth a detailed explanation of those items in the Post Closing Statement that
Seller disputes (a "NOTICE OF DISPUTE"). If Seller does not deliver a Notice of
Dispute to Buyer within the thirty day review period, Seller shall be deemed to
have accepted the Post Closing Statement in its entirety. If Seller delivers a
Notice of Dispute in which some, but not all, of the items in the Post Closing
Statement are disputed, Seller shall be deemed to have accepted all of the items
not disputed.
(b) DISPUTE. During the thirty day period after
delivery of a Notice of Dispute, Buyer and Seller shall attempt to resolve in
good faith any disputed items. If they are unable to do so, either party may
refer the remaining disputed items to a firm of independent accountants that is
either nationally recognized or regionally recognized in Southern California and
that is mutually agreeable to Buyer and Seller (the "INDEPENDENT PUBLIC
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ACCOUNTANTS") for resolution. Any such resolution shall be made in accordance
with GAAP. The Independent Public Accountants' review and determination shall be
limited, and the parties shall instruct the Independent Public Accountants to
limit their review and determination, to only the items in dispute, and the
Independent Public Accountant shall be authorized to choose one of the party's
positions based solely upon the presentation by Buyer and Seller or determine
that the disputed items are between such positions. The parties shall provide
their full cooperation to the Independent Public Accountants. If neither party
refers the disputed items to the Independent Public Accountants within thirty
days after the expiration of the thirty day period following the delivery of a
Notice of Dispute, each party shall be deemed to have accepted the Post Closing
Statement in its entirety. The fees, costs and expenses of the Independent
Public Accountants shall be apportioned between the parties based on the
relative difference between the Independent Public Accountants' resolution of
such disputed items and the respective positions of the parties, with the party
whose position is different by the greater amount from that of the Independent
Public Accountants being apportioned a relatively greater amount of said fees,
costs and expenses. The determination of the disputed items by the Independent
Public Accountants shall be final and binding on the parties.
(c) ACCESS. For purposes of complying with the terms
set forth in this Section 2.2, each party shall reasonably cooperate with and
make available to the other parties and their respective representatives, and to
the Independent Public Accountants, all information, records, data and working
papers, and shall permit access to its facilities and personnel, as may be
reasonably required in connection with the preparation and analysis of the Post
Closing Statement and the resolution of any disputes thereunder.
(d) RESERVE ACCOUNT. Immediately upon receipt of the
Closing Payment, Seller shall deposit an amount equal to the amount that the
Assigned Current Assets (as set forth on the Adjustment Statement) minus the
Assumed Current Liabilities (as set forth on the Adjustment Statement) is less
than $1,000,000, if any, to a segregated and unique reserve account to be held
by Seller for a period of six months and one day after the Closing Date and such
amounts shall be used solely to satisfy the obligations of Seller to Buyer
arising from this Section 2.2 and Seller's indemnification and other obligations
under this Agreement to the extent that Seller has any such obligations. Seller
acknowledges that the intent of this provision is to reserve a portion of
Seller's proceeds from this transaction, and to withhold such amount from any
distribution to its stockholders if necessary, to ensure that Seller has the
funds required to satisfy any obligations that may arise from this Agreement
after the Closing Date. Seller shall be free to transfer, withdraw or expend any
amounts remaining in such account at the conclusion of the six months and one
day period provided that prior to such date (i) Seller has satisfied all of its
obligations to Buyer and (ii) Buyer has not provided Seller written notice
regarding any outstanding obligations of Seller
2.3 TAX COOPERATION, ETC..
(a) Following the Closing, Buyer and Seller shall
furnish, or cause to be furnished, to each other, upon request, as promptly as
reasonably practicable, such information and assistance relating to Seller,
Buyer, the Purchased Assets and the conduct of Business as is reasonably
necessary for the preparation and filing of all tax returns, the making of any
election related to Taxes, the preparation for and conduct of any audit by any
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taxing authority and the prosecution or defense of any claim, suit or proceeding
relating to any tax return. Any transfer, documentary, sales, use or other Taxes
assessed upon or with respect to the transfer of the Purchased Assets to Buyer,
and any recording or filing fees with respect thereto, shall be the
responsibility of Seller.
(b) For purposes of complying with the requirements
of Section 1060 of the Code, the Purchase Price (taking into account transaction
costs paid by the respective parties) shall be allocated in accordance with the
fair market value of the Purchased Assets as provided in the consideration
allocation schedule attached as EXHIBIT 2.3(B). Each of Buyer and Seller agrees
to prepare its federal, state and foreign income tax returns for all current and
future tax reporting periods and file Forms 8594 (and corresponding state forms)
with respect to the transfer of the Purchased Assets to Buyer in a manner
consistent with such allocation; provided, however, that if, in any audit of any
tax return of a party, the fair market values are finally determined to be
different from those shown on such allocation schedule, the parties may (but
shall not be obligated to) take any position or action consistent with the fair
market values as finally determined. If any state, federal or foreign taxing
authority challenges such allocation, the party receiving notice of such
challenge shall give the other prompt written notice of such challenge, and the
parties shall cooperate in good faith in responding to it in order to preserve
the effectiveness of the allocation.
(c) Following the Closing, Buyer and Seller shall
each provide the other and its agents and representatives reasonable access, for
the purposes relating to such parties tax obligations, to any books and records
included within the Purchased Assets.
SECTION 3. CLOSING.
3.1 TIME AND PLACE OF CLOSING. The closing of the purchase and
sale of the Purchased Assets (the "CLOSING") pursuant to this Agreement shall
take place commencing at 10:00 A.M., at the offices of Rutan & Tucker, LLP, 611
Anton Boulevard, 14th Floor, Costa Mesa, California 92626 on the third business
day following the satisfaction (or, to the extent permitted by law, waiver) of
each of the conditions set forth in Sections 6 and 7 of this Agreement or at
such other date, time or place as may be agreed to by Buyer and Seller (the
"CLOSING DATE"). The Closing shall be effective as of the opening of business on
the Closing Date for all purposes.
3.2 DELIVERIES AT THE CLOSING BY SELLER. At the Closing, in
addition to the other actions contemplated elsewhere in this Agreement, Seller
shall deliver to Buyer all of the agreements and items referred to in Section 6,
and such other documents and instruments as Buyer may reasonably request to
effectuate or evidence the transactions contemplated by this Agreement.
3.3 DELIVERIES AT THE CLOSING BY BUYER. At the Closing, Buyer
shall deliver, or shall cause to be delivered, to Seller the Closing Payment and
all of the agreements and items referred to in Section 7.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer as of the date
of this Agreement and as of the Closing Date as follows, except as set forth in
the Disclosure Schedule delivered to Buyer with this Agreement (the "DISCLOSURE
SCHEDULE"). Without limiting the generality of the foregoing, the mere listing
(or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein.
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4; provided, however,
that any information disclosed in the Disclosure Schedule under any paragraph
number shall be deemed to be disclosed and incorporated into any other paragraph
number under this Agreement where the disclosure would reasonably be apparent on
its face based on the disclosure set forth therein. Nothing in the Disclosure
Schedule is intended to broaden the scope of any representation or warranty
contained in this Agreement or to create any covenant. Inclusion of any item in
the Disclosure Schedule does not (1) represent a determination that the item is
material or establish a standard of materiality, (2) represent a determination
that the item did not arise in the ordinary course of business, (3) represent a
determination that the transactions contemplated by this Agreement require the
consent of third parties except for any consents set forth in the Disclosure
Schedule, or (4) constitute an admission to any third party concerning the item.
The Disclosure Schedule includes brief descriptions or summaries of certain
agreements and instruments, copies of which are available upon request.
4.1 ORGANIZATION AND GOOD STANDING; CAPITALIZATION. Seller is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and Seller has all necessary corporate power and
authority to carry on the Business as presently conducted, to own and lease the
Purchased Assets and to perform all its obligations relating to the Business.
Seller is not required under any applicable Law to be qualified to do business
as a foreign corporation in any jurisdiction by virtue of conducting the
Business other than jurisdictions in which the failure to so qualify could not
reasonably be expected to have a material adverse effect on Seller's business,
operations, or financial condition or on the Purchased Assets (a "MATERIAL
ADVERSE EFFECT"). The number of shares of voting stock issued and outstanding as
of the date hereof is set forth in the Disclosure Schedule. The total number of
shares of voting stock that may be issued upon the conversion of the convertible
promissory notes held by Laurus Master Fund Ltd as of the date hereof is set
forth in the Disclosure Schedule.
4.2 POWER AND AUTHORIZATION. Seller has all requisite right,
power and authority to enter into and perform its obligations under this
Agreement and under the other agreements and documents (the "SELLER TRANSACTION
DOCUMENTS") required to be delivered by it prior to or at the Closing. This
Agreement has been duly and validly executed and delivered by Seller and,
assuming due and valid execution and delivery of this Agreement by Buyer,
constitutes the legal, valid and binding obligation of Seller enforceable
against it in accordance with its terms. When executed and delivered as
contemplated herein, each of the Seller Transaction Documents shall constitute
the legal, valid and binding obligation of Seller.
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4.3 NO CONFLICTS.
(a) The execution, delivery and performance of this
Agreement and the Seller Transaction Documents do not and will not (with or
without the passage of time or the giving of notice or both) directly or
indirectly:
(i) violate or conflict with the certificate
of incorporation or bylaws of Seller, or any Laws binding upon Seller or by or
to which any of the Purchased Assets is bound or subject other than a violation
or conflict of Laws that could not reasonably be expected to have a Material
Adverse Effect;
(ii) violate or conflict with, result in a
breach or termination of, or constitute a default or otherwise cause any loss of
benefit under any agreement or other obligation to which Seller is a party or by
which it or any of the Purchased Assets are bound, or give to others any rights
(including rights of termination, foreclosure, cancellation or acceleration), in
or with respect to Seller or any of the Purchased Assets other than any of the
foregoing that could not reasonably be expected to have a Material Adverse
Effect; or
(iii) result in, require, or permit the
creation or imposition of, any Lien upon or with respect to any of the Purchased
Assets.
(b) The Disclosure Schedule describes each consent,
waiver or approval of, or registration, notification, filing and/or declaration
with, any court, government or governmental agency or instrumentality, creditor,
lessor or other Person required to be given or made by Seller in connection with
the execution, delivery and performance of this Agreement and the other
agreements and instruments contemplated herein. Except as set forth in the
Disclosure Schedule, all such consents, approvals, registrations, notifications,
filings and declarations have been obtained or made or will be obtained or made
prior to the Closing by Seller. There are no such consents, approvals,
registrations, notifications, filings and declarations that have been obtained
or made or will be obtained or made that have or will involve the payment of a
premium or penalty by, or loss of benefit to, Seller (or any purchaser from
Seller) in respect of the Purchased Assets.
(c) There are no judicial, administrative or other
governmental actions, proceedings or investigations pending or, to Seller's
Knowledge, threatened, that question any of the transactions contemplated by, or
the validity of, this Agreement or any of the other agreements or instruments
contemplated hereby or that, if adversely determined, could reasonably be
expected to have an adverse effect upon the ability of Seller to enter into or
perform its obligations under this Agreement or any such other agreements or
instruments. Seller has not received any request from any governmental agency or
instrumentality for information with respect to the transactions contemplated
hereby.
4.4 OWNERSHIP OF THE ASSETS. Seller owns and has good and
valid title to each and all of the Purchased Assets, free and clear of any Lien.
There are no agreements affecting the right of Seller to convey the Purchased
Assets to Buyer or any other right of Seller with respect to the Purchased
Assets, and Seller has the absolute right, authority, power and capacity to
sell, assign and transfer the Purchased Assets owned by it to Buyer free and
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clear of any Lien. Upon execution and delivery to Buyer of the Bill of Sale,
General Assignment and Assumption Agreement (as defined in Section 6.4(a)) and
the other documents contemplated hereby, Buyer will acquire good and valid title
to the Purchased Assets, free and clear of any Lien (other than any Lien that
may be created by Buyer).
4.5 SUBSIDIARIES. The Disclosure Schedule provides a list of
each of the subsidiaries, whether wholly or partly owned by Seller, through
which the Business is conducted and accurately describes Seller's interest in
such subsidiaries. Seller has not conducted the Business under any name (i.e.
"trading" or "doing business as") other than its proper corporate name as
reflected in this Agreement.
4.6 COMPLIANCE WITH LAWS.
(a) Seller is, and since April 1, 2004 has been, in
compliance with all applicable Laws relating to its operation of the Business or
its ownership of the Purchased Assets except those for which the failure to
comply could not reasonably be expected to have a Material Adverse Effect and
Seller has no basis to expect, and has not received any notice, order or other
communication from any governmental agency or instrumentality of any alleged,
actual, or potential violation of or failure to comply with any Law, the failure
to comply with which could reasonably be expected to have a Material Adverse
Effect.
(b) All federal, foreign, state, local and other
governmental consents, licenses, permits, franchises, approvals, notifications,
numbers, identifiers, grants and other authorizations issued by Authorities,
(collectively, "AUTHORIZATIONS" required for the operation of the Seller's
Business as currently conducted have been obtained by Seller and are in full
force and effect without any default or violation thereunder by Seller or by any
other party thereto, other than any of the foregoing that if not obtained could
not reasonably be expected to have a Material Adverse Effect, and Seller has not
received any notice of any claim or charge that Seller is or has been in
violation of or in default under any such Authorization. No proceeding is
pending or, to the Knowledge of Seller, threatened by any Person to revoke or
deny the renewal of any Authorization of Seller. Since April 1, 2004, Seller has
not been notified that any such Authorization may not in the ordinary course of
business be renewed upon its expiration or that by virtue of the transactions
contemplated hereby any such Authorization may not be granted or renewed. No
Authorization expires or must be renewed within 90 days after the Closing Date.
4.7 LITIGATION. There are no, and since April 1, 2002 there
have not been any claims, actions, suits, proceedings (arbitration or otherwise)
or investigations involving or affecting the Business, before or by any court or
governmental agency or instrumentality, or before an arbitrator of any kind,
that had or could reasonably be expected to have a Material Adverse Effect on
the Business; and no pending claim, action, suit, proceeding or investigation,
if determined adversely, could reasonably be expected to either individually or
in the aggregate have a Material Adverse Effect on the Business. To the
Knowledge of Seller, (i) no such claim, action, suit, proceeding or
investigation is presently threatened or contemplated and (ii) there are no
facts that could reasonably serve as a basis for any such claim, action, suit,
proceeding or investigation. There are no unsatisfied judgments, penalties or
awards against or adversely affecting Seller or any of the Purchased Assets.
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4.8 SEC REPORTS AND FINANCIAL STATEMENTS.
(a) The forms, reports, statements and other
documents required to be filed by Seller with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities and Exchange Act of 1934, as
amended (the "EXCHANGE ACT") since March 31, 2005, (collectively, as amended to
date, referred to herein as the "SEC Reports") to the extent they relate to the
Business did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The financial statements, to include the balance
sheets and income statements (including, in each case, any related notes
thereto) relating to the Business as an independent segment (labeled as the
"REI" division) for the fiscal year ended March 31, 2005 and the quarter ended
June 30, 2005 included in the Disclosure Schedule and the financial statements
contained in the SEC Reports to the extent that such financial statements
(including, in each case, any related notes thereto) relate to the Business (the
"FINANCIAL STATEMENTS"), (i) have been prepared in all material respects in
accordance with the published rules and regulations of the SEC and generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except (A) to the extent disclosed therein or required by
changes in generally accepted accounting principles, (B) with respect to SEC
Reports filed prior to the date of this Agreement, as may be indicated in the
notes thereto and (C) in the case of the unaudited financial statements, as
permitted by the rules and regulations of the SEC) and (ii) fairly present in
all material respects the consolidated financial position of Seller and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations and cash flows for the periods indicated (subject, in the case of
unaudited consolidated financial statements for interim periods, to adjustments
necessary to present fairly such results of operations and cash flows), except
that any pro forma financial statements contained in such consolidated financial
statements are not necessarily indicative of the consolidated financial position
of Seller and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated.
(c) Seller maintains a system of internal accounting
controls with respect to the Business sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
4.9 ACCOUNTS PAYABLE. The Disclosure Schedule contains a
correct and complete aging of all accounts payable and accrued liabilities
relating to or arising from the Business as of June 30, 2005. Seller has paid
all accounts payable related to the Business in accordance with their terms,
other than accounts payable of the Business that Seller is disputing in good
faith and that are specifically identified in the Disclosure Schedule as
disputed.
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4.10 SOFTWARE.
(a) The Disclosure Schedule sets forth a true,
complete and correct list of all items of Software (other than commercially
available off the shelf licensed software) (i) that are owned by Seller, (ii)
that are necessary to the conduct of the Business as presently conducted and
(iii) that comprise a part of the Purchased Assets (the "OWNED SOFTWARE"). The
Owned Software shall include without limitation all earlier or predecessor
versions of any of such Software (whether or not released, distributed or
unsettled) if and to the extent that such can be identified.
(b) The Disclosure Schedule sets forth a true,
complete and correct list of all items of Software (other than commercially
available off the shelf licensed software) (i) that are not owned by Seller but
in that Seller has a right or rights (by license or otherwise), (ii) that are
necessary to the conduct of the Business as presently conducted and (iii) that
also comprise a part of the Purchased Assets (the "NON-OWNED SOFTWARE").
(c) The Owned Software and the Non-Owned Software,
together, constitute all Software necessary for the conduct of the Business as
presently conducted. All Owned Software and, to Seller's Knowledge, all
Non-Owned Software, that is currently licensed or supported by Seller is free
from material defects in programming and operation and performs substantially in
accordance with relevant help files and published user manuals therefore and in
accordance with any written warranties made by Seller to the licensees thereof
to the extent that such warranties remain in effect. With respect to all Owned
Software, Seller maintains machine-readable master-reproducible copies,
reasonably complete technical documentation and/or user manuals for the most
current releases or versions thereof and for all earlier releases or versions
thereof currently being supported by Seller; and such software can be maintained
and modified by reasonably competent programmers familiar with such language,
hardware and operating systems.
(d) To Seller's Knowledge, no Software comprising a
part of the Purchased Assets contains any coded instructions, anti-circumvention
measures, routine, or other means that causes the Software, other software, or
the computer system on which the Software is installed to perform an
unauthorized function, operate in an unauthorized manner, disable, erase, or
otherwise harm software, hardware or data.
4.11 PERSONAL PROPERTY. The Disclosure Schedule contains a
true and correct list of each facility or location of Seller that includes or
contains Purchased Assets, the address of such facility or location, a list and
description of the Purchased Assets located at such facility or location and a
description of the type and terms of the leasehold or property interest held by
Seller relating to such facility or location. All of the tangible personal
property (that for purposes of clarification, shall not include any Intellectual
Property or Software) included in the Purchased Assets and all tangible personal
property (that for purposes of clarification, shall not include any Intellectual
Property or Software) leased by Seller and used in the Business are in the
possession of and under the control of Seller and are in good condition and
repair, ordinary wear and tear excepted, are suitable for the purposes for which
they are being used and are of a condition, nature and quantity sufficient for
the conduct of the Business as it is presently conducted. No such tangible
personal property is owned or leased by any Person other than Seller. All such
tangible personal property of Seller is located at properties that are owned or
leased by Seller (the "PREMISES").
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4.12 LIST OF PROPERTIES, AUTHORIZATIONS, CONTRACTS, ETC. The
Disclosure Schedule lists or adequately describes the following for each of
Seller and its subsidiaries and in each case with sufficient specificity to
identify the applicable entity and location:
(a) Each item of tangible personal property of Seller
used in the Business with a book value in excess of $25,000 in respect of any
item and the location thereof;
(b) Each item of tangible personal property leased to
or by Seller and used in the Business under an agreement providing for
annualized payments of more than $25,000, together with the location of such
asset, the identities of the lessor and lessee, the annual rental and unexpired
term of the lease;
(c) Each Authorization (including, without
limitation, each license or permit required for the operation of the Business);
(d) Each patent or patent application, copyright
registration, trademark or service mark registration or application for
registration in the Owned Software and Non-Owned Software owned, leased, used or
held by, granted to or licensed by Seller as either licensor or licensee and
used in the Business, together with all other interests therein or in the Owned
Software and Non-Owned Software granted by Seller to any other Person that are
still in effect and all agreements that are still in effect with respect to any
of the foregoing to which Seller is a party (including secrecy and
non-disclosure agreements with current or former employees, consultants or
contractors);
(e) Each Contract (i) by which the Purchased Assets
are bound and that is material to Seller, (ii) which imposes material
obligations or restrictions on Seller's ability to operate the Business or any
of the Purchased Assets; (iii) pursuant to which Seller is to provide support
and/or services to third parties; (iv) that contemplates or involves the
performance of services having a value in excess of $50,000; (v) for the resale
or distribution of products and services of the Business; (vi) for the payment
of royalties or distribution of third party technology; (vii) for maintenance or
other subscription licenses or services, other than standard end user
maintenance or subscription agreements entered into in the ordinary course of
business; or (viii) any license entitling unlimited users of products at a
particular site, business or user group (the "MATERIAL CONTRACTS");
(f) Each evidence of indebtedness, note, advance,
guaranty or letter of credit entered into, issued or to be issued, contingently
or otherwise, by or for the benefit of Seller in connection with the Business,
and all loan and other agreements relating thereto (excluding any of the
foregoing entered into or issued for the benefit of Seller with respect to any
of the Excluded Assets); and
(g) Each Lien on any of the Purchased Assets or the
Business.
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To the extent not available on EDGAR, Seller has furnished or
made available to Buyer true and complete copies of each agreement, plan and
other document required to be disclosed on the Disclosure Schedule.
4.13 CONTRACTS.
(a) Each Contract that is a Purchased Asset to which
Seller is a party or by which it or the Purchased Assets are bound (including
without limitation all Material Contracts and any such Contract required to be
identified in the Disclosure Schedule), is in full force and effect and, to
Seller's Knowledge, is valid, binding and enforceable against the parties
thereto in accordance with its terms subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and the effect
of rules or laws governing equitable remedies. Seller has performed all
obligations required to be performed by it under each such Contract and no
condition exists or event has occurred which with notice or lapse of time would
constitute a default or a basis for delay, non-performance, termination,
modification, or acceleration of maturity or performance by Seller or, to the
Knowledge of Seller, by any other party thereto. To Seller's Knowledge, there
are no negotiations of, attempts to renegotiate, outstanding rights or requests
to renegotiate or disputes in respect of any material amounts paid or payable to
Seller under current or completed Contracts included in the Purchased Assets. No
Contract that is a Purchased Asset restricts or purports to restrict any
business activities or freedom of Seller or any employees of Affiliates of
Seller in respect of the Business to engage in any activities or compete with
any Person. Each other party to each such Contract has consented or been given
sufficient notice (where such consent or notice is necessary) that the same
shall remain in full force and effect on and following the Closing.
(b) The work being performed by Seller under each
Contract included in the Purchased Assets, including without limitation, each
Material Contract is on schedule, within the budget established by the parties
to such agreement.
4.14 INTENTIONALLY DELETED.
4.15 INTELLECTUAL PROPERTY.
(a) Seller is the sole owner of the Owned Software
and all patents, trademark registrations, trade secrets and copyright
registrations that are part of the Intellectual Property (collectively, the
"SELLER MATERIAL INTELLECTUAL PROPERTY") free and clear of any Lien. All
patents, trademark registrations and copyright registrations that are part of
the Seller Material Intellectual Property are in good standing, have been
validly prosecuted or issued, duly maintained, are subsisting, and are in full
force and effect. Other than in the ordinary course of the Business, Seller has
not granted or licensed to any Person any rights with respect to any Seller
Material Intellectual Property and no other Person has any rights in or to any
of the Seller Material Intellectual Property (including, without limitation, any
rights to market or distribute any of the Seller Material Intellectual
Property). The Intellectual Property is sufficient for the conduct of the
Business as such is presently conducted. The Business does not include or rely
upon any patent or patent application, copyright registration, trademark or
service mark registration or application for registration other than those
relating to the Owned Software and Non-Owned Software.
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(b) The Intellectual Property and Seller's conduct of
such Business does not infringe, misappropriate, violate or dilute, and is not
alleged to have infringed, misappropriated, violated or diluted, any trademark,
copyright, patent, moral right or other proprietary right of any Person. Since
April 1, 2002, no claims or proceedings, or threats of claims or proceedings,
have been asserted by any third party against Seller relating to the use in the
conduct of the Business of any Intellectual Property or challenging or
questioning the validity of any Intellectual Property. Since April 1, 2002, no
claims or proceedings, or threats of claims or proceedings, have been asserted
by Seller charging any third party with infringement, misappropriation, dilution
or other violation of any Intellectual Property. Seller has taken all reasonable
precautions to preserve and document its trade secrets and to protect the
secrecy, confidentiality and value of its trade secrets.
(c) Each item of Seller Material Intellectual
Property is valid and enforceable and, to Seller's Knowledge, there are no
infringements of Seller's rights in and to the Seller Material Intellectual
Property by any Person. Except as listed in the Disclosure Schedule: (i) since
April 1, 2002, Seller has not entered into any consent, indemnification,
forbearance to sue or settlement agreement with any Person relating to any item
of Intellectual Property or relating to any intellectual or proprietary rights
of any Person; and (ii) the rights to develop, make, license, use, have sold,
have made, perform, copy, make derivative works of, sell, distribute, modify and
exploit the Intellectual Property held by Buyer immediately after the Closing
and the consummation of the transactions contemplated by this Agreement will be
the same rights to develop, make, license, use, have sold, have made, perform,
copy, make derivative works of, sell, distribute, modify and exploit the
Intellectual Property held by Seller immediately prior to the Closing and
consummation of the transactions contemplated by this Agreement, without any
diminution or alteration as a result of the Closing or the consummation of any
of the transactions contemplated by this Agreement.
(d) Except as set forth in the Disclosure Schedule,
all employees of Seller and other Persons involved with the development,
implementation, use or marketing of any Seller Material Intellectual Property
used in connection with the Business have entered into written agreements
assigning to Seller all rights to inventions, improvements, discoveries or
information relating thereto, and no employee or former employee of Seller, or
any other Person, owns or has any proprietary, financial or other interest,
direct or indirect, in whole or in part, in any such Seller Material
Intellectual Property. Seller is and has been in material compliance with all
applicable statutes, regulations and rules of any jurisdiction, relating to the
export and sale of computer software and technology, including, but not limited
to U.S. Export Administration Regulations.
(e) The Disclosure Schedule lists all material
agreements that are still in effect by which Seller has obtained any right to
use or practice any rights under any Intellectual Property, as licensee or
licensor thereunder, including, without limitation, license agreements,
settlement agreements and covenants not to sue other than commercially available
off the shelf licensed software (collectively, the "IP LICENSE AGREEMENTS").
Each IP License Agreement is binding and in full force and effect and, unless it
expires by its terms prior thereto, will continue to be binding and in full
force and effect immediately following the consummation of the transactions
contemplated by this Agreement.
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4.16 CUSTOMERS AND SUPPLIERS. The Disclosure Schedule lists:
(i) the ten or fewer customers of Seller with respect to the Business from whom
Seller derived the most revenue during each of the fiscal years ending March 31,
2005 and during the 2006 fiscal year beginning April 1, 2005 through May 31,
2005 and the aggregate revenues attributable to each in each such period, and
(ii) the ten or fewer suppliers and vendors with respect to the Business to whom
Seller made the most payments that exceed (or are reasonably expected to exceed)
$25,000 per year on an annualized basis during fiscal 2004 and during fiscal
2005 through May 31, 2005 and the aggregate expenditures attributable to each in
each such period. Seller is not aware of any intention on the part of any such
customer or supplier, whether or not in connection with the transactions
contemplated hereunder, to terminate or materially reduce the amount of business
done with Seller. There are no, and since April 1, 2004 there have not been, any
material disputes or controversies between Seller and any customer, supplier or
any other Person regarding the quality, merchantability or safety of, or
involving a claim of breach of warranty that has not been fully resolved with
respect to, or defect in, any product purchased, manufactured or sold by Seller
with respect to the Business. To Seller's Knowledge, Seller enjoys good working
relationships under all arrangements and agreements with its customers and
suppliers with respect to the Business.
4.17 TAXES.
(a) All federal, state, local and foreign returns and
reports relating to Taxes, or extensions relating thereto, required to be filed
on or before the Closing Date by or with respect to the Business have been
timely and properly filed, Seller has paid all Taxes shown on such returns and
reports as owing.
(b) All federal, state, local and foreign income,
profits, franchise, gross receipts, sales, use, payroll, premium, occupancy,
property, severance, excise, withholding, customs, duties, environmental
tariffs, license, stamp, employment, payroll, unemployment, transfer and other
taxes, including interest, additions to tax and penalties (collectively "TAXES")
due or properly shown to be due on any return referred to in Section 4.17(a) by
Seller with respect to taxable periods ending on or prior to, and the portion of
any interim period up to, the date hereof have been fully and timely paid, or in
the case of taxes not yet due, fully provided for on the most recent Balance
Sheet, or in the case of taxes occurring after the date of such most recent
Balance Sheet, on the books of account of Seller. There are no levies, liens, or
other encumbrances relating to Taxes existing, or, to Seller's Knowledge,
threatened or pending with respect to any of the Purchased Assets.
(c) Seller has not waived any statutes of limitations
in respect of Taxes. No Tax liens (other than automatic liens for taxes not yet
due and payable) have been filed against the assets of Seller, no claim for
additional Taxes or assessment is being asserted against Seller by any taxing
authority, and Seller has not been notified of any claim being asserted with
respect to any such Taxes. There is no action, suit, proceeding, investigation
or audit pending or, to Seller's Knowledge, threatened against Seller with
respect to any Taxes or assessment.
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4.18 EMPLOYEE BENEFITS.
(a) Seller does not with respect to any of its
current, terminated or retired employees: (i) have any obligation to contribute
to (or any other liability with respect to) any "employee pension benefit plan"
(as defined in Section 3(2) ERISA), whether or not terminated, such as a
tax-qualified "defined benefit plan" (as defined in Section 3(35) of ERISA), a
tax-qualified "defined contribution plan" (as defined in section 3(34) of
ERISA), or a "multiemployer plan" (as defined in Section 3(37) of ERISA); (ii)
maintain or have any obligation to contribute to (or any other liability with
respect to) any "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), whether or not terminated, such as a plan that provides medical, health,
disability, death, unemployment or vacation benefits or other welfare-type
benefits for current, terminated, or retired employees; or (iii) maintain,
contribute to, or have any liability under (or with respect to) any
non-ERISA-covered plan or arrangement providing benefits to current, terminated,
or retired employees, such as a bonus plan, stock option plan, plan for deferred
compensation, or other plan, whether or not terminated. "Seller" as used in this
Section 4.18 and Section 8.2 shall include Seller and any other entity required
to be aggregated with Seller under Section 414(b), 414(c), 414(m), or 414(o) of
the Code, and the regulations thereunder.
(b) Seller is not bound by any collective bargaining
agreement or any other agreement or legally binding arrangement to maintain,
with respect to any employee, any employee benefit plan described in subsection
(a)(i), (ii) or (iii) above.
4.19 EMPLOYEES. The Disclosure Schedule sets forth the
following information for all employees of the Business and for each consultant
and independent contractor regularly retained by Seller in the Business
(including each such Person on leave or layoff status): employee name and job
title; current annual rate of compensation (identifying bonuses separately) and
any change in compensation since April 1, 2005; and vacation accrued and service
credited for purposes of vesting and eligibility to participate in any employee
benefit plans. Except as set forth in the Disclosure Schedule, no such employee
is a party to, or is otherwise bound by, any agreement or arrangement with any
Person or entity other than Seller that limits or adversely affects the
performance of his or her duties, the ability of Seller to conduct the Business,
or his or her freedom to engage in any of the businesses conducted by Seller
(including, without limitation, any confidentiality, non-competition or
proprietary rights agreements). The Disclosure Schedule describes each
employment, severance, change of control, noncompetition, consulting,
commission, agency and representative agreement or arrangement to which Seller
is a party or is otherwise bound in respect of any such employee, including,
without limitation, all agreements and commitments relating to wages, hours or
other terms or conditions of employment (other than unwritten employment
arrangements terminable at will without payment of any contractual severance or
other amount). All such employees of Seller are "employees at will." Except with
respect to the Stockholders, Seller has not made any commitments to any of its
employees respecting any possible employment or pay increases by Buyer following
the Closing. Seller has complied in all material respects with all Laws related
to the employment of employees who work in the Business, including those
relating to hours, wages, immigration, equal employment opportunity, employment
discrimination and employee safety.
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4.20 ENVIRONMENTAL MATTERS. There is no environmental
litigation or other environmental proceeding pending or, to the Knowledge of
Seller, threatened by any governmental regulatory authority or others with
respect to the current or any former business of Seller or any partnership or
joint venture currently or at any time affiliated with Seller. No state of facts
exists as to environmental matters or Hazardous Substances (as defined below)
that involves the reasonable likelihood of a material capital expenditure by
Seller that may otherwise have a Material Adverse Effect. To Seller's knowledge,
no Hazardous Substances have been treated, stored or disposed of, or otherwise
deposited, in or on the properties owned or leased by Seller or by any
partnership or joint venture currently or at any time affiliated with Seller in
violation of any applicable environmental laws. The environmental compliance
programs of Seller complies in all respects with all environmental laws, whether
foreign, federal, state, provincial or local, currently in effect. For purposes
of this Agreement, "Hazardous Substances" means any substance, waste,
contaminant, pollutant or material that has been determined by any governmental
authority to be capable of posing a risk of injury to health, safety, property
or the environment.
4.21 AFFILIATE AGREEMENTS. There are no, and since April 1,
2004 there have not been any, agreements, arrangements or understandings between
Seller, on the one hand and any Related Party of Seller, on the other hand,
relating to the Business.
4.22 ABSENCE OF CERTAIN CHANGES AND EVENTS.
(a) Except as described in the Disclosure Schedule,
since March 31, 2005, Seller has conducted the Business only in the usual and
ordinary course consistent with past practice and there has not been any:
(i) change in the accounting methods,
principles or practices followed by Seller, except as required by GAAP or the
rules and regulations of the SEC;
(ii) adoption of or change in any employee
benefit plan or labor policy;
(iii) damage, destruction or loss to any
material asset or property of Seller with respect to the Business, whether or
not covered by insurance;
(iv) entry into, amendment, termination or
receipt of notice of termination of any agreement or other document or
commitment that is required to be disclosed in the Disclosure Schedule, or any
material transaction in excess of $25,000 with respect to the Business other
than software licenses entered into in the ordinary course of business;
(v) sale, assignment, conveyance, lease, or
other disposition of any asset or property of Seller or Lien on any asset or
property of Seller with respect to the Business (other than sales of licenses or
services in the ordinary course of business);
(vi) incurrence of any liability or
obligation (whether absolute or contingent) that will be an Assumed Liability or
any discharge or satisfaction of any Lien on any Purchased Asset, other than in
the ordinary course of business consistent with past practice;
(vii) material change in the Business or in
the manner of conducting the same or entry by Seller into any material
transaction with respect to the Business, other than in the ordinary course of
business consistent with past practice; or
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(viii) agreement, whether or not in writing,
to do any of the foregoing by Seller.
(b) Since March 31, 2005, there has not been any
material adverse change in the Seller's Business, or the operations, properties,
assets, working capital, or condition (financial or otherwise) of Seller (any
such event, a "MATERIAL ADVERSE CHANGE").
4.23 BOOKS AND RECORDS. The books and records of Seller
included in the Purchased Assets accurately and fairly reflect the income,
expenses, assets and liabilities of the Business in all material respects, and
Seller maintains internal accounting controls that provide reasonable assurance
that: (i) transactions are executed in accordance with management's
authorization; (ii) transactions are recorded as necessary to permit preparation
of reliable financial statements and to maintain accountability for earnings and
assets; and (iii) all inter-company transactions, charges and expenses among or
between Seller and/or its Affiliates are accurately reflected at fair
arms-length value in the Financial Statements.
4.24 BROKERS. No Person acting on behalf of Seller or any of
its Affiliates or under the authority of any of the foregoing is or will be
entitled to any brokers' or finders' fee or any other commission or similar fee,
directly or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement other than ISI Capital Partners, LLC
whose fees and expenses shall be paid by Seller.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller as of the date
of this Agreement and of the Closing Date as follows:
5.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all necessary corporate power and authority to carry
on its business as presently conducted, to own and lease the assets that it owns
and leases and to perform all its obligations under each agreement and
instrument by which it is bound.
5.2 POWER AND AUTHORIZATION. Buyer has all requisite right,
power and authority to enter into and perform its obligations under this
Agreement and under the other agreements and documents (the "BUYER TRANSACTION
DOCUMENTS") required to be delivered by it prior to or at the Closing. The
execution, delivery and performance by Buyer of this Agreement and the Buyer
Transaction Documents have been duly authorized by all necessary corporate
action. This Agreement has been duly and validly executed and delivered by Buyer
and assuming the due and valid execution and delivery of this Agreement by
Seller constitutes the legal, valid and binding obligation of Buyer, enforceable
against it in accordance with its terms. When executed and delivered as
contemplated herein, each of the Buyer Transaction Documents shall constitute
the legal, valid and binding obligation of Buyer, enforceable against it in
accordance with its terms.
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5.3 NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Buyer Transaction Documents do not and will not (with or
without the passage of time or the giving of notice or both):
(a) violate or conflict with Buyer's certificate of
incorporation or bylaws or any Law binding upon Buyer; or
(b) violate or conflict with, result in a breach or
termination of, or constitute a default or otherwise cause any loss of benefit
under any material agreement or other obligation to which Buyer is a party.
5.4 BROKERS. No Person acting on behalf of Buyer or any of its
Affiliates or under the authority of any of the foregoing is or will be entitled
to any brokers' or finders' fee or any other commission or similar fee, directly
or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement.
SECTION 6. CERTAIN CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
The obligation of Buyer to consummate the transactions
contemplated hereby is subject to the fulfillment by or at the Closing of each
of the following conditions or the waiver thereof by Buyer:
6.1 REPRESENTATIONS AND WARRANTIES. Each of Seller's
representations and warranties in this Agreement must have been true and correct
as of the date of this Agreement and must be true and correct in all material
respects as of the Closing Date as if made on the Closing Date, provided that
the materiality qualifier in the preceding clause shall not apply to any such
representation and warranty that is itself qualified by materiality, and except,
in the aggregate, when the failure to be true and correct shall not have a
Material Adverse Effect on the Business.
6.2 PERFORMANCE OF COVENANTS. Each of the covenants and
obligations that Seller and Stockholders are required to perform or to comply
with pursuant to this Agreement at or prior to the Closing shall have been duly
performed and complied with.
6.3 RECEIPT OF AUTHORIZATIONS; STOCKHOLDER APPROVAL. All
Authorizations that are necessary for the consummation of the transactions
contemplated by this Agreement and the Transaction Documents and are required to
be obtained by Seller, and all consents and approvals of all other Persons
necessary for the consummation of the transactions contemplated hereby
(including, without limitation, all such consents and approvals in respect of
the Contracts), shall have been obtained, and no such Authorization, consent or
approval: (i) shall have been conditioned upon the modification, cancellation or
termination of any Contract or Authorization; or (ii) shall impose on Buyer any
condition, provision or requirement not presently imposed upon Seller, or any
condition that would be more restrictive after the Closing on Buyer other than
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the conditions presently imposed on Seller. The Asset Sale shall have been
approved by the stockholders consistent with the requirements of Delaware law
and each of Seller's certificate of incorporation, by laws and agreements
between Seller and any number of its stockholders (the "REQUIRED STOCKHOLDER
APPROVAL").
6.4 DELIVERIES. Seller shall have delivered, or cause to be
delivered, the following to Buyer:
(a) a bill of sale, in the form attached as EXHIBIT
6.4(A), duly executed by Seller and each of its subsidiaries holding any of the
Purchased Assets, conveying to Buyer and such of Buyer's subsidiaries as may be
designated by Buyer, good and valid title to all of the Purchased Assets,
subject only to the Assumed Liabilities (the "BILL OF SALE, GENERAL ASSIGNMENT
AND ASSUMPTION AGREEMENT"), together with such other instruments of transfer and
assignment as may be necessary or appropriate to vest in Buyer good and valid
title to the Purchased Assets, including but not limited to assignments of the
Intellectual Property, each duly executed and dated as of the Closing Date;
(b) assignments of the Contracts and Authorizations
included in the Purchased Assets, including without limitation the Material
Contracts, duly executed by Seller, conveying to Buyer all right, title and
interest of Seller in, to and under all of such Contracts and Authorizations,
together with evidence of the obtaining of all consents, waivers and approvals
necessary for the assignment of such Contracts and Authorizations;
(c) each of the Seller Transaction Documents duly
executed by Seller;
(d) copies of resolutions duly adopted by the board
of directors of Seller authorizing the execution, delivery and performance of
this Agreement and the Seller Transaction Documents, and of the stockholders of
Seller approving the Asset Sale, each certified as true, complete and in full
force and effect as of the Closing Date by the Secretary of Seller;
(e) a certificate signed on behalf of Seller by its
President or Chief Executive Officer certifying as to Seller's satisfaction as
of the Closing Date of the conditions set forth in Sections 6.1, 6.2 and 6.3;
(f) the Adjustment Statement as set forth in Section
2.2;
(g) a certificate of incumbency of the officers of
Seller executing this Agreement and any Seller Transaction Document, dated as of
the Closing Date;
(h) a certificate of existence and good standing of
Seller, certified by the Secretary of State of Seller's jurisdiction of
organization dated a date reasonably proximate to the Closing Date; and
(i) such other instruments and documents as are
reasonably necessary to satisfy the conditions precedent to Buyer's obligations
hereunder or as Buyer may reasonably request to effectuate or evidence the
transactions contemplated by this Agreement.
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6.5 NO RESTRAINT. No provision of any applicable Law shall
restrain, prohibit or otherwise interfere with the consummation of the
transactions contemplated by this Agreement and the Transaction Documents or the
effective conduct by Buyer of the Business.
6.6 LEGAL MATTERS. The Closing shall not violate any order or
decree of any court or governmental body of competent jurisdiction and no suit,
action, investigation or legal or administrative proceeding shall have been
brought or threatened by any Person (other than Buyer or an Affiliate of Buyer)
that questions the validity or legality of this Agreement, any of the
Transaction Documents or the transactions contemplated hereby or thereby.
6.7 EMPLOYEE MATTERS. Santanu Das and not less than 90% of the
other employees of Seller to whom Buyer has made an offer of employment shall
have accepted such offers.
6.8 LEGAL OPINION. Buyer shall have received the opinion of
Rutan and Tucker LLP, counsel to Seller, dated the Closing Date, substantially
in the form attached hereto as EXHIBIT 6.8.
6.9 RELEASES OF LIENS. Seller shall have delivered to Buyer
duly executed releases or terminations of financing statements, or other
evidence satisfactory to Buyer that all Liens on any Purchased Asset have been
released and terminated.
6.10 NO MATERIAL ADVERSE CHANGE. There shall have been no
Material Adverse Change and no event shall have occurred and no condition or
circumstance shall exist that could reasonably be expected to give rise to any
such Material Adverse Change.
SECTION 7. CERTAIN CONDITIONS PRECEDENT TO SELLER'S AND
STOCKHOLDERS' OBLIGATIONS.
The obligation of Seller to consummate the sale of the
transactions contemplated hereby is subject to the fulfillment by or at Closing
of each of the following conditions or the waiver thereof by Seller:
7.1 REPRESENTATIONS AND WARRANTIES. Each of Buyer's
representations and warranties in this Agreement must have been true and correct
in all material respects as of the date of this Agreement and must be true and
correct in all material respects as of the Closing Date as if made on the
Closing Date, provided that the materiality qualifier in the preceding clause
shall not apply to any such representation and warranty that is qualified by
materiality and except in the aggregate, when the failure to be true and correct
shall not have a Material Adverse Effect on Seller.
7.2 PERFORMANCE OF COVENANTS. Each of the covenants and
obligations that Buyer is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing shall have been duly performed and complied
with in all material respects.
7.3 LEGAL MATTERS. The Closing shall not violate any order or
decree of any court or governmental body of competent jurisdiction and no suit,
action, investigation, or legal or administrative proceeding shall have been
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brought or threatened by any Person (other than Seller or an Affiliate of
Seller) that questions the validity or legality of this Agreement, any of the
Transaction Documents or the transactions contemplated hereby or thereby.
7.4 AGREEMENTS. Buyer shall have entered into the Bill of
Sale, General Assignment and Assumption Agreement.
7.5 STOCKHOLDER APPROVAL. The Asset Sale shall have been
approved by the Required Stockholder Approval.
7.6 CONFIRMATION OF CLOSING PAYMENT. Seller shall have
received a federal wire transfer confirmation number confirming the satisfaction
of Buyer's obligation to pay the Closing Payment.
SECTION 8. ADDITIONAL AND POST-CLOSING COVENANTS OF THE PARTIES;
CERTAIN OTHER MATTERS.
8.1 TRANSITION OF ACCOUNTS; REMITTANCE OF PAYMENTS; RIGHT TO
OFFSET.
(a) From and after the Closing, Seller promptly shall
forward or refer to Buyer any orders, inquiries and bid requests received by
Seller relating to the Business. Seller hereby irrevocably authorizes Buyer
after the Closing to (i) receive and open all mail and other communications
received by Buyer and addressed or directed to Seller, to the extent relating to
the Business, the Purchased Assets or the Assumed Liabilities, and to act with
respect to such communications in such manner as the Buyer may elect and as is
consistent with this Agreement; and (ii) endorse, without recourse, the name of
Seller on any check or any other evidence of indebtedness received by the Buyer
on account of any of the Purchased Assets or the Business to which Buyer is
entitled under this Agreement. From and after the Closing, each of Seller and
Buyer shall promptly remit to the other, in the form received but with any
appropriate endorsements, any payments that it or any Affiliate may receive that
properly belong to the other, including any accounts receivable to collected by
Buyer pursuant to this Section 8.1. Buyer shall have the right to offset any
amount owed to it by Seller against any amount collected by Buyer pursuant to
this Agreement.
(b) Buyer shall furnish Seller within 20 days after
the end of each month that any Assigned AR remains outstanding a statement
setting forth the Assigned AR collected during such month and a trial balance of
the uncollected Assigned AR showing the aging thereof as of the end of such
month. If any payment received by Buyer during the period that any Assigned AR
remains outstanding is remitted by a customer which is indebted under both
Assigned AR and an account receivable arising out of sales of products and
services of the Business in the ordinary course after the Closing ("New
Receivable"), such payments shall first be applied to the Assigned AR due from
such customer and the balance remaining after payment in full of all Assigned AR
due from such customer shall be applied to the New Receivable; provided,
however, that (i) with respect to any Assigned AR being contested or disputed by
the payor thereof no portion of the amount in dispute shall be deemed to have
been collected by Buyer with respect to the Assigned AR due from the customer
(unless otherwise directed by the customer) until all amounts owed by the
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customer to Buyer for New Receivables have been paid or the dispute has been
resolved, whichever occurs first (it being understood that undisputed amounts of
Assigned AR shall be applied in accordance with the priorities set forth above
in this SECTION 8.1) and (ii) the foregoing priorities shall not apply to sums
received by Buyer which are specifically identified by the customer as being
tendered in payment of a New Receivable. Buyer agrees not to induce any customer
to identify any payment as being in respect of a New Receivable, unless Buyer
reasonably decides to sell to that customer on a C.O.D. basis only. Buyer shall
use commercially reasonable efforts to collect the Assigned AR. Buyer may, but
shall not be obligated to, use a collection agency or commence legal actions in
connection with such collection efforts.
8.2 PROVISIONS RELATING TO EMPLOYEES.
(a) Seller shall, as of the opening of business on
the Closing Date, terminate its employment of the individuals listed on EXHIBIT
8.2 (the "CONTINUED EMPLOYEES"). Subject to Buyer's responsibility for Assumed
Employee Benefits as set forth in Section 1.4, Seller shall be responsible for
all liabilities, obligations, duties and contingencies created or owing as a
consequence of the cessation of any Continued Employee's employment with Seller
(whether by agreement, policy, or Law), including, without limitation:
(i) all liabilities, costs, claims and other
obligations under any employee benefit plan maintained by Seller (including any
accelerated vesting or time of payment or increase in compensation) and any
liabilities resulting from any deficiency in the administration or funding of
any such plan;
(ii) all claims for health care and other
welfare benefits, including any workers' compensation claims and any duties,
obligations, or liabilities under HIPAA;
(iii) all healthcare continuation coverage
requirements of the Code and ERISA and any state continuation coverage law for
any M&A qualified beneficiary (as defined in COBRA and the regulations
thereunder or applicable state law) with respect to the transaction described in
this Agreement; and
(iv) any severance pay, unemployment
compensation, or other payment.
(b) Prior to and as of the Closing Date, Buyer shall
make offers of employment to all Continued Employees (subject, in the case of
each such employee, to satisfaction by such employee of Buyer's customary
pre-employment screening policies). In addition, the offers of employment made
by Buyer to four of the individuals identified on EXHIBIT 8.2 shall include
total compensation arrangements no less favorable than the total compensation
arrangements such employees received from Seller for the twelve month period
prior to the date hereof (provided, however, that for the avoidance of doubt,
such total comparable compensation arrangements shall not include any severance
payment obligations and nothing in this Agreement shall be construed as to
require Buyer to assume any previously existing severance arrangement relating
to any Continued Employee, except for the amounts, if any, set forth on EXHIBIT
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1.4(C)). With respect to the Continued Employees of Seller hired by Buyer at the
time of Closing, Buyer shall, to the extent permitted by Law, allow such
employees to participate in those benefit programs of Buyer in which similarly
situated existing employees of Buyer are eligible to participate, in all cases
recognizing each such Continued Employee's prior service with Seller for
purposes of calculating any such benefits (other than for the purposes of
determining participation eligibility for any Continued Employee in any profit
sharing plan in the United States), but subject in each and every case to
Buyer's right to modify or eliminate any benefit program maintained by it at any
time. Buyer shall not be required to credit such employees for prior service to
Seller for purposes of eligibility to participate and for the purposes of
calculating the percentage of a benefit in which any such employee will be
vested. Neither this Section nor any other section of this Agreement shall
create any obligation on the part of Buyer or any Affiliate thereof to continue
to provide any benefits, terms or conditions of employment, or to continue to
pay any salaries comparable to those previously paid or provided by Seller
(provided, however, that for the avoidance of doubt, nothing in this Agreement
shall permit Buyer to modify or terminate any employment agreements included in
the Assumed Contracts Liabilities except as may be specifically provided
therein). In addition, no Person shall be deemed a third party beneficiary of
this Section and no Person other than Seller shall have any right to enforce its
provisions.
(c) TRANSITION OF EMPLOYEES. From and after the
Closing Date, Seller shall cooperate with Buyer to ensure an orderly transition
of the Continued Employees who accept employment with Buyer.
8.3 CONFIDENTIALITY; NONCOMPETITION; INVENTIONS.
(a) Seller and each Stockholder shall keep
confidential, and shall not directly or indirectly disclose to any third party,
any confidential or proprietary information or trade secret relating to the
Business, the Purchased Assets or Buyer or any of Buyer's Affiliates
(collectively, the "CONFIDENTIAL Material"), including, by way of example and
without limitation, customer lists and trade secrets, or other proprietary data
except to the extent such information is published by, or with the written
consent of, Buyer; provided however, that Confidential Material shall not
include any of the foregoing that is or becomes generally available to the
public without breach of any obligation of confidentiality owed by Seller to
Buyer. Notwithstanding the foregoing, if Seller is required in the course of
judicial or administrative proceedings or governmental inquiries (including,
without limitation, with respect to any taxing authority) to disclose any
Confidential Material, the disclosing party shall give Buyer prompt notice
thereof so that Buyer may seek an appropriate protective order and/or waive the
disclosing party's compliance with the confidentiality provisions of this
Section 8.3(a).
(b) Seller and each Stockholder agree that, for three
(3) years following the date of the Closing (except as otherwise provided
herein), such Person will not, directly or indirectly, through any Affiliate or
otherwise (i) own, manage, market, operate, control, consult with, participate
in, or be connected in any manner with the ownership, management, operation, or
control of any business that engages, directly or indirectly, in any business
that is the same or similar to the Business; (ii) be or become a stockholder,
partner, owner, agent of, or a consultant to or give financial or other
assistance to, any Person considering engaging in any such activities or is so
engaged; (iii) seek in competition with the Business to procure orders from or
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do business with any customer of Buyer or its Affiliates for the twelve months
preceding the date of the Closing; (iv) solicit, or contact with a view to the
engagement or employment by, any Person who is an employee or contractor of
Buyer or its Affiliates (including, without limitation, the Continued Employees
who accept employment with Buyer), provided however, that this prohibition shall
not apply to (X) any employee or contractor who, on an unsolicited basis,
initiates contact related to employment with Seller or a Stockholder or (Y) any
general solicitation not specifically directed at persons who are employed by or
who are contractors with Buyer or its Affiliates; (v) for a period of one year
following the Closing, hire any Person who is an employee or contractor of Buyer
or its Affiliates (including, without limitation, the Continued Employees who
accept employment with Buyer); (vi) seek to contract with or engage (in such a
way as to adversely affect or interfere with the Business) any Person who has
been contracted with or engaged to manufacture, assemble, supply or provide
products, goods, materials or services to Buyer or its Affiliates; or (vii)
engage in or participate in any effort or act to induce any of the customers,
associates, consultants, or employees of Buyer or its Affiliates to take any
action that is materially disadvantageous to Buyer or its Affiliates; PROVIDED,
HOWEVER, that (A) nothing herein shall prohibit Seller or either Stockholder
from owning, as a passive investor, not more than 5% of the outstanding publicly
traded securities of any entity so engaged; (B) nothing herein shall prevent
Stockholders or any of their Affiliates from leasing or selling all or any
portion of the Premises to any Person; (C) nothing herein shall prevent
Stockholders or any of their Affiliates from working for Buyer as an Employee
and owning securities issued by Buyer or Seller; and (D) nothing herein shall
prohibit Seller or either Stockholder from conducting the Retained Business as
conducted by Seller as of the date hereof.
(c) Buyer, each Stockholder and Seller agree that in
the event of a breach of Section 8.3(a) or Section 8.3(b) above, the damage or
imminent damage to Buyer will be inestimable and that therefore any remedy at
law or in damages shall be inadequate. Accordingly, the parties agree that Buyer
will, in addition to damages incurred by reason of any such breach, be entitled
to injunctive relief against any breach by Seller or any Stockholder of this
Section 8.3.
(d) From and after the date of the Closing, neither
Stockholder, Seller nor any Affiliate of Stockholder or Seller, shall, directly
or indirectly: (i) use or procure the use of any name including the words
"STAAD", "STAAD.Pro" (R) and "STAAD.ETC", "STAAD.FOUNDATION" or any derivative
or colorable imitation thereof; or (ii) use in furtherance of any of their
business affairs or disclose to any third party any trade secret, customer list,
supplier list, financial data, pricing or marketing policy or plan or any other
proprietary or confidential information relating to the Business or any of its
products, services, customers or suppliers, so long as the same is not publicly
known (other than by the act of the Stockholder or any affiliate).
(e) If any party hereto learns of any breach or
potential breach of this Agreement such party shall immediately notify the other
party hereto of such event, specifying the basis therefor in reasonable detail.
Buyer shall afford Stockholder or Seller an opportunity to remedy or otherwise
cure such breach or potential breach before seeking legal redress, provided that
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Seller or such Stockholder is actively seeking to cure or remedy such breach or
potential breach; but such opportunity to remedy shall be without prejudice to
the right of Buyer to seek and obtain injunctive or other relief.
(f) Each Stockholder, without additional compensation
therefor, hereby irrevocably assigns to Buyer at the Closing, all Stockholder's
right, title and interest, free and clear of encumbrances or other claims of
third parties, in all ideas, discoveries, inventions, works, patents and
applications therefore, copyright or trademark registrations and applications
therefore, technical or business innovations or methods or processes and every
other item of knowledge made, conceived or reduced to practice by the
Stockholder related to the Business, either solely or with others, at any time
on or prior to the date hereof until the termination of the covenants set forth
in Section 8.3(b) hereto (collectively, the "INVENTION"), whether such Invention
is developed during or after usual working hours, whether or not any assets of
Buyer or its Affiliates were utilized and whether on or off the job or within or
outside the scope of a Stockholder's duties for Seller. Such Invention, and all
rights to obtain patents, copyrights or other legal protection for them, shall
be and remain the property of Buyer, whether patented, patentable, copyrighted,
copyrightable or not or otherwise.
(g) Each Stockholder covenants that at and after the
Closing, he will promptly: (i) disclose fully to Buyer in writing any
Inventions; (ii) execute and deliver to Buyer such applications, assignments,
and other documents as Buyer may request in order to apply for and obtain
patents or other registrations or assignments with respect to any Invention in
the United States and any foreign jurisdictions as may be necessary to carry out
the intent of this Section 8.3; and (iii) execute all other papers necessary or
helpful to Buyer to carry out the above obligations. After the Closing and as
requested by Buyer, each Stockholder shall cooperate with Buyer and give
testimony and render any other assistance in support of Seller's rights to any
Invention. If Buyer is unable, for any reason whatsoever, to secure
Stockholder's signature to any lawful and desirable or necessary documents to
effect, perfect, prosecute or assign any domestic or foreign letters patent,
trademark or copyright registration or other rights relating to any Invention,
each Stockholder irrevocably designates and appoints Buyer and Buyer's duly
authorized officers and agents as Stockholder's agent and attorney in fact, to
act for and on Stockholder's behalf, to do the foregoing and all other lawfully
permitted acts to further the prosecution, issuance, recordation, registration
or assignment of such Inventions with the same force and effect as if executed
by such Stockholder. Each Stockholder hereby waives and quitclaims to Buyer any
and all claims, of any nature whatsoever that such Stockholder may now or
hereafter have for infringement, misappropriation or any other claim relating to
the Inventions.
(h) It is the intention of the parties to this
Agreement that the noncompetition covenants contained in this Section 8.3 shall
be enforced to the greatest extent (but to no greater extent) in time, area, and
degree of participation as is permitted by the law of that jurisdiction whose
law is found to be applicable to any acts allegedly in breach of said covenants.
To this end, the parties to this Agreement agree that the covenants herein shall
be construed to extend in time and territory and with respect to degree of
participation only so far as they may be enforced in such jurisdiction, and that
the covenants herein are to that end hereby declared divisible and severable. It
being the purpose of this Agreement to govern competition by Seller and
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Stockholders, said noncompetition covenants shall be governed by and construed
according to the law of all the jurisdictions in which competition in breach of
this Agreement is alleged to have occurred or to be threatened that best gives
them effect.
8.4 STOCKHOLDERS' MEETING.
(a) Seller shall, in accordance with its certificate
of incorporation and bylaws and the applicable provisions of Delaware law, call
and hold a meeting of its stockholders (on a date selected by Seller in
consultation with the Buyer) as promptly as reasonably practicable after the
filing of the Proxy Statement (as defined in Section 8.7) at which the
stockholders will be asked to consider and to vote upon and approve the Asset
Sale (the "STOCKHOLDERS' MEETING"). Seller shall solicit proxies in connection
with the Stockholders' Meeting in material compliance with all Laws and NASDAQ
requirements.
(b) The Proxy Statement shall include a statement to
the effect that the board of directors of Seller (the "BOARD") unanimously
recommends that Seller's stockholders vote to approve the Asset Sale at the
Stockholders' Meeting (the recommendation of the Board that Seller's
stockholders vote to approve the Agreement and the Asset Sale being referred to
as the "SELLER BOARD RECOMMENDATION"). Except under conditions described in the
last sentence of Section 8.6(a), the Seller Board Recommendation shall not be
withdrawn or modified in a manner adverse to Buyer, and no resolution by the
Board or any committee thereof to withdraw or modify the Seller Board
Recommendation in a manner adverse to Buyer shall be adopted or proposed.
8.5 VOTING AGREEMENTS. Each of the stockholders of Seller
listed on SCHEDULE 8.5 attached hereto has entered into a Voting Agreement and
Irrevocable Proxy with Seller and Buyer in the form of EXHIBIT 8.5 attached
hereto (collectively, the "Voting Agreements"), providing among other things
that such stockholders shall vote in favor of or consent to the Asset Sale.
8.6 OTHER POTENTIAL BIDDERS.
(a) Except as set forth below, neither Seller, nor
any of its respective officers, directors, employees, representatives or agents,
shall, directly or indirectly, encourage, solicit, or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Buyer or any affiliate or associate
of Buyer) concerning any merger, sale of assets, sale of any equity interest in
Seller or similar transaction involving Seller, or division of Seller or any
other transaction that would involve the transfer or potential transfer of
control of Seller (other than, in each case, any such transaction or disposition
relating solely to Excluded Assets or the Retained Business); provided, however,
that nothing herein shall prevent the Board from taking, and disclosing to
Seller's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer; provided,
further, that the Board shall not recommend that the stockholders of Seller
tender their shares of stock in connection with any such tender offer unless the
Board by a majority vote determines that failing to take such action would
constitute a breach of the Board's fiduciary duty to Seller's stockholders.
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(b) From and after the date hereof, Seller may,
directly or indirectly, furnish information and access, in each case only in
response to unsolicited requests therefor, to any corporation, partnership,
person or other entity or group pursuant to confidentiality agreements
substantially similar to the Confidentiality Agreement dated as of March 3, 2005
between Buyer and Seller, and may participate in discussions and negotiations
with such entity or group concerning a merger, sale of assets, sale of any
equity interest or similar transaction involving Seller or division of Seller or
any other transaction that would involve the transfer or potential transfer of
control of Seller (other than, in each case, any such transaction or disposition
relating solely to Excluded Assets or the Retained Business), only if (i) such
entity or group has submitted a written proposal to the Board relating to such
transaction, (ii) one or more of Seller's financial advisors has advised the
Board in writing that such proposal would yield a higher value to Seller's
stockholders than the sale of the Purchased Assets pursuant to this Agreement,
taking into account the financial responsibility of the party making such
proposal and such party's ability to obtain the necessary approvals and consents
for such transaction, and (iii) the Board by a majority vote determines that
failure to furnish information or discuss or negotiate with such entity would
constitute breach of the Board's fiduciary duty. The Board shall provide a copy
of any such written proposal to Buyer promptly, but in no event more than 24
hours after receipt thereof, and thereafter keep Buyer advised of any material
development with respect thereto.
8.7 PROXY STATEMENT. As promptly as practicable after the date
of this Agreement, Seller shall prepare and shall provide Buyer with a copy of
and an opportunity to comment on the draft proxy statement with respect to the
transactions contemplated by this Agreement (the "PRELIMINARY PROXY STATEMENT").
As promptly as practicable after completion of the Preliminary Proxy Statement,
Seller shall (i) in no event later than September 30, 2005, cause the
Preliminary Proxy Statement to be filed with the SEC, (ii) respond promptly to
any comments of the SEC or its staff with respect to the Preliminary Proxy
Statement, (iii) cause to be filed with the SEC a definitive proxy statement
with respect to the transactions contemplated by this Agreement, incorporating
the comments and revisions reasonably provided by Buyer to the Preliminary Proxy
Statement; and (iv) use all reasonable efforts to cause the definitive proxy
statement to comply with the rules and regulations promulgated by the SEC
(collectively, the "PROXY STATEMENT"). Seller will use all reasonable efforts to
cause the Proxy Statement to be mailed to Seller's stockholders as promptly as
practicable after all comments of the SEC or its staff have been resolved or
after the period for SEC comment has expired. Buyer shall promptly furnish to
Seller all information concerning the Buyer that may be required or reasonably
requested in connection with the filing of the Proxy Statement.
8.8 TRANSITION MATTERS. At the Closing, Buyer and Seller shall
enter into a transition services agreement substantially in the form set forth
on EXHIBIT 8.8 (the "TSA"). Among other tings, the TSA shall include grants of
cross licenses, infrastructure and systems support, access and services relating
to the Retained Business and the Business.
8.9 OPERATION OF BUSINESS. Except as otherwise contemplated by
this Agreement, during the period from the date hereof to the Closing Date,
Seller shall conduct the Business in the ordinary course of business and use
commercially reasonable efforts to preserve intact in all material respects the
business organization of the Business, keep available the services of its
officers and employees, and maintain its present relationships with licensors,
suppliers, distributors, customers and others having significant business
relationships with it.
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SECTION 9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend
and hold harmless Buyer, its Affiliates and their officers, directors,
employees, stockholders, members, agents and other representatives
(collectively, "BUYER INDEMNITEES") against and in respect of any and all
losses, costs, expenses, claims, damages, actions, suits, proceedings, hearings,
investigations, charges, complaints, demands, injunctions, judgments, orders,
decrees, rulings, directions, penalties, fines, amounts paid in settlement,
Liabilities, obligations, Taxes, liens, losses, and fees, court costs,
reasonable obligations and liabilities, including interest, penalties and
reasonable attorneys fees and disbursements ("DAMAGES"), arising out of, based
upon or otherwise in respect of:
(a) any breach of any representation or warranty of
Seller made in or pursuant to this Agreement or any Seller Transaction Document;
(b) any breach or nonfulfillment of any covenant or
obligation of Seller contained in this Agreement or any Seller Transaction
Document;
(c) other than the Assumed Liabilities, (i) any
liability or other obligation of Seller, whether or not relating to the Business
and whenever arising, including without limitation, the Excluded Liabilities,
and (ii) any liability or other obligation of Seller relating to the Business
and existing on the Closing Date or arising out of facts, events or
circumstances occurring or existing on or prior to the Closing Date, whether or
not disclosed in this Agreement or the Disclosure Schedule, provided that Buyer
shall have used commercially reasonable efforts to mitigate such liabilities;
(d) all liabilities of Seller for Taxes that are due
or accrue on or before the Closing; or
(e) all liabilities of Seller referred to in Section
8.2(a) relating to or arising from Seller's termination of the Continued
Employees.
9.2 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend
and hold harmless Seller, Stockholders and their respective Affiliates,
officers, directors, employees, stockholders, agents and other representatives
against and in respect of any and all Damages arising out of, based upon or
otherwise in respect of: (a) any breach of any representation or warranty of
Buyer made in or pursuant to this Agreement or any Buyer Transaction Document;
(b) any breach or nonfulfillment of any covenant or obligation of Buyer
contained in this Agreement or any Buyer Transaction Document; or (c) failure by
Buyer to timely pay in full or fulfill all Assumed Liabilities; or (d) the
operations of the Business after the Closing.
9.3 INTER-PARTY CLAIMS. Any party seeking indemnification
pursuant to this Section (the "INDEMNIFIED PARTY") shall notify the other party
or parties from whom such indemnification is sought (the "INDEMNIFYING PARTY")
of the Indemnified Party's assertion of such claim for indemnification,
describing the basis of such claim. The Indemnified Party shall thereupon give
the Indemnifying Party reasonable access to the books, records and assets of the
Indemnified Party that evidence or support such claim or the act, omission or
occurrence giving rise to such claim and the right, and upon prior notice during
normal business hours, to interview any appropriate personnel of the Indemnified
Party related thereto.
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9.4 THIRD PARTY CLAIMS.
(a) Each Indemnified Party shall promptly notify the
Indemnifying Party of the assertion by any third party of any claim with respect
to which the indemnification set forth in this Section relates (which shall also
constitute the notice required by Section 9.3), but failure to give such notice
within any particular time period shall not adversely affect the Indemnified
Party's rights to indemnification except to the extent that the Indemnifying
Party can show that the failure to give such notice on a timely basis materially
and adversely affected the Indemnifying Party's ability to defend the claim.
(b) The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party within 30 business days after the
receipt of any such notice, to undertake the defense of such claim. The failure
of the Indemnifying Party to give such notice and to undertake the defense of
such a claim shall constitute a waiver of the Indemnifying Party's rights under
this Section 9.4(b) and in the absence of gross negligence or willful misconduct
on the part of the Indemnified Party shall preclude the Indemnifying Party from
disputing the manner in which the Indemnified Party may conduct the defense of
such claim or the reasonableness of any amount paid by the Indemnified Party in
satisfaction of such claim.
(c) If the Indemnifying Party assumes the defense of
a third party claim pursuant to Section 9.4(b), unless the settlement or
compromise contains a complete release of all claims against the Indemnified
Party, the Indemnifying Party must obtain the prior written consent of the
Indemnified Party (which the Indemnified Party will not unreasonably withhold or
delay) prior to entering into any settlement or compromise of such claim or
proceeding or ceasing to defend such claim or proceeding.
(d) The election by the Indemnifying Party, pursuant
to Section 9.4(b), to undertake the defense of a third-party claim shall not
preclude the party against which such claim has been made also from
participating or continuing to participate in such defense, so long as such
party bears its own legal fees and expenses for so doing.
9.5 LIMITATIONS AND REQUIREMENTS.
(a) Except as may otherwise expressly be provided in
this Agreement, no claim pursuant to Section 9.1(a) or Section 9.2 arising out
of or based upon any inaccuracy in or breach of any representation or warranty
contained in this Agreement or any Transaction Document shall be made unless
written notice pursuant to Section 9.3 is delivered to the Indemnifying Party
within six months after the Closing Date; PROVIDED THAT any such claim arising
out of or based upon any inaccuracy in or breach of any representation or
warranty made in or pursuant to: (i) Sections 4.1, 4.2, 4.3, 4.4, 4.17, 4.20,
5.1, 5.2 or 5.3 may be made at any time; and (ii) Sections 4.6, 4.10, 4.18, or
4.19 may be made at any time before the expiration of the longest statute of
limitations period applicable to an action brought by any Person or Authority
with respect to the matters forming the basis for such a claim.
(b) The indemnification obligations of Seller
contained herein are not intended to waive or preclude any other claims, rights
or remedies that may exist in equity with respect to the matters covered by the
indemnifications.
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(c) The amounts for which any Indemnifying Party may
be liable for a claim under this Section 9 shall be net of any insurance
proceeds actually received by the Indemnified Party in connection with facts
giving rise to such claim.
(d) Notwithstanding the foregoing provisions of this
Section 9, Buyer, on behalf of each of the Indemnified Persons, agrees that the
Indemnified Persons shall have no right to indemnity under the provisions of
Sections 9.1(a) and liabilities under 9.1(c)(ii) resulting from Buyer's failure
to comply with the proviso at the end of that Section until such time as the
aggregate amount of Damages suffered or incurred by all of the Indemnified
Persons, as a group, exceeds $250,000 (the "INDEMNITY BASKET"), and that if such
aggregate Damages as aforesaid do eventually exceed the Indemnity Basket, then
the full amount shall thereupon be subject to indemnification hereunder.
(e) The maximum aggregate amount payable by Seller
for any and all Damages or any other matter whatsoever arising out of, related
to, or in connection with, this Agreement, any of the other documents or
certificates delivered hereby, or any of the transactions contemplated hereby or
thereby, is $15,000,000 (the "CAP"), except in the case of actual fraud, in
which case the Cap shall be the amounts actually received by Seller from Buyer
pursuant to this Agreement.
(f) The parties further agree that (i) there shall
not be any multiple recovery for any Damages and (ii) indemnification under this
Section 9, the payment of the Break Up Fee (as defined in Section 10.4(b)) and
any right to equitable remedies, including specific performance, that may be
available to Buyer shall be Buyer's only remedies for breaches of
representations, warranties and covenants under this Agreement.
SECTION 10. TERMINATION OF AGREEMENT.
10.1 TERMINATION EVENTS. This Agreement may be terminated
prior to the Closing:
(a) by either the Buyer or Seller if the Asset Sale
shall not have been consummated by December 31, 2005 (the "TERMINATION DATE");
provided, however, (i) Buyer may, in its sole discretion, extend the Termination
Date for up to an additional 45 days after the SEC clears the Proxy Statement
for mailing; and (ii) that a party shall not be permitted to terminate this
Agreement pursuant to this Section 10.1 if the failure to consummate the Asset
Sale by the Termination Date is attributable to a failure on the part of such
party to perform any covenant in this Agreement required to be performed by such
party at or prior to the Closing Date, and Seller shall not be permitted to
terminate this Agreement pursuant hereto unless Seller shall have made any
payment required to be made to Buyer pursuant to Section 10.4;
(b) by Buyer or Seller if a court of competent
jurisdiction or other governmental body shall have issued a final and
non-appealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Asset Sale;
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(c) by either Buyer or Seller if the Asset Sale shall
not have been approved at the Stockholders' Meeting (or at any adjournment or
postponement thereof) by the Required Stockholder Approval or by Seller if the
Board by a majority vote determines that the consummation of the Asset Sale
would constitute a breach of the Board's fiduciary duty to Seller's
stockholders; provided, however, that (i) a party shall not be permitted to
terminate this Agreement pursuant to this Section 10.1(c) if the failure to have
the Agreement and Asset Sale approved by the Required Stockholder Approval is
attributable to a failure on the part of such party to perform any covenant in
this Agreement required to be performed by such party at or prior to the Closing
Date, and (ii) Seller shall not be permitted to terminate this Agreement
pursuant to this Section 10.1(c) unless Seller shall have made any payment
required to be made to the Buyer pursuant to Section 10.4;
(d) by Buyer if (i) any of Seller's representations
and warranties contained in this Agreement shall be inaccurate as of the date of
this Agreement, or shall have become inaccurate as of a date subsequent to the
date of this Agreement (as if made on such subsequent date), such that the
condition set forth in Section 6.1 would not be satisfied, or (ii) any of
Seller's covenants contained in this Agreement shall have been breached such
that the condition set forth in Section 6.2 would not be satisfied; provided,
however, that (A) if an inaccuracy in any of Seller's representations and
warranties as of a date subsequent to the date of this Agreement or a breach of
a covenant by Seller is curable by Seller and is cured by Seller within thirty
days of the date of such breach, then Buyer may not terminate this Agreement
under this Section 10.1(d) on account of such inaccuracy or breach, and (B) if
an inaccuracy in any of the representations and warranties of Seller as of a
date subsequent to the date of this Agreement or a breach of a covenant by
Seller does not result in a Material Adverse Effect on the Business, then Buyer
may not terminate this Agreement under this Section 10.1(d) on account of such
inaccuracy or breach; or
(e) by Seller if (i) any of the representations and
warranties of Buyer contained in this Agreement shall be inaccurate as of the
date of this Agreement, or shall have become inaccurate as of a date subsequent
to the date of this Agreement (as if made on such subsequent date), such that
the condition set forth in Section 7.1 would not be satisfied, or (ii) if any of
the covenants of Buyer contained in this Agreement shall have been breached such
that the condition set forth in Section 7.2 would not be satisfied; provided,
however, that (A) if an inaccuracy in any of the representations and warranties
of Buyer as of a date subsequent to the date of this Agreement or a breach of a
covenant by Buyer is curable by Buyer and is cured by Buyer within thirty days
of the date of such breach, then Seller may not terminate this Agreement under
this Section 10.1(e) on account of such inaccuracy or breach, and (B) if an
inaccuracy in any of the representations and warranties of Buyer as of a date
subsequent to the date of this Agreement or a breach of a covenant by Buyer does
not result in a Material Adverse Effect on Seller, then Seller may not terminate
this Agreement under this Section 10.1(e) on account of such inaccuracy or
breach.
10.2 TERMINATION PROCEDURES. If either Buyer or Seller wishes
to terminate this Agreement pursuant as otherwise provided in Section 10.1, such
party shall deliver to the non-terminating party a written notice stating that
it is terminating this Agreement and setting forth a brief description of the
basis on which they are terminating this Agreement.
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10.3 EFFECT OF TERMINATION. Except as expressly provided
elsewhere in this Agreement or in any of the other Transaction Documents, and
subject to Section 10.4, if this Agreement is terminated pursuant to Section
10.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) no party shall be relieved of any
obligation or other Liability arising from any breach by such party of any
provision of this Agreement; and (b) the parties shall, in all events, remain
bound by and continue to be subject to any obligations regarding confidentiality
and non-disclosure of information that may continue pursuant to their terms.
10.4 TERMINATION FEES; BREAK UP FEE.
(a) Except as set forth in this Section 10.4, all
fees and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses, whether or not the Asset Sale is consummated; provided, however,
that (A) if this Agreement is terminated by Buyer pursuant to Section 10.1(d)
(without limiting any obligation of Seller to pay any fee payable pursuant to
Section 10.4(b)), Seller shall make a nonrefundable cash payment to the Buyer,
at the time specified in Section 10.4(b), in an amount equal to the aggregate
amount of all reasonable fees and expenses (including all reasonable attorneys'
fees, and accountants' fees, filing fees) that have been paid or that may become
payable by or on behalf of Buyer in connection with the preparation and
negotiation of this Agreement and the other Transaction Documents and otherwise
in connection with the Asset Sale; and (B) if this Agreement is terminated by
Seller pursuant to Section 10.1(e), Buyer shall make a nonrefundable cash
payment to Seller, at the time specified in Section 10.4(b), in an amount equal
to the aggregate amount of all reasonable fees and expenses (including all
reasonable attorneys' fees, and accountants' fees, filing fees) that have been
paid or that may become payable by or on behalf of Seller in connection with the
preparation and negotiation of this Agreement and the other Transaction
Documents and otherwise in connection with the Asset Sale.
(b) Seller shall pay to Buyer an amount equal to
$1,000,000 (the "BREAK UP FEE") if this Agreement is terminated because of (i)
Seller's failure to obtain the Required Stockholder Vote or to hold a
stockholder meeting as contemplated by this Agreement; or (ii) a decision by the
Board that its fiduciary obligations require that the Seller not complete the
Asset Sale as contemplated for any reason. If the termination of this Agreement
is initiated by Seller providing notice to Buyer, the Break Up Fee shall be paid
simultaneously with the delivery of such termination notice. If the termination
of this Agreement is initiated by Buyer providing notice to Seller, the Break Up
Fee shall be paid within two business days of Seller's receipt of Buyer's
termination notice.
10.5 NON-EXCLUSIVITY OF TERMINATION RIGHTS. The termination
rights provided in Section 10.1 shall not be deemed to be exclusive.
Accordingly, the exercise by any party of its right to terminate this Agreement
pursuant to Section 10.1 shall not be deemed to be an election of remedies and
shall not be deemed to prejudice, or to constitute or operate as a waiver of,
any other right or remedy that such party may be entitled to exercise (whether
under this Agreement, under any other Contract, Law or otherwise).
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SECTION 11. DEFINITIONS
Whenever used in this Agreement, the following terms and
phrases shall have the following respective meanings:
"AFFILIATE" has the meaning attributed to it in Rule 405
promulgated by the SEC.
"AUTHORITY" means the United States of America or any other
nation, any state or other political subdivision thereof, or any entity, agency
or authority (foreign, federal, state or local) exercising executive,
legislative, judicial, regulatory or administrative functions of government.
"COBRA" means the Consolidated Omnibus Reconciliation Act of
1985, as amended.
"CODE" means the United States Internal Revenue Code of 1986,
as amended.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" means generally accepted accounting principles in the
United States as in effect on the date hereof, applied consistently with
Seller's past practices as disclosed to Buyer herein.
"HIPAA" means the Health Insurance Portability and
Accountability Act of 1996, as amended.
"KNOWLEDGE" of Seller respecting a particular matter shall
conclusively be deemed and presumed to include, all facts, circumstances and
conditions known to or that should have been reasonably known, after due
inquiry, to any director, executive officer of Seller (including without
limitation, any Stockholder) regarding such matter. Notwithstanding the
foregoing, "Knowledge" as used in Section 4.15(c) shall have the same meaning as
set forth in the preceding sentence except that there shall be no requirement
for due inquiry.
"LAW" means any law (including, without limitation, principles
of common law), statute, regulation, permit, license, certificate, judgment,
order, award or other decision or requirement of any arbitrator, court,
government or governmental agency or instrumentality (domestic or foreign).
"LIABILITIES" shall include, without limitation, any direct or
indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency,
cost, expense, obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured
or unsecured.
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"LIENS" means any mortgage, deed of trust, pledge, security
interest, restriction, encumbrance, lien or charge of any kind, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction and including
any lien or charge arising by statute or other laws, that secures the payment of
a debt (including, without limitation, any Tax) or the performance of an
obligation.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a business or
other trust, a joint venture, a company, any other business entity, an
unincorporated organization and an Authority.
"RELATED PARTY" means any officer, director (including,
without limitation, in the case of Seller, the Stockholders) or Affiliate of
either Seller or Buyer (as the case may be) or any individual related by blood
or marriage to any such Person.
"SOFTWARE" shall mean the expression of an organized set of
instructions in a natural or coded language, including without limitation,
compilations and sequences, that is contained on a physical media of any nature
(e.g., written, electronic, magnetic, optical or otherwise) and that may be used
with a computer or other automated data processing equipment device of any
nature that is based on digital technology, to make such computer or other
device operate in a particular manner and for a certain purpose, as well as any
related documentation for such set of instructions. The term shall include,
without limitation, computer programs in source and object code, test or other
significant data libraries, documentation for computer programs, modifications,
enhancements, revisions or versions of or to any of the foregoing and prior
releases of any of the foregoing applicable to any operating environment, and
any of the following that is contained on a physical media of any nature and
that is used in the design, development, modification, enhancement, testing,
installation, use, maintenance, diagnosis or assurance of the performance of a
computer program: narrative descriptions, notes, specifications, designs,
flowcharts, parameter descriptions, logic flow diagrams, masks, input and output
formats, file layouts, database formats, test programs, test or other data, user
guides, manuals, installation and operating instructions, diagnostic and
maintenance instructions, source code, object code and other similar materials
and information.
"STOCKHOLDER" shall mean each of Amrit K. Das and Santanu Das.
"TRANSACTION DOCUMENTS" means collectively, the Seller
Transaction Documents and the Buyer Transaction Documents.
SECTION 12. MISCELLANEOUS.
12.1 UPDATE OF EXHIBITS. In the event Seller determines that
any of the Exhibits listing Purchased Assets would be inaccurate or untrue as of
the Closing Date, then Seller shall supplement or amend such Exhibits to correct
such inaccuracy as of the Closing Date, provided that any such supplement shall
only reflect changes in the ordinary course of the Business, consistent with
past practices. In addition, Seller shall provide Buyer at Closing with an
updated disclosure regarding Section 4.9 and the list of and aging for accounts
payable. Notwithstanding the foregoing, no supplement or amendment to EXHIBIT
1.3(H) shall be effective without the written consent of Buyer.
A-1-38
12.2 CONSTRUCTION. Within this Agreement and the Transaction
Documents, the singular shall include the plural and the plural shall include
the singular, and any gender shall include all other genders, all as the meaning
and the context of this Agreement or any Transaction Document, as applicable,
shall require. The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or Law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) that the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty, or covenant.
12.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) Subject to Section 9.5(a), the representations
and warranties made by the parties in this Agreement and in the certificates,
documents and schedules delivered pursuant hereto shall survive the consummation
of the transactions herein contemplated. Anything in this Agreement to the
contrary notwithstanding, the representations and warranties of the parties
hereunder, and the right of the parties to indemnification for breach thereof,
shall not be affected by any investigation of either party or its agents or
representatives.
(b) Each disclosure in the Disclosure Schedule shall
relate only to the representation and warranty to which it expressly refers and
to no other representation or warranty in this Agreement except to the extent
that the disclosure is reasonably apparent on its face as being applicable to
such other representation or warranty. In the event of any inconsistency between
the statements made in the body of this Agreement and those contained in the
Disclosure Schedule (other than an express exception to a specifically
identified statement), those in this Agreement shall control.
12.4 FURTHER ASSURANCES. Each party hereto shall use its best
efforts to comply with all requirements imposed hereby on such party and to
cause the transactions contemplated hereby to be consummated as contemplated
hereby and shall, from time to time and without further consideration, either
before or after the Closing, execute such further instruments and take such
other actions as any other party hereto shall reasonably request in order to
fulfill its obligations under this Agreement and to effectuate the purposes of
this Agreement and to provide for the orderly and efficient transition to Buyer
of the ownership of the Business and Purchased Assets. Each party shall promptly
notify the other parties of any event or circumstance known to such party that
is reasonably likely to prevent or delay the consummation of the transactions
contemplated hereby or that would indicate a breach or non-compliance with any
of the terms, conditions, representations, warranties or agreements of any of
the parties to this Agreement.
A-1-39
12.5 COSTS AND EXPENSES. Except as otherwise expressly
provided herein, each party shall bear its own expenses in connection herewith.
Notwithstanding the foregoing, Buyer shall reimburse Seller, at the Closing and
contingent thereon, for the reasonable fees and expenses incurred by Seller
relating to the legal and financial services up to an amount equal to $250,000.
12.6 COSTS OF ENFORCEMENT. If any party hereto incurs any
costs or expenses in connection with any controversy, disagreement or dispute
arising under this Agreement, the prevailing party shall be entitled to recover
from the non-prevailing party such prevailing party's reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees and costs,
incurred in prosecuting or defending such controversy, disagreement or dispute,
as the case may be.
12.7 NOTICES. All notices or other communications permitted or
required under this Agreement shall be in writing and shall be sufficiently
given if and when hand delivered to the Persons set forth below or if sent by
documented overnight delivery service or registered or certified mail, postage
prepaid, return receipt requested, or by telegram, telex or telecopy, receipt
acknowledged, addressed as set forth below or to such other Person or Persons
and/or at such other address or addresses as shall be furnished in writing by
any party hereto to the others. Any such notice or communication shall be deemed
to have been given as of the date received, in the case of personal delivery, or
on the date shown on the receipt or confirmation therefor in all other cases.
TO BUYER:
--------
Bentley Systems, Incorporated
685 Stockton Drive
Exton, PA 19341-0678
Attn: General Counsel
Telephone: 610-458-5000
Telecopy: 610-458-3181
WITH A COPY TO:
---------------
Drinker Biddle & Reath LLP
1000 Westlakes Drive, Suite 300
Berwyn, PA 19312-2409
Attn: Walter J. Mostek, Jr., Esq.
Telephone: (610) 993-2200
Telecopy: (610) 993-8585
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TO SELLER:
---------
netGuru, Inc.
22700 Savi Ranch Pkwy.
Yorba Linda, CA 92887
Attn: Amrit K. Das
Telephone: (714) 974-2500
Telecopy: (714) 974-4771
TO STOCKHOLDERS:
---------------
c/o netGuru, Inc.
22700 Savi Ranch Pkwy.
Yorba Linda, CA 92887
Attn: Amrit K. Das
Telephone: (714) 974-2500
Telecopy: (714) 974-4771
IN EACH CASE WITH A COPY TO:
---------------------------
Rutan & Tucker LLP
611 Anton Blvd.
Costa Mesa, CA 92626-1931
Attn: Gregg Amber, Esq.
Telephone: (714) 641-5100
Telecopy: (714) 546-9035
12.8 ASSIGNMENT AND BENEFIT.
(a) Buyer may assign (without affecting its
obligations under) this Agreement in whole or in part to any of its subsidiaries
or Affiliates or to any Person that becomes a successor in interest (by purchase
of assets or stock, or by merger or otherwise) to Buyer. Seller shall not assign
this Agreement or any rights hereunder, or delegate any obligations hereunder.
Subject to the foregoing, this Agreement and the rights and obligations set
forth herein shall inure to the benefit of, and be binding upon, the parties
hereto, and each of their respective successors, heirs and assigns.
(b) This Agreement shall not be construed as giving
any Person, other than the parties hereto and their permitted successors, heirs
and assigns, any legal or equitable right, remedy or claim under or in respect
of this Agreement or any of the provisions herein contained, this Agreement and
all provisions and conditions hereof being intended to be, and being, for the
sole and exclusive benefit of such parties, and permitted successors, heirs and
assigns and for the benefit of no other Person.
12.9 AMENDMENT, MODIFICATION AND WAIVER. The parties may amend
or modify this Agreement in any respect. Any such amendment or modification
shall be in writing. The waiver by a party of any breach of any provision of
this Agreement shall not constitute or operate as a waiver of any other breach
A-1-41
of such provision or of any other provision hereof, nor shall any failure to
enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof.
12.10 GOVERNING LAW. This Agreement and the Transaction
Documents shall be governed and construed in accordance with the laws of the
State of Delaware without reference to the conflict of laws provisions of that
State.
12.11 JURISDICTION. Any proceeding arising out of or relating
to this Agreement may be brought in the courts of the State of Delaware, or, if
it has or can acquire jurisdiction, in the United States District Court in the
State of Delaware, and each of the parties irrevocably submits to the exclusive
jurisdiction of each such court in any such proceeding, waives any objection it
may now or hereafter have to venue or to convenience of forum, agrees that all
claims in respect of the proceeding shall be heard and determined only in any
such court, and agrees not to bring any proceeding arising out of or relating to
this Agreement in any other court. The parties agree that either or both of them
may file a copy of this paragraph with any court as written evidence of the
knowing, voluntary and bargained agreement between the parties irrevocably to
waive any objections to venue or to convenience of forum. Process in any
proceeding referred to in the first sentence of this Section may be served on
any party anywhere in the world.
12.12 SECTION HEADINGS AND DEFINED TERMS. The section headings
contained herein are for reference purposes only and shall not in any way affect
the meaning and interpretation of this Agreement. The terms defined herein and
in any agreement executed in connection herewith include the plural as well as
the singular and the singular as well as the plural, and the use of masculine
pronouns shall include the feminine and neuter. Except as otherwise indicated,
all agreements defined herein refer to the same as from time to time amended or
supplemented or the terms thereof waived or modified in accordance herewith and
therewith.
12.13 SEVERABILITY. The invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provisions or
parts were omitted.
12.14 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original (including
facsimile signatures); and any Person may become a party hereto by executing a
counterpart hereof, but all of such counterparts together shall be deemed to be
one and the same instrument. It shall not be necessary in making proof of this
Agreement or any counterpart hereof to produce or account for any of the other
counterparts. The parties hereto may deliver this Agreement and the Transaction
Documents by telecopier machine/facsimile, provided that the original signature
pages are promptly delivered to each party to this Agreement, and each party
shall be permitted to rely upon the signatures so transmitted to the same extent
and effect as if they were original signatures.
12.15 ENTIRE AGREEMENT. This Agreement, together with the
Disclosure Schedule and the agreements, exhibits, schedules and certificates
referred to herein or delivered pursuant hereto, constitute the entire agreement
between the parties hereto with respect to the purchase and sale of the
A-1-42
Purchased Assets and supersede all prior agreements and understandings. The
submission of a draft of this Agreement or portions or summaries thereof does
not constitute an offer to purchase or sell the Purchased Assets, it being
understood and agreed that neither Buyer nor Seller shall be legally obligated
with respect to such a purchase or sale or to any other terms or conditions set
forth in such draft or portion or summary unless and until this Agreement has
been duly executed and delivered by all parties.
[signature page follows]
A-1-43
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement, all as of the date first above written.
BUYER:
BENTLEY SYSTEMS, INCORPORATED
By: /S/ DAVID NATION
--------------------------------
Name: David Nation
Title: SVP
SELLER:
NETGURU, INC.
By: /S/ AMRIT K. DAS
--------------------------------
Name: Amrit K. Das
Title: Chief Executive Officer
In agreement with and intending to be legally bound by this Agreement solely for
the purposes of Section 8.3:
STOCKHOLDERS:
/S/ AMRIT K. DAS
- ----------------------------
AMRIT K. DAS
/S/ SANTANU DAS
- ----------------------------
SANTANU DAS
A-1-44
APPENDIX B
FORM OF TRANSITION SERVICES AGREEMENT
THIS TRANSITION SERVICES AGREEMENT, dated as of _______ __, 2005
("Agreement"), is made by and between NETGURU, INC., a Delaware corporation, and
each of its subsidiaries ("Seller"), and BENTLEY SYSTEMS, INCORPORATED, a
Delaware ("Buyer").
R E C I T A L S
WHEREAS, the parties have entered into an Asset Purchase Agreement
dated as of August __, 2005 (the "Purchase Agreement") pursuant to which Seller
is selling, and Buyer is acquiring, the Business (as defined in the Purchase
Agreement), the date and time at which the closing of the Purchase Agreement is
to occur being referred to herein as the "Closing Date";
WHEREAS, in further consideration of the Purchase Agreement and related
transactions, Buyer will require Seller's assistance with respect to certain
operations of the Business during periods specified herein following the Closing
Date and Seller will require Buyer's assistance with respect to certain
operations of the Retained Business (as defined in the Purchase Agreement)
during periods specified herein following the Closing Date;
WHEREAS, in connection with and as a condition precedent to the closing
of the transaction contemplated by the Purchase Agreement, the parties have each
agreed to provide the services set forth herein to the other; and
WHEREAS, capitalized terms used herein but not defined have the
meanings ascribed to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein contained and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
SECTION 1. SERVICES TO BE PERFORMED; TERM; PERFORMANCE AND COOPERATION.
(a) In accordance with the terms and provisions of this Agreement,
Seller agrees to perform (or to cause its affiliates to perform) for Buyer the
services described in SCHEDULES A1 THRU A2 hereto (collectively, the "Seller
Services") for the time period and to the extent specified with respect to each
such Seller Service in the applicable Schedule.
(b) In accordance with the terms and provisions of this Agreement,
Buyer agrees to perform (or to cause its affiliates to perform) for Seller the
services described in SCHEDULES B1 THRU B3 hereto (collectively, the "Buyer
Services" and together with the Seller Services to be referred to herein as the
"Services") for the time period and to the extent specified with respect to each
such Buyer Service in the applicable Schedule.
B-1
(b) (i) This Agreement shall become effective as of the date hereof and
shall terminate with respect to each Service (A) on the date specified for such
Service in accordance with the applicable Schedule hereto, (B) earlier as to
each Seller Service at the prior written request of Buyer, or (C) earlier as to
each Buyer Service at the prior written request of Seller.
(ii) The parties agree that if the party being provided the
benefit of a Service chooses to discontinue such Service prior to its stated
termination date, then such party shall give the other party prior written
notice within the notice period specified in the relevant Schedule, or if no
such notice period is specified, at least fifteen (15) days prior written notice
of its intent to terminate this Agreement as to that particular Service, which
termination shall be effective on the last day of the month on which the fifteen
(15) days prior written notice lapses. The terminating party will pay the other
party the fees and costs of any terminated Service up until the effective date
of termination.
(c) Notwithstanding anything to the contrary contained herein, this
Agreement may be terminated, in whole or in part, at any time:
(i) by the mutual consent of Buyer and Seller;
(ii) by Buyer in the event of any material breach or default
by Seller of any of Seller's obligations under this Agreement and the failure of
Seller to cure, or to take substantial steps towards the curing of, such breach
or default within thirty (30) days after receipt of written notice from Buyer
requesting that such breach or default be cured; or
(iii) by Seller in the event of any material breach or default
by Buyer of any of Buyer's obligations under this Agreement and the failure of
Buyer to cure, or to take substantial steps towards the curing of, such breach
or default within thirty (30) days after receipt of notice from Seller
requesting that such breach or default be cured.
(d) Except as specified herein, neither party makes any warranties of
any kind, express or implied, with respect to any Service provided hereunder.
(e) The parties shall use commercially reasonable efforts to cooperate
with each other in all matters relating to the provision and receipt of
Services. In addition, upon the reasonable request of either party, the parties
shall take such further action that may be deemed necessary to effect the rights
and obligations set forth herein regarding the grant of the licenses set forth
in the Schedules hereto.
(f) Notwithstanding anything to the contrary contained herein, the
parties acknowledge and agree that the Services set forth on the Schedules
hereto relating to leases of real property shall constitute the basic terms of
such leases. The parties shall negotiate, execute and deliver standard and
customary leases or subleases that include the specific terms set forth in the
applicable Schedule in accordance with local laws relating to such properties;
provided, however, that neither party shall be required to provide security
deposits under such leases or subleases regardless of what may be required by
local custom.
B-2
SECTION 2. PAYMENT.
Each party shall pay to the other such fees and costs, if any, for the
relevant time period as set forth in the Schedule attached hereto that is
applicable to such Service. If any fees are incurred pursuant to this Agreement,
such fees shall be payable monthly in arrears unless otherwise provided by the
terms set forth in the Schedule applicable to such Service.
SECTION 3. RELATIONSHIP OF PARTIES.
(a) All employees and representatives of each party or its affiliates
providing Services to the other party under this Agreement shall be deemed for
purposes of all compensation and employee benefits to be employees or
representatives solely of the party that is providing such Service and shall not
be deemed to be employees or representatives of the party that is receiving the
benefit of such Service.
(b) The parties hereto are independent contractors, and neither party
not its employees or agents will be deemed to be employees or agents of the
other for any purpose or under any circumstances. No partnership, joint venture,
alliance, fiduciary or any relationship other than that of independent
contractors is created hereby, expressly or by implication.
SECTION 4. USE OF INFORMATION, CONFIDENTIALITY.
(a) To the extent obtained by either party and their respective
affiliates as a result of the provision of Services hereunder, each of Buyer and
Seller shall, and shall cause their respective affiliates to, hold all
Confidential Information (as defined in the Confidential Non-Disclosure
Agreement between the parties dated March 3, 2005) relating to the other party
confidential and shall, except as otherwise indicated below, will not disclose
any of such information to any party for a period of five (5) years from the
date of the Purchase Agreement, unless legally compelled or required to disclose
such information in which event the party legally compelled or required to
disclose shall provide the other party with written notice of such legal
compulsion to disclose and shall use commercially reasonable efforts to afford
the other party a reasonable period of time to contest such disclosure.
(b) It is understood that, prior to, during or after performance of
this Agreement, each party's personnel may unavoidably receive or have access to
private or confidential information of the other party, including other
operations, which is not specifically covered by the foregoing or by the
Purchase Agreement. Except for the information the transfer to or access of
which is contemplated by the Purchase Agreement, each party agrees that all such
information will be subject to the provisions of this Section 4 and other
relevant provisions of said agreements between the parties and that its
personnel will comply with all reasonable requirements of Seller and Buyer,
including identification badges and sign-in procedures, in connection therewith.
B-3
SECTION 5. COMPLIANCE WITH LAWS.
Each party will, with respect to its obligations and performance
hereunder, comply with all applicable requirements of federal, state and local
laws, rules and regulations, including without limitation, import and export
control, environmental and occupational safety requirements.
SECTION 6. INDEMNITY AND DAMAGES.
(a) The party providing Services to the other shall be liable,
responsible and accountable in damages and costs and expenses (including
reasonable attorneys' fees) only for gross negligence or willful misconduct in
the provision of Services. Neither party shall be liable, responsible or
accountable in damages and costs and expenses (including reasonable attorneys'
fees) under this Agreement except as expressly set forth in the immediately
preceding sentence. Each party's liability under this Section 6(a) shall be
subject to the provisions of Section 6(c).
(b) The party receiving the benefit of Services pursuant to this
Agreement shall indemnify, defend, and hold harmless the party providing
Services and its affiliates, directors, officers, shareholders, employees,
agents and controlling persons from and against any and all losses, claims,
damages, liabilities, costs and expenses (including any reasonable attorney's
fees and expenses incurred in connection with, and any amounts paid in, any
settlement) resulting from a demand, claim, lawsuit, action or proceeding
relating to any such person's conduct in connection with the provision of
Services under this Agreement, provided that such conduct did not constitute
gross negligence or willful misconduct or breach of this Agreement by the party
providing such Services.
(c) NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE
CONTRARY, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL, SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR LOST
REVENUES) OF THE OTHER PARTY, ITS SUCCESSORS, ASSIGNS OR THEIR RESPECTIVE
AFFILIATES, AS A RESULT OF OR ARISING FROM THIS AGREEMENT, REGARDLESS OF WHETHER
SUCH LIABILITY ARISES IN TORT, CONTRACT, BREACH OF WARRANTY, INDEMNIFICATION OR
OTHERWISE.
SECTION 7. MISCELLANEOUS.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS TO BE PERFORMED SOLELY WITHIN THAT STATE.
B-4
(b) FORCE MAJEURE. Except for a party's obligation to make timely
payments, neither party will have any liability for damages or delay due to
fire, explosion, lightning, pest damage, power failure or surges, strikes or
labor disputes, water or flood, acts of God, the elements, war, civil
disturbances, acts of civil or military authorities or the public enemy, acts or
omissions of communications or other carriers, or any other cause beyond a
party's reasonable control, whether or not similar to the foregoing that prevent
such party from materially performing its obligations hereunder.
(c) SUBCONTRACTING AND ASSIGNMENT. Neither party may subcontract any or
all of the functions or Services to be performed by it under this Agreement.
Unless otherwise provided by the Schedules hereto relating solely for the
Services provided for by such Schedule, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assignable or transferable
by either party without the prior written consent of the other party hereto, and
any such unauthorized assignment or transfer will be void. Notwithstanding the
foregoing, Buyer may assign this Agreement, in whole or in part, to a subsidiary
or affiliate by providing prior written notice of such assignment to Seller.
(d) ENTIRE AGREEMENT; MODIFICATION; WAIVERS. This Agreement and the
Schedules attached hereto constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiation, commitments and writings with respect to Services. This Agreement
and the Schedules attached hereto may not be altered, modified or amended except
by a written instrument signed by the parties hereto. The failure of any party
to require the performance or satisfaction of any term or obligation of this
Agreement, or the waiver by any party of any breach of this Agreement, shall not
prevent subsequent enforcement of such term or obligation or be deemed a waiver
of any subsequent breach
(e) SEVERABILITY. The provisions of this Agreement are severable, and
in the event that any one or more provisions are deemed illegal or unenforceable
the remaining provisions shall remain in full force and effect unless the
deletion of such provision shall cause this Agreement to become materially
adverse to either party, in which event the parties shall use reasonable
commercial efforts (as defined in the Purchase Agreement) to arrive at an
accommodation that best preserves for the parties the benefits and obligations
of the offending provision.
(f) NOTICES. All notices and other communications hereunder will be in
writing and deemed to have been duly given if given in accordance with the
provisions of the Purchase Agreement and as otherwise provided in the applicable
Schedule hereto.
(g) SURVIVAL OF OBLIGATIONS. The obligations of the parties under
Sections 2, 4 and 6 shall survive the expiration of this Agreement. The parties
acknowledge and agree that all claims for any breaches or alleged breaches of
any covenants contained in this Agreement shall not be subject to the time
periods, dollar and other limitations set forth in the Purchase Agreement.
B-5
(h) EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(i) MEETINGS; ESCALATION PROCESS. If either party is not satisfied with
any Service delivered pursuant to this Agreement, then such party may, at any
time, and from time to time and at its sole discretion, initiate an escalation
process regarding such Service by delivering written notice to the other party
pursuant to Section 7(f) of this Agreement. The notice shall describe in
reasonable detail the nature of the problem. Upon receipt of such notice, the
party receiving notice shall arrange a meeting between appropriate
representatives of the parties to address the issues set forth in the notice.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
B-6
IN WITNESS WHEREOF, each of Seller and Buyer has caused this Agreement
to be duly executed on its behalf by its duly authorized officer as of the date
first written above.
BENTLEY SYSTEMS, INCORPORATED
By: _________________________________
Name:
Title:
NETGURU, INC.
By: _________________________________
Name:
Title:
B-7
SCHEDULE A
SELLER SERVICES
Seller shall provide each of the following Services pursuant to the terms of
this Agreement:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
B-8
SCHEDULE A1
IS MIGRATION
Name of Service: Information Systems Migration
Terms of Service: Seller will provide Buyer with any reasonably
required transition assistance to migrate data and
other applications from the server infrastructure in
Yorba Linda which will remain with Seller
post-Closing. Within a reasonable time after the
Closing Date, after confirmation from Buyer, Seller
will delete and destroy all data specific to the
Business (as defined in the Purchase Agreement),
including but not limited to the RESAS database. As
part of this Service, Seller will provide Buyer with
access to any shared infrastructure to support its
Business.
Term of Services: Up to 1 year after the Closing Date.
Payment/Cost of Services: There shall be no cost to Buyer for this Service.
Seller Representative: [Name and contact information of Seller's employee
representative responsible for providing this
Service]
Buyer Representative: [Name and contact information of Buyer's employee
representative responsible for providing this
Service]
B-9
SCHEDULE A2
CALCUTTA FACILITY LEASE
Name of Service: Facilities Leased to Buyer
Terms of Service: Pursuant to and on the terms of a standard and
customary sublease in accordance with local laws,
Seller will lease the entire administrative office
building at the Calcutta facility (approximately
27,600 sq. ft., built in 2000) to Buyer. Buyer shall
have right of sublease. The lease will be subject
only to retaining an existing 600 sq. ft. office for
use by Seller's CEO (or other executive) through the
period of one year from the Closing Date (after such
time the space will revert to Buyer). Seller will
relocate its entire remaining staff such that only
Continuing Employees (as defined in the Purchase
Agreement) are located in the front building of this
facility prior to the Closing Date. Buyer shall not
be required to provide Seller (or any successor) with
a security deposit for any term of the lease.
Term of Services: Two (s) years after the Closing Date subject to two
(2) option terms of one (1 ) year each.
Payment/Cost of Services: The lease rates shall be inclusive of all applicable
taxes but not utilities (utilities shall be born
directly by Buyer). The following lease rates shall
apply:
-------------------------- --------------------------
Lease Year Rate Per Square Foot
(Rupees)/Month - Due at
the first of the month
-------------------------- --------------------------
-------------------------- --------------------------
1 Rs. 23
-------------------------- --------------------------
2 Rs. 23
-------------------------- --------------------------
3 (Option Year #1) Market Rate*
-------------------------- --------------------------
4 (Option Year #2) Market Rate*
-------------------------- --------------------------
The rate for these services shall include all of the
services standard in leases granted in a "Sector 5"
zone, as well as the provision of services generally
consistent with the services provided prior to the
Closing Date. For the avoidance of doubt, the diesel
generators and air conditioners owned by the Seller
(both before and after the Closing Date) and used to
support the building prior to the Closing Date shall
remain in place and used for the same purpose after
the Closing Date and Seller shall be responsible for
all repairs, maintenance and replacement of equipment
B-10
necessary to maintain the same level of service
provided to occupants of the building prior to the
Closing.
* Market Rate shall be based upon a reasonable survey
of equivalent space available in the market.
Seller Representative: [Name and contact information of Seller's employee
representative responsible for providing this
Service]
Buyer Representative: [Name and contact information of Buyer's employee
representative responsible for providing this
Service]
B-11
SCHEDULE B
BUYER SERVICES
Buyer shall provide each of the following Services pursuant to the terms of this
Agreement:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
B-12
SCHEDULE B1
BUYER'S SHARED INFRASTRUCTURE
Name of Service: Buyer's Shared Infrastructure
Terms of Service:
Buyer will provide Seller with the following access
to the identified shared infrastructure, solely in
support of the Retained Business, for a period of up
to one (1) year from the Closing Date:
o Access and use of the phone system at the
Yorba Linda facility, providing up to twelve
(12) phones and six (6) lines.
o Access to and use of the phone system in
Calcutta, allocating a reasonable number of
lines to Seller after Buyer's business needs
are met.
o Access to and use of the 12 IP phones over
the dedicated IPLC circuit between Yorba
Linda and the Calcutta offices.
o Use of the printing facility at Yorba Linda
to produce a maximum of 2,500 color and
3,000 black & white standard letter sized
pieces per month.
o Buyer will permit Seller to mail to the
existing RESAS customer database up to four
(4) times, such mailing costs exclusively
paid by Seller and only after content has
been approved by Buyer (such approval not to
be unreasonably withheld). The mailing(s)
would be coordinated through an external
third party mailing service in a blind
fashion.
o Assuming there is space available in the
existing Seller facilities currently under
leases which Buyer assumes in Singapore and
Dubai, and further assuming that Buyer is
authorized to allow non-Buyer employees to
work out of the leased space, Buyer will
permit one (1) Seller employee to work out
of each of these offices in order to market
Seller's services.
Term of Services: One year from the Closing Date.
Payment/Cost of Services: Seller will not be charged for reasonable telephone
usage, both local and long-distance, unless it
exceeds $3,000 USD for the full year (and in such
case they will be billed from $0 dollar).
Seller Representative: [Name and contact information of Seller's employee
representative responsible for providing this
Service]
Buyer Representative: [Name and contact information of Buyer's employee
representative responsible for providing this
Service]
B-13
SCHEDULE B2
STAAD.SUITE OF SOFTWARE
Name of Service: STAAD.suite Cross License
Terms of Service: Buyer hereby grants Seller seventy-five (75)
perpetual, paid-up, named user licenses of STAAD.Pro
2005 (with all international design codes) and the
related STAAD.suite of products including
STAAD.foundation, STAAD.etc, STAAD.beam,
Sectionwizard, Layout, ADLPipe, STAAD.pipe,
STAAD.beava and QSE, current as of the Closing Date,
subject to Buyer's standard end user license
agreement. Seller shall receive updates and support
(ie. Maintenance) for STAAD.Pro 2005 as typically
provided to customers for a period of one year from
the Closing Date at no cost and the second year after
the Closing Date at 50% SRP. These licenses are
non-transferable except to Amrit K. Das or an entity
in which he is the controlling shareholder or owner
and may only be used by Seller in support of its
operation of the Retained Business.
Term of Services: Perpetual except that this license shall terminate in
the event of a transaction or series of transactions
that results in a change in control of Seller such
that Amrit K. Das is not the controlling shareholder
or owner of the entity operating the Retained
Business (but any previously granted end user
licenses to compiled object-code versions shall
continue).
Payment/Cost of Services: There shall be no cost to Seller for this Service.
Seller Representative: [Name and contact information of Seller's employee
representative responsible for providing this
Service]
Buyer Representative: [Name and contact information of Buyer's employee
representative responsible for providing this
Service]
B-14
SCHEDULE B3
YORBA LINDA FACILITY LEASE
Name of Service: Facilities Leased to Seller
Terms of Service: Pursuant to and on the terms of a standard and
customary lease in accordance with local laws, Buyer
will sublease 3,000 sq. ft. of the Yorba Linda office
for use by Seller, such area to be identified by
Buyer after consultation with Seller, inclusive of
reasonable electricity and other utilities.
Term of Services: One year after the Closing Date with an option to
renew for one year.
Payment/Cost of Services: $3,400 per month.
Seller Representative: [Name and contact information of Seller's employee
representative responsible for providing this
Service]
Buyer Representative: [Name and contact information of Buyer's employee
representative responsible for providing this
Service]
B-15
APPENDIX C
FAIRNESS OPINION
B RILEY
Research Trading
Investment Banking
August 16, 2005
The Board of Directors of netGuru, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Dear Board Members:
We understand that netGuru, Inc. ("netGuru") will enter into an Asset
Purchase Agreement (the "Agreement") with Bentley Systems, Inc. ("Bentley") in
regards to the sale of netGuru's division, Research Engineers International
("REI" or "the Company"). Under the terms of the Agreement, REI will be acquired
by Bentley and, Bentley will pay $23.5 million in cash assuming that the net
assets of REI are zero, in other words the asset and liabilities transferred to
Bentley will be equal. Additionally, Bentley will pay $250,000 of netGuru's
transactions costs. Any excess asset received in excess to liabilities will be
paid to netGuru as accounts receivable as collected. The Transaction as
summarized above is hereinafter referred to as the "Transaction."
You have requested our opinion (the "Opinion") with respect to the
fairness, from a financial point of view, of the consideration to be received by
netGuru. In connection with this Opinion, we have made such reviews, analyses
and inquiries, as we have deemed necessary and appropriate under the
circumstances. Among other things, we have:
1. Reviewed REI's internal financial information and other data
prepared by the management of netGuru, relating to the business and financial
prospects of REI, as well as their estimated income statements and balance
sheets for the years ended March 31, 2003, 2004, and 2005;
2. Discussed with members of the senior management of REI, the
business, operations, financial condition, future prospects and projected
operations and performance of the Company;
3. Reviewed the draft Asset Purchase Agreement as of August 10, 2005
between netGuru and Bentley ("Agreement");
4. Reviewed management's estimated projections for REI through 2010,
which included summary income statements and balance sheet assumptions;
C-1
Board of Directors of
netGuru, Inc.
page 2
5. Reviewed publicly available financial and stock market data with
respect to certain other companies engaged in businesses we believe to be
generally comparable to that of REI (the "Comparables");
6. Prepared various other financial analysis to assess the value of
REI; and
7. Conducted such other financial studies, analyses and investigations
and considered such other information, as we deemed appropriate.
Our engagement and the Opinion expressed herein are for the benefit of
the Board of Directors of netGuru (the "Board") on their behalf as
representatives of the netGuru's shareholders, and our Opinion is rendered in
connection with the Board's consideration of the Transaction. It is further
understood that this Opinion may not be used for any other purpose, nor may it
be reproduced, disseminated, quoted or referred to at any time, in whole or in
part, in any manner or for any purpose, without our prior written consent;
provided, however, that this Opinion and any description thereof may be included
in its entirety in any proxy statement or consent solicitation statement
distributed to the Company's shareholders in connection with the Transaction
provided that any such inclusion or description shall be subject to our prior
review and approval, which will not be reasonably withheld. Notwithstanding the
foregoing, this Opinion is not intended and does not constitute a recommendation
to any such shareholder as to whether such shareholder should vote to approve
the Transaction.
In arriving at our Opinion, we have not performed any appraisals or
valuations of specific assets or liabilities of the Company and have not been
furnished with any such appraisals or valuations, and express no opinion
regarding the liquidation value of the Company. Without limiting the generality
of the foregoing, we have undertaken no independent analysis of any pending or
threatened litigation, possible unasserted claims or other contingent
liabilities to which either the Company is a party or may be subject and our
Opinion makes no assumption concerning, and therefore does not consider, the
possible assertion of claims, outcomes or damages arising out of any such
matters.
We have relied upon and assumed, without independent verification, that
the financial information provided to us has been reasonably prepared and
reflects the best currently available estimates of the financial results and
condition of the Company, and that there has been no material change in the
assets, financial condition, business or prospects of the Company since the date
of the most recent financial statements made available to us.
Without limiting the generality of the foregoing, for the purpose of
this Opinion, we have assumed that the Company is not a party to any pending
transactions, including external financing, recapitalizations, acquisitions, or
merger discussions, other than the Transaction. We have also assumed that the
Transaction will be consummated in accordance with the Agreement referred to
above.
C-2
Board of Directors of
netGuru, Inc.
page 3
Events occurring after the date hereof could materially affect the
assumptions used in preparing this Opinion, however, we do not have any
obligation to update, revise or reaffirm this Opinion. We were not requested to
opine as to, and this Opinion does not in any manner address, the Company's
underlying decision to proceed with or effect the Transaction or structure
thereof.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
For our services in rendering this Opinion, the Company has paid us a
fee and has agreed to indemnify us against certain liabilities.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the consideration proposed to be received by netGuru in
connection with the Transaction is fair, from a financial point of view, to
netGuru's shareholders.
Very truly yours,
B. Riley & Co., Inc.
By: /s/ Michael J. Lowell
Michael J. Lowell
Managing Director
Investment Banking
C-3
APPENDIX D
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial statements included in APPENDIX D
give effect to the sale of netGuru's ("Company's") Research Engineers
International ("REI") business and STAAD product lines to Bentley Systems
Incorporated ("Bentley") pursuant to the asset purchase agreement included as
APPENDIX A to this proxy statement.
The historical information was derived from the Company's unaudited
balance sheet as of June 30, 2005, the Company's unaudited statement of
operations for the three months ended June 30, 2005, and the Company's audited
statement of operations for the fiscal year ended March 31, 2005.
The unaudited pro forma balance sheet as of June 30, 2005 gives effect
to the REI disposal ("REI Disposition") as if it had occurred on that date. The
unaudited pro forma statements of operations for the three months ended June 30,
2005 and for the fiscal year ended March 31, 2005 assume that the disposal had
occurred on the first day of the fiscal period then ended.
The unaudited pro forma condensed consolidated financial statements
include specific assumptions and adjustments related to the disposition. These
pro forma adjustments have been made to illustrate the anticipated financial
effect of the disposition. The adjustments are based upon available information
and assumptions that the Company believes are reasonable as of the date of this
proxy statement. However, actual adjustments may differ materially from the
information presented. Assumptions underlying the pro forma adjustments are
described in the notes accompanying the pro forma financial statements and
should be read in conjunction with the Company's historical financial statements
and related notes contained in the Company's quarterly report on Form 10-QSB for
the period ended June 30, 2005 and the Company's annual report on Form 10-KSB
for the fiscal year ended March 31, 2005. These pro forma condensed consolidated
statements of operations do not include the anticipated $19.9 million gain on
the disposition.
The unaudited pro forma condensed consolidated financial information
presented in APPENDIX D is for information purposes only. It is not intended to
represent or be indicative of the consolidated results of operations or
financial position that would have been reported had the disposition been
completed as of the dates presented. The information is not representative of
the Company's future results of operations or financial position.
D-1
NETGURU, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
(Unaudited)
(In thousands)
As of June 30, 2005
NETGURU,
NETGURU, INC. REI PRO FORMA INC.
HISTORICAL DISPOSITION ADJUSTMENTS PRO FORMA
----------- ------------ ----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,851 $ (63)(H) $ 23,215 (A) $ 23,391
(3,612)(B)
Accounts receivable 3,302 (2,331)(G) - 971
Income tax receivable 12 - - 12
Notes and related party loans receivable 11 - - 11
Deposits 100 (64)(G) - 36
Prepaid expenses and other current assets 1,150 (477)(G) - 673
----------- ------------ ----------- ----------
Total current assets 8,426 (2,935) 19,603 25,094
Property, plant and equipment, net 1,593 (680)(G) - 913
Goodwill, net 3,088 (157)(G) - 2,931
Other assets 306 (161)(G) - 145
----------- ------------ ----------- ----------
Total assets $ 13,413 $ (3,933) $ 19,603 $ 29,083
----------- ------------ ----------- ----------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current portion of long-term debt, net $ 1,509 $ - $ (1,651)(B) $ 69
211 (C)
Related party loans payable 100 - 100
Current portion of capital lease obligations 155 (139)(G) - 16
Accounts payable 505 (317)(G) - 188
Accrued expenses 857 (570)(G) 988 (D) 1,275
Income taxes payable 28 - 1,500 (E) 1,528
Deferred revenues 2,297 (1,948)(G) - 349
Other liabilities 158 (99)(G) - 59
----------- ------------ ----------- ----------
Total current liabilities 5,609 (3,073) 1,048 3,584
Long-term debt, net of current portion 1,884 (1,961)(B) 47
124 (C)
Capital lease obligations, net of current portion 325 (274)(G) - 51
Deferred gain on sale-leaseback and other
long-term liabilities 683 (23)(G) - 660
----------- ------------ ----------- ----------
Total liabilities 8,501 (3,370) (789) 4,342
----------- ------------ ----------- ----------
Stockholders' equity:
Preferred stock - - - -
Common stock 191 - - 191
Additional paid-in capital 36,869 - - 36,869
Accumulated deficit (31,566) (563)(F) 20,392 (F) (11,737)
Accumulated other comprehensive loss:
Cumulative foreign currency translation
adjustments (582) - - (582)
----------- ------------ ----------- ----------
Total stockholders' equity 4,912 (563) 20,392 24,741
----------- ------------ ----------- ----------
Total liabilities and stockholders' equity $ 13,413 $ (3,933) $ 19,603 $ 29,083
----------- ------------ ----------- ----------
See accompanying notes to unaudited pro forma condensed consolidated balance sheet.
D-2
NETGURU, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(A) Reflects the proceeds received of $23.5 million in connection with the
REI Disposition, net of $285,000 of transaction costs
(B) Reflects the extinguishment of certain of the Company's outstanding
debt of $3.6 million with the proceeds received from the REI
Disposition.
(C) Reflects the discount relating to certain of the Company's outstanding
debt that is to be expensed as interest expense once the debt has been
extinguished.
(D) Reflects liabilities retained by the Company related to the REI
Disposition.
(E) Reflects the estimated income taxes payable on the REI Disposition.
(F) Reflects the estimated gain recognized from the REI Disposition, net of
taxes and transaction costs
(G) Reflects the elimination of all assets and liabilities of the REI
business segment.
(H) Reflects the difference between the current liabilities assumed by the
buyer and the assigned current assets the buyer will be receiving.
D-3
NETGURU, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended June 30, 2005
NETGURU, INC. REI PRO FORMA NETGURU, INC.
HISTORICAL DISPOSITION ADJUSTMENTS PRO FORMA
--------------- --------------- --------------- ---------------
Net revenues:
Engineering and collaborative software
products and services $ 3,014 $ (2,807)(A) $ - $ 207
IT services 834 834 - -
--------------- --------------- --------------- ---------------
Total net revenues $ 3,848 $ (2,807) $ - $ 1,041
Cost of revenues:
Engineering and collaborative software
products and services 125 (124)(A) - 1
IT services 633 633 - 633
--------------- --------------- --------------- ---------------
Total cost of revenues 758 (124) - 634
--------------- --------------- --------------- ---------------
Gross profit 3,090 (2,683) - 407
--------------- --------------- --------------- ---------------
Operating expenses:
Selling, general and administrative 2,454 (1,874)(B) - 580
Research and development 382 (229)(A) - 153
Bad debt expense 208 (152)(A) - 56
Depreciation 217 (173)(A) - 44
--------------- --------------- --------------- ---------------
Total operating expenses 3,261 (2,428) - 833
--------------- --------------- --------------- ---------------
Operating (loss) income (171) (255) - (426)
--------------- --------------- --------------- ---------------
Other expense (income):
Interest, net 138 (15)(A) (98)(C) 25
Other 10 (5)(A) - 5
--------------- --------------- --------------- ---------------
Total other expense 148 (20) (98) 30
--------------- --------------- --------------- ---------------
Loss from continuing operations before (319) (235) 98 (456)
income taxes
Income tax expense 15 - - 15
Loss from continuing operations $ (334) $ (235) $ 98 $ (471)
Basic and diluted loss per common share:
Loss per common share from continuing
operations $ (0.02) $ (0.02)
=============== ===============
Common shares used in computing basic and
diluted net loss per common share: 19,117 19,117
=============== ===============
See accompanying notes to unaudited pro forma condensed consolidated statement of operations.
D-4
NETGURU, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Year Ended March 31, 2005
NETGURU, INC. REI PRO FORMA NETGURU, INC.
HISTORICAL DISPOSITION ADJUSTMENTS PRO FORMA
---------------- ---------------- ---------------- ----------------
Net revenues:
Engineering and collaborative software
products and services $ 11,636 $ (11,035)(C) $ - $ 601
IT services 4,207 - - 4207
---------------- ---------------- ---------------- ----------------
Total net revenues $ 15,843 $ (11,035) $ - $ 4,808
Cost of revenues:
Engineering and collaborative software
products and services 786 (713)(D) - 73
IT services 2,757 - 2,757
---------------- ---------------- ---------------- ----------------
Total cost of revenues 3,543 (713) - 2,830
---------------- ---------------- ---------------- ----------------
Gross profit 12,300 (10,322) - 1,978
---------------- ---------------- ---------------- ----------------
Operating expenses:
Selling, general and administrative 9,753 (6,946)(E) - 2,807
Research and development 1,578 (1,035)(D) - 543
Bad debt expense 355 (119)(D) - 236
Depreciation 990 (783)(D) - 207
---------------- ---------------- ---------------- ----------------
Total operating expenses 12,676 (8,883) - 3,793
---------------- ---------------- ---------------- ----------------
Operating loss (376) (1,439)(D) - (1,815)
---------------- ---------------- ---------------- ----------------
Other expense (income):
Interest, net 543 (69)(D) (461)(C) 13
Other (102) 7 (D) - (95)
---------------- ---------------- ---------------- ----------------
Total other expense 441 (62)(D) (461) (82)
---------------- ---------------- ---------------- ----------------
Loss from continuing operations before (817) (1,377) 461 (1,733)
income taxes
Income tax expense 38 - - 38
Loss from continuing operations $ (855) $ (1,377) $ 461 $ (1,771)
Basic and diluted loss per common share:
Loss per common share from continuing
operations $ (0.05) $ (0.09)
================ ================
Common shares used in computing basic and
diluted net loss per common share: 18,858 18,858
================ ================
See accompanying notes to unaudited pro forma condensed consolidated statement of operations.
D-5
NETGURU, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(A) Reflects the elimination of all revenues and expenses of the REI
business segment for the three months ended June 30, 2005.
(B) Reflects the elimination of all selling, general, and administrative
expenses for the three months ended June 30, 2005. The amount presented
represents the allocations to the REI business segment that were
specifically identified as expenses of the REI business segment and for
a few general and administrative expenses the amounts were based on an
estimated allocation for that segment. As a result of the Company
reporting discontinued operations, EITF 87-24 does not allow corporate
expenses to be allocated to the discontinued operations, therefore
these amounts do not include any corporate overhead expenses.
(C) Reflects the elimination of interest expense related to the Company's
debt as a result of the extinguishments of certain of its debt with the
proceeds from the REI Disposition.
(D) Reflects the elimination of all revenues and expenses of the REI
business segment for the fiscal period ended March 31, 2005.
(E) Reflects the elimination of all selling, general, and administrative
expenses for the fiscal period ended March 31, 2005. The amount
presented represents the allocations to the REI business segment that
were specifically identified as expenses of the REI business segment
and for a few general and administrative expenses the amounts were
based on an estimated allocation for that segment. As a result of the
Company reporting discontinued operations, EITF 87-24 does not allow
corporate expenses to be allocated to the discontinued operations;
therefore these amounts do not include any corporate overhead expenses.
D-6
APPENDIX E
UNAUDITED HISTORICAL FINANCIAL INFORMATION
The following unaudited historical financial statements for Research
Engineers International Division (A Business Unit of netGuru, Inc.) are
included in this APPENDIX E:
Page
----
Statements of Operations for the Quarters Ended June 30, 2005
and 2004 and the Years Ended March 31, 2005 and 2004...........E-2
Balance Sheets as of June 30, 2005 and March 31, 2005...............E-3
Statements of Cash Flows for the Quarters Ended June 30, 2005
and 2004 and the Years Ended March 31, 2005 and 2004...........E-4
Statements of Changes in Divisional Equity and Comprehensive
Loss for the Years Ended March 31, 2005 and 2004 and
Three Months Ended June 30, 2005...............................E-5
Notes to Unaudited Financial Statements.............................E-6
E-1
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE QUARTERS ENDED FOR THE YEARS ENDED
JUNE 30, MARCH 31,
------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues $ 2,807 $ 2,362 $ 11,034 $ 10,322
Cost of revenues 124 176 713 653
----------- ----------- ----------- -----------
Gross profit 2,683 2,186 10,321 9,669
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and 1,843 1,499 6,727 6,222
administrative
Research and development 229 277 1,035 1,210
Bad debt expense 152 9 119 45
Depreciation 152 186 707 671
----------- ----------- ----------- -----------
Total operating expenses 2,376 1,971 8,588 8,148
----------- ----------- ----------- -----------
Operating income 307 215 1,733 1,521
----------- ----------- ----------- -----------
Other expense (income):
Interest, net 29 31 134 179
Other income 10 -- (15) (125)
----------- ----------- ----------- -----------
Total other expense 39 31 119 54
----------- ----------- ----------- -----------
Income from operations before 268 184 1,614 1,467
income taxes
Income tax expense 107 74 646 587
----------- ----------- ----------- -----------
Net income $ 161 $ 110 $ 968 $ 880
=========== =========== =========== ===========
See accompanying notes to unaudited financial statements
E-2
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, MARCH 31,
2005 2005
(UNAUDITED) (UNAUDITED)
--------- ---------
Current assets:
Cash and cash equivalents $ 1,264 $ 846
Restricted cash 60 62
--------- ---------
Total cash and cash equivalents 1,324 908
Accounts receivable (net of allowance for doubtful
accounts of $657 and $506, respectively) 2,210 2,756
Income tax receivable -- 4
Deposits 64 52
Prepaid expenses and other current assets 476 417
--------- ---------
Total current assets 4,074 4,137
Property and equipment, net 686 839
Goodwill 157 157
Other assets 161 121
--------- ---------
$ 5,078 $ 5,254
========= =========
Current liabilities:
Current portion of long-term bank debt $ 693 $ 642
Current portion of capital lease obligations 140 129
Accounts payable 317 295
Accrued expenses 570 755
Income taxes payable 28 29
Deferred revenues 1,948 2,208
Other 149 207
--------- ---------
Total current liabilities 3,845 4,265
Capital lease obligations, net of current portion 274 288
Long-term bank debt 371 391
--------- ---------
Total liabilities 4,490 4,944
--------- ---------
Divisional equity:
Divisional capital 1,085 773
Accumulated other comprehensive loss:
Cumulative foreign currency translation adjustments (497) (463)
--------- ---------
Total divisional equity 588 310
--------- ---------
$ 5,078 $ 5,254
========= =========
See accompanying notes to unaudited financial statements
E-3
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE QUARTERS ENDED FOR THE YEARS ENDED
JUNE 30, MARCH 31,
2005 2004 2005 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
Cash flows from operating activities:
Net income $ 161 $ 110 $ 968 $ 880
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 152 186 707 671
Bad debt expense 152 9 119 45
Loss/(gain) on disposal of property (1) -- 11 --
Changes in operating assets and
liabilities:
Accounts receivable 351 208 (892) (413)
Notes and related party loans receivable -- -- -- 3
Income tax receivable 4 -- 12 (15)
Prepaid expenses and other current
assets (63) (100) (55) (182)
Deposits (12) 3 (1) 19
Other assets (40) (5) (115) 9
Accounts payable 23 (15) 86 (116)
Accrued expenses (175) (203) 73 218
Income taxes payable -- (5) (28) (35)
Other current liabilities (45) (27) 11 (58)
Deferred revenues (229) (106) 529 (133)
----------- ----------- ----------- -----------
Net cash provided by operating activities 278 55 1,425 893
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (65) (75) (304) (103)
Proceeds from sale of property and equipment 2 -- 28 --
----------- ----------- ----------- -----------
Net cash used in investing activities (63) (75) (276) (103)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term bank debt 48 713 1,035 904
Repayment of long-term bank debt (19) (751) (474) (1,293)
Repayment of capital lease obligations (32) (31) (119) (215)
Net capital contributions to the division 151 202 (1,636) (1,214)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 148 133 (1,194) (1,818)
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 53 21 183 269
----------- ----------- ----------- -----------
Net cash provided by (used in) operations 416 134 138 (759)
Cash and cash equivalents, beginning of period 908 770 770 1,529
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,324 $ 904 $ 908 $ 770
=========== =========== =========== ===========
Supplemental disclosure for cash flow information:
Cash paid during the period for:
Interest $ 41 $ 34 $ 145 $ 112
Taxes $ 6 $ -- $ 1 $ 8
Supplemental disclosure of non-cash and financing
activities:
Acquisition of equipment under capital lease $ 29 $ -- $ 118 $ --
See accompanying notes to unaudited financial statements.
E-4
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED MARCH 31, 2005 AND 2004
AND THREE MONTHS ENDED JUNE 30, 2005
(UNAUDITED)
(IN THOUSANDS)
OTHER TOTAL
DIVISIONAL COMPREHENSIVE DIVISIONAL
CAPITAL INCOME (LOSS) EQUITY
----------- -------------- -----------
Balance, March 31, 2003 $ 1,775 $ (850) $ 925
Net income 880 -- 880
Net distributions to the Division (1,214) -- (1,214)
Foreign currency translation -- 224 224
----------- -------------- -----------
Balance, March 31, 2004 1,441 (626) 815
Net income 968 -- 968
Net distributions to the Division (1,636) -- (1,636)
Foreign currency translation -- 163 163
----------- -------------- -----------
Balance, March 31, 2005 773 (463) 310
Net income 161 -- 161
Net contributions to the Division 151 -- 151
Foreign currency translation -- (34) (34)
----------- -------------- -----------
Balance, June 30, 2005 $ 1,085 $ (497) $ 588
=========== ============== ===========
See accompanying notes to unaudited financial statements.
E-5
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Research Engineers International (the "Division") is a business unit of
netGuru, Inc. ("netGuru") offering stand-alone and network-based
structural and civil engineering products and services for businesses
worldwide including the STAAD.Pro family of products.
BASIS OF PRESENTATION
The Division does not constitute a separate legal entity. The unaudited
financial statements of the Division present the operating results and
the financial position of the Research Engineers International Division
of netGuru.
The unaudited financial statements have been prepared from the
historical accounting records of netGuru and reflect the allocation of
various corporate overhead costs and activities. All of the accounting
judgments, estimations and allocations in these financial statements
are based on assumptions that the management of netGuru believe are
reasonable for purposes of preparing the Division's financial
statements. Allocations were specifically identifiable or allocated
based on headcount, percentage of revenue, and various other
measurements. However, these allocations are estimates and are not
necessarily indicative of the costs that would have resulted had the
Division operated as a stand-alone, separate entity.
The unaudited financial statements have been prepared by netGuru and
include all normal and recurring adjustments which are, in the opinion
of management, necessary for a fair presentation of the financial
position as of June 30, 2005 and March 31, 2005 and the results of
operations and the cash flows for the quarters ended June 30, 2005
and 2004 and fiscal years ended March 31, 2005 and 2004, pursuant to
the rules and regulations of the Securities and Exchange
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures About Fair Value Of Financial Instruments," requires
management to disclose the estimated fair value of certain assets and
liabilities defined by SFAS No. 107 as financial instruments.
Management believed the carrying amounts of cash and cash equivalents,
receivable and payable amounts, and accrued expenses approximated fair
value at June 30, 2005 and March 31, 2005 because of the short maturity
of these financial instruments. The Division also believed that the
carrying amounts of its capital lease obligations approximated their
fair value, as the interest rates approximated a rate that the Division
could have obtained under similar terms at the balance sheet date.
E-6
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial condition and results of operations of the Division's
foreign operations are accounted for using the local currency as the
functional currency. Assets and liabilities of the subsidiaries are
translated into U.S. dollars (the reporting currency) at the exchange
rate in effect at the fiscal year-end. Statements of operations
accounts are translated at the average rate of exchange prevailing
during the respective fiscal years. Translation adjustments arising
from the use of differing exchange rates from period to period are
included in accumulated other comprehensive (loss) in the statements of
changes in divisional capital and comprehensive loss. Gains and losses
resulting from foreign currency transactions are included in operations
and are not material for the three months ended June 30, 2005 and 2004
and the years ended March 31, 2005 and 2004.
CASH AND CASH EQUIVALENTS
The Division considers all liquid investments with maturities of three
months or less at the date of purchase to be cash equivalents.
PROPERTY AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the following useful
lives:
Computer equipment 5 years
Computer software 2-3 years
Office equipment and furniture 3-7 years
Assets subject to capital lease agreements and leasehold improvements
are amortized over the lesser of the life of the asset or the term of
the lease.
GOODWILL
The Division adopted the provisions of SFAS No. 142 "Goodwill and Other
Intangible Assets" on April 1, 2002. SFAS No. 142 requires that
goodwill and intangible assets with indefinite useful lives no longer
be amortized, but instead be tested for impairment at least annually.
SFAS No. 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144. SFAS No. 142 required the Division to
perform an assessment of whether there was an indication that goodwill
was impaired as of the date of adoption.
The Division is required to perform additional reviews for impairment
annually, or more frequently if events occur or circumstances change
that would more likely than not reduce the fair value of the net
carrying amount. The Division performed its annual reviews and
determined that, as of March 31, 2005, no impairment
of goodwill existed.
The balance of goodwill at June 30, 2005 and March 31, 2005 was
$157,000.
E-7
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
The Division accounts for its long-lived assets under SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future
cash flows, an impairment charge is recognized in the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
SFAS No. 144 requires companies to separately report discontinued
operations and extends that reporting to a component of an entity that
either has been disposed of (by sale, abandonment, or in a distribution
to owners) or is classified as held for sale. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less
costs to sell.
SOFTWARE DEVELOPMENT COSTS AND PURCHASED TECHNOLOGY
The Division capitalizes costs related to the development of certain
software products in accordance with SFAS No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed."
Capitalization of costs begins when technological feasibility is
established and ends when the product is available for general release
to customers. Capitalized costs of approximately $144,000 and $101,000,
net of accumulated amortization, were included in other assets as of
June 30, 2005 and March 31, 2005, respectively. Additions to
capitalized software were $42,000 and $101,000 during the quarter
ended June 30, 2005 and during fiscal 2005, respectively.
The Division amortizes capitalized software development costs and
purchased technology using the straight-line method over two to five
years, or the ratio of actual sales to anticipated sales, whichever is
greater. There was no amortization of software development costs and
purchased technology charged to cost of revenues for the quarters
ended June 30, 2005 and 2004 and $1,000 and $5,000 was charged for the
years ended March 31, 2005, and 2004, respectively. Accumulated
amortization of capitalized software was $460,000 as of June 30, 2005
and March 31, 2005.
REVENUE RECOGNITION
The Division recognizes revenue when the following criteria are met:
1. persuasive evidence of an arrangement, such as agreements,
purchase orders or written or online requests, exists;
2. delivery has been completed and no significant obligations remain;
3. the Division's price to the buyer is fixed or determinable; and
4. collection is probable.
Revenue from software sales is recognized when persuasive evidence of
an arrangement exists, delivery has been completed and if no
significant post-contract support obligations remain outstanding, the
price to the Division's buyer is fixed or determinable and collection
of the resulting receivable is probable. The Division provides a 15-day
right of return (from the date of purchase) on the purchase of a
E-8
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
product during which time the customer may return the product subject
to a $50 restocking fee per item returned. Since the Division's product
returns have historically not been material, the Division does not make
any provisions for such returns. Customers may choose to purchase
maintenance contracts that include telephone, e-mail and other methods
of support, and the right to receive upgrades. Revenue from these
maintenance contracts is deferred and recognized ratably over the life
of the contract, usually twelve months. In October 1997, the Accounting
Standards Executive Committee ("AcSEC") of the AICPA issued Statement
of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2
distinguishes between significant and insignificant vendor obligations
as a basis for recording revenue, with a requirement that each element
of a software licensing arrangement be separately identified and
accounted for based on relative fair values of each element. The
Division determines the fair value of each element in multi-element
transactions based on vendor-specific objective evidence ("VSOE"). VSOE
for each element is based on the price charged when the same element is
sold separately.
In 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions," which
modifies SOP 97-2 to allow for use of the residual method of revenue
recognition if certain criteria have been met. If evidence of fair
value of all undelivered elements exists but evidence does not exist
for one or more delivered elements, then revenue is recognized using
the residual method. Under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion of the
transaction fee is recognized as revenue.
The Division sells its engineering software along with a maintenance
package. This constitutes a multiple element arrangement. The price
charged for the maintenance portion is the same as when the maintenance
is sold separately. The fair values of the maintenance contracts sold
in all multiple element arrangements are recognized over the terms of
the maintenance contracts. The engineering software portion is
recognized when persuasive evidence of an arrangement exits, price is
fixed and determinable, when delivery is complete, collection of the
resulting receivable is probable and no significant obligations remain.
DEFERRED REVENUES
The Division defers revenues for its maintenance contracts. The
Division defers its maintenance revenues when the maintenance contracts
are sold, and then recognizes the maintenance revenues over the term of
the maintenance contracts.
RESEARCH AND DEVELOPMENT
The Division's research and development ("R&D") costs consist mainly
of developers' salaries. The Division follows the provisions of SFAS
No. 86 to capitalize software development costs when technological
feasibility has been established and to stop capitalization when the
product is available for general release to customers. The Division
expenses development costs when they are related to enhancement of
existing software products.
E-9
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
The Division applies the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which establishes rules for the reporting and
display of comprehensive income (loss) and its components. SFAS No. 130
requires changes in foreign currency translation adjustments, which are
reported separately in divisional equity, to be included in other
comprehensive income (loss).
INCOME TAXES
The Division does not file separate federal or state income tax returns
as netGuru files income tax returns that include the operations of the
Division. The Division records a current provision for state and
foreign income taxes based upon amounts payable or refundable. Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis and related tax credits/carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. Due to the
interrelationship of the Division and netGuru, net deferred tax assets
and liabilities are not considered to be material to the Division's
financial statements.
STOCK-BASED COMPENSATION
Certain employees of the Division were granted stock options from
netGuru's stock option plan. As required by SFAS No. 123 the Division
disclosed below the pro forma effect on operations, as if compensation
costs were recorded at the estimated fair value of the stock options
granted:
FOR THE QUARTERS ENDED FOR THE YEARS ENDED
JUNE 30, MARCH 31,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
(in thousands) (in thousands)
Net income - as reported $ 161 $ 110 $ 968 $ 880
Deduct: Stock-based compensation
expense determined under the fair value
based method for all awards, net of tax 27 26 212 524
-------- -------- -------- --------
Net income - pro forma $ 134 $ 84 $ 756 $ 356
======== ======== ======== ========
E-10
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, as of June 30, 2005 and March 31, 2005
consisted of the following (in thousands):
JUNE 30, MARCH 31,
2005 2005
------- -------
Leasehold improvements $ 134 $ 133
Office and computer equipment, software
and furniture 4,949 5,033
Assets under capital lease 937 937
Automobiles 159 135
------- -------
6,179 6,238
Less accumulated depreciation and amortization (5,493) (5,399)
------- -------
Property and equipment, net $ 686 $ 839
======= =======
(3) LONG TERM DEBT
Long-term debt, including capital lease obligations, consisted of the
following at June 30, 2005 and March 31, 2005 (dollars in thousands):
JUNE 30, MARCH 31,
2005 2005
-------- --------
Term loan from a bank in India, bearing interest at 9.5% per annum
payable monthly, principal due in monthly installments beginning
January 2005 and ending December 2009, secured by substantially all
of the Division's assets located in India and guaranteed by a
major stockholder (see note 7) $ 423 $ 440
Revolving line of credit from a bank in India, bearing interest at
11.0% per annum, secured by substantially all of the Division's
assets located in India, maturing December 2009 612 562
Capital lease obligations maturing at dates ranging from April 2006 to
August 2009, secured by the leased assets 414 417
Other 29 31
-------- --------
Total long-term debt 1,478 1,450
Less: current portion 833 771
-------- --------
$ 645 $ 679
======== ========
E-11
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
The long-term debt, excluding unamortized discount, and capital lease
obligations mature in each of the following years ending March 31 (in
thousands):
LONG-TERM CAPITAL LEASE
DEBT OBLIGATIONS
----------- -----------
2006 $ 642 $ 188
2007 91 170
2008 99 129
2009 109 49
2010 89 4
Thereafter 3 --
----------- -----------
Total minimum payments $ 1,033 540
=========== ===========
Less amount representing interest -- (123)
----------- -----------
Present value of minimum capital
lease payments -- $ 417
=========== ===========
(4) COMMITMENTS AND CONTINGENCIES
The Division leases certain facilities and equipment under
non-cancelable operating leases. The facility leases include options to
extend the lease terms and provisions for payment of property taxes,
insurance and maintenance expenses.
At March 31, 2005, future minimum annual rental commitments under these
lease obligations were as follows (in thousands):
Year ending March 31:
2006 $ 208
2007 162
2008 66
2009 6
-----------
$ 442
===========
Rent expense was $56,000 and $58,000 for the quarters ended
June 30, 2005 and 2004, respectively, and $227,000 and $238,000 for
the years ended March 31, 2005 and 2004, respectively.
(5) DIVISIONAL CAPITAL
The Division has been dependent upon netGuru to fund its working
capital needs. All charges and allocations of costs for functions and
services provided by netGuru are deemed paid by the Division, in cash,
in the year in which the cost is recorded in these unaudited financial
statements. netGuru does not charge the Division interest on the
divisional capital balances.
E-12
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(6) SEGMENT AND GEOGRAPHIC DATA
The Division's operations are based worldwide through foreign and
domestic subsidiaries and branch offices in the U.S., Germany, India,
the United Kingdom, and Asia-Pacific. The following are significant
components of worldwide operations by geographic location:
FOR THE QUARTERS ENDED FOR THE YEARS ENDED
JUNE 30, MARCH 31,
----------------- -----------------
2005 2004 2005 2004
------- ------- ------- -------
(in thousands) (in thousands)
NET REVENUE
United States $ 1,093 $ 748 $ 3,584 $ 3,490
The Americas (other than U.S.) 203 165 724 692
Europe 747 691 2,968 3,069
Asia-Pacific 764 758 3,758 3,071
------- ------- ------- -------
CONSOLIDATED $ 2,807 $ 2,362 $11,034 $10,322
======= ======= ======= =======
EXPORT SALES
United States $ 336 $ 378 $ 1,500 $ 1,630
AT JUNE 30, AT MARCH 31,
LONG-LIVED ASSETS 2005 2005
---------- ----------
(in thousands) (in thousands)
United States $ 577 $ 476
Europe 188 201
Asia-Pacific 239 440
---------- ----------
Consolidated $ 1,004 $ 1,117
========== ==========
(7) RELATED PARTY TRANSACTION
In January 2005, Mr. Amrit Das, netGuru's chief executive officer
personally guaranteed a term loan from a bank in India. The term loan
is secured by substantially all of the Divisions assets located in
India. The loan bears an annual interest of 9.5% payable monthly. The
principal is payable in quarterly installments beginning January 2005
and ending December 2009. The Division owed $423,000 and $440,000 at
June 30, 2005 and March 31, 2005, respectively on this loan (see Note 3
"Long-Term Debt").
(8) SUBSEQUENT EVENT
On August 22, 2005 netGuru entered into an asset purchase agreement to
sell its Research Engineers International Division and STAAD product
lines to privately held Bentley Systems, Incorporated for $23.5 million
in cash.
The pending sale is subject to various closing conditions, including
approval by netGuru stockholders and compliance with regulatory
requirements. If approved, the sale is expected to close before the end
of 2005. A portion of the sale proceeds is expected to be allocated to
transaction costs, applicable taxes and the retirement of outstanding
debt.
E-13
RESEARCH ENGINEERS INTERNATIONAL DIVISION
(A BUSINESS UNIT OF NETGURU, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
Bentley would acquire the worldwide operations associated with the
Division, including the market-leading STAAD structural analysis and
design product line, software and product development, customer support
and relationships, and offices associated with the worldwide business,
including offices in Yorba Linda, California; Bristol, UK; and Kolkata,
India; as well as Division sales offices in other parts of Europe and
Asia.
E-14
APPENDIX F
NETGURU, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
2005 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 17, 2005
The undersigned stockholder of netGuru, Inc. ("Company") hereby
constitutes and appoints Amrit K. Das and Santanu K. Das, and either of them
individually, with the power to appoint his substitution as attorney, agent and
proxy, to appear, attend and vote, all of the shares of common stock of the
Company standing in the name of the undersigned on the record date at the 2005
Annual Meeting of Stockholders of the Company to be held at the Company's
offices located at 22700 Savi Ranch Parkway, Yorba Linda, California 92887, on
November 17, 2005, at 10:00 a.m. local time, and at any adjournments and
postponements thereof, upon the proposals listed on the reverse side and in the
discretion of the proxy holder on such other business as may properly come
before the meeting, or any adjournments or postponements thereof.
(continued and to be signed on the reverse side)
F-1
ANNUAL MEETING OF STOCKHOLDERS OF
NETGURU, INC.
NOVEMBER 17, 2005
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" FOR THE ELECTION OF
DIRECTORS AND "FOR" PROPOSALS 2, 3 AND 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK
YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
- --------------------------------------------------------------------------------
1. To elect five nominees to the board of directors as follows:
NOMINEES:
[ ] FOR ALL NOMINEES 0 Amrit K. Das
0 Santanu K. Das
[ ] WITHHOLD AUTHORITY 0 Benedict A. Eazzetta
FOR ALL NOMINEES 0 D. Dean McCormick III
0 Stanley W. Corbett
[ ] FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: |X|
2. To consider and vote upon a proposal to approve the sale of Research
Engineers International ("REI") business and STAAD product lines for a purchase
price of approximately $23.5 million under the terms of an asset purchase
agreement dated August 19, 2005, as described in more detail in the proxy
statement, which asset sale may be deemed to be a sale of substantially all of
the Company's assets.
3. To consider and vote upon a proposal to ratify certain issuances of equity
securities for compensatory purposes, as described in more detail in the proxy
statement.
4. To consider and vote upon a proposal to ratify the appointment of Haskell &
White LLP, independent registered public accounting firm, to audit the
consolidated financial statements of the Company for the fiscal year ending
March 31, 2006.
IF NO DIRECTION IS PROVIDED, THIS PROXY WILL BE VOTED AS RECOMMENDED BY
THE BOARD OF DIRECTORS.
- --------------------------------------------------------------------------------
To change the address on your account, please check the box at right and [ ]
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
F-2
- --------------------------------------------------------------------------------
Signature of Stockholder Date:
------------------------------------ -------------
Signature of Stockholder Date:
------------------------------------ -------------
NOTE: Please sign exactly as your name or names appear on this proxy.
When shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
F-3
APPENDIX G
WRITTEN AGREEMENTS RELATING TO PROPOSAL 3
Pursuant to Item 10(c)(3) of Schedule 14A, attached are the following
written agreements relating to the compensation arrangements that are the
subject of proposal 3 of the foregoing proxy statement:
1. Form of Non-Qualified Stock Option Agreement dated as of February 18,
2005 between netGuru, Inc. and each of the consultants named in
proposal 3.
2. Form of Amendment No. 1 to Non-Qualified Stock Option Agreement dated
as of September 8, 2005 between netGuru, Inc. and each of the
consultants named in proposal 3.
3. Form of Agreement Regarding Equity Compensation between netGuru, Inc.
and the former director named in proposal 3.
G-1
FORM OF
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (this "Agreement") is made
and entered into by and between netGuru, Inc., a Delaware corporation
("Company"), and ______________ ("Optionee"), as of February 18, 2005 ("Date of
Grant"). If the Optionee is presently or subsequently becomes employed by a
subsidiary of the Company, the term "Company" shall be deemed to refer
collectively to netGuru, Inc. and the subsidiary or subsidiaries that employs
the Optionee.
RECITALS
The Board of Directors ("Board") has approved the granting of an option
to the Optionee for consulting services provided by the optionee.
AGREEMENT
In consideration of the mutual covenants and conditions hereinafter set
forth and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and the Optionee agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the right and
option ("Option") to purchase up to an aggregate of _____________ (_____) shares
(such number being subject to adjustment as provided in paragraph 10 below) of
the Common Stock of netGuru, Inc. ("Stock") on the terms and conditions herein
set forth. This Option may be exercised in whole or in part and from time to
time as hereinafter provided. The Option granted under this Agreement is not
intended to be an "incentive stock option" as set forth in Section 422 of the
Internal Revenue Code of 1986, as amended ("Code").
2. Vesting of Option. Subject to paragraph 8 below, 100% of the Option shall
vest and become exercisable immediately on the Date of Grant.
3. Purchase Price. The price at which the Optionee shall be entitled to purchase
the Stock covered by the Option shall be $1.12 per share, which price is 100% of
the Fair Market Value of the Stock (herein after defined) on the Date of Grant.
For purposes of this Agreement, the "Fair Market Value" of a share of the
Company's Common Stock as of a given date shall be: (i) the closing price of a
share of the Company's Common Stock on the principal exchange on which shares of
the Company's Common Stock are then trading, if any, on the day immediately
preceding that date, or, if shares were not traded on that date, then on the
next preceding trading day during which a sale occurred; or (ii) if the
Company's Common Stock is not traded on an exchange but is quoted on The Nasdaq
National Market, The Nasdaq SmallCap Market, the Over-The-Counter Bulletin Board
("OTCBB") or a successor quotation system, the last sale price for the Common
Stock on the day immediately preceding that date as reported by Nasdaq, the
OTCBB or the successor quotation system or, if shares were not traded on that
date, then on the next preceding trading day during which a sale occurred; or
(iii) if the Company's Common Stock is not publicly traded on an exchange and
not quoted on Nasdaq or a successor quotation system, the closing representative
bid price for the Common Stock on that date as determined in good faith by the
Board; or (iv) if the Company's Common Stock is not publicly traded, the fair
market value established by the Board acting in good faith.
4. Term of Option. The Option granted under this Agreement shall expire, unless
otherwise exercised, five years from the Date of Grant, through and including
the normal close of business of the Company on February 17, 2010 ("Expiration
Date").
5. Exercise of Option. The Option may be exercised by the Optionee as to all or
any part of the Stock then vested by delivery to the Company of written notice
of exercise and payment of the purchase price as provided in paragraphs 6 and 7
below.
6. Method of Exercising Option. Subject to the terms and conditions of this
Agreement, the Option may be exercised by timely delivery to the Company of
written notice, which notice shall be effective on the date received by the
Company ("Effective Date"). The notice shall state the Optionee's election to
exercise the Option, the number of shares in respect of which an election to
exercise has been made, the method of payment elected (see paragraph 7 below),
the exact name or names in which the shares will be registered and the taxpayer
identification number of the Optionee. The notice shall be signed by the
Optionee and shall be accompanied by payment of the purchase price of such
shares. If the Option is exercised by a person or persons other than Optionee
pursuant to paragraph 8 below, the notice shall be signed by the other person or
persons and shall be accompanied by proof acceptable to the Company of the legal
right of the person or persons to exercise the Option. All shares delivered by
the Company upon exercise of the Option shall be fully paid and nonassessable
upon delivery.
G-2
7. Method of Payment for Options. Payment for shares purchased upon the exercise
of the Option shall be made by the Optionee in cash or such other method
permitted by the Board and communicated to the Optionee in writing prior to the
date the Optionee exercises all or any portion of the Option.
8. Nontransferability. The Option granted by this Agreement shall be exercisable
only during the term of the Option provided in paragraph 4 above and only by the
Optionee during his lifetime and while an Optionee of the Company. This Option
shall not be transferable by the Optionee or any other person claiming through
the Optionee, either voluntarily or involuntarily, except by will or the laws of
descent and distribution.
9. Adjustments in Number of Shares and Option Price. In the event of a stock
dividend, or if the Stock is changed into or exchanged for a different number or
class of shares of stock of the Company or of another corporation, whether
through reorganization, recapitalization, stock split-up, combination of shares,
merger or consolidation, there shall be substituted for each remaining share of
Stock then subject to this Option the number and class of shares of stock into
which each outstanding share of Stock is to be so exchanged, all without any
change in the aggregate purchase price for the shares then subject to the
Option.
10. Delivery of Shares. No shares of Stock shall be delivered upon exercise of
the Option until (i) the purchase price has been paid in full in the manner
herein provided; (ii) applicable taxes required to be withheld have been paid or
withheld in full; (iii) approval of any governmental authority required in
connection with the Option, or the issuance of shares thereunder, has been
received by the Company; and (iv) if required by the Board, the Optionee has
delivered to the Board an Investment Letter in form and content satisfactory to
the Company as provided in paragraph 12 below.
11. Securities Act. The Company shall not be required to deliver any shares of
Stock pursuant to the exercise of all or any part of the Option if, in the
opinion of counsel for the Company, the issuance would violate the Securities
Act of 1933, as amended ("Securities Act"), or any other applicable federal or
state securities laws or regulations. The Board may require that the Optionee,
prior to the issuance of any shares pursuant to exercise of the Option, sign and
deliver to the Company a written statement ("Investment Letter") stating (i)
that the Optionee is purchasing the shares for investment and not with a view to
the sale or distribution thereof; (ii) that the Optionee will not sell any
shares received upon exercise of the Option or any other shares of the Company
that the Optionee may then own or thereafter acquire except either (a) through a
broker on a national securities exchange or (b) with the prior written approval
of the Company; and (iii) containing such other terms and conditions as counsel
for the Company may reasonably require to assure compliance with the Securities
Act or other applicable federal or state securities laws and regulations. The
Investment Letter shall be in form and content acceptable to the Board in its
sole discretion.
12. Federal and State Taxes. Upon exercise of the Option, or any part thereof,
the Optionee may incur certain liabilities for federal, state or local taxes,
and the Company may be required by law to withhold taxes for payment to taxing
authorities. Upon determination by the Company of the amount of taxes required
to be withheld, if any, with respect to the shares to be issued pursuant to the
exercise of the Option, the Optionee shall pay all federal, state and local tax
withholding requirements to the Company.
13. Administration. This Agreement shall be administered by the Board in
its sole and complete discretion, and decisions of the majority of the Board
with respect thereto and to this Agreement shall be final and binding upon the
Optionee and the Company.
14. Continuation of Services. This Agreement shall not be construed to confer
upon the Optionee any right to continue as a consultant to the Company and shall
not limit the right of the Company, in its sole discretion, to terminate the
services of the Optionee at any time.
15. Obligation to Exercise. The Optionee shall have no obligation to exercise
the Option evidenced by this Agreement.
16. Governing Law. The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and the Optionee under the
Option. All other questions and obligations under the Option shall be construed
and enforced in accordance with the internal laws of the State of California,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California. The Company and the Optionee hereby consent, in any dispute, action,
litigation or other proceeding concerning the Option (including arbitration) to
the jurisdiction of the courts of the State of California, with the County of
Orange being the sole venue for the bringing of the action or proceeding.
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17. Amendments. This Agreement may be amended only by a written agreement
executed by the Company and the Optionee. The Company and the Optionee
acknowledge that changes in federal tax laws enacted subsequent to the Date of
Grant, and applicable to stock options, may provide for tax benefits to the
Company or the Optionee. In that event, the Company and the Optionee agree that
this Agreement may be amended as necessary to secure for the Company and the
Optionee any benefits that may result from that legislation. Any amendment shall
be made only upon the mutual consent of the parties, which consent (of either
party) may be withheld for any reason.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and the Optionee has hereunto
set his or her hand as of the date first written above.
NETGURU, INC. OPTIONEE
By: __________________________________ ________________
Chief Executive Officer (Optionee Name)
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FORM OF AMENDMENT NO. 1 TO
NON-QUALIFIED STOCK OPTION AGREEMENT
This Amendment No. 1 to Non-Qualified Stock Option Agreement
(this "Amendment") is made and entered into by and between netGuru, Inc.,
a Delaware corporation ("Company"), and the optionee named below ("Optionee")
effective as of September 8, 2005.
RECITALS
The Company and the Optionee have entered into a non-qualified stock
option agreement dated February 18, 2005 ("Option Agreement") in connection with
software consulting services provided by the Optionee.
The Company has indicated to the Optionee that in accordance with
Nasdaq Marketplace Rules applicable to the Company, stockholder ratification or
approval of the grant of the Option contained in the Option Agreement is
required before the Option may be exercised, and that the Company intends to
seek the required stockholder approval of the Option at the Company's 2005
annual meeting of stockholders.
Section 2 of the Option Agreement currently provides that the Option
shall vest and become exercisable in full immediately on the Date of Grant. The
parties now desire to amend the Option Agreement to bring it into conformance
with Nasdaq Marketplace Rules. Capitalized terms used in this Amendment but not
otherwise defined in this Amendment shall have the meanings assigned to them in
the Option Agreement.
AGREEMENT
In consideration of the mutual covenants and conditions hereinafter set
forth and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and the Optionee agree as follows:
1. Paragraph 2 of the Option Agreement is hereby amended and restated to
read in its entirety as follows:
"2. Vesting and Exercisability of Option. The Option shall vest and
become exercisable in full immediately following approval or
ratification of the Option by the Company's stockholders in
accordance with Nasdaq Marketplace Rules and applicable law."
2. The Company hereby agrees to seek stockholder approval of the Option
at the Company's 2005 annual meeting of stockholders as and to the extent
required by Nasdaq Marketplace Rules and applicable law. Notwithstanding
anything to the contrary contained in the Option Agreement or this Amendment,
the Company shall not be required to deliver any shares of Stock upon exercise
of the Option unless such exercise is permitted by and in compliance with all
applicable laws, rules and regulations, including without limitation, the Nasdaq
Marketplace Rules.
3. Governing Law. The corporate laws of the State of Delaware shall
govern all issues concerning the relative rights of the Company and the Optionee
under this Amendment. All other questions and obligations under this Amendment
shall be construed and enforced in accordance with the internal laws of the
State of California, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. The Company and the Optionee hereby consent,
in any dispute, action, litigation or other proceeding concerning this Amendment
Option (including arbitration) to the jurisdiction of the courts of the State of
California, with the County of Orange being the sole venue for the bringing of
the action or proceeding.
IN WITNESS WHEREOF, the Company has caused this Amendment to be duly
executed by its officer thereunto duly authorized, and the Optionee has hereunto
set his or her hand as of the date first written above.
NETGURU, INC. OPTIONEE
By: __________________________________ _____________________________________
Bruce Nelson, Chief Financial Officer (Optionee Name)
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AGREEMENT REGARDING EQUITY COMPENSATION
This Agreement Regarding Equity Compensation (this "Agreement") is made
and entered into by and between netGuru, Inc., a Delaware corporation
("Company"), and Garret Vreeland, an individual ("Recipient"), effective as of
September 8, 2005.
RECITALS
On July 25, 2003, the Recipient resigned from the Company's board of
directors. On or about January 21, 2004, the Company issued to the Recipient
10,000 shares of the Company's common stock ("Shares") in consideration for
director services that had been rendered by the Recipient while the Recipient
was a member of the Company's board of directors.
The Company has indicated to the Recipient that in accordance with
Nasdaq Marketplace Rules applicable to the Company, stockholder ratification or
approval of the issuance of the Shares may be required, and that the Company
intends to seek the required stockholder ratification of the issuance of the
Shares at the Company's 2005 annual meeting of stockholders as and to the extent
required.
The parties now desire to enter into this Agreement to ensure that the
issuance and receipt of the Shares conforms with Nasdaq Marketplace Rules.
AGREEMENT
In consideration of the mutual covenants and conditions hereinafter set
forth and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and the Recipient agree as
follows:
1. The Company hereby agrees to seek stockholder ratification of the
issuance of the Shares at the Company's 2005 annual meeting of stockholders as
and to the extent required by Nasdaq Marketplace Rules and applicable law.
2. The Recipient and the Company agree that the Shares may not be
transferred or voted and shall not be entitled to receive any dividends that may
be declared by the Company unless and until such transfer, voting or receipt of
dividends is permitted by and in compliance with all applicable laws, rules and
regulations, including without limitation, the Nasdaq Marketplace Rules.
3. The corporate laws of the State of Delaware shall govern all issues
concerning the relative rights of the Company and the Recipient under this
Agreement. All other questions and obligations under this Agreement shall be
construed and enforced in accordance with the internal laws of the State of
California, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of California or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of California.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and the Recipient has
hereunto set his or her hand as of the date first written above.
NETGURU, INC. RECIPIENT
By: /s/ Bruce Nelson /s/ Garret Vreeland
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Bruce Nelson, Chief Financial Officer Garret Vreeland
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