UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
THE A CONSULTING TEAM, INC.
(Name of Registrant as Specified in its Charter)
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:
The A Consulting Team, Inc. Common Stock, par value $0.01 per
share ("Common Stock")
(2) Aggregate number of securities to which transaction applies:
8,562,796 shares of Common Stock.
(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 per share market value of the Common Stock was calculated
in accordance with Exchange Act Rule 0-11(a)(4) as the average
of the high and low price of the Common Stock on the
NASDAQ-SCM on February 8, 2005, which was $8.18.
(4) Proposed maximum aggregate value of transaction:
The filing fee is based on a proposed maximum aggregate value
of the transaction of $70,043,671.28. This value was
calculated using the value of the 7,312,796 shares of The A
Consulting Team's Common Stock to be transferred to Vanguard
Info-Solutions Corporation, and the issuance of a maximum of
1,250,000 shares of The A Consulting Team's Common Stock to
Oak Finance Investments Limited. The total number of shares on
which we have based the filing fee is therefore 8,562,796
shares of The A Consulting Team, Inc. Common Stock. The
proposed maximum aggregate value of the transaction was
calculated by multiplying the maximum number of shares being
transferred (8,562,796) by the per unit price of the Common
Stock calculated under Rule 0-11(a)(4), $8.18.
(5) Total fee paid:
$8,245
/ / 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date Filed:
[TACT LETTERHEAD/LOGO]
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SHARE EXCHANGE PROPOSAL
Dear Shareholder:
Together with the other members of the board of directors of The A
Consulting Team, Inc. ("TACT"), I cordially invite you to attend our annual
meeting of shareholders to be held at TACT's principal office at 200 Park Avenue
South, Suite 901, New York, New York 10003 on ________, 2005 at ________ a.m.
(local time).
On January 21, 2005, we entered into a Share Exchange Agreement (the
"Share Exchange Agreement") with Vanguard Info-Solutions Corporation, a New
Jersey corporation ("Vanguard"), the Vanguard shareholders and the authorized
representative of the Vanguard shareholders named therein providing for an
exchange of 7,312,796 shares of our common stock for all of the issued and
outstanding shares of capital stock of Vanguard (the "Share Exchange").
Additionally, on January 21, 2005, we entered into a Stock Purchase Agreement
(the "Stock Purchase Agreement") with Oak Finance Investments Limited ("Oak"), a
British Virgin Islands company, providing for the sale of between 625,000 and
1,250,000 shares of our common stock to Oak at a cash purchase price of $8.00
per share (the "Share Issuance"). I have also entered into an agreement under
which I have agreed to sell all of my shares of TACT capital stock to Oak in a
separate transaction (the "BenTov Sale").
If you vote to approve the Share Exchange and the Share Issuance, upon
the completion of the Share Exchange, the Share Issuance and the BenTov Sale,
the former shareholders of Vanguard will own between 67.5% and 71.7% of the
issued and outstanding shares of our common stock. Oak and any assignees of
Oak's rights under the Stock Purchase Agreement will together own between 16.2%
and 21.0% of the issued and outstanding shares of our common stock. Existing
shareholders of TACT, other than me, who today own 54.8% of the issued and
outstanding shares of our common stock, will own between approximately 11.5% and
12.2% of the issued and outstanding shares of our common stock. The Share
Exchange, the Share Issuance and the BenTov Sale, taken together, will result in
a change of control of TACT. Upon completion of the proposed transactions,
Vanguard and its subsidiaries will become subsidiaries of TACT. In addition, if
the Share Exchange and the Share Issuance are consummated, we have agreed to pay
a cash dividend in the amount of $0.75 per share to the holders of our common
stock and our preferred stock issued and outstanding on a record date to be set
by the Board of Directors, which record date will be prior to the consummation
of the Share Exchange and the Share Issuance. At our annual meeting of
shareholders, we are asking you to, among other things, consider and vote on the
approval and adoption of the Share Exchange, the Share Issuance and related
transactions.
A special committee of our board of directors, comprised of William P.
Miller and Steven M. Mukamal, carefully reviewed and considered the terms and
conditions of the Share Exchange, the Share Issuance and related transactions.
Based on this review, on January 20, 2005, the special committee unanimously
determined that the Share Exchange, the Share Issuance and related transactions
are fair to and in the best interests of TACT and its shareholders and declared
the Share Exchange and the Share Issuance to be advisable. The special committee
recommended that our board of directors approve the Share Exchange as reflected
in the Share Exchange Agreement, the Share Issuance as reflected in the Stock
Purchase Agreement and related transactions and that our shareholders adopt and
approve the Share Exchange as reflected in the Share Exchange Agreement, the
Share Issuance as reflected in the Stock Purchase Agreement and related
transactions.
Our board of directors also carefully reviewed and considered the terms
and conditions of the Share Exchange, the Share Issuance and related
transactions. Based on this review, on January 20, 2005, our board of directors,
by unanimous vote, determined that the Share Exchange, the Share Issuance and
related transactions are fair to and in the best interests of TACT and its
shareholders, approved the Share Exchange as reflected in the Share Exchange
Agreement, the Share Issuance as reflected in the Stock Purchase Agreement and
related transactions and declared their advisability.
Accordingly, our board of directors has approved the Share Exchange and
the Share Issuance. OUR BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE RECOMMEND
THAT YOU VOTE "FOR" THE APPROVAL AND ADOPTION OF BOTH THE SHARE EXCHANGE AS
REFLECTED IN THE SHARE EXCHANGE AGREEMENT AND THE SHARE ISSUANCE AS REFLECTED IN
THE STOCK PURCHASE AGREEMENT. Because the completion of the Share Exchange and
the Share Issuance each are conditional on the completion of the other, it is
imperative that if you choose to approve either the Share Exchange or the Share
Issuance transaction, you also vote to approve the other transaction.
We cannot consummate either the Share Exchange or the Share Issuance
without the approval of the holders of a majority of the outstanding shares of
our capital stock who are present (either in person or by proxy) at the annual
meeting. The affirmative vote of these shareholders is sufficient for the
approval and adoption of the Share Exchange and the Share Issuance. The
completion of each of the Share Exchange and the Share Issuance remains subject
to the satisfaction or waiver of several conditions. We encourage you to read
the accompanying proxy statement, including the annexes, in its entirety because
it explains the proposed Share Exchange and the proposed Share Issuance in
greater detail.
IN ADDITION, OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
ELECTION OF THE DIRECTOR NOMINEES NAMED IN THE PROXY STATEMENT, "FOR" THE
PROPOSED CHANGE IN TACT'S NAME TO "VANGUARD INFO-SOLUTIONS INTERNATIONAL INC.,"
"FOR" THE AMENDMENT AND RESTATEMENT OF OUR 1997 STOCK OPTION AND AWARD PLAN AND
"FOR" THE RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS FOR FISCAL YEAR
2005.
Whether or not you plan to attend the annual meeting, please take the
time to submit a proxy by following the instructions on your proxy card as soon
as possible. If your shares are held in an account at a brokerage firm, bank or
other nominee, you should instruct your broker, bank or nominee how to vote in
accordance with the voting instruction form furnished by your broker, bank or
nominee. IF YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BROKER, BANK OR NOMINEE HOW
TO VOTE, IT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE APPROVAL AND
ADOPTION OF THE SHARE EXCHANGE, THE SHARE ISSUANCE AND THE OTHER PROPOSALS
DESCRIBED ABOVE.
IF YOU SIGN, DATE AND SEND YOUR PROXY AND DO NOT INDICATE HOW YOU WANT
TO VOTE, YOUR PROXY WILL BE VOTED "FOR" THE ELECTION OF THE DIRECTOR NOMINEES
NAMED IN THE PROXY STATEMENT, "FOR" THE SHARE EXCHANGE, "FOR" THE SHARE
ISSUANCE, "FOR" THE CHANGE OF THE COMPANY'S NAME TO VANGUARD INFO-SOLUTIONS
INTERNATIONAL INC., "FOR" THE AMENDMENT AND RESTATEMENT OF OUR 1997 STOCK OPTION
AND AWARD PLAN AND "FOR" THE RATIFICATION OF THE SELECTION OF INDEPENDENT
AUDITORS FOR FISCAL YEAR 2005.
I enthusiastically support these transactions and join the other
members of our board of directors in recommending that you vote for the approval
and adoption of the Share Exchange as reflected in the Share Exchange Agreement,
the Share Issuance as reflected in the Stock Purchase Agreement and each other
Proposal.
Sincerely,
/s/ Shmuel BenTov
Shmuel BenTov
Chairman, Chief Executive Officer and President
THE A CONSULTING TEAM, INC.
200 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10003
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, 2005
To the Holders of the Common Stock of THE A CONSULTING TEAM, INC.
PLEASE TAKE NOTICE THAT THE ANNUAL MEETING OF THE A CONSULTING TEAM, INC.
(THE "COMPANY" OR "TACT") WILL BE HELD AT __________ A.M. (LOCAL TIME), ON
____________, 2005, AT THE COMPANY'S PRINCIPAL OFFICE AT 200 PARK AVENUE SOUTH,
SUITE 901, NEW YORK, NEW YORK 10003 FOR THE FOLLOWING PURPOSES:
1. To elect members of the board of directors of the Company (the "Board
of Directors") to serve until the annual meeting of shareholders in
2006 and until their respective successors are duly elected and
qualified;
2. To approve the issuance of 7,312,796 shares of the Company's common
stock, $0.01 par value per share ("Common Stock"), to be exchanged for
all of the issued and outstanding shares of Vanguard Info-Solutions
Corporation ("Vanguard"), a New Jersey corporation (the "Share
Exchange"), pursuant to the Share Exchange Agreement, dated as of
January 21, 2005, among the Company, Vanguard, the Vanguard
shareholders and the authorized representative of the Vanguard
shareholders named therein, so that, immediately after the Share
Exchange, the issuance of Common Stock contemplated by Proposal No. 3
below and related transactions, Vanguard will become a wholly-owned
subsidiary of the Company and the former Vanguard shareholders will own
between 67.5% and 71.7% of the Company's issued and outstanding shares
of Common Stock. The consummation of this transaction is conditioned
upon the approval of Proposal No. 3 below;
3. To approve the issuance of a minimum of 625,000 and a maximum of
1,250,000 shares of Common Stock to Oak Finance Investments Limited, a
British Virgin Islands company ("Oak"), and to permitted assignees of
Oak (the "Share Issuance"), pursuant to the Stock Purchase Agreement,
dated as of January 21, 2005, by and between the Company and Oak, so
that, immediately after the Share Issuance, the Share Exchange
contemplated by Proposal No. 2 above and related transactions, Oak and
any assignees of Oak's rights under the Stock Purchase Agreement, if
any, will together own between 16.2% and 21.0% of the Company's issued
and outstanding shares of Common Stock. The consummation of this
transaction is conditioned upon the approval of Proposal No. 2 above;
4. To approve an amendment to the Company's Certificate of Incorporation
to change the Company's name to Vanguard Info-Solutions International
Inc. This Proposal is conditioned upon the consummation of the Share
Exchange and Share Issuance referred to in Proposals Nos. 2 and 3
above;
5. To approve the amendment and restatement of the Company's 1997 Stock
Option and Award Plan;
6. To ratify the selection of independent auditors for the fiscal year
ending December 31, 2005.
7. To transact any other business as may properly come before the annual
meeting or any postponement or adjournment thereof.
ONLY SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON ________, 2005, THE
RECORD DATE FOR THE ANNUAL MEETING, WILL BE ENTITLED TO NOTICE OF AND TO VOTE AT
THE ANNUAL MEETING OR AT ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
You are cordially invited to attend the annual meeting. Whether or not you
plan to attend the annual meeting, please complete, sign, date and return the
enclosed proxy card promptly. This will insure that your shares are voted in
accordance with your wishes. Your cooperation is appreciated since a majority of
the outstanding shares entitled to vote must be represented, either in person or
by proxy, to constitute a quorum for the purposes of conducting business at the
annual meeting.
Whether or not you attend the annual meeting, you may revoke a proxy at any
time before it is voted by submitting to our Secretary either a duly executed
revocation of proxy or a duly executed proxy bearing a later date, or by
appearing at the annual meeting and voting in person. You may revoke a proxy by
any of these methods, regardless of the method used to deliver your previous
proxy. Attendance at the annual meeting without voting will not, itself, revoke
a proxy. If your shares are held in an account at a brokerage firm, bank or
other nominee, you must contact your broker, bank or nominee and follow its
instructions to revoke your proxy.
By Order of the Board of Directors,
/s/ Richard D. Falcone
Richard D. Falcone
Secretary
New York, New York
- --------
This proxy statement is dated February __, 2005 and is first being mailed to
shareholders on or about February __, 2005.
2
SOURCES OF ADDITIONAL INFORMATION
Except where we indicate otherwise, we use the name "Vanguard" in this
proxy statement to refer to Vanguard Info-Solutions Corporation, and references
to "us", "we", "our", "ours" and similar expressions used in this proxy
statement to refer to The A Consulting Team, Inc. (the "Company" or "TACT"). We
briefly describe Vanguard and the other parties to the proposed transactions
under "The Related Proposals - The Companies" on pages 12 to 18 of the proxy
statement. All information contained in this proxy statement with respect to the
parties to the Share Exchange Agreement, the Stock Purchase Agreement, the
Selling Shareholder's Sale Agreement and the Principal Shareholder's Agreement,
other than TACT, has been supplied by and is the responsibility of those other
parties.
The Company is subject to the information and periodic reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In accordance with those requirements, we file annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC").
You may read and copy these reports, proxy statements and other information
(including the documents described in "Incorporation of Information by
Reference" on page 75 of this proxy statement) at the SEC's Public Reference
Section at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The documents that the Company files with
the SEC, including this proxy statement, are also available to you on the SEC's
website. You can access the SEC's website at http://www.sec.gov.
If you have questions about the annual meeting or the Share Exchange, the
Share Issuance or any of the other Proposals after reading this proxy statement,
or if you would like additional copies of this proxy statement or the proxy
card, please contact:
THE A CONSULTING TEAM, INC.
Investor Relations
77 Brant Avenue, Suite 320
Clark, New Jersey 07066
Tel. (732) 499-8228
Email: investorrelations@tact.com
3
TABLE OF CONTENTS
PAGE
SUMMARY TERM SHEET..............................................................................................2
The Annual Meeting.....................................................................................2
Shareholders Entitled to Vote; Vote Required...........................................................2
The Companies..........................................................................................2
The Share Exchange.....................................................................................3
The Share Issuance.....................................................................................3
The Contingent Dividend................................................................................4
The Selling Shareholder's Sale Agreement...............................................................4
Voting Obligations of Shmuel BenTov....................................................................4
Recommendation of our Special Committee and Board of Directors
with Respect to the Share Exchange and the Share Issuance.....................................5
Opinion of Financial Advisor...........................................................................6
Interests of Directors and Executive Officers of TACT
in the Share Exchange and the Share Issuance..................................................6
Dissenters' Rights.....................................................................................6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.......................................................7
GENERAL INFORMATION.............................................................................................8
Annual Meeting.........................................................................................8
Purposes of the Annual Meeting.........................................................................8
Solicitation and Voting of Proxies; Revocation.........................................................9
Voting at the Annual Meeting; Record Date; Quorum; Vote Required.......................................9
Voting Power of Shmuel BenTov.........................................................................10
Voting Requirements for Adoption of Proposals.........................................................10
Assistance............................................................................................11
THE RELATED PROPOSALS..........................................................................................12
Introduction..........................................................................................12
The Companies.........................................................................................12
The A Consulting Team, Inc...................................................................12
Vanguard Info-Solutions Corporation and its Subsidiaries.....................................13
Oak Finance Investments Limited..............................................................18
The Combined Companies................................................................................18
Background of the Share Exchange, Share Issuance, BenTov Sale
and Related Transactions.....................................................................18
-i-
TABLE OF CONTENTS
(continued)
PAGE
Effects of the Share Exchange, Share Issuance, BenTov Sale
and Related Transactions......................................................................22
The Special Committee..................................................................................23
Opinion of TACT's Financial Advisor....................................................................24
BenTov Sale and Voting Obligations.....................................................................28
Interests of Directors, Director Nominees and Executive Officers of TACT
in the Share Exchange and the Share Issuance..................................................29
Dissenters' Rights.....................................................................................29
SUMMARY OF TRANSACTION DOCUMENTS................................................................................30
Share Exchange Agreement...............................................................................30
Stock Purchase Agreement...............................................................................36
Selling Shareholder's Sale Agreement...................................................................39
Principal Shareholder's Agreement......................................................................42
BenTov Employment Agreement............................................................................43
PROPOSAL NO. 1 - ELECTION OF DIRECTORS..........................................................................44
PROPOSAL NO. 2 - THE SHARE EXCHANGE.............................................................................47
PROPOSAL NO. 3 - THE SHARE ISSUANCE.............................................................................48
PROPOSAL NO. 4 - AMENDMENT TO OUR CERTIFICATE OF INCORPORATION..................................................49
PROPOSAL NO. 5 - APPROVAL OF THE AMENDED AND RESTATED 1997
STOCK OPTION AND AWARD PLAN............................................................................50
PROPOSAL NO. 6 - RATIFICATION OF THE SELECTION OF INDEPENDENT
AUDITORS...............................................................................................58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BEFORE PROPOSED TRANSACTIONS...........................................................................61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AFTER PROPOSED TRANSACTIONS............................................................................62
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES...........................................................64
EXECUTIVE COMPENSATION..........................................................................................67
Summary Compensation Table.............................................................................67
2004 Option/SAR Grants.................................................................................68
Aggregated Option/SAR Exercises in 2004 and Year-end Option/SAR Values.................................68
Equity Compensation Plan Information...................................................................69
Director Compensation..................................................................................69
Employment Agreements..................................................................................69
-ii-
TABLE OF CONTENTS
(continued)
PAGE
Compensation Committee Interlocks and Insider Participation............................................70
Report of the Compensation Committee of the Board of Directors.........................................70
PERFORMANCE GRAPH...............................................................................................72
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON........................................................72
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................73
ACCOUNTANTS' ATTENDANCE AT THE ANNUAL MEETING...................................................................73
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.........................................................74
SHAREHOLDER PROPOSALS FOR 2006 ANNUAL MEETING...................................................................74
OTHER MATTERS...................................................................................................74
SOLICITATION AND EXPENSES OF SOLICITATION.......................................................................74
INCORPORATION OF INFORMATION BY REFERENCE.......................................................................75
ANNUAL REPORT...................................................................................................76
-iii-
ANNEXES
Annex A - Share Exchange Agreement, dated as of January 21, 2005, among The A Consulting Team, Inc.,
Vanguard Info-Solutions Corporation, the shareholders of Vanguard Info-Solutions Corporation and
the authorized representative named therein.....................................................A-1
Annex B - Stock Purchase Agreement, dated as of January 21, 2005, by and between The A Consulting Team,
Inc. and Oak Finance Investments Limited........................................................B-1
Annex C - Stock Purchase Agreement, dated as of January 21, 2005, between Oak Finance Investments Limited
and Shmuel BenTov...............................................................................C-1
Annex D - Principal Shareholder's Agreement, dated as of January 21, 2005, between Oak Finance Investments
Limited and Shmuel BenTov.......................................................................D-1
Annex E - Fairness Opinion of Ehrenkrantz King Nussbaum Inc., dated January 19, 2005......................E-1
Annex F - Presentation by Ehrenkrantz King Nussbaum Inc. to the Board of Directors........................F-1
Annex G - Vanguard Info-Solutions Corporation's Historical Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operation....................................G-1
Annex H - Pro Forma Unaudited Consolidated Condensed Financial Statements of The A Consulting Team, Inc.
and Vanguard Info-Solutions Corporation.........................................................H-1
Annex I - Certificate of Amendment of the Certificate of Incorporation of The A Consulting Team, Inc......I-1
Annex J - Amended and Restated 1997 Stock Option and Award Plan of The A Consulting Team, Inc.............J-1
Annex K - Proxy Card......................................................................................K-1
-iv-
THE A CONSULTING TEAM, INC.
200 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10003
(212) 979-8228
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
_______________, 2005
This proxy statement and the accompany form of proxy are furnished in
connection with the solicitation of proxies by the board of directors of The A
Consulting Team, Inc. (the "Board of Directors"), a New York corporation (the
"Company" or "TACT"), to be voted at its Annual Meeting of Shareholders which
will be held at ________ a.m. (local time), on ________, 2005 at 200 Park Avenue
South, Suite 901, New York, New York 10003 and at any postponements or
adjournments thereof (the "Annual Meeting"). This proxy statement and the
accompanying form of proxy are being mailed to shareholders on or about
___________, 2005. For general information regarding the Annual Meeting and how
to vote on the Proposals set forth in this proxy statement (the "Proposals"),
see "General Information" on pages 8 to 11. At the Annual Meeting, the Company's
shareholders will be asked:
(1) to elect Messrs. Steven S. Mukamal, William Miller, Andrew H. Ball, William
A. Newman and Joseph Harris as directors of the Company to serve, in the
case of Messrs. Miller and Mukamal, until the annual meeting of
shareholders in 2006 and until their respective successors are duly elected
and qualified, and, in the case of Messrs. Ball, Newman and Harris,
effective only upon the consummation of the Share Exchange and the Share
Issuance (each as described below) and then until their respective
successors are duly elected and qualified;
(2) to approve the issuance of 7,312,796 shares of the Company's common stock,
$0.01 par value per share ("Common Stock"), to be exchanged for all of the
issued and outstanding capital stock of Vanguard Info-Solutions Corporation
("Vanguard"), a New Jersey corporation (the "Share Exchange"), pursuant to
the Share Exchange Agreement, dated as of January 21, 2005, among the
Company, Vanguard, the Vanguard shareholders and the authorized
representative of the Vanguard shareholders named therein (the "Share
Exchange Agreement");
(3) to approve the issuance of a minimum of 625,000 and a maximum of 1,250,000
shares of Common Stock to Oak Finance Investments Limited, a British Virgin
Islands company ("Oak"), and to permitted assignees of Oak (the "Share
Issuance"), pursuant to the Stock Purchase Agreement, dated as of January
21, 2005, by and between the Company and Oak (the "Stock Purchase
Agreement");
(4) to approve an amendment to the Company's Certificate of Incorporation to
change our name to Vanguard Info-Solutions International Inc., effective
upon the consummation of the Share Exchange and the Share Issuance;
(5) to approve the amendment and restatement of the Company's 1997 Stock Option
and Award Plan;
(6) to ratify the selection of independent auditors for the fiscal year ending
December 31, 2005; and
(7) to transact any other business as may properly come before the Annual
Meeting or any postponements or adjournments thereof.
In connection with the Share Exchange and the Share Issuance, Shmuel
BenTov, our Chairman of the Board of Directors, Chief Executive Officer and
President, has entered into an agreement under which he and his spouse have
agreed to sell all of the shares of the Company's capital stock beneficially
owned by him and his spouse to Oak in a separate transaction (the "BenTov
Sale"). Although the BenTov Sale does not require the approval of shareholders,
it is subject to the consummation of the Share Exchange and the Share Issuance,
and will be consummated when and if the Share Exchange and the Share Issuance
are consummated. If the Share Exchange, the Share Issuance and the BenTov Sale
are all consummated, the former shareholders of Vanguard will own between 67.5%
and 71.7% of the issued and outstanding shares of Common Stock, and Oak and any
assignees of Oak's rights under the Stock Purchase Agreement will together own
between 16.2% and 21.0% of our issued and outstanding shares of Common Stock.
The Share Exchange, the Share Issuance and the BenTov Sale, taken together, will
result in a change of control of the Company and a substantial dilution in our
current shareholders' ownership of the Company's capital stock. Upon
consummation of the proposed transactions, Vanguard and its subsidiaries will
become subsidiaries of the Company. Please note that all share and per share
amounts include in this proxy statement reflect the one for four reverse stock
split that occurred on January 7, 2004.
1
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy
statement and may not contain all the information about the Share Exchange and
the Share Issuance that is important to you. To understand the transactions
fully and for a more complete description of the legal terms of the Share
Exchange and the Share Issuance, you should read carefully this proxy statement
in its entirety, including the annexes, and the other documents to which it
refers you.
o THE ANNUAL MEETING
The Annual Meeting will be held at the Company's principal office at 200
Park Avenue South, Suite 901, New York, New York 10003, on ________, 2005.
At the Annual Meeting, you will be asked to vote to approve and adopt the
Share Exchange as reflected in the Share Exchange Agreement, the Share
Issuance as reflected in the Stock Purchase Agreement and related
transactions.
o SHAREHOLDERS ENTITLED TO VOTE; VOTE REQUIRED
You may vote at the Annual Meeting if you owned shares of our Common Stock
or preferred stock at the close of business on __________, 2005, the record
date for the Annual Meeting. On the record date, there were 2,122,647
shares of our Common Stock and 571,615 shares of our preferred stock
outstanding and entitled to vote. You may cast one vote for each share of
our Common Stock and one vote for every four shares of our preferred stock
that you owned on the record date. Approval of the nominees to the Board of
Directors requires the affirmative vote of the holders of a plurality of
the outstanding shares of our capital stock present at the Annual Meeting,
either in person or by proxy. Approval and adoption of the Share Exchange,
the Share Issuance, the amendment and restatement of our 1997 Stock Option
Award Plan and the ratification of the selection of independent auditors
requires the affirmative vote of the holders of a majority of the
outstanding shares of our capital stock present at the Annual Meeting,
either in person or by proxy. Approval of the amendment to our Certificate
of Incorporation to change of our corporate name requires the affirmative
vote of the holders of at least 50% of all of the issued and outstanding
shares of our capital stock eligible to vote at the Annual Meeting.
o THE COMPANIES
o THE A CONSULTING TEAM, INC. (THE "COMPANY" OR "TACT")
TACT provides a wide-range of information technology consulting
services and solutions, custom application development and
training to Fortune 1000 and other large organizations. Our
solutions are based on an understanding of each client's
enterprise model. Our accumulated knowledge is applied to projects
such as planning, designing and implementing enterprise-wide
information systems, database management services, systems
integration, legacy modernization and conversion services. We are
a New York corporation and were incorporated in 1983. In 1997, we
completed a public offering of our Common Stock and became a
public reporting company. Our shares of Common Stock are listed on
the Nasdaq Small Cap Market under the symbol "TACX." Our principal
executive offices are located at 200 Park Avenue South, Suite 901,
New York, New York 10003, and our telephone number there is (212)
979-8228.
2
o VANGUARD INFO-SOLUTIONS CORPORATION ("VANGUARD")
Vanguard, a New Jersey corporation, provides value-added onshore
and offshore information technology services, offshore customer
care and customer acquisition services, and offshore business
process outsourcing to customers in the United States and the
United Kingdom through itself and its international subsidiaries,
Vanguard Info-Solution Limited of Delhi, India ("Vanguard-Delhi")
and Vanguard Business Process Private Limited of Bangalore, India
("Vanguard-Bangalore"). Vanguard's services are primarily in the
telecommunications, medical billing, financial services, debt
collection, claims processing, data processing and utility
sectors, serving the needs of Global 1000 companies. Vanguard was
incorporated in 2000. Vanguard-Delhi was incorporated in 2003, and
Vanguard-Bangalore was incorporated in 2004. Both Vanguard-Delhi
and Vanguard-Bangalore commenced operations in 2004. Vanguard's
principal executive offices are located at 2088 Route 130 North,
Monmouth Junction, NJ, and its telephone number is (732) 951-0701.
Additional offices include Delhi and Bangalore, India.
If the Share Exchange is consummated, Vanguard and its
subsidiaries will become subsidiaries of TACT. If the Share
Exchange is consummated, the shareholders of Vanguard will own
between 67.5% and 71.7% of our issued and outstanding shares of
Common Stock.
o OAK FINANCE INVESTMENTS LIMITED ("OAK")
Oak is a company formed under the laws of the British Virgin
Islands. Oak's registered office is located at Arias Fabrega &
Fabrega Trust Company BVI Ltd., 325 Waterfront Drive, Omar Hodge
Building, 2nd Floor, Wickham's Cay, Road Town, Tortola, British
Virgin Islands, and its telephone number is (284) 677-3394.
If the Share Issuance and the BenTov Sale are consummated, Oak and
any assignees of Oak's rights under the Stock Purchase Agreement
will together own between 16.2% and 21.0% of our issued and
outstanding shares of Common Stock.
o THE SHARE EXCHANGE
The three Vanguard shareholders have agreed to exchange all of the
outstanding capital stock of Vanguard for shares of Common Stock pursuant
to the terms of the Share Exchange Agreement that is described in this
proxy statement. Under the terms of the Share Exchange Agreement and the
transactions contemplated thereby, Vanguard and its subsidiaries will
become subsidiaries of TACT. In addition, Excalibur Investment Group
Limited and Andrew H. Ball will each become a principal shareholder of
TACT. Immediately after the completion of the Share Exchange and the Share
Issuance, the three former shareholders of Vanguard will own the following
percentages of our issued and outstanding shares of Common Stock:
Excalibur Investment Group Limited 45.9% to 48.7%
Andrew H .Ball 21.3% to 22.6%
Berenson Investments LLC 0.3% to 0.4%
The terms of the Share Exchange Agreement are more fully described on
pages 30 to 36 of this proxy statement. The full text of the Share
Exchange Agreement is attached to this proxy statement as Annex A. We
encourage you to read the Share Exchange Agreement carefully and in its
entirety.
o THE SHARE ISSUANCE
We have agreed to issue and sell to Oak (a) 625,000 shares of Common Stock
and (b) at the option of Oak, up to an additional 625,000 shares of Common
Stock, pursuant to the terms and conditions of the Stock Purchase Agreement
that is described in this proxy statement. Under the terms of the Stock
Purchase Agreement and the transactions contemplated thereby, Oak and one
or more other investors designated by Oak will each become a principal
shareholder of TACT. The terms of the Stock Purchase Agreement are more
fully described on pages 36 to 39 of this proxy statement. The full text
of the Stock Purchase Agreement is attached to this proxy statement as
Annex B. We encourage you to read the Stock Purchase Agreement carefully
and in its entirety.
3
o THE CONTINGENT DIVIDEND
If the Share Exchange and the Share Issuance are consummated, we will pay a
cash dividend in the amount of $0.75 per share to the holders of Common
Stock and our preferred stock (to the extent that our issued and
outstanding shares of preferred stock have not previously been converted
into our Common Stock) issued and outstanding on the record date to be set
by the Board of Directors for the payment of this dividend, which record
date will be prior to the consummation of the Share Exchange and the Share
Issuance (the "Dividend").
o THE SELLING SHAREHOLDER'S SALE AGREEMENT
Shmuel BenTov, our Chairman of the Board of Directors, Chief Executive
Officer and President, entered into a Stock Purchase Agreement (the
"Selling Shareholder's Sale Agreement"), dated as of January 21, 2005, with
Oak pursuant to which he and his spouse have agreed to sell, and Oak has
agreed to purchase, 1,024,697 shares of our Common Stock for a purchase
price of $10.25 per share (the "BenTov Sale"). The per share price is
subject to increase if we do not pay the Dividend.
Although the BenTov Sale does not require the approval of our shareholders,
it is subject to the consummation of the Share Exchange and the Share
Issuance, and will be consummated when and if the Share Exchange and the
Share Issuance are consummated.
The terms of the Selling Shareholder's Sale Agreement are more fully
described on pages 39 to 42 of this proxy statement. The full text of the
Selling Shareholder's Sale Agreement is attached to this proxy statement as
Annex C. We encourage you to read the Selling Shareholder's Sale Agreement
carefully and in its entirety.
o VOTING OBLIGATIONS OF SHMUEL BENTOV
As a condition to its entering into the Selling Shareholder's Sale
Agreement, Oak required Mr. BenTov to enter into a Principal Shareholder's
Agreement pursuant to which he has agreed to vote all of the shares of our
capital stock beneficially owned by him (i) in favor of the approval and
adoption of the Share Exchange, the Share Issuance and all related
transactions and (ii) against any action, proposal, transaction or
agreement, the consummation of which would interfere with the Share
Exchange or the Share Issuance.
The Principal Shareholder's Agreement terminates on the earliest to occur
of (i) the consummation of the BenTov Sale and (ii) the termination of
either the Share Exchange Agreement or the Stock Purchase Agreement. Even
after the Principal Shareholder's Agreement terminates, however, under
certain circumstances, Oak will retain the ability to vote up to 500,000
shares of our capital stock.
As of the record date, Mr. BenTov beneficially owned an aggregate of
1,024,697 issued and outstanding shares of our Common Stock and preferred
stock (on an as-converted to Common Stock basis), which represents
approximately 45.2% of our outstanding capital stock. Under the terms of
our certificate of incorporation and By-laws, the affirmative vote of Mr.
BenTov will be sufficient for the approval and adoption of the Share
Exchange and the Share Issuance unless the holders of more than 1,024,697
other shares of our capital stock attend the Annual Meeting in person or by
proxy and vote their shares against approval and adoption.
4
The terms of the Principal Shareholder's Agreement are more fully described
on pages 42 to 43 of this proxy statement. The text of the Principal
Shareholder's Agreement is attached to this proxy statement as Annex D. We
encourage you to read the Principal Shareholder's Agreement carefully in
its entirety.
o RECOMMENDATION OF OUR SPECIAL COMMITTEE AND BOARD OF DIRECTORS WITH RESPECT
TO THE SHARE EXCHANGE AND THE SHARE ISSUANCE
A special committee of our Board of Directors has unanimously determined
that the Share Exchange and the Share Issuance are fair to and in the best
interests of our shareholders. The special committee has recommended that
our Board of Directors approve the Share Exchange, the Share Issuance and
related transactions. This special committee has also recommended that our
Board of Directors recommend that our shareholders adopt the Share Exchange
as reflected in the Share Exchange Agreement, the Share Issuance as
reflected in the Stock Purchase Agreement and related transactions.
After receiving and considering the recommendation of the special
committee, on January 20, 2005, our Board of Directors, by unanimous vote
of all directors voting, approved the following:
o the issuance of 7,312,796 shares of our Common Stock in exchange for
100% of the issued and outstanding capital stock of Vanguard;
o the issuance of 625,000 shares of our Common Stock to Oak, in exchange
for a cash purchase price of $5,000,000, and the grant of rights to
Oak and one or more of its assignees, exercisable for a period of 120
days after Oak's initial purchase of our Common Stock for an
additional 625,000 shares of Common Stock (1,250,000 shares total),
also at a cash purchase price of $8.00 per share (totaling an
additional $5,000,000);
o solely for purposes of Section 912(c)(1) of the New York Business
Corporation Law, the sale to Oak of 1,024,697 outstanding shares of
our Common Stock by Shmuel BenTov, our principal shareholder, Chairman
of the Board of Directors, Chief Executive Officer and President, at a
purchase price of $10.25 per share;
o the change of our corporate name to Vanguard Info-Solutions
International Inc., effective upon consummation of the Share Exchange
and the Share Issuance;
o an increase in the number of the directors of the Company from five
members to seven members, effective upon consummation of the Share
Exchange and the Share Issuance;
o the declaration and payment of the Dividend; and
o an amendment to the employment agreement of Richard D. Falcone, our
Chief Financial Officer.
Our Board of Directors recommends that our shareholders vote "FOR" the
approval and adoption of the Share Exchange as reflected in the Share
Exchange Agreement and "FOR" the approval and adoption of the Share
Issuance as reflected in the Stock Purchase Agreement. To review the
background and reasons for the Share Exchange and Share Issuance in greater
detail, see pages 12 through 29 below.
5
o OPINION OF FINANCIAL ADVISOR
We have received a fairness opinion from our financial advisor,
Ehrenkrantz, King Nussbaum Inc. ("EKN"), stating that the Share Exchange
and the Share Issuance are fair to the TACT shareholders from a financial
perspective. A copy of the Fairness Opinion of EKN, dated January 19, 2005,
is attached to the proxy statement as Annex E. A copy of the presentation
made to our Board of Directors by EKN related to the Share Exchange and the
Share Issuance is attached to the proxy statement as Annex F. We encourage
you to read the Fairness Opinion and the board presentation carefully and
in their entirety.
o INTERESTS OF DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS OF TACT IN
THE SHARE EXCHANGE AND THE SHARE ISSUANCE
When considering the recommendation of our Board of Directors that you vote
in favor of the approval and adoption of the Share Exchange and the Share
Issuance, you should be aware that members of our Board of Directors and
our executive officers may have interests in the Share Exchange and the
Share Issuance that differ from, or are in addition to, those of other
shareholders. Mr. BenTov has agreed to sell all of his shares to Oak at a
price of $10.25 per share, subject to adjustment. Mr. BenTov will also be
entering into an amended employment agreement, in place of his current
agreement, at the same salary level as is provided for in his current
agreement. Richard D. Falcone, our chief financial officer, has entered
into an employment agreement, the effectiveness of which is contingent on
the consummation of the Share Exchange and the Share Issuance. Messers.
Ball, Newman and Harris have been designated by the Vanguard shareholders
to be nominated for election to the Board of Directors, which election will
become effective only if the Share Exchange and the Share Issuance are
consummated. Mr. Ball, a current Vanguard shareholder, will own 2,303,531
shares (approximately 21.3% to 22.6%) of Common Stock upon consummation of
the Share Exchange, the Share Issuance and related transactions. Mr.
Newman, a nominee for election as a director of the Company, is a partner
at the law firm of McGuireWoods LLP, which currently acts as general
outside counsel to Vanguard. It is anticipated that, if the Share Exchange,
the Share Issuance and related transactions are consummated, McGuireWoods
LLP will become general outside counsel to the Company. Other than these
matters, no director, director nominee, executive officer, associate of any
director or executive officer or other person has any substantial interest,
direct or indirect, by security holdings or otherwise, in the Share
Exchange or the Share Issuance, that is not shared by all of our other
shareholders.
o DISSENTERS' RIGHTS
We are a New York corporation and are governed by the New York Business
Corporation Law ("BCL"). Under the BCL, the holders of our voting
securities are not entitled to dissenter's rights with respect to the
Proposals set forth in this proxy statement.
6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Words such as "estimate," "project," "intend," "anticipate," "believe,"
"will," "may," "should," "would," and similar expressions are intended to
identify forward-looking statements. These statements are based on the current
information available to, and the current expectations and beliefs of, our
management. These statements are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. These forward-looking statements
are based on current expectations and projections about future events and are
subject to risks, uncertainties, and assumptions about the Company, economic and
market factors and the industry in which we do business and are based upon
assumptions as to future events that may not prove accurate. Therefore, actual
outcomes and results may differ materially from what is expressed in the
forward-looking statements.
In any forward-looking statement in which we express an expectation or
belief as to future results, that expectation or belief is expressed in good
faith and believed to have a reasonable basis, but there can be no assurance
that the statement, expectation or belief will result or be achieved or
accomplished. Risks and uncertainties pertaining to the following factors, among
others, could cause actual results to differ materially from those described in
the forward-looking statements:
o our ability to obtain the shareholder approvals required for the Share
Exchange and the Share Issuance;
o the occurrence or non-occurrence of the other conditions to the
consummation of the Share Exchange and the Share Issuance;
o the effects of vigorous competition in the markets in which we operate and
competition for more valuable customers;
o uncertainty concerning the growth rate for the information technology
consulting industry in general;
o our ability to effectively develop and implement new services, offers, and
business models and the possible impact of those services and offers on our
business;
o the ongoing global and U.S. trend towards consolidation in the information
technology consulting industry, which may have the effect of making our
competitors larger and better financed and give these competitors more
extensive resources, improved buying power, and greater geographic reach,
allowing them to compete more effectively;
o the ability to establish a significant market presence in new geographic
and service markets;
o the risks and uncertainties associated with the acquisition and integration
of businesses and operations;
o the risk of insolvency of our customers and others with whom we do
business;
o the risk of equipment failure, natural disasters, terrorist acts, or other
breaches of our network or information technology security; and
o the additional risks and uncertainties not presently known to us or that we
currently deem immaterial.
You should consider the cautionary statements contained or referred to in
this section in connection with any written or oral forward-looking statements
that may be issued by us or persons acting on our behalf. The cautionary
statements contained in this section should be considered in conjunction with
out discussions of risk factors in the Company's other filings with the SEC. We
do not undertake any obligation to release publicly any revisions to any
forward-looking statements contained herein to reflect events or circumstances
that occur after the date of this proxy statement or to reflect the occurrence
of unanticipated events.
7
GENERAL INFORMATION
ANNUAL MEETING
The Annual Meeting will be held on ___________, 2005 at __________ a.m.
(local time) at the Company's principal office, located at 200 Park Avenue
South, Suite 901, New York, New York 10003.
PURPOSES OF THE ANNUAL MEETING
The purposes of the Annual Meeting are to elect directors to serve
until the appointment or election of their respective successors, to approve
certain transactions which will effect a change of control of the Company, to
approve an amendment to the Company's Certificate of Incorporation to change the
Company's name to "Vanguard Info-Solutions International Inc.," to approve the
amendment and restatement of the Company's 1997 Stock Option and Award Plan and
to ratify the selection of independent auditors for the fiscal year ending
December 31, 2005 and to transact any other business that properly comes before
the Annual Meeting. Each of these matters is described in detail under the six
Proposals set forth in this Proxy Statement.
8
SOLICITATION AND VOTING OF PROXIES; REVOCATION
In lieu of attending the Annual Meeting, the Company's shareholders may
vote by proxy. You may receive more than one set of voting materials, including
multiple copies of this proxy statement and multiple proxy cards or voting
instruction cards. For example, if you hold your shares in more than one
brokerage account, you will receive a separate voting instruction card for each
brokerage account in which you hold shares. If you are a holder of record and
your shares are registered in more than one name, you will receive more than one
card. Please complete, sign, date and return each proxy card and voting
instruction card that you receive.
Shares represented by each properly executed and returned proxy card
will be voted (unless earlier revoked) in accordance with the instructions
indicated. If no instructions are indicated on the proxy card, all shares
represented by valid proxy cards received pursuant to this solicitation (and not
revoked before they are voted) will be voted "FOR" each of the Proposals set
forth in this proxy statement and by the persons named in the accompanying
proxy, in their discretion, on any other matters to come before the Annual
Meeting.
A shareholder may revoke a proxy at any time before it is voted by
filing with the Secretary of the Company either a duly executed revocation of
proxy or a duly executed proxy bearing a later date, or by appearing at the
Annual Meeting and voting in person. You may revoke a proxy by any of these
methods regardless of the method used to deliver your previous proxy. Attendance
at the Annual Meeting without voting will not, itself, revoke a proxy. Any
written notice revoking a proxy should be sent to the attention of Richard D.
Falcone, Secretary, The A Consulting Team, Inc., 77 Brant Avenue, Suite 320,
Clark, New Jersey 07066, Telephone: (732) 499-8228. If your shares are held in
an account at a brokerage firm, bank or other nominee, you must contact your
broker, bank or nominee and follow its instructions to revoke your proxy.
Proxies may be solicited by mail, and may also be made by personal
interview, telephone and facsimile transmission, and by directors, officers and
employees of the Company (without special compensation). The expenses for the
preparation of proxy materials and the solicitation of proxies for the Annual
Meeting will be paid by the Company. In accordance with the regulations of the
SEC, the Company will reimburse, upon request, banks, brokers and other
institutions, nominees and fiduciaries for their expenses incurred in sending
proxies and proxy materials to the beneficial owners of the Company's Common
Stock. Expenses for the solicitation are estimated to be approximately $5,000,
plus other reasonable expenses.
VOTING AT THE ANNUAL MEETING; RECORD DATE; QUORUM; VOTE REQUIRED
Only holders of record of the Company's Common Stock, Series A
Preferred Stock, $0.01 par value per share ("Series A Preferred Stock") and
Series B Preferred Stock, $0.01 par value per share ("Series B Preferred
Stock"), at the close of business on __________, 2005 (the "Record Date") are
entitled to notice of and to attend and vote at the Annual Meeting. Each share
of Common Stock is entitled to one vote. The shares of the Series A Preferred
Stock and the Series B Preferred Stock will be entitled to vote on an
as-converted basis, at a conversion ratio of one share of Common Stock for every
four shares of Preferred Stock. As of the Record Date, there were 2,122,647
outstanding shares of Common Stock, 530,304 outstanding shares of Series A
Preferred Stock and 41,311 outstanding shares of Series B Preferred Stock.
Accordingly, there will be 2,265,550 votes eligible to be cast at the Annual
Meeting. A complete list of shareholders entitled to vote at the Annual Meeting
will be available for examination by shareholders, upon request, prior to or at
the Annual Meeting.
9
Under the Company's By-Laws, the presence at the Annual Meeting, in
person or by duly authorized proxy, of the holders of a majority of the total
number of outstanding shares of Common Stock, Series A Preferred Stock (voting
on an as-converted basis) and Series B Preferred Stock (voting on an
as-converted basis) entitled to vote, constitutes a quorum for the transaction
of business at the Annual Meeting. Abstentions and broker non-votes will be
included when determining whether a quorum is present. An abstention has the
effect of voting against a matter since an abstention is counted as a share
"entitled to vote," but is not included as a vote for such matter. A broker
non-vote exists where a broker proxy indicates that the broker is not authorized
to vote on a particular Proposal. Brokers who have not received voting
instructions from beneficial owners may vote in their discretion with regard to
only the election of directors (Proposal No. 1) and the ratification of the
selection of the Company's independent auditors (Proposal No. 6). Brokers are
not authorized to vote in their discretion with regard to any other Proposals.
IF YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BROKER, BANK OR NOMINEE HOW TO VOTE
WITH REGARD TO PROPOSALS NOS. 2 THROUGH 5, IT WILL HAVE THE SAME EFFECT AS
VOTING AGAINST THE APPROVAL AND ADOPTION OF SUCH PROPOSALS.
VOTING POWER OF SHMUEL BENTOV
As of the record date, Shmuel BenTov, our Chairman of the Board of
Directors, Chief Executive Officer and President, beneficially owned an
aggregate of 1,024,697 issued and outstanding shares of Common Stock and
preferred stock (on an as-converted to Common Stock basis), which represents
approximately 45.2% of the Company's outstanding capital stock. In the Principal
Shareholder's Agreement, Mr. BenTov agreed to vote these shares "FOR" the
election of all five director nominees (Proposal No. 1), the Share Exchange
(Proposal No. 2), the Share Issuance (Proposal No. 3), and the amendment to our
Certificate of Incorporation to change the Company's name to "Vanguard
Info-Solutions International Inc." (Proposal No. 4), and granted Oak an
irrevocable proxy to vote these shares in this manner. Mr. BenTov also agreed to
use his reasonable best efforts to ensure that the Share Exchange, Share
Issuance and BenTov sale are consummated. The Company believes that Mr. BenTov
has further agreed to vote these shares "FOR" the amendment and restatement of
the Company's 1997 Stock Option and Award Plan (Proposal No. 5) and the
ratification of the selection of the Company's independent auditors for the
Company's 2005 fiscal year (Proposal No. 6). While the amount of votes
represented by Mr. BenTov's shares is not, in itself, sufficient to either
represent a quorum at the Annual Meeting or approve any of the Proposals, Mr.
BenTov's vote represents a significant portion of the votes to be cast at the
Annual Meeting. Unless the holders of more than 1,024,697 other shares of our
capital stock attend the Annual Meeting in person or by proxy and vote their
shares against the Proposals presented in this proxy statement, each of the
Proposals will be adopted.
VOTING REQUIREMENTS FOR ADOPTION OF PROPOSALS
The affirmative vote of the holders of a plurality of the outstanding
shares of our capital stock (voting as a single class on an as-converted to
Common Stock basis) who are present in person or represented by proxy and
entitled to vote at the Annual Meeting is required for the election of directors
(Proposal No. 1). The affirmative vote of the holders of a majority of all of
the outstanding shares of our capital stock eligible to vote (voting as a single
class on an as-converted to Common Stock basis) is required to approve the
proposed amendment to the Company's Certificate of Incorporation to change the
Company's corporate name (Proposal No. 4). The affirmative vote of the holders
of a majority of the outstanding shares of our capital stock (voting as a single
class on an as-converted to Common Stock basis) who are present in person or
represented by proxy and entitled to vote at the Annual Meeting is required for
the approval of all other Proposals being submitted to shareholders for their
consideration (Proposals Nos. 2, 3, 5 and 6).
10
ASSISTANCE
If you need assistance in completing your proxy card or have questions
regarding the Annual Meeting, please contact:
The A Consulting Team, Inc.
Investor Relations
77 Brant Avenue, Suite 320
Clark, New Jersey 07066
Tel. (732) 499-8228
Email: investorrelations@tact.com
11
THE RELATED PROPOSALS
INTRODUCTION
We are asking our shareholders to approve a series of Proposals that relate
to a series of related transactions among the Company, Vanguard, Oak, Shmuel
BenTov and certain other entities and individuals. These Proposals reflect a
series of steps by which (a) Vanguard and its subsidiaries will become
subsidiaries of the Company and (b) the current Vanguard shareholders (Excalibur
Investment Group Limited, Andrew H. Ball, and Berenson Investments LLC) and Oak
will become the principal shareholders of the Company. All of these
transactions, taken together, will result in a change of control of TACT and a
substantial dilution in our current shareholders' ownership of the Company's
capital stock. The Company's shareholders do not have any preemptive rights with
respect to these transactions.
Proposals Nos. 1-4 and 6 are classified as related Proposals because the
consummation of each of these Proposals is dependent upon the consummation of at
least one other Proposal.
Proposal No. 1 asks our shareholders to elect five (5) members of our Board
of Directors. Three (3) of these five (5) nominees will serve as directors only
if the Share Exchange (Proposal No. 2) and the Share Issuance (Proposal No. 3)
are both consummated.
Proposal No. 2 asks our shareholders to approve the Share Exchange in which
the Company will issue 7,312,796 shares of our Common Stock in exchange for 100%
of the issued and outstanding capital stock of Vanguard. The Share Exchange will
be consummated only if the Share Issuance (Proposal No. 3) is consummated.
Proposal No. 3 asks our shareholders to approve the Share Issuance in which
the Company will issue between 625,000 and 1,250,000 shares of our Common Stock
to Oak. The Share Issuance will be consummated only if the Share Exchange
(Proposal No. 2) is consummated.
Proposal No. 4 asks our shareholders to approve an amendment to our
Certificate of Incorporation to change the Company's corporate name from "The A
Consulting Team, Inc." to "Vanguard Info-Solutions International Inc." This
amendment will only be filed with the Secretary of State of the State of New
York if the Share Exchange (Proposal No. 2) and the Share Issuance (Proposal No.
3) are both consummated.
Proposal No. 6 asks our shareholders to ratify the selection of Grant
Thornton LLP to be the independent auditors of the Company for the fiscal year
ending December 31, 2005 if the transactions contemplated by Proposals Nos. 2
and 3 are not consummated, and Mercadien, PC to be the independent auditors of
the Company for the fiscal year ending December 31, 2005 if the transactions
contemplated by Proposals Nos. 2 and 3 are consummated.
Set forth below is a description of the transactions and material
transaction documents upon which Proposals Nos. 1-4 and 6 are based.
THE COMPANIES
The A Consulting Team, Inc.
We are an end-to-end information technology ("IT") services and business
process outsourcing provider to Fortune 1000 companies and other large
organizations. We are focused on leveraging existing systems and data. Our goal
is to empower customers through the utilization of technology to reduce costs,
improve services and increase revenues. We deliver migrations and conversions of
legacy systems, web enablement of existing systems, customer development,
performance optimization, business intelligence, outsourcing, strategic sourcing
and enterprise wide IT consulting, and software solutions.
12
We provide complete project life-cycle services--from application and
system design, through development and implementation, to documentation and
training. Strategic alliances with leading software vendors ensure that our
solutions are dependable and within the mainstream of industry trends. These
partnerships allow us to provide a wide variety of business technology solutions
such as enterprise reporting solutions, data warehousing, systems strategies,
application and database conversions, and application development services.
When we are engaged by our clients to implement IT business process
outsourcing services, we use our Smart Approach. Our Smart Approach is a leading
edge set of end-to-end solutions and services that include Strategy,
Methodology, Architecture, Resources and Tools. The Strategy is developed
together with the client to ensure that the client's goals and objectives are
met. The Methodology is a Tried and True TACT Methodology that is followed in
order to implement the Strategy. The solutions and services are built on a
robust Architecture. Utilize highly qualified TACT Resources and Exploits
best-of-breed Tools.
We are a New York corporation and were incorporated in 1983. In 1997, we
completed a public offering of Common Stock and became a public reporting
company. Our shares of Common Stock are listed on the Nasdaq Small Cap Market
under the symbol "TACX." Our principal executive offices are located at 200 Park
Avenue South, Suite 901, New York, New York 10003, and our telephone number
there is (212) 979-8228.
All information regarding our business and financial results is
incorporated herein by reference from our Annual Report on Form 10-K for fiscal
year 2003 and Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2004. You may obtain a copy of this Annual Report and Quarterly
Report, excluding all exhibits, without charge, from us, the SEC or the SEC's
Internet web site at http://www.sec.gov. Shareholders may obtain a copy of the
Annual Report and Quarterly Report from us by requesting it in writing or by
telephone from us at the following address: The A Consulting Team, Inc. Investor
Relations, 77 Brant Avenue, Suite 320, Clark, New Jersey 07066, Tel. (732)
499-8228, Email: investorrelations@tact.com
Vanguard Info-Solutions Corporation and its Subsidiaries ("Vanguard")
Vanguard, a New Jersey corporation, was incorporated in 2000. Vanguard has
two subsidiaries: Vanguard-Delhi which was incorporated in 2003, and
Vanguard-Bangalore which was incorporated in 2004. Both Vanguard-Delhi and
Vanguard-Bangalore commenced operations in 2004. Vanguard's principal executive
offices are located at 2088 Route 130 North, Monmouth Junction, NJ, and its
telephone number is (732) 951-0701. Additional offices include Delhi and
Bangalore, India.
Vanguard provides value-added information technology ("IT") services,
customer care and customer acquisition ("Call Center") services and business
process outsourcing ("BPO") services to business customers principally in the
United States and the United Kingdom. Vanguard's services primarily address the
telecommunications, internet, medical billing, financial services, debt
collection and utility sectors, serving the needs of Global 1000 companies. From
its inception in March 2000 through the first quarter of 2004, Vanguard operated
principally as an IT service consulting business and generated its revenues on a
fee-for-services basis, principally for one customer. At the end of the first
quarter of 2004, Vanguard acquired the first of its two Indian subsidiaries,
Vanguard-Delhi. Vanguard-Delhi commenced operations as a call center in the
first quarter of 2004. At the beginning of the third quarter of 2004, Vanguard
acquired the operations of its second Indian subsidiary, Vanguard-Bangalore.
Vanguard-Bangalore commenced operations in the first quarter of 2004.
13
By leveraging its expertise and offshore delivery model, Vanguard believes
that it is well-positioned to continue to grow within the IT, Call Center and
BPO services markets. Vanguard is experienced both with the business segments of
its customers and in delivering outsourcing solutions to them. Its IT service
offerings include staffing, consulting, software development and maintenance.
Its Call Center offerings include telemarketing, help desk, technical support
and customer support. Its BPO service offerings include medical billing, claims
processing and debt collection.
Vanguard's largest clients in dollar volume since inception have been AT&T
Corp., Earthlink, Inc., and Toucan Telephone (a division of IDT Corporation).
Another significant client includes Vonage Holdings Corp. Vanguard operates
integrated global facilities supported by a state-of-the-art, scalable
infrastructure. With corporate headquarters in the New York metropolitan area,
following the Share Exchange, Vanguard plans to market its services directly
through a sales and marketing team based in New York and London, England, and
through a business development team, operating out of Bangalore, India.
Vanguard's operations centers are located in India, so that Vanguard can
access India's large talent pool. Its technical professionals speak English
fluently and they have been trained to handle complex processes, using both
functional processing and domain expertise. With its principal operations in
India, Vanguard believes that it will be able to offer high quality services at
lower costs than those available from in-house facilities or outsourcing
providers that are based in the United States or the United Kingdom.
Furthermore, Vanguard uses the Six Sigma quality control system ("Six Sigma"),
which it believes enables it to identify process inefficiencies and improve
productivity in client and support processes. Vanguard holds an ISO 9001
certification for quality assurance and a BS7799 certification for information
security.
Vanguard's Industry
Outsourcing principally is the transfer of management and execution of
business processes or functions to a service provider that is external to the
outsourcing party. Ideally, outsource service providers work with their clients
to change their businesses or deliver better performance at lower cost.
Global demand for high-quality, lower-cost outsourced services from
external providers, combined with operational and cost improvements in
international telecommunications and the automation of many business services,
has created a significant opportunity for IT, BPO and Call Center service
providers. Offshore providers can additionally offer a variety of benefits,
including lower costs and highly qualified employees. As a result, many
companies are outsourcing some services and some processes to providers with
offshore delivery capabilities. Vanguard anticipates that the global IT market,
in particular the offshore BPO and offshore Call Center markets, will continue
to grow at or above historical levels.
The growth of this industry appears to be driven by the following factors
and trends:
o IT and BPO services, including customer contact management services, have
become increasingly important to businesses and will remain critically
important;
o commerce over the internet will accelerate, generating new businesses, new
customers and new revenue opportunities;
o India has emerged as the leading destination for businesses that are
seeking outsourced IT, BPO and customer contact management services, based
on India's large, indigenous pool of highly-skilled, English-speaking
college graduates; and
o high-quality methodologies have been developed for outsourced services,
especially by Indian companies, and world-wide businesses have acknowledged
and accepted these methodologies.
14
Vanguard's Competitive Strengths
Vanguard believes that it has the competitive strengths necessary to
enhance and improve its position as a provider of IT and BPO services in its
target industries. Its key competitive strengths include:
o extensive IT staffing, solutions and software development experience;
o significant customer contact management experience;
o growing BPO experience;
o client relationships that generate recurring revenue;
o a focus on operations management and process excellence;
o state-of-the-art infrastructure designed to meet or exceed the growing
needs of its clients with a focus on redundancies, scalability and
information security; and
o its committed management team, with senior managers at or above the level
of assistant vice president having extensive experience in business,
technology and services.
Business Strategy
Vanguard's goal is to become a leading provider of "one stop shop"
outsourced services in the IT, Call Center and BPO services segments. To achieve
that goal, Vanguard has adopted and follows a business plan that requires it to:
o focus on large-scale, long-term relationships;
o seek to expand its client base;
o focus on strengthening its end-to-end service capabilities for its selected
business segments and the specific industries that it targets;
o continue to provide integrated, value-added end-to-end services;
o continue to invest in infrastructure, including human resources, process
optimization and delivery platforms;
o focus on process excellence by building on Six Sigma methodology to
identify and eliminate inefficiencies;
o pursue strategic relationships and acquisitions;
o consider strategic relationships with industry leaders that add client
relationships or enhance the depth and breadth of its service offerings;
and
o consider acquisitions or investments that would expand the scope of its
existing services, add new clients or allow it to enter new geographic
markets.
Vanguard's IT Services
Vanguard's IT professionals work onsite, offshore and offsite to support
its clients in several industry sectors with customized IT solutions for
companies and staffing. Vanguard offers a comprehensive range of services,
including software development, system maintenance, packaged software
integration, engineering design services and staff augmentation. Vanguard uses
its global infrastructure to deliver value-added services to its customers to
address IT needs in specific industries and to facilitate eBusiness initiatives.
15
Software Development. Vanguard plans to offer design, development and
installation of software for a variety of IT systems. Applications would range
from single-platform, single-site systems to multi-platform, multiple-site
systems. Projects may involve the development of new applications or new
functions for existing software applications. Each development project typically
involves all aspects of the software development process, including definition,
prototyping, design, pilot programs, programming, testing, installation and
maintenance.
System Maintenance. Vanguard plans to provide maintenance services for
large software systems, which may include modifications and enhancements to the
system and product support. It also would assist customers in migrating to new
technologies while extending the useful life of existing systems. Projects may
involve re-engineering software to migrate applications from mainframe to
client/server architectures or to migrate from existing operating systems to
UNIX or Windows NT.
Staffing Augmentation. Vanguard supplements clients' in-house staff with
subject matter experts to address specific technical skills needed to complete
projects or manage systems. It screens candidates for depth and range of
technical skills needed, management or individual contributor roles, prior
industry experience and fit with the client's environment.
Vanguard's Customer Contact Management Services
Vanguard's customer contact management services are structured around the
following strategic business units: telecommunication services, internet
services and energy. In each of these units, Vanguard offers to provide a full
range of customer acquisition and cross-selling, customer care and help desk
support. Vanguard uses automated dialing systems and proprietary tools to
monitor performance on a daily basis. Vanguard seeks to offer improved service
delivery by means of detailed daily feedback through its proprietary systems and
reporting with its clients.
Customer contact management services that Vanguard offers, or plans to
offer, include:
o Customer care, consisting of product information requests, describing
product features, activating customer accounts, resolving complaints,
handling billing inquiries, changing addresses, claims handling, ordering
and reservations, pre-qualification and warranty management;
o Technical support, consisting of e-mail management, customer service and
web- and voice-based technical helpdesk functions, including inquiries
regarding hardware, software, communications services, communications
equipment, Internet access technology and Internet portal usage; and
o Acquisition, consisting of outbound selling and cross-selling of our
client's products and services.
Vanguard's BPO Services
Vanguard has structured its BPO services group to address the medical
services, collection services and financial services industries. For the medical
services industry, it offers billing and bill coding and plans to offer
diagnostic second opinions. For the collection services industry, it focuses on
mid-stage collections and offers end-to-end services of skip tracing, customer
contact and repayments and settlements. Vanguard uses automated dialers and
proprietary tools and methods to trace people who have moved or absconded
without notice to avoid paying debts; once found, it attempts to structure
repayments. For the financial services industry, Vangaurd offers customer
service and transaction processing, and plans to offer document management.
16
Clients
Vanguard's current and former clients include AT&T Corp., Earthlink, Inc.,
Toucan Telephone (a division of IDT Corporation) and Vonage Holdings Corp.
Vanguard typically enters into an agreement with a term of six to twelve months
in IT Staffing and one or more years in BPO Services; their agreements are
subject to termination with little or no notice. Call Center contracts are
performance-based and open-ended.
Competition
There is considerable competition in each of the service industry segments
in which Vanguard competes. The vast majority of businesses perform some or all
of their customer service, technical support, collection and other clerical
processes within their own organizations with their own regular personnel.
Certain businesses have moved certain of these functions to locations, both
onshore and offshore, in which they anticipate reduced labor and overhead costs.
Vanguard's Call Center services and BPO services units compete against Accenture
Ltd., Affiliated Computer Services, Inc., Convergys Corporation, Sykes and other
large well-capitalized, multi-national corporations who have provided
outsourcing services for several years or more. Vanguard also competes against
the Call Center and BPO business units of many IT services companies located in
India, such as HCL Technologies Ltd., Infosys Consulting, Inc., Mphasis BFL
Limited, Satyam Computer Services Ltd., Tata Consultancy Services and Wipro
Limited. Many of these companies provide broad-based IT, software, consulting
and outsourcing sources to their clients. Vanguard's competition also includes
many Call Center and BPO service companies based in India and in other offshore
locations.
Employees
As of December 31, 2004, Vanguard had 1,780 employees, of whom 52 were
employed in IT Consulting and 1723 were based in India. Vanguard follows
practices and procedures that are designed to recruit, train and retain its
employees, particularly in India, where competition is intense for well-trained
professionals. Vanguard believes that the compensation, training and benefits
that it offers are competitive with, and in some cases superior to, those
offered by its competitors.
Properties
Vanguard's corporate headquarters is located in Monmouth Junction, New
Jersey, where it occupies approximately 1100 square feet under a month-to-month
lease. Vanguard intends to abandon this facility and combine with TACT's Clark,
New Jersey facility following the completion of the Share Exchange and the Share
Issuance. Vanguard-Delhi and Vanguard-Bangalore each operate their facilities on
a virtually uninterrupted 24 hours a day, seven days a week, or "24/7" basis.
These locations are leased and are described as follows:
------------------ ----------------------------- ---------------------------- ----------------------
Facility Space Number of Workstations Lease Expiration
------------------ ----------------------------- ---------------------------- ----------------------
49,830 square feet
Dehli (or 5,393 square meters) 580 2006
------------------ ----------------------------- ---------------------------- ----------------------
22,400 square feet
Bangalore (or 2,424 square meters) 288 2015
------------------ ----------------------------- ---------------------------- ----------------------
Its international locations are connected using a combination of leased domestic
and international telecommunications links with redundant capacity. Industry
standard network management systems monitor the systems on an uninterrupted 24/7
basis.
Selected Financial Data
UNAUDITED SELECTED FINANCIAL DATA
The following table presents unaudited summary selected financial and
operating data for Vanguard for the periods presented. The Unaudited Summary
Selected Financial Data presented below has been derived from, and should be
read in conjunction with, the Vanguard Info-Solutions Corporation Financial
Statements attached to this proxy statement as Annex G.
SELECTED FINANCIAL DATA
(in thousands, except number of shares and per share data)
Vanguard Historical
Nine Months
Ended Year Ended December 31,
----------- --------------------------------------
2004 2003 2002 2001
---- ---- ---- ----
Statement of Operations Data:
Revenues $ 22,381 $17,708 $18,763 $16,116
Income (loss) from operations 5,301 229 1,967 619
Other income (expense):
Lease Income 3,061 - - -
Commision Income 619 - - -
Foreign exchange translation 438 - - -
Net income (loss) 7,351 95 1,932 636
Net income (loss) per share Basic/Diluted $ 735.10 $ 19.00 $193.20 $ 63.60
Income per share from operations $ 530.10 $ 45.80 $196.70 $ 61.90
Book value per share $1,111.10 $108.00 $195.60 $ 30.10
Dividends per share $ - $ - $ - $ -
BALANCE SHEET DATA:
Total assets $ 33,989 $ 2,413 $ 5,250 $ 2,135
Long-term liabilities 9,567 16 26 -
Stockholders' equity 11,111 540 1,956 301
Number of shares outstanding at
period end 10,000 5,000 10,000 10,000
17
Financial Statements
Vanguard's financial statements, Management's Discussion and Analysis of
Financial Condition and Results of Operations and Qualitative and Quantitative
Disclosures Regarding Market Risk are attached to this proxy statement as Annex
G and are incorporated herein by reference. For a complete understanding of
Vanguard and its historical operations and performance, we encourage you to
review this information in its entirety.
Oak Finance Investments Limited ("Oak")
Oak is a company formed under the laws of the British Virgin Islands. Oak's
registered office is located at Arias Fabrega & Fabrega Trust Company BVI Ltd.
325 Waterfront Drive, Omar Hodge Building, 2nd Floor, Wickham's Cay, Road Town,
Tortola, British Virgin Islands. Oak's telephone number is (284) 677-3394.
THE COMBINED COMPANIES
The combined effect of the Share Exchange, the Share Purchase and related
transactions will be the expansion of our business. We currently provide
enterprise-wide information technology consulting, training services and
software products to Fortune 1000 and other large organizations. Our current
business will be augmented by adding additional onshore and offshore IT
services, offshore customer care and customer acquisition services and offshore
business process outsourcing. These transactions will expand our services to
serve the greater needs of Global 1000 companies.
Selected Financial Data
UNAUDITED SUMMARY SELECTED PRO FORMA FINANCIAL DATA
In January 2005, the Company signed a Share Exchange Agreement with
Vanguard, whereby the Company agreed to issue 7,312,796 shares of Common Stock
to the Vanguard shareholders in exchange for all of the outstanding capital
stock of Vanguard. In addition, the Company signed a Stock Purchase Agreement
with Oak, whereby Oak agreed to purchase a minimum of 625,000 shares of Common
Stock directly from the Company for $8.00 per share.
The 7,312,796 shares of Common stock to be issued by the Company to the
Vanguard shareholders represent approximately 71% of the Company's issued and
outstanding voting Common Stock. Accordingly, this business combination is
considered to be a reverse acquisition. As such, for accounting purposes,
Vanguard is considered to be the acquirer while the Company is considered to be
the acquiree.
The following table presents unaudited summary selected financial and
operating data on a pro forma basis as if the Company and Vanguard had been
operated as a single combined company during the periods presented. The
Unaudited Summary Selected Financial Data presented below has been derived
from, and should be read in conjunction with the Pro Forma Unaudited
Consolidated Condensed Financial Statements attached to this proxy statement as
Annex H. The Unaudited Summary Selected Pro Forma Financial Data are based upon
assumptions and estimates of the effects of operating the companies on a
combined basis and do not represent actual results. Because the Pro Forma
Unaudited Consolidated Condensed Financial Statements in Annex H and
the Unaudited Summary Selected Financial Data below are based on estimates and
assumptions and do not represent actual results, you should not rely on them as
being indicative of the results that may be achieved if the related transactions
are approved.
SELECTED FINANCIAL DATA
(in thousands, except number of shares and per share data)
Pro Forma (1)
Year Ended
Nine Months Ended December 31,
2004 2003
---- ----
Statement of Operations Data:
Revenues $ 41,114 $ 39,354
Income (loss) from operations 5,660 187
Other income (expense):
Lease Income 532 -
Commision Income 619 -
Foreign exchange translation 438 -
Net income (loss) 6,194 (61)
Net income (loss) per share Basic/Diluted $ 0.61 $ (0.01)
Income per share from operations $ 0.55 $ 0.02
Book value per share $ 2.40 $ 0.56
Dividends per share $ - $ -
BALANCE SHEET DATA:
Total assets $ 37,413 $ 9,786
Long-term liabilities 158 247
Stockholders' equity 24,507 5,701
Number of shares outstanding at
period end 10,203,346 10,203,346
(1) See Pro Forma financial statements and notes that are on Annex H.
Pro Forma Financial Information
Pro Forma Unaudited Consolidated Condensed Financial Statements of TACT and
Vanguard have been prepared by our management to give effect to the proposed
transactions. These Unaudited Consolidated Pro Forma Combined Financial
Statements are attached to this proxy statement as Annex H and are incorporated
herein by reference. For a complete understanding of the combined companies and
the effect of the proposed transactions, we encourage you to review this
information in its entirety.
BACKGROUND OF THE SHARE EXCHANGE, SHARE ISSUANCE, BENTOV SALE AND RELATED
TRANSACTIONS
We were first introduced to representatives of Rosehill Enterprises Ltd. in
March 2004 by the firm Bathgate Capital. Our initial discussions with Rosehill
Enterprises Ltd. related to a sale of shares of our unregistered equity to
Rosehill Enterprises Ltd. and the purchase by it or its principals of shares of
Common Stock owned by Mr. BenTov.
On March 16, 2004, the Board of Directors established a special committee
consisting of two independent directors, Messrs. William Miller and Steven S.
Mukamal. The purpose of the special committee was to review, analyze, and
negotiate any potential business transaction with Rosehill Enterprises Ltd. The
special committee was not able to reach an agreement with Rosehill Enterprises
Ltd. and, on May 27, 2004, the discussions terminated.
18
On June 29, 2004, Mr. BenTov met with a representative of Vanguard. The
following transactions were discussed and proposed:
o a share exchange, whereby we would issue shares of Common Stock in exchange
for all of the issued and outstanding capital stock of Vanguard;
o a sale of unregistered equity, whereby we would sell 875,000 unregistered
shares of Common Stock for a cash purchase price of $8.00 per share to Oak
(for an aggregate of $7 million);
o the purchase of approximately 50% of Mr. BenTov's shares of our capital
stock for a cash purchase price of $10.00 per share (for an aggregate of
approximately $5 million); and
o the execution of a new employment agreement between us and Mr. BenTov.
Vanguard's representatives advised that it was their client's view that
both an acquisition of shares from Mr. BenTov and an infusion of capital in us
would be required for Vanguard to implement the business plan it had previously
proposed for the combined enterprise. Oak had advised that, based on the then
current range of the market price of our Common Stock, it would offer $8.00 as
the price for the Common Stock it would purchase directly from us.
Following this meeting, Mr. BenTov discussed the structure of the proposed
transactions with Richard D. Falcone, our chief financial officer. Messrs.
BenTov and Falcone decided to that it would be appropriate to convene a meeting
of the special committee of the Board of Directors.
On July 6, 2004, a meeting of the special committee of our Board of
Directors was held via telephone conference call. The following special
committee members were in attendance: Messrs. William Miller and Steven Mukamal.
Rueven Battat and Shmuel BenTov were present by invitation. In addition, Mr.
Falcone and Mr. Lawrence Fisher of the law firm of Orrick, Herrington &
Sutcliffe LLP, our outside legal counsel, were present at the meeting. The terms
of the proposed transaction and other relevant information were discussed. The
special committee asked Mr. BenTov if the proposed sale of his shares of our
capital stock on the terms proposed was acceptable. Mr. BenTov indicated that
these terms were acceptable. The special committee requested that Mr. Fisher
contact Vanguard's and Oak's legal counsel to learn more information about
Vanguard and Oak and to arrange a meeting between Vanguard's and Oak's
representatives and our representatives.
On July 15, 2004, Messrs. Miller, Mukamal, Falcone and Fisher met with
representatives of Vanguard and Oak in New York. Vanguard's management made a
presentation to our representatives, which included a description of Vanguard's
United States and Indian operations. Vanguard's representatives presented a
letter of intent outlining the structure of the proposed transactions. The
letter of intent also included an exclusive period of three weeks during which
Vanguard and we could evaluate and negotiate the principal terms of the proposed
transactions. Following this meeting, we commenced an extensive due diligence
process.
On July 19, 2004, the special committee of the Board of Directors met with
Messrs. Falcone and Fisher to discuss the letter of intent. The special
committee determined that the key component of the proposed transactions was the
share exchange ratio. Accordingly, the special committee instructed Mr. Falcone
to commence a search for an investment banking firm to evaluate the fairness
from a financial perspective of the proposed transactions. In addition, the
special committee approved the exclusive negotiating period, which would
terminate on August 9, 2004. The special committee made a recommendation that
Mr. BenTov should retain separate legal counsel. Mr. BenTov proceeded to retain
separate counsel, who represented him during the remainder of the negotiations.
19
On July 21, 2004, we and Vanguard executed a non-binding letter agreement
to which was attached a term sheet that summarized the principal terms of the
proposed transactions.
The Board of Directors held a meeting on August 4, 2004 to discuss the
proposed transactions and to approve the selection of Ehrenkrantz King Nussbaum
Inc. as our financial advisor.
During the subsequent weeks, our due diligence investigation continued and
various aspects of the proposed transactions were negotiated. During the week of
September 6, 2004, the parties agreed to a share exchange ratio such that the
relative valuations of the combined businesses would be 77% for the Vanguard
shareholders and 23% for our shareholders. Accordingly, each issued and
outstanding share of Vanguard capital stock would be exchanged for approximately
795.3 shares of Common Stock and, under this ratio, Vanguard's shareholders
would receive approximately 7,953,000 shares of Common Stock.
During the week of September 20, 2004, Mr. Falcone and Mr. Jimmie Sundstrom
of Ehrenkrantz King Nussbaum Inc. visited Vanguard's operations in Delhi and
Bangalore, India. While in India, Messrs. Falcone and Sundstrom toured
Vanguard's facilities, observed operations and held discussions with Vanguard's
management team and independent accountants located in India.
On September 24, 2004, Messrs. Falcone and Sundstrom met in London, England
with Mr. Andrew H. Ball, a significant Vanguard shareholder and proposed board
nominee following the consummation of the proposed transactions.
The special committee of the Board of Directors held a meeting on September
27, 2004 to discuss the results of Messrs. Falcone's and Sundstrom's due
diligence investigation of Vanguard's Indian operations. Mr. Falcone stated to
the special committee that he believed the most significant item of open due
diligence was the completion of the audit of Vanguard's consolidated financial
statements, which were expected to be completed in November, 2004. Following the
due diligence presentations by Messrs. Falcone and Sundstrom, the special
committee decided to instruct Mr. Fisher to attempt to renegotiate the exchange
ratio to be used to determine the number of shares of Common Stock that would
be issued to the Vanguard shareholders in the Share Exchange with Vanguard's
legal counsel. Subsequent to the meeting of the special committee, Mr. Fisher
had a number of discussions with Vanguard's and Oak's legal counsel regarding
the exchange ratio and various other terms of the proposed transactions,
including the structure of the transactions and related U.S. taxation issues. We
also negotiated changes in the terms of the shares to be purchased by Oak.
The special committee of the Board of Directors held a meeting on October
6, 2004 to discuss additional due diligence concerns. Mr. Falcone informed the
special committee that he learned that Vanguard had entered into financially
significant long-term computer equipment leases. Vanguard was not fully
utilizing the subject computer equipment, and the leases would have a
significant impact on the financial results of Vanguard. The special committee
determined not to move forward with the proposed transactions until the
financial obligations related to these computer leases were assigned by Vanguard
to an unrelated party. The special committee requested that Mr. Fisher convey
this position to Vanguard's legal counsel, and he did so. Vanguard's counsel
responded that any assignment would require the consent of the lessor. Vanguard
reported to us that it was entering into negotiations with the lessor.
20
The special committee of the Board of Directors held a meeting on October
27, 2004 to further discuss the financial issues related to the computer leases.
Mr. Falcone informed the special committee that Vanguard had a proposed solution
that would eliminate Vanguard's financial responsibility with respect to the
computer leases. The special committee requested that Mr. Fisher inform
Vanguard's counsel that it would be willing to continue negotiating the proposed
transactions once the computer lease issues were resolved to its satisfaction.
The financial issues relating to the computer leases were resolved to the
satisfaction of the special committee on December 14, 2004.
In the course of its due diligence review of Vanguard, our legal counsel
determined that certain deficiencies might have occurred in connection with
Vanguard's 401(k) employee benefit plan. After review, Vanguard and its counsel
undertook corrective measures that our counsel deemed satisfactory.
The Board of Directors held a meeting on November 4, 2004 to discuss the
progress of the negotiations of the proposed transactions. The Board of
Directors determined that the negotiations were not proceeding at an acceptable
pace because the audit of Vanguard's consolidated financial statements both for
prior years and for the seven months ended July 31, 2004 had not yet been
completed. Accordingly, the Board of Directors instructed Mr. Falcone to inform
Vanguard that it was setting a deadline of mid-December for the delivery of the
audited financial statements or the Board of Directors would pursue other
alternatives. Mr. Falcone discussed the timing of the completion of the audit
with Vanguard's legal counsel and investment banker and informed them of the
deadline.
On December 22, 2004, Vanguard presented Mr. Falcone with its audited
consolidated financial statements both for prior years and for the seven months
ended July 31, 2004. The special committee, Mr. Falcone and our investment
bankers reviewed the financial statements. Mr. Falcone discussed the financial
statements with representatives of Mercadien, PC, Vanguard's independent
auditors.
The special committee of the Board of Directors held a meeting on January
6, 2005 to discuss the status of the proposed transactions. The discussions
centered on the relative valuations of us and Vanguard. The special committee
believed that the share exchange ratio should be adjusted due to changed
business conditions. At this meeting, Mr. BenTov indicated that he believed that
the price for the sale of his shares should also be adjusted. The Board
authorized Mr. BenTov to meet with Vanguard's and Oak's representatives to
negotiate changes to the share exchange ratio and any other changes he deemed
necessary.
On January 7, 2005, Mr. BenTov met with Vanguard's representatives to
inform them that the special committee of the Board of Directors believed that
due to changed business conditions, certain changes to the terms of the
transactions should be made. They agreed to schedule a meeting for Mr. BenTov to
meet with Vanguard's chief executive officer and with a representative of
Excalibur Investment Group Limited, one of Vanguard's principal shareholders,
for January 12, 2005 to discuss the terms of the proposed transactions. At that
meeting, it was agreed that the share exchange ratio would be adjusted such that
the relative valuations of the combined business, before considering Oak's
investment, would be 75% for Vanguard's shareholders and 25% for our
shareholders. Accordingly, each issued and outstanding share of Vanguard capital
stock would be exchanged for approximately 731.3 shares of Common Stock, and,
under this ratio, Vanguard's shareholders would receive approximately 7,313,000
shares of Common Stock. Additionally, the Dividend was discussed and Vanguard
agreed that the payment of the Dividend would be acceptable.
Mr. BenTov also met with a representative of Oak to discuss the sale of
certain of his shares of our capital stock. Oak agreed to increase the price to
$10.25 per share. Oak also stated that Mr. BenTov, at his option, could sell all
of his shares of our capital stock at that price. In the event of a sale of all
of his shares, however, Mr. BenTov would be required to resign from the Board of
Directors and as our chief executive officer and president upon consummation of
the proposed transactions. Subsequently, Mr. BenTov determined that he would
sell all of his shares of our capital stock to Oak for $10.25 per share (for an
aggregate of $10,503,144.25) after payment of the Dividend, as further described
on page 4.
21
On January 20, 2005, the Board of Directors held a meeting to discuss the
proposed transactions. The special committee recommended to the Board of
Directors that the Board approve the proposed transactions. By unanimous vote,
the Board of Directors approved the terms of the proposed transactions as well
as certain related matters. The parties executed the definitive agreements
relating to the proposed transactions on January 21, 2005.
EFFECTS OF THE SHARE EXCHANGE, SHARE ISSUANCE, BENTOV SALE AND RELATED
TRANSACTIONS
If our shareholders approve the Share Exchange and the Share Issuance,
Shmuel BenTov will consummate the BenTov Sale pursuant to which he and his
spouse have agreed to sell all of the shares of the Company's capital stock
beneficially owned by him and his spouse to Oak in a separate transaction. Upon
the consummation of the Share Exchange, the Share Issuance and the BenTov Sale,
Vanguard and its subsidiaries will become subsidiaries of the Company. In
addition, the three former Vanguard shareholders and Oak will become the
principal shareholders of the Company. The current shareholders of TACT, other
than Mr. BenTov, will own between approximately 11.5% and 12.2% of our issued
and outstanding shares of Common Stock. The Share Exchange, the Share Issuance
and the BenTov Sale, taken together, will result in a change of control of the
Company and a substantial dilution in our current shareholders' ownership of the
Company's capital stock. In addition, if the shareholders adopt Proposal No. 1,
three Board of Directors nominees designated by the Vanguard shareholders will
serve as members of the Board of Directors.
We have significant net operating losses for federal income tax purposes,
totaling approximately $11.5 million as of December 31, 2004. Our ability to
utilize these losses (to reduce our Federal income tax liability in future
taxable years) will be adversely impacted by the Share Exchange and Share
Issuance. Thus, in each year subsequent to the ownership change resulting from
the Share Exchange and Share Issuance, we will generally be prohibited from
utilizing our net operating losses that accrued prior to the ownership change
(and, possibly, any net unrealized built-in losses existing at the time of the
ownership change that we recognize within five years of the change) in excess of
the applicable "section 382 limitation," generally defined as the product of (i)
the value of our stock immediately prior to the ownership change (that is,
immediately prior to the Share Exchange and Share Issuance) and (ii) the
long-term tax-exempt rate in effect at that time. Moreover, if we were to fail
to continue our historic business at any time during the two year period
following the Share Exchange and Share Issuance, our net operating losses would
be eliminated in their entirety. To the extent that the section 382 limitation
in a given year exceeds our taxable income for such year, that excess may be
carried over to our succeeding taxable year and included in the section 382
limitation applicable to the subsequent year. Assuming that we continue to file
consolidated Federal income tax returns subsequent to the Share Exchange, we
will no longer be treated as the common parent of the consolidated tax group;
instead, Vanguard will be so treated. Moreover, in such a case, the period for
which we may carryforward our net operating losses will effectively be truncated
by one year as a result of the Share Exchange. As a result of the rules
summarized above, our ability to utilize our currently existing net operating
losses (and, possibly, any net unrealized built-in losses existing at the time
of the ownership change) in future taxable years will be materially and
adversely affected as a result of the Share Exchange and Share Issuance.
We anticipate using the proceeds of the Share Issuance for
working capital and general corporate purposes and to pay the expenses related
to the proposed transactions.
22
THE SPECIAL COMMITTEE
Purpose of the Special Committee
A special committee of the Board of Directors was formed to evaluate the
Share Exchange, the Share Issuance and related transactions. The purpose of the
special committee was to protect our shareholders' interests from potential
conflicts of interest that may arise as our executive officers, directors and
principal shareholders evaluated and negotiated the transactions. The special
committee was comprised of Messrs. William P. Miller and Steven M. Mukamal, each
of whom is an independent director. The special committee retained legal and
financial advisors to assist it in its evaluation of the transactions.
Evaluation by the Special Committee
In evaluating the Share Exchange, the Share Issuance and related
transactions, the special committee and our Board of Directors considered a
number of factors, including the following:
1. Since our inception in 1983, our principal business has been to
provide information technology solutions to our customers. We have
engaged in a consulting business in which we provide services of our
consultants to our customers in exchange for fees which, in general,
are charged and paid on an hourly basis. Since 2000, our revenues have
declined primarily because of a slowdown in the IT industry, which
resulted in the cessation of operations of T3 Media, the closing of
three of the Company's solution branches and bringing the Company back
to its core IT Solutions and services businesses, which was partially
offset by an increase in revenues as a result of the acquisition of
International Object Technology, Inc. We believe that the current
trend in our industry is to offer business process operations and
outsourced business services to our clients in order to help them
increase revenues while decreasing costs. We believe that a business
combination with Vanguard and its subsidiaries will provide us with
several strategic advantages in the marketplace:
o Vanguard's business process operations business, conducted
through its two operating subsidiaries in India, will permit us
to offer our clients a wide range of outsourced services that
should permit them to effect sizable reductions in their
operating costs;
o Vanguard's information technology solutions business is
compatible with our information consulting business; and
o Vanguard's recent growth, principally in its international
subsidiaries, may result in increased shareholder value for our
existing shareholders.
2. We believe that combining our business with the business of a growing
information technology business that has a broader range of services
will also benefit our customers and enhance our financial viability,
as well as improve our ability to attract and retain talented
employees.
3. We believe that our ability to provide our existing clients with a
high level of service and to attract new clients will be enhanced with
an infusion of equity capital that will permit us to hire additional
employees and expand our marketing efforts. In the recent past, our
financial results have not permitted us to access the capital markets
on terms that were acceptable to us. The infusion of up to $10,000,000
should enhance our competitive position.
23
Recommendation of the Special Committee and Board of Directors
The special committee and our Board of Directors have determined that the
terms of the Share Exchange Agreement and the terms of the Stock Purchase
Agreement are fair to the Company and are in the best interests of the Company
and its shareholders. The special committee and our Board of Directors have
approved the Share Exchange and the Share Issuance and declared their
advisability.
ACCORDINGLY, THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS RECOMMEND
THAT YOU VOTE "FOR" THE APPROVAL AND ADOPTION OF THE SHARE EXCHANGE AS REFLECTED
IN THE SHARE EXCHANGE AGREEMENT.
THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS ALSO RECOMMEND THAT YOU
VOTE "FOR" THE APPROVAL AND ADOPTION OF THE SHARE ISSUANCE AS REFLECTED IN THE
STOCK PURCHASE AGREEMENT.
OPINION OF TACT'S FINANCIAL ADVISOR
Ehrenkrantz, King Nussbaum Inc. ("EKN") served as TACT's financial advisor
in connection with the proposed transactions. At the meeting of the Board of
Directors on January 20, 2005, EKN delivered its fairness opinion dated January
19, 2005, to the effect that, as of January 19, 2005, the terms of the Share
Exchange and Share Issuance are fair to the shareholders of the Company from a
financial point of view. A copy of this fairness opinion is attached to the
proxy statement as Annex E. We encourage you to review this fairness opinion
carefully and in its entirety.
EKN's fairness opinion is directed only to the fairness to the Company's
shareholders, from a financial point of view, of the terms of the Share Exchange
and the Share Issuance and did not constitute a recommendation of the Share
Exchange and the Share Issuance over other courses of action that may be
available to the Company or constitute a recommendation to any of the Company's
shareholders on how to vote with respect to the Share Exchange and the Share
Issuance. The fairness opinion did not address what the value of Company's
Common Stock actually will be when issued to holders of Vanguard capital stock
pursuant to the Share Exchange Agreement, or the price at which our Common Stock
will trade subsequent to the date above or after the closing of the transaction.
EKN expressed no opinion as to the merits of the underlying decision by the
Company to enter into the Share Exchange Agreement or the Stock Purchase
Agreement or to consummate the transactions contemplated thereby. TACT and
Vanguard negotiated the consideration to be paid in connection with Share
Exchange, the Share Issuance and related transactions.
In arriving at its opinion, EKN reviewed and considered such financial and
other matters as EKN deemed relevant, including, among other things, certain
publicly available financial and other information for the Company and certain
other relevant financial and operating data furnished to EKN by the management
of the Company, certain financial and other information for Vanguard furnished
to EKN by the management of the Company, and certain internal financial
analyses, financial forecasts, reports and other information concerning the
Company and Vanguard, prepared by the management of the Company and Vanguard.
24
In connection with its review and arriving at its opinion, EKN did not
assume any responsibility for the independent verification of any of the
information provided to it by the Company or Vanguard and relied on the
completeness and accuracy as represented by the Company and Vanguard. With
respect to the financial forecasts of the Company and Vanguard, EKN assumed that
it had been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of the Company and Vanguard,
respectively, as to the future financial performance of the Company and
Vanguard. In addition, EKN did not make any independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of the Company or of
Vanguard, nor was EKN furnished with any such evaluations or appraisals. The
opinion is necessarily based upon financial, economic, market and other
conditions as they existed and should be evaluated as of the date of the
opinion. It should be understood that, although subsequent developments may
affect the opinion, EKN does not have any obligation to update, revise or
reaffirm the opinion and EKN disclaims any responsibility to do so.
The following is a summary of the presentation, which included a slide
presentation, made by EKN to the Board of Directors while giving its fairness
opinion. A copy of this presentation is attached to the proxy statement as Annex
F. We encourage you to review this presentation carefully and in its entirety.
Scope of Presentation. EKN described the scope of its presentation and
analysis. Its opinion was limited to information garnered from discussions with
certain members of the management of the Company and Vanguard regarding the
proposed Share Exchange and the Share Issuance, financial projections from the
Company, Vanguard and the pro forma combined company financial information
provided by the Company's management, and independently developed comparative
and financial analyses deemed appropriate by it in accordance with standard
investment banking practices.
Valuation Methodologies. The following is a summary of the material
financial and comparative analyses performed by EKN in rendering its opinion and
is being provided to you for your reference. The summary of the financial
analyses is not a complete description of all of the analyses performed by EKN.
Furthermore, EKN did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor.
As part of its approach to valuing the Company and Vanguard, EKN utilized
several complementary valuation methodologies:
Comparable Companies Analysis. EKN derived the value of the Company and
Vanguard in part by reference to publicly-traded companies that EKN believed to
offer similar products and services, to have similar operating and financial
characteristics and/or to service similar markets. EKN presented the comparable
analysis of trading data for companies deemed similar to the Company and
Vanguard. Companies comparable to the Company included technology consulting
companies and IT consulting service providers focused on technology
infrastructure advisory services, systems architecture design, strategy
formulation and applications development. Such companies included Perot Systems
Corp., Keane, Inc., Ciber, Inc. Covansys Corp. and Computer Horizons. Companies
comparable to Vanguard included business process outsourcing companies in the
United States and Indian IT services companies having business process
outsourcing operations listed in the United States. Such companies included
Affiliated Computer Services, Inc., Ceredian Corporation, Convergys Corp.,
Lionbridge Technologies, Inc., Syntel, Inc., Satyam Computer Services Ltd. and
Cognizant Technology Solutions Corp.
EKN selected these companies because it considered them to have operations
similar to the operations of the Company and Vanguard, respectively. EKN
commented that the Company's stock trades at multiples of revenue and EBITDA
below its comparable peers.
25
In its comparable companies analysis, EKN determined the following:
Enterprise Value/LTM Revenue Multiples (IT Services Comparable Companies)
Maximum.................................................................................1.4x
Mean (excluding the high and low).......................................................0.9x
Minimum.................................................................................0.4x
Company.................................................................................0.6x
Implied Valuation of Company in the Share Exchange.................................0.9x-1.0x
Implied Valuation of Vanguard IT Services business in the Share Exchange...........0.7x-0.9x
Enterprise Value/LTM EBITDA Multiples (IT Services Comparable Companies)
Maximum................................................................................16.3x
Mean (excluding the high and low)......................................................11.8x
Minimum.................................................................................8.6x
Company.................................................................................8.1x
Implied Valuation of Company in the Share Exchange...............................10.0x-12.0x
Implied Valuation of Vanguard IT Services business in the Share Exchange...........6.0x-7.0x
Enterprise Value/LTM Revenue Multiples (BPO Comparable Companies)
Maximum................................................................................10.7x
Mean (excluding the high and low).......................................................2.6x
Minimum.................................................................................1.0x
Implied Range of Valuation of Vanguard in the Share Exchange......................2.7x-2.75x
Enterprise Value/LTM EBITDA Multiples (BPO Comparable Companies)
Maximum................................................................................47.1x
Mean (excluding the high and low)......................................................13.6x
Minimum.................................................................................7.5x
Implied Range of Valuation of Vanguard in the Share Exchange.......................7.5x-8.5x
These multiples were calculated by dividing the enterprise value by the
stated metric. The enterprise value is equal to the equity market value plus
total indebtedness less non-restricted cash using the latest publicly available
balance sheet. EBITDA is defined as earnings before interest expense,
depreciation and amortization. LTM Revenue and EBITDA is equal to the last
twelve months of revenues and EBITDA obtained from publicly available
information including public Securities Exchange Act filings made by these
companies. The "maximum," "mean (excluding high and low)" and "minimum"
multiples represent the high, average excluding high and low, which we deem to
be outliers, respectively, of all multiples considered.
Comparable Transaction Analysis. EKN derived the value of the Company and
Vanguard in part relative to recent merger and acquisition transactions that EKN
believed to involve similar businesses. EKN compared the Company's and
Vanguard's implied transaction enterprise value multiples to publicly available
financial information for business process outsourcing companies and IT services
companies. The transactions analyzed by EKN were recent transactions for
companies deemed similar to the Company and Vanguard. EKN reviewed numerous
transactions completed during the last few years in the IT services and business
process outsourcing industry and selected twelve transactions involving IT
consulting service providers and nine transactions involving business process
outsourcing companies.
EKN reviewed the following transactions in the IT Services industry: Fair
Isaac Corporation/Braun Consulting, Inc., Affiliated Computer Services,
Inc./Blue Star Solutions, CGI Group, Inc./American Management Systems, Inc.,
Infocrossing, Inc./Systems Management Specialists, Keane, Inc./Nims-Associates,
Inc., CIBER, Inc./SCB Computer Technology, Inc., Lockheed Martin Corp./ACS
Federal Government IT Business, Affiliated Computer Services, Inc./Lockheed
Martin Commercial IT Business, Affiliated Computer Services, Inc./CyberRep,
Inc., Keane, Inc./Signal Tree Solutions, Perot Systems Corp./Claim Services
Resource Group, Inc., and Keane, Inc./Metro Information Services.
26
EKN reviewed the following transactions in the business process outsourcing
industry: General Atlantic Partners and Oak Hill Partners/GE business process
outsourcing business in India, Barclays/Intelenet, HDFC/Intelenet,
Citigroup/eServe International, IBM/Daksh, TH Lee Putnam Ventures/SPI
Technologies, PlanVista Corporation/ProxyMed, Inc., Aditya Birla
Group/Transworks, and Wipro Ltd./Spectramind.
Enterprise Value/LTM Revenue Multiples (IT Services Companies)
Maximum ................................................................................1.5x
Mean (excluding the high and low).......................................................0.9x
Minimum.................................................................................0.4x
Implied Valuation of Company in the Share Exchange.................................0.9x-1.0x
Implied Valuation of Vanguard IT Services business in the Share Exchange...........0.7x-0.9x
Enterprise Value/LTM EBITDA Multiples (IT Services Companies)
Maximum................................................................................10.2x
Mean (excluding the high and low)......................................................10.0x
Minimum.................................................................................8.4x
Implied Valuation of Company in the Share Exchange...............................10.0x-12.0x
Implied Valuation of Vanguard IT Services business in the Share Exchange...........6.0x-7.0x
Enterprise Value/LTM Revenue Multiples (Business Process Outsourcing Companies)
Maximum.................................................................................3.1x
Mean (excluding the high and low).......................................................2.7x
Minimum.................................................................................2.0x
Implied Range of Valuation of Vanguard in the Share Exchange......................2.7x-2.75x
Indicative Premiums Paid. EKN calculated the per share value of our Common
Stock implied by the Share Exchange by dividing the mid-point of the range of
implied valuation of the Company in the Share Exchange by the total number of
shares outstanding of the Company. EKN noted that the per share value of our
Common Stock implied by the transaction was $11.74 per share, which included the
Dividend. The value of our Common Stock implied by the transaction was 53.2%
greater than the closing price of our Common Stock on January 19, 2005 of $7.66,
or 67.7% greater than the price of our Common Stock one week prior to January
19, 2005 of $7.00, or 80.1% greater than our Common Stock price one month prior
to January 19, 2005 of $6.52 and 255.8% greater than the our Common Stock price
one year prior to January 19, 2005 of $3.30.
Discounted Cash Flow Analysis. EKN derived our value in part as the sum of
our unlevered free cash flows (before financing costs) over a forecast period
and our terminal, or residual, value at the end of the forecast period. To
calculate our free cash flows for its discounted cash flow analysis, EKN used
the Company's financial projections through the fiscal year ended December 31,
2009. EKN calculated the forecasted terminal value of the enterprise at December
31, 2009 by multiplying the forecasted EBITDA in the fiscal year ending December
31, 2009 by an EBITDA multiple ranging from 10.0x to 11.0x and by multiplying
the forecasted revenues in the fiscal year ended December 31, 2009 by a revenue
multiple ranging from 0.9x to 1.0x. Such range of EBITDA and revenue exit
multiples was, in the judgment of EKN, appropriate for the Company in the
discounted cash flow analysis. To discount the projected free cash flows and the
terminal value to present value, EKN calculated a weighted average cost of
capital, which we refer to as "WACC," that EKN determined to be appropriate for
the Company, and then applied a range of discount rates to that WACC from 15.0%
to 17.0%. EKN calculated net present value by discounting our projected free
cash flows back to December 31, 2004. The discounted cash flow analysis
indicated that our total enterprise value ranged from $21.9 million to $28.1
million.
27
In addition to the quantitative methodologies described above, EKN
considered a number of qualitative factors which it believed affected valuation,
including, among others, the lack of liquidity and institutional support and
coverage for our Common Stock, the type of services performed by the Company and
Vanguard, customer profile and customer concentration risk of the Company and
Vanguard.
EKN is a investment banking firm that is engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwriting, competitive bids, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. The Company retained EKN based on these qualifications as well
as its familiarity with the Company. In the ordinary course of its business as a
broker- dealer, EKN may hold positions in and trade in the securities of the
Company from time to time. The Company entered into an engagement letter
agreement with EKN dated August 2, 2004 and subsequently amended the engagement
letter on January 18, 2005, in which EKN agreed to act as the Company's
financial advisor in connection with the Share Exchange and the Share Issuance
and to render an opinion as to the fairness, from a financial point of view, of
the terms of the Share Exchange and the Share Issuance to the holders of our
Common Stock and preferred stock. Under the engagement letter, the Company
agreed to pay a fee to EKN, upon delivery of the fairness opinion to the Board
of Directors. Whether or not the Share Exchange and the Share Issuance are
consummated, the Company has agreed, according to the engagement letter, to
reimburse EKN for all its reasonable out-of-pocket expenses, including the fees
and disbursements of its counsel, incurred in connection with its engagement by
the Company, and to indemnify EKN against certain liabilities and expenses in
connection with its engagement.
BENTOV SALE AND VOTING OBLIGATIONS
Shmuel BenTov, our Chairman of the Board of Directors, Chief Executive
Officer and President, entered into the Selling Shareholder's Sale Agreement
with Oak pursuant to which he and his spouse have agreed to sell, and Oak has
agreed to purchase, 1,024,697 shares of our Common Stock from Mr. BenTov and his
spouse for a purchase price of $10.25 per share. This transaction is referred to
throughout this proxy statement as the BenTov Sale. This per share price is
subject to increase if we do not pay the Dividend on or prior to the
consummation of the Share Exchange and the Share Issuance. Although the BenTov
Sale does not require the approval of our shareholders, its consummation is
subject to the consummation of the Share Exchange and the Share Issuance, and
will be consummated when and if the Share Exchange and the Share Issuance are
consummated. As a condition to its entering into the Selling Shareholder's Sale
Agreement, Oak required Mr. BenTov to enter into a Principal Shareholder's
Agreement pursuant to which he has agreed to vote all of the shares of our
capital stock beneficially owned by him (i) in favor of the approval and
adoption of the Share Exchange, the Share Issuance and all related transactions
and (ii) against any action, proposal, transaction or agreement, the
consummation of which would interfere with the Share Exchange or the Share
Issuance. The Principal Shareholder's Agreement terminates on the earliest to
occur of (i) the consummation of the BenTov Sale and (ii) the termination of
either the Share Exchange Agreement or the Stock Purchase Agreement. Even after
the Principal Shareholder's Agreement terminates, however, under certain
circumstances, Oak will retain the ability to vote up to 500,000 shares of our
capital stock.
28
As of the record date, Mr. BenTov beneficially owned an aggregate of
1,024,697 issued and outstanding shares of our Common Stock and preferred stock
(on an as-converted to Common Stock basis), which represents approximately 45.2%
of our outstanding capital stock. Under the terms of our certificate of
incorporation and By-laws, the affirmative vote of Mr. BenTov is sufficient for
the approval and adoption of the Share Exchange, the Share Issuance and related
transactions unless the holders of more than 1,024,697 other shares of our
capital stock attend the Annual Meeting in person or by proxy and vote their
shares against approval and adoption.
INTERESTS OF DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS OF TACT IN THE
SHARE EXCHANGE AND THE SHARE ISSUANCE
In considering the recommendation of our Board of Directors with respect to
the Share Exchange and the Share Issuance, you should be aware that members of
our Board of Directors and our executive officers have interests in the Share
Exchange and the Share Issuance and have arrangements that are different from,
or in addition to, those of our shareholders generally. Mr. BenTov has agreed to
sell all of his shares to Oak at a price of $10.25 per share, subject to
adjustment. Mr. BenTov will also be entering into an amended employment
agreement with TACT, in place of his current agreement, at the same salary level
as is provided for by his current agreement. Richard D. Falcone, our chief
financial officer, has entered into a 3-year employment contract with TACT, the
effectiveness of which is contingent on the consummation of the Share Exchange
and the Share Issuance. Messers. Ball, Newman and Harris have been designated by
the Vanguard shareholders to be nominated for election to the Board of
Directors, which election will become effective only if the Share Exchange and
the Share Issuance are consummated. Mr. Ball, a current Vanguard shareholder,
will own 2,303,531 shares (approximately 21.3% to 22.6%) of the Common Stock
upon consummation of the Share Exchange, the Share Issuance and related
transactions. Mr. Newman, a nominee for election as a director of the Company,
is a partner at the law firm of McGuireWoods LLP, which currently acts as
general outside counsel to Vanguard. It is anticipated that, if the Share
Exchange, the Share Issuance and related transactions are consummated,
McGuireWoods LLP will become general outside counsel to the Company. Other than
these matters, no director, director nominee, executive officer, associate of
any director or executive officer or other person has any substantial interest,
direct or indirect, by security holdings or otherwise, in the Share Exchange or
the Share Issuance, that is not shared by all of our other shareholders. Our
Board of Directors and the special committee were aware of these interests and
considered them, among other matters, in reaching their respective decisions to
approve the Share Exchange and the Share Issuance and to recommend that our
shareholders vote in favor of the approval and adoption of the Share Exchange
and the Share Issuance.
DISSENTERS' RIGHTS
We are a New York corporation and are governed by the New York Business
Corporation Law ("BCL"). Under the BCL, the holders of our voting securities are
not entitled to dissenter's rights with respect to the Proposals set forth in
this proxy statement.
29
SUMMARY OF TRANSACTION DOCUMENTS
SHARE EXCHANGE AGREEMENT
The following is a summary of the material terms of the Share Exchange
Agreement. This summary is subject to, and is qualified in its entirety by
reference to, the Share Exchange Agreement attached to this proxy statement as
Annex A. We encourage you to read this entire proxy statement, including the
Share Exchange Agreement, carefully and in its entirety.
On January 21, 2005, we entered into a Share Exchange Agreement with
Vanguard, the Vanguard shareholders and the authorized representative of the
Vanguard shareholders. Pursuant to the Share Exchange Agreement, we have agreed
to consummate the Share Exchange whereby:
o we will acquire all of the issued and outstanding shares of capital
stock of Vanguard in exchange for 7,312,796 shares of our Common
Stock;
o we will issue 6,312,796 shares of our Common Stock to the Vanguard
shareholders upon consummation of the transactions contemplated by the
Share Exchange Agreement; and
o we will deliver 1,000,000 shares of our Common Stock into escrow for a
period of one year to secure certain indemnification obligations of
one of the Vanguard shareholders, Excalibur Investment Group Limited
("Excalibur"). These shares will be cancelled if we make a claim for
indemnification in accordance with the applicable terms of the Share
Exchange Agreement and the claim is resolved in our favor. The shares
will remain in escrow for one year or until all claims for
indemnification have been resolved. To the extent that the escrowed
shares have not been cancelled to satisfy indemnification claims, at
the termination of this one year period, the shares will be released
from escrow and delivered to Excalibur, the escrowing shareholder. The
right to vote the escrowed shares will remain with Excalibur during
the pendency of the escrow. Any dividends paid on the escrowed shares
during the pendency of the escrow will be added to the property that
the escrow agent holds and is available for distribution under the
escrow agreement.
The consummation of the Share Exchange requires the approval of our
shareholders, and is subject to a number of conditions to closing as more fully
described below. The Share Exchange Agreement provides that the Share Exchange
is to be completed on the third business day after each of the conditions
precedent set forth in that agreement have been satisfied or waived, or on such
other day as the parties may agree.
Representations and Warranties
We have made representations and warranties in the Share Exchange
Agreement. These representations and warranties cover, among other things, the
following:
o our organization, capital structure, and other general corporate
matters;
o the absence of certain changes or events since September 30, 2004;
o our compliance with securities rules and regulations;
o our legal proceedings;
30
o that by entering into the Share Exchange Agreement, we will not breach
existing contracts, violate any law or regulation or otherwise incur
further liabilities; and
o the nonoccurrence of a material adverse change to our business, assets
or properties since September 30, 2004.
Vanguard has made representations and warranties to us regarding various
matters pertinent to the Share Exchange. These representations and warranties
cover, among other things, the following:
o Vanguard's and its subsidiaries' organization, capital structure, and
other general corporate matters;
o the absence of certain changes or events since July 31, 2004;
o Vanguard's legal proceedings;
o that, by entering into the Share Exchange Agreement, Vanguard and its
subsidiaries will not breach existing contracts, violate any law or
regulation or otherwise incur further liabilities;
o the nonoccurrence of a material adverse change to Vanguard's and its
subsidiaries' businesses, assets or properties since July 31, 2004;
and
o Vanguard's assets and liabilities, including accounts receivable,
contracts, real property and leases, intellectual property, taxes,
employee benefit plans and insurance.
The Vanguard shareholders have made representations and warranties to us.
These representations and warranties cover, among other things, the following:
o the Vanguard shareholders' ownership of all of the issued and
outstanding shares of Vanguard capital stock and our receipt of good
title to those shares upon consummation of the Share Exchange;
o the power and authority of each Vanguard shareholder to enter into the
Share Exchange Agreement, including any required consents, and the
enforceability of the Share Exchange Agreement against each such
shareholder;
o that by entering into the Share Exchange Agreement and by consummating
the Share Exchange, the Vanguard shareholders will not breach existing
contracts, violate government or other regulations or otherwise incur
further liabilities; and
o certifications of the Vanguard shareholders as required under
Executive Order 13224, and representations as to the status of each
Vanguard shareholder as an accredited investor and other matters
related to the compliance with applicable securities laws in
connection with the issuance of shares in the Share Exchange.
The representations and warranties of each of the parties to the Share
Exchange Agreement, with certain exceptions, will survive until the first
anniversary of the consummation of the Share Exchange.
31
Our Covenants
We agreed to several covenants in the Share Exchange Agreement, which
require us, among other things:
o to grant Vanguard's representatives reasonable access to our
personnel, properties, contacts, books and records;
o to make all necessary filings to consummate the Share Exchange and the
Share Issuance;
o to conduct our businesses in the ordinary course consistent with our
past practices;
o to report to Vanguard regarding the status of our business; and
o not to take any action that would result in a material change to our
business.
We also agreed that any related party debts owed to us will be paid in full
prior to the consummation of the Share Exchange, and that we will use our best
efforts to satisfy all conditions to closing set forth in the Share Exchange
Agreement.
Covenants by Vanguard and the Vanguard Shareholders
o Vanguard and the Vanguard shareholders agreed to covenants that were
substantially similar to those agreed to by us in the Share Exchange
Agreement; and
o the Vanguard shareholders agreed to certain procedures with respect to
the transfer of their shares of capital stock of Vanguard prior to the
consummation of the Share Exchange and with respect to the transfer of
their shares of Common Stock after the consummation of the Share
Exchange.
No Solicitation of Company Acquisition Proposals
We have terminated our discussions with all third parties with respect to
Company Acquisition Proposals. For the purposes of the Share Exchange, Share
Issuance and BenTov Sale, the term "Company Acquisition Proposals" includes any
inquiries, proposals and offers involving third party tender offers, mergers,
consolidations, acquisitions, business combinations or any similar transactions
involving 10% or more of our capital stock or assets. We have agreed that we
will not, and that we will not permit our officers, directors, employees, agents
or representatives to:
o solicit, initiate or encourage any inquiry, proposal or offer with
respect to any Company Acquisition Proposal, or approve or recommend
any Company Acquisition Proposal; or
o engage in discussions concerning, furnish any information with respect
to or take any action to facilitate any inquiries or the making of any
proposal that constitutes or may lead to any Company Acquisition
Proposal.
Despite these general prohibitions, and subject to our obligations to
promptly notify the Vanguard shareholders, we are not prohibited from disclosing
to our shareholders a position with respect to a tender offer by a third party,
as long as our Board of Directors does not recommend that our shareholders
tender their shares in connection with that offer; except that if the Company
receives a bona fide written Company Acquisition Proposal that the Board of
Directors determines in its good faith judgment to be a superior proposal, the
Board of Directors may take such actions as they determine are necessary to
comply with their fiduciary duties.
32
Meeting of Shareholders
We have agreed to call and hold a meeting of our shareholders as soon as
reasonably practicable following the date of the Share Exchange Agreement to
consider and to authorize the Share Exchange and the Share Issuance and, subject
to the fiduciary duties of our Board of Directors, to:
o include in the proxy soliciting materials the recommendation of our
Board of Directors that our shareholders vote in favor of the approval
and adoption of the Share Exchange and the Share Issuance;
o use our reasonable best efforts to obtain the necessary approvals and
adoption of the Share Exchange and the Share Issuance;
o use our reasonable best efforts to obtain the necessary approval to
increase the number of shares subject to our 1997 Stock Option and
Award Plan from 300,000 to 1,200,000; and
o change the name of the Company to Vanguard Info-Solutions
International Inc.
Registration Rights
The Share Exchange Agreement grants certain rights to the Vanguard
shareholders to have the shares of Common Stock that will be issued to them in
the Share Exchange registered for resale with the SEC. If, at any time after the
date of consummation of the Share Exchange, we propose to register shares of our
Common Stock with the SEC (other than registrations of stock options or
restricted share plans or registrations in connection with mergers or
acquisitions), we must notify the Vanguard shareholders of our intention to
register our shares at least thirty days before the initial filing of our
registration statement and, upon the written request properly delivered by the
Vanguard shareholders, to include their shares of Common Stock in our
registration. We must use commercially reasonable efforts to cause all of the
shares of Common Stock held by the Vanguard shareholders to be included in our
registration on the same terms and conditions as the securities otherwise being
sold in that registration.
Declaration and Payment of Contingent Dividend
We have agreed that prior to the consummation of the Share Exchange, we
will declare and pay the Dividend. Payment of the Dividend, however, is
contingent on the consummation of the Share Exchange and the Share Issuance.
Also, the Dividend will be payable with regard to 30,000 shares of our Common
Stock that are expected to be issued to the non-employee members of our Board of
Directors following the Annual Meeting.
Board Membership
The Share Exchange Agreement provides that, immediately after the
consummation of the Share Exchange, Andrew H. Ball and William A. Newman will be
elected to our Board of Directors to fill two of the vacancies resulting from
the contemplated resignations of Messrs. BenTov and Battat, and will elect one
additional person who will be an independent director within the meaning of Rule
4350(c) of the Marketplace Rules of the Nasdaq Stock Market, Inc.
33
Conditions to Closing
The consummation of the Share Exchange is subject to, among other
things, the following conditions to closing:
o the accuracy of the representations and warranties and the performance
of all obligations of each of the parties to the Share Exchange
Agreement;
o the consummation of the transactions contemplated by Oak's agreements
with Shmuel BenTov and with us;
o our entry into an employment agreement with Richard D. Falcone, our
chief financial officer;
o the resignation from our board of directors by Shmuel BenTov and
Reuven Battat; and
o the transfer by Castor Finance Private Company Ltd. ("Castor"), one of
Vanguard's Indian subsidiaries, of its shares of Vanguard
Info-Solution Ltd., a second Indian subsidiary, to Vanguard, and the
subsequent sale or liquidation of Castor.
Indemnification
Excalibur, one of the Vanguard shareholders, has agreed, subject to certain
limitations, to indemnify and hold us and our affiliates, officers, directors,
employees, representatives and agents harmless from and against any and all
losses and expenses that any of such persons actually incurs arising out of or
in connection with:
o any claim alleging breach or default in connection with any of the
Vanguard shareholders' representations or warranties;
o any of our losses arising out of or in connection with any legal
proceedings involving Vanguard or any Vanguard shareholders; and
o all taxes imposed on Vanguard for all periods up to and including the
date of the consummation of the Share Exchange and the Share Issuance.
We have agreed, subject to certain limitations, to indemnify and hold
harmless each Vanguard shareholder from and against any and all losses that such
Vanguard shareholder actually incurs in connection with any claim alleging
misrepresentation, breach of, or default in connection with, any of our
representations, warranties, covenants or agreements in the Share Exchange
Agreement.
No claim for indemnification may be brought unless the indemnified party
gives prompt written notice of such claim to the proper person. If any person
required to indemnify an indemnified party objects to any claim, the parties
must attempt in good faith to resolve the claim. If the parties cannot resolve
their claims after 15 days, the matter shall be settled by binding arbitration
before a panel of three arbitrators sitting in New York, New York.
Limitations on Indemnification
Excalibur's and our duties to indemnify the indemnified parties pursuant to
the Share Exchange Agreement are subject to certain limitations, including among
other things, the following:
34
o except for certain tax claims, no person shall be required to
indemnify an indemnified party unless and until the amount of any
losses subject to indemnification claims exceeds a threshold of
$10,000 per claim and $1,500,000 in the aggregate;
o if the aggregate amount of losses exceeds the $1,500,000 threshold,
then the indemnified party shall be entitled to indemnification in the
full amount of its losses, up to an aggregate loss limit of
$8,000,000;
o no breach of the representations and warranties made by Vanguard
related to taxes and tax matters shall be included in the computation
of the loss threshold or indemnification ceiling described above, and
shall be settled by a cash payment;
o claims for breaches of the representations and warranties made by
Vanguard related to employee benefit plans shall not be subject to the
same loss threshold or indemnification ceiling as other claims, but
rather shall have a separate individual claim threshold of $2,500 and
no aggregate loss ceiling; and
o claims that Vanguard failed to match its employees' contributions
under Vanguard's 401(k) plan shall have an indemnification threshold
of $150,000, but claims for 401(k) matching contributions shall not be
subject to the $8,000,000 aggregate loss limit, though they shall be
included in the calculation of the $1,500,000 loss threshold for other
claims.
Claims
Indemnification will be made by us and by Excalibur as follows:
o if losses become payable by Excalibur, then the amount of any such
losses shall be paid by setting off the amount of the losses at the
rate of one share of our capital stock for each $8.00 of loss, against
the shares of our capital stock to be held in escrow except that
losses related to breaches of representations and warranties related
to taxes shall be paid by Excalibur in cash; and
o if losses become payable by us, we must do so in cash, pro rata, based
on the number of shares of Common Stock received by each indemnified
party on the date of the consummation of the Share Exchange.
Termination
We and the authorized representative of the Vanguard shareholders may
terminate the Share Exchange Agreement at any time prior to the consummation of
the Share Exchange by mutual written consent. In addition, either we or the
authorized representative of the Vanguard shareholders may terminate the Share
Exchange Agreement for, among other things, the following:
o the Share Exchange is not consummated by July 31, 2005; or
o we do not obtain the requisite vote of our shareholders at the Annual
Meeting.
In addition, we may terminate the Share Exchange Agreement at any time
prior to the consummation of the Share Exchange if:
35
o we receive a superior Company Acquisition Proposal and resolve to
accept it, but only if we have complied in all material respects with
the terms of the Share Exchange Agreement; or
o Vanguard or the Vanguard shareholders breach any representation,
warranty, covenant or agreement set forth in the Share Exchange
Agreement or if any representation or warranty of the Vanguard
shareholders becomes untrue, in either case such that the conditions
to closing set forth in the Share Exchange Agreement will not be
satisfied, if we for our part have complied with all representations,
warranties, covenants and agreements in the Share Exchange Agreement.
The authorized representative of the Vanguard shareholders may terminate
the Share Exchange Agreement at any time prior to the consummation of the Share
Exchange if:
o our Board of Directors withdraws, modifies or changes its approval or
recommendation of the Share Exchange and related transactions and
recommends approval of, or has resolved to accept, a superior Company
Acquisition Proposal; or
o we breach any representation, warranty, covenant or agreement set
forth in the Share Exchange Agreement or if any of our representations
or warranties become untrue, in either case such that the conditions
to closing set forth in the Share Exchange Agreement will not be
satisfied, if Vanguard and the Vanguard shareholders, for their parts,
have complied with all representations, warranties, covenants and
agreements in the Share Exchange Agreement.
We have agreed to pay the Vanguard shareholders a cash termination fee of
$500,000 if the Share Exchange Agreement is terminated under certain
circumstances, each of which requires a third party to make a superior Company
Acquisition Proposal.
If the Share Exchange Agreement is terminated and the Share Exchange is
abandoned, all obligations of the parties terminate, except our obligation to
pay the termination fee under certain circumstances and each party's obligation
to pay its own fees and expenses. However, neither we nor Vanguard is relieved
from any liability for a respective breach of any of the covenants in the Share
Exchange Agreement and all rights of the non-breaching party will be preserved.
STOCK PURCHASE AGREEMENT
The following is a summary of the material terms of the Stock Purchase
Agreement. This summary is subject to, and is qualified in its entirety by
reference to, the Stock Purchase Agreement attached to this proxy statement as
Annex B. We encourage you to read this entire proxy statement, including the
Stock Purchase Agreement, carefully and in its entirety.
On January 21, 2005, we entered into a Stock Purchase Agreement with Oak.
Pursuant to the Stock Purchase Agreement, we agreed to consummate the Share
Issuance whereby we will sell a minimum of 625,000 and a maximum of 1,250,000
shares of our Common Stock to be purchased by Oak at a price of $8.00 per share.
Oak, or an assignee of Oak, may purchase those of the 625,000 additional shares,
if any, that Oak does not purchase at the closing of the initial Share Issuance
at any time during the 120 days subsequent to such closing. We will receive at
least $5,000,000 of proceeds at the time of the initial closing and may receive
up to $5,000,000 for additional shares sold during the subsequent 120 days.
The Stock Purchase Agreement provides that the Share Issuance is to be
consummated at the same time that the Share Exchange is consummated.
36
Representations and Warranties
We have made the following representations and warranties in the Stock
Purchase Agreement. These representations and warranties cover, among other
things, the following:
o our organization, capital structure, and other general corporate
matters;
o the absence of certain change or events since September 30, 2004;
o our compliance with securities rules and regulations;
o our legal proceedings;
o that by entering into the Stock Purchase Agreement, we will not breach
any existing contracts, violate any law or regulation or otherwise
incur further liabilities; and
o the nonoccurrence of a material adverse change to our business, assets
or properties since September 30, 2004.
Oak has made representations and warranties in the Stock Purchase Agreement
to us regarding aspects of its business and other matters pertinent to the Share
Issuance. These representations and warranties cover, among other things, the
following:
o Oak's organization, power and authority and other general corporate
matters;
o the enforceability of the Stock Purchase Agreement, and any notice or
consent required from third parties; and
o certifications of Oak as required under Executive Order 13224, and
representations as to the status of Oak as an accredited investor and
other matters related to Oak's compliance with applicable securities
laws in connection with the Share Issuance.
The representations and warranties of each of the parties to the Stock
Purchase Agreement will survive until the first anniversary of the consummation
of the Share Issuance.
Our Covenants
We agreed to several covenants in the Stock Purchase Agreement, which
covenants require us, among other things:
o to grant Oak's representatives reasonable access to our personnel,
properties, contacts, books and records;
o to make all filings to consummate the Share Issuance and the Share
Exchange;
o to conduct our business in the ordinary course consistent with our
past practices;
o to report to Oak regarding the status of our business;
o to not take any action that would result in a material change to our
business;
37
o to file all documents required by the Nasdaq for the listing of the
shares of Common Stock to be sold in the Share Issuance on the Nasdaq
Small Cap Market;
o to use the proceeds of the Share Issuance for general working capital
purposes and in the operation of the Company's business; and
o not to issue any new capital stock or derivative securities, except
upon the exercise of outstanding options, the conversion of preferred
stock into Common Stock or the grant of options pursuant to existing
plans.
Covenants by Oak
In the Stock Purchase Agreement, Oak agreed to make all filings required to
be made to consummate the Share Issuance and the purchase of shares from us, and
to cooperate with us in the filings we are required to make. In addition, Oak
agreed to use its best efforts to cause to be satisfied those matters that are
conditions to Oak's obligation to purchase the shares of Common Stock to be
purchased pursuant to the Stock Purchase Agreement.
Registration Rights
We granted Oak rights to register for resale the shares being sold under
the Stock Purchase Agreement. We have agreed to promptly, and prior to the 90th
day after the consummation of the Share Issuance, file with the SEC a
registration statement covering Oak's resale of the shares purchased at the
initial closing. If additional shares are purchased at a subsequent closing,
then we will file an additional registration statement within 90 days of such
closing, provided that if the closings are within 20 days of each other, only
one registration will be filed.
We have also agreed to file with the SEC additional registration statements
on an abbreviated form to cover the resale of additional registrable securities,
which are any securities that are issued to Oak in respect of the original
shares of Common Stock purchased by Oak, but which have not been included in any
registration statement.
Conditions to Closing
The consummation of the Share Issuance is subject to the fulfillment or
waiver of the following closing conditions:
o the accuracy of the representations and warranties in the Stock
Purchase Agreement and the performance of all obligations of each of
the parties to the Stock Purchase Agreement;
o the absence of any legal proceedings challenging or seeking damages in
connection with the Share Issuance;
o the absence of any material adverse changes to our business,
operations, properties, prospects, results of operations or financial
condition; and
o the consummation of the Share Exchange and the BenTov Sale.
38
Termination
We and Oak may terminate the Stock Purchase Agreement at any time prior to
the closing of the Share Issuance by mutual written consent. In addition, either
we or Oak may terminate the Stock Purchase Agreement if:
o the Share Issuance is not consummated by July 31, 2005;
o for a material breach of any provision of the Stock Purchase Agreement
by the other party; or
o a court of competent jurisdiction or a governmental or administrative
agency or commission has issued an order or taken any other action
permanently prohibiting the Share Issuance, and such action has become
final and non-appealable.
Prior to the consummation of the Share Issuance, the parties may, to the
extent legally allowed, extend the time for the performance of any of the
obligations under the Stock Purchase Agreement or waive any inaccuracies in the
representations and warranties. Such extension or waiver is valid only if set
forth in a written, signed instrument.
SELLING SHAREHOLDER'S SALE AGREEMENT
The following is a summary of the material terms of the Selling
Shareholder's Sale Agreement. We are not asking our shareholders to approve or
act on the transactions contemplated by this agreement. Nevertheless, we believe
an understanding of the Selling Shareholder's Sale Agreement is essential to
consideration of the Share Exchange and the Share Issuance. This summary is
subject to, and is qualified in its entirety by reference to, the Selling
Shareholder's Sale Agreement attached to this proxy statement as Annex C. We
encourage you to read this entire proxy statement, including the Selling
Shareholder's Sale Agreement, carefully and in its entirety.
The Selling Shareholder's Sale Agreement provides that Shmuel BenTov will
sell to Oak, and Oak will purchase from Mr. BenTov, the 1,024,697 shares of the
Company's Common Stock beneficially owned by Mr. BenTov, at a price of $10.25
per share. This transaction is referred to throughout this proxy statement as
the BenTov Sale. If the Company does not pay the Dividend on or prior to the
consummation of the BenTov Sale, then the per share price payable to Mr. BenTov
will increase by the difference between $0.75 and the amount of any dividend
actually paid by us. If we do not pay any dividend prior to or on the date on
which the BenTov Sale is consummated, the per share price will be $11.00. As a
result, Mr. BenTov will receive from Oak not less than $10,503,144.25 and not
more than $11,271,667.00 as consideration for the shares of Common Stock
beneficially owned by Mr. BenTov, depending on the dividend, if any, actually
paid by us. Mr. BenTov's spouse is the holder of record of 3,750 of the shares
beneficially owned by Mr. BenTov. Mr. BenTov's spouse has agreed to participate
in the sale by selling the shares of Common Stock that are registered in her
name.
The consummation of the BenTov Sale is subject to conditions of closing,
including the consummation of the Share Exchange and the Share Issuance, which
conditions Oak may waive.
The Selling Shareholder's Sale Agreement provides that the sale is to be
consummated at the same time at which the Share Exchange is consummated.
39
Representations and Warranties
Mr. BenTov has made the following representations and warranties in the
Selling Shareholder's Sale Agreement regarding aspects of our business, which
representations and warranties do not survive the consummation of the BenTov
Sale. These representations and warranties cover, among other things, the
following:
o our organization, capital structure, and other general corporate
matters;
o the absence of certain changes or events since September 30, 2004;
o Mr. BenTov's and our compliance with securities rules and regulations;
o our legal proceedings; and
o the nonoccurrence of a material adverse change to our business, assets
or properties since September 30, 2004.
Mr. BenTov has also made the following representations and warranties in
the Selling Shareholder's Sale Agreement regarding the shares of our Common
Stock that he has agreed to sell, which representations and warranties survive
until the first anniversary of the consummation of the BenTov Sale:
o Mr. BenTov's ownership of the shares to be sold, his ability to enter
into the Selling Shareholder's Sale Agreement and the enforceability
of this agreement against him.
Oak has made the following representations and warranties to Mr. BenTov
regarding various matters, which representations survive until the first
anniversary of the consummation of the BenTov Sale. These representations and
warranties cover, among other things, the following:
o Oak's organization, power and authority and other general corporate
matters; and
o the absence of any notice or consent requirements for purchasing Mr.
BenTov's shares.
Covenants of Mr. BenTov
Mr. BenTov has agreed to use his reasonable best efforts to:
o cause us to provide Oak's representatives reasonable access to our
personnel, properties, personnel, contacts, books and records upon
receiving reasonable advance notice from Oak;
o cause us to make all filings required by the Share Exchange and the
Share Issuance;
o cause us to conduct our business in the ordinary course and confer
with Oak before making material decisions regarding our operations;
o cause us to periodically report to Oak on the status of our business;
and
o cause us to not take any action that would result in a material
adverse change in our business, operations, properties, prospects,
results of operations or conditions.
40
Additionally, Mr. BenTov will:
o cause all indebtedness owed to us by him or any related person to be
paid in full prior to the consummation of the BenTov Sale;
o take all necessary actions to convert all of the issued and
outstanding Series A Preferred Stock of the Company to Common Stock;
and
o use his reasonable best efforts to ensure the consummation of the
Share Exchange, the Share Issuance and the BenTov Sale.
Conditions to Closing
The consummation of the BenTov Sale is subject to, among other things, the
fulfillment or waiver of the following closing conditions:
o the accuracy of the representations and warranties in the Selling
Shareholder's Sale Agreement and the performance of all obligations of
each of the parties to the Selling Shareholder's Sale Agreement;
o the absence of any liability or material adverse change in our or
Oak's business, operations, properties, prospects, results of
operations or condition (financial or otherwise), or any adverse claim
as to the title of Mr. BenTov's shares; and
o the consummation of the Share Exchange and the Share Issuance.
Mutual Obligations to Indemnify
Mr. BenTov has agreed to indemnify and hold Oak harmless for, and to pay to
it, damages arising from or in connection with any breach by Mr. BenTov as to:
o the title to his shares and any breach by Mr. BenTov of his
obligations under the Selling Shareholder's Sale Agreement; and
o the filing of required notices and reports with the proper
governmental and regulatory entities.
Oak has agreed to indemnify and hold Mr. BenTov harmless for any damages
arising from or in connection with any breach of Oak's representations,
warranties, covenants or agreements in the Selling Shareholder's Sale Agreement,
and any breach of the obligations of Oak under the Selling Shareholder's Sale
Agreement.
No claim for indemnification may be brought unless the party seeking
indemnity gives written notice of such claim to the other party within one year
of the sale and purchase of the shares by Mr. BenTov.
Termination
Mr. BenTov and Oak may terminate the Selling Shareholder's Sale Agreement
at any time prior to the consummation of the BenTov Sale by mutual written
consent. In addition, either Mr. BenTov or Oak may terminate the Selling
Shareholder's Sale Agreement if:
41
o the BenTov Sale is not consummated by July 31, 2005, or any of the
conditions to closing under the Selling Shareholder's Sale Agreement
have not been satisfied as of July 31, 2005;
o there is a material breach of any provision of the Selling
Shareholder's Sale Agreement by the other party; or
o a court or a governmental or administrative agency or commission has
issued an order or taken any other action permanently prohibiting the
sale of shares by Mr. BenTov to Oak.
Prior to the consummation of the BenTov Sale, Mr. BenTov and Oak may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations under the Selling Shareholder's Sale Agreement, (ii) waive any
inaccuracies in the representations and warranties made to such party and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party. An extension or waiver is valid only if set forth in a written,
signed instrument.
PRINCIPAL SHAREHOLDER'S AGREEMENT
The following is a summary of the material terms of the Principal
Shareholder's Agreement. This summary is subject to, and is qualified in its
entirety by reference to, the Principal Shareholder's Agreement attached to this
proxy statement as Annex D. We encourage you to read this entire proxy
statement, including the Principal Shareholder's Agreement, carefully and in its
entirety.
To induce Oak to enter into the Selling Shareholder's Sale Agreement, Mr.
BenTov executed the Principal Shareholder's Agreement with respect to all
1,024,697 shares of the Company's capital stock that Mr. BenTov beneficially
owns, as well as any shares that he may acquire in the future. Pursuant to the
Principal Shareholder's Agreement, Mr. BenTov has agreed to vote his shares
(excluding the 3,750 shares registered in the name of Mr. BenTov's spouse) at
any meeting of our shareholders as follows:
o for approval of the Share Exchange, Share Issuance and related
transactions; and
o against any action or proposal (other than as contemplated by the
Share Exchange Agreement, the Stock Purchase Agreement or the Selling
Shareholder's Sale Agreement) involving any of the following:
o any Company Acquisition Proposal;
o any sale, lease or transfer of a significant part of our assets
or our reorganization, recapitalization, dissolution or
liquidation;
o any change in our Board of Directors that was not approved in
advance by at least a majority of the persons who were directors
as of the date of the Principal Shareholder's Agreement; and
o any change in our current capitalization, business structure or
other proposal that may prevent or postpone the sale of his
shares to Oak.
Mr. BenTov also agreed not to enter into any agreement conflicting with the
Principal Shareholder's Agreement or the Selling Shareholder's Sale Agreement.
42
Pursuant to the Principal Shareholder's Agreement, Mr. BenTov has
irrevocably appointed Oak as his agent, attorney and proxy at meetings of our
shareholders that may be called with respect to a Company Acquisition Proposal
or to the other matters referred to above.
Mr. BenTov has agreed not to solicit, facilitate, participate in or
initiate any inquiries or the making of any proposal by any person which may
lead to any sale of the shares of the Company's capital stock beneficially owned
by him or any Company Acquisition Proposal. If Mr. BenTov receives an inquiry or
proposal with respect to the sale of his shares, then he must promptly inform
Oak of the terms and conditions of that inquiry or proposal and identify the
person making it. Mr. BenTov has also agreed not to sell, transfer or pledge any
of his shares. The Principal Shareholder's Agreement does not prevent Mr. BenTov
from taking actions required to fulfill his fiduciary duties as a director of
the Company.
The Principal Shareholder's Agreement terminates on the earliest to occur
of: (i) the consummation of the BenTov Sale and (ii) the termination of either
the Share Exchange Agreement or the Stock Purchase Agreement. If such closing or
termination does not occur, but the Board of Directors, in the exercise of its
fiduciary duties, withdraws, modifies or changes its approval with regard to the
Share Issuance or its recommendation with regard to the Share Exchange, the
Share Issuance or the BenTov Sale, then the obligation of Mr. BenTov to vote his
shares or grant an irrevocable proxy to Oak in accordance with the Principal
Shareholder's Agreement shall terminate with respect to any shares of our
capital stock beneficially owned by him in excess of 500,000 shares.
Mr. BenTov has agreed to convert all shares of the Company's Series A
Preferred Stock owed by him into shares of our Common Stock.
BENTOV EMPLOYMENT AGREEMENT
The following is a summary of the material terms of the Company's amended
employment agreement with Mr. BenTov. This summary is subject to, and is
qualified in its entirety by reference to, the form of the Amendment to the
Employment Agreement attached as Exhibit 2.4(a)(iv) to the Selling Shareholder's
Sale Agreement which is attached to this proxy statement as Annex C. We
encourage you to read this amendment to the employment agreement in its
entirety.
Shmuel BenTov currently serves as the Company's Chief Executive Officer and
President. As a condition precedent to the consummation of the Stock Purchase
Agreement, Mr. BenTov has agreed to amend his employment agreement with the
Company and enter into an Amendment to the Employment Agreement between Mr.
BenTov and the Company.
Under the terms of the amended employment agreement, Mr. BenTov has agreed
to resign his position as a member of the Board of Directors and to continue his
employment as an executive officer of the Company on an at-will basis. Either
party to the amended employment agreement may terminate the agreement by serving
written notice on the other party with no less than 90 days' notice. Mr.
BenTov's sole compensation will be his salary paid at the rate of $300,000 per
year. In addition, Mr. BenTov has agreed that for a period of two years after
the amended employment agreement is terminated, he will not engage in any
activity that is competitive with the Company's businesses, and will not attempt
to solicit clients or employees away from the Company. Following the termination
of this agreement, BenTov shall, for a period of no less than ten years, have
the right to maintain health insurance on the Company's group health insurance
plan, but BenTov is solely responsible for the premium payments under the plan.
43
PROPOSAL NO. 1
ELECTION OF DIRECTORS
THE PROPOSAL
At each of the Company's annual meetings of shareholders, directors
shall be elected until the next annual meeting and until their successors have
been duly elected and qualified. The Company's By-Laws provide that the Board of
Directors shall be comprised of at least three (3) directors (unless all of the
outstanding shares are owned beneficially and of record by less than three (3)
shareholders). At present, the number of directors constituting the Board of
Directors is five (5).
Currently, there is one vacancy on the Board of Directors. In addition,
two directors, Shmuel BenTov and Reuven Battat, have resigned, effective as of
the election of directors at the Annual Meeting, in anticipation of the
completion of the Share Exchange, the Share Issuance and the BenTov Sale. As
such, three (3) new director nominees and two (2) continuing director nominees
will be nominated for election at the Annual Meeting. The three (3) new director
nominees for consideration at the Annual Meeting are Andrew H. Ball, William A.
Newman and Joseph Harris. These nominees were designated by the Vanguard
shareholders pursuant to the Share Exchange Agreement.
The Nominating Committee of the Board of Directors has nominated
Messrs. Ball, Newman and Harris, along with the two (2) current directors,
William P. Miller and Steven S. Mukamal, each of whom is independent, to serve
as the five (5) members of the Board of Directors until their respective
successors are duly appointed or elected. The Board of Directors has approved an
increase in the number of the directors of the Company from five (5) to seven
(7), effective upon completion of the Share Exchange and the Share Issuance. The
Nominating Committee has not yet identified candidates to fill the vacancies
created by this increase. As such, the Board intends to leave two board
positions vacant, to be filled at a later date. If the Board appoints directors
to fill these vacancies, such directors will serve until the next annual meeting
of shareholders, at which time, the Nominating Committee would expect to propose
the addition of such candidates to the slate of directors to be submitted to
shareholders for approval. The proxies for the Annual Meeting cannot be voted
for a greater number of persons than the number of nominees named in the
proxies.
If the shareholders elect Messrs. Ball, Newman and Harris at the Annual
Meeting, their election to the Board of Directors will become effective upon the
consummation of the Share Exchange, the Share Issuance and the BenTov Sale. If
for any reason these transactions are not consummated, then Messrs. Ball, Newman
and Harris will not serve as directors and the remaining directors will have
discretion to nominate and appoint additional directors to serve for the term
ending with the annual meeting of shareholders to be held in 2006.
NOMINEES STANDING FOR ELECTION
The following nominees are standing for election to serve as directors
until the annual meeting of shareholders in 2006 and until their respective
successors are duly elected and qualified:
44
Andrew H. Ball, 58, was designated by the Vanguard shareholders under
the Exchange Agreement to be nominated for election to the Board of Directors.
Since 2003, Mr. Ball has served as the executive chairman of Anoar Plc, Airotech
Holdings Limited and John Gladson Dyers & Finishers Limited, each of which is
based in the United Kingdom. In 2000, Mr. Ball was employed by Indorama
Thailand, a Thailand-based business, to act as Indorama's representative on all
of its UK and European operations. Since 2002, Mr. Ball has served as the
Chairman of Indorama's European operations. Based on the number of shares of
Vanguard currently held by Mr. Ball, upon completion of the Share Exchange, Mr.
Ball will hold 2,303,531 shares of the Company's Common Stock (which equals
approximately 21.3% to 22.6% of the Company's issued and outstanding shares of
Common Stock).
Joseph Harris, 58, was designated by the Vanguard shareholders under
the Exchange Agreement to be nominated for election to the Board of Directors.
Currently, Mr. Harris is a partner and fund manager of Trillium Lakefront
Partners, III, a technology venture capital fund. Before joining Trillium, Mr.
Harris was the Senior Vice President of Business Development at Cantel Medical
Corp. of Little Falls, NJ. Prior to this position, Mr. Harris served as Senior
Vice President and Director of Corporate Strategy and Development for SmithKline
Beecham (currently Glaxo SmithKline). Prior to this position, he served as the
Managing Director of Business Development for Eastman Kodak Company. Mr. Harris
has practiced as a certified public accountant and as an attorney. Currently, he
serves as a member of the board of directors of Diomed Holdings, Inc. and
Pacific Health Laboratories, Inc. Mr. Harris received a B.S. in accounting, an
M.B.A. in finance and a J.D. from Syracuse University.
William Miller, 66, has been a director of the Company since July 2002.
Mr. Miller is the Chairman of the Audit Committee and a member of the Nominating
Committee. Mr. Miller is a private investor. He is a Certified Public Accountant
and an Attorney. He was affiliated for eight years with Cantor Fitzgerald, an
investment banking firm, as Executive Vice President responsible for corporate
finance, real estate, and retail sales. Subsequent to that he was with Telerate,
a computer information services company.
Steven S. Mukamal, 64, has been a director of the Company since August
1997. Mr. Mukamal is the Chairman of the Compensation Committee as well as a
member of the Audit Committee and the Nominating Committee. Mr. Mukamal received
a B.A. in 1962 from Michigan State University and a J.D./L.L.B. in 1965 from
Brooklyn Law School. Since 1965, he has been a member and senior partner of the
law firm Barst & Mukamal LLP. Mr. Mukamal specializes in the areas of
immigration and nationality law, consular law and real estate and debt
restructuring.
William A. Newman, 57, was designated by the Vanguard shareholders
under the Exchange Agreement to be nominated for election to the Board of
Directors. From November of 1999 until the present, Mr. Newman has been the
managing partner of the New York office of the law firm of McGuireWoods LLP. Mr.
Newman received a B.A. from Yale College in 1969 and received a J.D. from The
University of Michigan Law School in 1973. Since 2000, Mr. Newman has been a
director of On2 Technologies, Inc., a publicly-held information technology
company, and has served as a member of its executive committee and as the
chairman of its compensation committee.
Proxies are solicited in favor of the director nominees and it is
intended that the proxies will be voted for the nominees unless otherwise
specified. Should a nominee become unable to serve for any reason, unless the
Board of Directors by resolution provides for a lesser number of directors, the
person named in the enclosed proxy will vote for the election of a substitute
nominee. The Board of Directors has no reason to believe that the nominees will
be unable to serve.
45
OFFICERS OF THE COMPANY
The following table shows information, as of the mailing date of this
proxy statement, with respect to each person who is an executive officer of the
Company:
Name Age Position
- ---- --- -------------------------------------------------------
Shmuel BenTov................................ 50 Chairman of the Board of Directors, Chief Executive
Officer and President
Richard D. Falcone........................... 52 Chief Financial Officer and Secretary
Shmuel BenTov, is the founder of TACT and has been the Chairman of the
Board and Chief Executive Officer of the Company since its establishment in
1983. Mr. BenTov received a B.Sc. in Economics and Computer Science in 1979 from
the Bar-Ilan University in Israel. From 1979 to 1983, Mr. BenTov was a
consultant Database Administrator and then an Account Manager with Spiridellis &
Associates. From 1972 to 1979, Mr. BenTov served with the Israeli Defense Forces
as a Programmer, Analyst, Project Manager, Database Administrator and Chief
Programmer.
Richard D. Falcone, has been the Chief Financial Officer and Treasurer
of the Company since July 2001 and was an advisor to the Company from January
2001 to July 2001. Mr. Falcone is a Certified Public Accountant and is a
graduate of the University of Vermont. Prior to joining the Company, Mr. Falcone
was the CFO for Acuent from January 1999 to July 2000 and Chief Operating
Officer of Netgrocer.com from January 1997 to December 1998.
The respective terms of office of each of Mr. BenTov and Mr. Falcone
are described under the section titled "Employment Agreements" on pages 69 to 70
below.
VOTING REQUIREMENTS TO ADOPT PROPOSAL NO. 1
The affirmative vote of the holders of a plurality of the outstanding
shares of our capital stock (voting as a single class on an as-converted to
Common Stock basis), who are present in person or represented by proxy and
entitled to vote at the Annual Meeting, is required to elect the director
nominees. However, as indicated above, if Proposals Nos. 2 and 3 are not
adopted, Messrs. Ball, Newman and Harris will not serve as directors and the
remaining directors will have discretion to nominate and appoint additional
directors to serve for the term ending with the annual meeting of shareholders
to be held in 2006.
Shmuel BenTov has agreed to vote his 1,024,697 shares of the Company's
capital stock (as calculated on an as-converted to Common Stock basis), which
represents approximately 45.2% of the Company's outstanding capital stock, for
Proposal No. 1.
RECOMMENDATION
The Board of Directors recommends that shareholders vote "FOR" each of
the director nominees.
46
PROPOSAL NO. 2
THE SHARE EXCHANGE
THE PROPOSAL
The Board of Directors is proposing to issue 7,312,796 shares of our
Common Stock to the Vanguard shareholders in exchange for all of the issued and
outstanding shares of Vanguard. This transaction is referred to throughout this
proxy statement as the Share Exchange. The consummation of the Share Exchange is
conditioned upon the consummation of the Share Issuance. If the Share Issuance
is not consummated, the Share Exchange will not be consummated.
EFFECTS OF ADOPTING THE PROPOSAL
If the Share Exchange, the Share Issuance and the BenTov Sale are all
consummated, Vanguard and its subsidiaries will become subsidiaries of the
Company. The former shareholders of Vanguard will own between 67.5% and 71.7% of
the issued and outstanding shares of the Company's Common Stock. Oak and any
assignees of Oak's rights under the Stock Purchase Agreement will together own
between 16.2% and 21.0% of our issued and outstanding shares of Common Stock.
The current shareholders of TACT, other than Mr. BenTov, will own between
approximately 11.5% and 12.2% of our issued and outstanding shares of Common
Stock. The Share Exchange, the Share Issuance and the BenTov Sale, taken
together, will result in a change of control of the Company.
VOTING REQUIREMENTS TO ADOPT THE PROPOSAL
The affirmative vote of the holders of a majority of the outstanding
shares of our capital stock (voting as a single class on an as-converted to
Common Stock basis), who are present in person or represented by proxy and
entitled to vote at the Annual Meeting, is required for the approval of Proposal
No. 2. The adoption of Proposal No. 2 is conditioned upon the adoption of
Proposal No. 3. If you choose to approve Proposal No. 2, it is imperative that
you also vote to approve Proposal No. 3.
Shmuel BenTov has agreed to vote his 1,024,697 shares of the Company's
capital stock (as calculated on an as-converted to Common Stock Basis), which
represents approximately 45.2% of the Company's outstanding capital stock, for
Proposal No. 2.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
SHARE EXCHANGE.
47
PROPOSAL NO. 3
THE SHARE ISSUANCE
THE PROPOSAL
The Board of Directors is proposing to issue between 625,000 and
1,250,000 shares of our Common Stock to Oak in connection with the Stock
Purchase Agreement. This transaction is referred to throughout this proxy
statement as the Share Issuance. The consummation of the Share Issuance is
conditioned upon the consummation of the Share Exchange. If the Share Exchange
is not consummated, the Share Issuance will not be consummated.
EFFECTS OF ADOPTING THE PROPOSAL
If the Share Exchange, the Share Issuance and the BenTov Sale are all
consummated, Vanguard and its subsidiaries will become subsidiaries of the
Company. The former shareholders of Vanguard will own between 67.5% and 71.7% of
the issued and outstanding shares of the Company's Common Stock. Oak and any
assignees of Oak's rights under the Stock Purchase Agreement will together own
between 16.2% and 21.0% of our issued and outstanding shares of Common Stock.
The current shareholders of the Company, other than Mr. BenTov, will own between
approximately 11.5% and 12.2% of our issued and outstanding shares of Common
Stock. The Share Exchange, the Share Issuance and the BenTov Sale, taken
together, will result in a change of control of the Company.
VOTING REQUIREMENTS TO ADOPT THE PROPOSAL
The affirmative vote of the holders of a majority of the outstanding
shares of our capital stock (voting as a single class on an as-converted to
Common Stock basis), who are present in person or represented by proxy and
entitled to vote at the Annual Meeting, is required for the approval of Proposal
No. 3. The adoption of Proposal No. 3 is conditioned upon the adoption of
Proposal No. 2. If you choose to approve Proposal No. 3, it is imperative that
you also vote to approve Proposal No. 2.
Shmuel BenTov has agreed to vote his 1,024,697 shares of the Company's
capital stock (as calculated on an as-converted to Common Stock Basis), which
represents approximately 45.2% of the Company's outstanding capital stock, for
Proposal No. 3.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
SHARE ISSUANCE.
48
PROPOSAL NO. 4
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
THE PROPOSAL
The Board of Directors is proposing an amendment to the Company's
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
to change the Company's corporate name from "The A Consulting Team, Inc." to
"Vanguard Info-Solutions International Inc." This Proposal is conditioned upon
the consummation of the Share Exchange and the Share Issuance. If the Share
Exchange and the Share Issuance are not consummated, the Certificate of
Incorporation will not be amended to change our corporate name.
EFFECTS OF ADOPTING THE PROPOSAL
The Board of Directors believes that, if the Share Exchange and Share
Issuance are consummated, it will be in the Company's best interests to use
Vanguard's name as the Company's new name. The Vanguard shareholders have
requested the name change based on their belief that the name change is
necessary to align our name to the nature of our business and operations
following the Share Exchange and the Share Issuance. In the Share Exchange
Agreement we agreed to submit this Proposal to our shareholders for their
approval. If approved, we will amend our Certificate of Incorporation by filing
a Certificate of Amendment of the Certificate of Incorporation (the "Certificate
of Amendment") with the Secretary of State of the State of New York. If the
Share Exchange and the Share Issuance are approved, we anticipate filing the
Certificate of Amendment promptly after the consummation of the Share Exchange
and the Share Issuance. This Certificate of Amendment will be effective on the
effective date of its filing with the Secretary of State. A form of this
Certificate of Amendment is attached to this proxy statement as Annex I. We
encourage you to read the Certificate of Amendment carefully and in its
entirety.
VOTING REQUIREMENTS TO ADOPT THE PROPOSAL
The affirmative vote of the holders of a majority of all of the
outstanding shares of the Company's capital stock eligible to vote (voting as a
single class on an as-converted to Common Stock basis) is required to approve
Proposal No. 4. The adoption of Proposal No. 4 is conditioned upon the adoption
of Proposals Nos. 2 and 3.
Shmuel BenTov has agreed to vote his 1,024,697 shares of the Company's
capital stock (as calculated on an as-converted to Common Stock Basis), which
represents approximately 45.2% of the Company's outstanding capital stock, for
Proposal No. 4.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSED AMENDMENT TO OUR CERTIFICATE OF INCORPORATION.
49
THE OTHER PROPOSALS
PROPOSAL NO. 5
APPROVAL OF AMENDED AND RESTATED
1997 STOCK OPTION AND AWARD PLAN
THE PROPOSAL
We currently maintain the 1997 Stock Option and Award Plan, as amended
and restated on February 26, 2004 (the "1997 Plan") under which we can grant
stock-based incentive awards to our employees, consultants and non-employee
directors. The 1997 Plan was originally adopted and approved by shareholders in
1997. The 1997 Plan has subsequently been amended and restated on several
instances with the last amendment and restatement by the Board of Directors
occurring on February 26, 2004. The last shareholder approval of the 1997 Plan
occurred in August 2004.
At the Annual Meeting, you will be asked to approve the amended and
restated 1997 Stock Option and Award Plan (the "Amended and Restated Plan"). The
Amended and Restated Plan was approved by the Board of Directors on February 9,
2005, subject to shareholder approval within one year. The Amended and Restated
Plan amends and entirely restates 1997 Plan. The Amended and Restated Plan will
entirely replace and supersede the 1997 Plan with respect to future compensatory
equity grants. The Amended and Restated Plan is attached to this proxy statement
as Annex J.
Whereas the 1997 Plan provided that non-employee directors could only
receive stock options, the Amended and Restated Plan will, among other things,
permit the grant of other stock-based incentive awards to non-employee directors
(in addition to the award of stock options) in the discretion of the Board of
Directors, permit the grant of stock options and other stock-based incentive
awards to employee directors and increase the overall share reserve pool by
900,000 Shares (as defined in the Amended and Restated Plan). Shareholder
approval of the Amended and Restated Plan will allow us to continue to provide
long-term incentives to employees, directors and consultants who are responsible
for our success and growth, to further align the interests of such persons with
the interests of the shareholders through increased stock ownership and to
assist us in attracting and retaining employees, directors and consultants of
experience and outstanding ability.
Shareholder approval will also enable certain awards to employees
covered by Section 162(m) of the Internal Revenue Code of 1986 (the "Code") to
be eligible to qualify as performance-based compensation and enable "incentive
stock option" (or "ISO") (as defined by Code Section 422) grants to employees to
continue to qualify for favorable federal income tax treatment. If our
shareholders do not approve the Amended and Restated Plan by February 9, 2006,
then the Amended and Restated Plan will be terminated, with no awards being
granted thereunder, and the pre-amended 1997 Plan shall continue to remain in
effect in accordance with its terms.
No awards have been granted under the Amended and Restated Plan and no
awards are expected to be granted under the Amended and Restated Plan unless and
until the Amended and Restated Plan is timely approved by shareholders. As of
February 9, 2005, the fair market value of a share of our Common Stock (as
determined by the last transaction price quoted by the Nasdaq Small Cap Market
on such date) was $8.76.
50
HIGHLIGHTS OF MATERIAL CHANGES TO THE 1997 PLAN
The Amended and Restated Plan includes, among other things, the
following changes to the 1997 Plan. A further overview of the proposed terms in
the Amended and Restated Plan is provided below in the sections summarizing the
Amended and Restated Plan:
o Available Shares and Grant Limits. The Amended and Restated Plan will
increase the overall share reserve pool limit by 900,000 Shares. The 1997
Plan also contained aggregate and individual Share grant limits. Below is a
summary of the proposed changes to the Share grant limits under the 1997
Plan.
The 1997 Plan currently imposes the following limits:
o total Shares under 1997 Plan - 300,000
o options per person during any calendar year - 62,500
o stock appreciation rights per person during any calendar year -
62,500
o discretionary option to non-employee director per calendar year -
5,000
The Amended and Restated Plan would impose the following limits:
o total Shares under Amended and Restated Plan - 1,200,000
o total Shares under ISOs - 1,200,000
o options per person during any calendar year - 100,000
o stock appreciation rights per person during any calendar year -
100,000
o performance units and performance Shares - 100,000
o discretionary option to non-employee director per calendar year -
5,000
The following paragraphs in this section on material changes to the 1997 Plan
describe new provisions in the Amended and Restated Plan which are not present
in the 1997 Plan:
o Eligibility. The Amended and Restated Plan expressly adds employee
directors to the class of persons eligible to receive equity-based
awards.
o Non-employee Director Awards. The 1997 Plan provided that non-employee
directors could only receive nonqualified stock options. The Amended
and Restated Plan expressly states that non-employee directors are
eligible to receive other equity-based awards in addition to stock
options.
The following is a summary of the principal features of the Amended and
Restated Plan, as approved by the Board of Directors on February 9, 2005. If
there is any inconsistency between this summary and the Amended and Restated
Plan's terms or if there is any inaccuracy in the following summary, the terms
of the attached Amended and Restated Plan shall govern.
AMENDED AND RESTATED PLAN ELIGIBILITY
Employees (including those who are officers and/or directors),
non-employee directors and consultants of the Company, our subsidiaries and
affiliates are eligible to participate in the Amended and Restated Plan and
receive awards. The Amended and Restated Plan provides that eligible
participants can receive discretionary awards of: (i) stock option grants and
(ii) other equity-based awards including grants of restricted stock, stock
appreciation rights, performance shares, and performance units (collectively,
"equity-based awards"). In addition, non-employee directors will receive stock
options under a pre-determined formula. Unless otherwise provided in the
applicable agreement between us and the participant, such awards are generally
not transferable by the participant except by will, beneficiary designation, or
by the laws of distribution and descent.
51
As of December 31, 2004, approximately 100 employees (including
officers and employee directors), 60 consultants, and 3 non-employee members of
the Board of Directors were eligible to participate in the Amended and Restated
Plan.
SHARE RESERVE AND GRANT LIMITS
The aggregate number of Shares that are authorized for issuance under
the Amended and Restated Plan are 1,200,000 Shares of our Common Stock. This
number reflects an increase of 900,000 Shares over the Shares authorized for the
1997 Plan. Shares subject to equity-based awards that terminate, expire or lapse
shall generally become available again for award under the Amended and Restated
Plan. In addition, only Shares actually issued to settle equity-based awards
count toward the Share grant limits. Shares withheld or surrendered to pay the
exercise price or to satisfy tax withholding for awards granted under the
Amended and Restated Plan (or the 1997 Plan or prior 1997 Plans) shall become
available for award and shall not count toward the Amended and Restated Plan
Share grant limits. As of December 31, 2004, 917,780 shares of our Common Stock
remained available for issuance pursuant to awards under the Amended and
Restated Plan.
The Amended and Restated Plan would impose the following limits:
o total Shares under Amended and Restated Plan - 1,200,000
o total Shares under ISOs - 1,200,000
o options per person per calendar year - 100,000
o stock appreciation rights per person per calendar year - 100,000
o performance units and performance Shares - 100,000
o discretionary option to non-employee director per calendar year
- 5,000
Approval of the material terms of the Amended and Restated Plan
(including the above grant limits) by shareholders is necessary in order for
grants to employees covered by Section 162(m) of the Code to be eligible to
qualify for the performance-based compensation exception to the tax deduction
limitations of Section 162(m) of the Code.
ADMINISTRATION
The Board of Directors has appointed a committee to administer the
Amended and Restated Plan (the "Committee"). The Committee consists of directors
selected by the Board of Directors. The Committee may also authorize one or more
directors or officers to have the ability to make grants of options and
equity-based awards to participants (who are not subject to Section 16 or
Section 162(m) of the Code) within specified limits and parameters. The
Committee has complete discretion, subject to the provisions of the Amended and
Restated Plan, to authorize, modify, extend, exchange or assume equity-based
awards under the Amended and Restated Plan, to select participants, to prescribe
award terms and conditions, to interpret plan provisions and to adopt applicable
rules and procedures. We shall indemnify the members of the Committee to the
maximum extent permitted by applicable law for actions taken (or actions that
were not taken) with respect to the Amended and Restated Plan. The Board of
Directors will administer the Amended and Restated Plan with respect to grants
of equity-based awards to non-employee directors.
52
STOCK OPTION GRANTS
The Committee may, in its discretion, grant nonqualified stock options,
ISOs (which are entitled to favorable income tax treatment under the Code), or a
combination thereof under the Amended and Restated Plan. Grants of ISOs shall
comply with the applicable provisions of the Code and non-employees are not
eligible to receive ISOs. The number of shares of our Common Stock covered by
each stock option granted to a participant will be determined by the Committee,
but no participant may be granted stock options in any calendar year that exceed
the Amended and Restated Plan's annual individual grant limits.
Stock option grants will be evidenced by option agreements which may
contain varying terms and conditions. Stock options vest and become exercisable
at the times and on the terms established by the Committee. The stock option
exercise price will be set by the Committee and is generally equivalent to the
fair market value of a share of our Common Stock on the date the option was
granted although the Committee may establish a higher exercise price. Payment of
the exercise price shall be in a form specified by the option agreement which
may include cash, surrender of previously owned stock, or other forms as
determined by the Committee. Stock options expire at the times established by
the Committee, but not later than ten (10) years after the date of grant. The
Committee may extend the maximum term of any stock option granted under the
Amended and Restated Plan, subject to such ten-year limit.
In addition to discretionary stock option grants, non-employee
directors will receive nonqualified stock options pursuant to an automatic,
nondiscretionary formula. The formula provides for the grant of a nonqualified
stock option to purchase 250 shares of our Common Stock, as of the date the
non-employee director is first appointed or elected to the Board of Directors.
After the initial grant, subsequent grants of nonqualified stock options to
purchase 250 shares of our Common Stock will be made as of the date the
non-employee director is re-elected to the Board of Directors. Discretionary
grants to each non-employee director cannot not exceed 5,000 shares of our
Common Stock per calendar year. The exercise price for both discretionary and
nondiscretionary grants to non-employee directors will equal 100% of the fair
market value of our Common Stock on the date of grant.
OTHER EQUITY-BASED AWARDS
Discretionary grants of equity-based awards will be evidenced by an
award agreement which may contain varying terms and conditions. Payment of the
purchase price, if any, shall be in a form specified by the applicable agreement
which may include cash, surrender of previously owned stock, or other forms as
determined by the Committee.
The Committee may award shares of Common Stock that are generally not
paid for and which are not transferable unless certain conditions are met. Such
an award is called restricted stock. When the restricted stock award conditions
(which may include performance conditions) have been satisfied, the participant
will be vested in the Shares and have complete ownership of the Shares. At any
particular time, a participant may be partially vested, fully vested or not
vested at all in the restricted stock that was awarded. The holders of
restricted stock awarded under the Amended and Restated Plan shall generally
have the same voting, dividend and other rights to those Shares as our other
shareholders have to non-restricted stock.
The Committee may also grant stock appreciation rights ("SARs"), and
such grants may be made in conjunction with stock options. The number of Shares
covered by each stock appreciation right will be determined by the Committee.
The SAR exercise price will be set by the Committee and is generally equal to
the fair market value of a share of our Common Stock on the date the SAR was
granted although the Committee may establish a higher exercise price. Upon
exercise of a SAR, the participant will receive payment in an amount determined
by multiplying (a) the difference between (i) the fair market value of a share
of our Common Stock on the date of exercise and (ii) the grant price (generally
the fair market value of Shares on the grant date) and (b) the number of Shares
with respect to which the SAR is exercised. SARs may be paid in cash and/or
shares of our Common Stock, as determined by the Committee. SARs vest and are
exercisable at the times and on the terms established by the Committee.
53
Additionally, the Committee may grant performance Shares and
performance units. Performance units and performance shares are equity-based
awards that will result in a payment to a participant only if performance goals
established by the Committee are satisfied. The initial value of each
performance unit and each performance share shall not exceed the fair market
value (on the date of grant) of a share of our Common Stock. The applicable
performance goals will be determined by the Committee, and may be applied on a
company-wide or an individual business unit basis, as deemed appropriate in
light of the participant's specific responsibilities. In addition to the
performance requirements established by the Committee, no participant shall
receive more than 100,000 performance units or performance shares during any
calendar year.
PERFORMANCE GOALS
Including performance goals in certain equity-based awards to persons
subject to the limitations of Section 162(m) of the Code can permit such
equity-based awards to qualify for the performance-based compensation exception
to the tax deduction limits. Approval of the material terms of the Amended and
Restated Plan by shareholders is necessary in order for these to employees
covered by Section 162(m) of the Code to be eligible to qualify for the
performance-based compensation exception to the tax deduction limitations of
Section 162(m) of the Code
TERMINATION OF SERVICE
While the Committee generally has discretionary authority with respect
to determining terms and conditions on grant-by-grant basis, the Amended and
Restated Plan provides for certain default provisions related to a participant's
termination of service in the event that the Committee does not provide
otherwise. In general, a participant will be permitted to exercise a vested
option for up to three months after termination of service. If termination of
service is due to death or disability, then the participant can exercise a
vested options for up to 12 months after termination. In all cases, any
post-service exercise periods shall be subject to the specified term of the
option.
AMENDMENT AND TERMINATION
The Board of Directors may amend or modify the Amended and Restated
Plan in any or all respects whatsoever, subject to any required shareholder
approval. The Amended and Restated Plan will terminate on February 26, 2014
unless terminated earlier by the Board.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a subdivision of the outstanding shares of our capital
stock, a stock dividend, a dividend payable in a form other than shares of
capital stock in an amount that has a material effect on the price of such
shares of capital stock, a consolidation, a combination or a reclassification of
the shares of capital stock, a recapitalization, a spin-off, or other similar
occurrence, then the exercise price of each outstanding stock option or SAR, the
number and class of Shares subject to each award, the Share limitations on
grants, as well as the number and class of Shares available for issuance under
the Amended and Restated Plan shall be appropriately adjusted (if at all) by the
Committee (or the Board of Directors with respect to awards to non-employee
directors) in its sole discretion.
54
NEW PLAN BENEFITS
Except for nondiscretionary awards to non-employee directors, all awards made
pursuant to the Amended and Restated Plan are granted at the discretion of the
Committee (or the Board of Directors with respect to awards to non-employee
directors). Therefore, the benefits and amounts that will be received or
allocated under the Amended and Restated Plan are not determinable. The
following table sets forth the number of Shares subject to options granted under
the 1997 Plan during our fiscal year ended December 31, 2004. This is not
necessarily indicative of future grants under the Amended and Restated Plan.
Number of Shares
Subject to
Name of Individual or Group Option Grants
- -----------------------------------------------------------------------------------
Shmuel BenTov 7,500
Chairman, Chief Executive Officer
Richard D. Falcone 15,000
Chief Financial Officer
All current executive officers as a group 22,500
All current directors who are not executive officers as a group 15,750
All employees, including current officers who are not 111,000
executive officers, as a group
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the United States federal income
tax consequences of certain transactions under the Amended and Restated Plan
based on federal income tax laws in effect as of December 31, 2004. This summary
is not intended to be exhaustive and does not discuss the tax consequences of a
optionee's death or provisions of the income tax laws of any municipality, state
or other country in which an optionee may reside. In addition, this summary does
not discuss the impact of Section 409A of the Code, if any. This summary does
not purport to be complete. We advise all participants to consult their own tax
advisors concerning the tax implications relating to their awards under the
Amended and Restated Plan.
A recipient of a stock option or SAR will not have taxable income upon
the grant of the award. For nonqualified stock options and SARs, the participant
will recognize ordinary income subject to withholding taxes upon exercise in an
amount equal to the difference between the aggregate fair market value of the
Shares and the aggregate exercise price on the date of exercise. Any gain or
loss recognized upon any later disposition of the Shares generally will be
capital gain or loss.
The acquisition of Shares upon exercise of an ISO will not result in
any taxable income to the participant, except possibly for purposes of the
alternative minimum tax. Gain or loss recognized by the participant on a later
sale or other disposition of such Shares will either be long-term capital gain
or loss or ordinary income, depending upon whether the participant holds the
Shares transferred upon the exercise for at least the legally required minimum
holding periods of one year after option exercise and two years after grant.
55
For awards of restricted stock, performance shares and performance
units, unless the participant elects under Section 83(b) of the Code to be taxed
at the time of receipt of the award, the participant will not have taxable
income upon the receipt of the award, but upon vesting will recognize ordinary
income equal to the fair market value of the Shares or cash received (that
exceeds the amount paid, if any, for such Shares) at the time of vesting.
At the discretion of the Committee, the Amended and Restated Plan
allows a participant to satisfy tax withholding requirements under federal and
state tax laws in connection with the exercise, receipt, or vesting of an award
by electing to have shares of Common Stock withheld, and/or by delivering
already-owned shares of our Common Stock.
We will generally be entitled to a tax deduction in connection with an
award under the Amended and Restated Plan only in an amount equal to the
ordinary income recognized by the participant and at the time the participant
recognizes such income, if applicable withholding requirements are met. In
addition, Section 162(m) of the Code contains special rules regarding the
federal income tax deductibility of compensation paid to our chief executive
officer and to each of our other four most highly compensated executive
officers. The general rule is that annual compensation paid to any of these
specified executives will be deductible only to the extent that it does not
exceed $1,000,000. However, we can preserve the deductibility of certain
compensation in excess of $1,000,000 if it complies with certain conditions
imposed by the rules related to Section 162(m) of the Code and if the material
terms of such compensation are disclosed to and approved by our shareholders. We
have structured the Amended and Restated Plan with the intention that
compensation resulting from awards under the Amended and Restated Plan can
qualify as "performance-based compensation" and, if so qualified, would be
deductible. This favorable tax treatment is subject to, among other things,
approval of the Amended and Restated Plan by our shareholders, and, accordingly,
we are seeking such approval.
GOVERNING LAW
The governing state law of the Amended and Restated Plan (except for
choice of law provisions) is New York, which is the state of our headquarters
and the place of residence for most of our employees.
VOTING REQUIREMENTS TO ADOPT PROPOSAL NO. 5
The affirmative vote of the holders of a majority of the outstanding
shares of our capital stock (voting as a single class on an as-converted to
Common Stock basis), who are present in person or represented by proxy and
entitled to vote at the Annual Meeting, is required to approve Proposal No. 5.
If the Amended and Restated 1997 Stock Option and Award Plan is not approved by
shareholders before February 9, 2006, then the pre-amended 1997 Plan will remain
in effect.
The Company believes that Shmuel BenTov will vote his 1,024,697 shares
of the Company's capital stock (as calculated on an as-converted to Common Stock
Basis), which represents approximately 45.2% of the Company's outstanding
capital stock, for Proposal No. 5.
56
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE COMPANY'S AMENDED AND RESTATED 1997 STOCK OPTION AND AWARD PLAN.
57
PROPOSAL NO. 6
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
THE PROPOSAL
The Audit Committee of the Board of Directors has recommended to the
Board of Directors of the Company the selection of Grant Thornton LLP, its
current independent auditors, to be the independent auditors of the Company for
the fiscal year ending December 31, 2005 if the transactions contemplated by
Proposals Nos. 2 and 3 are not consummated, and Mercadien, PC to be the
independent auditors of the Company for the year ending December 31, 2005 if the
transactions contemplated by Proposals Nos. 2 and 3 are consummated.
Ernst & Young LLP was previously the principal accountant for the
Company. The Company dismissed Ernst & Young LLP on June 27, 2002.
The decision to dismiss Ernst & Young LLP was approved by the Audit
Committee of the Board of Directors.
In connection with the audits of the fiscal year ended December 31,
2002, and the subsequent interim period through June 27, 2002, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement. Through June 28, 2002, there were no reportable events (as defined
in Regulation S-K 304(a)(1)).
The Company engaged Grant Thornton LLP as principal accountants on June
28, 2002. The decision to hire Grant Thornton LLP was approved by the Audit
Committee of the Board of Directors.
AUDIT FEES
For the years ended December 31, 2004 and 2003, the aggregate fees paid
or expected to be paid to Grant Thornton, LLP for the audit of the Company's
financial statements for such years and the review of the Company's interim
financial statements for each quarter of 2004 and 2003 were $200,000 and
$173,000, respectively.
The only fee paid to Ernst & Young LLP during the fiscal years ended
December 31, 2004 and 2003 was for work related to its consent to the use of
previously audited financial statements in the amount of $3,600.
AUDIT RELATED FEES
For the year ended December 31, 2004, the Company paid Grant Thornton
LLP aggregate fees of $26,000 for audit related services rendered in connection
with acquisition activities. During the year ended December 31, 2003, there were
no audit related fees paid to Grant Thornton LLP.
58
TAX FEES
For the years ended December 31, 2004 and 2003, the aggregate fees paid
or expected to be paid to Grant Thornton LLP for tax compliance, tax advice and
tax planning services were $40,000 and $41,020, respectively.
ALL OTHER FEES
During the years ended December 31, 2004 and 2003, there were no fees
paid to Grant Thornton LLP for professional services other than audit, audit-
related and tax.
AUDIT COMMITTEE POLICIES AND PROCEDURES
The Audit Committee reviews the independence of the Company's auditors on
an annual basis and has determined that Grant Thornton, LLP is independent. In
addition, the Audit Committee pre-approves all work and fees, which are
performed by the Company's independent auditors.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
[To be included when the Company's audited financial statements for the
fiscal year ended December 31, 2004 are complete.]
VANGUARD'S ACCOUNTANTS
Vanguard currently retains Mercadien, PC as its independent auditors. In
order to comply with auditing requirements as promulgated by the SEC, Vanguard
was required to retain an accounting firm who is a member of the Public Company
Accounting Oversight Board. In furtherance thereof, Vanguard retained the
accounting firm of Mercadien, PC which, in turn, retained the accounting firm of
Suresh Surana & Associates ("Suresh") as its independent accountants for its
Indian subsidiaries. If Proposals Nos. 2 and 3 are consummated and Mercadien
serves as the Company's independent auditors after the consummation of the
proposed transactions, Suresh will continue to serve as the Company's
independent accountants for its Indian subsidiaries.
ACCOUNTANTS' ATTENDANCE AT THE ANNUAL MEETING
A representative of each of Grant Thornton LLP, the Company's principal
accountant for the current year and for the most recently completed fiscal year,
and Mercadien, PC, the proposed independent accountant of the Company for the
year ending December 31, 2005 if the transactions contemplated by Proposals Nos.
2 and 3 are consummated, is expected to be present at the Annual Meeting. These
representatives will be given the opportunity to make a statement at the Annual
Meeting and are expected to be available to respond to appropriate questions.
VOTING REQUIREMENTS TO ADOPT PROPOSAL NO. 6
The affirmative vote of the holders of a majority of the outstanding
shares of our capital stock (voting as a single class on an as-converted to
Common Stock basis), who are present in person or represented by proxy and
entitled to vote at the Annual Meeting, is required to approve Proposal No. 6.
Pursuant to the Sarbanes-Oxley Act of 2002, the Audit Committee has the sole
right to appoint the Company's independent auditor and the appointment of the
independent auditor is not contingent upon obtaining shareholder approval.
However, the Board of Directors is affording the Company's shareholders the
opportunity to express their opinions with regard to the selection of the
Company's auditors for fiscal year 2005. This vote is neither required nor
binding, but is being solicited by the Board of Directors in order to determine
if the shareholders would approve the Audit Committee's selection. If this
Proposal does not receive the affirmative vote of a majority of the votes cast
for this Proposal at the Annual Meeting, in person or by proxy, the Audit
Committee will take such vote into consideration in determining whether to
retain its independent auditor.
59
The Company believes that Shmuel BenTov will vote his 1,024,697 shares
of the Company's capital stock (as calculated on an as-converted to Common Stock
Basis), which represents approximately 45.2% of the Company's outstanding
capital stock, for Proposal No. 6.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF GRANT THORNTON LLP TO BE THE INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005 IF THE
TRANSACTIONS CONTEMPLATED BY PROPOSALS NOS. 2 AND 3 ARE NOT CONSUMMATED, AND
MERCADIEN, PC TO BE THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 2005 IF THE TRANSACTIONS CONTEMPLATED BY PROPOSALS NOS. 2
AND 3 ARE CONSUMMATED.
60
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT - BEFORE PROPOSED TRANSACTIONS
The following table sets forth, as of December 31, 2004, certain
information regarding the beneficial ownership of our Common Stock, Series A
Preferred Stock and Series B Preferred Stock by (i) each of the Company's
directors, (ii) each of the executive officers named in the Summary Compensation
Table set forth on page 67 below, (iii) all directors and officers of the
Company as a group and (iv) each person known by the Company to own beneficially
more than 5% of the Common Stock. As of December 31, 2004, 2,122,647 shares of
Common Stock, 530,304 shares of Series A Preferred Stock and 41,311 shares of
Series B Preferred Stock were issued and outstanding. Unless otherwise indicated
in the table below, each person or entity named below has an address in care of
the Company's principal office, 200 Park Avenue South, New York, NY 10003. All
share amounts are rounded to the nearest whole share. The shareholders, amounts
and percentages in the following table do not give effect to the completion of
the Share Exchange, the Share Issuance or the BenTov Sale.
- ---------------------------------------------------------------------------------------------------------------------
AMOUNT OF
BENEFICIAL PERCENTAGE
TITLE OF CLASS NAME OF SHAREHOLDER OWNERSHIP (1) OF CLASS
- ---------------------------------------------------------------------------------------------------------------------
Common Shmuel BenTov, Chairman, Chief Executive 1,032,197 (2) 45.6%
Officer and President
- ---------------------------------------------------------------------------------------------------------------------
Common William P. Miller, Director 29,976 (3) 1.4%
- ---------------------------------------------------------------------------------------------------------------------
Common Richard D. Falcone, Chief Financial Officer 25,500 (4) 1.2%
- ---------------------------------------------------------------------------------------------------------------------
Common Steven S. Mukamal, Director 13,250 (5) *
- ---------------------------------------------------------------------------------------------------------------------
Common Reuven Battat, Director 7,000 (6) *
- ---------------------------------------------------------------------------------------------------------------------
COMMON ALL CURRENT DIRECTORS AND EXECUTIVE 1,107,923 (7) 48%
OFFICERS AS A GROUP (5 PERSONS)
- ---------------------------------------------------------------------------------------------------------------------
Common Sanjeev Welling 140,021 (8) 6.6%
- ---------------------------------------------------------------------------------------------------------------------
Common Piotr Zielczynski 139,354 (9) 6.6%
- ---------------------------------------------------------------------------------------------------------------------
Series A Preferred Stock Shmuel BenTov, Chairman, Chief Executive 530,304 100%
Officer and President
- ---------------------------------------------------------------------------------------------------------------------
SERIES A PREFERRED STOCK ALL DIRECTORS AND EXECUTIVE OFFICERS AS A 530,304 100%
GROUP (1 PERSON)
- ---------------------------------------------------------------------------------------------------------------------
Series B Preferred Stock Yosi Vardi 41,311 (10) 100%
- ---------------------------------------------------------------------------------------------------------------------
* Indicates less than 1%.
(1) As used in the tables above, "beneficial ownership" means the sole or
shared power to vote, or direct the voting, or the power to dispose or
direct the disposition of, any security. A person is deemed to have
"beneficial ownership" of any security that such person has a right to
acquire within 60 days of December 31, 2004. Any security that any person
named above has the right to acquire within 60 days of December 31, 2004
is deemed to be outstanding for purposes of calculating the ownership of
such person but is not deemed to be outstanding for purposes of
calculating the ownership percentage of any other person. Unless otherwise
noted, each person listed has the sole power to vote, or direct the voting
of, and power to dispose, or direct the disposition of, all such shares.
(2) Consists of: (i) 860,917 shares of Common Stock held directly by Mr.
BenTov and/or by custodians on behalf of Mr. BenTov; (ii) an aggregate of
27,454 shares of Common Stock owned by Mr. BenTov's two minor children,
for whom he acts as custodian; (ii) 3,750 shares of Common Stock owned by
Mr. BenTov's spouse; (iii) 7,500 shares of Common Stock issuable upon
exercise of currently exercisable options and (iv) 132,576 shares of
Common Stock currently issuable upon conversion of 530,304 shares of
Series A Preferred Stock. Mr. BenTov has agreed to convert all of his
shares of Series A Preferred Stock into Common Stock and to sell all
1,024,697 shares of Common Stock that he will beneficially own after the
conversion (other than shares underlying his options) to Oak if the
Company's shareholders approve Proposals Nos. 2 and 3 at the Annual
Meeting and the Company completes the Share Exchange, the Share Issuance
and related transactions. This information is based upon a Schedule 13D
filed by Mr. BenTov with the SEC on January 28, 2005. Mr. BenTov's address
is 200 Park Avenue South, Suite 901, New York, New York. Mr. BenTov has
resigned from the Board of Directors, effective upon the election of
directors at the Annual Meeting.
61
(3) Consists of: (i) 20,201 shares owned by a corporation of which Mr. Miller
serves as an officer and a director, over which Mr. Miller may be deemed
to have voting and/or investment power and of which Mr. Miller disclaims
beneficial ownership, (ii) 4,025 shares of Common Stock held by Mr. Miller
and (iii) 5,750 shares of Common Stock issuable upon exercise of currently
exercisable options.
(4) Consists of (i) 500 shares of Common Stock and (ii) 25,000 shares of
Common Stock issuable upon exercise of currently exercisable options.
(5) Consists of: (i) 6,250 shares of Common Stock over which Mr. Mukamal
exercises investment power and (ii) 7,000 shares of Common Stock issuable
upon exercise of currently exercisable options.
(6) Consists of 7,000 shares of Common Stock issuable upon exercise of
currently exercisable options. Mr. Battat has resigned from the Board of
Directors, effective upon the election of directors at the Annual Meeting.
(7) Includes 52,750 shares of Common Stock issuable upon exercise of currently
exercisable options and 132,576 shares of Common Stock issuable upon
conversion of 530,304 shares of Series A Preferred Stock.
(8) Consists of: (i) 134,187 shares of Common Stock and (ii) 5,834 shares of
Common Stock issuable upon exercise of currently exercisable options. This
information is based upon a Schedule 13G filed by Mr. Welling with the SEC
on August 21, 2002. Mr. Welling's address is 31 Winding Brook Way, Edison,
NJ 08820.
(9) Consists of (i) 134,187 shares of Common Stock and (ii) 5,167 shares of
Common Stock issuable upon exercise of currently exercisable options. This
information is based upon a Schedule 13G filed by Mr. Zielczynski with the
SEC on August 21, 2002. Mr. Zielczynski's address is 33 Glen Rock Road,
Cedar Grove, New Jersey 07009.
(10) Mr. Vardi's address is 12 Shamir Street, Tel Aviv 69693, Israel.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT - AFTER PROPOSED TRANSACTIONS
After the consummation of the Share Exchange, the Share Issuance, the
BenTov Sale (including the conversion of the Series A Preferred Stock) and
related transactions (including the conversion of the Series B Preferred Stock),
the Company's issued and outstanding voting securities will consist of between
10,203,346 and 10,828,346 shares of Common Stock. The number of shares to be
issued and outstanding after the proposed transactions depends on how many
shares of Common Stock the Company issues in the Share Issuance, which will be a
minimum of 625,000 and a maximum of 1,250,000 shares of Common Stock. There will
be 10,203,346 shares issued and outstanding if Oak purchases the minimum of
625,000 shares of Common Stock and there will be 10,828,346 shares of Common
Stock issued and outstanding if Oak or its assignees exercise the right to
purchase up to an additional 625,000 shares of Common Stock within 120 days
after the initial 625,000 shares are issued to Oak.
62
The following table sets forth, as of the time (the "Consummation
Date") immediately following the consummation of the Share Exchange, the Share
Issuance, the BenTov Sale and the commencement of the term of each of Messrs.
Ball, Newman and Harris as a director, certain information regarding the
beneficial ownership of our Common Stock by (i) each of the Company's directors,
(ii) each of the executive officers named in the Summary Compensation Table set
forth on page 67 below, (iii) all directors and officers of the Company as a
group and (iv) each person known by the Company to own beneficially more than 5%
of the Common Stock (assuming that no other purchases or sales of shares of our
capital stock occur from December 31, 2004 through the completion of these
transactions). This information regarding beneficial ownership includes
information regarding the formula grant of an option to purchase 250 shares of
Common Stock that will be made automatically to each of Messrs. Ball, Miller,
Mukamal, Newman and Harris if they are elected to serve as members of the Board
of Directors pursuant to Proposal No. 1 and other vesting that would occur by
the time of the Annual Meeting. Unless otherwise indicated in the table below,
each person or entity named below has an address in care of the Company's
principal office, 200 Park Avenue South, New York, NY 10003. All share amounts
are rounded to the nearest whole share.
- ---------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF
CLASS CLASS
(MINIMUM (MAXIMUM
TITLE OF CLASS AMOUNT AND NATURE OF SHARE SHARE
NAME OF SHAREHOLDER BENEFICIAL OWNERSHIP (1) ISSUANCE) ISSUANCE)
- ---------------------------------------------------------------------------------------------------------------------
Common Mr. Andrew H. Ball, Director and 2,303,781 (2) 22.6% 21.3%
5% stockholder
- ---------------------------------------------------------------------------------------------------------------------
Common Mr. William P. Miller, Director 30,226 (3) * *
- ---------------------------------------------------------------------------------------------------------------------
Common Mr. Richard D. Falcone, Chief 27,375 (4) * *
Financial Officer
- ---------------------------------------------------------------------------------------------------------------------
Common Mr. Steven S. Mukamal, Director 13,500 (5) * *
- ---------------------------------------------------------------------------------------------------------------------
Common Mr. Shmuel BenTov, Chief Executive 7,500 (6) * *
Officer and President
- ---------------------------------------------------------------------------------------------------------------------
Common Mr. William A. Newman, Director 250 (7) * *
- ---------------------------------------------------------------------------------------------------------------------
Common Mr. Joseph Harris, Director 250 (8) * *
- ---------------------------------------------------------------------------------------------------------------------
COMMON ALL POST-TRANSACTION DIRECTORS AND 2,382,882 (9) 23.2% 21.9%
EXECUTIVE OFFICERS AS A GROUP (7
PERSONS)
- ---------------------------------------------------------------------------------------------------------------------
Common Excalibur Investment Group Ltd. 4,972,701 (10) 48.7% 45.9%
- ---------------------------------------------------------------------------------------------------------------------
1,649,697 (11) 16.2% 21.0%
(assuming minimum of 625,000
Common Oak Finance Investments Ltd. shares purchased under Share
Issuance)
2,274,697
(assuming maximum of 1,250,000
shares purchased by Oak
under Share Issuance)
- ---------------------------------------------------------------------------------------------------------------------
* Indicates less than 1%.
(1) As used in the tables above, "beneficial ownership" means the sole or shared
power to vote, or direct the voting of, or the power to dispose, or direct the
disposition of, any security. A person is deemed to have "beneficial ownership"
of any security that such person has a right to acquire within 60 days of the
date that the transactions referenced above are consummated. Any security that
any person named above has the right to acquire within 60 days of the date that
the transactions referenced above are consummated is deemed to be outstanding
for purposes of calculating the ownership of such person but is not deemed to be
outstanding for purposes of calculating the ownership percentage of any other
person. Unless otherwise noted, each person listed has the sole power to vote,
or direct the voting of, and power to dispose, or direct the disposition of, all
such shares.
63
(2) Consists of: (i) 2,303,531 shares of Common Stock issued in Share Exchange,
assuming that Mr. Ball does not transfer any of his shares of Vanguard prior to
the consummation of the Share Exchange, and (ii) 250 shares of Common Stock
issuable upon exercise of options that will be exercisable on the Consummation
Date.
(3) Consists of: (i) 20,201 shares owned by a corporation of which Mr. Miller
serves as an officer and a director, over which Mr. Miller may be deemed to have
voting and/or investment power and of which Mr. Miller disclaims beneficial
ownership, (ii) 4,025 shares of Common Stock held directly by Mr. Miller and
(iii) 6,000 shares of Common Stock issuable upon exercise of options that will
be exercisable on the Consummation Date.
(4) Consists of (i) 500 shares of Common Stock and (ii) 26,875 shares of Common
Stock issuable upon exercise of options that will be exercisable on the
Consummation Date.
(5) Consists of: (i) 6,250 shares of Common Stock over which Mr. Mukamal
exercises investment power and (ii) 7,250 shares of Common Stock issuable upon
exercise of options that will be exercisable on the Consummation Date.
(6) Consists of 7,500 shares of Common Stock issuable upon exercise of currently
exercisable options.
(7) Consists of 250 shares of Common Stock issuable upon the exercise of options
that will be exercisable on the Consummation Date.
(8) Consists of 250 shares of Common Stock issuable upon the exercise of options
that will be exercisable on the Consummation Date.
(9) Consists of 48,375 shares of Common Stock issuable upon exercise of options
that will be exercisable on the Consummation Date.
(10) Reflects shares of which Excalibur Investment Group Limited will be the
direct beneficial owner, after giving effect to the Share Exchange, the Share
Issuance and the BenTov Sale. Excalibur is a British Virgin Islands company. Its
address is c/o Trident Trust Company, (BVI) Ltd., Trident Chambers, PO Box 148,
Road Town, Tortola, British Virgin Islands.
(11) Reflects shares of which Oak Finance Investments Limited will be the direct
beneficial owner, after giving effect to the Share Exchange, the Share Issuance
and the BenTov Sale. Oak is a British Virgin Islands company. Its address is c/o
Arias Fabrega & Fabrega Trust Co. BVI, Ltd., 325 Waterfront Drive, Omar Hodge
Building, 2nd Floor, Road Town, Tortola, British Virgin Islands.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 2004, the Board of Directors met
five times. During 2004, no director attended fewer than 75% of the aggregate of
all meetings of the Board of Directors, and all meetings of the committees on
which he was serving as a member, held while serving as a Director.
Each member of the Board of Directors is expected to attend annual
meetings of the Company's shareholders. At the Company's 2004 Annual Meeting of
Shareholders, all four then-serving directors were in attendance.
The following are the current members and functions of the standing
committees of the Board of Directors:
64
Audit Committee. The Audit Committee is authorized to engage the
Company's independent auditors and review with such auditors (i) the scope and
timing of their audit services and any other services they are asked to perform,
(ii) their report on the Company's financial statements following completion of
their audit and (iii) the Company's policies and procedures with respect to
internal accounting and financial controls. The Audit Committee is composed of
Messrs. Miller, Battat and Mukamal. The Board determined that Mr. Miller
qualifies as an "audit committee financial expert." Mr. Battat has informed the
Company that he will be resigning from the Board of Directors and the Audit
Committee, effective as of the election of directors at the Annual Meeting. If
our shareholders approve Proposals Nos. 2 and 3 at the Annual Meeting and the
transactions contemplated thereby are consummated, the Company expects that the
Board of Directors will appoint Mr. Harris to serve as a member of the Audit
Committee. During the year ended December 31, 2004, the Audit Committee met five
times. The Board of Directors has determined that each of the members of the
Audit Committee is independent (as independence is defined in Rule 4200(a)(15)
of the National Association of Securities Dealers' listing standards). The Board
of Directors adopted a revised written charter for the Audit Committee on
February 26, 2003. The Audit Committee Charter is posted at the Company's
website, www.tact.com, under Corporate - Investors. The Company will provide a
copy of the Audit Committee Charter to any person, without charge, upon written
request to Mr. Richard D. Falcone, Chief Financial Officer by calling
732-499-8228 or writing to Mr. Falcone's attention at The A Consulting Team,
Inc. 77 Brant Avenue, Suite 320, Clark, NJ 07066.
Executive Compensation Committee. The Executive Compensation Committee
is authorized and empowered to approve appointments and promotions of executive
officers of the Company and fix salaries for such officers, provided that all
actions of the Executive Compensation Committee must be ratified by the full
Board of Directors within six months of the subject action. The Executive
Compensation Committee is also authorized to administer the Company's 1997 Stock
Option and Award Plan. The Executive Compensation Committee is currently
composed of Messrs. Mukamal (Chairman) and Battat. Mr. Robert Duncan served on
the Executive Compensation Committee until April 2004, when he resigned from the
Board of Directors. Mr. Battat has informed the Company that he will be
resigning from the Board of Directors and the Executive Compensation Committee,
effective as of the election of directors at the Annual Meeting. If the
shareholders approve Proposals Nos. 2 and 3 at the Annual Meeting and the
transactions contemplated thereby are consummated, the Company expects that the
Board of Directors will appoint Mr. Harris to serve as a member of the Executive
Compensation Committee. The Board of Directors has determined that each of the
members of the Executive Compensation Committee is independent (as independence
is defined in Rule 4200(a)(15) of the National Association of Securities
Dealers' listing standards). During the year ended December 31, 2004, the
Executive Compensation Committee met two times.
Nominating Committee. On February 26, 2004, the Board of Directors
established a Nominating Committee, which is authorized to nominate new
candidates to the Board of Directors. The Nominating Committee is composed of
three members, Messrs. Battat (Chairman), Miller and Mukamal. Mr. Robert Duncan
served on the Committee until April 2004, when he resigned from the Board of
Directors. Mr. Battat has informed the Company that he will be resigning from
the Board of Directors and the Nominating Committee, effective as of the
election of directors at the Annual Meeting. If the shareholders approve
Proposals Nos. 2 and 3 at the Annual Meeting and the transactions contemplated
thereby are consummated, the Company expects that the Board of Directors will
appoint Mr. Harris to serve as a member of the Nominating Committee. The Board
of Directors has determined that each of the members of the Nominating Committee
is independent (as independence is defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' listing standards). The Nominating Committee
Charter and is posted at the Company's website, www.tact.com, under Corporate -
Investors. The Nominating Committee recommended to the Board of Directors that
Messrs. Ball, Miller, Mukamal, Newman and Harris be nominated for election as
directors to serve until the appointment or election of their successors, and
the Board so nominated these candidates (along with Messrs. Miller and Mukamal).
During the year ended December 31, 2004, the Nominating Committee met two times.
65
The Nominating Committee receives recommendations for director nominees
from a variety of sources, including from shareholders, management, members of
the Board of Directors and third party search firms. In the case of Messrs.
Ball, Newman and Harris, these persons were designated by the Vanguard
shareholders in connection with the Share Exchange, and the Nominating Committee
reviewed their credentials and recommended their nomination for election as
directors. Shareholders may recommend any person to be a director of the Company
by writing to the Company's Secretary. Each submission must include (i) a brief
description of the candidate, (ii) the candidate's name, age, business address
and residence address, (iii) the candidate's principal occupation and the number
of shares of the Company's capital stock beneficially owned by the candidate and
(iv) any other information that would be required under the SEC rules in a proxy
statement listing the candidate as a nominee for director. Recommended
candidates may be required to provide additional information.
The Nominating Committee generally reviews all recommended candidates
at the same time, and subjects all candidates to the same review criteria.
Members of the Board of Directors should be qualified, dedicated, ethical and
highly regarded individuals who have experience relevant to the Company's
operations and understand the complexities of the Company's business
environment. The Nominating Committee further develops recommendations regarding
the appropriate skills and characteristics required of members of the Board of
Directors in the context of the current composition of the Board of Directors,
and these recommendations are submitted to the Board of Directors for review and
approval. In conducting this assessment, the Nominating Committee considers
diversity, age, skills and such other factors as it deems appropriate, given the
current needs of the Board of Directors and its committees. In addition, at
least a majority of the Board of Directors must be independent, all members of
the Audit Committee must be independent and also satisfy heightened independence
and qualification criteria and all of the members of the Executive Compensation
Committee and the Nominating Committee must be independent.
Other Committees
The Board of Directors may establish additional standing or ad hoc
committees from time to time. For example, the Board of Directors established an
independent special committee, consisting of Messrs. Miller and Mukamal, to
review matters pertaining to the Share Exchange, the Share Issuance and the
BenTov Sale. The activities of this special committee are described on page 23
above.
Communications with Shareholders
Correspondence from the Company's shareholders to the Board of
Directors or any individual directors or officers should be sent to the
Company's Secretary. Correspondence addressed to either the Board of Directors
as a body, or to all of the directors in their entirety, will be sent to the
Chairman of the Nominating Committee. The Company's Secretary will regularly
provide to the Board of Directors a summary of all such shareholder
correspondence that the Secretary receives on behalf of the Board of Directors.
The Board of Directors has approved this process for shareholders to send
communications to the Board of Directors.
66
Code of Ethics.
The Board of Directors has adopted a code of ethics designed, in part,
to deter wrongdoing and to promote honest and ethical conduct, including the
ethical handling of actual or apparent conflicts of interest between personal
and professional relationships, full, fair, accurate, timely and understandable
disclosure in reports and documents that the Company files with or submit to the
SEC and in the Company's other public communications, compliance with applicable
governmental laws, rules and regulations, the prompt internal reporting of
violations of the code to an appropriate person or persons, as identified in the
code of ethics and accountability for adherence to the code of ethics. The code
of ethics applies to all directors, executive officers and employees of the
Company. The Company will provide a copy of the code of ethics to any person
without charge, upon request to Mr. Richard D. Falcone, Chief Financial Officer
by calling 732-499-8228 or writing to Mr. Falcone's attention at The A
Consulting Team, Inc., 77 Brant Avenue, Suite 320, Clark, NJ, 07066.
The Company intends to disclose any amendments to or waivers of its
code of ethics as it applies to certain persons by filing them on Form 8-K, as
required by applicable law.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid to, or
earned by, the Company's Chairman of the Board of Directors, Chief Executive
Officer and President during the fiscal years ended December 31, 2004, 2003 and
2002, and the Company's Chief Financial Officer and Secretary for the fiscal
years ended December 31, 2004, 2003 and 2002. No other executive officer of the
Company received a total salary and bonus of $100,000 or more for the fiscal
year ended December 31, 2004. Accordingly, no information is reported for such
persons.
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION (2)
AWARDS
- -------------------------------------------------------------------------------------------------------------------
OTHER ANNUAL
- -------------------------------------------------------------------------------------------------------------------
NAME AND FISCAL SALARY BONUS COMPENSATION SECURITIES UNDERLYING
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL POSITION YEAR ($) ($) ($)(1) OPTIONS
- --------------------------- ---- ------------ ------------ ------
- -------------------------------------------------------------------------------------------------------------------
Shmuel BenTov 2004 $ 240,000 $ 15,000 $ 7,601 7,500
- -------------------------------------------------------------------------------------------------------------------
Chairman, Chief Executive 2003 $ 240,000 -- $ 7,601 --
- -------------------------------------------------------------------------------------------------------------------
Officer and President 2002 $ 240,000 -- $ 26,343 --
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Richard D. Falcone 2004 $ 180,000 $ 15,000 $ 1,000 15,000
- -------------------------------------------------------------------------------------------------------------------
Chief Financial Officer 2003 $ 180,000 $ 21,000 -- --
- -------------------------------------------------------------------------------------------------------------------
and Secretary 2002 $ 186,000 -- -- 7,500
- -------------------------------------------------------------------------------------------------------------------
(1) Includes payments with respect to life insurance, car allowance and health
insurance.
(2) The Company has made no grants of Restricted Stock Awards or SARs to the
named executive officers. There are no reportable LTIP payouts and no
reportable additional compensation.
67
2004 OPTION/SAR GRANTS (1)
- -------------------------------------------------------------------------------------------------------------
INDIVIDUAL
- -------------------------------------------------------------------------------------------------------------
GRANTS
- -------------------------------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
- -------------------------------------------------------------------------------------------------------------
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES OF
- -------------------------------------------------------------------------------------------------------------
SECURITIES OPTIONS/SARS EXERCISE LATEST STOCK PRICE APPRECIATION
- -------------------------------------------------------------------------------------------------------------
UNDERLYING GRANTED TO OR BASE POSSIBLE FOR OPTION TERM (2)
-------------------
- -------------------------------------------------------------------------------------------------------------
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
- -------------------------------------------------------------------------------------------------------------
NAME GRANTED(#) 2004 ($/SH) DATE 5%($) 10%($)
- ------------------- ---------- ---- ------ ---- ----- ------
- -------------------------------------------------------------------------------------------------------------
Shmuel BenTov 7,500 4.87% $5.90 12/07/2009 $12,225 $27,015
- -------------------------------------------------------------------------------------------------------------
Richard D. Falcone 7,500 4.87% $3.36 03/31/2009 $6,962 $15,385
- -------------------------------------------------------------------------------------------------------------
7,500 4.87% $5.90 12/07/2014 $ 27,829 $70,523
- -------------------------------------------------------------------------------------------------------------
(1) Mr. BenTov was granted 7,500 options on December 7, 2004, of which 1,875
vest on December 7, 2005, 1,875 vest on December 7, 2006, 1,875 vest on
December 7, 2007 and 1,875 vest on December 7, 2008. Mr. Falcone was granted
(a) 7,500 options of March 31, 2004, of which 1,875 vest on March 31, 2005,
1,875 vest on March 31, 2006, 1,875 vest on March 31, 2007 and 1,875 vest on
March 31, 2008, and (b) 7,500 options on December 7, 2004, of which 1,875
vest on December 7, 2005, 1,875 vest on December 7, 2006, 1,875 vest on
December 7, 2007 and 1,875 vest on December 7, 2008.
(2) In satisfaction of applicable SEC regulations, the table shows the potential
realizable values of these options, upon their latest possible expiration
date, at arbitrarily assumed annualized rates of stock price appreciation of
five and ten percent over the term of the options. The potential realizable
value columns of the table illustrate values that might be realized upon
exercise of the options at the end of the ten-year period starting with
their vesting commencement dates, based on the assumptions shown above.
Because actual gains will depend upon the actual dates of exercise of the
options and the future performance of the Common Stock in the market, the
amounts shown in this table may not reflect the values actually realized. No
gain to the named executive officers is possible without an increase in
stock price which will benefit all stockholders proportionately. Actual
gains, if any, on option exercises and common stock holdings are dependent
on the future performance of the Common Stock and general stock market
conditions. There can be no assurance that the potential realizable values
shown in this table will be achieved, or that the stock price will not be
lower or higher than projected at five and ten percent assumed annualized
rates of appreciation.
AGGREGATED OPTION/SAR EXERCISES IN 2004 AND
YEAR-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED IN-THE-MONEY
- --------------------------------------------------------------------------------------------------------------------
SHARES VALUE OPTIONS/SARS AT OPTIONS/SARS AT
- --------------------------------------------------------------------------------------------------------------------
ACQUIRED ON REALIZED YEAR-END(#)(1) YEAR-END($)
- --------------------------------------------------------------------------------------------------------------------
NAME EXERCISE(#)(1) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------- --- ------------------------- -------------------------
- --------------------------------------------------------------------------------------------------------------------
Shmuel BenTov.... -- -- 7,500 / 7,500 $ 0 / $53,325
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Richard D. Falcone.... -- -- 25,000 / 15,000 $ 177,750 / $106,650
- --------------------------------------------------------------------------------------------------------------------
(1) Neither Mr. BenTov nor Mr. Falcone exercised any options in the year ended
December 31, 2004.
68
EQUITY COMPENSATION PLAN INFORMATION
The information presented in the table below is as of December 31, 2004.
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE PER FUTURE ISSUANCE UNDER EQUITY
ISSUED UPON EXERCISE OF SHARE EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN(A) )
------------- ------------------- ------------------- ------------------------
(A) (B) (C)
- --------------------------------------------------------------------------------------------------------------------
Equity Compensation
Plans Approved by
Security Holders 254,563 $ 3.92 17,780
- --------------------------------------------------------------------------------------------------------------------
Equity Compensation
Plans Not Approved
by Security Holders 0 $0 0
- --------------------------------------------------------------------------------------------------------------------
Total 254,563 $ 3.92 17,780
- --------------------------------------------------------------------------------------------------------------------
DIRECTOR COMPENSATION
All of the outside directors of the Company are compensated for their
services provided as a director. Beginning January 1, 2002 until November 6,
2002, each outside director was paid $1,000 per quarter. Starting November 6,
2002, each outside director is paid $2,000 per quarter and in addition all
reasonable expenses relating to the business of the Company are paid by the
Company. Pursuant to the 1997 Plan, each non-employee director is automatically
granted stock options to purchase 250 shares of Common Stock on the date of
initial appointment or election as a non-employee director and stock options to
purchase an additional 250 shares of Common Stock on each date of re-election,
in each case at fair market value on the date of grant. The Board of Directors
in its discretion may grant stock options to purchase up to 5,000 shares of
Common Stock per calendar year to each non-employee director at fair market
value on the date of grant.
EMPLOYMENT AGREEMENTS
On August 7, 1997, the Company and Shmuel BenTov entered into a
two-year employment agreement providing for his employment as the Company's
Chairman of the Board of Directors, Chief Executive Officer and President with
an annual base salary of $250,000. Mr. BenTov and the Company agreed during the
two-year term of his employment agreement not to (i) increase Mr. BenTov's
compensation (including base salary and bonus) or (ii) otherwise amend the terms
of Mr. BenTov's employment agreement. The employment agreement provided that in
the event of termination: (i) without cause, Mr. BenTov would receive a lump sum
severance allowance in an amount equal to two times his then annual base salary;
(ii) as a result of the disability or incapacity of Mr. BenTov, Mr. BenTov would
be entitled to receive his then annual base salary during the two years
following the termination notice; and (iii) as a result of the death of Mr.
BenTov, Mr. BenTov's estate would be entitled to receive a lump sum payment
equal to his then annual base salary. The agreement included a two-year
non-compete covenant commencing on the termination of employment. In August
1999, a new employment agreement was entered into by the Company and Mr. BenTov.
This agreement expired on December 31, 2001. The agreement had essentially
identical items to the prior employment agreement, with the exception of an
increase in Mr. BenTov's annual salary to $300,000. In January, 2002, a new
employment agreement was entered into by the Company and Mr. BenTov. The
agreement had essentially identical items to the prior employment agreements,
and expired on December 31, 2004. The Company and Mr. BenTov have agreed that if
the shareholders approve Proposals Nos. 2 and 3 at the Annual Meeting and the
Company consummates the transactions contemplated thereby and he sells his
shares under the Selling Shareholder's Sale Agreement, Mr. BenTov's agreement
with the Company will be amended. Pursuant to this prospective amendment, Mr.
BenTov will continue as an employee of the Company on an at-will basis, and his
employment will be terminable by either party upon 90 days written notice. This
proposed amendment is described in greater detail in this Proxy Statement under
"Summary of Transaction Documents - BenTov Employment Agreement," above.
69
Effective September 11, 2001, the Company and Richard D. Falcone
entered into an employment agreement providing for his employment as the
Company's Chief Financial Officer at an initial base salary of $200,000. The
employment agreement provides that in the event of termination without cause,
Mr. Falcone will receive a severance allowance in an amount equal to three
months of his then annual base salary. The agreement also provides that in the
event of termination due to a change of control, Mr. Falcone will receive a
severance allowance in an amount equal to six months of his then annual base
salary. The agreement includes a one-year non-compete covenant commencing on the
termination of employment. Pursuant to the employment agreement, Mr. Falcone
received an option to purchase an aggregate of 36,000 shares of Common Stock at
$0.33 per share. The option expires in ten years from the date of grant. Mr.
Falcone's employment agreement provides for annual automatic renewal unless
cancelled within 60 days prior to the end of the renewal term. The Company and
Mr. Falcone have agreed that if the shareholders approve Proposals Nos. 2 and 3
at the Annual Meeting and the Company consummates the transactions contemplated
thereby, Mr. Falcone's agreement with the Company will be amended. Pursuant to
this prospective amendment, Mr. Falcone's annual salary will be increased to
$225,000, and the Company will pay Mr. Falcone a special bonus of $25,000,
payable in four equal quarterly installments. The term of his employment under
this prospective agreement would be three years. Mr. Falcone's employment under
the prospective amendment to his employment agreement will be terminable by
either party upon 10 days written notice, provided that if the Company
terminates his employment without cause, then the Company will pay Mr. Falcone
severance of nine months of his then base salary plus the unpaid amount of his
special bonus accruing during such nine-month period, if any.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Mukamal (Chairman) and Battat were directors and members of the
Executive Compensation Committee during fiscal year 2004. Mr. Robert Duncan
served on the Executive Compensation Committee until April 2004, when he
resigned from the Board of Directors. No interlocks or insider participation
required to be disclosed under this caption occurred during the years ended
December 31, 2003 or December 31, 2004.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors has responsibility
for establishing and monitoring compensation programs of the Company's executive
officers, which include the Company's Chief Executive Officer and Chief
Financial Officer. The Compensation Committee is currently composed of Reuven
Battat and Steven S. Mukamal. William Miller served on the Compensation
Committee from August 2002 through February 2003 when he resigned from the
Compensation Committee. Mr. Robert Duncan served on the Compensation Committee
until April 2004, when he resigned from the Board of Directors. Compensation
arrangements for the Company's executive officers are usually negotiated on an
individual basis between the Chief Executive Officer and each executive.
Compensation arrangements for the Company's Chief Executive Officer are
negotiated between the other members of the Board of Directors and Mr. BenTov.
Although these arrangements are, by and large, subjective, objective
measurements such as industry comparisons, compensation history and other
significant factors were also taken into account. From the Company's point of
view, these compensation arrangements are invariably designed to attract
talented executives to a challenging and demanding environment and to retain
such executives for the long-term benefit of the Company. In furtherance of such
goals and to provide incentives to enhance shareholder value, the Company's
compensation arrangements with its executive officers often provide for equity
participation in the Company. The Company believes the interests of its
shareholders are well served if part of the compensation of the Company's
executives is tied to the performance of the Company.
70
The compensation packages of the Chief Executive Officer and Chief
Financial Officer are set forth in employment agreements with the Company. See
"Employment Agreements." The Company's executive officers are entitled to
participate in a bonus program that is administered by the non-employee
directors of the Compensation Committee.
In determining bonus compensation, the Compensation Committee seeks to
create a direct link between the bonus payable to each executive officer and the
financial performance of the Company as a whole. The factors which may be
considered in determining the amount of individual bonus awards include earnings
per share targets and individual performance compared to predetermined
strategic, financial and operational objectives. For the year ended December 31,
2004, the Chief Financial Officer was paid a bonus of $15,000. In addition, the
Chief Executive Officer and the Chief Financial Officer participated in a bonus
plan pursuant to which they will earn a bonus based on the Company's revenue
growth and earnings. These amounts are expected to be determined in February
2005. In 2005, the Chief Executive Officer and the Chief Financial Officer
participate in a bonus plan whereby they are eligible to earn bonuses based on
revenue growth and earnings growth. In addition, the Chief Executive Officer
will be paid a $60,000 bonus. These bonuses are subject to the approval of the
Compensation Committee.
The Compensation Committee:
Steven S. Mukamal, Chairman
Reuven Battat
71
PERFORMANCE GRAPH
The following graph depicts the performance of $100 invested on August
8, 1997 (the date of the Company's initial public offering), in the Company's
Common Stock on (i) a Peer Index of selected Information Technology and
e-Services companies and (ii) the Nasdaq(R) Major Market Computer and Data
Processing Services Index. The comparison assumes reinvestment of all dividends
on a quarterly basis for the years ended December 31, 2000, 2001, 2002, 2003 and
2004.
[COMPARISON OF CUMULATIVE TOTAL RETURN CHART]
MAR '00 JUN '00 SEP'00 DEC '00 MAR '01 JUN '01 SEP'01 DEC '01 MAR '02 JUN '02
TACT 100.00 $ 76.55 $ 65.00 $ 11.55 $ 10.30 $ 4.50 $ 4.50 $ 2.90 $ 6.00 $ 3.90
Peer Index 100.00 $ 73.99 $ 46.18 $ 20.41 $ 20.99 $ 27.63 $ 18.85 $ 24.74 $ 26.82 $ 19.57
Major Market Index 100.00 $ 161.13 $ 149.22 $ 100.37 $ 74.76 $ 87.78 $ 60.89 $ 79.24 $ 74.97 $ 59.45
SEP'02 DEC '02 MAR '03 JUN '03 SEP'03 DEC '03 MAR '04 JUN '04 SEP'04 DEC '04
TACT $ 3.40 $ 3.40 $ 3.70 $ 4.90 $ 7.80 $ 9.10 $ 8.40 $ 18.05 $ 15.20 $ 17.78
Peer Index $ 11.85 $ 15.40 $ 14.66 $ 20.71 $ 22.26 $ 34.41 $ 39.03 $ 32.07 $ 25.29 $ 25.09
Major Market Index $ 47.62 $ 54.26 $ 54.49 $ 65.93 $ 72.60 $ 81.39 $ 81.02 $ 83.20 $ 77.06 $ 88.38
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
If the shareholders approve Proposal No. 2 at the Annual Meeting and
the Company consummates the Share Exchange, then (i) director-nominee Andrew H.
Ball will acquire 2,303,531 shares of the Company's Common Stock (approximately
21.3% to 22.6%) upon exchange of the shares of Vanguard stock he currently owns
and (ii) Excalibur Investment Group Limited will acquire approximately 4,970,000
shares of the Company's Common Stock upon exchange of shares of Vanguard stock
it currently owns.
If the shareholders approve Proposal No. 3 at the Annual Meeting and
the Company consummates the Share Issuance and issues thereunder the maximum of
1,250,000 shares to Oak that it has committed to sell to Oak and its assignees,
then Oak will acquire 1,250,000 shares of Common Stock, in addition to the
1,024,697 shares of Common Stock that Oak has agreed to purchase from Mr.
BenTov.
If the shareholders approve Proposals Nos. 2 and 3 at the Annual
Meeting and the Share Exchange, the Share Issuance and the BenTov Sale are
consummated, then Oak will pay to Mr. BenTov approximately $10,500,000 (or
$10.25 per share), provided that if the Company does not pay the Dividend on or
prior to the date of the consummation of the BenTov Sale, then the aggregate
amount payable by Oak to Mr. BenTov will be increased by the amount of the
difference between $0.75 per share and the amount of any dividend actually paid,
up to a maximum of approximately $768,000.
72
Messrs. Ball, Newman and Harris have been designated by the Vanguard
shareholders to be nominated for election to the Board of Directors, which
election will become effective only if the Share Exchange and the Share Issuance
are consummated. Mr. Newman, a nominee for election as a director of the
Company, is a partner at the law firm of McGuireWoods LLP, which currently acts
as general outside counsel to Vanguard. It is anticipated that, if the Share
Exchange, the Share Issuance and related transactions are consummated,
McGuireWoods LLP will become general outside counsel to the Company.
If the shareholders approve Proposal No. 2 at the Annual Meeting and
the Company consummates the transactions contemplated thereby, then the Company
expects that it and Richard D. Falcone will enter into the proposed amendment to
Mr. Falcone's employment agreement (described in this Proxy Statement under
"Employment Agreements," above) and Mr. Falcone will thereby receive an increase
in his annual salary from $200,000 to $225,000 and a special bonus of $25,000,
and his right to severance pay in the event of termination without cause will
increase from three months' severance pay to nine months' severance pay (plus
payment of any unpaid special bonus accruing during that nine-month period).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a line of credit of $4.0 million with Keltic Financial
Partners, LP, based on the Company's eligible accounts receivable balances. The
line of credit has certain financial covenants, which the Company must meet on a
quarterly basis. There was no outstanding balance under the line of credit at
December 31, 2003 and 2002. The Company's Chief Executive Officer initially
guaranteed $1 million of the line of credit. The line of credit bears interest
at a variable rate based on prime plus 2% and the rate was 6% at December 31,
2003. In July 2002, the credit line was amended to reduce the guarantee of the
Company's Chief Executive Officer to $400,000, and to reflect the Company's
acquisition of International Objects Technology, Inc. In March 2004, the credit
line was amended and restated to include an extension to June 2007, the removal
of the guarantee of the Chief Executive Officer and less restrictive financial
covenants.
The Company presently employs Victoria BenTov, the sister of the Chief
Executive Officer and President, as a billable consultant. On January 1, 2005,
her compensation was increased from $88,000 to $140,000 per year and she was
paid a $10,000 cash bonus.
ACCOUNTANTS' ATTENDANCE AT THE ANNUAL MEETING
A representative of each of Grant Thornton LLP, the Company's principal
accountants for the fiscal year ended December 31, 2004, and Mercadien, PC, the
Company's proposed accountants if the transactions contemplated by Proposals
Nos. 2 and 3 are consummated, is expected to be present at the Annual Meeting.
These representatives will be given the opportunity to make a statement at the
Annual Meeting if they desire to do so, and are expected to be available to
respond to appropriate questions.
73
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and certain beneficial owners of the Company's equity
securities (the "Section 16 Reporting Persons") to file with the SEC reports
regarding their ownership and changes in ownership of the Company's equity
securities. The Company believes that, during fiscal year 2004, its Section 16
Reporting Persons complied with all Section 16(a) filing requirements, except
that (i) Robert Duncan reported three transactions late on a Form 4 filed in
2004, (ii) Stephen Mukamal reported four transactions late on a Form 4 filed in
2004 and has not reported two transactions that occurred in 2004, (iii) Reuven
Battat reported four transactions late on a Form 4 filed in 2004 and has not
reported two transactions that occurred in 2004, (iv) Richard D. Falcone
reported two transactions late on a Form 5 filed in 2005, (v) Shmuel BenTov
reported one transaction late on a Form 5 filed in 2005, and (vi) William Miller
reported two transactions late on a Form 4 filed in 2004 and reported two
transactions late on a Form 5 filed in 2005. In making this statement, the
Company has relied upon examination of the copies of Forms 3, 4 and 5 provided
to the Company and the written representations of the Section 16 Reporting
Persons.
SHAREHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2006 Annual
Meeting of Shareholders must be received by the Company at the address appearing
on the first page of this proxy statement by December 31, 2005 in order to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
Shareholders who intend to present a proposal at the 2006 Annual
Meeting of Shareholders without inclusion of such proposal in the Company's
proxy materials are required to provide notice of such proposal to the Company
no later than March 1, 2006.
OTHER MATTERS
As of the date of this proxy statement, our Board of Directors knows of
no other matters which may be presented for consideration at the Annual Meeting.
However, if any other matter is presented properly for consideration and action
at the Annual Meeting, it is intended that the proxies will be voted with
respect thereto in accordance with the best judgment and in the discretion of
the proxy holders.
SOLICITATION AND EXPENSES OF SOLICITATION
The expenses of preparing and mailing this proxy statement and the
accompanying form of proxy and the cost of solicitation of proxies on behalf of
the Board of Directors will be paid by the Company. Brokerage houses, other
custodians and nominees will be asked whether other persons are beneficial
owners of the shares which they hold of record and, if so, they will be supplied
with additional copies of the proxy materials for distribution to such
beneficial owners. The Company will reimburse parties holding stock in their
names or in the names of their nominees for their reasonable expenses in sending
the proxy materials to their principals.
74
Vanguard is not a participant in the solicitation made by this proxy
statement. Vanguard does not have any interest in the solicitation other than as
a result of the Share Exchange Agreement.
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information that we
file with it, which means that we can disclose important information to you by
referring to those documents. As a result, you may need to review other
documents filed by us with the SEC to obtain more information. Information is
incorporated into this proxy statement in two ways. First, if information is
contained in a document that we filed with the SEC before the date of this proxy
statement, the document is specifically identified below. Second, all of the
information provided in a periodic or other report or proxy statement filed by
the Company with the SEC after the date of this prospectus is incorporated by
reference.
The information contained in the documents we incorporate by reference is
considered a part of this proxy statement. Additionally, because information
concerning the Company, whether contained in this proxy statement or in a
document incorporated by reference, will be amended or superseded by more
current information contained in later filed documents, the information that we
file with the SEC after the date of this prospectus will update and supersede
older information contained in, or incorporated by reference into, this
prospectus.
This proxy statement incorporates by reference the documents set forth
below that we have previously filed with the SEC:
1. The Annual Report of TACT on Form 10-K filed with the SEC on March 29,
2004 for the fiscal year ended December 31, 2003, as amended by that certain
Amendment No. 1 to the Annual Report on Form 10-K/A filed with the SEC on April
26, 2004.
2. The Quarterly Report of TACT on Form 10-Q filed with the SEC on November
12, 2004 for the fiscal quarter ended September 30, 2004.
3. The Quarterly Report of TACT on Form 10-Q filed with the SEC on August
13, 2004 for the fiscal quarter ended June 30, 2004.
4. The Quarterly Report of TACT on Form 10-Q filed with the SEC on May 13,
2004 for the fiscal quarter ended March 31, 2004.
5. The Current Report of TACT on Form 8-K, dated January 20, 2005, filed
with the SEC on January 26, 2005.
6. The Current Report of TACT on Form 8-K, dated November 9, 2004, filed
with the SEC on November 9, 2004.
7. The Current Report of TACT on Form 8-K, dated August 12, 2004, filed
with the SEC on August 13, 2004.
8. The Current Report of TACT on Form 8-K, dated May 11, 2004, filed with
the SEC on May 11, 2004.
In addition to the documents listed above, we also incorporate by reference
into this proxy statement all additional documents that may be filed by the
Company with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act between the date of this proxy statement and the date of the Annual Meeting
or, if sooner, the termination of the Share Exchange Agreement. These include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as proxy statements.
75
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us, the SEC or
the SEC's Internet web site at http://www.sec.gov. We will deliver a free copy
of any document incorporated by reference into this proxy statement but not
delivered with this proxy statement to any shareholder who receives this proxy
statement. Exhibits filed with the documents that are incorporated by reference
into this prospectus will be delivered only if the exhibits have been
specifically incorporated by reference. Shareholders may obtain documents
incorporated by reference in this proxy statement by requesting them in writing
or by telephone from us at the following address:
THE A CONSULTING TEAM, INC.
Investor Relations
77 Brant Avenue, Suite 320
Clark, New Jersey 07066
Tel. (732) 499-8228
Email: investorrelations@tact.com
We will send you any of these documents free of charge upon your request.
You should rely only on the information contained or incorporated by
reference into this proxy statement. We have not authorized anyone to provide
you with information that is different from what is contained in this proxy
statement or in any of the materials that have been incorporated by reference
into this document. If you are in a jurisdiction where the solicitation of
proxies is unlawful, or if you are a person to whom it is unlawful to direct
these types of activities, then the offer presented in this document does not
extend to you. This proxy statement is dated ________, 2005. You should not
assume that the information contained in this proxy statement is accurate as of
any date other than that date. The mailing of this proxy statement to
shareholders does not create any implication to the contrary.
ANNUAL REPORT
A COPY OF THE 2004 ANNUAL REPORT TO STOCKHOLDERS ACCOMPANIES THIS PROXY
STATEMENT. A COPY OF THE COMPANY'S FORM 10-K REPORT FOR FISCAL YEAR 2004,
INCLUDING EXHIBITS, CONTAINING INFORMATION ON OPERATIONS AND THE COMPANY'S
FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, IS AVAILABLE UPON WRITTEN REQUEST WITHOUT
CHARGE FOR REQUESTORS WHO INCLUDE IN THEIR WRITTEN REQUEST A GOOD FAITH
REPRESENTATION THAT, AS OF [__________, 2005], SUCH REQUESTOR WAS A BENEFICIAL
OWNER OF THE COMPANY'S COMMON STOCK. PLEASE WRITE TO:
THE A CONSULTING TEAM, INC.
77 BRANT AVENUE
SUITE 320
CLARK, NJ 07066
ATTENTION: RICHARD D. FALCONE, SECRETARY
COPIES MAY ALSO BE OBTAINED WITHOUT CHARGE THROUGH THE SEC'S WORLD
WIDE WEB SITE AT HTTP://WWW.SEC.GOV.
76
ANNEX INDEX
Annex Name
Annex A Share Exchange Agreement, dated as of January 21, 2005, among The
A Consulting Team, Inc., Vanguard Info-Solutions Corporation, the
shareholders of Vanguard Info-Solutions Corporation and the
authorized representative named therein
Annex B Stock Purchase Agreement, dated as of January 21, 2005, by and
between The A Consulting Team, Inc. and Oak Finance Investments
Limited
Annex C Stock Purchase Agreement, dated as of January 21, 2005, between Oak
Finance Investments Limited and Shmuel BenTov
Annex D Principal Shareholder's Agreement, dated as of January 21, 2005,
between Oak Finance Investments Limited and Shmuel BenTov
Annex E Fairness Opinion of Ehrenkrantz King Nussbaum Inc., dated January
19, 2005
Annex F Presentation by Ehrenkrantz King Nussbaum Inc. to the Board of
Directors
Annex G Vanguard Info-Solutions Corporation's Historical Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operation
Annex H Pro Forma Unaudited Consolidated Condensed Financial Statements of
The A Consulting Team, Inc. and Vanguard Info-Solutions Corporation
Annex I Certificate of Amendment of the Certificate of Incorporation of The
A Consulting Team, Inc.
Annex J Amended and Restated 1997 Stock Option and Award Plan of The A
Consulting Team, Inc.
Annex K Proxy Card
ANNEX A
EXECUTION COPY
SHARE EXCHANGE AGREEMENT
among
VANGUARD INFO-SOLUTIONS CORPORATION
(a New Jersey corporation formerly known as B2B Solutions, Inc.),
THE VANGUARD STOCKHOLDERS NAMED HEREIN,
THE AUTHORIZED REPRESENTATIVE NAMED HEREIN
and
THE A CONSULTING TEAM, INC.
(a New York corporation)
Dated as of
January 21, 2005
A-1
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS AND USAGE....................................................................A-7
Section 1.1 Definitions.....................................................................A-7
Section 1.2 Other Defined Terms.............................................................A-14
Section 1.3 Usage...........................................................................A-16
ARTICLE 2 CONSUMMATION OF THE EXCHANGE TRANSACTION.................................................A-17
Section 2.1 The Exchange Transaction........................................................A-17
Section 2.2 Issuance of Exchange Shares.....................................................A-17
Section 2.3 Closing.........................................................................A-17
Section 2.4 Closing Obligations.............................................................A-17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE Vanguard STOCKHOLDERS..............................A-18
Section 3.1 Organization and Good Standing..................................................A-18
Section 3.2 No Conflict; No Consent; Enforceability.........................................A-19
Section 3.3 Books and Records...............................................................A-20
Section 3.4 Capitalization..................................................................A-20
Section 3.5 Financial Statements............................................................A-21
Section 3.6 No Undisclosed Liabilities......................................................A-21
Section 3.7 No Material Adverse Change......................................................A-22
Section 3.8 Absence of Certain Changes or Events............................................A-22
Section 3.9 Taxes...........................................................................A-23
Section 3.10 Accounts and Notes Receivable...................................................A-25
Section 3.11 Title to Properties; Encumbrances...............................................A-25
Section 3.12 Condition and Sufficiency of Assets.............................................A-26
Section 3.13 Intellectual Property...........................................................A-26
Section 3.14 Contracts; No Defaults..........................................................A-30
Section 3.15 Employees.......................................................................A-33
Section 3.16 Labor Relations; Compliance.....................................................A-34
Section 3.17 Employee Plans..................................................................A-34
Section 3.18 Compliance with Legal Requirements..............................................A-38
Section 3.19 Legal Proceedings; Orders.......................................................A-39
Section 3.20 Relationships with Related Persons..............................................A-40
Section 3.21 Accounts and Notes Payable......................................................A-40
Section 3.22 Certain Agreements..............................................................A-40
Section 3.23 Insurance.......................................................................A-40
Section 3.24 Bank Accounts...................................................................A-41
Section 3.25 Brokers or Finders..............................................................A-41
Section 3.26 Disclosure......................................................................A-41
A-2
TABLE OF CONTENTS
(continued)
PAGE
ARTICLE 4 ADDITIONAL REPRESENTATIONS OF THE Vanguard STOCKHOLDERS.................................A-41
Section 4.1 Title to Vanguard Capital Stock; No Agreements.................................A-41
Section 4.2 Organization, Good Standing and Power..........................................A-41
Section 4.3 Enforceability; Authority; No Conflict; No Consent.............................A-41
Section 4.4 Certain United States Laws.....................................................A-42
Section 4.5 Investment Representations.....................................................A-43
Section 4.6 Representation by Legal Counsel; Review of Agreement...........................A-45
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF TACT..................................................A-45
Section 5.1 Organization and Good Standing.................................................A-45
Section 5.2 Books and Records..............................................................A-45
Section 5.3 No Conflict; No Consent........................................................A-45
Section 5.4 Capitalization.................................................................A-46
Section 5.5 No Material Adverse Change.....................................................A-47
Section 5.6 Absence of Certain Changes or Events...........................................A-47
Section 5.7 Legal Proceedings; Orders......................................................A-48
Section 5.8 SEC Reports....................................................................A-49
Section 5.9 Brokers or Finders.............................................................A-49
ARTICLE 6 COVENANTS OF Vanguard PRIOR TO CLOSING DATE.............................................A-50
Section 6.1 Access and Investigation.......................................................A-50
Section 6.2 Required Approvals.............................................................A-50
Section 6.3 Business Operations of the Acquired Companies..................................A-50
Section 6.4 Negative Covenant..............................................................A-51
Section 6.5 Notification...................................................................A-51
Section 6.6 Payment of Indebtedness by Related Persons.....................................A-51
Section 6.7 Best Efforts...................................................................A-51
Section 6.8 Restriction on Transfer of Exchange Shares.....................................A-51
Section 6.9 Restrictions on Transfer of Transferred Vanguard Shares Prior to Closing.......A-53
ARTICLE 7 COVENANTS OF TACT PRIOR TO CLOSING DATE.................................................A-54
Section 7.1 Access and Investigation.......................................................A-54
Section 7.2 Required Approvals.............................................................A-54
Section 7.3 Business Operations of the Acquired Companies..................................A-54
Section 7.4 Negative Covenant..............................................................A-55
Section 7.5 Notification...................................................................A-55
Section 7.6 Payment of Indebtedness by Related Persons.....................................A-55
Section 7.7 No Solicitation by TACT........................................................A-55
Section 7.8 Shareholders' Meeting..........................................................A-57
Section 7.9 Best Efforts...................................................................A-57
Section 7.10 Registration Rights............................................................A-57
Section 7.11 Declaration and Payment of Dividend............................................A-58
A-3
TABLE OF CONTENTS
(continued)
PAGE
ARTICLE 8 ADDITIONAL COVENANTS....................................................................A-58
Section 8.1 Public Announcements...........................................................A-58
Section 8.2 Confidentiality................................................................A-58
Section 8.3 Board Membership...............................................................A-59
ARTICLE 9 CONDITIONS PRECEDENT TO TACT'S OBLIGATION TO CLOSE......................................A-59
Section 9.1 Accuracy of Representations....................................................A-59
Section 9.2 Vanguard Stockholders' Performance.............................................A-60
Section 9.3 Additional Documents...........................................................A-60
Section 9.4 Consummation of Other Transactions.............................................A-60
Section 9.5 No Proceedings.................................................................A-60
Section 9.6 No Material Adverse Effect.....................................................A-60
Section 9.7 Intentionally Omitted..........................................................A-61
Section 9.8 Castor.........................................................................A-61
ARTICLE 10 CONDITIONS PRECEDENT TO Vanguard STOCKHOLDERS' OBLIGATION TO CLOSE......................A-61
Section 10.1 Accuracy of Representations....................................................A-61
Section 10.2 TACT's Performance.............................................................A-61
Section 10.3 Additional Documents...........................................................A-61
Section 10.4 Consummation of Other Transactions.............................................A-62
Section 10.5 No Proceedings.................................................................A-62
Section 10.6 No Material Adverse Change.....................................................A-62
Section 10.7 Falcone Employment Agreement...................................................A-62
Section 10.8 Resignations...................................................................A-62
ARTICLE 11 INDEMNIFICATION; REMEDIES; LIMITS ON LIABILITY..........................................A-62
Section 11.1 Indemnification................................................................A-62
Section 11.2 Limitations on Indemnification.................................................A-65
Section 11.3 Set-Off Against Escrowed Shares................................................A-66
Section 11.4 Survival of Representations and Warranties.....................................A-67
Section 11.5 Claims.........................................................................A-67
Section 11.6 Limitation of Remedies as to Berenson..........................................A-67
ARTICLE 12 TERMINATION.............................................................................A-67
Section 12.1 Termination by Mutual Consent..................................................A-67
Section 12.2 Termination by the Authorized Representative or TACT...........................A-67
Section 12.3 Termination by TACT............................................................A-68
Section 12.4 Termination by the Authorized Representative...................................A-68
Section 12.5 Effect of Termination..........................................................A-69
Section 12.6 Extension; Waiver..............................................................A-70
A-4
TABLE OF CONTENTS
(continued)
PAGE
ARTICLE 13 MISCELLANEOUS PROVISIONS................................................................A-71
Section 13.1 Expenses.......................................................................A-71
Section 13.2 Notices........................................................................A-71
Section 13.3 Entire Agreement; Modifications................................................A-72
Section 13.4 Governing Law; Submission to Jurisdiction; Venue...............................A-73
Section 13.5 Assignment; Successors; No Third Party Rights..................................A-73
Section 13.6 Severability...................................................................A-73
Section 13.7 No Waiver......................................................................A-73
Section 13.8 Jurisdiction; Service of Process...............................................A-73
Section 13.9 Further Assurances.............................................................A-74
Section 13.10 Counterparts...................................................................A-74
EXHIBIT A LIST OF VANGUARD STOCKHOLDERS...........................................................A-76
EXHIBIT 10.7 FALCONE EMPLOYMENT AGREEMENT............................................................A-77
EXHIBIT B IRREVOCABLE POWER OF ATTORNEY AND CUSTODY AGREEMENT.....................................A-78
EXHIBIT C FORM OF STOCKHOLDER'S CERTIFICATE.......................................................A-85
EXHIBIT D FORM OF ESCROW AGREEMENT................................................................A-88
EXHIBIT E BOARD MEMBERS..........................................................................A-100
EXHIBIT 9.4(a) VANGUARD'S COUNSEL'S OPINION...........................................................A-101
EXHIBIT 10.4(a) TACT'S COUNSEL'S OPINION...............................................................A-102
A-5
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT is made as of January 21, 2005 among
Vanguard Info-Solutions Corporation, a corporation organized under the New
Jersey Corporations Act formerly known as B2B Solutions, Inc. ("Vanguard"), each
of the Vanguard Stockholders (as defined herein), T.V. Govindarajan in his
capacity as the representative of all of the Vanguard Stockholders (in such
capacity, the "Authorized Representative"), and The A Consulting Team, Inc., a
New York corporation ("TACT").
THE RECITALS
A. On the terms and conditions hereinafter provided, TACT desires
to acquire from the Vanguard Stockholders, and the Vanguard Stockholders desire
to transfer to TACT, 100% of the issued and outstanding capital stock, no par
value ("Vanguard Capital Stock"), of Vanguard (the "Transferred Vanguard
Shares") in exchange for an aggregate of 7,312,796 shares of common stock, $0.01
par value per share ("TACT Common Stock"), of TACT (the "Exchange Transaction"),
as such number may be subsequently adjusted pursuant to the terms of this
Agreement.
B. Oak Finance Investments Limited, a company formed under the
laws of the British Virgin Islands ("Oak"), has agreed to purchase,
simultaneously with the consummation of the Exchange Transaction, from the TACT
Stockholder and his spouse 1,024,697 shares of TACT Common Stock at a purchase
price of $10.25 per share, pursuant to an agreement dated as of the date hereof
between the TACT Stockholder and Oak (the "Shareholder Stock Purchase
Agreement"), which purchase has been approved by the board of directors of TACT.
C. Oak has agreed, simultaneously with the consummation of the
Exchange Transaction and for a period of 120 days thereafter, to purchase from
TACT up to 1,250,000 shares of TACT Common Stock pursuant to an agreement dated
as of the date hereof between Oak and TACT (the "TACT Stock Purchase
Agreement").
D. The Authorized Representative and each of the Vanguard
Stockholders have entered into an Irrevocable Power of Attorney and Custody
Agreement, a form of which is attached hereto as Exhibit B (the "Custody
Agreement") and, simultaneously with the execution and delivery hereof, each of
the Vanguard Stockholders has executed and delivered to TACT a Stockholder
Certificate, a form of which is attached hereto as Exhibit C (each, a
"Stockholder Certificate").
E. The Board of Directors of TACT has approved the Contemplated
Company Transactions and has, subject to the terms and conditions contained
herein, agreed to recommend to its shareholders that they approve the
Contemplated Company Transactions.
F. The approval of the shareholders of TACT is necessary to
consummate the Contemplated Company Transactions.
A-6
THE AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS AND USAGE
Section 1.1 Definitions. For purposes of this Agreement, the following
terms have the respective meanings set forth below:
"Agreement" means this Share Exchange Agreement, as amended
from time to time in accordance with the terms hereof.
"Applicable Contract" means any Contract (a) under which any
Vanguard Company has or may acquire any rights, (b) under which any
Vanguard Company has or may become subject to any obligation or
liability, or (c) by which any Vanguard Company or any assets owned or
used by it is or may become bound.
"Berenson" means Berenson Investments LLC.
"Best Efforts" means the efforts that a prudent Person
desirous of achieving a result would use in similar circumstances to
achieve that result as expeditiously as possible, provided, however,
that a Person required to use Best Efforts under this Agreement will
not thereby be required to take actions that would result in a material
adverse change in the benefits to such Person of this Agreement and the
Contemplated Company Transactions or to dispose of or make any material
change to its business, expend any material funds or incur any other
material burden.
"Breach" means any breach of, or any inaccuracy in, any
representation or warranty or any breach of, or failure to perform or
comply with, any covenant or obligation, in or of this Agreement or any
other Contract, or any event which with the passing of time or the
giving of notice, or both, would constitute such a breach, inaccuracy
or failure.
"Business Day" means any day except Saturday, Sunday or any
other day on which commercial banks located in New York, New York are
authorized by law to be closed for business.
"Castor" means Castor Finance Private Company Ltd., an Indian
corporation.
"Claim Notice" shall mean written notification that, as a
result of a claim made by any Indemnified Person under this Agreement,
the Company has incurred or reasonably expects to incur Losses for
which it is entitled to indemnification under the Share Exchange
Agreement, which written notification shall include (i) a description
of the Losses incurred or reasonably expected to be incurred by the
Indemnified Person and the amount of such Losses, to the extent then
known, and (ii) a statement that the Company is entitled to
indemnification for such Losses under the Share Exchange Agreement and
a reasonable explanation of the basis therefor.
A-7
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means U.S. Securities and Exchange Commission.
"Consent" means any approval, consent, ratification, waiver or
other authorization.
"Contemplated Company Transactions" means, collectively, the
transactions contemplated by the Exchange Agreement and the
transactions contemplated by the TACT Stock Purchase Agreement (other
than the transactions contemplated by the Shareholder Stock Purchase
Agreement).
"Contemplated Transactions" means the Contemplated Company
Transactions and the transactions contemplated by the Shareholder Stock
Purchase Agreement.
"Contract" means any agreement, contract, obligation, promise
or undertaking (whether written or oral and whether express or implied)
that is legally binding.
"Designated Equipment Leases" means the Master Lease
Agreement, dated March 25, 2004, between Vanguard and The
CIT/Group/Equipment Financing, Inc. ("CIT"), pursuant to which the
equipment set forth in Equipment Schedule 1, dated March 24, 2004, in
Equipment Schedule 2, dated June 23, 2004, and in Equipment Schedule 3,
dated June 23, 2004, has been leased to Vanguard, as any of such leases
may be amended from time to time, Vanguard having been discharged from
such leases on December 14, 2004.
"Disclosure Schedule" means a schedule delivered by one party
to the other party concurrently with the execution and delivery of this
Agreement, setting forth certain disclosure information arranged in
numbered Sections, each of which corresponds to a section of this
Agreement, and provides (1) additional disclosure in response to an
express disclosure requirement in such section or (2) an exception or
qualification to a representation or warranty contained in such
section.
"Employee Plan" means, with respect to an employer, all
"employee benefit plans" as defined by Section 3(3) of ERISA, all
specified fringe benefit plans as defined in Section 6039D of the Code,
and all other bonus, incentive compensation, deferred compensation,
profit sharing, stock option, stock appreciation right, stock bonus,
stock purchase, employee stock ownership, savings, severance, change in
control, supplemental unemployment, layoff, salary continuation,
retirement, pension, health, life insurance, disability, accident,
group insurance, vacation, holiday, sick leave, fringe benefit or
welfare plan, and any other employee compensation or benefit plan,
agreement, policy, practice, commitment, contract or understanding
(whether qualified or nonqualified, currently effective or terminated,
written or unwritten) and any trust, escrow or other agreement related
thereto that (i) is maintained or contributed to by any such employer
or any ERISA Affiliate or has been maintained or contributed to in the
last six (6) years by any such employer or any ERISA Affiliate, or with
respect to which any such employer or any ERISA Affiliate has or may
have any liability, and (ii) provides benefits, or describes policies
or procedures applicable to any current or former director, officer,
employee or service provider of any such employer or any ERISA
Affiliate, or the dependents of any thereof, regardless of how (or
whether) liabilities for the provision of benefits are accrued or
assets are acquired or dedicated with respect to the funding thereof.
A-8
"Encumbrance" means any charge, claim, community or other
marital property interest, condition, equitable interest, Lien,
guarantee, option, pledge, security interest, mortgage, right of way,
easement, encroachment, servitude, right of first option, right of
first refusal or similar restriction, including any restriction on use,
voting (in the case of security or equity interests), transfer, receipt
of income or exercise of any other attribute of ownership.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA Affiliate" means, with respect to an employer, any
other corporation or trade or business controlled by, controlling or
under common control with such employer (within the meaning of Section
414, Section 4001(a)(14) or Section 4001(b) of ERISA).
"Escrow Agent" means the escrow agent named in the Escrow
Agreement.
"Escrow Agreement" means the Escrow Agreement, to be dated the
Closing Date, substantially in the form of Exhibit D, among TACT, the
Authorized Representative and the Escrow Agent.
"Escrow Shares" means those of the Exchange Shares delivered
by TACT to the Escrow Agent pursuant to Section 2.1 that are to be held
by the Escrow Agent under the Escrow Agreement.
"Excalibur" means Excalibur Investment Group Limited, a
British Virgin Islands company.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Ratio" means the number of shares of TACT Common
Stock to be issued in exchange for each share of Vanguard Capital
Stock, which shall be 731.2796:1.
"Exchange Shares" means those shares of TACT Common Stock to
be issued to the Vanguard Stockholders in exchange for the Transferred
Vanguard Shares.
"Facilities" means any real property, leasehold or other
interest in real property currently owned or operated by Vanguard,
including the tangible personal property used or operated by Vanguard
at the respective locations of the real property specified in Section
3.11.
A-9
"GAAP" means United States generally accepted accounting
principles applied on a consistent basis.
"Governmental Authorization" means any Consent, license,
registration or permit issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"Governmental Body" means any (i) nation, state, county, city,
town, borough, village, district or other jurisdiction; (ii) federal,
state, local, municipal, foreign or other government; (iii)
governmental or quasi-governmental authority of any nature (including
any agency, branch, department, board, commission, court, tribunal or
other entity exercising governmental or quasi-governmental powers);
(iv) multinational organization or body; (v) body exercising, or
entitled or purporting to exercise, any administrative, executive,
judicial, legislative, police, regulatory or taxing authority or power;
or (vi) any official of any of the foregoing.
"IRS" means the United States Internal Revenue Service and, to
the extent relevant, the United States Department of the Treasury.
"Knowledge" means, with respect to a particular fact or other
matter:
(i) in the case of an individual, either that
individual is actually aware of that fact or matter, or a
prudent individual could be expected to discover or otherwise
become aware of that fact or matter in the course of
conducting a reasonably comprehensive investigation regarding
the accuracy of any representation or warranty contained in
this Agreement;
(ii) in the case of a Person (other than an
individual), any individual who is serving, or who has at any
time served, as a director, officer, executor or trustee of
that Person (or in any similar capacity) has, or at any time
had, Knowledge of that fact or other matter (as set forth in
clause (i) above); and
(iii) any such individual (referred to in clause (ii)
above) and any individual party to this Agreement will be
deemed to have conducted a reasonably comprehensive
investigation regarding the accuracy of any representation or
warranty made herein by that Person or individual;
provided, that the "Knowledge of the Vanguard Stockholders" excludes
any knowledge of Berenson.
"Legal Requirement" means any federal, state, local,
municipal, foreign, international, multinational or other constitution,
law, ordinance, principle of common law, code, regulation, rule, Order,
Governmental Authorization, statute or treaty, including any rule or
regulation of the Nasdaq Smallcap Market, and further including the
Sarbanes Oxley Act of 2002.
A-10
"Liability" means, with respect to any Person, any liability
or obligation of such Person of any kind, character or description,
whether known or unknown, absolute or contingent, accrued or unaccrued,
disputed or undisputed, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested,
executory, determined, determinable or otherwise, and whether or not
the same is required to be accrued on the financial statements of such
Person.
"Lien" means, with respect to any asset, any deed of trust
mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect of that asset.
"Material Adverse Effect" means a material adverse effect on
the business, condition (financial or otherwise), assets, properties,
operations, results of operations, prospects, affairs or Liabilities of
the relevant Organization and its Subsidiaries taken as a whole.
"Order" means any order, injunction, judgment, decree, ruling,
assessment or arbitration award of any Governmental Body, arbitrator or
NASDAQ, Inc. (including without limitation any notice or letter
threatening or warning of possible delisting of the TACT Common Stock).
"Ordinary Course of Business" means, with respect to any
action, the action taken by a Person only if that action:
(i) is consistent in nature, scope and magnitude with
the past practices of such Person and is taken in the ordinary
course of the normal, day-to-day operations of such Person;
(ii) does not require authorization by the board of
directors or stockholders of such Person (or by any Person or
group of Persons exercising similar authority); and
(iii) is similar in nature, scope and magnitude to
actions customarily taken in the ordinary course of the
normal, day-to-day operations of other Persons that are in the
same line of business as such Person.
"Organization" shall be construed as broadly as possible and
shall include any entity, including a corporation (either non-profit or
other), partnership (either limited or general), joint venture, joint
stock company, limited liability company, trust, estate or other
unincorporated association, whether or not a legal entity.
"Organizational Documents" means (a) the articles or
certificate of incorporation and the bylaws of a corporation; (b) the
partnership agreement and any statement of partnership of a general
partnership; (c) the limited partnership agreement and the certificate
of limited partnership of a limited partnership; (d) the articles of
organization or certificate of formation and any operating or limited
liability company agreement of a limited liability company; (e) any
charter or similar document adopted or filed in connection with the
creation, formation, or organization of a Person, and (f) any amendment
to any of the foregoing.
A-11
"Person" means an individual or natural person or an
Organization.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or informal,
whether public or private) commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Related Person" means:
(a) with respect to a particular individual, (i) each
other member of such individual's Family; (ii) any Person that is
directly or indirectly controlled by any one or more members of such
individual's Family; (iii) any Person in which members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and (iv) any Person with respect to which one or more members
of such individual's Family serves as a director, officer, partner,
executor or trustee (or in a similar capacity); and
(b) with respect to a specified Person other than an
individual, (i) any Person that directly or indirectly controls, is
directly or indirectly controlled by or is directly or indirectly under
common control with such specified Person; (ii) any Person that holds a
Material Interest in such specified Person; (iii) each Person that
serves as a director, officer, partner, executor or trustee of such
specified Person (or in a similar capacity); (iv) any Person in which
such specified Person holds a Material Interest; and (v) any Person
with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity).
For purposes of this definition:
(i) "control" (including "controlling," "controlled
by," and "under common control with") means the possession,
direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or
otherwise, and shall be construed as such term is used in the
rules promulgated under the Securities Act;
(ii) the "Family" of an individual includes (i) the
individual, (ii) the individual's spouse, (iii) any other
natural Person who is related to the individual or the
individual's spouse within the second degree and (iv) any
other natural Person who resides with such individual; and
(iii) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding
voting power of a Person or equity securities or other equity
interests representing at least ten percent (10%) of the
outstanding equity securities or equity interests in a Person.
"Representative" means, with respect to a Person, any
director, officer, manager, employee, agent, consultant, advisor,
accountant, financial advisor, legal counsel or other representative of
that Person.
A-12
"SEC Reports" means all forms, reports, schedules, statements
and other documents, and amendments thereto, required to be filed by
TACT under the Exchange Act.
"Securities Act" means the Securities Act of 1933.
"Subsidiary" means, with respect to an Organization (the
"Owner"), any Organization of which securities or other interests
having the power to elect a majority of that Organization's board of
directors or similar governing body, or otherwise having the power to
direct the business and policies of that Organization (other than
securities or other interests having such power only upon the happening
of a contingency that has not occurred) are held by the Owner or one or
more of its Subsidiaries; when used without reference to a particular
Person, "Subsidiary" means a Subsidiary of TACT.
"TACT Disclosure Schedule" means the Disclosure Schedule
delivered by TACT hereunder.
"TACT Stockholder" means Shmuel BenTov, an individual resident
of the State of New York.
"Tax" or "Taxes" means any income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental, windfall profit, customs, vehicle, airplane,
boat, vessel or other title or registration, capital stock, franchise,
employees' income withholding, foreign or domestic withholding, social
security, unemployment, disability, real property, personal property,
sales, use, transfer, value added, alternative, add-on minimum and
other tax, fee, assessment, levy, tariff, charge or duty of any kind
whatsoever and any interest, penalty, addition or additional amount
thereon imposed, assessed or collected by or under the authority of any
Governmental Body or payable under any tax-sharing agreement or any
other Contract.
"Tax Return" means any return (including any information
return), report, statement, schedule, notice, form, declaration, claim
for refund or other document or information filed with or submitted to,
or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of
any Tax or in connection with the administration, implementation or
enforcement of or compliance with any Legal Requirement relating to any
Tax.
"Third Party" means any Person who is not a party to this
Agreement.
"Vanguard Companies" means Vanguard and the Vanguard
Subsidiaries, collectively; individually, each a "Vanguard Company."
"Vanguard Disclosure Schedule" means the Disclosure Schedule
delivered by Vanguard hereunder.
"Vanguard Stockholders" means all of the holders of capital
stock of Vanguard.
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"Vanguard Subsidiary" means each Organization that is a
Subsidiary of Vanguard.
Section 1.2 Other Defined Terms. For purposes of this Agreement, the
following terms have the respective meanings set forth in the section and at the
page referred to opposite each such term:
....................................................... ................................ .................
Defined Term Section Page
....................................................... ................................ .................
AAA Rules Section 11.1(d) 57
....................................................... ................................ .................
Accounts Receivable Section 3.10 19
....................................................... ................................ .................
Aggregate Claim Threshold Section 11.2(a) 59
....................................................... ................................ .................
Aggregate Loss Limit Section 11.2(a) 59
....................................................... ................................ .................
Audited 2003 Financial Statements Section 3.5 15
....................................................... ................................ .................
CIT Section 1.1 2
....................................................... ................................ .................
Claim Notice Section 11.1(c) 57
....................................................... ................................ .................
Closing Section 2.3 11
....................................................... ................................ .................
Closing Date Section 2.3 11
....................................................... ................................ .................
COBRA Section 3.17(g) 30
....................................................... ................................ .................
Company Acquisition Proposal Section 7.7(a) 49
....................................................... ................................ .................
Competing Business Section 3.20 34
....................................................... ................................ .................
Confirming Audited Financial Statements Section 6.7 45
....................................................... ................................ .................
Copyrights Section 3.13(a)(iv) 21
....................................................... ................................ .................
Defined Benefit Plan Section 11.1(c) 57
....................................................... ................................ .................
Dividend Section 7.11
....................................................... ................................ .................
Good Faith Negotiation Period Section 11.1(c) 57
....................................................... ................................ .................
Historical Financial Statements Section 3.5 15
....................................................... ................................ .................
Indemnified Person(s) Section 11.1(c) 57
....................................................... ................................ .................
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....................................................... ................................ .................
Defined Term Section Page
....................................................... ................................ .................
Indemnifying Person(s) Section 11.1(c) 57
....................................................... ................................ .................
Individual Claim Threshold Section 11.2(a) 59
....................................................... ................................ .................
Intellectual Property Assets Section 3.13(a) 20
....................................................... ................................ .................
Interim Balance Sheet Section 3.5 15
....................................................... ................................ .................
Interim Financial Statements Section 3.5 15
....................................................... ................................ .................
Losses Section 11.1(a) 56
....................................................... ................................ .................
Marks Section 3.13(a) 20
....................................................... ................................ .................
Net Names Section 3.13(a)(iv) 21
....................................................... ................................ .................
Oak Recitals
....................................................... ................................ .................
Owner Section 1.1 1
....................................................... ................................ .................
PBGC Section 3.17(c) 29
....................................................... ................................ .................
Patents Section 3.13(a)(ii) 21
....................................................... ................................ .................
Shareholders' Meeting Section 7.8 51
....................................................... ................................ .................
Superior Proposal Section 7.7(a) 49
....................................................... ................................ .................
Survival Date Section 11.3 60
....................................................... ................................ .................
TACT Heading
....................................................... ................................ .................
TACT's Advisors Section 6.1 44
....................................................... ................................ .................
TACT Common Stock Recitals
....................................................... ................................ .................
TACT Indemnified Person(s) Section 11.1(a) 56
....................................................... ................................ .................
TACT Stock Purchase Agreement Recitals
....................................................... ................................ .................
TACT Termination Amount Section 12.5(a) 63
....................................................... ................................ .................
Vanguard Stockholders' Closing Documents Section 4.3(a) 35
....................................................... ................................ .................
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Section 1.3 Usage.
(a) Interpretation. In this Agreement, unless a clear contrary
intention appears:
(i) a reference herein to days shall mean calendar
days unless otherwise specified. Any day or deadline or end of
a time period hereunder which falls on a day other than a
Business Day shall be deemed to refer to the first Business
Day following such day or deadline or end of the time period,
as the case may be;
(ii) a reference in this Agreement to an article,
section, exhibit or schedule shall mean an article or section
of, or exhibit or schedule attached to, this Agreement, as the
case may be. Article and section headings in this Agreement
are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement;
(iii) a reference to any Legal Requirement means such
Legal Requirement as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to
time, including rules and regulations promulgated thereunder,
and reference to any section or other provision of any Legal
Requirement means that provision of such Legal Requirement
from time to time in effect and constituting the substantive
amendment, modification, codification, replacement or
reenactment of such section or other provision;
(iv) the word "including" means without limitation;
the word "or" is not exclusive and is used in the inclusive
sense of "and/or"; and the words "herein," "hereof," "hereby,"
"hereto" and "hereunder" refer to this Agreement as a whole;
(v) a reference to document, instrument or agreement
shall be deemed to refer as well to all addenda, exhibits,
schedules or amendments thereto; and
(vi) all words used in this Agreement will be
construed to be of such gender or number as the circumstances
require.
(b) Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted and all
accounting determinations hereunder shall be made in accordance with GAAP.
(c) Legal Representation of the Parties. This Agreement was
negotiated by the parties with the benefit of legal representation, and any rule
of construction or interpretation otherwise requiring this Agreement to be
construed or interpreted against a party shall not apply to any construction or
interpretation hereof.
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ARTICLE 2
CONSUMMATION OF THE EXCHANGE TRANSACTION
Section 2.1 The Exchange Transaction. The Authorized Representative
hereby agrees, with respect to the Vanguard Capital Stock he holds in the amount
set forth next to his name on Exhibit A hereto and for and on behalf of each of
the other Vanguard Stockholders with respect to the Vanguard Common Stock each
of them holds in the amounts set forth next to their names on Exhibit A hereto,
by the powers granted to him in the Custody Agreement, to assign, transfer and
deliver to TACT, all of the Transferred Vanguard Shares, and TACT agrees to
acquire such Transferred Vanguard Shares by issuing and delivering to the
Vanguard Stockholders or their designees in exchange therefor 6,312,796 of the
Exchange Shares and delivering 1,000,000 of the Exchange Shares to the Escrow
Agent to be held pursuant to the terms and conditions of the Escrow Agreement.
Section 2.2 Issuance of Exchange Shares. Based on the Exchange Ratio,
as a result of the Closing, each Vanguard Stockholder is entitled to receive, in
exchange for his or its portion of the Transferred Vanguard Shares, that number
of Exchange Shares that is set forth opposite such Vanguard Stockholder's name
on Exhibit A hereto (assuming that none of the Escrow Shares are returned to
TACT for cancellation in accordance with Section 3 of the Escrow Agreement).
Section 2.3 Closing. The closing of the Exchange Transaction (the
"Closing") provided for in this Agreement will take place (a) at the offices of
McGuireWoods LLP, 1345 Avenue of the Americas, 7th Floor, New York, NY 10105, at
10:00 a.m. (local time) on the third Business Day following the date on which
the last of the conditions set forth in ARTICLE 9 and ARTICLE 10 have been
satisfied or waived by the party entitled to waive the same, or (b) at such
other time, place and date (if any) to which the parties may mutually agree (the
"Closing Date").
Section 2.4 Closing Obligations. At the Closing:
(a) The Authorized Representative will deliver to TACT:
(i) certificates representing the Vanguard Capital
Stock, duly endorsed (or accompanied by duly executed stock
powers), with signatures guaranteed by a commercial bank or
trust company or by a member firm of a national securities
exchange, in proper form for transfer to TACT with all
required stock transfer stamps affixed or provided for;
(ii) a certificate executed by the Chief Executive
Officer or President of Vanguard representing and warranting
to TACT that each of the representations and warranties of
Vanguard and its Subsidiaries in this Agreement was accurate
in all material respects as of the date of this Agreement and
is accurate in all material respects as of the Closing Date as
if made on the Closing Date (giving full effect to any
supplements to the Vanguard Disclosure Schedule that were
delivered by Vanguard to TACT prior to the Closing Date in
accordance with Section 6.5); provided, that any
representation or warranty that is qualified by materiality by
its terms shall be accurate in all respects as of the date of
this Agreement and as of the Closing Date;
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(iii) duly executed counterparts of any report,
schedule or filing required to be filed with the SEC by any
Vanguard Stockholder in connection with the Exchange
Transaction or the other Contemplated Company Transactions;
and
(iv) duly executed counterparts of the Escrow
Agreement.
(b) TACT will deliver to Vanguard Stockholders:
(i) 6,312,796 of the Exchange Shares;
(ii) a certificate executed by the Chief Executive
Officer or President of TACT to the effect that each of TACT's
representations and warranties in this Agreement was accurate
in all material respects as of the date of this Agreement and
is accurate in all material respects as of the Closing Date as
if made on the Closing Date, (giving full effect to any
supplements to the TACT Disclosure Schedule that were
delivered by TACT to Vanguard prior to the Closing Date, in
accordance with Section 7.5); provided, that any
representation or warranty that is qualified by materiality by
its terms shall be accurate in all respects as of the date of
this Agreement and as of the Closing Date; and
(iii) duly executed counterparts of the Escrow
Agreement.
(c) Vanguard will deliver to the Vanguard Stockholders and
TACT a written statement signed by an officer of Vanguard, dated as of the
Closing Date, to the effect that (a) the Transferred Vanguard Shares do not
constitute a "U.S. real property interest" within the meaning of Section 897 of
the Code and (b) Vanguard has filed a notice with the IRS to such effect (in
compliance with Treas. Reg. ss. 1.897-2(h)(2)).
(d) TACT will deliver 1,000,000 shares to the Escrow Agent.
(e) TACT, Vanguard and the Vanguard Stockholders will each pay
its respective fees and expenses as provided in Section 13.1.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VANGUARD STOCKHOLDERS
The Vanguard Stockholders (other than Berenson) represent and warrant
to TACT as follows:
Section 3.1 Organization and Good Standing.
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(a) Item 3.1(a) of the Vanguard Disclosure Schedule contains a
complete and accurate list for each Vanguard Company of its name, its
jurisdiction of incorporation, other jurisdictions in which it is authorized to
do business, and its capitalization (including the identity of each stockholder
and the number of shares held by each). Each Vanguard Company is a corporation
or other business entity having a separate legal identity from the owners of its
equity securities, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, has all
requisite corporate power and authority to conduct its business as it is now
being conducted, and as proposed to be conducted to own or use the properties
and assets that it purports to own or use, and to perform all of its obligations
under Applicable Contracts. Each Vanguard Company is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to qualify would not have
a Material Adverse Effect.
(b) Vanguard has delivered to TACT true and complete copies of
the Organizational Documents of each Vanguard Company as currently in effect.
Section 3.2 No Conflict; No Consent; Enforceability.
(a) Except as set forth in Item 3.2(a) of the Vanguard
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time or both):
(i) Breach (A) any provision of the Organizational
Documents of the Vanguard Companies, or (B) any resolution
adopted by the board of directors or the shareholders of any
Vanguard Company;
(ii) Breach or give any Governmental Body or other
Person the right to challenge any of the Contemplated Company
Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any
Vanguard Company or any Vanguard Stockholder, or any of the
assets owned or used by any Vanguard Company, may be subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by any Vanguard Company or that otherwise relates
to the business of, or any of the assets owned or used by, any
Vanguard Company;
(iv) cause any Vanguard Company to become subject to,
or to become liable for the payment of, any Tax;
(v) cause any of the assets owned by any Vanguard
Company to be reassessed or revalued by any taxing authority
or other Governmental Body;
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(vi) Breach, conflict with or result in any material
violation of any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by any Vanguard Company.
(b) Except as set forth in Item 3.2(b) of the Vanguard
Disclosure Schedule, no Vanguard Company is or will be required to give any
notice to or obtain any Consent from any Person or Governmental Body in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
(c) This Agreement constitutes the legal, valid and binding
obligation of Vanguard, enforceable against it in accordance with its terms.
Upon the execution and delivery of the Escrow Agreement and each other agreement
to be executed and delivered by Vanguard at the Closing, each of such agreements
will constitute the legal, valid and binding obligation of Vanguard, enforceable
against it in accordance with their respective terms. Vanguard has the absolute
and unrestricted right, power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement, and such action
has been duly authorized by all necessary action by Vanguard's stockholders and
board of directors.
Section 3.3 Books and Records. The books of account, minute books,
stock record books and other records of the Vanguard Companies, all of which
have been made available to TACT, are complete and correct and have been
maintained in accordance with sound business practices and the requirements of
Section 13(b)(2) of the Exchange Act (regardless of whether the Vanguard
Companies are subject to that provision), including the maintenance of an
adequate system of internal controls. The minute books of the Vanguard Companies
contain accurate and complete records of all meetings held of, and corporate
actions taken by, the stockholders, the boards of directors and committees of
the board of directors of the Vanguard Companies. At the Closing, all of those
books and records will be in the possession of the Vanguard Companies.
Section 3.4 Capitalization.
(a) The authorized capital stock of Vanguard consists of
10,000 shares of common stock, without par value, 1,000 of which have been
designated Series A Voting Stock, all of which are issued and outstanding, and
9,000 of which have been designated Series B Non-Voting Stock, all of which are
issued and outstanding, and together, such shares constitute the Vanguard
Capital Stock. The Vanguard Stockholders are and will be on the Closing Date the
record and beneficial owners and holders of all of the issued and outstanding
Vanguard Capital Stock as set forth in Exhibit A, free and clear of all
Encumbrances. With the exception of the Vanguard Capital Stock (which is owned
by the Vanguard Stockholders), except as set forth in Item 3.4(a) of the
Vanguard Disclosure Schedule, all of the outstanding capital stock and other
securities of each Vanguard Company are owned of record and beneficially by one
or more Vanguard Companies, free and clear of all Encumbrances. No legend or
other reference to any purported Encumbrance appears on any certificate
representing capital stock of any Vanguard Company.
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(b) All of the outstanding shares of capital stock of each
Vanguard Company have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth in Item 3.4(b) of the Vanguard Disclosure
Schedule, there are no Contracts relating to the issuance, sale, transfer or
voting of any capital stock or other securities of any Vanguard Company. None of
the outstanding equity securities or other securities of any Vanguard Company
was issued in violation of the Securities Act or any other Legal Requirement.
(c) No Vanguard Company owns, or has any right or Contract to
acquire, any capital stock or other securities of any Person (other than
Vanguard Companies) or any direct or indirect equity or ownership interest in
any other business.
(d) Castor has no material assets other than the 4,892,900
shares of Vanguard Info-Solutions Ltd. registered in its name.
Section 3.5 Financial Statements. The Vanguard Stockholders have
delivered to TACT: (a) an audited consolidated balance sheet of the Vanguard
Companies as at December 31, 2001, 2002 and 2003 and the related audited
consolidated statements of income, changes in stockholders' equity, and cash
flow for the fiscal years then ended (including the notes thereto, the "Year-End
Financial Statements"), together with the report thereon of Mercadian, PC (the
"Certifying Accountants"), independent certified public accountants, and (b) an
audited consolidated balance sheet of the Vanguard Companies as at July 31, 2004
(the "Interim Balance Sheet") and the related audited consolidated statements of
income, changes in stockholders' equity and cash flow for the seven months then
ended, and the related consolidating financial statements for the seven months
then ended, including the notes thereto, together with the report of the
Certifying Accountants (the "Interim Financial Statements"). The Year-End
Financial Statements and the Interim Financial Statements (collectively, the
"Historical Financial Statements") fairly present the financial condition and
the results of operations, changes in stockholders' equity, and cash flows of
the Vanguard Companies as at the respective dates of and for the periods
referred to in such financial statements, all in accordance with GAAP. The
Historical Financial Statements reflect consistent application of such
accounting principles throughout the periods involved, except as disclosed in
the notes to such financial statements. The Historical Financial Statements have
been prepared from and are in accordance with the accounting books and records
of the Vanguard Companies. Vanguard has also delivered to TACT copies of all
letters to Vanguard's board of directors or the audit committee thereof during
the thirty-six months preceding the execution of this Agreement, together with
copies of all responses thereto, from the Certifying Accountants and any other
independent public accountants engaged by Vanguard. No financial statements of
any Person other than the Vanguard Companies are required by GAAP to be included
in the consolidated financial statements of TACT.
Section 3.6 No Undisclosed Liabilities. Except as set forth in Item 3.6
of the Vanguard Disclosure Schedule, the Vanguard Companies have no Liability
except for Liabilities reflected or reserved against the Interim Balance Sheet
and current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof. There were no material loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March, 1975 ("FAS No. 5")) which were
not adequately provided for on the Interim Balance Sheet, respectively, as
required by FAS No. 5, with the result that the Interim Balance Sheet, as the
case may be, did not fairly present the financial condition of the Vanguard
Companies in accordance with GAAP at the respective dates thereof. Castor has no
material Liabilities.
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Section 3.7 No Material Adverse Change. Except as set forth in Item
3.7 of the Vanguard Disclosure Schedule, since the date of the Interim Balance
Sheet, there has not been any material adverse change in the business, condition
(financial or otherwise), assets, properties, operations, results of operations,
prospects, affairs or Liabilities of any Vanguard Company, and no event has
occurred or circumstance exists that may result in such a Material Adverse
Effect.
Section 3.8 Absence of Certain Changes or Events. Except as
set forth in Item 3.8 of the Vanguard Disclosure Schedule, since the date of the
Interim Balance Sheet, the Vanguard Companies have conducted their businesses
only in the Ordinary Course of Business and there has not been any:
(a) change in any Vanguard Company's authorized or issued
capital stock or debt securities; grant of any stock option or right to purchase
shares of capital stock of any Vanguard Company; issuance of any security
convertible into capital stock of any Vanguard Company or any debt security;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by any Vanguard Company of any shares of any such capital stock; or
declaration of payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment or change to the Organizational Documents of any
Vanguard Company;
(c) payment or increase by any Vanguard Company of any
bonuses, salaries, or other compensation to any stockholder, director, officer,
or (except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, severance, savings,
insurance, pension, retirement, or other employee benefit plan for or with any
employees of any Vanguard Company;
(e) damage to or destruction or loss of any asset or property
of any Vanguard Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition, or
prospects of the Vanguard Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any customer, license, distributorship, dealer, sales
representative, joint venture, credit, or other similar agreement, or (ii) any
Contract or transaction involving a total remaining commitment by or to any
Vanguard Company of at least $50,000;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of any
Vanguard Company or mortgage, pledge, or imposition of any lien or other
Encumbrance on any material asset or property of any Vanguard Company, including
the sale, lease, or other disposition of any of the Intellectual Property
Assets;
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(h) cancellation or waiver of any claims or rights with a
value to any Vanguard Company in excess of $50,000;
(i) except as required by GAAP, a revaluation of any of the
assets or material change in the accounting methods, principles or practices
used by any Vanguard Company or any change in depreciation or amortization
policies or rates theretofore adopted;
(j) creation, assumption, guarantee or incurrence of any
Liability equal to or in excess of $50,000, individually or in the aggregate;
(k) payment, discharge or satisfaction of any Encumbrance or
Liability or any cancellation of any material debts or claims or any amendment,
termination or waiver of any rights of material value;
(l) premature termination of, or written indication of an
intention to prematurely terminate or not renew, any material contract, license,
commitment or other Contract;
(m) making of any loan, advance or capital contribution to or
investment in any Person or the engagement in any transaction with any employee,
officer, director or securityholder of any Vanguard Company, other than advances
to employees in the Ordinary Course of Business for travel and similar business
expenses;
(n) any change in the manner in which any Vanguard Company
extends discounts or credit to customers or otherwise deals with customers;
(o) any termination of employment of any officer or employee
or any expression of intention by any officer or employee to resign from such
office or employment;
(p) any labor dispute or any union organizing campaign;
(q) the filing or other commencement of any litigation or
other Proceeding by or against any Vanguard Company before any Governmental
Body; or
(r) any agreement, understanding, authorization or proposal,
whether in writing or otherwise, for any Vanguard Company to take any of the
actions specified in items (a) through (q) above.
Section 3.9 Taxes.
(a) The Vanguard Companies have filed or caused to be filed on
a timely basis all Tax Returns that are or were required to be filed by or with
respect to any of them, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements. Vanguard has delivered
to TACT copies of, and Item 3.9(a) of the Vanguard Disclosure Schedule contains
a complete and accurate list of, all such Tax Returns filed since January 1,
2001. The Vanguard Companies have paid, or made provision for the payment of,
all Taxes that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by any Vanguard Company,
except such Taxes, if any, as are listed in Item 3.9(a) of the Vanguard
Disclosure Schedule and are being contested in good faith and as to which
adequate reserves have been provided in the Interim Balance Sheet.
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(b) The charges, accruals, and reserves with respect to Taxes
on the respective books of each Vanguard Company are adequate and are at least
equal to that Vanguard Company's liability for Taxes (including Taxes for which
Tax Returns are not yet required to be filed). There exists no proposed tax
assessment against any Vanguard Company except as disclosed in the Interim
Balance Sheet or in Item 3.9(b) of the Vanguard Disclosure Schedule.
(c) No Vanguard Company is a party to any agreement extending
the time within which to file any Tax Return. Except as described in Item 3.9(c)
of the Vanguard Disclosure Schedule, no Vanguard Stockholder or Vanguard Company
has given or been requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of any Vanguard Company or for
which any Vanguard Company may be liable.
(d) No Vanguard Company has Knowledge that any claim has been
made by any state or governmental jurisdiction in which any Vanguard Company has
not filed Tax Returns that such Vanguard Company is or may be subject to
taxation by, or is or may be liable for Taxes due to, such state or governmental
jurisdiction.
(e) All Taxes that any Vanguard Company is or was required by
Legal Requirements to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Body or
other Person.
(f) The United States federal and state income Tax Returns of
each Vanguard Company subject to such Taxes are closed by the applicable statute
of limitations for all taxable years through December 31, 2000. Item 3.9(f) of
the Vanguard Disclosure Schedule contains a complete and accurate list of all
audits of all Tax Returns not closed by the applicable statute of limitations,
including a reasonably detailed description of the nature and outcome of each
audit (if the audit has been concluded). All deficiencies proposed as a result
of such audits have been paid, reserved against, settled, or, as described in
Item 3.9(f)of the Vanguard Disclosure Schedule, are being contested in good
faith by appropriate proceedings.
(g) All Tax Returns filed by (or that include on a
consolidated basis) any Vanguard Company are true, correct, and complete. There
is no tax sharing agreement that will require any payment by any Vanguard
Company (to a Person other than another Vanguard Company) after the date of this
Agreement.
(h) No Vanguard Company is an S corporation or a "qualified
subchapter S subsidiary" within the meaning of Code Section 1361(b)(3)(B). For
each of 2001, 2002 and 2003, Vanguard was a validly electing S corporation
within the meaning of Code Section 1361 and 1362 (and applicable provisions of
state law in each jurisdiction in which Vanguard is subject to Tax).
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(i) No withholding is required by TACT under Section 1445 of
the Code in connection with the Contemplated Transactions.
(j) No Vanguard Company is liable for the Taxes of another
Person (other than another Vanguard Company) under (a) Treas. Reg. ss.1.1502-6
(or comparable provisions of state, local or foreign Law), (b) as a transferee
or successor, or (c) by contract, indemnity or otherwise. No Vanguard Company
has made any payments, is obligated to make payments or is a party to an
agreement that could obligate it to make any payments that would not be
deductible under Section 280G of the Code. No Vanguard Company will be required
to include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing as a
result of any (i) change in method of accounting for a taxable period ending on
or prior to the Closing under Section 481(c) of the Code (or any corresponding
or similar provision of state, local or foreign income Tax law); (ii) "closing
agreement" as described in ss.7121 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax law); or (iii) installment sale
made prior to the Closing.
Section 3.10 Accounts and Notes Receivable. All trade accounts
receivable and other rights to payment from customers of the Vanguard Companies,
including the full benefit of all security for such accounts or rights to
payment, together with all other accounts or notes receivable of the Vanguard
Companies and the full benefit of all security for such accounts or notes, as
well as any claim, remedy or other right related to any of the foregoing, that
are reflected on the Interim Balance Sheet or on the accounting records of the
Vanguard Companies as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
Except to the extent paid prior to the Closing Date, such Accounts Receivable
are or will be as of the Closing Date current and collectible net of the
respective reserves shown on the Interim Balance Sheet (which reserves are
adequate and calculated consistent with past practice). There is no contest,
claim, defense or right of setoff, other than returns in the Ordinary Course of
Business of the Vanguard Companies under any Contract with any account debtor of
an Account Receivable relating to the amount or validity of such Account
Receivable.
Section 3.11 Title to Properties; Encumbrances.
(a) Item 3.11(a) of the Vanguard Disclosure Schedule contains
a complete and accurate list of all real property, leaseholds, or other interest
in real property owned by any Vanguard Company. Vanguard has made available for
inspection by TACT and its counsel complete copies of each real property lease
to which any Vanguard Company is a party. The Vanguard Companies are in
compliance with all material terms of each such real property lease, and to the
Knowledge of the Vanguard Companies, there exists no default or event which,
with notice or the passage of time, would constitute an event of default
thereunder.
(b) Vanguard has delivered or made available to TACT copies of
the deeds and other instruments (as recorded) by which the Vanguard Companies
own or lease real property and interests, and copies of all title insurance
policies, opinions, abstracts, and surveys in the possession of the Vanguard
Companies and relating to such real property or interests. Except as set forth
in Item 3.11(b) of the Vanguard Disclosure Schedule, the Vanguard Companies own
(with good and marketable title in the case of real property, subject only to
the matters permitted by the following sentence) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that they
purport to own, including all of the properties and assets reflected in the
Interim Balance Sheet (except for personal property sold since the date of the
Interim Balance Sheet, as the case may be, in the Ordinary Course of Business),
and all of the properties and assets purchased or otherwise acquired by the
Vanguard Companies since the date of the Interim Balance Sheet (except for
personal property of the Vanguard Companies sold since the date of the Interim
Balance Sheet in the Ordinary Course of Business and consistent with past
practice), which subsequently purchased properties and assets (other than
inventory and short-term investments) are listed in Item 3.11(b) of the Vanguard
Disclosure Schedule.
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(c) All material properties and assets reflected in the
Interim Balance Sheet are owned free and clear of all Encumbrances and are not,
in the case of real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations, or limitations of any nature
except, with respect to all such properties and assets, (a) mortgages or
security interests shown on the Interim Balance Sheet or in Item 3.11(b) of the
Vanguard Disclosure Schedule as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse or time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the Interim Balance Sheet (such mortgages and security interests being limited
to the property or assets of Vanguard) or in Item 3.11(b) of the Vanguard
Disclosure Schedule, with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists, (c) Liens
for current taxes not yet due and payable, and (d) with respect to real property
(i) minor imperfections of title, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of any Vanguard Company, and (ii)
zoning laws and other land use restrictions that do not impair the present or
anticipated use of the property subject thereto.
Section 3.12 Condition and Sufficiency of Assets. The buildings,
plants, structures, and equipment of the Vanguard Companies are structurally
sound, are in good operating condition and repair, and are adequate for the uses
to which they are being put, and none of such buildings, plants, structures, or
equipment is in need of maintenance or repair except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The building,
plants, structures, and equipment of the Vanguard Companies are sufficient for
the continued conduct of the Vanguard Companies' businesses after the Closing in
substantially the same manner as conducted prior to the Closing.
Section 3.13 Intellectual Property.
(a) The term "Intellectual Property Assets" means all
intellectual property owned or licensed (as licensor or licensee) by the
Vanguard Companies in which any Vanguard Company has a proprietary interest (as
owner, licensor or licensee), including:
(i) the name of each Vanguard Company, all assumed
fictional business names, trade names, registered and
unregistered trademarks, service marks and applications
(collectively, "Marks");
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(ii) all patents, patent applications and inventions
and discoveries that may be patentable (collectively,
"Patents");
(iii) all know-how, trade secrets, confidential or
proprietary information, customer lists, Software, technical
information, data, process technology, plans, drawings and
blue prints (collectively, "Trade Secrets");
(iv) all copyrightable subject matter relating to
computer software or printed or electronic publications or
materials ("Copyrights"); and
(v) all rights in internet web sites, internet domain
names and Class B IP addresses presently used by any Vanguard
Company (collectively "Net Names").
(b) Item 3.13(b) of the Vanguard Disclosure Schedule contains
a complete and accurate list and summary description, including any royalties
paid or received by the Vanguard Companies, of all Applicable Contracts relating
to the Intellectual Property Assets, including all software licenses and related
maintenance contracts but excluding any license implied by the sale of a product
and perpetual, paid-up licenses for commonly available off-the-shelf Software
programs with a value of less than $5,000 under which a Vanguard Company is the
licensee. There are no outstanding and, to the Knowledge of the Vanguard
Companies and the Vanguard Stockholders, no threatened disputes or disagreements
with respect to any such Contract or with respect to any Intellectual Property
Assets used by the Vanguard Companies in their businesses.
(c) Except as set forth in Item 3.13(c) of the Vanguard
Disclosure Schedule, no Contract listed or required to be listed in Section
3.13(b) of the Vanguard Disclosure Schedule contains any provision related to a
change of control or other circumstance that would cause the terms of any such
Contract to become invalid, terminate or otherwise change as a result of any of
the Contemplated Transactions.
(d) The Intellectual Property Assets are all those necessary
for the operation of businesses of the Vanguard Companies as currently
conducted. One or more of the Vanguard Companies is the owner or licensee of all
right, title and interest in and to each of the Intellectual Property Assets,
free and clear of all Encumbrances, and has the right to use without payment to
a Third Party all of the Intellectual Property Assets.
(e) Item 3.13(e) of the Vanguard Disclosure Schedule contains
a complete and accurate list and summary description of all Patents.
(i) All of the issued Patents are currently in
compliance with formal legal requirements (including payment
of filing, examination and maintenance fees and proofs of
working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling
due within ninety (90) days after the Closing Date.
(ii) Except as set forth in Item 3.13(e) of the
Vanguard Disclosure Schedule, (A) no Patent is infringed or,
to the Knowledge of the Vanguard Companies and the Vanguard
Stockholders, has been challenged or threatened in any way,
and (B) none of the products manufactured or sold, nor any
process or know-how used, nor any services offered or
performed by any Vanguard Company infringes or is alleged to
infringe any patent or other proprietary right of any other
Person.
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(iii) All products made, used or sold under the
Patents have been marked with the proper patent notice to the
extent feasible.
(iv) Except as set forth in Item 3.13(e) of the
Vanguard Disclosure Schedule, the Vanguard Companies own all
right, title and interest in the Patents and there are no
Encumbrances on the Patents.
(f) Item 3.13(f) of the Vanguard Disclosure Schedule contains
a complete and accurate list and summary description of all Marks.
(i) Except as set forth in Item 3.13(f)(i) of the
Vanguard Disclosure Schedule, all Marks have been registered
with the United States Patent and Trademark Office, are
currently in compliance with all formal Legal Requirements
(including the timely post-registration filing of affidavits
of use and incontestability and renewal applications), are
valid and enforceable and are not subject to any maintenance
fees or taxes or actions falling due within ninety (90) days
after the Closing Date.
(ii) Except as set forth in Item 3.13(f)(ii) of the
Vanguard Disclosure Schedule, no Mark has been or is now
involved in any opposition, invalidation or cancellation
Proceeding and, to the Knowledge of the Vanguard Companies and
the Vanguard Stockholders, no such action is threatened with
respect to any of the Marks.
(iii) To the Knowledge of the Vanguard Companies and
the Vanguard Stockholders, none of the Vanguard Companies are
using any term, mark, name or designation that infringes or
presents a likelihood of confusion with the name, Mark or
designation of any other Person.
(iv) No Mark is infringed or, to the Knowledge of the
Vanguard Companies and the Vanguard Stockholders, has been
challenged or threatened in any way. None of the Marks used by
any Vanguard Company infringes or is alleged to infringe any
trade name, trademark or service mark of any other Person.
(v) All products and materials containing a Mark bear
the proper federal registration notice where permitted by law.
(vi) Except as set forth on Item 3.13(f) of the
Vanguard Disclosure Schedule the Vanguard Companies own all
right, title and interests in the Marks and there are no
Encumbrances on the Marks.
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(g) With respect to each Trade Secret:
(i) The documentation relating to such Trade Secret
is current, accurate and sufficient in detail and content to
identify and explain it and to allow its full and proper use
without reliance on the knowledge or memory of any individual.
(ii) Each Vanguard Company has taken all reasonable
precautions to protect the secrecy, confidentiality and value
of its Trade Secrets (including the enforcement by the
Vanguard Companies of a policy requiring each employee or
contractor to execute proprietary information and
confidentiality agreements substantially in its standard form,
and all current and former employees and contractors of
Vanguard Stockholder have executed such an agreement).
(iii) One or more of the Vanguard Companies has good
title to and an absolute right (but not necessarily exclusive
within the Vanguard Companies, but exclusive as to other Third
Parties) to use the Trade Secrets. The Trade Secrets are not
part of the public knowledge or literature and, to the
Knowledge of the Vanguard Companies and the Vanguard
Stockholders, have not been used, divulged or appropriated
either for the benefit of any Person (other than one or more
of the Vanguard Companies) or to the detriment of the Vanguard
Companies. No Trade Secret is subject to any adverse claim or
has been challenged or threatened in any way or infringes any
intellectual property right of any other Person.
(h) Item 3.13(h) of the Vanguard Disclosure Schedule contains
a complete and accurate list and summary description of all Net Names.
(i) All Net Names have been registered in the name of
one or more of the Vanguard Companies and are in compliance
with all formal Legal Requirements.
(ii) No Net Name has been or is now involved in any
dispute, opposition, invalidation or cancellation Proceeding
and, to the Knowledge of the Vanguard Companies and the
Vanguard Stockholders, no such action is threatened with
respect to any Net Name.
(iii) To the Knowledge of the Vanguard Companies and
the Vanguard Stockholders, there is no domain name application
pending of any other Person which would or would potentially
interfere with or infringe any Net Name.
(iv) No Net Name is infringed or, to the Knowledge of
the Vanguard Companies and the Vanguard Stockholders, has been
challenged, interfered with or threatened in any way. No Net
Name infringes, interferes with or is alleged to interfere
with or infringe the trademark, copyright or domain name of
any other Person.
(i) With respect to each Copyright:
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(i) One or more of the Vanguard Companies has good
title to and an absolute right (but not necessarily exclusive
within the Vanguard Companies, but exclusive as to other Third
Parties) to use the Copyrights, except as set forth on Item
3.13(i) of the Vanguard Disclosure Schedule. To the Knowledge
of the Vanguard Companies and the Vanguard Stockholders, the
Copyrights have not been used or appropriated for the benefit
of any other Person other than one or more of the Vanguard
Companies except to the extent licensed to a Third Party as
identified on Item 3.13(i) of the Vanguard Disclosure
Schedule. No Copyright is subject to any adverse claim or has
been challenged or threatened in any way or infringes any
intellectual property right of any other Person.
(ii) Item 3.13(1) of the Vanguard Disclosure Schedule
contains a complete and accurate list and summary description
of all Copyrights material to the business of the Vanguard
Companies as presently conducted.
(iii) Except as set forth on Item 3.13(i) of the
Vanguard Disclosure Schedule, the Vanguard Companies own all
right, title and interest in the Copyrights and there are no
Encumbrances on the Copyrights.
Section 3.14 Contracts; No Defaults.
(a) Item 3.14(a) of the Vanguard Disclosure Schedule contains
an accurate and complete list, and the Vanguard Stockholders have delivered to
TACT accurate and complete copies, of:
(i) each Applicable Contract that involves the
payment of money, performance of services or delivery of goods
or materials by one or more Vanguard Companies of an amount or
value in excess of $50,000;
(ii) each Applicable Contract that involves
performance of services or delivery of goods or materials to
one or more Vanguard Companies of an amount or value in excess
of $50,000;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures or receipts of one or more Vanguard Companies in
excess of $50,000;
(iv) each Applicable Contract affecting the ownership
of, leasing of, title to, use of, or any leasehold or other
interest in any real or personal property (except personal
property leases and installment and conditional sales
agreements having a value per item or aggregate payments of
less than $50,000 and with a term of less than one year);
(v) each Applicable Contract with any labor union or
other employee representative of a group of employees relating
to wages, hours and other conditions of employment;
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(vi) each Applicable Contract (however named)
involving a sharing of profits, losses, costs or liabilities
by any one or more Vanguard Companies with any other Person;
(vii) each Applicable Contract containing covenants
that in any way purport to restrict any Vanguard Company's
business activity or limit the freedom of any Vanguard Company
to engage in any line of business or to compete with any
Person;
(viii) each Applicable Contract providing for
payments to or by any Person based on sales, purchases or
profits, other than direct payments for goods;
(ix) each power of attorney of any Vanguard Company
that is currently effective and outstanding;
(x) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides
for an express undertaking by any one or more Vanguard
Companies to be responsible for consequential damages;
(xi) each Applicable Contract for capital
expenditures in excess of $50,000;
(xii) each written warranty, guaranty and/or other
similar undertaking with respect to contractual performance
extended by any one or more Vanguard Companies other than in
the Ordinary Course of Business;
(xiii) any Applicable Contract for the development,
modification or enhancement of computer software products;
(xiv) any Applicable Contract that is a license
(whether as licensor or licensee), or sublicense, royalty,
permit, franchise agreement, including, without limitation,
any agreement pursuant to which any Vanguard Company licenses
any Intellectual Property Assets or licenses or delivers any
of its software or other products and services to any Third
Party (other than ordinary course licenses to end-users);
(xv) Applicable Contract that provides for the
employment of any officer, employee, consultant or agent or
any other type of Contract, commitment or understanding with
any officer, employee, consultant or agent which (except as
otherwise generally provided by applicable law) is not
immediately terminable without cost or other Liability at or
at any time after the Closing Date;
(xvi) Applicable Contract that provides for any
profit-sharing, bonus, stock option, stock appreciation right,
pension, retirement, disability, stock purchase,
hospitalization, insurance or similar plan or agreement,
formal or informal, providing benefits to any current or
former director, officer, employee, agent or consultant;
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(xvii) any Applicable Contract that is a material
indenture, mortgage, promissory note, loan agreement,
guarantee or other material agreement or commitment for the
borrowing of money, for a line of credit or for a leasing
transaction of a type required to be capitalized in accordance
with Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board;
(xviii) each Applicable Contract that is a material
agreement, instrument or other arrangement granting or
permitting any Encumbrance on any of the properties, assets or
rights of any Vanguard Company;
(xix) each Applicable Contract that is a contract or
commitment for charitable contributions;
(xx) each Applicable Contract that is an agreement or
contract with a "disqualified individual" (as defined in
Section 280G(c) of the Code), which could result in a
disallowance of the deduction for any "excess parachute
payment" (as defined in Section 280G(b)(i) of the Code) under
Section 280G of the Code;
(xxi) each Applicable Contract that restricts any
Vanguard Company from engaging in any aspect of its business
or competing in any line of business in any geographic area;
(xxii) any other Applicable Contract that is material
to any Vanguard Company; and
(xxiii) each amendment, supplement and modification,
and each agreement to enter into any such amendment,
supplement or modification (whether oral or written), in
respect of any of the foregoing.
(b) Except as set forth in Item 3.14(b) of the Vanguard
Disclosure Schedule, no Vanguard Stockholder (and no Related Person of any
Vanguard Stockholder) has or may acquire any rights under, and no Vanguard
Stockholder has or may become subject to any obligation or liability under, any
Contract that relates to the business or any of the properties or assets owned
or used by any Vanguard Company.
(c) To the Knowledge of the Vanguard Companies and the
Vanguard Stockholders, no officer, director, agent, employee, consultant or
contractor of any Vanguard Company is bound by any Contract that purports to
limit the ability of such Person to (i) engage in or continue any conduct,
activity or practice relating to the business of any Vanguard Company, or (ii)
assign to any Vanguard Company or to any other Person any rights to any
invention, improvement or discovery.
(d) Except as set forth in Item 3.14(d) of the Vanguard
Disclosure Schedule, each Contract identified or required to be identified in
Section 3.14(a) of the Vanguard Disclosure Schedule is in full force and effect
and is valid and enforceable in accordance with its terms.
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(e) Except as set forth in Item 3.14(e)of the Vanguard
Disclosure Schedule, and other than with regard to any Applicable Contract, the
termination of which would not, individually or in the aggregate, have a
Material Adverse Effect on the Vanguard Companies:
(i) Each Vanguard Company is in compliance with all
applicable terms and requirements of each Contract under which
such Vanguard Company has or had any obligation or Liability
or by which such Vanguard Company or any of the assets owned
or used by such Vanguard Company is or was bound;
(ii) each other Person that has or had any obligation
or Liability under any Contract under which any Vanguard
Company has or had any rights is in compliance with all
applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists
that (with or without notice or lapse of time or both) may
contravene, conflict with or result in a Breach of, or give
any Vanguard Company or other Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or payment under, or to cancel,
terminate or modify, any Applicable Contract; and
(iv) no Vanguard Company has given to or received
from any other Person, any notice or other communication
(whether oral or written) regarding any actual, alleged,
possible or potential violation or Breach of, or default
under, any Contract.
(f) There are no renegotiations of, attempts to renegotiate or
outstanding rights to renegotiate any material amounts paid or payable to any
Vanguard Company under current or completed Applicable Contracts with any Person
having the contractual or statutory right to demand or require such
renegotiation and no such Person has made written demand for such renegotiation.
(g) Each Contract relating to the provision of services to
which any Vanguard Company is a party has been entered into in the Ordinary
Course of Business of such Vanguard Company and has been entered into without
the commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in violation of
any Legal Requirement.
Section 3.15 Employees.
(a) [Intentionally omitted.]
(b) There are no retired employees or directors of the
Vanguard Companies who are scheduled to receive benefits in the future.
(c) No officer, director, employee, agent, consultant or
contractor of any Vanguard Company is bound by any Contract that purports to
limit the ability of such officer, director, employee, agent, consultant or
contractor (i) to engage in or continue or perform any conduct, activity, duties
or practice relating to the business of the Vanguard Companies, or (ii) to
assign to any Vanguard Company or to any other Person any rights to any
invention, process, improvement, or discovery. No former or current employee of
any Vanguard Company is a party to, or is otherwise bound by, any Contract that
in any way adversely affected, affects, or will affect the ability of the
Vanguard Companies to conduct their businesses as heretofore conducted by them
and as proposed to be conducted. Each individual intended to be an independent
contractor of any Vanguard Company has been properly designated and treated as
such.
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(d) No employee or consultant of any Vanguard Company whose
services are material to any Vanguard Company has informed any officer of any
Vanguard Company that such employee or consultant will terminate his or her
employment or engagement.
Section 3.16 Labor Relations; Compliance.
(a) Each Vanguard Company has complied in all respects with
all Legal Requirements that are applicable thereto relating to employment
practices, terms and conditions of employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar Taxes and occupational safety and
health. No Vanguard Company is liable for the payment of any Taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any
of the foregoing Legal Requirements.
(b) Except as disclosed in Item 3.16(a) of the Vanguard
Disclosure Schedule, (i) no Vanguard Company has been, and is not now, a party
to any collective bargaining agreement or other labor contract; (ii) there has
not been, there is not presently pending or existing, and to the Knowledge of
the Vanguard Companies and the Vanguard Stockholders there is not threatened,
any slowdown, work stoppage or employee grievance process involving any Vanguard
Company; (iii) to the Knowledge of the Vanguard Companies and the Vanguard
Stockholders, no event has occurred or circumstance exists that could provide
the basis for any work stoppage or other labor dispute; (iv) there is not
pending or, to the Knowledge of the Vanguard Companies and the Vanguard
Stockholders, threatened against or affecting any Vanguard Company, any
Proceeding relating to the alleged violation of any Legal Requirement pertaining
to labor relations or employment matters, and there is no organizational
activity or other labor dispute against or affecting any Vanguard Company or the
Facilities; (v) no application or petition for an election of or for
certification of a collective bargaining agent is pending; and (vi) to the
Knowledge of the Vanguard Companies and the Vanguard Stockholders there has been
no charge of discrimination filed against or threatened against any Vanguard
Company with the Equal Employment Opportunity Commission or similar Governmental
Body.
(c) No Vanguard Company is delinquent in payments to any of
its employees or consultants for any wages, salaries, commissions, bonuses or
other direct compensation for any services performed by them to date or amounts
required to be reimbursed to such employees or consultants,
Section 3.17 Employee Plans.
(a) For purposes of this Section 3.17, references to Employee
Plans are references to Employee Plans of the Vanguard Companies.
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(b) Item 3.17(b) of the Vanguard Disclosure Schedule provides
a complete and correct list of all Employee Plans for the Vanguard Companies,
identifying each Employee Plan that is (i) a "defined benefit plan" within the
meaning of Section 3(35) of ERISA (a "Defined Benefit Plan"), (ii) a plan
intended to meet the requirements of Section 401(a) of the Code, (iii) a
"multi-employer plan" within the meaning of Section 3(37) of ERISA, or (iv) a
plan subject to Title IV of ERISA other than a multi-employer plan. Item 3.17(a)
of the Vanguard Disclosure Schedule also provides a complete and correct list of
all ERISA Affiliates of the Vanguard Companies during the last six (6) years.
(c) The Vanguard Companies have delivered to TACT true,
accurate and complete copies of (i) the documents comprising each Employee Plan
(or, with respect to any Employee Plan which is unwritten, a detailed written
description of eligibility, participation, benefits, funding arrangements,
assets and any other matters which relate to the obligations of each Vanguard
Company or any ERISA Affiliate); (ii) all trust agreements, insurance contracts
or any other funding instruments related to the Employee Plans; (iii) all
rulings, determination letters, no-action letters or advisory opinions from the
IRS, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation
("PBGC") or any other Governmental Body that pertain to each Employee Plan and
any open requests therefor; (iv) the most recent actuarial and financial reports
(audited and/or unaudited) and the annual reports (including Forms 5500 and all
schedules thereto) filed with any Government Body with respect to the Employee
Plans during the current year and each of the three (3) preceding years; (v) the
most recent actuarial valuations and schedule of contributions for each Employee
Plan, whether or not filed with a Governmental Body; (vi) all contracts with
third-party administrators, actuaries, investment managers, consultants and
other independent contractors that relate to any Employee Plan, (vii) with
respect to Employee Plans that are subject to Title IV of ERISA, the Form PBGC-1
filed for each of the three (3) most recent plan years; and (viii) all summary
plan descriptions, summaries of material modifications and memoranda, employee
handbooks and other written communications regarding the Employee Plans.
(d) No Vanguard Company has adopted any amendments to, or is
considering adopting amendments to, any Employee Plan disclosed or required to
be disclosed to TACT pursuant to Section 3.17(a).
(e) Except as disclosed in Item 3.17(e) of the Vanguard
Disclosure Schedule, full payment has been made of all amounts that are required
under the terms of each Employee Plan to be paid as contributions with respect
to all periods prior to and including the last day of the most recent fiscal
year of such Employee Plan ended on or before the date of this Agreement and all
periods thereafter prior to the Closing Date, and no accumulated funding
deficiency or liquidity shortfall (as those terms are defined in Section 302 of
ERISA and Section 412 of the Code) has been incurred with respect to any such
Employee Plan, whether or not waived. The value of the assets of each Employee
Plan exceeds the amount of all benefit liabilities (determined, in the case of a
Defined Benefit Plan, on a plan termination basis using the actuarial
assumptions established by the PBGC as of the Closing Date) of such Employee
Plan. No Vanguard Company is required to provide security to an Employee Plan
under Section 401(a)(29) of the Code. The funded status of each Employee Plan
that is a Defined Benefit Plan is disclosed on Item 3.17(e) of the Vanguard
Disclosure Schedule in a manner consistent with the Statement of Financial
Accounting Standards No. 87. The Vanguard Companies have paid in full all
required insurance premiums, subject only to normal retrospective adjustments in
the ordinary course, with regard to the Employee Plans for all policy years or
other applicable policy periods ending on or before the Closing Date.
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(f) Except as disclosed in Item 3.17(f) of the Vanguard
Disclosure Schedule, no Employee Plan, if subject to Title IV of ERISA, has been
completely or partially terminated, nor has any event occurred nor does any
circumstance exist that could result in the partial termination of such Employee
Plan. The PBGC has not instituted or threatened a Proceeding to terminate or to
appoint a trustee to administer any of the Employee Plans pursuant to Subtitle 1
of Title IV of ERISA, and no condition or set of circumstances exists that
presents a material risk of termination or partial termination of any of the
Employee Plans by the PBGC. None of the Employee Plans has been the subject of,
and no event has occurred or condition exists that could be deemed, a reportable
event (as defined in Section 4043 of ERISA) as to which a notice would be
required (without regard to regulatory monetary thresholds) to be filed with the
PBGC. The Vanguard Companies have paid in full all insurance premiums due to the
PBGC with regard to the Employee Plans for all applicable periods ending on or
before the Closing Date.
(g) No Vanguard Company or any ERISA Affiliate has any
liability or has Knowledge of any facts or circumstances that might give rise to
any liability, and the Contemplated Transactions will not result in any
liability, (i) for the termination of or withdrawal from any Employee Plan under
Sections 4062, 4063 or 4064 of ERISA, (ii) for any lien imposed under Section
302(f) of ERISA or Section 412(n) of the Code, (iii) for any interest payments
required under Section 302(e) of ERISA or Section 412(m) of the Code, (iv) for
any excise tax imposed by Section 4971 of the Code, (v) for any minimum funding
contributions under Section 302(c)(11) of ERISA or Section 412(c)(11) of the
Code or (vi) for withdrawal from any multi-employer plan under Section 4201 of
ERISA.
(h) The Vanguard Companies have, at all times, complied, and
currently comply, in all material respects with the applicable continuation
requirements for their welfare benefit plans, including (1) Section 4980B of the
Code (as well as its predecessor provision, Section 162(k) of the Code) and
Sections 601 through 608, inclusive, of ERISA, which provisions are hereinafter
referred to collectively as "COBRA" and (2) any applicable state statutes
mandating health insurance continuation coverage for employees.
(i) Except as set forth in Item 3.17(i) of the Vanguard
Disclosure Schedule, the form of all Employee Plans is in compliance with the
applicable terms of ERISA, the Code, and any other applicable laws, including
the Americans with Disabilities Act of 1990, the Family Medical Leave Act of
1993 and the Health Insurance Portability and Accountability Act of 1996, and
such plans have been operated in compliance with such laws and the written
Employee Plan documents. No Vanguard Company or any fiduciary of an Employee
Plan has violated the requirements of Section 404 of ERISA. All required reports
and descriptions of the Employee Plans (including Internal Revenue Service Form
5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions and
Summaries of Material Modifications) have been (when required) timely filed with
the IRS, the U.S. Department of Labor or other Governmental Body and distributed
as required, and all notices required by ERISA or the Code or any other Legal
Requirement with respect to the Employee Plans have been appropriately given.
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(j) Except as set forth in Item 3.17(j) of the Vanguard
Disclosure Schedule, each Employee Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the IRS, has been established and maintained in accordance with its terms and in
compliance with all applicable Legal Requirements, including ERISA and the Code,
and no Vanguard Company has any Knowledge of any circumstances that will or
could result in revocation of any such favorable determination letter. Each
trust created under any Employee Plan has been determined to be exempt from
taxation under Section 501(a) of the Code, and no Vanguard Company is aware of
any circumstance that will or could result in a revocation of such exemption.
Each Employee Plan that is an Employee Welfare Benefit Plan (as defined in
Section 3(1) of ERISA) that utilizes a funding vehicle described in Section
501(c)(9) of the Code or is subject to the provisions of Section 505 of the Code
has been the subject of a notification by the IRS that such funding vehicle
qualifies for tax-exempt status under Section 501(c)(9) of the Code or that the
plan complies with Section 505 of the Code, unless the IRS does not, as a matter
of policy, issue such notification with respect to the particular type of plan.
With respect to each Employee Plan, no event has occurred or condition exists
that will or could give rise to a loss of any intended tax consequence or to any
Tax under Section 511 of the Code.
(k) There is no pending or threatened Proceeding relating to
any Employee Plan, nor is there any basis for any such Proceeding. No Vanguard
Company or any fiduciary of an Employee Plan has engaged in a transaction with
respect to any Employee Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject any Vanguard Company or
TACT to a Tax or penalty imposed by either Section 4975 of the Code or Section
502(l) of ERISA or a violation of Section 406 of ERISA. The Contemplated
Transactions will not result in the potential assessment of a Tax or penalty
under Section 4975 of the Code or Section 502(l) of ERISA nor result in a
violation of Section 406 of ERISA.
(l) The Vanguard Companies have maintained workers'
compensation coverage as required by applicable state law through purchase of
insurance and not by self-insurance or otherwise except as disclosed to TACT on
Item 3.17(l) of the Vanguard Disclosure Schedule.
(m) Except as set forth in Item 3.17(m) of the Vanguard
Disclosure Schedule or as required by Legal Requirements, the consummation of
the Contemplated Company Transactions will not accelerate the time of vesting or
the time of payment, or increase the amount, of compensation due to any
director, employee, officer, former employee or former officer of any Vanguard
Company. Except as set forth in Item 3.17(m) of the Vanguard Disclosure
Schedule, there are no Contracts or arrangements providing for payments that
could subject any Person to Liability for Tax under Section 4999 of the Code.
Except as set forth in Item 3.17(m) of the Vanguard Disclosure Schedule, each
Employee Plan can be amended, terminated or otherwise discontinued without
material Liability to any Vanguard Company.
(n) Except for the continuation coverage requirements of
COBRA, no Vanguard Company or any ERISA Affiliate has any obligations or
potential liability to provide life insurance, medical, severance or any other
welfare benefits to employees, former employees or their respective dependents
following termination of employment or retirement under any of the Employee
Plans.
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(o) None of the Contemplated Transactions will result in an
amendment, modification or termination of any of the Employee Plans. No written
or oral representations have been made to any employee or former employee of any
Vanguard Company promising or guaranteeing any employer payment or funding for
the continuation of medical, dental, life or disability coverage for any period
of time beyond the end of the current plan year (except to the extent of
coverage required under COBRA). No written or oral representations have been
made to any employee or former employee of any Vanguard Company concerning the
employee benefits of TACT.
Section 3.18 Compliance with Legal Requirements.
(a) Except as set forth in Item 3.18(a) of the Vanguard
Disclosure Schedule, (i) each Vanguard Company is in full compliance with each
Legal Requirement that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets; (ii) no event has
occurred or circumstance exists that (with or without notice or lapse of time)
may constitute or result in a violation by any Vanguard Company of, or a failure
on the part of any Vanguard Company to comply with, any Legal Requirement or may
give rise to any obligation on the part of any Vanguard Company to undertake, or
to bear all or any portion of the cost of, any remedial action of any nature;
and (iii) no Vanguard Company has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible or potential violation of, or failure to
comply with, any Legal Requirement or any actual, alleged, possible or potential
obligation on the part of any Vanguard Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature.
(b) Item 3.18(a) of the Vanguard Disclosure Schedule contains
a complete and accurate list of each Governmental Authorization that is held by
the Vanguard Companies or that otherwise relates to the business of or the
assets owned by the Vanguard Companies. Each Governmental Authorization listed
or required to be listed in Item 3.18(a) of the Vanguard Disclosure Schedule is
valid and in full force and effect.
(c) Except as set forth in Item 3.18(a) of the Vanguard
Disclosure Schedule, (i) each Vanguard Company is in full compliance with all of
the terms and requirements of each Governmental Authorization identified or
required to be identified in Item 3.18(a) of the Vanguard Disclosure Schedule;
(ii) no event has occurred or circumstance exists that may (with or without
notice or lapse of time) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Item 3.18(a) of
the Vanguard Disclosure Schedule or result directly or indirectly in the
revocation, withdrawal, suspension, cancellation or termination of, or any
modification to, any Governmental Authorization listed or required to be listed
in Item 3.18(a) of the Vanguard Disclosure Schedule; (iii) no Vanguard Company
has received any notice or other communication (whether oral or written) from
any Governmental Body or any other Person regarding any actual, alleged,
possible or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization or any actual, proposed, possible
or potential revocation, withdrawal, suspension, cancellation, termination of or
modification to any Governmental Authorization; and (iv) all applications
required to have been filed for the renewal of the Governmental Authorizations
listed or required to be listed in Item 3.18(a) of the Vanguard Disclosure
Schedule have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
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(d) The Governmental Authorizations listed in Item 3.18(a) of
the Vanguard Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit the Vanguard Companies to lawfully conduct
and operate, and currently propose to conduct and operate, their businesses, in
the manner in which they currently conduct and operate such businesses and to
permit the Vanguard Companies to own and use their assets in the manner in which
they currently own and use such assets.
Section 3.19 Legal Proceedings; Orders.
(a) Except as set forth in Item 3.19(a) of the Vanguard
Disclosure Schedule, (i) there is no pending or, to Knowledge of the Vanguard
Companies and the Vanguard Stockholders, threatened, Proceeding, that has been
commenced by or against any Vanguard Company or that otherwise relates to or may
affect the business of, or any of the assets owned or used by, any Vanguard
Company; or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions. To the Knowledge of the Vanguard Companies and the Vanguard
Stockholders, no event has occurred or circumstance exits that is reasonably
likely to give rise to or serve as a basis for the commencement of any such
Proceeding. Vanguard has delivered to TACT copies of all pleadings,
correspondence, and other documents relating to any Proceeding listed in Item
3.19(a) of the Vanguard Disclosure Schedule. The Proceedings listed in Item
3.19(a) of the Vanguard Disclosure Schedule will not have a Material Adverse
Effect.
(b) Except as set forth in Item 3.19(b) of the Vanguard
Disclosure Schedule, (i) there is no Order to which any of the Vanguard
Companies, or any of the assets owned or used by any Vanguard Company, is
subject; (ii) no Vanguard Stockholder is subject to any Order that relates to
the business of, or any of the assets owned or used by, any Vanguard Company;
and (iii) to the Knowledge of the Vanguard Companies and the Vanguard
Stockholders, no officer, director, agent, or employee of any Vanguard Company
is subject to any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity, or practice
relating to the business of any Vanguard Company.
(c) Except as set forth in Item 3.19(c) of the Vanguard
Disclosure Schedule, (i) each Vanguard Company is in full compliance with all of
the terms and requirements of each Order to which it, or any of the assets owned
or used by it, is or has been subject; (ii) no event has occurred or
circumstance exists that may constitute or result in (with or without notice or
lapse of time) a violation of or failure to comply with any term or requirement
of any Order to which any Vanguard Company, or any of the assets owned or used
by any Vanguard Company, is subject; and no Vanguard Company has received any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any Order to
which any Vanguard Company, or any of the assets owned or used by any Vanguard
Company, is or has been subject.
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Section 3.20 Relationships with Related Persons. Except as disclosed in
Item 3.20 of the Vanguard Disclosure Schedule, no Vanguard Stockholder or any
Related Person of any Vanguard Stockholder or of any Vanguard Company has, or
previously had, any interest in any property (whether real, personal or mixed
and whether tangible or intangible) used in or pertaining to the businesses of
the Vanguard Companies. No Vanguard Stockholder or any Related Person of any
Vanguard Stockholder or of any Vanguard Company owns or previously owned, of
record or as a beneficial owner, an equity interest or any other financial or
profit interest in any Person that has (a) had business dealings or a material
financial interest in any transaction with any Vanguard Company other than
business dealings or transactions disclosed in Item 3.20 of the Vanguard
Disclosure Schedule, each of which has been conducted in the Ordinary Course of
Business with the Vanguard Companies at substantially prevailing market prices
and on substantially prevailing market terms or (b) engaged in competition with
any Vanguard Company with respect to any line of the products or services of
such Vanguard Company (a "Competing Business") in any market presently served by
such Vanguard Company, except for ownership of less than one percent (1%) of the
outstanding capital stock of any Competing Business that is publicly traded on
any recognized exchange or in the over-the-counter market. Except as set forth
in Item 3.20 of the Vanguard Disclosure Schedule, no Vanguard Stockholder or any
Related Person of any Vanguard Stockholder or of any Vanguard Company is a party
to any Contract with, or has any claim or right against, any Vanguard Company.
Section 3.21 Accounts and Notes Payable. All material accounts payable
and notes payable by the Vanguard Companies to Third Parties as of the date
hereof arose, and as of the Closing Date will have arisen, in the Ordinary
Course of Business, and there is no such account payable or note payable
delinquent in its payment.
Section 3.22 Certain Agreements. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance, golden
parachute, bonus or otherwise) becoming due to any director, officer, employee
or consultant of any Vanguard Company under any Employee Plan, benefit
arrangement or otherwise, (ii) with respect to any current or former director,
officer, employee or consultant of any Vanguard Company materially increase any
benefits otherwise payable under any Employee Plan or any benefit arrangement,
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits.
Section 3.23 Insurance. Item 3.23 of the Vanguard Disclosure Schedule
contains a list of all policies of liability, theft, fidelity, fire, product
liability, errors and omissions, workmen's compensation, indemnification of
directors and officers and other similar forms of insurance held by the Vanguard
Companies (specifying the insurer, the amount of coverage, the type of
insurance, the policy number and any pending claims thereunder) and a history of
all claims made by the Vanguard Companies thereunder and the status thereof. All
such policies of insurance are in full force and effect and all premiums with
respect thereto are currently paid and, no basis exists for early termination of
any thereof on the part of the insurer. The amounts of coverage under such
policies of insurance are of the type and in amounts customarily carried by
Persons conducting businesses similar to Vanguard Companies.
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Section 3.24 Bank Accounts. Item 3.24 of the Vanguard Company
Disclosure Schedule sets forth a true and complete list of all bank accounts and
safe deposit boxes of the Vanguard Companies and all Persons who are signatories
thereunder or who have access thereto.
Section 3.25 Brokers or Finders. Except as disclosed in Item 3.25 of
the Vanguard Disclosure Schedule, no Vanguard Stockholder nor any agent of any
Vanguard Stockholder has incurred any liability or obligation for brokerage or
finders' fees or agents' commissions or other similar payments in connection
with this Agreement or the Contemplated Transactions.
Section 3.26 Disclosure. No representation or warranty or other
statement made by the Vanguard Stockholders in this Agreement, the Vanguard
Disclosure Schedule, any supplement to the Vanguard Disclosure Schedule, the
certificates delivered pursuant to Section 2.4(a) or otherwise in connection
with the Contemplated Transactions contains any untrue statement or omits to
state a material fact necessary to make any of them, in light of the
circumstances in which it was made, not misleading. No Vanguard Stockholder has
Knowledge of any fact that has specific application to the Vanguard Companies
(other than general economic or industry conditions) and that may have a
Material Adverse Effect that has not been set forth in this Agreement or in the
Vanguard Disclosure Schedule.
ARTICLE 4
ADDITIONAL REPRESENTATIONS OF THE VANGUARD STOCKHOLDERS
The Vanguard Stockholders hereby represent and warrant to TACT,
severally and not jointly and only as to such Vanguard Stockholder itself, as
follows:
Section 4.1 Title to Vanguard Capital Stock; No Agreements. The
Vanguard Stockholders own of record and beneficially all of the issued and
outstanding shares of Vanguard Capital Stock free and clear of any Encumbrance,
have good and marketable title thereto, and upon delivery of the Exchange Shares
as consideration for the transfer of the Vanguard Capital Stock as provided in
this Agreement, TACT will acquire good and valid title thereto, free of any
Encumbrance. Except as set forth in Item 4.1 of the Vanguard Disclosure
Schedule, no Vanguard Stockholder is a party to any agreement, understanding or
arrangement relating to the Vanguard Capital Stock other than this Agreement and
the other agreements pursuant to which the Contemplated Company Transactions are
proposed to be consummated.
Section 4.2 Organization, Good Standing and Power. In the case of any
Vanguard Stockholder that is not a natural person, such Vanguard Stockholder is
duly organized or formed and validly existing under the laws of the jurisdiction
of its incorporation or formation and has the corporate or other organizational
power and authority under such laws to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
Section 4.3 Enforceability; Authority; No Conflict; No Consent.
(a) Each of this Agreement, the Stockholder's Certificate, the
Custody Agreement and the Escrow Agreement constitutes the legal, valid, and
binding obligation of each such Vanguard Stockholder, enforceable against each
of them in accordance with its terms. Upon the execution and delivery by such
Vanguard Stockholder of this Agreement, the Escrow Agreement (if applicable) and
its respective counterpart of the Stockholder's Certificate and the Custody
Agreement (collectively, the "Vanguard Stockholders' Closing Documents"), each
of the Vanguard Stockholders' Closing Documents will constitute the legal,
valid, and binding obligations of each such Vanguard Stockholder, enforceable
against each of them in accordance with its terms. Each Vanguard Stockholder has
the absolute and unrestricted right, power, authority, and capacity to execute
and deliver this Agreement and the Vanguard Stockholders' Closing Documents to
which it is a party and to perform its obligations hereunder and thereunder.
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(b) Neither the execution and delivery of any of the Vanguard
Stockholders' Closing Documents nor the consummation or performance of any of
the Contemplated Company Transactions by such Vanguard Stockholder will,
directly or indirectly (with or without notice or lapse of time or both):
(i) Breach or give any Governmental Body or other
Person the right to challenge any of the Contemplated Company
Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which any
Vanguard Stockholder is subject:
(ii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by any Vanguard Stockholder;
(iii) cause TACT or any Vanguard Company to become
subject to, or to become liable for the payment of, any Tax
owed by such Vanguard Stockholder, provided that the foregoing
representation is limited as to each Vanguard Stockholder to
its own respective Transferred Vanguard Shares and its own
respective participation in the Contemplated Company
Transactions; or
(iv) result in the imposition or creation of any
Encumbrance upon or with respect to the Vanguard Capital Stock
owned by such Vanguard Stockholder.
(c) No Vanguard Stockholder is or will be required to give any
notice to or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Company Transactions.
Section 4.4 Certain United States Laws.
(a) If such Vanguard Stockholder is an individual, such
Vanguard Stockholder certifies that he or she is not, nor to his or her
Knowledge has he or she been designated as, a "suspected terrorist" as defined
in Executive Order 13224. If such Vanguard Stockholder is a corporation, trust,
partnership, limited liability company or other Organization, such Vanguard
Stockholder certifies that, to the best of its Knowledge, such Vanguard
Stockholder has not been designated as, and is not owned or controlled by or a
Related Person of, a "suspected terrorist" as defined in Executive Order 13224.
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(b) Each Vanguard Stockholder hereby acknowledges that TACT
seeks to comply with all applicable laws covering money laundering and related
activities. In furtherance of those efforts, each Vanguard Stockholder hereby
represents, warrants and agrees that: (i) none of the cash or property that such
Vanguard Stockholder will pay or will contribute to TACT has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by such Vanguard Stockholder to
TACT, to the extent that they are within such Vanguard Stockholder's control,
shall cause TACT to be in violation of the United States Bank Secrecy Act, the
United States Money Laundering Control Act of 1986 or the Untied States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. Such Vanguard Stockholder shall promptly notify TACT if any of these
representations ceases to be true and accurate regarding such Vanguard
Stockholder. Such Vanguard Stockholder agrees to provide TACT with any
additional information regarding such Vanguard Stockholder that TACT deems
necessary or convenient to ensure compliance with all applicable laws concerning
money laundering and similar activities. Such Vanguard Stockholder understands
and agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, TACT may undertake
appropriate actions to ensure compliance with applicable law or regulation,
including but not limited to segregation and/or redemption of such Vanguard
Stockholder's investment in TACT. Such Vanguard Stockholder further understands
that TACT may release confidential information about such Vanguard Stockholder
and, if applicable, any underlying beneficial owners, to proper authorities if
TACT, in its sole discretion, determines that it is in the best interest of TACT
in light of relevant rules and regulations under the laws set forth in
subsection (ii) above.
Section 4.5 Investment Representations.
(a) Such Vanguard Stockholder:
(i) is acquiring the Exchange Shares being issued to
such Vanguard Stockholder for investment and for such Vanguard
Stockholder's own account and not as a nominee or agent for
any other Person and with no present intention of distributing
or reselling such shares or any part thereof in any
transactions that would be in violation of the Securities Act
or any state securities or "blue-sky" laws;
(ii) understands (A) that the Exchange Shares to be
issued to him or it have not been registered for sale under
the Securities Act or any state securities or "blue-sky" laws
in reliance upon exemptions therefrom, which exemptions depend
upon, among other things, the bona fide nature of the
investment intent of such Vanguard Stockholder as expressed
herein, (B) that such Exchange Shares must be held and not
sold until such shares are registered under the Securities Act
and any applicable state securities or "blue-sky" laws, unless
an exemption from such registration is available and (C) that
the certificates evidencing such Exchange Shares will be
imprinted with a legend in the form set forth in Section
6.8(b) that prohibits the transfer of such shares, except as
provided in Section 6.8.
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(iii) has been furnished with, and has read and
reviewed, the SEC Reports;
(iv) has had an opportunity to ask questions of and
has received satisfactory answers from the officers of TACT or
Persons acting on TACT's behalf concerning TACT and the terms
and conditions of an investment in TACT Common Stock;
(v) is aware of TACT's business affairs and financial
condition and has acquired sufficient information about TACT
to reach an informed and knowledgeable decision to acquire the
Exchange Shares to be issued to him or it;
(vi) can afford to suffer a complete loss of his or
its investment in such Exchange Shares;
(vii) is familiar with the provisions of Rule 144
promulgated under the Securities Act which, in substance,
permits limited public resale of "restricted securities"
acquired, directly or indirectly, from the issuer thereof, in
a non-public offering subject to the satisfaction of certain
circumstances which require among other things: (A) the
availability of certain public information about the issuer,
(B) the resale occurring not less than one year after the
party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the
case of an affiliate, or of a non-affiliate who has held the
securities less than two years, the amount of securities being
sold during any three month period not exceeding the specified
limitations stated therein, if applicable and (C) in the event
certain holding requirements have not yet been met, the sale
being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker
(as said term is defined under the Exchange Act);
(viii) understands that in the event all of the
applicable requirements of Rule 144 are not satisfied,
registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is
not exclusive, the Staff of the SEC has expressed its opinion
that Persons proposing to sell private placement securities
other than in a registered offering and otherwise than
pursuant to Rule 144 will have a substantial burden of proof
in establishing that an exemption from registration is
available for such offers or sales, and that such Persons and
their respective brokers who participate in such transactions
do so at their own risk; and
(ix) has such knowledge and experience in financial
and business matters that he or it is capable of evaluating
the merits and risks of acquiring and holding shares of TACT
Common Stock.
(b) Such Vanguard Stockholder is an "accredited investor"
within the meaning of Rule 501(a) under the Securities Act.
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(c) No Vanguard Stockholder has employed any broker or finder
or incurred any Liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby, other than as described
under Item 3.20 of the Vanguard Disclosure Schedule.
Section 4.6 Representation by Legal Counsel; Review of Agreement. Such
Vanguard Stockholder has been advised by TACT and the Vanguard Companies to
seek, and has sought, legal counsel in connection with the negotiation and
execution of this Agreement. Such Vanguard Stockholder has carefully read and
reviewed this Agreement and, to the extent he or it believed necessary, has
discussed with his legal, accounting and other professional advisors the
representations, warranties and agreements which the Vanguard Stockholder is
making herein and the terms and conditions of the Exchange Transaction.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF TACT
TACT represents and warrants to the Vanguard Stockholders as follows:
Section 5.1 Organization and Good Standing. TACT and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all of its obligations hereunder. TACT and each of its
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except for
jurisdictions where the failure to qualify would not have a Material Adverse
Effect.
Section 5.2 Books and Records. The books of account, minute books,
stock record books and other records of TACT and each of its Subsidiaries, all
of which have been made available to Vanguard and the Vanguard Stockholders, are
complete and correct and have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Exchange Act,
including the maintenance of an adequate system of internal controls. The minute
books of TACT and each of its Subsidiaries contain accurate and complete records
of all meetings held of, and corporate action taken by, the stockholders, the
boards of directors and committees of the board of directors of TACT and its
Subsidiaries, and no meeting of any such stockholders, board of directors or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of TACT and its Subsidiaries.
Section 5.3 No Conflict; No Consent.
(a) Except as set forth in Item 5.3(a) of the TACT Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Company Transactions
will, directly or indirectly (with or without notice or lapse of time or both):
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(i) Breach (A) any provision of the Organizational
Documents of TACT or any of its Subsidiaries, or (B) any
resolution adopted by the board of directors or the
shareholders of TACT or any of its Subsidiaries;
(ii) Breach or give any Governmental Body or other
Person the right to challenge any of the Contemplated Company
Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which TACT or any
of its Subsidiaries, or any of the assets owned or used by
TACT or any of its Subsidiaries, may be subject:
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by TACT or any of its Subsidiaries or that
otherwise relates to the business of, or any of the assets
owned or used by, TACT or any of its Subsidiaries;
(iv) cause TACT or any of its Subsidiaries to become
subject to, or to become liable for the payment of, any Tax;
(v) cause any of the assets owned by TACT or any of
its Subsidiaries to be reassessed or revalued by any taxing
authority or other Governmental Body;
(vi) Breach, conflict with or result in any violation
of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or
modify, any Contract applicable to TACT or any of its
Subsidiaries; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by TACT or any of its Subsidiaries.
(b) [intentionally omitted]
Section 5.4 Capitalization.
(a) All of the outstanding equity securities and other
securities of each of TACT's Subsidiaries are owned of record and beneficially
by TACT, free and clear of all Encumbrances. No legend or other reference to any
purported Encumbrance appears on any certificate representing equity securities
of any TACT Subsidiary.
(b) All of the outstanding equity securities of each of TACT
and its Subsidiaries have been duly authorized and validly issued and are fully
paid and nonassessable. Except as set forth in Item 5.4(b) of the TACT
Disclosure Schedule or in the SEC Reports, there are no options, warrants or
other Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of TACT or any of its Subsidiaries. None of the
outstanding equity securities or other securities of TACT or any of its
Subsidiaries was issued in violation of the Securities Act or any other Legal
Requirement.
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(c) Except as set forth in Item 5.4(c) of the TACT Disclosure
Schedule, neither TACT nor any of its Subsidiaries owns, or has any right or
Contract to acquire, any equity securities or other securities of any Person
(other than TACT or a Subsidiary of TACT) or any direct or indirect equity or
ownership interest in any other business.
(d) The Common Stock is listed for trading on the NASDAQ
SmallCap Market, the TACT and the Common Stock meet the criteria for continued
listing on the NASDAQ SmallCap Market (without giving effect to the transactions
contemplated by the TACT Stock Purchase Agreement or the TACT Share Exchange
Agreement) and no delisting or suspension of trading of the Common Stock has
been threatened by the NASDAQ Stock Market, Inc. and not addressed by TACT to
the satisfaction of the NASDAQ Stock Market, Inc., or is otherwise currently in
effect.
Section 5.5 No Material Adverse Change. Except as set forth in Item 5.5
of the TACT Disclosure Schedule or in the SEC Reports, since September 30, 2004,
there has not been any material adverse change in the business, operations,
properties, prospects, results of operations or condition (financial or
otherwise) of TACT or any of its Subsidiaries, and no event has occurred or
circumstance exists that may have a Material Adverse Effect.
Section 5.6 Absence of Certain Changes or Events. Except as set forth
in Item 5.6 of the TACT Disclosure Schedule or in the SEC Reports, since
September 30, 2004, TACT and its Subsidiaries have conducted their businesses
only in the Ordinary Course of Business and there has not been any:
(a) change in any of TACT's or any Subsidiary of TACT's
authorized or issued capital stock; grant of any stock option or right to
purchase shares of capital stock of TACT or any of its Subsidiaries; issuance of
any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by TACT or any of
its Subsidiaries of any shares of any such capital stock; or, except as provided
in Section 7.11, declaration or payment of any dividend or other distribution or
payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of TACT or any
of its Subsidiaries;
(c) payment or increase by TACT or any of its Subsidiaries of
any bonuses, salaries, or other compensation to any stockholder, director,
officer or employee of TACT or any of its Subsidiaries, or entry into any
employment, severance, or similar Contract with TACT or any other director,
officer, or employee of TACT or any of its Subsidiaries;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees of
TACT or any of its Subsidiaries;
(e) damage to or destruction or loss of any asset or property
of TACT or any of its Subsidiaries, whether or not covered by insurance,
materially and adversely affecting the properties, assets, business, financial
condition, or prospects of TACT and its Subsidiaries, taken as a whole;
A-47
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract or transaction
involving a total remaining commitment by or to TACT or any of its Subsidiaries
of at least $100,000;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of TACT or
any of its Subsidiaries or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of TACT or any of its
Subsidiaries;
(h) cancellation or waiver of any claims or rights with a
value to TACT or any of its Subsidiaries in excess of $100,000;
(i) except as required by GAAP, a revaluation of any of the
assets or material change in the accounting methods, principles or practices
used by TACT or any of its Subsidiaries; or
(j) agreement, whether oral or written, by TACT or any of its
Subsidiaries to do any of the foregoing.
Section 5.7 Legal Proceedings; Orders.
(a) Except as set forth in Item 5.7(a) of the TACT Disclosure
Schedule or in the SEC Reports, (i) there is no pending or, to TACT's Knowledge,
threatened Proceeding, that has been commenced by or against TACT, any of its
Subsidiaries or any of its stockholders that own more than 10% of the TACT
Common Stock, or that otherwise relates to or may affect the business of, or any
of the assets owned or used by, TACT or any of its Subsidiaries; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the Contemplated Transactions. To TACT's
Knowledge and the Knowledge of TACT's Subsidiaries, no event has occurred or
circumstance exists that is reasonably likely to give rise to or serve as a
basis for the commencement of any such Proceeding. TACT has delivered to
Vanguard and the Vanguard Stockholders copies of all pleadings, correspondence,
and other documents relating to each Proceeding listed in Item 5.7(a) of the
TACT Disclosure Schedule. The Proceedings listed in Item 5.7(a) of the TACT
Disclosure Schedule will not have a material adverse effect on the business,
operations, assets, condition, or prospects of TACT or any of its Subsidiaries.
(b) Except as set forth in Item 5.7(b)of the TACT Disclosure
Schedule or in the SEC Reports, (i) there is no Order to which TACT or any of
its Subsidiaries, or any of the assets owned or used by TACT or any of its
Subsidiaries, is subject; (ii) TACT is not subject to any Order that relates to
the business of, or any of the assets owned or used by, TACT or any of its
Subsidiaries; and (iii) to the Knowledge of TACT and the knowledge of the
Subsidiaries, no officer, director, agent, or employee of TACT or any of its
Subsidiaries is subject to any Order that prohibits such officer, director,
agent, or employee from engaging in or continuing any conduct, activity, or
practice relating to the business of TACT or any of its Subsidiaries.
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(c) Except as set forth in Item 5.7(c) of the TACT Disclosure
Schedule or in the SEC Reports, (i) TACT and each of its Subsidiaries is, and at
all times since January 1, 2004, has been, in full compliance with all of the
terms and requirements of each Order to which it, or any of the assets owned or
used by it, is or has been subject; (ii) no event has occurred or circumstance
exists that may constitute or result in (with or without notice or lapse of
time) a violation of or failure to comply with any term or requirement of any
Order to which TACT or any of its Subsidiaries, or any of the assets owned or
used by TACT or any of its Subsidiaries, is subject; and neither TACT nor any of
its Subsidiaries has received, at any time since January 1, 2001, any notice or
other communication (whether oral or written) from any Governmental Body or any
other Person regarding any actual, alleged, possible, or potential violation of,
or failure to comply with, any term or requirement of any Order to which TACT or
any of its Subsidiaries, or any of the assets owned or used by TACT or any of
its Subsidiaries, is or has been subject.
Section 5.8 SEC Reports. TACT has previously made available to Vanguard
and the Vanguard Stockholders each communication sent by TACT to its
stockholders generally since January 1, 2001, and will continue to make such
filings and communications available to Vanguard and the Vanguard Stockholders
until the Closing. Since January 1, 2001, TACT has timely filed all SEC Reports
required to be filed by it under the Exchange Act and any other reports or
documents required to be filed with the Commission. At the time of filing,
mailing, or delivery thereof, the SEC Reports were prepared in accordance with
the applicable requirements of the Exchange Act and the regulations promulgated
thereunder and complied with the then applicable accounting requirements, and
none of such documents or information contained or will contain an untrue
statement of a material fact or omitted or will omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading except for such
statements, if any, as have been modified by subsequent filings with the
Commission prior to the date hereof. Each of the consolidated balance sheets
included in or incorporated by reference into the SEC Reports (including the
related notes and schedules) fairly presents in all material respects the
consolidated financial position of TACT and its Subsidiaries as of its date and
each of the consolidated statements of income, cash flows and stockholders'
equity included in or incorporated by reference into the SEC Reports (including
any related notes and schedules) fairly presents in all material respects the
results of operations, cash flows or changes in stockholders' equity, as the
case may be, of TACT and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to such exceptions as may be
permitted by Form 10-Q under the Exchange Act), in each case in accordance with
GAAP consistently applied during the periods involved, except as may be noted
therein. Upon written request of the Vanguard Stockholders, TACT will furnish to
Vanguard and the Vanguard Stockholders copies of (i) all correspondence received
from the Commission, and (ii) any of the agreements and instruments filed as
exhibits to the SEC Reports. TACT has furnished to Vanguard and the Vanguard
Stockholders a complete and accurate copy of any amendments or modifications,
which have not yet been filed with the Commission but which are required to be
filed, to agreements, documents or other instruments which previously had been
filed by TACT with the Commission pursuant to the Securities Act or Exchange
Act.
Section 5.9 Brokers or Finders. Except as set forth in Item 5.9 of the
TACT Disclosure Schedule, neither TACT nor any agent of TACT has incurred any
Liability or obligation for brokerage or finders' fees or agents' commissions or
other similar payments in connection with this Agreement or the Contemplated
Company Transactions.
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ARTICLE 6
COVENANTS OF VANGUARD PRIOR TO CLOSING DATE
Section 6.1 Access and Investigation. Between the date of this
Agreement and the Closing Date and upon reasonable advance notice received from
TACT, the Vanguard Stockholders (other than Berenson) will, and will cause each
Vanguard Company and its Representatives to, (a) afford TACT and its
Representatives (collectively, "TACT's Advisors") full and free access to each
Vanguard Company's personnel, properties, Contracts, books and records and other
documents and data, (b) furnish TACT and TACT's Advisors with copies of all such
Contracts, books and records, and other existing documents and data as TACT may
reasonably request, and (c) furnish TACT and TACT's Advisors with such
additional financial, operating and other data and information as TACT may
reasonably request.
Section 6.2 Required Approvals. As promptly as practicable after the
date of this Agreement, the Vanguard Stockholders (other than Berenson) will,
and will cause each Vanguard Company to, make all filings required by Legal
Requirements to be made by them in order to consummate the Contemplated Company
Transactions. Between the date of this Agreement and the Closing Date and
thereafter, the Vanguard Stockholders will, and will cause each Vanguard Company
to, (a) cooperate with TACT with respect to all filings that TACT elects to make
or is required by Legal Requirements to make in connection with the Contemplated
Company Transactions and (b) cooperate with TACT with respect to all filings
that TACT elects to make or is required by Legal Requirements to make in
connection with the rights granted to the Vanguard Stockholders pursuant to
Section 7.10.
Section 6.3 Business Operations of the Acquired Companies. Between the
date of this Agreement and the Closing Date, the Vanguard Stockholders (other
than Berenson) will, and will cause each Vanguard Company to:
(a) conduct the business of each Vanguard Company only in the
Ordinary Course of Business;
(b) use their Best Efforts to preserve intact the current
business organization of each Vanguard Company, keep available the services of
the current officers, employees, and agents of each Vanguard Company, and
maintain its relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with each
Vanguard Company;
(c) confer with TACT prior to implementing operational
decisions of a material nature;
(d) make no material changes in management personnel or
management compensation arrangements without prior consultation with TACT;
(e) except as required to comply with ERISA or to maintain
qualification under Section 401(a) of the Code, not amend, modify or terminate
any Employee Plan without the express written consent of TACT and, except as
required under the provisions of any Employee Plan, not make any contribution to
or with respect to any Employee Plan without the express written consent of
TACT, provided, such Vanguard Company shall contribute that amount of cash to
each Employee Plan necessary to fully fund its obligations under such Employee
Plan; and
A-50
(f) otherwise report periodically to TACT concerning the
status of the business, operations, and finances of each Vanguard Company.
Section 6.4 Negative Covenant. Except as otherwise expressly permitted
by this Agreement, between the date of this Agreement and the Closing Date, the
Vanguard Stockholders (other than Berenson) will not, and will cause each
Vanguard Company not to, without the prior consent of TACT, take any affirmative
action, or fail to take any reasonable action within their or its control, as a
result of which any of the changes or events listed in Section 3.7 or Section
3.8 is likely to occur.
Section 6.5 Notification. Between the date of this Agreement and the
Closing Date, Vanguard will promptly notify TACT and each Vanguard Stockholder
in writing if Vanguard becomes aware of any fact or condition that causes or
constitutes a Breach of any of the representations and warranties of the
Vanguard Stockholders as of the date of this Agreement, or if Vanguard becomes
aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Vanguard Disclosure Schedule if the Vanguard Disclosure Schedule were
dated the date of the occurrence or discovery of any such fact or condition, the
Vanguard Stockholders will promptly deliver to TACT a supplement to the Vanguard
Disclosure Schedule specifying such change. Such delivery shall not affect any
rights of TACT under Section 9.1 and ARTICLE 11. During the same period, the
Vanguard Stockholders will promptly notify TACT of the occurrence of any event
that may make the satisfaction of the conditions in ARTICLE 9 impossible or
unlikely.
Section 6.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, all indebtedness owed to any Vanguard
Company by any Vanguard Stockholder or any Related Person of any Vanguard
Stockholder to be paid in full or discharged prior to Closing.
Section 6.7 Best Efforts. Between the date of this Agreement and the
Closing Date, the Vanguard Stockholders will use their Best Efforts to cause the
conditions in ARTICLE 9 to be satisfied.
Section 6.8 Restriction on Transfer of Exchange Shares
(a) The Exchange Shares to be issued to each Vanguard
Stockholder and any shares of capital stock or other securities received with
respect thereto (collectively, the "Restricted Securities") shall not be sold,
transferred, assigned, pledged, encumbered or otherwise disposed of (each, a
"Transfer") except upon the conditions specified in this Section 6.8, which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each Vanguard Stockholder of the Company shall observe and
comply with the Securities Act and the rules and regulations promulgated by the
SEC thereunder as now in effect or hereafter enacted or promulgated, and as from
time to time amended, in connection with any Transfer of Restricted Securities
beneficially owned by the Vanguard Stockholder.
A-51
(b) Each certificate representing Restricted Securities issued
to a Vanguard Stockholder and each certificate for such securities issued to
subsequent transferees of any such certificate shall (unless otherwise permitted
by the provisions of Sections 6.8(c) and 6.8(d) hereof) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM. ADDITIONALLY, THE TRANSFER OF THESE
SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 6.8 OF THE
EXCHANGE AGREEMENT DATED AS OF JANUARY 21, 2005, AMONG VANGUARD
INFO-SOLUTIONS COPRORATION, THE VANGUARD STOCKHOLDERS NAMED THEREIN,
THE AUTHORIZED REPRESENTATIVE NAMED THEREIN AND TACT, INC., AND NO
TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH
CONDITIONS, TACT, INC. HAS AGREED TO DELIVER TO THE HOLDER HEREOF A
TACT, INC. CERTIFICATE NOT BEARING THIS LEGEND, FOR THE SECURITIES
REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES
OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF TACT,
INC."
(c) Prior to any Transfer of Restricted Securities that occurs
subsequent to the Closing, each Vanguard Stockholder will give written notice to
TACT of such Vanguard Stockholder's intention to effect such Transfer and to
comply in all other respects with the provisions of this Section 6.8. Each such
notice shall describe the manner and circumstances of the proposed Transfer and,
if requested by TACT, shall be accompanied by the written opinion, addressed to
TACT, of counsel for the holder of such Restricted Securities, stating that in
the opinion of such counsel (which opinion and counsel shall be reasonably
satisfactory to TACT) such proposed transfer does not involve a transaction
requiring registration or qualification of such Restricted Securities under the
Securities Act or the securities or "blue-sky" laws of any relevant state of the
United States. The holder thereof shall thereupon be entitled to Transfer such
Restricted Securities in accordance with the terms of the notice delivered by it
to TACT. Each certificate or other instrument evidencing the securities issued
upon the Transfer of any such Restricted Securities (and each certificate or
other instrument evidencing any untransferred balance of such Restricted
Securities) shall bear the legend set forth in Section 6.8(b) unless (x) in such
opinion of counsel of TACT registration of any future Transfer is not required
by the applicable provisions of the Securities Act or (y) TACT shall have waived
the requirement of such legends. No Vanguard Stockholder shall Transfer any
Restricted Securities until such opinion of counsel has been given (unless
waived by TACT or unless such opinion is not required in accordance with the
provisions of this Section 6.8(c)).
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(d) Notwithstanding the foregoing provisions of this Section
6.8, the restrictions imposed by this Section 6.8 upon the transferability of
Restricted Securities shall cease and terminate when (i) any such shares are
sold or otherwise disposed of pursuant to an effective registration statement
under the Securities Act or as otherwise contemplated by Section 6.8(c), (ii)
pursuant to Section 6.8(c), the shares so transferred are not required to bear
the legend set forth in Section 6.8(b), or (iii) the holder of such Restricted
Securities has met the requirements for Transfer of such Restricted Securities
pursuant to subparagraph (k) of Rule 144. Whenever the restrictions imposed by
this Section 6.8 shall terminate, as herein provided, the holder of Restricted
Securities as to which such restrictions have terminated shall be entitled to
receive from TACT, without expense, a new certificate not bearing the
restrictive legend set forth in Section 6.8(b) and not containing any other
reference to the restrictions imposed by this Section 6.8.
(e) Each Vanguard Stockholder understands and agrees that
TACT, at its discretion, may cause stop transfer orders to be placed with its
transfer agent with respect to certificates for Restricted Securities owned by
such Vanguard Stockholder, but not as to certificates for such shares of TACT
Common Stock as to which the legend set forth in paragraph (b) of this Section
6.8 is no longer required because one or more of the conditions set forth in
Section 6.8(d) shall have been satisfied, in the event of a proposed Transfer in
violation or breach of this Section 6.8.
Section 6.9 Restrictions on Transfer of Transferred Vanguard Shares
Prior to Closing. Prior to any Transfer of the Transferred Vanguard Shares that
is to occur prior to the Closing, the Vanguard Shareholder intending to effect
any such Transfer will give written notice to Vanguard and TACT of such Vanguard
Stockholder's intention to effect such Transfer and will comply in all other
respects with the provisions of this Section 6.9. Each such notice shall
describe the manner and circumstances of the proposed Transfer and shall be
accompanied by (a) a statement executed by the proposed transferee of such
Transferred Vanguard Shares stating that such proposed transferee has been
provided with a copy of this Agreement (including the Exhibits and Schedules
hereto) and has read the same, (b) a questionnaire completed and verified by the
proposed transferee containing such information as TACT and Vanguard may
reasonably request, (c) a written agreement, in form and substance reasonably
satisfactory to TACT, providing that the transferee of the Transferred Vanguard
Shares thereby assumes all of the rights and obligations of the transferor of
such Transferred Vanguard Shares under this Agreement, including the obligation
to deliver such shares at the Closing and to execute the Escrow Agreement and
deliver such proposed transferee's proportionate share of Escrow Shares into
Escrow at the Closing, (d) each of the Custody Agreement and the Stockholder
Certificate duly executed by the proposed transferee and (e) if requested by
Vanguard, the written opinion, addressed to Vanguard, of counsel for the holder
of such Transferred Vanguard Shares, stating that in the opinion of such counsel
(which opinion and counsel shall be reasonably satisfactory to Vanguard) such
proposed transfer does not involve a transaction requiring registration or
qualification of such Restricted Securities under the Securities Act or the
securities or "blue-sky" laws of any relevant state of the United States. Upon
compliance with this Section 6.9, the holder thereof shall thereupon be entitled
to Transfer such Transferred Vanguard Shares in accordance with the terms of the
notice delivered by it to Vanguard. Each certificate or other instrument
evidencing the securities issued upon the Transfer of any such Transferred
Vanguard Shares (and each certificate or other instrument evidencing any
untransferred balance of such Transferred Vanguard Shares) shall bear the legend
set forth on the share certificate to be transferred. The parties agree that
Exhibit A attached hereto shall be updated to reflect any transfers that occur
pursuant to this Section.
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ARTICLE 7
COVENANTS OF TACT PRIOR TO CLOSING DATE
Section 7.1 Access and Investigation. Between the date of this
Agreement and the Closing Date and upon reasonable advance notice received from
Vanguard, TACT will, and will cause each of its Subsidiaries and their
Representatives to, (a) afford Vanguard and its Representatives (collectively,
"Vanguard Advisors") full and free access to TACT's and its Subsidiaries'
personnel, properties, Contracts, books and records and other documents and
data, (b) furnish Vanguard and Vanguard's Advisors with copies of all such
Contracts, books and records, and other existing documents and data as Vanguard
may reasonably request, and (c) furnish Vanguard and Vanguard's Advisors with
such additional financial, operating and other data and information as Vanguard
may reasonably request.
Section 7.2 Required Approvals. As promptly as practicable after the
date of this Agreement, TACT will, and will cause each of its Subsidiaries to,
make all filings required by Legal Requirements to be made by them in order to
consummate the Company Contemplated Transactions. Between the date of this
Agreement and the Closing Date, TACT will, and will cause each of its
Subsidiaries to, (a) cooperate with Vanguard with respect to all filings that
Vanguard elects to make or is required by Legal Requirements to make in
connection with the Company Contemplated Transactions, and (b) cooperate with
Vanguard in obtaining all consents identified in Item 3.2(b) of Vanguard's
Disclosure Schedule.
Section 7.3 Business Operations of the Acquired Companies. Between the
date of this Agreement and the Closing Date, TACT will, and will cause each of
its Subsidiaries to:
(a) conduct its business and the business of each of its
Subsidiaries only in the Ordinary Course of Business;
(b) use their Best Efforts to preserve intact the current
business organization of TACT and the business organization of each of its
Subsidiaries, keep available the services of their current officers, employees,
and agents, and maintain their relations and good will with suppliers,
customers, landlords, creditors, employees, agents, and others having business
relationships with TACT and its Subsidiaries;
(c) confer with Vanguard prior to implementing operational
decisions of a material nature;
A-54
(d) make no material changes in management personnel or
management compensation arrangements without prior consultation with Vanguard;
(e) except as required to comply with ERISA or to maintain
qualification under Section 401(a) of the Code, not amend, modify or terminate
any Employee Plan without the express written consent of Vanguard, and, except
as required under the provisions of any Employee Plan, not make any contribution
to or with respect to any Employee Plan without the express written consent of
Vanguard, provided that TACT and its Subsidiaries shall contribute that amount
of cash to each Employee Plan necessary to fully fund its obligations under such
Employee Plan; and
(f) otherwise report periodically to Vanguard concerning the
status of the business, operations, and finances of TACT and its Subsidiaries.
Notwithstanding anything contained herein to the contrary or any
restrictions contained herein, TACT may accelerate the vesting of employee stock
options prior to the Closing.
Section 7.4 Negative Covenant. Except as otherwise expressly permitted
by this Agreement, between the date of this Agreement and the Closing Date, TACT
will not, and will cause each of its Subsidiaries not to, without the prior
consent of Vanguard, take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes or
events listed in Section 5.5 or Section 5.6 would be likely to occur.
Section 7.5 Notification. Between the date of this Agreement and the
Closing Date, TACT will promptly notify the Authorized Representative if TACT or
any of its Subsidiaries becomes aware of any fact or condition that causes or
constitutes a Breach of any of TACT's representations and warranties as of the
date of this Agreement, or if TACT becomes aware of the occurrence after the
date of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the TACT Disclosure Schedule if the TACT
Disclosure Schedule were dated the date of the occurrence or discovery of any
such fact or condition, TACT will promptly deliver to the Authorized
Representative a supplement to the TACT Disclosure Schedule specifying such
change. Such delivery shall not affect any rights of Vanguard, or any Vanguard
Stockholder under Section 10.1. During the same period, TACT will promptly
notify the Authorized Representative of the occurrence of any event that may
make the satisfaction of the conditions in ARTICLE 10 impossible or unlikely.
Section 7.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, TACT will cause all indebtedness owed to
TACT or any of its Subsidiaries by any Related Person of TACT to be paid in full
prior to Closing.
Section 7.7 No Solicitation by TACT.
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(a) TACT agrees that it (i) will not (and it will not permit
its officers, directors, employees, agents or representatives, including any
investment banker, attorney or accountant retained by it to ) (A) solicit,
initiate or encourage (including by way of furnishing material non-public
information) any inquiry, proposal or offer, whether or not in writing
(including any proposal or offer to its shareholders), with respect to a third
party tender offer, merger, consolidation, business combination or similar
transaction involving all or more than 10% of the assets of TACT taken as a
whole or 10% or more of any class of capital stock of TACT, or any acquisition,
directly or indirectly, of 10% or more of the capital stock or assets of TACT
and its subsidiaries, taken as a whole, in a single transaction or a series of
related transactions, or any combination of the foregoing (any such proposal,
offer or transaction being hereinafter referred to as a "Company Acquisition
Proposal"), (B) participate or engage in any discussions or negotiations
concerning, furnish to any Person any information with respect to, or take any
action to facilitate any inquiries or the making of any proposal or offer that
constitutes or may reasonably be expected to lead to, a Company Acquisition
Proposal or (C) approve or recommend any Company Acquisition Proposal, accept
any Company Acquisition Proposal or enter into a letter of intent, agreement in
principle or agreement with respect to any Company Acquisition Proposal (or
resolve to or publicly propose to do any of the foregoing); and (ii) will
immediately cease and cause to be terminated any existing negotiations with any
third parties conducted heretofore with respect to any of the foregoing;
provided that, subject to Section 7.7(b), (A) nothing contained in clause (i)
above shall prohibit TACT or its board of directors from disclosing to TACT's
shareholders a position with respect to a tender offer by a third party pursuant
to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, further provided
that the board of directors of TACT shall not recommend that its shareholders of
TACT tender their shares of TACT in connection with any such tender or exchange
offer unless the board of directors shall have determined in good faith, after
consultation with its financial advisors and outside counsel, that the relevant
Company Acquisition Proposal is a Superior Proposal and (B) prior to the
Shareholders' Meeting, if TACT receives an unsolicited bona fide written Company
Acquisition Proposal from a third party that the board of directors of TACT
determines in good faith (after receiving the advice of its financial advisors)
is reasonably likely to be a Superior Proposal, TACT and its representatives may
conduct such discussions or provide such information as the board of directors
of TACT shall determine, but only if, prior to such provision of information or
conduct of such discussions, the board of directors of TACT determines in its
good faith judgment, after consultation with outside counsel, that it is
required to do so in order to comply with its fiduciary duties. For purposes of
this Agreement, "Superior Proposal" means any unsolicited bona fide written
Company Acquisition Proposal which (i) contemplates (A) a merger or other
business combination, reorganization, share exchange, recapitalization,
liquidation, dissolution, tender offer, exchange offer or similar transaction
involving TACT as a result of which TACT's shareholders prior to such
transaction in the aggregate cease to own at least 50% of the voting securities
of the ultimate parent entity resulting from such transaction or (B) a sale,
lease, exchange, transfer or other disposition (including, without limitation, a
contribution to a joint venture) of at least 50% of the value of the assets of
TACT and its Subsidiaries, taken as a whole, and (ii) is on terms which the
board of directors of TACT determines (after consultation with its financial
advisors and outside counsel), taking into account, among other things, all
legal, financial, regulatory and other aspects of the proposal and the Person
making the proposal, (A) would, if consummated, result in a transaction that is
more favorable to its shareholders from a financial point of view (in their
capacities as such) than the transactions contemplated by this Agreement
(including the terms of any proposal by the Parent to modify the terms of the
transactions contemplated by this Agreement) and (B) is reasonably likely to be
financed and otherwise completed without undue delay.
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(b) TACT will promptly (and in any event within one Business
Day) notify the Authorized Representative of any requests referred to in Section
7.7(a) for information or the receipt of any Company Acquisition Proposal,
including the identity of the Person or group engaging in such discussions or
negotiations, requesting such information or making such Company Acquisition
Proposal, and the material terms and conditions of any Company Acquisition
Proposal, and shall keep the Authorized Representative informed on a timely
basis (and in any event within one Business Day) of any material changes with
respect thereto. Prior to taking any action referred to in the proviso of
Section 7.7(a), if TACT intends to participate in any such discussions or
negotiations or provide any such information to any such third party, TACT shall
give prompt prior notice to the Authorized Representative of each such action.
Section 7.8 Shareholders' Meeting. TACT, acting through its board of
directors, shall, in accordance with applicable law and its Certificate of
Incorporation and Bylaws, (i) duly call, give notice of, convene and hold a
meeting of its shareholders as soon as reasonably practicable following the date
hereof for the purpose of considering and taking action to authorize and approve
the issuance of the Exchange Shares pursuant to this Agreement and the
transactions contemplated hereby and by the TACT Stock Purchase Agreement and
the transactions contemplated thereby (the "Shareholders' Meeting"); and (ii)
subject to its fiduciary duties under applicable law after consultation with
outside counsel, (A) include in the proxy soliciting materials for the
Shareholders' Meeting the recommendation of the board of directors that the
shareholders of TACT vote in favor of the approval and adoption of this
Agreement and the TACT Stock Purchase Agreement and the transactions
contemplated hereby and thereby, (B) use its reasonable best efforts to obtain
the necessary approval and adoption of this Agreement and the TACT Stock
Purchase Agreement and the transactions contemplated hereby and thereby from its
shareholders, (C) use its reasonable best efforts to obtain the necessary
approval to increase the number of shares subject to its 1997 Stock Option and
Award Plan from 300,000 to 1,200,000 and (D) change the name of the corporation
to Vanguard Info-Solutions International Inc. or, if such name is not available,
such other name as the Authorized Representative may approve. Notwithstanding
TACT's failure to include the recommendation contemplated by clause (A) of the
preceding sentence (in the circumstances permitted thereby), unless this
Agreement shall have been terminated pursuant to ARTICLE 12, TACT shall submit
this Agreement to its shareholders at the Shareholders' Meeting for the purpose
of adopting this Agreement and nothing contained herein shall be deemed to
relieve TACT of such obligation. The proxy soliciting materials and the
proposals contained therein shall comply with Regulation 14A of the regulations
under the Exchange Act and shall be in a form such that, if shareholder approval
is obtained, the requirements of Rule 4350(i) of the Marketplace Rules of The
NASDAQ Stock Market, Inc. shall have been complied with.
Section 7.9 Best Efforts. Between the date of this Agreement and the
Closing Date, TACT will use its Best Efforts to cause the conditions in ARTICLE
10 to be satisfied.
Section 7.10 Registration Rights. If TACT at any time after the Closing
Date proposes for any reason to register shares of TACT Common Stock under the
Securities Act (other than on Form S-4 or Form S-8 promulgated under the
Securities Act or any successor forms thereto), it shall give written notice to
the Vanguard Stockholders of its intention to so register such shares of TACT
Common Stock at least thirty (30) days before the initial filing of such
registration statement and, upon the written request, delivered to TACT within
twenty (20) days after delivery of any such notice by TACT, of the Vanguard
Stockholders to include in such registration Exchange Shares (which request
shall specify the number of Exchange Shares proposed to be included in such
registration and shall state that such Vanguard Stockholders desire to sell such
Exchange Shares in the public securities markets), TACT shall use commercially
reasonable efforts to cause all such Exchange Shares to be included in such
registration on the same terms and conditions as the securities otherwise being
sold in such registration; provided, that if the managing underwriter advises
TACT that the inclusion of all Exchange Shares requested to be included in such
registration would be materially detrimental to the successful marketing
(including pricing) of the TACT Common Stock proposed to be registered by TACT,
then the number of Exchange Shares proposed to be included in such registration
shall be reduced before any other shares of TACT Common Stock proposed to be
included in such registration.
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Section 7.11 Declaration and Payment of Dividend. Prior to the Closing
TACT shall declare and pay a cash dividend (the "Dividend") in the amount of
$0.75 per share of TACT Common Stock and TACT preferred stock (to the extent
that such preferred stock has not been converted to TACT Common Stock) issued
and outstanding on the record date; provided, that (i) payment of the Dividend
shall be contingent on the consummation of the Company Contemplated
Transactions; and (ii) the Dividend that is payable with regard to 30,000 shares
of TACT Common Stock that are to be issued to the independent members of TACT's
board of directors following the authorization thereof at the Shareholders'
Meeting may be reserved and set aside pending issuance of such shares.
ARTICLE 8
ADDITIONAL COVENANTS
Section 8.1 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Company
Transactions will be issued, if at all, at such time and in such manner as TACT
determines. Unless consented to by TACT in advance or required by Legal
Requirements, prior to the Closing, the Vanguard Companies, the Vanguard
Stockholders shall, keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any Person. The Authorized Representative
and TACT will consult with each other concerning the means by which the
employees, customers, and suppliers of the Vanguard Companies, TACT, its
Subsidiaries and others having dealings with the Vanguard Companies, TACT and
its Subsidiaries will be informed of the Contemplated Company Transactions.
Section 8.2 Confidentiality.
(a) Between the date of this Agreement and the Closing Date,
TACT, the Vanguard Companies, the Vanguard Stockholders will maintain in
confidence, and will cause the directors, officers, employees, agents, and
advisors of TACT and the agents and advisors of the Vanguard Stockholders to
maintain in confidence, and not use to the detriment of another party any
written, oral, or other information obtained in confidence from another party in
connection with this Agreement or the Contemplated Company Transactions, unless
(i) such information is already known to such party or to others not bound by a
duty of confidentiality or such information becomes publicly available through
no fault of such party, (ii) the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the Contemplated Company Transactions, or (iii) the
furnishing or use of such information is required by or necessary or appropriate
in connection with any legal Proceedings.
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(b) If the Contemplated Company Transactions are not
consummated, each party will return or destroy as much of such written
information as the other party may reasonably request. Whether or not the
Closing takes place, the Vanguard Companies, the Vanguard Stockholders waive,
and will upon TACT's request cause each of the Acquired Companies to waive, any
cause of action, right, or claim arising out of the access of TACT or its
representatives to any Trade Secrets or other confidential information of the
Acquired Companies except for the intentional competitive misuse by TACT of such
Trade Secrets or confidential information.
Section 8.3 Board Membership. Immediately after the Closing, the board
of directors of TACT shall elect to fill the vacancies on such board and by the
two resignations referenced in Section 10.8 with (a) those persons listed on
Exhibit E as directors of TACT and (b) to the extent that Exhibit E lists fewer
than three persons, persons who will be independent directors within the meaning
of Rule 4350(c) of the Marketplace Rules of The NASDAQ Stock Market, Inc. as
directors of TACT, in each case to serve until their successors are elected and
qualify.
ARTICLE 9
CONDITIONS PRECEDENT TO TACT'S OBLIGATION TO CLOSE
The obligation of TACT to issue the Exchange Shares to the Vanguard
Stockholders and to take the other actions required to be taken by TACT at the
Closing is subject to the fulfillment or written waiver by TACT at or prior to
the Closing of each of the following conditions:
Section 9.1 Accuracy of Representations.
(a) All of the representations and warranties of the Vanguard
Stockholders in this Agreement must have been accurate in all material respects
as of the date of this Agreement, and must be accurate in all material respects
as of the Closing Date as if made on the Closing Date, without giving effect to
any supplement to the Vanguard Disclosure Schedule delivered after the date
hereof.
(b) Each of the representations and warranties of the Vanguard
Stockholders set forth in ARTICLE 4 (considered individually) must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date without giving effect to any supplement to the Vanguard Disclosure
Schedule delivered after the date hereof.
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Section 9.2 Vanguard Stockholders' Performance.
(a) All of the covenants and obligations that Vanguard or the
Vanguard Stockholders are required to perform or to comply with pursuant to this
Agreement at or prior to the Closing must have been duly performed and complied
with in all material respects.
(b) Each document required to be delivered pursuant to Section
2.4(a) must have been delivered, and each of the other covenants and obligations
in Section 6.2 and Section 6.7 must have been performed and complied with in all
respects.
Section 9.3 Additional Documents. Each of the following documents must
have been delivered to TACT:
(a) Opinions of McGuireWoods LLP, and Patanjali Associates,
New Delhi, India, dated the Closing Date, addressing the matters listed in
Exhibit 9.4(a);
(b) The Organizational Documents and all amendments thereto of
each Vanguard Company, certified as of a recent date by the appropriate official
of the jurisdiction in which such Vanguard Company is incorporated as specified
in Item 3.1 of the Vanguard Disclosure Schedule;
(c) Certificates with respect to (i) in the case of Vanguard,
a date not earlier than the third Business Day prior to the Closing, and, in the
case of each other Vanguard Company, dated as of a date not earlier than the
thirtieth Business Day prior to the Closing, as to the good standing of such
Vanguard Company, executed by the appropriate official of each jurisdiction in
which the Vanguard Company is incorporated and in which it is qualified to do
business as a foreign corporation as specified in Item 3.1 of the Vanguard
Disclosure Schedule; and
(d) Such other documents as TACT may reasonably request for
the purpose of (i) enabling its counsel to provide the opinion referred to in
Section 10.4(a), (ii) evidencing the accuracy of any of Vanguard Stockholders'
representations and warranties, (iii) evidencing the performance by Vanguard and
each Vanguard Stockholder of, or the compliance by Vanguard and each Vanguard
Stockholder with, any covenant or obligation required to be performed or
complied with by Vanguard or such Vanguard Stockholder, (iv) evidencing the
satisfaction of any condition referred to in this ARTICLE 9, or (v) otherwise
facilitating the consummation or performance of any of the Contemplated Company
Transactions.
Section 9.4 Consummation of Other Transactions. The transactions
contemplated by the TACT Stock Purchase Agreement shall have been consummated
(subject to the consummation of the Contemplated Transactions).
Section 9.5 No Proceedings. Since the date of this Agreement, there
must not have been commenced or threatened against TACT or any Related Person of
TACT, any Proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the Contemplated Company Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Company Transactions.
Section 9.6 No Material Adverse Effect. Since the date of this
Agreement, no event has occurred that has a Material Adverse Effect on the
Vanguard Companies, taken as a whole, and no event has occurred or circumstance
exists that may cause a Material Adverse Effect on the Vanguard Companies, taken
as a whole.
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Section 9.7 Intentionally Omitted.
Section 9.8 Castor. Castor shall have sold or transferred, on terms
reasonably acceptable to TACT, all shares of Vanguard Info-Solution Limited
owned by Castor to Vanguard and Castor shall have been liquidated or its shares
distributed or sold.
ARTICLE 10
CONDITIONS PRECEDENT TO VANGUARD STOCKHOLDERS' OBLIGATION TO CLOSE
The obligation of the Vanguard Stockholders to exchange the Transferred
Vanguard Shares and to take the other actions required to be taken by the
Vanguard Stockholders at the Closing is subject to the fulfillment or written
waiver by the Vanguard Stockholders at or prior to the Closing of each of the
following conditions:
Section 10.1 Accuracy of Representations. All of TACT's representations
and warranties in this Agreement must have been accurate in all material
respects as of the date of this Agreement and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the TACT Disclosure Schedule delivered after the
date hereof.
Section 10.2 TACT's Performance.
(a) All of the covenants and obligations that TACT is required
to perform or to comply with pursuant to this Agreement at or prior to the
Closing must have been performed and complied with in all material respects.
(b) TACT must have delivered each of the documents required to
be delivered by TACT pursuant to Section 2.4(b)(ii) and must have issued the
Exchange Shares required pursuant to Section 2.4(b)(i).
Section 10.3 Additional Documents. TACT must have caused the following
documents to be delivered to the Vanguard Stockholders:
(a) An opinion of Orrick, Herrington & Sutcliffe LLP, dated
the Closing Date, addressing the matters listed in Exhibit 10.4(a); and
(b) Such other documents as the Authorized Representative may
reasonably request for the purpose of (i) enabling counsel for the Vanguard
Stockholders to provide the opinion referred to in Section 9.4(a), (ii)
evidencing the accuracy of any representation or warranty of TACT, (iii)
evidencing the performance by TACT of, or the compliance by TACT with, any
covenant or obligation required to be performed or complied with by TACT, (iv)
evidencing the satisfaction of any condition referred to in this ARTICLE 10, or
(v) otherwise facilitating the consummation of any of the Contemplated Company
Transactions.
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Section 10.4 Consummation of Other Transactions. The transactions
contemplated by each of the Shareholder Stock Purchase Agreement and the TACT
Stock Purchase Agreement shall have been consummated (subject to the
consummation of the Contemplated Transactions).
Section 10.5 No Proceedings. Since the date of this Agreement, there
must not have been commenced or threatened against Vanguard or any Vanguard
Stockholder or any Related Person of Vanguard or any Vanguard Stockholder, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Company Transactions, or (b) that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Company Transactions.
Section 10.6 No Material Adverse Change. Since the date of this
Agreement, no event has occurred that has a Material Adverse Effect on TACT and
its Subsidiaries, taken as a whole, and no event has occurred or circumstance
exists that may cause a Material Adverse Effect on TACT and its Subsidiaries,
taken as a whole.
Section 10.7 Falcone Employment Agreement. TACT and Richard Falcone
shall have entered into an employment agreement in the form of Exhibit 10.8.
Section 10.8 Resignations. Shmuel BenTov and Reuven Battat shall have
resigned from TACT's board of directors.
ARTICLE 11
INDEMNIFICATION; REMEDIES; LIMITS ON LIABILITY
Section 11.1 Indemnification.
(a) Subject to the limitation contained in Section 11.2(a),
from and after the Closing Date, Excalibur shall protect, defend, indemnify and
hold harmless TACT and its affiliates (including the Vanguard Companies),
officers, directors, employees, representatives and agents (each a "TACT
Indemnified Person" and collectively, the "TACT Indemnified Persons") from and
against any and all losses, claims, costs, damages, liabilities, fees (including
without limitation attorneys' fees and expenses generally and attorney's fees
and expenses specifically related to enforcement of, or assertion of, claims
pursuant to this ARTICLE 11) (collectively, the "Losses") and expenses that any
of the TACT Indemnified Persons actually incurs arising out of or in connection
with (i) any claim, demand, action or cause of action alleging
misrepresentation, breach of, or default in connection with, any of the
representations, warranties, covenants or agreements of the Vanguard
Stockholders contained in this Agreement, including any exhibits or schedules
attached hereto, or any fact or circumstance constituting a misrepresentation,
breach of or default in such representations or warranties, (ii) any Losses that
any of the TACT Indemnified Persons actually incurs arising out of or in
connection with any Proceeding affecting any of the Vanguard Companies or any
Vanguard Stockholder, and (iii) all Taxes imposed on, or resulting from the
operations of, the Vanguard Companies for all periods up to and including the
Closing Date (except with respect to the amount of Taxes that the Vanguard
Companies have properly reserved for on the Interim Balance Sheet). Each
Vanguard Stockholder's pro rata portion of any Losses shall be based upon such
Vanguard Stockholder's pro rata portion of the Exchange Shares received in
connection with the Exchange Transaction.
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(b) Subject to the limitation contained in Section 11.2(b),
from and after the Closing Date, TACT shall protect, defend, indemnify and hold
harmless each Vanguard Stockholder (each a "Vanguard Indemnified Person" and
collectively the "Vanguard Indemnified Persons") from and against any and all
Losses, that any of the Vanguard Indemnified Persons actually incurs arising out
of or in connection with any claim, demand, action or cause of action alleging
misrepresentation, breach of, or default in connection with, any of the
representations, warranties, covenants or agreements of TACT contained in this
Agreement, including any exhibits or schedules attached hereto, or any factor or
circumstance constituting a misrepresentation, breach of or default in such
representations or warranties. The foregoing indemnification obligations of TACT
shall apply solely to Losses incurred by any of the Vanguard Indemnified Persons
in excess of an aggregate of the Threshold.
(c) No claim shall be brought under this ARTICLE 11 unless
either the TACT Indemnified Persons or the Vanguard Indemnified Persons
(hereinafter being referred to as the "Indemnified Persons," with each reference
being made to the applicable party or parties as appropriate in the context), or
any of them, at any time prior to the applicable Survival Date (as defined
herein), give, in the case of a claim for indemnification made under Section
11.1(b), TACT or, in the case of a claim for indemnification made under Section
11.1(a), the Escrow Agent and Excalibur (TACT and Excalibur hereinafter being
referred to as the "Indemnifying Persons," with each reference being made to the
applicable party or parties as appropriate in the context) prompt written notice
(a "Claim Notice") after the Indemnified Party has actual knowledge of the basis
for such claim, or of the existence of any such claim, specifying the nature and
basis of such claim and the amount thereof, to the extent known or prompt
written notice of any Third Party Claim, the existence of which might give rise
to such a claim, but the failure so to provide such notice to the Indemnifying
Persons and, if required, the Escrow Agent will not relieve the Indemnifying
Persons from any liability which they may have to the Indemnified Persons under
this Agreement (unless and only to the extent that such failure results in the
loss or compromise of any material rights (including in any event the right to
seek and obtain indemnification or contribution or to make a timely claim for
insurance coverage) or defenses of the Indemnifying Persons and they were not
otherwise aware of such action or claim) or otherwise.
(d) In case any Indemnifying Person shall object in writing to
any Claim Notice, the Indemnified Person that has sent the Claim Notice shall
respond in a written statement to the objection of such Indemnifying Person
within 15 days of the receipt of such objection. If after such 15-day period,
there remains a dispute as to the claim set forth in the Claim Notice, the
Indemnified Person and the Indemnifying Person shall attempt in good faith for
an additional 15 days to agree upon the rights of the respective parties with
respect to each of such claims (the "Good Faith Negotiation Period"). If the
Indemnified Person and the Indemnifying Person should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the amount payable from the
fund held by the Escrow Agent in accordance with the terms of the memorandum and
the Escrow Agreement. If no such agreement can be reached after the Good Faith
Negotiation Period, the matter shall be settled by binding arbitration in New
York, New York. All claims shall be settled by three arbitrators in accordance
with the Commercial Arbitration Rules then in effect of the American Arbitration
Association (the "AAA Rules"). If the Indemnified Person and the Indemnifying
Person are unable to resolve the claim after the Good Faith Negotiation Period,
the Indemnified Person and the Indemnifying Person shall each designate one
arbitrator within 15 days after the termination of the Good Faith Negotiation
Period. The Indemnified Person and the Indemnifying Person shall cause such
designated arbitrators mutually to agree upon and designate a third arbitrator;
provided, that if either the Indemnified Person and the Indemnifying Person
fails to timely designate an arbitrator, the dispute shall be resolved by the
one arbitrator timely designated. All of the fees and expenses of the three
arbitrators shall be shared equally by the Indemnified Person and the
Indemnifying Person. The Indemnified Person and the Indemnifying Person shall
cause the three arbitrators to decide the matters to be arbitrated pursuant
hereto within 30 days after the appointment of the third arbitrator. The final
decision of the majority of the arbitrators shall be furnished to the
Indemnified Person and the Indemnifying Person and the Escrow Agent in writing
and shall constitute the conclusive determination of the matters in question
binding upon the Indemnified Persons and the Indemnifying Persons, and shall not
be contested by any of them. Such decision may only be used in a court of law
for the purpose of seeking enforcement of the arbitrators' decision.
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(e) The obligations and liabilities of TACT and Excalibur, as
applicable, with respect to Losses resulting from the assertion of liability by
Third Parties that could render TACT's or Excalibur's, as applicable,
representations and warranties false or misleading (each, a "Third Party Claim")
shall be subject to the following terms and conditions:
(i) The Indemnified Persons shall promptly give
written notice to the Indemnifying Persons of any Third Party
Claim that might give rise to any Loss by the Indemnified
Persons, stating the nature and basis of such Third Party
Claim, and the amount thereof to the extent known. Such notice
shall be accompanied by copies of all relevant documentation
with respect to such Third Party Claim, including, without
limitation, any summons, complaint or other pleading that may
have been served, any written demand or any other document or
instrument. Notwithstanding the foregoing, the failure to
provide notice as aforesaid to the Indemnifying Persons will
not relieve the Indemnifying Persons from any liability which
they may have to the Indemnified Persons under this Agreement
(unless and only to the extent that such failure results in
the loss or compromise of any material rights (including in
any event the right to seek and obtain indemnification or
contribution or to make a timely claim for insurance coverage)
or defenses of the Indemnifying Persons and they were not
otherwise aware of such action or claim) or otherwise.
(ii) The Indemnifying Persons will have the right,
upon delivery of a written acknowledgement to the Indemnified
Persons of their indemnification liability pursuant to this
ARTICLE 11, to assume the defense of the Third Party Claim
with counsel of his or its choice within twenty (20) days
after the Indemnified Person has given notice of the Third
Party Claim; provided, that the Indemnifying Persons must
conduct the defense of the Third Party Claim actively and
diligently thereafter in order to preserve its rights in this
regard; and provided, further that Indemnified Person may
retain separate counsel, with the reasonable fees and expenses
to be paid by the Indemnifying Persons, if such Indemnified
Person upon advice of legal counsel shall have reasonably
concluded that representation of such Indemnified Person or
Persons by the counsel retained by the Indemnifying Persons
would be inappropriate due to actual or potential differing
interests between such Indemnified Person and any other party
represented by such counsel in such Proceeding (provided, that
the Indemnifying Person shall not be responsible for the fees
and expenses of more than one additional counsel for all
Indemnified Persons). No Indemnifying Person, in the defense
of any claim or litigation, shall, except with the consent of
each Indemnified Person, consent to entry of any judgment or
enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Person of a release from all
Liability in respect to such claim or litigation.
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(iii) In the event that the Indemnifying Persons do
not assume and conduct the defense of the Third Party Claim in
accordance with Section 11.1(e)(ii), the Indemnified Persons
shall defend any Third Party Claims with counsel of their own
choosing, which counsel shall be reasonably satisfactory to
the Indemnifying Persons, and shall act reasonably and in
accordance with their good faith business judgment in handling
such Third Party Claims and shall not effect any settlement
without the consent of the Indemnifying Persons, which consent
shall not unreasonably be withheld or delayed. The
Indemnifying Persons and the Indemnified Persons shall make
available to each other and their counsel and accountants all
books and records and information relating to any Third Party
Claims, keep each other fully apprised as to the details and
progress of all proceedings relating thereto and render to
each other such assistance as may be reasonably required to
ensure the proper and adequate defense of any and all Third
Party Claims.
Section 11.2 Limitations on Indemnification. Except as provided in
clauses (i) and (ii) of this Section 11.2, Excalibur shall not have any
liability nor be subject to any claim under Section 11.1(a), unless and until
the amount of any Losses subject to Section 11.1(a) exceeds $10,000 per claim
(the "Individual Claim Threshold") and $1,500,000 in the aggregate (the
"Aggregate Claim Threshold") with respect to Losses subject to indemnity under
Section 11.1(a). If the aggregate amount of Losses subject to Section 11.1(a)
exceeds the Aggregate Claim Threshold, then for each such Loss that is or was
subject to Section 11.1(a) and that exceeds the Individual Claim Threshold
(including those within the Aggregate Claim Threshold), TACT Indemnified Persons
shall be entitled to indemnification by Excalibur in the full amount of such
Loss (notwithstanding the Aggregate Claim Threshold), up to the Aggregate Claim
Limit. Claims that do not exceed the Individual Claim Threshold shall not be
entitled to indemnification under Section 11.1(a), but shall be included in any
determination of whether the aggregate amount of Losses subject to Section
11.1(a) exceeds the Aggregate Claim Threshold. Except as provided in clauses (i)
and (ii) of this Section 11.2, in no event shall Excalibur be liable under this
Agreement, whether with respect to Third Party Claims or non-Third Party Claims,
for any amounts in excess of $8,000,000 (the "Aggregate Loss Limit") in the
aggregate (or such lesser amount as corresponds to, as applicable, the Escrow
Shares then held by the Escrow Agent under the Escrow Agreement), nor shall any
liability of Excalibur hereunder be settled other than, as set forth in Section
11.3 by means of set-off against, as applicable, the Escrow Shares.
Notwithstanding the foregoing provisions of this Section 11.2:
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(i) (A) no breach of the representations and
warranties contained in Section 3.9 shall be included in the
computation of either the Aggregate Claim Threshold or the
Aggregate Loss Limit; and (B) any claim for any loss arising
from any breach of the representations and warranties
contained in Section 3.9 shall be settled by Excalibur by
payment of cash; and
(ii) no breach of the representation and warranties
contained in Section 3.17(e), 3.17(g) and the first sentence
of Section 3.17(i) shall be subject to the Individual Claim
Threshold of $10,000, but instead shall be subject to a
separate individual claim threshold of $2,500 and shall not be
subject to the Aggregate Loss Limit. For the avoidance of
doubt, the parties agree that, for up to an aggregate of
$150,000 of Losses, no claim arising from Vanguard's failure
to match employee contributions under its 401(k) Employee Plan
prior to the date of this Agreement (the "Vanguard 401(k)
Underpayment") may be the subject of a Claim Notice or
otherwise be entitled to the benefits of Section 11.1(a) or
included in the computation of either the Aggregate Claim
Threshold or the Aggregate Loss Limit. For the avoidance of
doubt, claims for or related to the Vanguard 401(k)
Underpayment shall be eligible for indemnification under
Section 11.1(a) and Section 11.2 only to the extent that such
claims exceed $150,000, in which case such excess amount of
claims shall be included in the computation of claims in
excess of the Aggregate Loss Threshold and shall be subject to
indemnification under Section 11.1(a) without limitation by
the Aggregate Loss Limit.
(b) Notwithstanding anything to the contrary contained in this
Agreement, TACT shall not have any liability nor be subject to any claim under
Section 11.1(b), unless and until the amount of any Losses subject to Section
11.1(b) exceeds $10,000 per claim and $1,500,000 in the aggregate with respect
to Losses subject to indemnity under Section 11.1(b). If the aggregate amount of
Losses subject to Section 11.1(b) exceeds the Aggregate Claim Threshold, then
for each such Loss subject to Section 11.1(b) that exceeds the Individual Claim
Threshold (including those within the Aggregate Claim Threshold), Seller
Indemnified Persons shall be entitled to indemnification by TACT in the full
amount of such Loss (notwithstanding the Aggregate Claim Threshold), up to the
Aggregate Claim Limit. Claims that do not exceed the Individual Claim Threshold
shall not be entitled to indemnification under Section 11.1(b), but shall be
included in any determination of whether the aggregate amount of Losses subject
to Section 11.1(b) exceed the Aggregate Claim Threshold. Notwithstanding
anything to the contrary contained in this Agreement, in no event shall any TACT
Indemnifying Person be liable under this Agreement, whether with respect to
Third Party Claims or non-Third Party Claims, for any amounts in excess of the
Aggregate Loss Limit.
Section 11.3 Set-Off Against Escrowed Shares. If Losses become payable
by Excalibur pursuant to Section 11.1(a), except as set forth in Section
11.2(a)(i)(C), then the amount of any such Loss shall be paid to TACT first by
rounding such amount to the nearest $8.00 and then setting off such rounded
amount of Losses, pro rata, at the rate of one share of TACT Capital Stock for
each $8.00 of Loss, against the Escrow Shares held by the Escrow Agent. In
furtherance thereof, within five (5) Business Days of the written request of
TACT to the Vanguard Stockholders, the Escrow Agent will tender to TACT for
cancellation one or more certificates representing the Escrow Shares to be
delivered by such person in exchange for one or more certificates in a number
that properly reflects the set-off made pursuant to the provisions of this
Section.
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Section 11.4 Survival of Representations and Warranties. The
representations and warranties contained in ARTICLE 3, ARTICLE 4 and ARTICLE 5
shall survive the Closing Date until the first anniversary of the Closing Date,
other than the representations and warranties contained in Sections 3.4, 3.9,
3.11 and 3.17, which shall survive in accordance with the applicable statute of
limitations related to any claims with respect thereto. For convenience of
reference, the date upon which any representation and warranty contained herein
shall terminate is referred to herein as the "Survival Date." No Third Party
other than the Indemnified Persons, and each of them, shall be a third party or
other beneficiary of such representations and warranties and no such third party
shall have any rights of contribution against TACT or the Vanguard Stockholders
with respect to such representations or warranties or any matter subject to or
resulting in indemnification under this ARTICLE 11, or otherwise.
Section 11.5 Claims. If TACT is required to pay any amounts to the
Vanguard Indemnified Persons pursuant to this ARTICLE 11, it shall do so in cash
pro rata based on the number of Exchange Shares received by such Vanguard
Indemnified Persons on the Closing Date. If Excalibur is required to pay any
amounts to the TACT Indemnified Persons pursuant to this ARTICLE 11, it shall do
so pursuant to the Escrow Agreement
Section 11.6 Limitation of Remedies as to Berenson. In no event shall
Berenson be liable to any Person for any Losses arising out of or in connection
with this Agreement or any of the Contemplated Transactions, other than for a
Breach by Berenson of any of its representations and warranties under Article 4
or of its agreements or covenants hereunder.
ARTICLE 12
TERMINATION
Section 12.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
TACT and the Authorized Representative.
Section 12.2 Termination by the Authorized Representative or TACT. This
Agreement may be terminated by action of the board of directors of TACT (upon
payment of the Termination Amount, if payable pursuant to Section 12.5(a)) or by
the Authorized Representative, if:
(i) the Exchange shall not have been consummated by
5:00 pm (New York City time) on July 31, 2005; provided, that
the right to terminate this Agreement pursuant to this clause
(i) shall not be available to any party whose failure to
perform or observe in any material respect any of its
obligations under this Agreement in any manner shall have been
the cause of, or resulted in, the failure of the Exchange to
occur on or before such date; provided further that such time
period shall be tolled for any period during which any party
shall be subject to a non-final order, decree, ruling or
action restraining, enjoining or otherwise prohibiting the
consummation of the Exchange;
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(ii) if the requisite vote of the TACT shareholders
shall not have been obtained at the Shareholders' Meeting
(including adjournment and postponement thereof); or
(iii) a United States federal or state court of
competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or
otherwise prohibiting the Exchange and such order, decree,
ruling or other action shall have become final and
non-appealable.
Section 12.3 Termination by TACT. This Agreement may be terminated
prior to the Closing, by action of the board of directors of TACT (upon payment
of the Termination Amount, if payable pursuant to Section 12.5(a)) after
consultation with its legal advisors, if:
(i) prior to the Shareholders' Meeting, TACT receives
a Superior Proposal as described in Section 7.7(a) and
resolves to accept such Superior Proposal, but only if TACT
has acted in all material respects in accordance with, and has
otherwise complied in all material respects with the terms of,
Section 7.7, including the notice provisions therein; or
(ii) (A) there has been a breach by Vanguard or the
Vanguard Stockholders of any representation, warranty,
covenant or agreement set forth in this Agreement or if any
representation or warranty of the Vanguard Stockholders shall
have become untrue, in either case such that the conditions
set forth in Section 9.1 will not be satisfied at the Closing
Date and (B) such breach is not curable, or, if curable, is
not cured within 30 days after written notice of such breach
is given to the Authorized Representative by TACT; provided,
that the right to terminate this Agreement pursuant to clause
(ii) of this Section 12.3 shall not be available to TACT if
it, at such time, is in breach of any representation,
warranty, covenant or agreement set forth in this Agreement
such that the conditions set forth in Section 10.1 will not be
satisfied at the Closing Date.
Section 12.4 Termination by the Authorized Representative. This
Agreement may be terminated at any time prior to the Closing by the Authorized
Representative after consultation with his legal advisors, if:
(i) the board of directors of TACT shall have
withdrawn, modified or changed, in a manner adverse to the
Vanguard Stockholders, its approval or recommendation of the
Contemplated Company Transactions, or the transactions
contemplated in the Shareholder Stock Purchase Agreement, and
recommended approval of a Company Acquisition Proposal and at
the time of such withdrawal, modification or change a Company
Acquisition Proposal that is a Superior Proposal is pending;
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(ii) prior to the Shareholders Meeting, TACT receives
a Superior Proposal and TACT's board of directors shall have
resolved to accept any Superior Proposal;
(iii) (A) there has been a breach by TACT of any
representation, warranty, covenant or agreement set forth in
this Agreement or if any representation or warranty of TACT
shall have become untrue, in either case such that the
conditions set forth in Section 10.1 will not be satisfied at
the Closing Date and (B) such breach is not curable, or, if
curable, is not cured within 30 days after written notice of
such breach is given by the Vanguard Stockholders to TACT;
provided, that the right to terminate this Agreement pursuant
to clause (iii) of this Section 12.4 shall not be available to
the Authorized Representative if, at such time, Vanguard or
any Vanguard Stockholder is in breach of any representation,
warranty, covenant or agreement set forth in this Agreement
such that the conditions set forth in Section 9.1 will not be
satisfied at the Closing Date.
Section 12.5 Effect of Termination.
(a) If this Agreement is terminated:
(i) by TACT or the Authorized Representative pursuant
to clause (i) or (ii) of Section 12.2 or clause (iii) of
Section 12.4 and (A) (1) in the case of a termination pursuant
to clause (i) of Section 12.2 or clause (iii) of Section 12.4,
such termination results from the breach by TACT in a material
respect of any of its material agreements or covenants set
forth in this Agreement and, at the time of such breach, any
Person shall have made a Company Acquisition Proposal that had
become public and then remained pending or shall have publicly
announced and not withdrawn an intention (whether or not
conditional) to make a Company Acquisition Proposal, or (2) in
the case of a termination pursuant to clause (ii) of Section
12.2, at the time of the Shareholders' Meeting, any person
shall have made a Company Acquisition Proposal that had become
public and then remained pending or shall have publicly
announced and not withdrawn an intention (whether or not
conditional) to make a Company Acquisition Proposal, (B)
neither Vanguard nor any Vanguard Stockholder was in breach of
any of its representations, warranties or covenants in this
Agreement, (C) the board of directors of TACT at no time
withdrew, modified or changed, in any manner adverse to the
Vanguard Stockholders, the board's approval or recommendation
of the Exchange or recommended approval of a Company
Acquisition Proposal, or resolved to do any of the foregoing,
and (D) within 12 months after such termination TACT shall
consummate or enter into a definitive agreement which is
ultimately consummated with the proponent of such Company
Acquisition Proposal;
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(ii) by TACT pursuant to clause (i) of Section 12.3;
or
(iii) by the Authorized Representative pursuant to
clause (i) or (ii) of Section 12.4;
then, TACT shall pay the Authorized Representative U.S. $500,000.00 (the "TACT
Termination Amount") upon termination of this Agreement at the times and subject
to the conditions set forth in the following sentence. All payments required by
this Section 12.5(a)shall be made in cash by wire transfer to an account
designated by the Authorized Representative on (1) in the case of clause (ii) of
Section 12.5(a), on the date of termination of this Agreement, (2) in the case
of clause (iii) of Section 12.5(a), the date which is the third business day
following the date of termination of this Agreement if this Agreement is
terminated by the Authorized Representative, and (3) in the case of clause (i)
of Section 12.5(a), the date on which the Company Acquisition Proposal referred
to in subclause (D) thereof is consummated; provided, that TACT shall have no
obligation to pay the TACT Termination Amount upon a termination pursuant to
clause (i) of Section 12.5(a) unless and until the Company Acquisition Proposal
referred to in subclause (D) of clause (i) of Section 12.5(a) has been
consummated. TACT acknowledges that the agreements contained in this Section
12.5(a) are an integral part of the transactions contemplated by this Agreement
and constitute liquidated damages and not a penalty, and that, without these
agreements, the Authorized Representative would not enter into this Agreement;
accordingly, if TACT fails promptly to pay any amount due pursuant to this
Section 12.5(a), and, in order to obtain such payment, the Authorized
Representative commences a suit which results in a judgment against TACT for the
payment set forth in this Section 12.5(a), TACT shall pay to the Authorized
Representative its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest on such amount from the date payment was
required to be made until the date such payment is actually made at the annual
prime lending rate of Citigroup, N.A. in effect from time to time from the date
such payment was required to be made, plus one percent (1%).
(b) In the event of termination of this Agreement and the
abandonment of the Exchange Transaction pursuant to this ARTICLE 12, all
obligations of the parties hereto shall terminate, except the obligations of the
parties pursuant to Section 12.5 and Section 13.1; provided, that nothing herein
shall relieve any party from any liability for any breach by such party of any
of its covenants or agreements set forth in this Agreement and all rights and
remedies of such non-breaching party under this Agreement in the case of such a
breach, at law or in equity, shall be preserved.
Section 12.6 Extension; Waiver. At any time prior to the Closing, TACT
may, by action taken by its board of directors, and the Authorized
Representative may, by action taken by him on behalf of the Vanguard
Stockholders, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
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ARTICLE 13
MISCELLANEOUS PROVISIONS
Section 13.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective fees and
expenses incurred in connection with the preparation, negotiation, execution,
and performance of this Agreement and the Contemplated Company Transactions,
including all fees and expenses of its Representatives including all fees and
expenses of its Representatives; provided, that all unpaid fees and expenses set
forth on Exhibit 13.1, as the same shall be prepared by and hereafter updated by
each of TACT, Vanguard and the Vanguard Stockholders between the execution of
this Agreement and the Closing so as to reflect the reasonable costs and
expenses of such Representatives, shall be paid at the Closing. Except as set
forth in ARTICLE 12, if this Agreement is terminated, the obligation of each
party to pay its own expenses will be subject to any rights of such party
arising from a breach of this Agreement by another party.
Section 13.2 Notices.
(a) All notices, consents, waivers and other communications
hereunder must be in writing and either (i) delivered personally, (ii) sent by
facsimile transmission (with written confirmation of a successful transmission),
(iii) mailed by prepaid first class registered or certified mail, return receipt
requested, or (iv) delivered by a nationally recognized prepaid overnight
courier service (receipt requested), in each case to the appropriate addresses
or facsimile numbers set forth below (or to such other addresses or facsimile
numbers as a party may designate by notice to the other parties):
if to TACT:
77 Brant Avenue, Suite 320
Clark, New Jersey 07066
Attention: Chief Financial Officer
Telephone: (732) 499-8228
Facsimile: (732) 499-9310
with a copy (which shall not constitute notice) to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Lawrence B. Fisher, Esq.
Telephone: 212) 506-5385
Facsimile: (212) 506-5151
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if to the Authorized Representative or the Vanguard Stockholders:
T.V. Govindarajan
c/o Vanguard Info-Solutions Corporation
2088 Route 130 North
Monmouth Junction, NJ, USA 08852
Telephone: (732) 951-0701
Facsimile: (732) 951-0704
with a copy (which shall not constitute notice) to:
McGuireWoods LLP
1345 Avenue of the Americas, 7th Floor
New York, NY 10105
Attention: William A. Newman, Esq.
Telephone: (212) 548-2100
Facsimile: (212) 548-2150
if to Vanguard, to:
Vanguard Info-Solutions Corporation
2088 Route 130 North
Monmouth Junction, New Jersey 08852
Telephone: (973) 951-0701
Facsimile: (973) 951-0704
with a copy (which shall not constitute notice) to:
McGuireWoods LLP
1345 Avenue of the Americas, 7th Floor
New York, NY 10105
Attention: William A. Newman, Esq.
Telephone: (212) 548-2100
Facsimile: (212) 548-2150
(b) All such notices, consents, waivers and other
communications will (i) if delivered personally in the manner and to the address
provided in this section, be deemed given upon delivery, (ii) if delivered by
facsimile transmission in the manner and to the facsimile number provided in
this section, be deemed given on the earlier of receipt or the first business
day after transmission, (iii) if delivered by mail in the manner, and to the
address provided in this section, be deemed given on the earlier of the fourth
business day following mailing or upon receipt, and (iv) if delivered by
overnight courier in the manner and to the address provided in this section, be
deemed given on the earlier of receipt or the first business day following the
date sent by such overnight courier.
Section 13.3 Entire Agreement; Modifications. This Agreement supersedes
all prior agreements and understandings between the parties with respect to its
subject matter (including the letter of intent dated July 21, 2004) and
constitutes (along with the Disclosure Schedules, Exhibits and other documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
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Section 13.4 Governing Law; Submission to Jurisdiction; Venue. This
Agreement shall be governed by and construed in accordance with the domestic
laws of New York without giving effect to any choice of law or conflict of law
provision or rule (whether New York or any other jurisdiction) that would
require the application of any other law.
Section 13.5 Assignment; Successors; No Third Party Rights. Neither
party may assign any of its rights or delegate any of its obligations under this
Agreement (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that any Vanguard Stockholder may assign
its rights and obligations under this Agreement prior to the Closing subject to
compliance with Section 6.9. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
Section 13.6 Severability. If any portion of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
Section 13.7 No Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power or privilege under this Agreement
will operate as a waiver thereof, and no single or partial exercise by a party
of its rights hereunder shall preclude any other or future exercise thereof or
the exercise of any other right, power or privilege.
Section 13.8 Jurisdiction; Service of Process. Any Proceeding arising
out of or relating to this Agreement or any Contemplated Transaction may be
brought in the federal courts sitting in the County of New York, State of New
York, 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 courts
and agrees not to bring any Proceeding arising out of or relating to this
Agreement or any Contemplated Transaction 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.
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Section 13.9 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
Section 13.10 Counterparts. This Agreement may be executed in one or
more counterpart copies, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement. The exchange of copies of this Agreement
and of signature pages by facsimile transmission shall constitute effective
execution and delivery of this Agreement as to the parties and may be used in
lieu of the original Agreement for all purposes. Signatures of the parties
transmitted by facsimile shall be deemed to be their original signatures for all
purposes.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
TACT:
By: /s/ Richard D. Falcone
--------------------------------
Name: Richard D. Falcone
Title: Chief Financial Officer
AUTHORIZED REPRESENTATIVE:
By: /s/ T.V. Govindarajan
--------------------------------
Name: T.V. Govindarajan
Title: Authorized Representative
EXCALIBUR INVESTMENT GROUP LIMITED:
By: /s/ Geeta Gajjar
--------------------------------
Name: Geeta Gajjar
Title: Authorized Signatory
By: /s/ Andrew Harry Ball
--------------------------------
Name: Andrew Harry Ball
BERENSON INVESTMENTS LLC
By: /s/ Steven Wayne
--------------------------------
Name: Steven Wayne
Title: Secretary & Treasurer
VANGUARD INFO-SOLUTIONS CORPORATION
By: /s/ Donald Kovalevich
--------------------------------
Name: Donald Kovalevich
Title: Chief Executive Officer
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EXHIBIT A
LIST OF VANGUARD STOCKHOLDERS
VANGUARD STOCKHOLDERS
NUMBER OF
NUMBER OF SHARES
SHARES OF TACT INCLUDED IN
CAPITAL STOCK TO THE PRIOR COLUMN
NUMBER OF SHARES OF BE RECEIVED AT TO BE PLACED IN
NAME OF VANGUARD STOCKHOLDER VANGUARD STOCK OWNED CLOSING* ESCROW
- -------------------------------------------------- --------------------------------- ------------------ ---------------------
Excalibur Investment Group Limited 680 Series A Shares 4,972,701 1,000,000
6,120 Series B Shares
- -------------------------------------------------- --------------------------------- ------------------ ---------------------
Andrew Harry Ball 315 Series A Shares 2,303,531 0
2,835 Series B Shares
- -------------------------------------------------- --------------------------------- ------------------ ---------------------
Berenson Investments LLC 5 Series A Shares 36,564 0
45 Series B Shares
- -------------------------------------------------- --------------------------------- ------------------ ---------------------
- -------------------------------------------------- --------------------------------- ------------------ ---------------------
TOTAL: 7,312,796 1,000,000
- -------------------------------------------------- --------------------------------- ------------------ ---------------------
*Inclusive of shares to be placed in escrow.
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EXHIBIT 10.7
FALCONE EMPLOYMENT AGREEMENT
[INTENTIONALLY OMITTED]
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EXHIBIT B
FORM OF POWER OF ATTORNEY AND CUSTODY AGREEMENT
IRREVOCABLE POWER OF ATTORNEY AND CUSTODY AGREEMENT
T.V. Govindarajan
As Custodian and Attorney-in-Fact
c/o Vanguard Info-Solutions Corporation
2088 Route 130 North
Monmouth Junction, New Jersey 08852
Dear Mr. Govindarajan:
Each of the undersigned proposes to transfer and deliver the number of
shares (the "Shares") of Series A or Series B Common Stock, no par value (the
"Common Stock") of Vanguard Info-Solutions Corporation, a New Jersey corporation
formerly known as B2B Solutions, Inc., ("Vanguard"), that is shown under the
signature line for the undersigned, (such number representing all of the
undersigned's securities of Vanguard) in this Irrevocable Power of Attorney and
Custody Agreement (this "Agreement"), beneficially owned by the undersigned, to
TACT, Inc., a New York Company (the "Company"), in connection with the Exchange
Transaction as such term is defined in the Share Exchange Agreement (the
"Exchange Agreement"), dated as of January 21, 2005 between Vanguard and the
Company of which this Agreement is a part, all substantially on the terms and
subject to the conditions set forth in the Exchange Agreement.
The undersigned shall deliver to you as Attorney-in-Fact (as defined
below) one or more certificates representing the undersigned's interests in the
Shares and any such additional documentation as you, Vanguard or the Company may
reasonably request to effectuate or confirm compliance with any of the
provisions hereon all of the foregoing to be in form and substance reasonably
satisfactory in all respect to you, Vanguard and the Company.
Each certificate representing Shares shall be delivered to you in
negotiable form, except that the certificate may bear legends restricting
transferability to comply with the Securities Act of 1933, as amended.
Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Exchange Agreement.
1. APPOINTMENT OF ATTORNEY-IN-FACT. In connection with the foregoing,
each of the undersigned hereby appoints T.V. Govindarajan, with full power to
act in all respects hereunder in his sole discretion, as the true and lawful
attorney-in-fact and agent (the "Attorney-in-Fact"), of the undersigned, with
full power and authority in the name of and for and on behalf of the undersigned
with respect to all matters arising in connection with the sale of the Shares
owned by the undersigned to the Company pursuant to the Exchange Agreement and
the Escrow Agreement, (if the undersigned is a party to the Escrow Agreement)
including, but not limited to, the power and authority:
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(a) to exchange, sell, assign and transfer to the Company the
Shares on the Closing Date, to deliver the Shares to the Escrow Agent (if the
undersigned is a party to the Escrow Agreement) and to perform all obligations
and functions of the Authorized Representative, each in accordance with the
terms and conditions of the Exchange Agreement and the Escrow Agreement (if the
undersigned is a party to the Escrow Agreement);
(b) for the purpose of effecting the Exchange Transaction, in
the capacity of the Authorized Representative for the undersigned, to execute
and deliver the Exchange Agreement substantially in the form previously
delivered to the undersigned. The execution and delivery of the Exchange
Agreement and the Escrow Agreement (if the undersigned is a party to the Escrow
Agreement) by such Attorney-in-Fact shall be conclusive evidence with respect to
the undersigned's approval hereto and to and comply with each and all of the
provisions of the Exchange Agreement;
(c) in the sole and absolute discretion of the Attorney-in-
Fact so acting, to exercise any power conferred upon and to take any action
authorized or required to be taken by the undersigned as a stockholder of
Vanguard transferring his or its Shares to the Company pursuant to the Exchange
Agreement or the Escrow Agreement (if the undersigned is a party to the Escrow
Agreement) and to take such action as the Attorney-in-Fact so acting may
determine with respect to (i) the transfer on the stock record books of Vanguard
of the Shares in order to effect such sale, (ii) the delivery to or for the
account of the Company of the certificates for the Shares against receipt by the
Custodian (as defined below) of that portion of the Exchange Shares ("Exchange
Shares") to which the undersigned is entitled under the Exchange Agreement and
(iii) the delivery to the undersigned of the Exchange Shares;
(d) if deemed necessary by the Attorney-in-Fact, to retain
legal counsel in connection with any and all matters referred to herein;
(e) to make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
letters and other writings, including amendments to the Exchange Agreement and
the Escrow Agreement (if the undersigned is a party to the Escrow Agreement),
and to take all action that the Attorney-in-Fact so acting may consider
necessary or appropriate in connection with or to carry out the aforesaid
transfer of the Shares to the Company as fully as the undersigned could if then
personally present with full capacity and authority;
(f) if necessary, to endorse (in blank or otherwise) on behalf
of the undersigned the certificate(s) representing the Shares; or a stock power
or powers attached to such certificate(s); and
(g) if and as applicable, to make payment, on behalf and for
the account of the undersigned, of all costs and expenses payable by the
undersigned pursuant to the provisions of the Exchange Agreement or the Escrow
Agreement (if the undersigned is a party to the Escrow Agreement) or otherwise
incurred and deemed appropriate by the Attorney-in-Fact so acting, including any
applicable stock transfer taxes chargeable to the undersigned and any fees and
expenses of the Custodian (as defined below), all in the sole and absolute
discretion of the Attorney-in-Fact so acting, the undersigned hereby expressly
promising to promptly repay such Attorney-in-Fact for any such payments made on
behalf and for the account of the undersigned by such Attorney-in-Fact.
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2. APPOINTMENT OF CUSTODIAN; DEPOSIT OF SHARES; INSTRUCTIONS TO
CUSTODIAN.
(a) The undersigned hereby appoints T.V. Govindarajan to act
as custodian (the "Custodian") of the certificate(s) representing the Shares on
the terms and subject to the conditions set forth in this Agreement.
(b) The undersigned hereby agrees to deliver to the Custodian
a certificate or certificates representing the Shares, together with stock
powers executed in blank. These certificates are to be held by the Custodian for
the account of the undersigned and are to be disposed of by the Custodian in
accordance with this Agreement.
(c) The undersigned hereby authorizes and directs the
Custodian to hold the certificates deposited herewith in his custody with full
power in the name of and for and on behalf of the undersigned and:
(i) to deliver, or cause to be delivered,
certificates representing the Shares to the Company on the
Closing Date, fixed in accordance with the Exchange Agreement
against receipt by the Custodian, in his capacity of the
Attorney-in-Fact for the undersigned, of the Exchange Shares;
(ii) to determine, in the sole and absolute
discretion of the Custodian, whether and the time or times
when, the purpose for, and the manner in which, any power
conferred herein to the Custodian shall be exercised and the
conditions, provisions and covenants of any instrument or
document which may be executed by the Custodian pursuant
hereto; and
(iii) to do all things and perform all acts pursuant
to the terms of this Agreement as the Custodian may in his
sole and absolute discretion deem appropriate, including,
without limitation, the execution and delivery of all
certificates, receipts, instruments, letters of transmittal
and other documents and papers required, contemplated by, or
deemed by the Custodian appropriate in connection with this
Agreement to the Company or any other person, and the
employment of such counsel or other person or firms as the
Custodian in its sole and absolute discretion shall deem
necessary.
3. REPRESENTATIONS AND WARRANTIES. The undersigned hereby represents
warrants and agrees that:
(a) The undersigned has the legal authority to enter into this
Agreement, has read the draft of the Exchange Agreement, dated as of January 21,
2005, previously delivered to the undersigned and understands the same, and
hereby authorizes the Attorney-in-Fact to enter into such agreement with the
Company, on behalf of the undersigned, as Authorized Representative thereof, and
to provide all necessary performance in satisfaction of the terms and conditions
of the Exchange Agreement.
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(b) This Agreement, when executed by the undersigned, will be
duly executed and delivered by the undersigned and shall constitute the legal,
valid and binding agreement of the undersigned, enforceable against the
undersigned in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforceability of creditors' rights in general or by general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law), including those limiting the availability of specific
performance, injunctive relief and other forms of equitable relief, standards of
commercial reasonableness and good faith, and public policy.
(c) The undersigned has read the representations and
warranties contained in the Stockholder Certificate attached as Exhibit C (the
"Stockholder Certificate") to the draft of the Exchange Agreement previously
delivered to the undersigned and understands the same, confirms that the same
are, and will be as of the date of the execution of the Exchange Agreement and
at the Closing Date true and correct, and hereby authorizes the
Attorney-in-Fact, acting on behalf of the undersigned, to make such
representations and warranties to the Company as provided therein.
The undersigned further agrees that:
(i) The undersigned will notify the Attorney-in-Fact
in writing immediately of any changes as a result of
developments occurring after the date hereof and prior to the
Closing Date which could reasonably be expected to cause the
representations and warranties that the undersigned has made
in the Stockholder Certificate to be incorrect. The
Attorney-in-Fact may consider that there has not been any such
development unless advised to the contrary in writing;
(ii) The undersigned acknowledges that the
undersigned will pay or cause to be paid all costs and
expenses incident to the performance of the undersigned's
obligations under the Exchange Agreement that are not
specifically provided for therein or otherwise paid by
Vanguard; and
(iii) Until the Exchange Shares have been received by
the Custodian from the Company in consideration for the Shares
or until this Agreement has been terminated, the undersigned
agrees and acknowledges that the undersigned will not have the
right or power to give, sell, pledge, hypothecate, grant liens
on, deal with or contract with respect to, the Shares or any
interest therein.
Each of the forgoing representations and warranties are and at the
Closing Date will be, true and correct, and each of the foregoing
representations, warranties and agreements will survive termination of the
Exchange Agreement and the delivery of and payment for the Shares.
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4. TERMINATION OF THIS AGREEMENT.
(a) All power and authority granted or conferred hereby is
granted and conferred subject to the interests of Vanguard and each of the other
undersigned stockholders of Vanguard and in consideration of those interests and
for the purpose of assuring completion of the transactions contemplated by the
Exchange Agreement and the Escrow Agreement (if the undersigned is a party to
the Escrow Agreement). This Agreement is coupled with an interest and is
irrevocable and shall not be terminated by any act of the undersigned or by
operation of law, whether by death or the occurrence of any other event, and, if
after the execution hereof the undersigned shall die or any other such event
shall occur before the completion of the transactions contemplated by the
Exchange Agreement, the Escrow Agreement and this Agreement (if the undersigned
is a party to the Escrow Agreement), the Attorney-in-Fact, also acting as the
Custodian, is nevertheless authorized and directed to complete all of such
transactions as if such death or other event had not occurred and regardless of
any notice thereof.
(b) Notwithstanding the foregoing, if all of the transactions
contemplated by the Exchange Agreement, the Escrow Agreement (if the undersigned
is a party to the Escrow Agreement) and this Agreement are not completed prior
to the Termination Date, this Agreement shall terminate, subject, however, to
all lawful action done or performed by the Attorney-in-Fact pursuant hereto
prior to the actual receipt of such notice.
5. LIMITATION OF LIABILITY; EXCULPATION AND INDEMNIFICATION.
(a) The undersigned agrees that the Custodian shall have no
duties or responsibilities other than those expressly set forth in this
Agreement, each of which are ministerial (and shall not be construed in any
other way) in nature, and no implied duties or obligations of any kind shall be
read into this Agreement against or on the part of the Custodian. The Custodian
shall have no duty to enforce any obligation of any person to make any payment
or delivery, or to direct or cause any payment or delivery to be made, or to
enforce any obligation of any person to perform any other act or to enforce or
compel compliance therewith. The Custodian shall be under no liability to the
other parties hereto or to anyone else by reason of any failure on the part of
any party hereto or any other signatory of any document or any other person to
perform such person's obligations under any such document. Except for
instructions given to Custodian Agent by the undersigned, the Custodian shall
not be obligated to recognize any agreement between any and all of the persons
referred to herein, notwithstanding that references thereto may be made herein
and whether or not the Custodian has knowledge thereof.
(b) The Custodian shall not be liable to the Company,
Vanguard, the undersigned or to anyone else for any action taken or omitted by
it, or any action suffered by it to be taken or omitted, in good faith and in
the exercise of its own best judgment except with respect to any losses, claims,
damages or liabilities which shall be finally adjudicated to be the result of
gross negligence or willful misconduct of the Attorney-in-Fact or Custodian. The
Custodian may rely conclusively and shall be protected in acting upon any order,
notice, demand, certificate, opinion or advice of counsel (including counsel
chosen by the Custodian), statement, instrument, report as other paper or
document (not only as to its due execution and the validity and effectiveness of
its provisions, but also as to the truth and acceptability of any information
therein contained), which is believed by the Custodian to be genuine and to be
signed or presented by the proper person or persons. The Custodian shall not be
bound by any notice or demand, or any waiver, modification, termination or
remission of this Agreement or any of the terms thereof unless evidenced by a
writing delivered to the Custodian signed by the proper party or parties and, if
the duties or rights of the Custodian are affected, unless the Custodian shall
give its prior written consent thereto.
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(c) The Custodian shall not be responsible for the sufficiency
or accuracy of the form of, or the execution, validity, value or genuineness of,
any document or property received, held or delivered by it hereunder, or of any
signature or endorsement thereon, or for any lack of endorsement thereon, or for
any description therein; nor shall the Custodian be responsible or liable to the
other parties hereto or to anyone else in any respect on account of the
identity, authority or rights of the persons executing or delivering or
purporting to execute or deliver any document or property or this Agreement. The
Custodian shall have no responsibility with respect to the use or application of
any funds or other property paid or delivered by the Custodian pursuant to the
provisions hereof.
(d) The undersigned agrees that, whenever the Attorney-in-Fact
and Custodian may obtain the advice of any such counsel as he may select in
connection with any matter arising under the Exchange Agreement, the Escrow
Agreement (if the undersigned is a party to the Escrow Agreement) or this
Agreement, such Attorney-in-Fact and Custodian, as the case may be, shall not be
liable for any action taken or omitted in good faith in accordance with such
advice. The undersigned agrees, severally and not jointly, to indemnify and hold
harmless the Attorney-in-Fact and Custodian against any and all losses, claims,
damages or liabilities (including all costs, legal and other expenses) incurred
as a result of any action taken or omitted by the Attorney-in-Fact and Custodian
in accordance with the Exchange Agreement, the Escrow Agreement (if the
undersigned is a party to the Escrow Agreement) or this Agreement, whether or
not under the advice of counsel, except with respect to any losses, claims,
damages or liabilities which shall be finally adjudicated to be the result of
gross negligence or willful misconduct of the Attorney-in-Fact or Custodian.
6. APPLICABLE LAW. The validity, enforceability, interpretation
and construction of this Agreement shall be determined in accordance with the
laws of the State of New York, without regard to conflicts of laws principles,
and this Agreement shall inure to the benefit of, and shall be binding upon, the
undersigned and the undersigned's heirs, executors, administrators, successors
and assigns, as the case may be.
7. RETURN OF UNDELIVERED SHARES. If the Shares are not accepted
by the Company against consideration therefor in the form of Exchange Shares in
accordance with the terms and provisions of the Exchange Agreement or the Escrow
Agreement (if the undersigned is a party to the Escrow Agreement), or if the
Exchange Agreement and the Escrow Agreement (if the undersigned is a party to
the Escrow Agreement) shall be otherwise terminated pursuant to the provisions
thereof, the Custodian shall return to the undersigned the certificate(s)
referred to in Section 2 of this Agreement and held by it for the account of the
undersigned hereunder.
8. MISCELLANEOUS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument. A faxed copy of an
original signature shall be deemed an original signature. Until delivery of the
consideration provided for in the Exchange Agreement has been made to the
Attorney-in-Fact by or for the account of the Company, the undersigned shall
remain the owner of the Shares and shall have all rights thereto which are not
inconsistent with this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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CUSTODIAN AND ATTORNEY-IN-FACT VANGUARD STOCKHOLDER
Name:
- ----------------------------- ---------------------------------
T.V. Govindarajan By:
-----------------------------------
Title:
--------------------------------
Number of Shares:
---------------------
Certificate Number(s):
----------------
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EXHIBIT C
FORM OF STOCKHOLDER'S CERTIFICATE
STOCKHOLDER CERTIFICATE
Reference is made to the Share Exchange Agreement (the "Exchange
Agreement"), dated as of January 21, 2005, between Vanguard Info-Solutions
Corporation, a New Jersey corporation ("Vanguard") formerly known as B2B
Solutions, Inc., and TACT, Inc., a New York corporation (the "Corporation"), of
which this Stockholder Certificate is a part. In connection with the proposed
transfer by the undersigned of all of the shares of Vanguard Common Stock held
by the undersigned (the "Shares") to the Corporation pursuant to the Exchange
Agreement and the related Escrow Agreement, the undersigned hereby represents to
the Corporation as follows (capitalized terms used herein but not defined shall
have the meanings ascribed thereto in the Exchange Agreement):
1. This Certificate is made with the knowledge that counsel for the
Corporation and Vanguard will rely on it in rendering their respective opinions
pursuant to the Exchange Agreement.
2. The undersigned is the record and beneficial owner of the Shares and
holds such Shares free and clear of any claims, charges, equities, liens,
security interests, and encumbrances whatsoever (including but not limited to
any marital or community property interest). The undersigned has sole management
over the disposition of the Shares. Upon delivery of the Shares to be exchanged
by the undersigned pursuant to the Exchange Agreement and the Escrow Agreement
(if the undersigned is a party to the Escrow Agreement), and delivery by the
Corporation of the Exchange Shares to be exchanged therefor, the Corporation
will receive on the Closing Date good and marketable title to such Shares, free
and clear of any and all claims, charges, equities, liens, security interests
and encumbrances whatsoever. The Shares have not been sold, conveyed,
encumbered, hypothecated or otherwise transferred except pursuant to the duly
executed Irrevocable Power of Attorney and Custody Agreement, between the
undersigned and T.V. Govindarajan (the "Attorney-in-Fact"), dated January 21,
2005 (the "Custody Agreement").
3. The undersigned has the legal authority and right to transfer the
Shares pursuant to the Custody Agreement and shall take any and all actions
required to transfer the Shares to the Attorney-in-Fact pursuant to the Custody
Agreement.
4. The Exchange Agreement will be duly authorized, executed and
delivered on behalf of the undersigned. Assuming the due authorization,
execution and delivery of the Exchange Agreement and the Custody Agreement by
the parties thereto, each constitutes the valid and binding agreement of the
undersigned enforceable against the undersigned in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency or
other similar laws affecting the enforceability of creditors' rights in general
or by general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law), including those limiting the
availability of specific performance, injunctive relief and other forms of
equitable relief, standards of commercial reasonableness and good faith, and
public policy.
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5. If the undersigned is a corporation, limited liability company or
other similar entity, the undersigned represents and warrants that it is
authorized and otherwise duly qualified to acquire and hold the Exchange Shares.
6. The undersigned further represents, with respect to the portion of
the Exchange Shares being acquired by the undersigned as follows:
(a) Such securities will be acquired for investment for his or
its own account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof; and the undersigned has no present intention
of selling, granting participation in or otherwise distributing the same, but
subject, nevertheless, to any requirement of law that the disposition of his or
its property shall at all times be within his or its control. By execution
hereof, the undersigned further represents that the undersigned does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participation to such person or to any third person with
respect to any Exchange Shares to be received by the undersigned.
(b) The undersigned understands that the Exchange Shares at
the time of issuance will not be registered under the Securities Act, and
applicable state securities laws, on the ground that the issuance of such
securities is exempt pursuant to Section 4(2) of the Securities Act and state
law exemptions relating to offers and sales not by means of a public offering,
and that the Corporation's reliance on such exemptions is predicated on the
undersigned's representations set forth herein.
(c) The undersigned agrees that, prior to the registration of
the Exchange Shares for resale under the Securities Act, in no event will he or
it make a disposition of any Exchange Shares unless and until (i) he shall have
notified the Corporation of the proposed disposition and shall have furnished
the Corporation with a statement of the circumstances surrounding the proposed
disposition, and (ii) he shall have furnished the Corporation with an opinion of
counsel satisfactory to the Corporation and the Corporation's counsel to the
effect that (A) appropriate action necessary for compliance with the Securities
Act and any applicable state securities laws has been taken or an exemption from
the registration requirements of the Securities Act and such laws is available
and (B) the proposed transfer will not violate any of said laws.
(d) The undersigned acknowledges that an investment in the
Corporation is highly speculative and represents that he or it is able to fend
for himself or itself in the transactions contemplated by the Exchange Agreement
and hereby is either (i) an "accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended or (ii) has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of the undersigned's
investments, and has the ability to bear the economic risks (including the risk
of a total loss) of the undersigned's investment. The undersigned represents
that the undersigned has had the opportunity to ask questions of the Corporation
concerning the Corporation's business and assets and to obtain any additional
information which the undersigned considered necessary to verify the accuracy of
or to amplify the Corporation's disclosures and has had all questions which have
been asked satisfactorily answered by the Corporation.
A-86
(e) The undersigned acknowledges that the Exchange Shares must
be held indefinitely unless subsequently registered under the Securities Act or
an exemption from such registration is available. The undersigned is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things the existence
of a public market for the shares, the availability of certain current public
information about the Corporation, the resale occurring not less than one year
after a party has purchased and paid for the security to be sold, the sale being
through a "broker's transaction" or in transactions directly with a "market
makers" (as provided by Rule 144(f)) and the number of shares being sold during
any three-month period not exceeding specified limitations.
Dated: January 21, 2005
VANGUARD STOCKHOLDER: -------------------------------
Name of Registered Holder
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Number of Vanguard Shares:
-----------
Certificate Number(s):
---------------
A-87
EXHIBIT D
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT, dated of _______ __, 2005, among THE A
CONSULTING TEAM, INC., a New York (the "Company"), Excalibur Investment Group
Limited (the "Escrowing Shareholder") a holder of issued and outstanding shares
of capital stock of Vanguard Info-Solutions Corporation, a New Jersey
corporation formerly known as B2B Solutions, Inc. ("Vanguard"), T. V.
Govindarajan, acting in his capacity as the authorized representative of the
Escrowing Shareholder (the "Authorized Representative") and U.S. BANK TRUST
NATIONAL ASSOCIATION, a national banking association (the "Escrow Agent"). The
Company and the Escrowing Shareholder are sometimes referred to herein
collectively as the "Interested Parties."
W I T N E S S E T H:
WHEREAS, the Company, Vanguard and the Escrowing Shareholder are
parties to that certain Share Exchange Agreement, dated as of January 21, 2005
(the "Share Exchange Agreement"); and
WHEREAS, the Escrowing Shareholder has appointed the Authorized
Representative to act on their behalf in certain matters relating to the Share
Exchange Agreement, including matters relating to this Agreement; and
WHEREAS, subject to the terms and conditions of the Share Exchange
Agreement, the Escrowing Shareholder is acquiring at the Closing (as defined in
the Share Exchange Agreement) an aggregate of 4,972,701 shares of the Company's
Common Stock, par value $0.01 (the "Transferred Shares"), in exchange for 9,950
of the 10,000 issued and outstanding shares of Vanguard, of which 1,000,000 of
the Transferred Shares (the "Escrow Shares") are to be delivered into escrow to
secure the indemnification obligations of the shareholders of Vanguard pursuant
to Article 11 of the Share Exchange Agreement; and
WHEREAS, the Company and the Escrowing Shareholder have agreed that the
Escrow Agent shall hold the Escrow Shares pursuant to the terms and conditions
of this Agreement and that the Escrow Shares are further subject to cancellation
pursuant to Section 11.3 of the Share Exchange Agreement and this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement without
definition shall have the meanings given them in the Share Exchange Agreement.
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2. DEPOSIT OF ESCROWED PROPERTY.
(a) To secure the performance by the Escrowing Shareholder of
the Escrowing Shareholder' obligations to indemnify the Company pursuant to
Section 11.1(a) of the Share Exchange Agreement (the "Indemnification
Obligations"), the Company has delivered the Escrow Shares to the Escrow Agent
on behalf of the Escrowing Shareholder at the Closing. Subject to the terms and
conditions of this Agreement, the Escrow Agent shall hold and administer the
Escrow Shares and any dividends and distributions thereon or proceeds received
therefrom received by the Escrow Agent (collectively, the "Escrow Property") in
escrow. The number of Exchange Shares deposited in escrow on behalf of each
Escrowing Shareholder shall be in proportion to the number of shares of capital
stock of Vanguard held by each such Escrowing Shareholder on the Closing Date
and shall further be set forth below the signature of each Escrowing Shareholder
to this Agreement at the end hereof. The Escrow Agent shall have no
responsibility for the genuineness, validity, market value, title or sufficiency
for any intended purpose of the Escrow Property.
(b) The Escrow Agent hereby acknowledges receipt of the Escrow
Shares from the Escrowing Shareholder and the Company, and agrees to hold and to
deliver the same in accordance with this Agreement.
(c) So long as the Escrowing Shareholder is not in default in
respect of any of their Indemnification Obligations, the Escrowing Shareholder
shall exercise and enjoy all the rights accruing from the ownership of the
Escrowed Property.
3. CLAIMS AND PAYMENTS; RELEASE FROM ESCROW.
(a) Whenever the Escrow Agent receives a Claim Notice from the
Company that seeks indemnification from the Escrowing Stockholders, the Escrow
Agent shall send a copy of the Claim Notice to the Authorized Representative
together with a notice (the "Escrow Agent's Payment Notice") stating the Escrow
Agent's intention to deliver all or a portion of the Escrowed Property in
payment of the claim set forth in the Claim Notice. If on or prior to the tenth
Business Day after it has sent the Escrow Agent's Payment Notice to the
Authorized Representative, the Escrow Agent does not receive a written objection
from the Authorized Representative, the Escrow Agent shall deliver to the
Company (i) for cancellation Escrow Shares equal in value to the amount of the
Losses set forth in the Escrow Agent's Payment Notice, such value to be computed
as set forth in Section 11.3 of the Share Exchange Agreement and (ii), if no
Escrow Shares remain, then any and all other Escrowed Property, up to the amount
of the Losses stated in the Escrow Agent's Payment Notice, and the Escrow Agent
shall thereupon be discharged of and from all other and further responsibilities
with respect to the Escrowed Property as to the Losses set forth in the Escrow
Agent's Payment Notice.
(b) Upon the later to occur of (i) the first anniversary of
the Closing (the "Termination Date") and (ii) the date on which there shall have
been resolved any outstanding claims for indemnification from the Escrowing
Shareholder under the Share Exchange Agreement that are the subject of duly
delivered Claim Notices that are outstanding and unresolved on the Termination
Date, the Company shall deliver to the Escrow Agent a notice (the "Satisfaction
Notice"), which Satisfaction Notice shall state that all of the Indemnification
Obligations that are required to be satisfied during the period ending on the
date of the Satisfaction Notice have been satisfied. Upon receipt of the
Satisfaction Notice from the Company, the Escrow Agent shall deliver to the
Escrowing Shareholder (or the assignees of the Escrowing Shareholder) all of the
Escrowed Property then remaining with the Escrow Agent in proportion to the
number of Exchange Shares initially deposited under this Agreement, and
thereupon the Escrow Agent shall be discharged of and from all other and further
responsibilities with respect to the Escrowed Property.
A-89
(c) Anything in this Agreement notwithstanding, if at any time
the Escrow Agent receives written instructions signed by the Company and the
Authorized Representative, or a final order of a court of competent jurisdiction
that directs delivery of the Escrowed Property, the Escrow Agent shall, at the
expense of the Company and the Authorized Representative, comply with such
instructions or order. The Escrow Agent shall also be entitled to deposit the
Escrowed Property with the clerk of any court of competent jurisdiction upon
commencement of an action in the nature of interpleader or in the course of any
court proceedings. Upon any delivery or deposit of the Escrowed Property as
provided in this Section 3(c), the Escrow Agent shall thereupon be discharged of
and from all other and further responsibilities with respect to the Escrowed
Property.
4. OBJECTIONS TO PAYMENT. If the Escrow Agent receives a written
objection from the Authorized Representative to any Escrow Agent's Payment
Notice, then the Escrow Agent shall continue to hold the Escrowed Property equal
to the amount of Losses set forth in the Applicable Claim Notice until the
Escrow Agent receives one of the following:
(a) written instructions signed by the Company and the
Authorized Representative setting forth to whom any Escrowed Property shall be
delivered in respect of the Escrow Agent's Payment Notice as to which written
objection has been made; or
(b) following compliance with the provisions of Section
11.1(d) of the Share Exchange Agreement, a final decision of the majority of the
arbitrators rendered pursuant to Section 11.1.(d) of the Share Exchange
Agreement, constituting the conclusive determination of the arbitrators with
respect to the matters set forth in the Escrow Agent's Payment Notice and the
written objection thereto setting forth to whom the Escrowed Property shall be
delivered in respect of such Escrow Agent's Payment Notice.
The Escrow Agent shall not be a necessary party to any judicial proceeding in
which such an order is sought.
5. CERTAIN TERMS CONCERNING ESCROWED PROPERTY.
(a) No Duty to Vote or Preserve Rights to Escrow Property.
Neither the Escrow Agent nor its nominee shall be under any duty to take any
action to preserve, protect, exercise or enforce any rights or remedies under or
with respect to the Escrowed Property (including with respect to the exercise of
any voting rights, conversion or exchange rights, defense of title, preservation
of rights against prior matters or otherwise). Notwithstanding the foregoing, if
the Escrow Agent is so requested in a request of the Authorized Representative
received by the Escrow Agent at least two business days prior to the date on
which the Escrow Agent is requested therein to take such action (or such later
date as may be acceptable to the Escrow Agent), the Escrow Agent shall execute,
or shall cause its nominee to execute, and
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deliver to the Authorized Representative a proxy or other instrument in the form
supplied to it by the Authorized Representative for voting or otherwise
exercising any right with respect to any of the Escrow Shares held by it
hereunder, to authorize therein the Authorized Representative to exercise such
voting or other authority in respect of the Escrow Shares (provided, that the
Escrow Agent shall not be obliged to execute any such proxy or other instrument
if, in its judgment, the terms thereof may subject the Escrow Agent to any
liabilities or obligations in its individual capacity). The Escrow Agent shall
not be under any duty or responsibility to forward to any Interested Party, or
to notify any Interested Party with respect to, or to take any action with
respect to, any notice, solicitation or other document or information, written
or otherwise, received from an issuer or other person with respect to the Escrow
Shares, including proxy material, tenders, options, the pendency of calls and
maturities and expiration of rights; it being understood that the intent of the
parties is for any such notice, solicitation or other document or information to
be sent directly to the underlying owner of Escrow Shares or, as applicable, to
the Company, and not to the Escrow Agent.
(b) Distribution of Escrow Shares. Any distribution of all or
any portion of the Escrow Shares made pursuant to Section 3 or Section 4 shall
be made by delivery of the applicable certificate(s) held by the Escrow Agent
representing such Escrow Shares, mailed by first class mail to the appropriate
person at such address as the Escrow Agent may have previously been instructed
in writing; and, if less than all of the Escrow Shares included on any such
certificate are to be so distributed, then the Escrow Agent shall instruct the
Company to, and the Company promptly shall, subdivide such certificate and (i)
issue and deliver to the appropriate person the appropriate number of Escrow
Shares to which such person is entitled and (ii) issue and return to the Escrow
Agent (or its nominee, if the Escrow Agent shall so instruct) one or more
certificates representing the Escrow Shares that remain subject to this
Agreement. The Escrow Agent shall have no liability for the actions or omissions
of, or any delay on the part of, the Interested Parties in connection with the
foregoing.
(c) Dividends and Distributions. Any dividends, whether cash
dividends or otherwise, splits and any other distributions made with respect to
the Escrow Shares received by the Escrow Agent from time to time during the term
of this Agreement shall be added to and become a part of the Escrow Property
(and, as such, shall become subject to the terms of this Agreement). The Escrow
Agent shall be under no obligation or duty to invest (or otherwise pay interest
on) any cash it may receive as part of the Escrow Property from time to time.
6. CONCERNING THE ESCROW AGENT. (a) Each of the Interested Parties
acknowledges and agrees that the Escrow Agent (i) shall not be responsible for
any of the agreements referred to or described herein, or for determining or
compelling compliance therewith, and shall not otherwise be bound thereby, (ii)
shall be obligated only for the performance of such duties as are expressly and
specifically set forth in this Agreement on its part to be performed, each of
which is ministerial (and shall not be construed to be fiduciary) in nature, and
no implied duties or obligations of any kind shall be read into this Agreement
against or on the part of the Escrow Agent, (iii) shall not be obligated to take
any legal or other action hereunder that might in its judgment involve or cause
it to incur any expense or liability unless it shall have been furnished with
acceptable indemnification, (iv) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction (including wire
transfer instructions, whether incorporated herein or provided in a separate
written instruction), instrument, statement, certificate, request or other
document furnished to it hereunder and believed by it to be genuine and to have
been signed or presented by the proper person or persons, and shall have no
responsibility for making inquiry as to or determining the genuineness, accuracy
or validity thereof, or of the authority of any person signing or presenting the
same, and (v) may consult counsel satisfactory to it, including in-house
counsel, and the opinion or advice of such counsel in any instance shall be full
and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance with the
opinion or advice of such counsel.
A-91
(b) The Escrow Agent shall not be liable to any person for any
action taken or omitted to be taken by it hereunder except in the case of the
Escrow Agent's gross negligence or willful misconduct in breach of the terms of
this Agreement. In no event shall the Escrow Agent be liable for any indirect,
punitive, special or consequential damage or loss (including lost profits)
whatsoever, even if the Escrow Agent has been informed of the likelihood of such
loss or damage and regardless of the form of action.
(c) The Escrow Agent shall have no more or less responsibility
or liability on account of any action or omission of any book-entry depository,
securities intermediary or other sub-escrow agent employed by the Escrow Agent
than any such book-entry depository, securities intermediary or other sub-escrow
agent has to the Escrow Agent, except to the extent that such action or omission
of any book-entry depository, securities intermediary or other sub-escrow agent
was caused by the Escrow Agent's own gross negligence or willful misconduct in
breach of this Agreement.
(d) Notwithstanding any term in this Agreement to the
contrary, in no instance shall the Escrow Agent be required or obligated to
distribute any Escrow Property (or take other action that may be called for
hereunder to be taken by the Escrow Agent) sooner than two business days after
(i) it has received the applicable documents required under this Agreement in
proper form, or (ii) passage of the applicable time period (or both, as
applicable under the terms of this Agreement), as the case may be.
7. COMPENSATION, EXPENSE REIMBURSEMENT AND INDEMNIFICATION. (a) Each of
the Interested Parties covenants and agrees that the Interested Parties shall
share equally in, but in any event be jointly and severally liable for, (i)
paying to or reimbursing the Escrow Agent for its reasonable attorney's fees and
reasonable expenses incurred in connection with the preparation of this
Agreement; (ii) paying the Escrow Agent's compensation for its normal services
hereunder in accordance with the fee schedule attached hereto as Exhibit A and
made a part hereof, which may be subject to change hereafter by the Escrow Agent
on an annual basis (the "Escrow Fees"); and (iii) reimbursing the Escrow Agent
on demand for all reasonable costs and expenses incurred in connection with the
administration of this Agreement or the escrow created hereby or the performance
or observance of its duties hereunder that are in excess of the Escrow Fees,
including payment of any legal fees and reasonable expenses incurred by the
Escrow Agent in connection with resolution of any claim by any party hereunder.
A-92
(b) Each of the Interested Parties covenants and agrees that
the Interested Parties shall share equally in, but in any event be jointly and
severally liable for, indemnifying the Escrow Agent (and its directors, officers
and employees) and holding it (and such directors, officers and employees)
harmless from and against any loss, liability, damage, cost and expense of any
nature incurred by the Escrow Agent arising out of or in connection with this
Agreement or with the administration of its duties hereunder, including
attorney's fees and other reasonable costs and expenses of defending or
preparing to defend against any claim of liability unless and except to the
extent such loss, liability, damage, cost and expense shall be caused by the
Escrow Agent's gross negligence or willful misconduct. The foregoing
indemnification and agreement to hold harmless shall survive the termination of
this Agreement.
(c) Notwithstanding anything herein to the contrary, the
Escrow Agent shall have and is hereby granted a possessory lien on and security
interest in the Escrow Property, and all proceeds thereof, to secure payment of
all amounts owing to it from time to time under this Agreement, whether now
existing or hereafter arising. The Escrow Agent shall have the right to deduct
from the Escrow Property, and proceeds thereof, any such sums, upon one business
day notice to the Interested Parties of its intent to do so.
(d) The Escrow Agent may present invoices for its services
hereunder (including for its fees and reimbursable expenses) and claims for
indemnification hereunder to the Interested Parties by delivery of same to the
Authorized Representative.
8. TAX INDEMNIFICATION. Each of the Interested Parties covenants and
agrees that the Interested Parties shall share equally in, but in any event be
jointly and severally liable for, (i) assuming any and all obligations imposed
now or hereafter by any applicable tax law with respect to any payment or
distribution of the Escrow Property or performance of other activities under
this Agreement, (ii) instructing the Escrow Agent in writing with respect to the
Escrow Agent's responsibility for withholding and other taxes, assessments or
other governmental charges, and instructing the Escrow Agent with respect to any
certifications and governmental reporting that may be required under any laws or
regulations that may be applicable in connection with its acting as escrow agent
under this Agreement, and (iii) indemnifying and holding the Escrow Agent
harmless from any liability or obligation on account of taxes, assessments,
additions for late payment, interest, penalties, expenses and other governmental
charges that may be assessed or asserted against the Escrow Agent in connection
with, on account of or relating to, the Escrow Property, the management
established hereby, any payment or distribution of or from the Escrow Property
pursuant to the terms hereof or other activities performed under the terms of
this Agreement, including any liability for the withholding or deduction of (or
the failure to withhold or deduct) the same, and any liability for failure to
obtain proper certifications or to report properly to governmental authorities
in connection with this Agreement, including costs and expenses (including
reasonable legal fees and expenses), interest and penalties. The foregoing
indemnification and agreement to hold harmless shall survive the termination of
this Agreement.
9. RESIGNATION. The Escrow Agent may at any time resign as Escrow Agent
hereunder by giving 30 days' prior written notice of resignation to the
Interested Parties. Prior to the effective date of the resignation as specified
in such notice, the Authorized Representative will issue to the Escrow Agent a
written instruction authorizing redelivery of the Escrow Property to a bank or
trust company that it selects as successor to the Escrow Agent hereunder,
subject to the consent of the Company (which consent shall not be unreasonably
withheld or delayed). If, however, the Authorized Representative fails to name
such a successor escrow agent within 20 days after the notice of resignation
from the Escrow Agent, then the Company shall be entitled to name such successor
escrow agent, subject to the consent of the Authorized Representative (which
consent shall not be unreasonably withheld or delayed). If no successor escrow
agent is named by the Company or the Authorized Representative, the Escrow Agent
may apply to a court of competent jurisdiction for appointment of a successor
escrow agent. Upon the resignation of the Escrow Agent, the Escrow Fees paid to
the Escrow Agent will be returned to the party or parties that made such
payment, on a pro-rated basis.
A-93
10. DISPUTE RESOLUTION. It is understood and agreed that, should any
dispute arise with respect to the delivery, ownership, right of possession
and/or disposition of the Escrow Property, or should any claim be made upon the
Escrow Agent or the Escrow Property by a third party, the Escrow Agent upon
receipt of notice of such dispute or claim is authorized and shall be entitled
(at its sole option and election) to retain in its possession without liability
to anyone, all or any of said Escrow Property until such dispute shall have been
settled either by the mutual written agreement of the parties involved or by a
final order, decree or judgment of a court of competent jurisdiction, the time
for perfection of an appeal of such order, decree or judgment having expired.
The Escrow Agent may, but shall be under no duty whatsoever to, institute or
defend any legal proceedings that relate to the Escrow Property.
11. CONSENT TO JURISDICTION AND SERVICE. The Company, the Escrow Agent
and the Authorized Representative hereby irrevocably and unconditionally agree
that any action, suit or proceeding, at law or equity, arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
shall only be brought in any federal court of the Southern District of New York,
and hereby irrevocably and unconditionally expressly submit to the personal
jurisdiction and venue of such courts for the purposes thereof and hereby
irrevocably and unconditionally waive (by way of motion, as a defense or
otherwise) any and all jurisdictional, venue and convenience objections or
defenses that any such party may have in such action, suit or proceeding. The
Company, the Escrow Agent and the Authorized Representative hereby irrevocably
and unconditionally consent to the service of process of any of the
aforementioned courts in any such action, suit or proceeding by the mailing of
copies thereof by registered or certified mail, return receipt requested,
postage prepaid, to such party's address set forth herein, such service to
become effective ten days after such mailing. Nothing herein contained shall be
deemed to affect the right of any party to serve process in any manner permitted
by law or commence legal proceedings or otherwise proceed against any other
party in any other jurisdiction to enforce judgments obtained in any action,
suit or proceeding brought pursuant to this Section 11.
12. WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES A TRIAL BY JURY OF ANY AND ALL ISSUES
ARISING IN ANY ACTION OR PROCEEDING BETWEEN THEM OR THEIR SUCCESSORS OR ASSIGNS
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF ITS PROVISIONS OR ANY
NEGOTIATIONS IN CONNECTION HEREWITH.
13. FORCE MAJEURE. The Escrow Agent shall not be responsible for delays
or failures in performance resulting from acts beyond its control. Such acts
shall include acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
A-94
14. NOTICES. Any notice to a party permitted or required hereunder
shall be in writing, and shall be sent to such party (i) by personal delivery,
(ii) by overnight delivery by a recognized courier or delivery service, or (iii)
by registered or certified mail, return receipt requested, postage prepaid, or
(iv) by confirmed telecopy accompanied by mailing of the original on the same
day by first class mail, postage prepaid, in each case to the party at its
address set forth below (or to such other address as such party may hereafter
designate by written notice to the other parties):
If to the Escrowing Shareholder, or to the Authorized Representative,
to:
T.V. Govindarajan
c/o Vanguard Info-Solutions Corporation
2088 Route 130 North
Monmouth Junction, New Jersey, USA 08852
Telephone: (732) 951-0701
Facsimile: (732) 951-0704
with a copy (which shall not constitute notice) to
McGuireWoods LLP
1345 Avenue of the Americas
New York, New York 10105
Attention: William A. Newman, Esq.
Telephone: (212) 548-2100
Facsimile: (212) 548-2150
if to the Company,
The A Consulting Team, Inc.
77 Brant Avenue
Clark, New Jersey 07066
Attention: Chief Financial Officer
Telephone: (732) 499-8228
Facsimile: (732) 499-9310
with copies (which shall not constitute notice) to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Lawrence B. Fisher, Esq.
Telephone: (212) 506-5385
Facsimile: (212) 506-5151
A-95
and to:
McGuireWoods LLP
1345 Avenue of the Americas
New York, New York 10105
Attention: William A. Newman, Esq.
Telephone: (212) 548-2100
Facsimile: (212) 548-2150
if to the Escrow Agent, to:
U.S. Bank Trust National Association
100 Wall Street, Suite 1600
New York, NY 10005
Attention: Ms. Jean Clarke
Telephone: (212) 361-6173
Facsimile: (212) 361-6153
15. MISCELLANEOUS.
(a) Binding Effect; Successors. This Agreement shall be
binding upon the parties to this Agreement and their respective heirs,
executors, successors and assigns. If the Escrow Agent consolidates, merges or
converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the successor corporation without any further
act shall be the successor Escrow Agent.
(b) Modifications; Waivers. This Agreement may not be altered
or modified without the express written consent of the Interested Parties and
the Escrow Agent. Waiver of any term or condition of this Agreement by any party
shall be effective only if in a writing signed by the party against whom such
waiver is asserted. Any such waiver shall not be construed as a waiver of any
subsequent breach or failure of the same term or condition, or a waiver of any
other term of this Agreement. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
(c) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.
(d) Counterparts. This Agreement may be executed in any number
of counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each of the parties to this Agreement and delivered to the other parties.
A-96
(e) General. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Unless the context of this Agreement otherwise
requires: (i) pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the identity of the person or persons
may require; (ii) the words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; (iii) the word
"person" shall refer to any individual, corporation, general or limited
partnership, firm, joint venture, association, enterprise, joint stock company,
trust, unincorporated organization or other entity; (iv) article, section,
paragraph and schedule references are to the articles, sections, paragraphs and
schedules of this Agreement; (v) the word "including" and words of similar
import when used in this Agreement shall mean "including, without limitation;"
(vi) the word "or" is not exclusive; and (vii) provisions apply to successive
events and transactions.
A-97
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Agreement as of the date first above written.
THE ESCROWING SHAREHOLDER:
EXCALIBUR INVESTMENT GROUP LIMITED
By:
---------------------------------------------
Name: Matthew Charles Stokes
Title: Director
Escrow Shares: 1,000,000
THE AUTHORIZED REPRESENTATIVE:
----------------------------------------------
T.V. Govindarajan, acting as
Authorized Representative
THE COMPANY:
THE A CONSULTING TEAM, INC.
By:
---------------------------------------------
Name: Shmuel BenTov
Title: President and Chief Executive Officer
ESCROW AGENT:
U.S. BANK TRUST NATIONAL ASSOCIATION
By:
---------------------------------------------
Name: Jean Clark
Title: Assistant Vice President
A-98
Exhibit A to the Escrow Agreement
---------------------------------
ESCROW AGENT FEES
Escrow Agency Fee: $3,500, payable upon execution and delivery of this Escrow
Agreement by the Escrow Agent, plus reasonable out of pocket fees and expenses,
payable upon request from time-to-time to upon presentation of an invoice for
same to the Authorized Representative and/or the Company.
A-99
EXHIBIT E
BOARD MEMBERS
LIST OF BOARD NOMINEES
Andrew Harry Ball
William A. Newman
A-100
EXHIBIT 9.4(A)
VANGUARD'S COUNSEL'S OPINION
[Intentionally Omitted]
A-101
Exhibit 10.4(a)
TACT's Counsel's Opinion
[Intentionally Omitted]
A-102
ANNEX B
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and between
OAK FINANCE INVESTMENTS LIMITED
(a British Virgin Islands company)
and
THE A CONSULTING TEAM, INC.
(A New York Corporation)
Dated as of
January 21, 2005
B-1
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS AND USAGE....................................................................B-6
Section 1.1 Definitions.....................................................................B-6
Section 1.2 Other Defined Terms............................................................B-14
Section 1.3 Usage..........................................................................B-14
ARTICLE 2 SALE AND TRANSFER OF THE SHARES.........................................................B-15
Section 2.1 Sale of the Firm Shares........................................................B-15
Section 2.2 Purchase Price.................................................................B-15
Section 2.3 Closing........................................................................B-16
Section 2.4 Closing Obligations............................................................B-16
Section 2.5 Sale of the Additional Shares; Delivery of the Additional Shares and
Payment Therefor...............................................................B-16
Section 2.6 Restrictive Legends............................................................B-17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................B-19
Section 3.1 Organization and Good Standing.................................................B-19
Section 3.2 No Conflict; No Consent........................................................B-19
Section 3.3 Books and Records..............................................................B-20
Section 3.4 Capitalization.................................................................B-20
Section 3.5 SEC Reports....................................................................B-21
Section 3.6 No Material Adverse Change.....................................................B-21
Section 3.7 Absence of Certain Changes or Events...........................................B-21
Section 3.8 Legal Proceedings; Orders......................................................B-23
Section 3.9 Brokers or Finders.............................................................B-23
Section 3.10 Issuance of Shares; No Agreements..............................................B-23
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYER.............................................B-24
Section 4.1 Organization and Good Standing.................................................B-24
Section 4.2 Enforceability; Authority; No Conflict.........................................B-24
Section 4.3 Brokers or Finders.............................................................B-24
Section 4.4 Disclosure.....................................................................B-24
Section 4.5 Investment Representation......................................................B-25
Section 4.6 Certain United States Laws.....................................................B-26
Section 4.7 Questionnaire..................................................................B-27
Section 4.8 Representation by Legal Counsel; Review of Agreement...........................B-27
ARTICLE 5 COVENANTS OF THE COMPANY PRIOR TO CLOSING DATE..........................................B-27
Section 5.1 Access and Investigation.......................................................B-27
Section 5.2 Required Approvals.............................................................B-27
Section 5.3 Business Operations of the Company and its Subsidiaries........................B-27
Section 5.4 Negative Covenant..............................................................B-28
Section 5.5 Notification...................................................................B-28
B-2
PAGE
Section 5.6 Payment of Indebtedness by Related Persons.....................................B-28
Section 5.7 Best Efforts...................................................................B-29
Section 5.8 Form D.........................................................................B-29
Section 5.9 NASDAQ Listing; Reporting Status...............................................B-29
Section 5.10 Use of Proceeds................................................................B-29
Section 5.11 State Securities Laws..........................................................B-29
Section 5.12 Limitation on Certain Actions..................................................B-29
ARTICLE 6 COVENANTS OF THE BUYER PRIOR TO CLOSING DATE............................................B-30
Section 6.1 Approvals of Governmental Bodies...............................................B-30
Section 6.2 Best Efforts...................................................................B-30
Section 6.3 Notification...................................................................B-30
ARTICLE 7 ADDITIONAL COVENANTS....................................................................B-30
Section 7.1 Public Announcements...........................................................B-30
Section 7.2 Confidentiality................................................................B-31
ARTICLE 8 CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATION TO CLOSE.................................B-31
Section 8.1 Accuracy of Representations....................................................B-31
Section 8.2 Company's Performance..........................................................B-31
Section 8.3 Consents.......................................................................B-31
Section 8.4 Additional Documents...........................................................B-32
Section 8.5 No Proceedings.................................................................B-32
Section 8.6 No Material Adverse Change.....................................................B-32
Section 8.7 Consummation of Other Transactions.............................................B-32
ARTICLE 9 CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE...............................B-32
Section 9.1 Accuracy of Representations....................................................B-32
Section 9.2 The Buyer's Performance........................................................B-32
Section 9.3 Consents.......................................................................B-32
Section 9.4 Additional Documents...........................................................B-32
Section 9.5 No Proceedings.................................................................B-33
ARTICLE 10 REGISTRATION RIGHTS.....................................................................B-33
Section 10.1 Mandatory Registration.........................................................B-33
Section 10.2 Obligations of the Company.....................................................B-35
Section 10.3 Obligations of the Investors...................................................B-38
Section 10.4 Rule 144.......................................................................B-39
B-3
PAGE
ARTICLE 11 TERMINATION.............................................................................B-40
Section 11.1 Termination Events.............................................................B-40
Section 11.2 Effect of Termination..........................................................B-40
Section 11.3 Extension; Waiver..............................................................B-40
ARTICLE 12 MISCELLANEOUS PROVISIONS................................................................B-41
Section 12.1 No Survival....................................................................B-41
Section 12.2 Expenses.......................................................................B-41
Section 12.3 Notices........................................................................B-41
Section 12.4 Entire Agreement; Modifications................................................B-42
Section 12.5 Governing Law..................................................................B-42
Section 12.6 Assignment; Successors; No Third Party Rights..................................B-43
Section 12.7 Severability...................................................................B-43
Section 12.8 No Waiver......................................................................B-43
Section 12.9 Jurisdiction; Service of Process...............................................B-43
Section 12.10 Further Assurances.............................................................B-43
Section 12.11 Counterparts...................................................................B-43
B-4
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made as of January
21, 2005, between Oak Finance Investments Limited, a British Virgin Islands
company (the "Buyer"), and The A Consulting Team, Inc., a New York corporation
(the "Company").
THE RECITALS
A. The Company desires to issue and sell to the Buyer, and the Buyer
desires to purchase from the Company, 625,000 shares (the "Firm Shares") of the
Company's Common Stock, par value $0.01 per share (the "Common Stock"), pursuant
to the terms and conditions of this Agreement;
B. In addition, the Company has agreed to sell to the Buyer, or, at
the option of the Buyer, the Additional Shares Buyer, upon the terms and
conditions stated herein, up to an additional 625,000 shares of the Common Stock
(the "Additional Shares"). The Firm Shares and the Additional Shares are
collectively referred to in this Agreement as the "Shares."
C. Simultaneously herewith the Buyer has entered into a Stock
Purchase Agreement, dated the date hereof (the "Shareholder Stock Purchase
Agreement"), with the sellers identified therein (the "Selling Shareholder"),
pursuant to which the Buyer has agreed to purchase and the Selling Shareholder
has agreed to sell 1,024,697 Shares of the Common Stock;
D. Simultaneously herewith the Company has entered into a Share
Exchange Agreement, dated the date hereof, (the "Company Share Exchange
Agreement") with Vanguard Info-Solutions Corporation, a New Jersey corporation
formerly known as B2B Solutions, Inc. ("B2B"), each of the stockholders of B2B
(the "B2B Stockholders"), and the Authorized Representative identified therein,
pursuant to which the Company will issue 7,312,796 shares of Common Stock to the
B2B Stockholders in exchange for 100% of the issued and outstanding shares of
all classes of capital stock of B2B;
E. In order to induce the Buyer to enter into the Shareholder Stock
Purchase Agreement, simultaneously herewith the Selling Shareholder has entered
into an agreement with the Buyer, dated the date hereof (the "Principal
Shareholder's Agreement"), pursuant to which the Selling Shareholder has agreed
to vote the shares of Common Stock that he owns in favor of the transactions
contemplated hereby and by the Company Share Exchange Agreement and to refrain
from taking certain actions regarding other potential transactions involving the
Company;
F. The Company's Board of Directors has approved the transactions
contemplated by each of this Agreement, the Company Share Exchange Agreement and
the Shareholder Stock Purchase Agreement and has agreed to recommend to its
shareholders that they approve the transactions contemplated by this Agreement
and the Company Share Exchange Agreement; and
G. The approval of the shareholders of the Company is necessary to
consummate the transactions contained in this Agreement and the Company Share
Exchange Agreement.
B-5
THE AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS AND USAGE
Section 1.1 Definitions. For purposes of this Agreement, the following
terms have the respective meanings set forth below:
"Additional Registrable Securities" means any Shares which are
included within the definition of Registrable Securities but not
included in any Registration Statement pursuant to Section 10.1.
"Additional Shares Buyer" means Clariden Bank, Switzerland (a
unit of Credit Suisse) or any other Person to whom the Buyer assigns
its right to purchase the Additional Shares pursuant to Section 2.5.
"Agreement" means this Stock Purchase Agreement, as amended
from time to time pursuant to the terms hereof.
"Approved Market" means the AMEX, the NASDAQ National Market,
the NASDAQ Small Cap Market or the New York Stock Exchange, Inc.
"Best Efforts" means the efforts that a prudent Person
desirous of achieving a result would use in similar circumstances to
achieve that result as expeditiously as possible, provided, however,
that a Person required to use Best Efforts under this Agreement will
not thereby be required to take actions that would result in a material
adverse change in the benefits to such Person of this Agreement and the
Contemplated Transactions or to dispose of or make any change to its
business, expend any material funds or incur any other material burden.
"Blackout Period" means the period of up to an aggregate of
twenty (20) Trading Days in any period of three hundred sixty-five
(365) consecutive days, in each case commencing on the day immediately
after the date the Company notifies the Investors that they are
required, pursuant to Section 10.3(d), to suspend offers and sales of
Registrable Securities pursuant to the Registration Statement as a
result of an event or circumstance described in Section 10.2(e)(i)
during which period, by reason of Section 10.2(e)(ii), the Company is
not required to amend the Registration Statement or to supplement the
Prospectus; provided, that (1) no Blackout Period may exceed ten
consecutive Trading Days in any period of one hundred twenty (120)
consecutive days and (2) no Blackout Period may commence sooner than
sixty (60) days after the end of a prior Blackout Period.
"Breach" means any breach of, or any inaccuracy in, any
representation or warranty or any breach of, or failure to perform or
comply with, any covenant or obligation, in or of this Agreement or any
other Contract, or any event which with the passing of time or the
giving of notice, or both, would constitute such a breach, inaccuracy
or failure.
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"Business Day" means any day except Saturday, Sunday or any
other day on which commercial banks located in New York, New York are
authorized by law to be closed for business.
"Buyer's Disclosure Schedule" means the Disclosure Schedule
provided by the Buyer to the Company pursuant to this Agreement.
"Code" means the Internal Revenue Code of 1986.
"Commission" means the U.S. Securities and Exchange
Commission.
"Common Stock Equivalent" means any warrant, option,
subscription or purchase right with respect to shares of Common Stock,
any security convertible into, exchangeable for, or otherwise entitling
the holder thereof to acquire, shares of Common Stock or any warrant,
option, subscription or purchase right with respect to any such
convertible, exchangeable or other security.
"Company's Disclosure Schedule" means the Disclosure Schedule
provided by the Company to the Buyer pursuant to this Agreement.
"Consent" means any approval, consent, ratification, waiver or
other authorization.
"Contemplated Transactions" means all of the transactions
contemplated by this Agreement and by the Shareholder Stock Purchase
Agreement and the Company Exchange Agreement.
"Contract" means any agreement, contract, obligation, promise
or undertaking (whether written or oral and whether express or implied)
that is legally binding.
"Disclosure Schedule" means a schedule delivered by one party
to the other party concurrently with the execution and delivery of this
Agreement, setting forth certain disclosure information arranged in
numbered Items each of which corresponds to a section of this Agreement
and provides (i) additional disclosure in response to an express
disclosure requirement in such section or (ii) an exception or
qualification to a representation or warranty contained in such
section.
"Employee Plan" means, with respect to an employer, all
"employee benefit plans" as defined by Section 3(3) of ERISA, all
specified fringe benefit plans as defined in Section 6039D of the Code,
and all other bonus, incentive compensation, deferred compensation,
profit sharing, stock option, stock appreciation right, stock bonus,
stock purchase, employee stock ownership, savings, severance, change in
control, supplemental unemployment, layoff, salary continuation,
retirement, pension, health, life insurance, disability, accident,
group insurance, vacation, holiday, sick leave, fringe benefit or
B-7
welfare plan, and any other employee compensation or benefit plan,
agreement, policy, practice, commitment, contract or understanding
(whether qualified or nonqualified, currently effective or terminated,
written or unwritten) and any trust, escrow or other agreement related
thereto that (i) is maintained or contributed to by any such employer
or any ERISA Affiliate or has been maintained or contributed to in the
last six (6) years by any such employer or any ERISA Affiliate, or with
respect to which any such employer or any ERISA Affiliate has or may
have any liability, and (ii) provides benefits, or describes policies
or procedures applicable to any current or former director, officer,
employee or service provider of any such employer or any ERISA
Affiliate, or the dependents of any thereof, regardless of how (or
whether) liabilities for the provision of benefits are accrued or
assets are acquired or dedicated with respect to the funding thereof.
"Encumbrance" means any charge, claim, community or other
marital property interest, condition, equitable interest, lien, option,
pledge, security interest, mortgage, right of way, easement,
encroachment, servitude, right of first option, right of first refusal
or similar restriction, including any restriction on use, voting (in
the case of security or equity interests), transfer, receipt of income
or exercise of any other attribute of ownership.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA Affiliate" means, with respect to an employer, any
other corporation or trade or business controlled by, controlling or
under common control with such employer (within the meaning of Section
414, Section 4001(a)(14) or Section 4001(b) of ERISA).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means United States generally accepted accounting
principles applied on a consistent basis.
"Governmental Authorization" means any Consent, license,
registration or permit issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"Governmental Body" means any (i) nation, state, county, city,
town, borough, village, district or other jurisdiction; (ii) federal,
state, local, municipal, foreign or other government; (iii)
governmental or quasi-governmental authority of any nature (including
any self-regulatory organization, agency, branch, department, board,
commission, court, tribunal or other entity exercising governmental or
quasi-governmental powers); (iv) multinational organization or body;
(v) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial, legislative, police, regulatory or
taxing authority or power; or (vi) any official of any of the
foregoing.
"Investor" means any of the Buyer, the Additional Shares Buyer
and any permitted transferee or assignee who agrees to become bound by
terms and conditions of this Agreement.
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"Item" means, with respect to a party, a section of that
party's Disclosure Schedule.
"Knowledge" means, with respect to a particular fact or other
matter:
(i) in the case of an individual, either that
individual is actually aware of that fact or matter, or a
prudent individual could be expected to discover or otherwise
become aware of that fact or matter in the course of
conducting a reasonably comprehensive investigation regarding
the accuracy of any representation or warranty contained in
this Agreement;
(ii) in the case of a Person (other than an
individual), any individual who is serving, or who has at any
time served, as a director, officer, executor or trustee of
that Person (or in any similar capacity) has, or at any time
had, Knowledge of that fact or other matter (as set forth in
clause (i) above); and
(iii) any such individual (referred to in clause (ii)
above) and any individual party to this Agreement will be
deemed to have conducted a reasonably comprehensive
investigation regarding the accuracy of any representation or
warranty made herein by that Person or individual.
"Legal Requirement" means any federal, state, local,
municipal, foreign, international, multinational or other constitution,
law, ordinance, principle of common law, code, regulation, rule, Order,
Governmental Authorization, statute or treaty, including any rule or
regulation of the NASDAQ Small Cap Market and further including the
Sarbanes-Oxley Act of 2002.
"Liability" means, with respect to any Person, any liability
or obligation of such Person of any kind, character or description,
whether known or unknown, absolute or contingent, accrued or unaccrued,
disputed or undisputed, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested,
executory, determined, determinable or otherwise, and whether or not
the same is required to be accrued on the financial statements of such
Person.
"Lien" means, with respect to any asset, any deed of trust
mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect of that asset.
"Material Adverse Effect" means a material adverse effect on
the business, condition (financial or otherwise), assets, properties,
operations, results of operations, prospects, affairs or Liabilities of
the relevant Organization and its Subsidiaries taken as a whole.
"Order" means any order, injunction, judgment, decree, ruling,
assessment or arbitration award of any Governmental Body, arbitrator or
NASDAQ, Inc. (including without limitation any notice or letter
threatening or warning of possible delisting of the Common Stock).
B-9
"Ordinary Course of Business" means, with respect to any
action, the action taken by a Person only if that action:
(i) is consistent in nature, scope and magnitude with
the past practices of such Person and is taken in the ordinary
course of the normal, day-to-day operations of such Person;
(ii) does not require authorization by the board of
directors or stockholders of such Person (or by any Person or
group of Persons exercising similar authority) and does not
require any other separate or special authorization of any
nature; and
(iii) is similar in nature, scope and magnitude to
actions customarily taken, without any separate or special
authorization, in the ordinary course of the normal,
day-to-day operations of other Persons that are in the same
line of business as such Person.
"Organization" shall be construed as broadly as possible and
shall include any entity, including a corporation (either non-profit or
other), partnership (either limited or general), joint venture, joint
stock company, limited liability company, trust, estate or other
unincorporated association, whether or not a legal entity.
"Organizational Documents" means (a) the articles or
certificate of incorporation and the bylaws of a corporation; (b) the
partnership agreement and any statement of partnership of a general
partnership; (c) the limited partnership agreement and the certificate
of limited partnership of a limited partnership; (d) the articles of
organization or certificate of formation and any operating or limited
liability company agreement of a limited liability company; (e) any
charter or similar document adopted or filed in connection with the
creation, formation, or organization of a Person, and (f) any amendment
to any of the foregoing.
"Person" means an individual or an Organization.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or informal,
whether public or private) commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Prospectus" means the prospectus forming part of the
Registration Statement at the time the Registration Statement is
declared effective and any amendment or supplement thereto, including
any documents or information incorporated therein by reference.
"Questionnaire" means the Selling Security Holder
Questionnaire in the form attached hereto as Annex B and completed by
the Investor and furnished to the Company in connection with this
Agreement.
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"Register," "registered," and "registration" refer to a
registration effected by preparing and filing with the Commission of a
Registration Statement or Statements in compliance with the Securities
Act and pursuant to Rule 415, and the declaration or ordering of
effectiveness of such Registration Statement by the Commission.
"Registrable Securities" means (1) the Shares (including the
Additional Shares, to the extent purchased under this Agreement), (2)
if the Shares are changed, converted or exchanged by the Company or its
successor, as the case may be, into any other stock or other securities
after the Closing, such other stock or other securities which are
issued or issuable in respect of or in lieu of the Shares and (3) if
any other securities are issued to holders of the Shares (or such other
shares or other securities into which or for which the Shares is so
changed, converted or exchanged as described in the immediately
preceding clause (2)) upon any reclassification, share combination,
share subdivision, share dividend, merger, consolidation or similar
transaction or event, such other securities which are issued or
issuable in respect of or in lieu of the Shares.
"Registration Default" means the period following the
occurrence of a Registration Event for so long as such Registration
Event is continuing.
"Registration Event" means the occurrence of any of the
following events:
(i) the Company fails to file with the Commission the
Registration Statement on or before the date by which the
Company is required to file the Registration Statement
pursuant to Section 10.1;
(ii) the Registration Statement covering Registrable
Securities does not become effective within one hundred twenty
(120) days following the Closing Date; provided, that if the
Registration Statement is subject to review by the Commission
staff, such date of effectiveness shall be within one hundred
fifty (150) days following the Closing Date;
(iii) after the SEC Effective Date, sales cannot be
made pursuant to the Registration Statement for any reason
(including without limitation by reason of a stop order, or
the Company's failure to update the Registration Statement)
but except as excused pursuant to Section 10.2(e), other than
a failure by any Investor to comply with the legal
requirements applicable to such sale; or
(iv) the Common Stock generally or the Registrable
Securities specifically are not listed or included for
quotation on an Approved Market, or trading of the Common
Stock is suspended or halted on the Approved Market which at
the time constitutes the principal market for the Common
Stock.
"Registration Period" means the period from the SEC Effective
Date to the earliest of:
(i) the date which is two years after the Closing
Date; and
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(ii) the date on which the Investors no longer own or
have any right to acquire any Registrable Securities.
"Registration Statement" means a registration statement on
Form S-3 (or if Form S-3 is then not available to the Company, on Form
S-1 or such other form of registration statement as is then available
to effect a registration for resale of the Registrable Securities) of
the Company under the Securities Act, including any amendment thereto,
which names the Investors as selling stockholders (including any
documents or information incorporated therein by reference, whether
before or after the SEC Effective Date) filed into order to register
with the Commission the Firm Shares and, to the extent sold under this
Agreement, the Additional Shares.
"Regulation D" means Regulation D under the Securities Act.
"Required Information" means, with respect to any Investor
(including the Additional Shares Buyer), all information regarding such
Investor, the Registrable Securities held by such Investor or which
such Investor has the right to acquire and the intended method of
disposition of the Registrable Securities held by such Investor or
which such Investor has the right to acquire as shall be required by
the Securities Act to effect the registration of the resale by such
Investor of such Registrable Securities.
"Rule 144" means Rule 144 under the Securities Act or any
other similar rule or regulation of the Commission that may at any time
provide a "safe harbor" exemption from registration under the
Securities Act so as to permit a holder of securities to sell such
securities to the public without registration under the Securities Act.
"Rule 415" means Rule 415 under the Securities Act or any
successor rule providing for offering securities on a delayed or
continuous basis.
"Related Person" means:
(a) with respect to a particular individual,
(i) each other member of such individual's Family;
(ii) any Person that is directly or indirectly
controlled by any one or more members of such
individual's Family; (iii) any Person in which
members of such individual's Family hold
(individually or in the aggregate) a Material
Interest; and (iv) any Person with respect to which
one or more members of such individual's Family
serves as a director, officer, partner, executor or
trustee (or in a similar capacity); and
(b) with respect to a specified Person other
than an individual, (i) any Person that directly or
indirectly controls, is directly or indirectly
controlled by or is directly or indirectly under
common control with such specified Person; (ii) any
Person that holds a Material Interest in such
specified Person; (iii) each Person that serves as a
director, officer, partner, executor or trustee of
such specified Person (or in a similar capacity);
(iv) any Person in which such specified Person holds
a Material Interest; and (v) any Person with respect
to which such specified Person serves as a general
partner or a trustee (or in a similar capacity).
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For purposes of this definition:
(i) "control" (including
"controlling," "controlled by," and "under
common control with") means the possession,
direct or indirect, of the power to direct
or cause the direction of the management and
policies of a Person, whether through the
ownership of voting securities, by contract
or otherwise, and shall be construed as such
term is used in the rules promulgated under
the Securities Act;
(ii) the "Family" of an individual
includes (i) the individual, (ii) the
individual's spouse, (iii) any other natural
person who is related to the individual or
the individual's spouse within the second
degree and (iv) any other natural person who
resides with such individual; and
(iii) "Material Interest" means
direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange
Act) of voting securities or other voting
interests representing at least ten percent
(10%) of the outstanding voting power of a
Person or equity securities or other equity
interests representing at least ten percent
(10%) of the outstanding equity securities
or equity interests in a Person.
"Representative" means, with respect to a Person, any
director, officer, manager, employee, agent, consultant, advisor,
accountant, financial advisor, legal counsel or other representative of
that Person.
"SEC Effective Date" means the date the Registration Statement
is declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is
first filed with the Commission pursuant to Section 10.1.
"SEC Reports" means all forms, reports, schedules, statements
and other documents, and amendments thereto, required to be filed by
the Company under the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to an Organization (the
"Owner"), any Organization of which securities or other interests
having the power to elect a majority of that Organization's board of
directors or similar governing body, or otherwise having the power to
direct the business and policies of that Organization (other than
securities or other interests having such power only upon the happening
of a contingency that has not occurred) are held by the Owner or one or
more of its Subsidiaries; when used without reference to a particular
Person, "Subsidiary" means a Subsidiary of the Company as of the date
of this Agreement.
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"Trading Day" means any day (other than a Saturday or Sunday)
on which the NASDAQ Small Cap Market is open for business.
"Transfer Agent" means Mellon Shareholder Services, or any
successor thereof duly appointed by the Company, serving as transfer
agent and registrar for the Common Stock.
Section 1.2 Other Defined Terms. For purposes of this Agreement, the
following terms have the respective meanings set forth in the section and at the
page referred to opposite each such term:
Defined Term Section Page
------------ ------- ----
Additional Shares Recitals 1
Additional Shares Notice Section 2.5 12
Agreement Heading 1
Buyer Heading 1
Buyer's Advisors Section 6.1 23
Closing Section 2.3 12
Closing Date Section 2.3 12
Company Recitals 1
Company Share Exchange Agreement Recitals 1
Company Stock Purchase Agreement Recitals 1
Firm Shares Recitals 1
Owner Section 1.1 1
Principal Shareholder's Agreement Recitals 1
Purchase Price Section 2.2 11
Restricted Securities Section 2.6 13
Selling Shareholder Recitals 1
Shares Recitals 1
Transfer Section 2.6 13
Section 1.3 Usage.
(a) Interpretation. In this Agreement, unless a clear contrary
intention appears:
(1) a reference herein to days shall mean calendar
days unless otherwise specified. Any day or deadline or end of
a time period hereunder which falls on a day other than a
Business Day shall be deemed to refer to the first Business
Day following such day or deadline or end of the time period,
as the case may be;
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(2) a reference in this Agreement to an article,
section, exhibit or schedule shall mean an article or section
of, or exhibit or schedule attached to, this Agreement, as the
case may be. Article and section headings in this Agreement
are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement;
(3) a reference to any Legal Requirement means such
Legal Requirement as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to
time, including rules and regulations promulgated thereunder,
and reference to any section or other provision of any Legal
Requirement means that provision of such Legal Requirement
from time to time in effect and constituting the substantive
amendment, modification, codification, replacement or
reenactment of such section or other provision;
(4) the word "including" means without limitation;
the word "or" is not exclusive and is used in the inclusive
sense of "and/or"; and the words "herein", "hereof", "hereby",
"hereto" and "hereunder" refer to this Agreement as a whole;
(5) a reference to document, instrument or agreement
shall be deemed to refer as well to all addenda, exhibits,
schedules or amendments thereto; and
(6) all words used in this Agreement will be
construed to be of such gender or number as the circumstances
require.
(b) Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted
and all accounting determinations hereunder shall be made in accordance
with GAAP.
(c) Legal Representation of the Parties. This Agreement was
negotiated by the parties with the benefit of legal representation, and
any rule of construction or interpretation otherwise requiring this
Agreement to be construed or interpreted against a party shall not
apply to any construction or interpretation hereof.
ARTICLE 2
SALE AND TRANSFER OF THE SHARES
Section 2.1 Sale of the Firm Shares. Subject to the terms and
conditions of this Agreement, at the Closing the Company will issue and sell the
Firm Shares to the Buyer, and the Buyer will purchase the Firm Shares from the
Company.
Section 2.2 Purchase Price. The purchase price (the "Purchase Price")
for the Firm Shares will be $8.00 per share, or an aggregate Purchase Price of
$5,000,000.
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Section 2.3 Closing. The purchase and sale (the "Closing") provided for
in this Agreement will take place (a) at the offices of McGuireWoods LLP, 1345
Avenue of the Americas, 7th Floor, New York, NY 10105, at 10:00 a.m. (local
time) on the day on which the closing of the Exchange (as defined in the Company
Share Exchange Agreement) occurs (the "Closing Date").
Section 2.4 Closing Obligations. At the Closing:
(a) The Company will deliver to the Buyer:
(1) certificates representing the Firm Shares,
registered in the name of the Buyer; and
(2) a certificate executed by the Chief Executive
Officer or President of the Company to the effect that each of
the Company's representations and warranties in this Agreement
was accurate in all material respects as of the date of this
Agreement and is accurate in all material respects as of the
Closing Date as if made on the Closing Date (giving full
effect to any supplements to the Company's Disclosure Schedule
that was delivered by the Company to the Buyer prior to the
Closing Date in accordance with Section 5.5).
(b) the Buyer will deliver to the Company:
(1) the Purchase Price in immediately available funds
by wire transfer of U.S. $5,000,000.00 to the Company to a
bank account specified in writing by the Company not less than
three Business Days prior to the Closing; and
(2) a certificate executed by an authorized officer
of the Buyer to the effect that each of the Buyer's
representations and warranties in this Agreement was accurate
in all material respects as of the date of this Agreement and
is accurate in all materials respects as of the Closing Date
as if made on the Closing Date.
Section 2.5 Sale of the Additional Shares; Delivery of the Additional
Shares and Payment Therefor. The Buyer and, to the extent assigned by the Buyer
pursuant to this Section 2.5, the Additional Shares Buyer, shall have the right
for 120 days from the Closing Date to purchase from the Company up to 625,000
Additional Shares at the purchase price of $8.00 per Share. Delivery to the
Buyer or, as the case shall be, the Additional Shares Buyer, of a certificate or
certificates representing the Additional Shares and the payment therefor shall
take place at the offices of the Company on such date (the "Additional Closing
Date"), which may be the same as the Closing Date, but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten Business
Days after the giving of the notice hereinafter referred to. The Buyer shall
specify in a written notice to the Company (the "Additional Shares Notice") the
determination of the Buyer to purchase a number, specified in such notice, of
Additional Shares, and/or the Buyer's election to assign its right to purchase
the Additional Shares to the Additional Shares Buyer, in which case the
Additional Shares Notice shall specify the number of Additional Shares to be
purchased by the Additional Shares Buyer and/or the Buyer. The Additional Shares
Notice may be given at any time within 120 days of the Closing Date and must set
forth (i) the
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aggregate number of Additional Shares as to which the Buyer is exercising the
option and (ii) the names and denominations in which the certificates for the
Additional Shares are to be registered. Payment for the Additional Shares shall
be made by the Buyer or, as the case shall be, the Additional Shares Buyer, in
the manner set forth in Section 2.4(b)(1). The place of closing for the purchase
and sale of the Additional Shares and the Additional Closing Date may be varied
by agreement between the Buyer or, as the case shall be, the Additional Shares
Buyer, and the Company. The Buyer shall have the right to assign to the
Additional Shares Buyer the right to purchase all or a part of the Additional
Shares by the Additional Shares Notice in accordance with this Section 2.5;
provided, that (i) the Buyer's assignment of its right to purchase the
Additional Shares shall not be effective unless the Additional Shares Buyer
shall have executed the Additional Shares Notice jointly with the Buyer and (ii)
the Additional Shares Notice shall state that by executing such notice the
Additional Shares Buyer is making, on its own behalf, each of the
representations and warranties set forth in ARTICLE 4 and is agreeing to perform
each of the covenants set forth in ARTICLE 6, ARTICLE 7, ARTICLE 10, ARTICLE 12.
Section 2.6 Restrictive Legends.
(a) The Shares to be issued under this Agreement and any
shares of capital stock or other securities received with respect
thereto (collectively, the "Restricted Securities") shall not be sold,
transferred, assigned, pledged, encumbered or otherwise disposed of
(each, a "Transfer") except upon the conditions specified in this
Section 2.6, which conditions are intended to insure compliance with
the provisions of the Securities Act. Each Investor shall observe and
comply with the Securities Act and the rules and regulations
promulgated by the Commission thereunder as now in effect or hereafter
enacted or promulgated, and as from time to time amended, in connection
with any Transfer of Restricted Securities beneficially owned by the
Investor.
(b) Each certificate representing Restricted Securities issued
to a Investor and each certificate for such securities issued to
subsequent transferees of any such certificate shall (unless otherwise
permitted by the provisions of Section 2.6(c) and Section 2.6(d)
hereof) be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR
"BLUE-SKY" LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE
CONDITIONS SPECIFIED IN SECTION 2.6 OF THE STOCK PURCHASE
AGREEMENT DATED AS OF JANUARY 21, 2005, BETWEEN CICADA, INC. AND
OAK FINANCE INVESTMENTS LIMITED, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE
BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH
CONDITIONS, CICADA, INC. HAS AGREED TO DELIVER TO THE HOLDER
HEREOF A CICADA, INC. CERTIFICATE NOT BEARING THIS LEGEND, FOR THE
SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER
HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE
TO THE SECRETARY OF THE COMPANY."
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(c) Prior to any Transfer of Restricted Securities that occurs
subsequent to the Closing, each Investor will give written notice to
the Company of the Investor's intention to effect such Transfer and to
comply in all other respects with the provisions of this Section 2.6.
Each such notice shall describe the manner and circumstances of the
proposed Transfer and, if requested by the Company, shall be
accompanied by the written opinion, addressed to the Company, of
counsel for the holder of such Restricted Securities, stating that in
the opinion of such counsel (which opinion and counsel shall be
reasonably satisfactory to the Company) such proposed transfer does not
involve a transaction requiring registration or qualification of such
Restricted Securities under the Securities Act or the securities or
"blue-sky" laws of any relevant state of the United States. The holder
thereof shall thereupon be entitled to Transfer such Restricted
Securities in accordance with the terms of the notice delivered by it
to the Company. Each certificate or other instrument evidencing the
securities issued upon the Transfer of any such Restricted Securities
(and each certificate or other instrument evidencing any untransferred
balance of such Restricted Securities) shall bear the legend set forth
in Section 2.6(b) unless (x) in such opinion of counsel of the Company
registration of any future Transfer is not required by the applicable
provisions of the Securities Act or (y) the Company shall have waived
the requirement of such legends. No Investor shall Transfer any
Restricted Securities until such opinion of counsel has been given
(unless waived by the Company or unless such opinion is not required in
accordance with the provisions of this Section 2.6(c)).
(d) Notwithstanding the foregoing provisions of this Section
2.6, the restrictions imposed by this Section 2.6 upon the
transferability of Restricted Securities shall cease and terminate when
(i) any such shares are sold or otherwise disposed of pursuant to an
effective registration statement under the Securities Act or as
otherwise contemplated by Section 2.6(c), (ii) pursuant to Section
2.6(c), the shares so transferred are not required to bear the legend
set forth in Section 2.6(b), or (iii) the holder of such Restricted
Securities has met the requirements for Transfer of such Restricted
Securities pursuant to Rule 144(k). Whenever the restrictions imposed
by this Section 2.6 shall terminate, as herein provided, the holder of
Restricted Securities as to which such restrictions have terminated
shall be entitled to receive from the Company, without expense, a new
certificate not bearing the restrictive legend set forth in Section
2.6(b) and not containing any other reference to the restrictions
imposed by this Section 2.6.
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(e) Each Investor understands and agrees that the Company, at
its discretion, may cause stop transfer orders to be placed with its
transfer agent with respect to certificates for Restricted Securities
owned by the Investor, but not as to certificates for such shares of
the Company Common Stock as to which the legend set forth in paragraph
(b) of this Section 2.6 is no longer required because one or more of
the conditions set forth in Section 2.6(d) shall have been satisfied,
in the event of a proposed Transfer in violation or breach of this
Section 2.6.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer as follows:
Section 3.1 Organization and Good Standing. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all of its obligations hereunder. The Company and each of
its Subsidiaries is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification, except for
jurisdictions where the failure to qualify would not have a Material Adverse
Effect.
Section 3.2 No Conflict; No Consent. (a) Except as set forth in Item
3.2 of the Company's Disclosure Schedule, neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time or both):
(1) Breach (A) any provision of the Organizational
Documents of the Company or its Subsidiaries, or (B) any
resolution adopted by the board of directors or the
stockholders of the Company or any of its Subsidiaries;
(2) Breach or give any Governmental Body or other
Person the right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to the Company or
any of its Subsidiaries, or any of the assets owned or used by
the Company or any of its Subsidiaries may be subject;
(3) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by the Company or any of its Subsidiaries or that
otherwise relates to the business of, or any of the assets
owned or used by, the Company or any of its Subsidiaries;
(4) cause the Company or any of its Subsidiaries to
become subject to, or to become liable for the payment of, any
Tax;
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(5) cause any of the assets owned by the Company or
any of its Subsidiaries to be reassessed or revalued by any
taxing authority or other Governmental Body;
(6) Breach any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Contract to which the Company or any
of its Subsidiaries is a party or is subject; or
(7) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by the Company or any of its Subsidiaries.
(b) Intentionally omitted.
Section 3.3 Books and Records. The books of account, minute books,
stock record books and other records of the Company and each of its
Subsidiaries, all of which have been made available to the Buyer, are complete
and correct and have been maintained in accordance with sound business practices
and the requirements of Section 13(b)(2) of the Exchange Act, including the
maintenance of an adequate system of internal controls. The minute books of the
Company and its Subsidiaries contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the boards of
directors and committees of the board of directors of the Company and its
Subsidiaries, and no meeting of any such stockholders, board of directors or
committee has been held for which minutes have not been prepared and are not
contained in such minute books.
Section 3.4 Capitalization.
(a) No legend or other reference to any purported Encumbrance
appears on any certificate representing equity securities of any
Subsidiary.
(b) All of the outstanding equity securities of each of the
Company and its Subsidiaries have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in the
SEC Reports, there are no options, warrants or other Contracts relating
to the issuance, sale, or transfer of any equity securities or other
securities of the Company or any of its Subsidiaries. None of the
outstanding equity securities or other securities of the Company or any
of its Subsidiaries was issued in violation of the Securities Act or
any other Legal Requirement.
(c) Neither the Company nor any of its Subsidiaries owns, or
has any right or Contract to acquire, any equity securities or other
securities of any Person (other than the Company or a Subsidiary) or
any direct or indirect equity or ownership interest in any other
business.
(d) The Common Stock is listed for trading on the NASDAQ Small
Cap Market, the Company and the Common Stock meet the criteria for
continued listing on the NASDAQ Small Cap Market (without giving effect
to the transactions contemplated by the Shareholder Stock Purchase
Agreement or the Company Share Exchange Agreement) and no delisting or
suspension of trading of the Common Stock has been threatened by the
NASDAQ Stock Market, Inc. and not addressed by the Company to the
satisfaction of the NASDAQ National Stock Market, Inc. or is otherwise
currently in effect.
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Section 3.5 SEC Reports. The Company has previously made available to
the Buyer each communication sent by the Company to its stockholders generally
since January 1, 2001, and will continue to make such filings and communications
available to the Buyer until the Closing. Since January 1, 2001, the Company has
timely filed all SEC Reports required to the filed by it under the Exchange Act
and any other reports or documents required to be filed with the Commission. At
the time of filing, mailing, or delivery thereof, the SEC Reports were prepared
in accordance with the applicable requirements of the Exchange Act and the
regulations promulgated hereunder, and none of such documents or information
contained or will contain an untrue statement of a material fact or omitted or
will omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading, except for such statements, if any, as have been modified by
subsequent filings with the Commission prior to the date hereof. Each of the
consolidated balance sheets included in or incorporated by reference into the
SEC Reports (including any related notes and schedules) fairly presents in all
material respects the consolidated financial position of the Company and its
Subsidiaries as of the date thereof, and each of the consolidated statements of
income, cash flows and stockholders' equity included in or incorporated by
reference into the SEC Reports (including any related notes and schedules),
fairly presents in all material respects the results of operations, changes in
stockholders' equity and cash flows of the Acquired Companies as at the
respective dates or for the periods set forth therein (subject, in the case of
unaudited statements, to such exceptions as may be permitted by Form 10-Q under
the Exchange Act, in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein. Upon written
request of the Buyer, the Company will furnish to the Buyer copies of (i) all
correspondence received from the Commission and (ii) any of the agreements and
instruments filed as exhibits to the SEC Reports. The Company has furnished to
the Buyer a complete and accurate copy of any amendments or modifications, which
have not yet been filed with the Commission, but which are required to be filed,
to agreements, documents or other instruments which previously had been filed by
the Company with the Commission pursuant to the Securities Act or Exchange Act.
Section 3.6 No Material Adverse Change. Except as set forth in Item 3.6
of the Company's Disclosure Schedule or in the SEC Reports, since September 30,
2004, there has not been any material adverse change in the business,
operations, properties, prospects, results of operations or condition (financial
or otherwise) of the Company and any of its Subsidiaries, and no event has
occurred or circumstance exists that may have a Material Adverse Effect.
Section 3.7 Absence of Certain Changes or Events. Except as set forth
in Item 3.7 of the Company's Disclosure Schedule or in the SEC Reports, since
September 30, 2004 the Company and its Subsidiaries have conducted their
businesses only in the Ordinary Course of Business and there has not been any:
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(a) change in any of the Company's or any of its Subsidiaries'
authorized or issued capital stock; grant of any stock option or right
to purchase shares of capital stock of the Company or any of its
Subsidiaries; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by the Company or any of its
Subsidiaries of any shares of any such capital stock; or declaration of
payment of any dividend or other distribution or payment in respect of
shares of capital stock;
(b) amendment to the Organizational Documents of the Company
or any of its Subsidiaries;
(c) payment or increase by the Company or any of its
Subsidiaries of any bonuses, salaries, or other compensation to the
Selling Shareholder or to any other stockholder, director, officer, or
employee or entry into any employment, severance, or similar Contract
with the Selling Shareholder or any other director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or
with any employees of the Company or any of its Subsidiaries;
(e) damage to or destruction or loss of any asset or property
of any the Company or any of its Subsidiaries, whether or not covered
by insurance, materially and adversely affecting the properties,
assets, business, financial condition, or prospects of the Company or
any of its Subsidiaries, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii)
any Contract or transaction involving a total remaining commitment by
or to the Company or any of its Subsidiaries of at least $100,000;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of
the Company or any of its Subsidiaries, or mortgage, pledge, or
imposition of any lien or other encumbrance on any material asset or
property of the Company or any of its Subsidiaries;
(h) cancellation or waiver of any claims or rights with a
value to the Company or any of its Subsidiaries in excess of $100,000;
(i) except as required by GAAP, a revaluation of any of the
assets or material change in the accounting methods, principles or
practices used by the Company or any of its Subsidiaries; or
(j) agreement, whether oral or written, by the Company or any
of its Subsidiaries to do any of the foregoing.
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Section 3.8 Legal Proceedings; Orders.
(a) Except as set forth in Item 3.8(a) of the Company's
Disclosure Schedule or in the SEC Reports, (i) there is no pending or,
to the Company's Knowledge, threatened Proceeding, that has been
commenced by or against the Company or any of its Subsidiaries, or any
of its stockholders that own more than 10% of the Common Stock, or that
otherwise relates to or may affect the business of, or any of the
assets owned or used by, the Company or any of its Subsidiaries; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To the Knowledge of the Company and the
Knowledge of its Subsidiaries, no event has occurred or circumstance
exits that is reasonably likely to give rise to or serve as a basis for
the commencement of any such Proceeding. The Company has delivered to
the Buyer copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Item 3.8(a) of the Company's
Disclosure Schedule. The Proceedings listed in Item 3.8(a) of the
Company's Disclosure Schedule will not have a material adverse effect
on the business, operations, assets, condition, or prospects of the
Company or any of its Subsidiaries.
(b) Except as set forth in Item 3.8(b) of the Company's
Disclosure Schedule or in the SEC Reports, (i) there is no Order to
which the Company or any of its Subsidiaries, or any of the assets
owned or used by the Company or any of its Subsidiaries, is subject;
(ii) the Company is not subject to any Order that relates to the
business of, or any of the assets owned or used by, the Company or any
of its Subsidiaries; and (iii) to the Knowledge of the Company and the
Knowledge of its Subsidiaries, no officer, director, agent, or employee
of the Company or any of its Subsidiaries is subject to any Order that
prohibits such officer, director, agent, or employee from engaging in
or continuing any conduct, activity, or practice relating to the
business of the Company or any of its Subsidiaries.
(c) Except as set forth in Item 3.8(c) of the Company's
Disclosure Schedule or in the SEC Reports, (i) each of the Company and
its Subsidiaries is, and at all times since January 1, 2004, has been,
in full compliance with all of the terms and requirements of each Order
to which it, or any of the assets owned or used by it, is or has been
subject; (ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any
Order to which the Company or any of its Subsidiaries, or any of the
assets owned or used by the Company or any of its Subsidiaries, is
subject; and neither the Company nor any Subsidiary has received, at
any time since January 1, 2004, any notice or other communication
(whether oral or written) from any Governmental Body or any other
Person regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any term or requirement of any Order to
which the Company or any of its Subsidiaries, or any of the assets
owned or used by the Company or any of its Subsidiaries, is or has been
subject.
Section 3.9 Brokers or Finders. Neither the Company nor any agent of
the Company has incurred any liability or obligation for brokerage or finders'
fees or agents' commissions or other similar payments in connection with this
Agreement or the Contemplated Transactions.
Section 3.10 Issuance of Shares; No Agreements. Upon issuance pursuant
to the terms and conditions of this Agreement, the Shares shall be duly issued,
fully paid and non-assessable, and upon delivery of and payment for the Shares
as provided in this Agreement, the Buyer will acquire good and valid title
thereto, free of any Encumbrance. Except as set forth in Item 3.10 to the
Company's Disclosure Schedule, the Company is not a party to any agreement,
understanding or arrangement relating to the Shares other than this Agreement.
B-23
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company as follows:
Section 4.1 Organization and Good Standing. The Buyer is a company duly
organized, validly existing and in good standing under the laws of the British
Virgin Islands, with full corporate power and authority to conduct its business
as it is now being conducted, to own and use the properties and assets that it
purports to own or use, and is duly qualified to do business and is in good
standing under the laws of each jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the failure to
qualify would not have a material adverse effect on its business or properties.
Section 4.2 Enforceability; Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of the Buyer, enforceable against the Buyer in accordance
with its terms. The Buyer has the absolute and unrestricted right,
power, authority and capacity to execute and deliver this Agreement and
to perform its obligations hereunder.
(b) Except as set forth in Item 4.2(b) of the Buyer's
Disclosure Schedule, neither the execution and delivery of this
Agreement by the Buyer nor the consummation or performance of any of
the Contemplated Transactions by the Buyer will give any Person the
right to prevent, delay or otherwise interfere with any of the
Contemplated Transactions pursuant to (i) any provision of the Buyer's
Organizational Documents; (ii) any resolution adopted by the board of
directors or stockholders of the Buyer; (iii) any Legal Requirement or
any Order to which the Buyer may be subject: or (iv) any Contract to
which the Buyer is a party or by which the Buyer may be bound.
(c) Except as set forth in Item 4.2(c) of the Buyer's
Disclosure Schedule, the Buyer is not and will not be required to give
any notice to or obtain any Consent from any Person in connection with
the execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
Section 4.3 Brokers or Finders. Except as set forth in Item 4.3 of the
Buyer's Disclosure Schedule, neither the Buyer nor any agent of the Buyer has
incurred any liability or obligation for brokerage or finders' fees or agents'
commissions or other similar payments in connection with this Agreement or the
Contemplated Transactions.
Section 4.4 Disclosure. No representation or warranty or other
statement made by the Buyer in this Agreement, the certificates delivered
pursuant to Section 2.4(b) or otherwise in connection with the Contemplated
Transactions contains any untrue statement or omits to state a material fact
necessary to make any of them, in light of the circumstances in which it was
made, not misleading.
B-24
Section 4.5 Investment Representation.
(a) The Buyer:
(i) is acquiring the Shares being issued for
investment and for the Buyer's own account and not as a
nominee or agent for any other Person and with no present
intention of distributing or reselling such shares or any part
thereof in any transactions that would be in violation of the
Securities Act or any state securities or "blue-sky" laws or,
if and to the extent that the Buyer is acquiring any of the
Shares being issued as a nominee or agent for any other
Person, the Buyer represents that such other Person is
acquiring the Shares being issued to it for investment and for
such Person's own account and that such Person has no
intention of distributing or reselling such shares or any part
thereof in any transaction that would be in violation of the
Securities Act or any state securities or "blue-sky" laws;
(ii) understands (A) that the Shares to be issued to
it have not been registered for sale under the Securities Act
or any state securities or "blue-sky" laws in reliance upon
exemptions therefrom, which exemptions depend upon, among
other things, the bona fide nature of the investment intent of
the Buyer as expressed herein, (B) that such Shares must be
held and not sold until such shares are registered under the
Securities Act and any applicable state securities or
"blue-sky" laws, unless an exemption from such registration is
available and (C) that the certificates evidencing such Shares
will be imprinted with a legend in the form set forth in
Section 2.6(b) that prohibits the transfer of such shares,
except as provided in Section 2.6.
(iii) has been furnished with, and has read and
reviewed, the SEC Reports;
(iv) has had an opportunity to ask questions of and
has received satisfactory answers from the officers of the
Company or Persons acting on the Company's behalf concerning
the Company and the terms and conditions of an investment in
the Company Common Stock;
(v) is aware of the Company's business affairs and
financial condition and has acquired sufficient information
about the Company to reach an informed and knowledgeable
decision to acquire the Shares to be issued to it;
(vi) can afford to suffer a complete loss of his or
its investment in such Shares;
B-25
(vii) is familiar with the provisions of Rule 144
promulgated under the Securities Act which, in substance,
permits limited public resale of "restricted securities"
acquired, directly or indirectly, from the issuer thereof, in
a non-public offering subject to the satisfaction of certain
circumstances which require among other things: (A) the
availability of certain public information about the issuer,
(B) the resale occurring not less than one year after the
party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the
case of an affiliate, or of a non-affiliate who has held the
securities less than two years, the amount of securities being
sold during any three month period not exceeding the specified
limitations stated therein, if applicable and (C) in the event
certain holding requirements have not yet been met, the sale
being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker
(as said term is defined under the Exchange Act);
(viii) understands that in the event all of the
applicable requirements of Rule 144 are not satisfied,
registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is
not exclusive, the Staff of the Commission has expressed its
opinion that Persons proposing to sell private placement
securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of
proof in establishing that an exemption from registration is
available for such offers or sales, and that such Persons and
their respective brokers who participate in such transactions
do so at their own risk; and
(ix) has such knowledge and experience in financial
and business matters that he or it is capable of evaluating
the merits and risks of acquiring and holding shares of the
Company Common Stock.
(b) The Buyer is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act.
Section 4.6 Certain United States Laws. The Buyer certifies that to its
Knowledge neither it nor any of its officers, directors, securityholders or
Related Persons has been designated as a "suspected terrorist" as defined in
Executive Order 13224. The Buyer certifies that, to its Knowledge, neither the
Buyer nor any Related Person of the Buyer has been designated as, or is not
owned or controlled by, a "suspected terrorist" as defined in Executive Order
13224. The Buyer hereby acknowledges that the Company seeks to comply with all
applicable laws covering money laundering and related activities. In furtherance
of those efforts, the Buyer hereby represents, warrants and agrees that: (i)
none of the cash or property that the Buyer will pay or will contribute to the
Company has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) no contribution or payment by
the Buyer to the Company, to the extent that they are within the Buyer's
control, shall cause the Company to be in violation of the Untied States Bank
Secrecy Act, the United States Money Laundering Control Act of 1986 or the
Untied States International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001. The Buyer shall promptly notify the Company if any of
these representations ceases to be true and accurate regarding the Buyer. The
Buyer agrees to provide the Company with any additional information regarding
the Buyer that the Company deems necessary or convenient to ensure compliance
with all applicable laws concerning money laundering and similar activities. The
Buyer understands and agrees that if at any time it is discovered that any of
the foregoing representations are incorrect, or if otherwise required by
applicable law or regulation related to money laundering similar activities, the
Company may undertake appropriate actions to ensure compliance with applicable
law or regulation, including but not limited to segregation and/or redemption of
the Buyer's investment in the Company. The Buyer further understands that the
Company may release confidential information about the Buyer and, if applicable,
any underlying beneficial owners, to proper authorities if the Company, in its
sole discretion, determines that it is in the best interest of the Company in
light of relevant rules and regulations under the laws set forth above.
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Section 4.7 Questionnaire. The Buyer has completed and provided to the
Company herewith the Investor Questionnaire attached hereto as Annex A, and all
information contained therein is complete and accurate in all material respects
with respect to the Buyer.
Section 4.8 Representation by Legal Counsel; Review of Agreement. The
Buyer has been advised by the Company to seek, and has sought, legal counsel in
connection with the negotiation and execution of this Agreement. The Buyer has
carefully read and reviewed this Agreement and, to the extent he or it believed
necessary, has discussed with his legal, accounting and other professional
advisors the representations, warranties and agreements which the Buyer is
making herein.
ARTICLE 5
COVENANTS OF THE COMPANY PRIOR TO CLOSING DATE
Section 5.1 Access and Investigation. Between the date of this
Agreement and the Closing Date and upon reasonable advance notice received from
the Buyer, the Company will, and will cause each Subsidiary and its
Representatives to, (a) afford the Buyer and Representatives (collectively, "the
Buyer's Advisors") full and free access to personnel, properties, Contracts,
books and records and other documents and data of the Company and its
Subsidiaries, (b) furnish the Buyer and the Buyer's Advisors with copies of all
such Contracts, books and records, and other existing documents and data as the
Buyer may reasonably request, and (c) furnish the Buyer and the Buyer's Advisors
with such additional financial, operating, and other data and information as the
Buyer may reasonably request.
Section 5.2 Required Approvals. As promptly as practicable after the
date of this Agreement, the Company will, and will cause each of its
Subsidiaries to, make all filings required by Legal Requirements to be made by
them in order to consummate the Contemplated Transactions. Between the date of
this Agreement and the Closing Date, the Company will, and will cause its
Subsidiaries to, (a) cooperate with the Buyer with respect to all filings that
the Buyer elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions, and (b) cooperate with the Buyer
in obtaining all consents identified in Section 4.2(c) of the Buyer's Disclosure
Schedule.
Section 5.3 Business Operations of the Company and its Subsidiaries.
Between the date of this Agreement and the Closing Date, the Company will, and
will cause each of its Subsidiaries to:
(a) Conduct its business only in the Ordinary Course of
Business;
B-27
(b) Preserve intact the current business organization of such
company, keep available the services of the current officers,
employees, and agents of such company, and maintain its relations and
good will with suppliers, customers, landlords, creditors, employees,
agents, and others having business relationships with such company;
(c) Confer with the Buyer prior to implementing operational
decisions of a material nature;
(d) Make no material changes in management personnel or
management compensation arrangements without prior consultation with
the Buyer;
(e) Except as required to comply with ERISA or to maintain
qualification under Section 401(a) of the Code, not amend, modify or
terminate any without the express written consent of the Buyer and,
except as required under the provisions of any Employee Plan, not make
any contribution to or with respect to any Employee Plan without the
express written consent of the Buyer, provided that such company shall
contribute that amount of cash to each Employee Plan necessary to fully
fund its obligations under such Employee Plan; and
(f) Otherwise report periodically to the Buyer concerning the
status of the business, operations, and finances of such company.
Section 5.4 Negative Covenant. Except as otherwise expressly permitted
by this Agreement, between the date of this Agreement and the Closing Date, the
Company will not, and will cause each of its Subsidiaries not to, without the
prior consent of the Buyer, (a) take any affirmative action, or fail to take any
reasonable action within its control, as a result of which any of the changes or
events listed in Section 3.6 or Section 3.7 is likely to occur, or (b) make any
modification to any material Contract.
Section 5.5 Notification. Between the date of this Agreement and the
Closing Date, the Company will promptly notify the Buyer in writing if the
Company or any of its Subsidiaries becomes aware of any fact or condition that
causes or constitutes a Breach of any of the Company's representations and
warranties as of the date of this Agreement, or if the Company or any of its
Subsidiaries becomes aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Company's Disclosure Schedule if the Company's Disclosure
Schedule were dated the date of the occurrence or discovery of any such fact or
condition, the Company will promptly deliver to the Buyer a supplement to the
Company's Disclosure Schedule specifying such change. Such delivery shall not
affect any rights of the Buyer under Section 8.1. During the same period, the
Company will promptly notify the Buyer of the occurrence of any event that may
make the satisfaction of the conditions in ARTICLE 8 impossible or unlikely.
Section 5.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, the Company will cause all indebtedness
owed by any Related Person of the Company or any of its Subsidiaries to be paid
in full to the Company or such Subsidiary prior to Closing.
B-28
Section 5.7 Best Efforts. Between the date of this Agreement and the
Closing Date, the Company will use its Best Efforts to cause the conditions in
ARTICLE 8 to be satisfied.
Section 5.8 Form D. The Company agrees to file with the Commission on a
timely basis a Form D with respect to the Securities as required to claim the
exemption provided by Rule 506 of Regulation D and to provide a copy thereof to
the Buyer promptly after such filing.
Section 5.9 NASDAQ Listing; Reporting Status. Prior to the Closing
Date, the Company shall file with the NASDAQ an application or other document
required by the NASDAQ for the listing of the Shares with the NASDAQ Small Cap
Market and shall provide evidence of such filing to the Buyer. The Company shall
use its best efforts to obtain the listing, subject to official notice of
issuance, of the Common Shares on the NASDAQ Small Cap Market prior to the
Closing Date. So long as the Buyer beneficially owns any Shares the Company will
use its best efforts to maintain the listing of the Shares on the NASDAQ Small
Cap Market or a registered national securities exchange. During the Registration
Period, the Company shall timely file all reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act, and the Company
shall not terminate its status as an issuer required to file reports under the
Exchange Act unless the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section 5.10 Use of Proceeds. The Company shall use the proceeds of
sale of the Shares for general working capital purposes and in the operation of
the Company's business.
Section 5.11 State Securities Laws. On or before the Closing Date, the
Company shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the offer and sale of the Shares to the Buyer as contemplated by
this Agreement under such of the securities laws of jurisdictions in the United
States as shall be applicable thereto. In connection with the foregoing
obligations of the Company in this Section 5.11, the Company shall not be
required (1) to qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section, (2) to subject itself to
general taxation in any such jurisdiction, (3) to file a general consent to
service of process in any such jurisdiction, (4) to provide any undertakings
that cause more than nominal expense or burden to the Company, or (5) to make
any change in its charter or by-laws which the Company determines to be contrary
to the best interests of the Company and its stockholders. The Company shall
furnish to the Buyer copies of all filings, applications, orders and grants or
confirmations of exemptions relating to such securities laws on or prior to the
Closing Date.
Section 5.12 Limitation on Certain Actions. From the date of execution
and delivery of this Agreement by the parties hereto through the Closing Date,
the Company shall not issue any shares of its capital stock or any securities
derivative of, convertible into or exchangeable for shares as its capital stock
other than (i) grants of options under an existing plan in the Ordinary Course
of Business, (ii) upon the exercise of options or warrants that are outstanding
as of the date of this Agreement or (iii) upon the conversion of shares of the
Company's Series A or Series B Preferred Shares issued and outstanding as of the
date of this Agreement.
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ARTICLE 6
COVENANTS OF THE BUYER PRIOR TO CLOSING DATE
Section 6.1 Approvals of Governmental Bodies. As promptly as
practicable after the date of this Agreement, the Buyer will make all filings
required by Legal Requirements to be made by it to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, the Buyer
will (i) cooperate with the Company with respect to all filings that the Company
is required by Legal Requirements to make in connection with the Contemplated
Transactions.
Section 6.2 Best Efforts. Between the date of this Agreement and the
Closing Date, the Buyer will use its Best Efforts to cause the conditions in
ARTICLE 9 to be satisfied.
Section 6.3 Notification. Between the date of this Agreement and the
Closing Date, the Buyer will promptly notify the Company in writing if the Buyer
becomes aware of any fact or condition that causes or constitutes a Breach of
any of the Buyer's representations and warranties as of the date of this
Agreement, or if the Buyer becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Buyer's Disclosure Schedule if the
Buyer's Disclosure Schedule were dated the date of the occurrence or discovery
of any such fact or condition, the Buyer will promptly deliver to the Company a
supplement to the Buyer's Disclosure Schedule specifying such change. Such
delivery shall not affect any rights of the Company under Section 9.1. During
the same period, the Buyer will promptly notify the Company of the occurrence of
any event that may make the satisfaction of the conditions in ARTICLE 9
impossible or unlikely.
ARTICLE 7
ADDITIONAL COVENANTS
Section 7.1 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as the Company determines.
Unless consented to by the Company in advance or required by Legal Requirements,
prior to the Closing, the Investors shall keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
The Company and the Buyer will consult with each other concerning the means by
which the Company's or any of its Subsidiaries' employees, customers, and
suppliers and others having dealings with the Company or any of its Subsidiaries
will be informed of the Contemplated Transactions.
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Section 7.2 Confidentiality.
(a) Between the date of this Agreement and the Closing Date,
the Buyer and the Company will maintain in confidence, and will cause
the directors, officers, employees, agents, and advisors of the Buyer
and the Company and its Subsidiaries to maintain in confidence, and not
use to the detriment of another party any written, oral, or other
information obtained in confidence from another party in connection
with this Agreement or the Contemplated Transactions and the
transactions contemplated by the Company Share Exchange Agreement,
unless (i) such information is already known to such party or to others
not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party, (ii) the use of such
information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (iii) the furnishing or use of such
information is required by or necessary or appropriate in connection
with legal proceedings.
(b) If the Contemplated Transactions are not consummated, each
party will return or destroy as much of such written information as the
other party may reasonably request.
ARTICLE 8
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATION TO CLOSE
The obligations of the Buyer to purchase the Firm Shares and to take
the other actions required to be taken by the Buyer at the Closing is subject to
the fulfillment or written waiver by the Buyer at or prior to the Closing of
each of the following conditions:
Section 8.1 Accuracy of Representations.
(a) All of the Company's representations and warranties in
this Agreement must have been accurate in all material respects as of
the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without
giving effect to any supplement to the Company's Disclosure Schedule.
Section 8.2 Company's Performance.
(a) All of the covenants and obligations that the Company is
required to perform or to comply with pursuant to this Agreement and
the Company Share Exchange Agreement, at or prior to the Closing, must
have been duly performed and complied with in all material respects.
(b) Each document required to be delivered pursuant to Section
2.4 must have been delivered.
Section 8.3 Additional Documents. Each of the following documents must
have been delivered to the Buyer:
(a) An opinion of Orrick, Herrington & Sutcliffe, LLP, dated
the Closing Date, in the form of Exhibit 8.4(a); and
(b) Such other documents as the Buyer may reasonably request
for the purpose of (i) enabling its counsel to provide the opinion
referred to in Section 9.3(a), (ii) evidencing the accuracy of any of
the Company's representations and warranties, (iii) evidencing the
performance by the Company of, or the compliance by the Company with,
any covenant or obligation required to be performed or complied with by
the Company under this Agreement, (iv) evidencing the satisfaction of
any condition referred to in this ARTICLE 8 or (v) otherwise
facilitating the consummation or performance of any of the Contemplated
Transactions.
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Section 8.4 No Proceedings. Since the date of this Agreement, there
must not have been commenced or threatened against the Buyer or any Related
Person of the Buyer, any Proceeding (a) involving any challenge to, or seeking
damages or other relief in connection with, any of the Contemplated Transactions
or (b) that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with any of the Contemplated Transactions.
Section 8.5 No Material Adverse Change. Since the date of this
Agreement, there has not been any material adverse change in the business,
operations, properties, prospects, results of operations or condition (financial
or otherwise) of the Company and its Subsidiaries, taken as a whole, and no
event has occurred or circumstance exists that may result in such a material
adverse change.
Section 8.6 Consummation of Other Transactions. The transactions
contemplated by each of the Company Share Exchange Agreement and the Shareholder
Stock Purchase Agreement shall have been consummated (subject to the
consummation of the transactions contemplated by this Agreement).
ARTICLE 9
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE
The obligation of the Company to issue and sell the Firm Shares and to
take the other actions required to be taken by the Company at the Closing is
subject to the fulfillment or written waiver by the Company at or prior to the
Closing of each of the following conditions:
Section 9.1 Accuracy of Representations. All of the Buyer's
representations and warranties in this Agreement must have been accurate in all
material respects as of the date of this Agreement and must be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
Section 9.2 The Buyer's Performance.
(a) All of the covenants and obligations that the Buyer is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing must have been performed and complied with in all
material respects.
(b) The Buyer must have delivered each of the documents
required to be delivered by the Buyer pursuant to Section 2.4 and must
have paid the Purchase Price to be paid by the Buyer pursuant to
Section 2.4(b)(1).
Section 9.3 Additional Documents. The Buyer must have caused the
following documents to be delivered to the Company:
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(a) An opinion of McGuireWoods LLP, dated the Closing Date, in
the form of Exhibit 9.4(a); and
(b) Such other documents as the Company may reasonably request
for the purpose of (i) enabling its counsel to provide the opinion
referred to in Section 8.3(a), (ii) evidencing the accuracy of any
representation or warranty of the Buyer, (iii) evidencing the
performance by the Buyer of, or the compliance by the Buyer with, any
covenant or obligation required to be performed or complied with by the
Buyer under this Agreement or (iv) evidencing the satisfaction of any
condition referred to in this ARTICLE 9.
Section 9.4 No Proceedings. There must not be in effect any Legal
Requirement or any injunction or other Order that (a) prohibits consummation of
the Contemplated Transactions or any of them and (b) has been adopted or issued,
or has otherwise become effective, since the date of this Agreement with
reference to the Contemplated Transactions.
ARTICLE 10
REGISTRATION RIGHTS
Section 10.1 Mandatory Registration.
(a) The Company shall prepare promptly and, on or prior to the
date that is ninety (90) days after the Closing Date, file with the
Commission the Registration Statement (i) for the resale by the Buyer
of a number of Registrable Securities equal to the number of shares of
Firm Shares issued and sold by the Company to the Buyer pursuant to
this Agreement and (ii) for resale by the Buyer or the Additional
Shares Buyer, as the case may be, a number of Registrable Securities
equal to the number of Additional Shares issued and sold by the Company
pursuant to this Agreement; provided, that if the purchase and sale of
the Additional Shares has not been consummated by the date which is
twenty (20) days after the Closing Date, then on or prior to the date
that is ninety (90) days after the Additional Closing Date, the Company
shall file with the Commission either a Registration Statement for the
resale by the Additional Shares Buyer of a number of Registrable
Securities equal to the number of Additional Shares issued and sold by
the Company pursuant to this Agreement or an amendment to the
Registration Statement theretofore filed that would register the
Additional Shares in addition to the Firm Shares. If for any reason the
Commission does not permit all of the Registrable Securities to be
included in such Registration Statement, then the Company shall prepare
and file with the Commission a separate Registration Statement with
respect to any such Registrable Securities not included with the
initial Registration Statement, as expeditiously as possible, but in no
event later than the date which is thirty (30) days after the date on
which the Commission shall indicate as being the first date such filing
may be made.
(b) If a Registration Event occurs, then the Company will make
payments to the Investors as partial liquidated damages for the minimum
amount of damages to the Investors by reason thereof, and not as a
penalty, at the rate of 2% per month of the aggregate purchase price
paid by the Investors for the Shares pursuant to this Agreement, for
each calendar month of the Registration Default Period (pro rated for
any period less
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than thirty (30) days). Each such payment shall be due and payable
within five (5) days after the end of each calendar month of the
Registration Default Period until the termination of the Registration
Default Period and within five (5) days after such termination. Such
payments shall be in partial compensation to the Investors, and shall
not constitute the Investors' exclusive remedy for such events. The
Registration Default Period shall terminate upon:
(1) the filing of the Registration Statement in the
case of clause (i) of the definition of "Registration Event";
(2) the SEC Effective Date in the case of clause (ii)
of the definition of "Registration Event";
(3) the ability of the Investors to effect sales
pursuant to the Registration Statement in the case of clause
(iii) of the definition of "Registration Event";
(4) the listing or inclusion and/or trading of the
Shares on an Approved Market, as the case may be, in the case
of clause (iv) of the definition of "Registration Event," and
(5) in the case of the events described in clauses
(ii) and (iii) of the definition of "Registration Event", the
earlier termination of the Registration Period and in each
such case any Registration Default Period that commenced by
reason of the occurrence of such event shall terminate if at
the time no other Registration Event is continuing.
The amounts payable as liquidated damages pursuant to this
paragraph shall be payable in lawful money of the United States and
shall be paid pro rata to the Buyer and the Additional Shares Buyer in
proportion to the number of shares purchased by each of them. Amounts
payable as liquidated damages hereunder shall cease when the Investors
no longer hold Registrable Securities; provided, that in no event shall
the amount payable as liquidated damages pursuant to this Section
10.1(b) be in excess of 8% of the purchase price paid by each Investor
for the Shares purchased by it.
(c) At any time and from time to time, promptly following the
written demand from either of the Investors following the issuance of
any Additional Registrable Securities, and in any event within thirty
(30) days following such written demand, the Company shall prepare and
file with the Commission either a new Registration Statement or a
post-effective amendment to a previously filed Registration Statement,
to the extent permitted under the Securities Act, on Form S-3 (or, if
Form S-3 is not then available to the Company, on such form of
registration statements as is then available to effect a registration
for resale of the Additional Registrable Securities) covering the
resale of the Additional Registrable Securities in an amount equal to
the number of Additional Registrable Securities. Such Registration
Statement also shall cover, to the extent allowable under the
Securities Act and the rules promulgated thereunder (including Rule
416), as determined by the Company and its legal counsel, such
indeterminate number of additional shares of Common Stock resulting
from stock splits, stock dividends or similar transactions with respect
to the Additional Registrable Securities. The Registration Statement
(and each amendment or supplement thereto) shall be provided in
accordance with Section 10.2 to the Investor and its counsel prior to
its filing or other submission.
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(d) In the event the Form S-3 is not available for the
registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on
another appropriate form and (ii) attempt to register the Registrable
Securities on Form S-3 as soon as such form is available, provided that
the Company shall maintain the effectiveness of the Registration
Statements then in effect until such time as a Registration Statement
on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.
Section 10.2 Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall:
(a) use commercially reasonable efforts to cause the
Registration Statement to become effective as promptly as practicable
after the Closing Date and to keep the Registration Statement effective
pursuant to Rule 415 at all times during the Registration Period. The
Company shall submit to the Commission, within three (3) Business Days
after the Company learns that no review of the Registration Statement
will be made by the staff of the Commission or that the staff of the
Commission has no further comments on the Registration Statement, as
the case may be, a request for acceleration of effectiveness of the
Registration Statement to a time and date not later than forty-eighty
(48) hours after the submission of such request. The Company shall
notify the Investors of the effectiveness of the Registration Statement
on the SEC Effective Date. The Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein),
at the time it is first filed with the Commission, at the time it is
ordered effective by the Commission and at all times during which it is
required to be effective hereunder (and each such amendment and
supplement at the time it is filed with the Commission and at all times
during which it is available for use in connection with the offer and
sale of the Registrable Securities) will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and the Prospectus, at the time the Registration Statement
is declared effective by the Commission and at all times that the
Prospectus is required by this Agreement to be available for use by any
Investors, and, in accordance with Section 10.3(d), any Investor is
entitled to sell Registrable Securities pursuant to the Prospectus,
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) subject to Section 10.2(e), prepare and file with the
Commission such amendments (including post-effective amendments) and
supplements to the Registration Statement and the Prospectus as may be
necessary to keep the Registration Statement effective, and the
Prospectus current, at all times during the Registration Period, and,
during the Registration Period (other than during any Blackout Period
during which the provisions of Section 10.2(e)(ii) are applicable),
comply with the provisions of the Securities Act applicable to the
Company in order to permit the disposition by the Investors of all
Registrable Securities covered by the Registration Statement;
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(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel promptly
after the same is prepared and publicly distributed, filed with the
Commission or received by the Company, (A) five copies of the
Registration Statement and any amendment thereto and the Prospectus and
each amendment or supplement thereto, (B) one copy of each letter
written by or on behalf of the Company to the Commission or the staff
of the Commission and each item of correspondence from the Commission
or the staff of the Commission relating to the Registration Statement
(other than any portion of any thereof which contains information for
which the Company has sought confidential treatment), each of which the
Company hereby determines to be confidential information and which each
Investor hereby agrees to keep confidential as a confidential Record in
accordance with Section 10.2(i) and (C) such number of copies of the
Prospectus and all amendments and supplements thereto and such other
documents, as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Investor;
(d) subject to Section 10.2(e), use its commercially
reasonable efforts (A) to register and qualify the Registrable
Securities covered by the Registration Statement under the securities
or blue sky laws of such jurisdictions as any Investor who owns or
holds any Registrable Securities reasonably requests, (B) to prepare
and to file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness
thereof at all times during the Registration Period and (C) to take all
other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale by the Investors in such jurisdictions;
provided, that the Company shall not be required in connection
therewith or as a condition thereto (i) to qualify to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this Section 10.2(d), (ii) to subject itself to general
taxation in any such jurisdiction, (iii) to file a general consent to
service of process in any such jurisdiction, (iv) to provide any
undertakings that cause more than nominal expense or burden to the
Company or (v) to make any change in its charter or by-laws which the
Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders;
(e)(i) as promptly as practicable after becoming aware of such
event or circumstance, notify each Investor of the occurrence of an
event or circumstance of which the Company has knowledge (x) as a
result of which the Prospectus, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading
or (y) which requires the Company to amend or supplement the
Registration Statement due to the receipt from an Investor or any other
selling shareholder named in the Prospectus of new or additional
information about such Investor or selling shareholder or its intended
plan of distribution of its Registrable Securities or other securities
caused by the Registration Statement, as the case may be, so that the
Prospectus does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and use its best efforts
promptly to prepare a supplement or amendment to the Registration
Statement and Prospectus to correct such untrue statement or omission
or to add any new or additional information, and deliver a number of
copies of such supplement or amendment to each Investor as such
Investor may reasonably request; and
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(ii) notwithstanding Section 10.2(e)(i) above, if at any time
the Company notifies the Investors as contemplated by Section
10.2(e)(i) that the event giving rise to such notice relates to a
development involving the Company which occurred subsequent to the
later of (x) the SEC Effective Date and (y) the latest date prior to
such notice on which the Company has amended or supplemented the
Registration Statement, then the Company shall not be required to use
best efforts to make such amendment during a Blackout Period; provided,
that (A) the aggregate number of Trading Days on which any Blackout
Period is in effect may not exceed ten consecutive Trading Days in any
period of one hundred twenty days (120) consecutive days or twenty (20)
Trading Days (whether or not consecutive) in any period of three
hundred sixty five (365) consecutive days; (B) the Company shall not be
able to avail itself of its rights under this Section 10.2(e)(ii) with
respect to more than three Blackout Periods in any period of three
hundred sixty five (365) consecutive days; and (C) no Blackout Period
may commence sooner than sixty (60) days after the end of an earlier
Blackout Period;
(f) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being
offered or sold pursuant to the Registration Statement of the issuance
by the Commission of any stop order or other suspension of
effectiveness of the Registration Statement at the earliest possible
time;
(g) permit the Investors who hold Registrable Securities being
included in the Registration Statement and their legal counsel, at such
Investors' sole cost and expense, to review and have a reasonable
opportunity to comment on the Registration Statement and all amendments
and supplements thereto at least three Business Days prior to their
filing with the Commission and shall not file any such document to
which any Investor reasonably objects;
(h) make generally available to its security holders as soon
as practical, but not later than 90 days after the close of the period
covered thereby, an earning statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a 12-month
period beginning not later than the first day of the Company's fiscal
quarter next following the SEC Effective Date;
(i) use its best efforts to cause all the Registrable
Securities covered by the Registration Statement to be listed on the
NASDAQ Small Cap Market or such other principal securities market on
which securities of the same class or series issued by the Company are
then listed or traded;
(j) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities at all times;
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(k) cooperate with the Investors who hold Registrable
Securities being offered pursuant to the Registration Statement to
facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends, to the extent acceptable to the
Company's transfer agent) representing Registrable Securities to be
offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the Investors
may reasonably request and registered in such names as the Investors
may request; and, not later than the SEC Effective Date, cause legal
counsel selected by the Company to deliver to the Investors whose
Registrable Securities are included in the Registration Statement and,
if required by the Transfer Agent, to the Transfer Agent an opinion of
counsel in customary and reasonable form;
(l) during the Registration Period, refrain from bidding for
or purchasing any Common Stock or any right to purchase Common Stock or
attempting to induce any Person to purchase any such security or right
if such bid, purchase or attempt would in any way limit the right of
the Investors to sell Registrable Securities by reason of the
limitations set forth in Regulation M under the Exchange Act; and
(m) take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of the Registrable
Securities pursuant to the Registration Statement.
Section 10.3 Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) it shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement
with respect to the Registrable Securities of any Investor that such
Investor shall furnish to the Company the Required Information and
shall execute such documents in connection with such registration as
the Company may reasonably request. Prior to or at the Closing, each of
the Investors shall have completed and delivered to the Company the
Questionnaire, which shall be deemed to provide all Required
Information for purposes of the preparation and filing of the
Registration Statement. Promptly after a request from the Company, each
Investor will confirm or update the Required Information previously
provided to the Company by the Investor;
(b) each Investor will cooperate with the Company as
reasonably requested by the Company in connection with the preparation
and filing of the Registration Statement hereunder;
(c) each Investor agrees that it will not effect any
disposition of the Registrable Securities except as contemplated in the
Registration Statement or as shall otherwise be in compliance with the
registration requirements of applicable securities laws and that it
will promptly notify the Company of any material changes in the
information set forth in the Registration Statement regarding such
Investor or its plan of distribution, and each Investor agrees (a) to
notify the Company in the event that such Investor enters into any
material agreement with a broker or a dealer for the sale of the
Registrable Securities through a block trade, special offering,
exchange distribution or a purchase by a broker or dealer and (b) in
connection with such agreement, to provide to the Company in writing
the information necessary to prepare any supplemental prospectus
pursuant to Rule 424(c) under the Securities Act which is required with
respect to such transaction;
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(d) each Investor acknowledges that there may occasionally be
times as specified in Section 10.2(e) or Section 10.2(f) when the
Company must suspend the use of the Prospectus until such time as an
amendment to the Registration Statement has been filed by the Company
and declared effective by the SEC, the Company has prepared a
supplement to the Prospectus or the Company has filed an appropriate
report with the Commission pursuant to the Exchange Act. Each Investor
hereby covenants that it will not sell any Registrable Securities
pursuant to the Prospectus during the period commencing at the time at
which the Company gives such Investor notice of the suspension of the
use of the Prospectus in accordance with Section 10.2(e) or Section
10.2(f) and ending at the time the Company gives such Investor notice
that such Investor may thereafter effect sales pursuant to the
Prospectus, or until the Company delivers to such Investor or files
with the Commission an amended or supplemented Prospectus;
(e) in connection with any sale of Registrable Securities
which is made by an Investor pursuant to the Registration Statement (A)
if such sale is made through a broker and such sale requires the
delivery of a prospectus under the applicable rules and regulations of
the Commission and/or NASDAQ, such Investor shall instruct such broker
to deliver the Prospectus to the purchaser or purchasers (or the broker
or brokers therefor) in connection with such sale and shall supply
copies of the Prospectus to such broker or brokers, and (B) if such
sale is made in a transaction directly with a purchaser and not through
the facilities of any securities exchange or market, such Investor
shall deliver, or cause to be delivered, the Prospectus to such
purchaser; and
(f) each Investor agrees to notify the Company promptly after
the event of the completion of the sale by such Investor of all
Registrable Securities to be sold by such Investor pursuant to the
Registration Statement.
Section 10.4 Rule 144. With a view to making available to each Investor
the benefits of Rule 144, the Company will:
(a) so long as any Investor owns Registrable Securities,
promptly upon request of such Investor, furnish to such Investor such
information as may be necessary, and otherwise reasonably to cooperate
with such Investor, to permit such Investor to sell its Registrable
Securities pursuant to Rule 144 without registration; and
(b) if at any time the Company is not required to file such
reports with the Commission under Sections 13 or 15(d) of the Exchange
Act, use its commercially reasonable efforts to, upon the request of an
Investor, to make publicly available other information so long as is
necessary to permit publication by brokers and dealers of quotations
for the Common Stock and sales of the Registrable Securities in
accordance with Rule 15c2-11 under the 1934 Act.
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ARTICLE 11
TERMINATION
Section 11.1 Termination Events. This Agreement may, by notice given
prior to or at the Closing, be terminated:
(a) by mutual consent of the Buyer and the Company; or
(b) by either the Buyer or the Company if the Closing has not
occurred (other than through the failure of the party seeking to
terminate this Agreement to comply fully with its obligations under
this Agreement) on or before July 31, 2005, or such later date to which
the parties may agree; or
(c) by the Buyer or the Company if a material Breach of any
provision of this Agreement has been committed by the other party and
such Breach has not been waived; or
(d) by the Buyer if any of the conditions of ARTICLE 8 has not
been satisfied as of July 31, 2005 or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
the Buyer to comply with its obligations under this Agreement) and the
Buyer has not waived such condition on or before July 31, 2005; or
(e) by the Company if any of the conditions of ARTICLE 9 has
not been satisfied as of July 31, 2005 or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
the Company to comply with its obligations under this Agreement) and
the Company has not waived such condition on or before July 31, 2005;
or
(f) by either the Buyer or the Company if any Governmental
Body shall have issued a nonappealable final Order having the effect of
permanently restraining, enjoining or otherwise prohibiting the
Contemplated Transactions, except if the party relying on such Order
has not complied with its obligations under of this Agreement with
respect to such matter.
Section 11.2 Effect of Termination. Each party's right of termination
under Section 11.1 is in addition to any other rights such party may have under
this Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. If this Agreement is terminated pursuant to Section
11.1, all further obligations of the parties under this Agreement will
terminate, except the obligations in Section 12.1 will survive; provided, that
if this Agreement is terminated by a party because of a Breach of the Agreement
by the other party or because one or more conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's rights to pursue all legal remedies will survive such
termination unimpaired.
Section 11.3 Extension; Waiver. At any time prior to the Closing, the
parties hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
B-40
ARTICLE 12
MISCELLANEOUS PROVISIONS
Section 12.1 No Survival. The representations and warranties contained
in ARTICLE 3 and ARTICLE 4 shall survive until the first anniversary of the
Closing Date.
Section 12.2 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective fees and
expenses incurred in connection with the preparation, negotiation, execution,
and performance of this Agreement and the Contemplated Transactions, including
all fees and expenses of its Representatives. If this Agreement is terminated,
the obligation of each party to pay its own expenses will be subject to any
rights of such party arising from a breach of this Agreement by another party.
Section 12.3 Notices.
(a) All notices, consents, waivers and other communications
hereunder must be in writing and either (i) delivered personally, (ii)
sent by facsimile transmission (with written confirmation of a
successful transmission), (iii) mailed by prepaid first class
registered or certified mail, return receipt requested, or (iv)
delivered by a nationally recognized prepaid overnight courier service
(receipt requested), in each case to the appropriate addresses or
facsimile numbers set forth below (or to such other addresses or
facsimile numbers as a party may designate by notice to the other
parties):
Company: The A Consulting Team, Inc.
77 Brant Avenue
Suite 320
Clark, NJ 07066
Attention: Chief Financial Officer
Telephone: (732) 499-8228
Facsimile: (732) 499-9310
with a copy (which shall not constitute notice) to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10105
Attention: Lawrence B. Fisher, Esq.
Telephone: 212 506-5000
Facsimile: 212 506-5151
B-41
the Buyer and the Additional Shares Buyer:
Oak Finance Investments Limited
c/o Arias Fabrega & Fabrega Trust Company
BVI Ltd.
325 Waterfront Drive
Omar Hodge Building, 2nd Floor
Wickham's Cay
Road Town, Tortola,
British Virgin Islands
Telephone: _____________________
Facsimile Number: _______________
with a copy (which shall not constitute notice) to:
McGuireWoods LLP
1345 Avenue of the Americas
7th Floor
New York, NY 10105
Attention: William A. Newman, Esq.
Telephone: 212 548-2160
Facsimile: 212 548-2150
(b) All such notices, consents, waivers and other
communications will (i) if delivered personally in the manner and to
the address provided in this section, be deemed given upon delivery,
(ii) if delivered by facsimile transmission in the manner and to the
facsimile number provided in this section, be deemed given on the
earlier of receipt or the first business day after transmission, (iii)
if delivered by mail in the manner, and to the address provided in this
section, be deemed given on the earlier of the third business day
following mailing or upon receipt, if earlier, and (iv) if delivered by
overnight courier in the manner and to the address provided in this
section, be deemed given on the earlier of receipt or the first
business day following the date sent by such overnight courier.
Section 12.4 Entire Agreement; Modifications. This Agreement supersedes
all prior agreements and understandings between the parties with respect to its
subject matter (including the letter of intent, dated July 28, 2004) and
constitutes (along with the Company's Disclosure Schedule, the Buyer Disclosure
Schedule, the Shareholder Stock Purchase Agreement, the Company Share Exchange
Agreement, the Principal Shareholders Agreement and the Exhibits, annexures and
other documents referred to herein and therein) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
Section 12.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would require the
application of any other law.
B-42
Section 12.6 Assignment; Successors; No Third Party Rights. Except as
set forth in Section 2.5, neither any of the Investors nor the Company may
assign any of its rights or delegate any of its obligations under this Agreement
(whether by operation of law or otherwise) without the prior written consent of
the other parties. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
Section 12.7 Severability. If any portion of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
Section 12.8 No Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power or privilege under this Agreement
will operate as a waiver thereof, and no single or partial exercise by a party
of its rights hereunder shall preclude any other or future exercise thereof or
the exercise of any other right, power or privilege.
Section 12.9 Jurisdiction; Service of Process. Any Proceeding arising
out of or relating to this Agreement may be brought in the federal courts
sitting in the County of New York, State of New York, 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 courts 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.
Section 12.10 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
Section 12.11 Counterparts. This Agreement may be executed in one or
more counterpart copies, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement. The exchange of copies of this Agreement
and of signature pages by facsimile transmission shall constitute effective
execution and delivery of this Agreement as to the parties and may be used in
lieu of the original Agreement for all purposes. Signatures of the parties
transmitted by facsimile shall be deemed to be their original signatures for all
purposes.
B-43
In Witness Whereof, the Buyer and the Company have executed this
Agreement as of the date first written above.
THE A CONSULTING TEAM, INC.
By: /s/ Richard D. Falcone
----------------------------------------
Name: Richard D. Falcone
Title: Chief Financial Officer
OAK FINANCE INVESTMENTS LIMITED
By: /s/ Brenda Patricia Cocksedge
---------------------------------------
Name: Brenda Patricia Cocksedge
Title: Director
B-44
EXHIBIT 9.3(A)
COMPANY'S COUNSEL'S OPINION
[Intentionally Omitted]
B-45
EXHIBIT 9.3(A)
BUYER'S COUNSEL'S OPINION
[Intentionally Omitted]
B-46
ANNEX C
EXECUTION COPY
STOCK PURCHASE AGREEMENT
between
OAK FINANCE INVESTMENTS LIMITED
(a British Virgin Islands company)
and
SHMUEL BENTOV
Relating To The Purchase Of 1,024,697 Shares Of The Stock Of Common Stock of
THE A CONSULTING TEAM, INC.
(a New York corporation)
Dated as of
January 21, 2005
C-1
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS AND USAGE....................................................................C-6
Section 1.1 Definitions.....................................................................C-6
Section 1.2 Other Defined Terms............................................................C-11
Section 1.3 Usage..........................................................................C-11
ARTICLE 2 SALE AND TRANSFER OF COMPANY STOCK......................................................C-12
Section 2.1 Sale of Company Stock..........................................................C-12
Section 2.2 Purchase Price.................................................................C-12
Section 2.3 Closing........................................................................C-13
Section 2.4 Closing Obligations............................................................C-13
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER................................................C-14
Section 3.1 Organization and Good Standing.................................................C-14
Section 3.2 No Conflict; No Consent........................................................C-14
Section 3.3 Books and Records..............................................................C-14
Section 3.4 Capitalization.................................................................C-15
Section 3.5 Financial Statements...........................................................C-15
Section 3.6 SEC Reports....................................................................C-16
Section 3.7 No Material Adverse Change.....................................................C-16
Section 3.8 Absence of Certain Changes or Events...........................................C-16
Section 3.9 Legal Proceedings; Orders......................................................C-17
Section 3.10 Brokers or Finders.............................................................C-18
Section 3.11 Disclosure.....................................................................C-18
ARTICLE 4 ADDITIONAL REPRESENTATIONS OF SELLER....................................................C-18
Section 4.1 Title to Company Stock; No Agreements..........................................C-18
Section 4.2 Enforceability; Authority; No Conflict; No Consent.............................C-18
Section 4.3 SEC Reports by Seller..........................................................C-19
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER.................................................C-19
Section 5.1 Organization and Good Standing.................................................C-19
Section 5.2 Enforceability; Authority; No Conflict.........................................C-19
Section 5.3 Brokers or Finders.............................................................C-20
Section 5.4 Disclosure.....................................................................C-20
ARTICLE 6 COVENANTS OF SELLER PRIOR TO CLOSING DATE...............................................C-20
Section 6.1 Access and Investigation.......................................................C-20
Section 6.2 Required Approvals.............................................................C-20
C-2
TABLE OF CONTENTS
(continued)
PAGE
Section 6.3 Business Operations of the Acquired Companies..................................C-21
Section 6.4 Negative Covenant..............................................................C-21
Section 6.5 Notification...................................................................C-21
Section 6.6 Payment of Indebtedness by Related Persons.....................................C-22
Section 6.7 Conversion of Series A Preferred Stock.........................................C-22
Section 6.8 Reasonable Best Efforts........................................................C-22
ARTICLE 7 COVENANTS OF BUYER PRIOR TO CLOSING DATE................................................C-22
Section 7.1 Approvals of Governmental Bodies...............................................C-22
Section 7.2 Reasonable Best Efforts........................................................C-22
ARTICLE 8 ADDITIONAL COVENANTS....................................................................C-22
Section 8.1 Public Announcements...........................................................C-22
Section 8.2 Confidentiality................................................................C-22
ARTICLE 9 CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.....................................C-23
Section 9.1 Accuracy of Representations....................................................C-23
Section 9.2 Seller's Performance...........................................................C-23
Section 9.3 Consents.......................................................................C-23
Section 9.4 Additional Documents...........................................................C-23
Section 9.5 No Proceedings.................................................................C-24
Section 9.6 No Claim Regarding Stock Ownership or Sale Proceeds............................C-24
Section 9.7 No Material Adverse Change.....................................................C-24
Section 9.8 Consummation of Other Transactions.............................................C-24
ARTICLE 10 CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE....................................C-24
Section 10.1 Accuracy of Representations....................................................C-24
Section 10.2 Buyer's Performance............................................................C-24
Section 10.3 Consents.......................................................................C-25
Section 10.4 Additional Documents...........................................................C-25
Section 10.5 No Injunction..................................................................C-25
ARTICLE 11 INDEMNIFICATION; REMEDIES...............................................................C-25
Section 11.1 Survival; Right To Indemnification Not Affected By Knowledge...................C-25
Section 11.2 Indemnification And Payment of Damages By Seller...............................C-25
C-3
TABLE OF CONTENTS
(continued)
PAGE
Section 11.3 Indemnification And Payment Of Damages By Buyer................................C-26
Section 11.4 Time Limitations...............................................................C-26
Section 11.5 Procedure For Indemnification-Third Party Claims...............................C-26
ARTICLE 12 TERMINATION.............................................................................C-28
Section 12.1 Termination Events.............................................................C-28
Section 12.2 Effect of Termination..........................................................C-28
Section 12.3 Extension; Waiver..............................................................C-29
ARTICLE 13 MISCELLANEOUS PROVISIONS................................................................C-29
Section 13.1 Expenses.......................................................................C-29
Section 13.2 Notices........................................................................C-29
Section 13.3 Entire Agreement; Modifications................................................C-30
Section 13.4 Governing Law..................................................................C-30
Section 13.5 Assignment; Successors; No Third Party Rights..................................C-31
Section 13.6 Severability...................................................................C-31
Section 13.7 No Waiver......................................................................C-31
Section 13.8 Jurisdiction; Service of Process...............................................C-31
Section 13.9 Further Assurances.............................................................C-31
Section 13.10 Counterparts...................................................................C-31
Section 13.11 Signatures.....................................................................C-32
C-4
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made as of January
21, 2005 between among Oak Finance Investments Limited, a company organized
under the laws of the British Virgin Islands ("Buyer") and Shmuel BenTov, an
individual resident in the State of New York ("Seller") executing this Agreement
on his own behalf and in the capacities specified at the end of this Agreement.
THE RECITALS
A. Seller is a shareholder of Cicada, Inc. (the "Company") and
is the beneficial owner of 1,024,698 shares of common stock of the Company (the
"Common Stock") par value $0.01 per share;
B. Seller desires to sell, and Buyer desires to purchase,
1,020,947 of the shares of the Common Stock owned by Seller (the "Company
Stock") pursuant to the terms and conditions of this Agreement and to
concurrently purchase 3,750 of the shares of the Common Stock that are owned by
Seller's spouse, such 1,024,697 representing all issued and outstanding shares
of the Company Stock that are owned or controlled by Seller or his spouse;
C. Simultaneously herewith Buyer has entered into a Stock
Purchase Agreement, dated the date hereof (the "Company Stock Purchase
Agreement"), with the Company pursuant to which Buyer has agreed to purchase and
the Company has agreed to sell the number of shares of Common Stock specified
therein;
D. Simultaneously herewith the Company has entered into a
Share Exchange Agreement, dated the date hereof (the "Company Share Exchange
Agreement"), with the shareholders of Vanguard Info-Solution Corporation, a New
Jersey corporation formerly known as B2B Solutions, Inc. ("Vanguard"), pursuant
to which the Company will issue 7,312,796 shares of the Common Stock to the
stockholders of Vanguard in exchange for 100% of the issued and outstanding
shares of capital stock of all classes of Vanguard;
E. Simultaneously herewith Seller has entered into an
agreement with Buyer, dated the date hereof (the "Principal Shareholder's
Agreement"), pursuant to which Seller has agreed to vote the shares of Common
Stock that he owns in favor of the transactions contemplated by the Company
Stock Purchase Agreement and the Company Share Exchange Agreement and to refrain
from taking certain actions regarding other potential transactions involving the
Company;
F. The Company's Board of Directors has approved the
transactions contemplated by each of this Agreement, the Company Share Exchange
Agreement and the Company Stock Purchase Agreement and has agreed to recommend
to its shareholders that they approve the transactions contemplated by the
Company Stock Purchase Agreement and the Company Share Exchange Agreement; and
G. The approval of the shareholders of the Company is
necessary to consummate the transactions contemplated by the Company Share
Exchange Agreement and the Company Stock Purchase Agreement.
C-5
THE AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS AND USAGE
Section 1.1 Definitions. For purposes of this Agreement, the following
terms have the respective meanings set forth below:
"Acquired Companies" means the Company and its Subsidiaries,
collectively; individually, each an "Acquired Company."
"Agreement" means this Stock Purchase Agreement, as amended
from time to time pursuant to the terms hereof.
"Applicable Contract" means any Contract, except those which
have expired in accordance with their terms, (i) filed as an exhibit to
(a) the SEC Reports or (b) any registration statements of the Company
pursuant to the Securities Act, or (ii) that involves payments or
expenditures by or to any of the Acquired Companies that have an
aggregate value of at least $300,000.
"Business Day" means any day except Saturday, Sunday or any
other day on which commercial banks located in New York, New York are
authorized by law to be closed for business.
"Code" means the Internal Revenue Code of 1986.
"Commission" means the U.S. Securities and Exchange
Commission.
"Consent" means any approval, consent, ratification, waiver or
other authorization.
"Contemplated Transactions" means all of the transactions
contemplated by this Agreement and by the other Seller's Closing
Documents.
"Contract" means any agreement, contract, obligation, promise
or undertaking that is legally binding.
"Disclosure Schedule" means a schedule delivered by one party
to the other party concurrently with the execution and delivery of this
Agreement, setting forth certain disclosure information arranged in
numbered Items each of which corresponds to a section of this Agreement
and provides (1) additional disclosure in response to an express
disclosure requirement in such section or (2) an exception or
qualification to a representation or warranty contained in such
section.
C-6
"Employee Plan" means, with respect to an employer, all
"employee benefit plans" as defined by Section 3(3) of ERISA, all
specified fringe benefit plans as defined in Section 6039D of the Code,
and all other bonus, incentive compensation, deferred compensation,
profit sharing, stock option, stock appreciation right, stock bonus,
stock purchase, employee stock ownership, savings, severance, change in
control, supplemental unemployment, layoff, salary continuation,
retirement, pension, health, life insurance, disability, accident,
group insurance, vacation, holiday, sick leave, fringe benefit or
welfare plan, and any other employee compensation or benefit plan,
agreement, policy, practice, commitment, contract or understanding
(whether qualified or nonqualified, currently effective or terminated,
written or unwritten) and any trust, escrow or other agreement related
thereto that (i) is maintained or contributed to by any such employer
or any ERISA Affiliate or has been maintained or contributed to in the
last six (6) years by any such employer or any ERISA Affiliate, or with
respect to which any such employer or any ERISA Affiliate has or may
have any liability, and (ii) provides benefits, or describes policies
or procedures applicable to any current or former director, officer,
employee or service provider of any such employer or any ERISA
Affiliate, or the dependents of any thereof, regardless of how (or
whether) liabilities for the provision of benefits are accrued or
assets are acquired or dedicated with respect to the funding thereof.
"Encumbrance" means any charge, claim, community or other
marital property interest, condition, equitable interest, lien, option,
pledge, security interest, mortgage, right of way, easement,
encroachment, servitude, right of first option, right of first refusal
or similar restriction, including any restriction on use, voting (in
the case of security or equity interests), transfer, receipt of income
or exercise of any other attribute of ownership.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA Affiliate" means, with respect to an employer, any
other corporation or trade or business controlled by, controlling or
under common control with such employer (within the meaning of Section
414, Section 4001(a)(14) or Section 4001(b) of ERISA).
"Exchange Act" means the Securities Exchange Act of 1934.
"GAAP" means United States generally accepted accounting
principles applied on a consistent basis.
"Governmental Authorization" means any Consent, license,
registration or permit issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"Governmental Body" means any (i) nation, state, county, city,
town, borough, village, district or other jurisdiction; (ii) federal,
state, local, municipal, foreign or other government; (iii)
governmental or quasi -governmental authority of any nature (including
any self-regulatory organization, agency, branch, department, board,
commission, court, tribunal or other entity exercising governmental or
quasi -governmental powers); (iv) multinational organization or body;
(v) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial, legislative, police, regulatory or
taxing authority or power; or (vi) any official of any of the
foregoing.
C-7
"IOT" means International Object Technology, Inc., a New
Jersey corporation.
"IRS" means the United States Internal Revenue Service and, to
the extent relevant, the United States Department of the Treasury.
"Item" means, with respect to a party, a section of that
party's Disclosure Schedule.
"Knowledge" means, with respect to a particular fact or other
matter:
(i) in the case of Seller or any other individual,
either that Seller or other individual is actually aware of
that fact or matter, or a prudent individual could be expected
to discover or otherwise become aware of that fact or matter
in the course of conducting a reasonably comprehensive
investigation regarding the accuracy of any representation or
warranty contained in this Agreement,
(ii) in the case of a Person (other than an
individual), any individual who is serving, or who has at any
time served, as a director, officer, executor or trustee of
that Person (or in any similar capacity) has, or at any time
had, Knowledge of that fact or other matter (as set forth in
clause (i) above), and
(iii) any such individual (referred to in clause (ii)
above) and any individual party to this Agreement will be
deemed to have conducted a reasonably comprehensive
investigation regarding the accuracy of any representation or
warranty made herein by that Person or individual.
"Legal Requirement" means any federal, state, local,
municipal, foreign, international, multinational or other constitution,
law, ordinance, principle of common law, code, regulation, rule, Order,
Governmental Authorization, statute or treaty, including any rule or
regulation of the NASDAQ Small Cap Market and further including the
Sarbanes-Oxley Act of 2002.
"Liability" means, with respect to any Person, any liability
or obligation of such Person of any kind, character or description,
whether known or unknown, absolute or contingent, accrued or unaccrued,
disputed or undisputed, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested,
executory, determined, determinable or otherwise, and whether or not
the same is required to be accrued on the financial statements of such
Person.
"Lien" means, with respect to any asset, any deed of trust
mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect of that asset.
C-8
"Material Adverse Effect" means any material adverse change in
the business, operations, properties, prospects, results of operations
or condition (financial or otherwise).
"Order" means any order, injunction, judgment, decree, ruling,
assessment or arbitration award of any Governmental Body, arbitrator or
NASDAQ, Inc. (including without limitation any notice or letter
threatening or warning of possible delisting of the Cicada Common
Stock).
"Ordinary Course of Business" means, with respect to any
action, the action taken by a Person only if that action:
(i) is consistent in nature, scope and magnitude with
the past practices of such Person and is taken in the ordinary
course of the normal, day-to-day operations of such Person;
(ii) does not require authorization by the board of
directors or stockholders of such Person (or by any Person or
group of Persons exercising similar authority) and does not
require any other separate or special authorization of any
nature; and
(iii) is similar in nature, scope and magnitude to
actions customarily taken, without any separate or special
authorization, in the ordinary course of the normal,
day-to-day operations of other Persons that are in the same
line of business as such Person.
"Organization" means any entity, including a corporation
(either non-profit or other), partnership (either limited or general),
joint venture, limited liability company, trust, estate or other
unincorporated association, whether or not a legal entity.
"Organizational Documents" means the articles or certificate
of incorporation and the bylaws of a corporation and any amendment to
any of the foregoing.
"Person" means an individual or an Organization.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or informal,
whether public or private) commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Related Person" means:
(a) with respect to a particular individual,
(i) each other member of such individual's Family;
(ii) any Person that is directly or indirectly
controlled by any one or more members of such
individual's Family; (iii) any Person in which
members of such individual's Family hold
(individually or in the aggregate) a Material
Interest; and (iv) any Person with respect to which
one or more members of such individual's Family
serves as a director, officer, partner, executor or
trustee (or in a similar capacity); and
C-9
(b) with respect to a specified Person other
than an individual, (i) any Person that directly or
indirectly controls, is directly or indirectly
controlled by or is directly or indirectly under
common control with such specified Person; (ii) any
Person that holds a Material Interest in such
specified Person; (iii) each Person that serves as a
director, officer, partner, executor or trustee of
such specified Person (or in a similar capacity);
(iv) any Person in which such specified Person holds
a Material Interest; and (v) any Person with respect
to which such specified Person serves as a general
partner or a trustee (or in a similar capacity).
For purposes of this definition:
(i) "control" (including
"controlling," "controlled by," and "under
common control with") means the possession,
direct or indirect, of the power to direct
or cause the direction of the management and
policies of a Person, whether through the
ownership of voting securities, by contract
or otherwise, and shall be construed as such
term is used in the rules promulgated under
the Securities Act;
(ii) the "Family" of an individual
includes (i) the individual, (ii) the
individual's spouse, (iii) any other natural
person who is related to the individual or
the individual's spouse within the second
degree and (iv) any other natural person who
resides with such individual; and
(iii) "Material Interest" means
direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange
Act) of voting securities or other voting
interests representing at least ten percent
(10%) of the outstanding voting power of a
Person or equity securities or other equity
interests representing at least ten percent
(10%) of the outstanding equity securities
or equity interests in a Person.
"Representative" means, with respect to a Person, any
director, officer, manager, employee, agent, consultant, advisor,
accountant, financial advisor, legal counsel or other representative of
that Person.
"SEC Reports" means all forms, reports, schedules, statements
and other documents, and amendments thereto, required to be filed by
the Company under the Exchange Act.
"Securities Act" means the Securities Act of 1933.
"Subsidiary" means, IOT and any other subsidiary of the
Company.
C-10
"Third Party" means a Person who is not a party to this
Agreement.
"Third-Party Claim" means a claim against an Indemnified
Person by a Third Party, whether or involving a Proceeding.
Section 1.2 Other Defined Terms. For purposes of this Agreement, the
following terms have the respective meanings set forth in the section and at the
page referred to opposite each such term:
----------------------------------------------------------------------------------------------------------
Defined Term Section Page
----------------------------------------------------------------------------------------------------------
Agreement Heading 1
----------------------------------------------------------------------------------------------------------
Balance Sheet Section 3.5 11
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Buyer Heading 1
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Buyer's Advisors Section 6.1 16
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Buyer's Closing Documents Section 5.2(a) 15
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Buyer Indemnified Persons Section 11.2 21
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Closing Section 2.3 9
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Closing Date Section 2.3 9
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Company Recitals 1
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Company Share Exchange Agreement Recitals 1
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Company Stock Recitals 1
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Company Stock Purchase Agreement Recitals 1
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Damages Section 11.2 22
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Employment Agreement Amendment Section 2.4(a)(iv) 9
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Indemnified Person Section 11.5(a) 22
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Indemnifying Person Section 11.5(a) 22
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Interim Balance Sheet Section 3.5 11
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Principal Shareholder's Agreement Recitals 1
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Purchase Price Section 2.2 8
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Seller Heading 1
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Seller's Closing Documents Section 4.2(a) 14
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Section 1.3 Usage.
(a) Interpretation. In this Agreement, unless a clear contrary
intention appears:
(i) a reference herein to days shall mean calendar days
unless otherwise specified. Any day or deadline or end of a
time period hereunder which falls on a day other than a
Business Day shall be deemed to refer to the first Business
Day following such day or deadline or end of the time period,
as the case may be;
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(ii) a reference in this Agreement to an article, section,
exhibit or schedule shall mean an article or section of, or
exhibit or schedule attached to, this Agreement, as the case
may be. Article and section headings in this Agreement are for
reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement;
(iii) a reference to any Legal Requirement means such
Legal Requirement as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to
time, including rules and regulations promulgated thereunder,
and reference to any section or other provision of any Legal
Requirement means that provision of such Legal Requirement
from time to time in effect and constituting the substantive
amendment, modification, codification, replacement or
reenactment of such section or other provision;
(iv) the word "including" means without limitation; the
word "or" is not exclusive and is used in the inclusive sense
of "and/or"; and the words "herein", "hereof", "hereby",
"hereto" and "hereunder" refer to this Agreement as a whole;
(v) a reference to document, instrument or agreement shall
be deemed to refer as well to all addenda, exhibits, schedules
or amendments thereto; and
(vi) all words used in this Agreement will be construed to
be of such gender or number as the circumstances require.
(b) Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted
and all accounting determinations hereunder shall be made in accordance
with GAAP.
(c) Legal Representation of the Parties. This Agreement was
negotiated by the parties with the benefit of legal representation, and
any rule of construction or interpretation otherwise requiring this
Agreement to be construed or interpreted against a party shall not
apply to any construction or interpretation hereof.
ARTICLE 2
SALE AND TRANSFER OF COMPANY STOCK
Section 2.1 Sale of Company Stock. Subject to the terms and conditions
of this Agreement, at the Closing Seller will sell and transfer the Company
Stock to Buyer and Ronit BenTov will deliver the 3,750 shares to Buyer, and
Buyer will purchase the Company Stock from Seller.
Section 2.2 Purchase Price. The purchase price (the "Purchase Price")
for the aggregate of the Company Stock and the 3,750 shares to be delivered by
Ronit BenTov will be $10,503,144.25, or $10.25 per share; provided, that if the
Company fails to pay a dividend on the Common Stock of $0.75 per share on or
prior to the Closing Date, then the price per share due hereunder shall be
increased by the amount of the difference between $0.75 and the amount of the
dividend actually paid on or prior to the Closing Date, such that if no dividend
is paid on or prior to the Closing Date, the price per share shall be $11.00 and
the Purchase Price for the aggregate of the Company Stock and the 3,750 shares
to be delivered by Ronit BenTov will be $11,271,667.00.
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Section 2.3 Closing. The purchase and sale (the "Closing") provided for
in this Agreement will take place (a) at the offices of McGuireWoods LLP, 1345
Avenue of the Americas, 7th Floor, New York, NY 10105, at 10:00 a.m. (local
time) on the later of (i) July 31, 2005 and (ii) the third Business Day
following the date on which the last of the conditions set forth in ARTICLE 9
and ARTICLE 10 have been satisfied or waived by the party entitled to waive the
same, or (b) at such other time, place and date (if any) to which the parties
may mutually agree (the "Closing Date").
Section 2.4 Closing Obligations. At the Closing:
(a) Seller will deliver to Buyer:
(i) certificates representing the Company Stock, duly
endorsed (or accompanied by duly executed stock powers), with
signature guaranteed by a commercial bank or trust company or
by a member firm of a national securities exchange, in proper
form for transfer to Buyer with all required stock transfer
stamps affixed or provided for;
(ii) certificates representing the 3,750 shares of the
Common Stock owned of record by Ronit BenTov;
(iii) a certificate executed by Seller representing and
warranting to Buyer that Seller's representations and
warranties in this Agreement were accurate in all material
respects as of the date of this Agreement and is accurate in
all material respects as of the Closing Date as if made on the
Closing Date (giving full effect to any supplements to the
Disclosure Schedule that were delivered by Seller to Buyer
prior to the Closing Date in accordance with Section 6.5); and
(iv) an amendment to the Seller's existing employment
agreement in the form of Exhibit 2.4(a)(iv), executed by
Seller (the "Employment Agreement Amendment").
(b) Buyer will deliver to Seller:
(i) the Purchase Price in immediately available funds by
wire transfer of $10,503,144.25 (or such other amount as may
be due under Section 2.2) to one or more bank accounts
specified in writing by Seller not less than three Business
Days prior to the Closing;
(ii) a certificate executed by Buyer to the effect that,
except as otherwise stated in such certificate, each of
Buyer's representations and warranties in this Agreement was
accurate in all material respects as of the date of this
Agreement and is accurate in all respects as of the Closing
Date as if made on the Closing Date; and
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(iii) the Employment Agreement Amendment executed by the
Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 3.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York, has the corporate power and authority to conduct its
business as it is now being conducted and to own or use the properties and
assets that it purports to own or use. IOT is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey,
has the corporate power and authority to conduct its business as it is now being
conducted and to own or use the properties and assets that it purports to own or
use. Each of the Acquired Companies is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to qualify would have a
Material Adverse Effect on the Acquired Companies, taken as a whole.
Section 3.2 No Conflict; No Consent.
(a) Except as set forth in Item 3.2 of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions
will conflict with, or result in any violation of, or default under
(with or without notice or lapse of time) or give rise to a right of
termination, cancellation or acceleration of any material obligation or
loss of any material benefit under (i) any provision of the
Organizational Documents of the Acquired Companies, or (ii) any
Applicable Contract, Governmental Authorization or Legal Requirement
applicable to any of the Acquired Companies or any of its properties or
assets.
(b) No Consent of any Governmental Body is required by or with
respect to the Acquired Companies in connection with the execution and
delivery of this Agreement or the consummation or performance of any of
the Contemplated Transactions, except (i) for Consents, approvals,
orders, authorizations, registrations, declarations and filings as may
be required under federal and applicable state securities laws, (ii)
any filings under the HSR Act and (iii) such other Consents,
authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a Material Adverse Effect on the
Acquired Companies, taken as a whole and would not prevent, or
materially alter or delay any of the Contemplated Transactions.
Section 3.3 Books and Records. The books of account, minute books,
stock record books and other records of the Company, all of which have been made
available to Buyer, are complete and correct in all material respects and have
been maintained in accordance with sound business practices and the requirements
of Section 13(b)(2) of the Exchange Act. The minute books of the Company contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the boards of directors and committees of the board
of directors of the Company, and no meeting of any such stockholders, board of
directors or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Company.
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Section 3.4 Capitalization.
(a) The authorized capital stock of the Company consists of
2,000,000 shares of Preferred Stock, par value $0.01 per share, of
which 571,615 shares are issued and outstanding, and 30,000,000 shares
of common stock, par value $0.01 per share, of which 2,109,530 shares
are issued outstanding as of September 30, 2004. All of the outstanding
equity securities and other securities of each Acquired Company (other
than the Company) are owned of record and beneficially by the Company,
free and clear of all Encumbrances. No legend or other reference to any
purported Encumbrance appears on any certificate representing equity
securities of any Acquired Company.
(b) All of the outstanding equity securities of each Acquired
Company have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth in the SEC Reports, there are no
options, warrants or other Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of any Acquired
Company. None of the outstanding equity securities or other securities
of any Acquired Company was issued in violation of the Securities Act
or applicable state securities laws.
(c) No Acquired Company owns, or has any right or Contract to
acquire, any equity securities or other securities of any Person (other
than Acquired Companies) or any direct or indirect equity or ownership
interest in any other business.
(d) The Common Stock is listed for trading on the NASDAQ Small
Cap Market, to Seller's knowledge, the Company and the Common Stock
meet the criteria for continued listing on the NASDAQ Small Cap Market
(without giving effect to the transactions contemplated by the Company
Stock Purchase Agreement or the Company Share Exchange Agreement) and,
to Seller's knowledge, no delisting or suspension of trading of the
Common Stock has been threatened or is in effect.
Section 3.5 Financial Statements. Seller has delivered to Buyer: (a) an
audited consolidated balance sheet of the Company as at December 31, 2003
(including the notes thereto, the "Balance Sheet"), and the related consolidated
statements of income, changes in stockholders' equity, and cash flow for the
fiscal year then ended, together with the report thereon of Grant Thornton LLP,
independent certified public accountants, (b) audited consolidated balance
sheets of the Company as at December 31, in each of the years 2002 and 2001, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flow for each of the fiscal years then ended, together with the report
thereon of Grant Thornton LLP and Ernst & Young, LLP, independent certified
public accountants, and (c) an unaudited consolidated balance sheet of the
Company as at September 30, 2004 (the "Interim Balance Sheet") and the related
unaudited consolidated statements of income, changes in stockholders' equity,
and cash flow for the nine months then ended. Such financial statements fairly
present the consolidated financial condition and operating results of the
Acquired Companies as at the respective dates of and or the periods referred to
in such financial statements, subject, in the case of unaudited statements, to
normal, recurring year-end audit adjustments. The financial statements referred
to in this Section 3.5 have been prepared in accordance with GAAP, except as may
be indicated in the notes thereto or, in the case of unaudited statements
included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q of the
Commission.
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Section 3.6 SEC Reports. Since January 1, 2001, the Company has timely
filed all SEC Reports required to be filed by it under the Exchange Act and any
other reports or documents required to be filed with the Commission. To Seller's
knowledge, at the time of filing, mailing, or delivery thereof, none of such
documents or information contained or will contain an untrue statement of a
material fact or omitted or will omit to state a material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, except to the extent corrected by
subsequently filed documents or information.
Section 3.7 No Material Adverse Change. Except as set forth in Item 3.8
of the Disclosure Schedule or in the SEC Reports, since the date of the Interim
Balance Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, results of operations or condition (financial
or otherwise) of any Acquired Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
Section 3.8 Absence of Certain Changes or Events. Except as set forth
in Item 3.8 of the Disclosure Schedule or in the SEC Reports, since the date of
the Interim Balance Sheet, the Acquired Companies have conducted their
businesses only in the Ordinary Course of Business and to Seller's knowledge
there has not been any:
(a) material change in any Acquired Company's issued capital
stock; grant of any stock option or right to purchase shares of capital
stock of any Acquired Company; issuance of any security convertible
into such capital stock; grant of any registration rights; purchase,
redemption, retirement, or other acquisition by any Acquired Company of
any shares of any such capital stock; or declaration of payment of any
dividend or other distribution or payment in respect of shares of
capital stock;
(b) amendment to the Organizational Documents of any Acquired
Company;
(c) payment or increase by any Acquired Company of any
bonuses, salaries, or other compensation to Seller or any other
stockholder, director, officer, or employee (other than payment of
bonuses, salaries or other compensation in the ordinary course) or
entry into any employment, severance, or similar Contract with Seller
or any other director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or
with any employees of any Acquired Company;
(e) damage to or destruction or loss of any asset or property
of any Acquired Company, whether or not covered by insurance,
materially and adversely affecting the properties, assets, business,
financial condition, or prospects of the Acquired Companies, taken as a
whole;
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(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii)
any Contract or transaction involving a total remaining commitment by
or to any Acquired Company of at least $300,000;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any material asset or
property of any Acquired Company or mortgage, pledge, or imposition of
any lien or other encumbrance on any material asset or property of any
Acquired Company, including the sale, lease, or other disposition of
any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a
value to any Acquired Company in excess of $300,000;
(i) except as required by GAAP, a revaluation of any of the
assets or material change in the accounting methods, principles or
practices used by any Acquired Company; or
(j) agreement, whether oral or written, by any Acquired
Company to do any of the foregoing.
Section 3.9 Legal Proceedings; Orders.
(a) Except as set forth in Item 3.9(a) of the Disclosure
Schedule or in the SEC Reports, (i) there is no pending or, to Seller's
knowledge, threatened Proceeding, that has been commenced by or against
any Acquired Company or that otherwise relates to or may affect the
business of, or any of the assets owned or used by, any Acquired
Company that individually or in the aggregate, could have a Material
Adverse Effect on the Acquired Companies, taken as a whole; or (ii)
that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To
Seller's knowledge, no event has occurred or circumstance exists that
is reasonably likely to give rise to or serve as a basis for the
commencement of any such Proceeding. Seller has delivered to Buyer
copies of all pleadings, correspondence, and other documents relating
to each Proceeding listed in Item 3.9(a) of the Disclosure Schedule.
(b) Except as set forth in Item 3.9(b) of the Disclosure
Schedule or in the SEC Reports, (i) there is no Order to which any of
the Acquired Companies, or any of the assets owned or used by any
Acquired Company, is subject; (ii) Seller is not subject to any Order
that relates to the business of, or any of the assets owned or used by,
any Acquired Company; and (iii) to Seller's knowledge, no officer,
director, agent, or employee of any Acquired Company (other than
Seller) is subject to any Order that prohibits such officer, director,
agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of any Acquired Company.
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Section 3.10 Brokers or Finders. Neither Seller nor any agent of Seller
has incurred any liability or obligation for brokerage or finders' fees or
agents' commissions or other similar payments in connection with this Agreement
or the Contemplated Transactions.
Section 3.11 Disclosure. No representation or warranty or other
statement made by Seller in this Agreement, the Disclosure Schedule, any
supplement to the Disclosure Schedule, the certificates delivered pursuant to
Section 2.4(a) or otherwise in connection with the Contemplated Transactions
contains any untrue statement or omits to state a material fact necessary to
make any of them, in light of the circumstances in which it was made, not
misleading. The Seller has no Knowledge of any fact that has specific
application to the Acquired Companies (other than general economic or industry
conditions) and that may materially adversely affect the assets, business,
prospects, financial condition or results of operations of any Acquired Company
that has not been set forth in this Agreement or the Disclosure Letter.
ARTICLE 4
ADDITIONAL REPRESENTATIONS OF SELLER
The Seller further represents and warrants to Buyer as follows:
Section 4.1 Title to Company Stock; No Agreements. Seller owns of
record or beneficially all of the issued and outstanding shares of Company Stock
free and clear of any Encumbrance, and upon delivery of and payment for the
Company Stock as provided in this Agreement, Buyer will acquire good and valid
title thereto, free of any Encumbrance. Except as set forth in Item 4.1 to the
Disclosure Schedules, Seller is not a party to any agreement, understanding or
arrangement relating to the Company Stock other than this Agreement.
Section 4.2 Enforceability; Authority; No Conflict; No Consent.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against him in accordance with its
terms, except that such enforceability may be limited by bankruptcy or
other similar laws affecting or relating to creditors' rights
generally, and is subject to general principles of equity. Upon the
execution and delivery by Seller of each of the documents referred to
in Section 2.4(a) (collectively, the "Seller's Closing Documents"),
each of Seller's Closing Documents will constitute the legal, valid,
and binding obligations of Seller, enforceable against him in
accordance with its terms, except that such enforceability may be
limited by bankruptcy or other similar laws affecting or relating to
creditors' rights generally, and is subject to general principles of
equity. Seller has the full right, power, authority, and capacity to
execute and deliver this Agreement and Seller's Closing Documents to
which it is a party and to perform its obligations hereunder and
thereunder.
(b) Neither the execution and delivery of this Agreement nor
the consummation or performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time):
(i) Breach or give any Governmental Body or other Person
the right to challenge any of the Contemplated Transactions or
to exercise any remedy or obtain any relief under any Legal
Requirement or any Order to which Seller may be subject;
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(ii) contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by Seller;
(iii) cause Buyer or any Acquired Company to become
subject to, or to become liable for the payment of, any Tax;
or
(iv) result in the imposition or creation of any
Encumbrance upon or with respect to the Company Stock.
(c) Seller is not, and will not be, required to give any
notice to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
Section 4.3 SEC Reports by Seller. Since January 1, 2001, Seller has
timely filed all SEC Reports required to the filed by him under the Exchange Act
and any other reports or documents required to be filed with the Commission. At
the time of filing, mailing, or delivery thereof, none of such documents or
information contained or will contain an untrue statement of a material fact or
omit to state a material necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 5.1 Organization and Good Standing. Buyer is a company duly
organized, validly existing and in good standing under the laws of the British
Virgin Islands, with full corporate power and authority to conduct its business
as it is now being conducted, to own and use the properties and assets that it
purports to own or use, and is duly qualified to do business and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to qualify would not have a material adverse effect on its business or
properties.
Section 5.2 Enforceability; Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its
terms. Upon the execution and delivery by Buyer of each of the
documents referred to in Section 2.4(a) (collectively, the "Buyer's
Closing Documents"), each of Buyer's Closing Documents will constitute
the legal, valid, and binding obligations of Buyer, enforceable against
Buyer in accordance with its terms. Buyer has the absolute and
unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and Buyer's Closing Documents and to perform its
obligations hereunder and thereunder.
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(b) Neither the execution and delivery of this Agreement by
Buyer nor the consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent, delay
or otherwise interfere with any of the Contemplated Transactions
pursuant to (i) any provision of Buyer's Organizational Documents; (ii)
any resolution adopted by the board of directors or stockholders of
Buyer; (iii) any Legal Requirement or any Order to which Buyer may be
subject: or (iv) any Contract to which Buyer is a party or by which
Buyer may be bound.
(c) Buyer is not and will not be required to give any notice
to or obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
Section 5.3 Brokers or Finders. Neither Buyer nor any agent of Buyer
has incurred any liability or obligation for brokerage or finders' fees or
agents' commissions or other similar payments in connection with this Agreement
or the Contemplated Transactions.
Section 5.4 Disclosure. No representation or warranty or other
statement made by Buyer in this Agreement, the certificates delivered pursuant
to Section 2.4(b) or otherwise in connection with the Contemplated Transactions
contains any untrue statement or omits to state a material fact necessary to
make any of them, in light of the circumstances in which it was made, not
misleading.
ARTICLE 6
COVENANTS OF SELLER PRIOR TO CLOSING DATE
Section 6.1 Access and Investigation. Between the date of this
Agreement and the Closing Date and upon reasonable advance notice received from
Buyer, Seller will use his reasonable best efforts to cause each Acquired
Company and its Representatives to, (a) afford Buyer and its Representatives and
their Representatives (collectively, "Buyer's Advisors") reasonable access
during normal business hours to each Acquired Company's personnel, properties,
Contracts, books and records and other documents and data, (b) furnish Buyer and
Buyer's Advisors with copies of all such Contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (c) furnish
Buyer and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
Section 6.2 Required Approvals. As promptly as practicable after the
date of this Agreement, Seller will, and will use his reasonable best efforts to
cause each Acquired Company to, make all filings required by Legal Requirements
to be made by them in order to consummate the Contemplated Transactions. Between
the date of this Agreement and the Closing Date, Seller will use his reasonable
best efforts to cause each Acquired Company to, (a) cooperate with Buyer with
respect to all filings that Buyer elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with Buyer in obtaining all consents identified in Item Section 5.2(c)
of Buyer's Disclosure Schedule.
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Section 6.3 Business Operations of the Acquired Companies. Between the
date of this Agreement and the Closing Date, Seller will use his reasonable best
efforts to cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the
Ordinary Course of Business;
(b) preserve intact the current business organization of such
Acquired Company, and maintain its relations and good will with
suppliers, customers, landlords, creditors, employees, agents, and
others having business relationships with such Acquired Company;
(c) confer with Buyer prior to implementing operational
decisions of a material nature;
(d) make no material changes in management personnel or
management compensation arrangements without prior consultation with
Buyer;
(e) except as required to comply with ERISA or to maintain
qualification under Section 401(a) of the Code, not amend, modify or
terminate any without the express written consent of Buyer and, except
as required under the provisions of any Employee Plan, not make any
contribution to or with respect to any Employee Plan without the
express written consent of Buyer, provided that such Acquired Company
shall contribute that amount of cash to each Employee Plan necessary to
fully fund its obligations under such Employee Plan; and
(f) otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of such Acquired
Company.
Section 6.4 Negative Covenant. Except as otherwise expressly permitted
by this Agreement, between the date of this Agreement and the Closing Date,
Seller will not, and will use his reasonable best efforts to cause each Acquired
Company not to, without the prior consent of Buyer, (a) take any affirmative
action, or fail to take any reasonable action within his or its control, as a
result of which any of the changes or events listed in Section 3.7 or Section
3.8 is likely to occur, or (b) make any material modification to any Contract.
Section 6.5 Notification. Between the date of this Agreement and the
Closing Date, Seller will promptly notify Buyer in writing if Seller or any
Acquired Company becomes aware of any fact or condition that causes or
constitutes a Breach of any of Seller's representations and warranties as of the
date of this Agreement, or if Seller or any Acquired Company becomes aware of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Schedule if the Disclosure Schedule were dated the date of the
occurrence or discovery of any such fact or condition, Seller will promptly
deliver to Buyer a supplement to the Disclosure Schedule specifying such change.
Such delivery shall not affect any rights of Buyer under Section 9.1 and ARTICLE
11. During the same period, Seller will promptly notify Buyer of the occurrence
of any event that may make the satisfaction of the conditions in ARTICLE 9
impossible or unlikely.
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Section 6.6 Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, Seller will cause all indebtedness owed to
an Acquired Company by Seller or any Related Person of Seller to be paid in full
prior to Closing.
Section 6.7 Conversion of Series A Preferred Stock. Between the date of
this Agreement and the Closing Date, Seller will convert all of the issued and
outstanding shares of the Company's Series A Preferred Stock, par value $0.01
per share, into shares of the Common Stock.
Section 6.8 Reasonable Best Efforts. Between the date of this Agreement
and the Closing Date, Seller will use his reasonable best efforts to cause the
conditions in ARTICLE 10 to be satisfied.
ARTICLE 7
COVENANTS OF BUYER PRIOR TO CLOSING DATE
Section 7.1 Approvals of Governmental Bodies. As promptly as
practicable after the date of this Agreement, Buyer will make all filings
required by Legal Requirements to be made by it to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Buyer
will (i) cooperate with Seller with respect to all filings that Seller is
required by Legal Requirements to make in connection with the Contemplated
Transactions, and (ii) cooperate with Seller in obtaining all consents
identified in Item Section 3.2(b) of the Disclosure Schedule.
Section 7.2 Reasonable Best Efforts. Between the date of this Agreement
and the Closing Date, Buyer will use its reasonable best efforts to cause the
conditions in ARTICLE 9 to be satisfied.
ARTICLE 8
ADDITIONAL COVENANTS
Section 8.1 Public Announcements. Unless consented to by Buyer in
advance or required by Legal Requirements, prior to the Closing Seller shall,
and shall cause the Acquired Companies to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
Seller and Buyer will consult with each other concerning the means by which the
Acquired Companies' employees, customers, and suppliers and others having
dealings with the Acquired Companies will be informed of the Contemplated
Transactions.
Section 8.2 Confidentiality.
(a) Between the date of this Agreement and the Closing Date,
Buyer and Seller will maintain in confidence, and will use its
reasonable best efforts to cause the directors, officers, employees,
agents, and advisors of Buyer and the Acquired Companies to maintain in
confidence, and not use to the detriment of another party or an
Acquired Company any written, oral, or other information obtained in
confidence from another party or an Acquired Company in connection with
this Agreement or the Contemplated Transactions, unless (i) such
information is already known to such party or to others not bound by a
duty of confidentiality or such information becomes publicly available
through no fault of such party, (ii) the use of such information is
necessary or appropriate in making any filing or obtaining any consent
or approval required for the consummation of the Contemplated
Transactions, or (iii) the furnishing or use of such information is
required by or necessary or appropriate in connection with legal
proceedings.
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(b) If the Contemplated Transactions are not consummated, each
party will return or destroy as much of such written information as the
other party may reasonably request.
ARTICLE 9
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to purchase the Company Stock and to take the
other actions required to be taken by Buyer at the Closing is subject to the
fulfillment or written waiver by Buyer at or prior to the Closing of each of the
following conditions:
Section 9.1 Accuracy of Representations. All of Seller's
representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date, without giving effect to any supplement to the Disclosure
Schedule.
Section 9.2 Seller's Performance.
(a) All of the covenants and obligations that Seller is
required to perform or to comply with pursuant to this Agreement and
the Principal Shareholder's Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered collectively), must have been duly performed and complied
with in all material respects.
(b) Each document required to be delivered pursuant to Section
2.4(a) must have been delivered, and each of the other covenants and
obligations in Sections 6.2 and 6.8 must have been performed and
complied with in all respects.
Section 9.3 Consents. Each of the Consents identified in Item (b) of
Section 3.2(b) of the Disclosure Schedule must have been obtained and must be in
full force and effect.
Section 9.4 Additional Documents. Each of the following documents must
have been delivered to Buyer:
(a) an opinion of Sichenzia Ross Friedman Ference LLC, dated
the Closing Date, in the form of Exhibit 9.4(a); and
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(b) such other documents as Buyer may reasonably request for
the purpose of (i) enabling its counsel to provide the opinion referred
to in Section 10.4(a), (ii) evidencing the accuracy of any of Seller's
representations and warranties, (iii) evidencing the performance by
Seller of, or the compliance by Seller with, any covenant or obligation
required to be performed or complied with by Seller under this
Agreement or the Principal Shareholder's Agreement, (iv) evidencing the
satisfaction of any condition referred to in this ARTICLE 9 or (v)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
Section 9.5 No Proceedings. Since the date of this Agreement, there
must not have been commenced or threatened against Buyer or any Related Person
of Buyer, any Proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions or (b)
that may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the Contemplated Transactions.
Section 9.6 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other voting,
equity, or ownership interest in, any of the Acquired Companies or (b) is
entitled to all or any portion of the Purchase Price payable for the Company
Stock.
Section 9.7 No Material Adverse Change. Since the date of this
Agreement, there has not been any material adverse change in the business,
operations, properties, prospects, results of operations or condition (financial
or otherwise) of any Acquired Company and no event has occurred or circumstance
exists that may result in such a material adverse change.
Section 9.8 Consummation of Other Transactions. The transactions
contemplated by each of the Company Share Exchange Agreement and the Company
Stock Purchase Agreement shall have been consummated (other than the
consummation of the transactions contemplated by this Agreement).
ARTICLE 10
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
The obligation of Seller to sell the Company Stock and to take the
other actions required to be taken by Seller at the Closing is subject to the
fulfillment or written waiver by Seller at or prior to the Closing of each of
the following conditions:
Section 10.1 Accuracy of Representations. All of Buyer's
representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement and
must be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
Section 10.2 Buyer's Performance.
(a) All 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 (considered collectively), and each of these
covenants and obligations (considered collectively), must have been
performed and complied with in all material respects.
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(b) Buyer must have delivered each of the documents required
to be delivered by Buyer pursuant to Section 2.4(b) and must have made
the cash payments required to be made by Buyer pursuant to Section
2.4(b)(i).
Section 10.3 Consents. Each of the Consents identified in Item 3.2(b)
of the Disclosure Schedule must have been obtained and must be in full force and
effect.
Section 10.4 Additional Documents. Buyer must have caused the following
documents to be delivered to Seller:
(a) an opinion of McGuireWoods LLP, dated the Closing Date, in
the form of Exhibit 10.4(a); and
(b) such other documents as Seller may reasonably request for
the purpose of (i) enabling his counsel to provide the opinion referred
to in Section 9.4(a), (ii) evidencing the accuracy of any
representation or warranty of Buyer, (iii) evidencing the performance
by Buyer of, or the compliance by Buyer with, any covenant or
obligation required to be performed or complied with by Buyer under
this Agreement, (iv) evidencing the satisfaction of any condition
referred to in this ARTICLE 10 or (v) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
Section 10.5 No Injunction. There must not be in effect any Legal
Requirement or any injunction or other Order that (a) prohibits consummation of
the Contemplated Transactions or any of them and (b) has been adopted or issued,
or has otherwise become effective, since the date of this Agreement with
reference to the Contemplated Transactions.
ARTICLE 11
INDEMNIFICATION; REMEDIES
Section 11.1 Survival; Right To Indemnification Not Affected By
Knowledge. No representations and warranties other than the representations and
warranties set forth in ARTICLE 4 and ARTICLE 5 will survive the Closing. The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired at any
time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant, or obligation. The waiver of
any condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants and obligations.
Section 11.2 Indemnification And Payment of Damages By Seller. Seller
will indemnify and hold harmless Buyer, the Acquired Companies and their
respective Related Persons (collectively, the "Buyer Indemnified Persons") for,
and will pay to the Indemnified Persons, the amount of any loss, liability,
claim, damage, or expense (including costs of investigation and defense and
reasonable attorneys' and consultants' fees), but not incidental or
consequential damages or diminution in value, whether or not involving a
Third-Party Claim (collectively, "Damages"), arising from or in connection with:
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(a) any Breach of any representation or warranty made by
Seller in ARTICLE 4 of this Agreement (without giving effect to any
supplement to the Disclosure Schedule), the Disclosure Schedule, the
supplements to the Disclosure Schedule, or any other certificate or
document delivered by Seller pursuant to this Agreement;
(b) any Breach by Seller of any covenant or obligation of
Seller in this Agreement; or
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with Seller
(or any Person acting on his behalf) in connection with any of the
Contemplated Transactions.
The remedies provided in this Section 11.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
Section 11.3 Indemnification And Payment Of Damages By Buyer. Buyer
will indemnify and hold harmless Seller for, and will pay to Seller, the amount
of any Damages arising, directly or indirectly, from or in connection with (a)
any Breach of any representation or warranty made by Buyer in Article 5 of this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this Agreement
or (c) any claim by any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by such Person with Buyer (or any Person acting on its behalf) in
connection with any of the Contemplated Transactions. The remedies provided in
this Section 11.2 will not be exclusive of or limit any other remedies that may
be available to Seller.
Section 11.4 Time Limitations. If the Closing occurs, Seller will have
no liability (for indemnification or otherwise) with respect to any
representation or warranty made by it, unless on or before the first anniversary
of the Closing Date Buyer notifies Seller of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by Buyer. If
the Closing occurs, Buyer will have no liability (for indemnification or
otherwise) with respect to any representation or warranty made by it, unless on
or before the first anniversary of the Closing Date Seller notifies Buyer of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Seller.
Section 11.5 Procedure For Indemnification-Third Party Claims.
(a) Promptly after receipt by a Person entitled to
indemnification under Section 11.2 or Section 11.3 (an "Indemnified
Person") of notice of the commencement of any Third-Party claim against
it, such Indemnified Person shall give notice to the Person obligated
to indemnify under such Section (an "Indemnifying Person") of the
commencement of such Third-Party Claim, but the failure to notify the
Indemnifying Person will not relieve the Indemnifying Person of any
liability that it may have to any Indemnified Person, except to the
extent that the Indemnifying Person demonstrates that the defense of
such action is prejudiced by the Indemnifying Person's failure to give
such notice.
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(b) If an Indemnified Person gives notice to the Indemnifying
Person pursuant to Section 11.5(a) of the assertion of a Third-Party
Claim:
(i) the Indemnifying Person will, unless the claim
involves Taxes, be entitled to participate in the defense of
such Third-Party Claim and, to the extent that it wishes
(unless (A) the Indemnifying Person is also a Person against
whom the Third-Party Claim is made and the Indemnified Person
determines in good faith that joint representation would be
inappropriate, or (B) the Indemnifying Person fails to provide
reasonable assurance to the Indemnified Person of its
financial capacity to defend such Third-Party Claim and
provide indemnification with respect to such Third-Party
Claim), to assume the defense of such Third-Party Claim with
counsel satisfactory to the Indemnified Person. After notice
from the Indemnifying Person to the Indemnified Person of its
election to assume the defense of such Third-Party Claim, the
Indemnifying Person will not, as long as it diligently
conducts such defense, be liable to the Indemnified Person
under this ARTICLE 11 for any fees of other counsel or any
other expenses with respect to the defense of such Third-Party
Claim, in each case subsequently incurred by the Indemnified
Person in connection with the defense of such Third-Party
Claim, other than reasonable costs of investigation.
(ii) If the Indemnifying Person assumes the defense of a
Third-Party Claim, (A) such assumption will conclusively
established for purposes of this Agreement that the claims
made in that Third-Party Claim are within the scope of and
subject to indemnification, and (B) no compromise or
settlement of such claims may be effected by the Indemnifying
Person without the Indemnified Person's Consent unless (1)
there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and
no effect on any other claims that may be made against the
Indemnified Person, and (2) the sole relief provided is
monetary damages that are paid in full by the Indemnifying
Person; and (3) the Indemnified Person will have no liability
with respect to any compromise or settlement of such claims
effected without its Consent.
(iii) If notice is given to an Indemnifying Person of the
assertion of any Third-Party Claim and the Indemnifying Person
does not, within ten (10) days after the Indemnified Person's
notice is given, give notice to the Indemnified Person of its
election to assume the defense of such Third-Party Claim, the
Indemnifying Person will be bound by any determination made in
such Third-Party Claim or any compromise or settlement
effected by the Indemnified Person.
(c) Notwithstanding the foregoing, if an Indemnified Person
determines in good faith that there is a reasonable probability that a
Third-Party Claim may adversely affect it or its Related Persons other
than as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the Indemnified Person may, by
notice to the Indemnifying Person, assume the exclusive right to
defend, compromise, or settle such Third-Party Claim, but the
Indemnifying Person will not be bound by any determination of a
Third-Party Claim so defended or any compromise or settlement effected
without its Consent (which may not be unreasonably withheld).
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(d) Notwithstanding the provisions of Section 13.8, Sellers
hereby consent to the nonexclusive jurisdiction of any court in which a
Proceeding respecting a Third-Party Claim is brought against any Buyer
Indemnified Person for purposes of any claim that a Buyer Indemnified
Person may have under this Agreement with respect to such proceeding or
the matters alleged therein, and agree that process may be served on
Sellers with respect to such a claim anywhere in the world.
ARTICLE 12
TERMINATION
Section 12.1 Termination Events. This Agreement may, by notice given
prior to or at the Closing, be terminated:
(a) by mutual consent of Buyer and Seller; or
(b) by either Buyer or Seller if the Closing has not occurred
(other than through the failure of the party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on
or before July 31, 2005, or such later date to which the parties may
agree; or
(c) by Buyer or Seller if a material Breach of any provision
of this Agreement has been committed by the other party and such Breach
has not been waived; or
(d) by Buyer if any of the conditions of ARTICLE 9 has not
been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Buyer to comply with its obligations under this Agreement) and Buyer
has not waived such condition on or before the Closing Date; or
(e) by Seller if any of the conditions of ARTICLE 10 has not
been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Seller to comply with his obligations under this Agreement) and Seller
has not waived such condition on or before the Closing Date; or
(f) by either Buyer or Seller if any Governmental Body shall
have issued a nonappealable final Order having the effect of
permanently restraining, enjoining or otherwise prohibiting the
Contemplated Transactions, except if the party relying on such Order
has not complied with its obligations under of this Agreement with
respect to such matter.
Section 12.2 Effect of Termination. Each party's right of termination
under Section 12.1 is in addition to any other rights such party may have under
this Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. If this Agreement is terminated pursuant to Section
12.1, all further obligations of the parties under this Agreement will
terminate, except the obligations in Section 8.2 and Section 13.1 will survive;
provided, that if this Agreement is terminated by a party because of a Breach of
the Agreement by the other party or because one or more conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's rights to pursue all legal remedies will
survive such termination unimpaired; provided, that Seller shall not be liable
to Buyer for any Breach arising from any of the representations and warranties
contained in ARTICLE 3.
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Section 12.3 Extension; Waiver. At any time prior to the Closing, the
parties hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE 13
MISCELLANEOUS PROVISIONS
Section 13.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective fees and
expenses incurred in connection with the preparation, negotiation, execution,
and performance of this Agreement and the Contemplated Transactions, including
all fees and expenses of its Representatives. If this Agreement is terminated,
the obligation of each party to pay its own expenses will be subject to any
rights of such party arising from a breach of this Agreement by another party.
Section 13.2 Notices.
(a) All notices, consents, waivers and other communications
hereunder must be in writing and either (i) delivered personally, (ii)
sent by facsimile transmission (with written confirmation of a
successful transmission), (iii) mailed by prepaid first class
registered or certified mail, return receipt requested, or (iv)
delivered by a nationally recognized prepaid overnight courier service
(receipt requested), in each case to the appropriate addresses or
facsimile numbers set forth below (or to such other addresses or
facsimile numbers as a party may designate by notice to the other
parties):
Seller: Shmuel BenTov
130 Carthage Road
Scarsdale, New York 10583
Telephone: (914) 725-1948
Facsimile Number:_________________________
with a copy (which shall not constitute notice) to:
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
21st Floor
New York, New York 10018
Attention: Jeffrey J. Fessler, Esq.
Telephone: (212) 398-4627
Facsimile Number: (212) 930-9725
jfessler@srffllp.com
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Buyer: Oak Finance Investments Limited
c/o Arias Fabrega & Fabrega Trust Company
BVI Ltd.
325 Waterfront Drive
Omar Hodge Building, 2nd Floor
Wickham's Cay
Road Town, Tortola
British Virgin Islands
Telephone: _______________________
Facsimile Number: _________________
with a copy (which shall not constitute notice) to:
McGuireWoods LLP
1345 Avenue of the Americas
7th Floor
New York, NY 1010
Attention: William A. Newman, Esq.
Facsimile Number: 212 548-2150
(b) All such notices, consents, waivers and other
communications will (i) if delivered personally in the manner and to
the address provided in this section, be deemed given upon delivery,
(ii) if delivered by facsimile transmission in the manner and to the
facsimile number provided in this section, be deemed given on the
earlier of receipt or the first business day after transmission, (iii)
if delivered by mail in the manner, and to the address provided in this
section, be deemed given on the earlier of the third business day
following mailing or upon receipt, if earlier, and (iv) if delivered by
overnight courier in the manner and to the address provided in this
section, be deemed given on the earlier of receipt or the first
business day following the date sent by such overnight courier.
Section 13.3 Entire Agreement; Modifications. This Agreement supersedes
all prior agreements and understandings between the parties with respect to its
subject matter (including the letter of intent, dated July __, 2004,) and
constitutes (along with the Disclosure Schedule, Exhibits and other documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
Section 13.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would require the
application of any other law.
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Section 13.5 Assignment; Successors; No Third Party Rights. Seller may
not assign any of its rights or delegate any of its obligations under this
Agreement (whether by operation of law or otherwise) without the prior written
consent of Buyer. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
Section 13.6 Severability. If any portion of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
Section 13.7 No Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power or privilege under this Agreement
will operate as a waiver thereof, and no single or partial exercise by a party
of its rights hereunder shall preclude any other or future exercise thereof or
the exercise of any other right, power or privilege.
Section 13.8 Jurisdiction; Service of Process. Any Proceeding arising
out of or relating to this Agreement or any Contemplated Transaction may be
brought in the federal courts sitting in the County of New York, State of New
York, 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 courts
and agrees not to bring any Proceeding arising out of or relating to this
Agreement or any Contemplated Transaction 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.
Section 13.9 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
Section 13.10 Counterparts. This Agreement may be executed in one or
more counterpart copies, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement. The exchange of copies of this Agreement
and of signature pages by facsimile transmission shall constitute effective
execution and delivery of this Agreement as to the parties and may be used in
lieu of the original Agreement for all purposes. Signatures of the parties
transmitted by facsimile shall be deemed to be their original signatures for all
purposes.
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Section 13.11 Signatures. This Agreement may be executed with original
or facsimile signatures in one or more counterparts, each of which will be
deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one-and-the-same document.
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In Witness Whereof, Buyer and Seller have executed this Agreement as of
the date first written above.
BUYER:
OAK FINANCE INVESTMENTS LIMITED
By: /s/ Brenda Patricia Cocksedge
------------------------------
Name: Brenda Patricia Cocksedge
Title: Director
SELLER:
/s/ Shmuel BenTov
-----------------
Shmuel BenTov
/s/ Shmuel BenTov
------------------
Shmuel BenTov, as IRA custodian
/s/ Shmuel BenTov
-----------------
Shmuel BenTov, as custodian for 7,500 shares
The undersigned hereby consents to this Agreement, agrees to permit Seller to
deliver her shares in accordance with Section 2.4(a)(ii) above and to permit the
purchase price therefor to be paid as provided in Section 2.4(b)(i).
/s/ Ronit BenTov
- -----------------
Ronit BenTov
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EXHIBIT 2.4(A)(iv)
EMPLOYMENT AGREEMENT AMENDMENT
[Form of Employment Agreement]
AMENDMENT
TO THE
EMPLOYMENT AGREEMENT
BETWEEN
THE A CONSULTING TEAM, INC.
AND
SHMUEL BENTOV
THE RECITALS
A. The A Consulting Team, Inc. (the "Company") and Shmuel Bentov (the
"Executive") entered into an employment agreement, dated as of [_________]
(the "Agreement");
B. The Company and Oak Finance Investments Limited, a British Virgin Islands
company (the "Buyer"), have entered into the Stock Purchase Agreement,
dated as of January 21, 2005 (the "Stock Purchase Agreement"), and the
Principal Shareholder's Agreement, dated as of January 21, 2005 (the
"Principal Shareholder's Agreement"); and
C. It is a condition to the Executive's obligations to perform its obligations
under the Stock Purchase Agreement and to sell his shares to the Buyer, and
to the Buyer's obligation to perform its obligation under the Stock
Purchase Agreement and to purchase the Executive's shares, that the Company
and the Executive shall have amended the Agreement by entering into this
Agreement.
THE AGREEMENT
NOW THEREFORE, the Agreement is hereby amended as provided herein.
Section 1. Section 1.1 of the Agreement is hereby amended in full to read
as follows:
"The Executive agrees to be employed as an employee of the
Corporation and as a member of its executive team, all on the terms
and conditions hereinafter set forth."
Section 2. Section 1.3 is hereby amended by deleting "Board of Directors"
and inserting "Chief Executive Officer" in lieu thereof.
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Section 3. Section 1.5 is hereby deleted from the Agreement.
Section 4. Section 2.1 of the Agreement is hereby restated in full to read
as follows:
"Executive shall be an at will employee of the Corporation with no
fixed term of employment. Either the Corporation or Executive may
terminate the term of employment on not less than 90 days' written
notice given to the other."
Section 5. The second sentence of Section 3.1 is hereby deleted in full
from the Agreement.
Section 6. Section 3.4 is hereby deleted in full from the Agreement.
Section 7. Sections 4 and 5 are hereby deleted in full from the Agreement.
Section 8. Section 6.1 of the Agreement is hereby restated in full to read
as follows:
"During the term of this Agreement and for a period of two (2)
years after the Termination Date, the Executive shall not (i)
directly or indirectly, as an employee, agent, manager, director,
officer, controlling stockholder, partner or otherwise, engage or
participate in any business engaged in the continental United
States in activities competitive with any activities in which the
Corporation is engaged during the period ending on [insert date on
which the Amendment to the Employment Agreement becomes
effective], (ii) solicit from any client or division, department
or subsidiary of any client of the Corporation, or any individual
employed by any of the foregoing, for whom the Executive performed
services at any time after January 21, 2004, any business relating
to services similar to the services which were so performed by the
Executive for such clients during the period beginning on January
21, 2004 and ending on the Termination Date. In addition, the
Executive shall not during the term of this Agreement and during
the two (2) years after the Termination Date, request or cause any
client of the Corporation to cancel or terminate any business
relationship with the Corporation or any of its subsidiaries, or
directly or indirectly solicit or otherwise cause any employee to
terminate such employee's relationship with the Corporation."
Section 9. Section 6.5 of the Agreement is hereby restated in full to read
as follows:
"The Executive recognizes that the employees of the Corporation
are a valuable resource of each such member. Executive agrees that
Executive shall not, for a period of two (2) year following the
Termination Date, either alone or in conjunction with any other
person or entity solicit, induce or recruit any employee to leave
the employ of the Corporation."
C-35
Section 10. Following any termination of the term of employment, whether by
the Corporation or by the Executive, Executive shall have the right for a period
of not less than 10 years following such termination to maintain, at Executives'
sole cost and expense by payment of premium and all other costs payable by
insureds under the policy, health insurance under the group health insurance
policy maintained from time to time by the Corporation. In the event of any sale
of the Corporation's business, the successor shall assume in writing the
Corporation's obligation to the Executive under this Section 7 of this
Amendment.
Section 11. This Amendment may be executed in counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
Section 12. The Executive hereby waives any and all rights he may have, now
or in the future, to assert or maintain that the change in his duties and title
effected as a result of Section 1 above constitute "Good Reason" under the
Agreement.
Section 13. The Agreement, except as otherwise set forth herein, shall
remain in full force and effect in all other respects.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
[__________].
EXECUTIVE
By:
---------------------
SHMUEL BENTOV
THE A CONSULTING TEAM, INC.
By:
-----------------------
Name: Richard Falcone
Title: Chief Financial Officer
C-36
EXHIBIT 9.4(A)
SELLER'S COUNSEL'S OPINION
[Intentionally Omitted]
C-37
EXHIBIT 10.4(A)
BUYER'S COUNSEL'S OPINION
[Intentionally Omitted]
C-38
ANNEX D
EXECUTION COPY
PRINCIPAL SHAREHOLDER'S AGREEMENT
This PRINCIPAL SHAREHOLDER'S AGREEMENT (this "Agreement") dated as of
January 21, 2005, is made by and among Oak Finance Investments Limited, a
British Virgin Islands company (the "Buyer"), and Shmuel BenTov (the
"Shareholder"), a shareholder of The A Consulting Team, Inc., a New York
corporation (the "Company").
THE RECITALS
A. Simultaneously herewith the Buyer is entering into (a) a Stock
Purchase Agreement with the Shareholder, dated the date hereof (the "Shareholder
Stock Purchase Agreement"), pursuant to which the Buyer agrees to buy from the
Shareholder and Ronit BenTov, and the Shareholder and Ronit BenTov agree to sell
to the Buyer, 1,024,697 shares of the Company's Common Stock, par value $0.01
per share, on the terms and conditions set forth therein, and (b) a Stock
Purchase Agreement with the Company, dated the date hereof (the "Company Stock
Purchase Agreement"), pursuant to which the Buyer will purchase from the
Company, and the Company will sell to the Buyer, up to 1,250,000 shares of the
Common Stock, but not less than 625,000 shares of the Common Stock, on the terms
and conditions set forth therein.
B. Simultaneously herewith the Company is entering into a Share
Exchange Agreement, dated the date hereof (the "Company Share Exchange
Agreement"), with the shareholders of Vanguard Info-Solutions Corporation, a New
Jersey corporation ("Vanguard"), pursuant to which the shareholder of Vanguard
will exchange 100% of the issued and outstanding shares of all classes of
Vanguard with the Company for an aggregate of 7,312,796 shares of the Company's
Common Stock (the "Exchange"). Upon consummation of the Exchange, Vanguard will
be a wholly owned subsidiary of the Company.
C. The Shareholder beneficially owns 1,024,697 issued and outstanding
shares of Common Stock.
D. In order to induce the Buyer to enter into the Shareholder Stock
Purchase Agreement, the Buyer has required that the Shareholder agree, and the
Shareholder has agreed, among other things, to execute and deliver this
Agreement with respect to all shares of the Company's stock of all classes now
owned of record or beneficially or in the future acquired by the Shareholder
(all such shares, including those now owned and those acquired in the future
being referred to herein as the "Shares"), on the terms and conditions provided
for herein.
E. In this Agreement the term "Purchase Agreements" means the Company
Stock Purchase Agreement and the Company Share Exchange Agreement. Unless
otherwise stated in this Agreement, other capitalized terms used but not defined
herein shall have the meanings set forth in the Shareholder Stock Purchaser
Agreement.
D-1
THE AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
Section 1. Agreement to Vote the Shares. During the period commencing
on the date hereof and continuing until the termination of this Agreement in
accordance with its terms (the "Voting Period"), at any meeting (or any
adjournment or postponement thereof) of the holders of any class or classes of
the capital stock of the Company called with respect to any of the following or
in connection with the written consent of the holders of any class or classes of
the capital stock of the Company with respect to any of the following, the
Shareholder shall vote (or cause to be voted) the Shares (x) in favor of the
approval of the terms of the Purchase Agreements and each of the transactions
contemplated by the Purchase Agreements (and any actions required in furtherance
thereof), (y) against any action, proposal, transaction or agreement that to the
knowledge of the Shareholder would constitute a Breach in any material respect
of any covenant, representation or warranty or any other obligation or agreement
of the Company or any of its subsidiaries under this Agreement or each of the
Purchase Agreements or of the Shareholder under this Agreement and (z) against
the following actions or proposals (other than the transactions with the Buyer
and the shareholders of Vanguard that are contemplated by this Agreement or
either of the Purchase Agreements) (collectively, the "Restricted Proposals"):
(i) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or any of its subsidiaries, and
any Company Acquisition Proposal (as defined in the Company Share Exchange
Agreement); (ii) a sale, lease or transfer of a significant part of the assets
of the Company or any of its subsidiaries, or a reorganization,
recapitalization, dissolution or liquidation of the Company or any of its
subsidiaries (each of the actions in clauses (i) or (ii), a "Business
Combination"); and (iii) (A) any change in the persons who constitute the board
of directors of the Company that is not approved in advance by at least a
majority of the persons who were directors of the Company as of the date of this
Agreement (or their successors who were so approved), (B) any change in the
present capitalization of the Company or any amendment of the Company's articles
of incorporation or bylaws, (C) any other material change in the Company's
corporate structure or business or (D) any other action or proposal involving
the Company or any of its subsidiaries that is intended, or to the knowledge of
the Shareholder would reasonably be expected, to prevent, impede or materially
interfere with, delay or postpone the transactions contemplated by this
Agreement or the Purchase Agreements. Any such vote shall be cast or consent
shall be given in accordance with such procedures relating thereto as shall
ensure that it is duly counted for purposes of determining that a quorum is
present and for purposes of recording the results of such vote or consent. The
Shareholder will not enter into any agreement, letter of intent, agreement in
principle or understanding with any person that violates or conflicts with, or
could reasonably be expected to violate or conflict with, the provisions and
agreements contained in this Agreement or the Purchase Agreements.
D-2
Section 2. Grant of Irrevocable Proxy. The Shareholder hereby
irrevocably appoints the Buyer, or any designee of the Buyer, the lawful agent,
attorney and proxy of the Shareholder during the Voting Period (which proxy
shall be automatically revoked without any further action on the part of the
Shareholder at the end of the Voting Period) at any meeting of the shareholders
of the Company that may be called with respect to any of the following, or in
connection with any written consent of the shareholders of the Company with
respect to any of the following, to vote (or cause to be voted) the Shares held
of record or beneficially by the Shareholder (excluding the shares owned by
Ronit BenTov) (a) in favor of the approval of the terms of the Purchase
Agreements and each of the actions contemplated by the Purchase Agreements (and
any actions required in furtherance thereof); (b) against any action, proposal,
transaction or agreement that to the knowledge of the Shareholder would
constitute a Breach in any material respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under either of the
Purchase Agreements, or of the shareholder under this Agreement; and (c) against
any Restricted Proposal. The Shareholder intends this proxy to be irrevocable
and coupled with an interest and will take such further action or execute such
other instruments as may be necessary to effectuate the intent of this proxy and
hereby revokes any proxy previously granted by it with respect to the Shares.
The Shareholder shall not during the term of this Agreement purport to vote (or
execute a consent with respect to) the Shares in connection with any of the
matters specified in clauses (a), (b) or (c) of this Section 2 (the "Specified
Matters") (other than through this irrevocable proxy) or grant any other proxy
or power of attorney with respect to any of the Shares in respect of the
Specified Matters, deposit any of the Shares into a voting trust or enter into
any agreement (other than this Agreement), arrangement or understanding with any
person, directly or indirectly, to vote, grant any proxy or give instructions
with respect to the voting of any of the Shares in connection with any of the
Specified Matters.
Section 3. Representations and Warranties of the Buyer. The Buyer
hereby represents and warrants to the Shareholder as follows:
(a) Due Authorization; Binding Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Buyer, and no other corporate
proceedings on the part of the Buyer are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Buyer and constitutes a valid and
binding agreement of the Buyer enforceable against the Buyer in accordance with
its terms, except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
(b) No Conflicts. Except for (i) applicable requirements of the
Securities Act and the Exchange Act , (ii) the applicable requirements of state
securities, takeover or blue sky laws and (iii) such notifications, filings,
authorizing actions, orders and approvals as may be required under other laws,
(A) no filing with, and no permit, authorization, consent or approval of, any
state, federal or foreign public body or authority is necessary for the
execution of this Agreement by the Buyer and the consummation by each of the
transactions contemplated hereby and (B) neither the execution and delivery of
this Agreement by the Buyer nor the consummation by it of the transactions
contemplated hereby nor compliance by it with any of the provisions hereof shall
(1) conflict with or result in any breach of any provision of its certificate of
incorporation or by-laws (or similar documents), (2) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract, agreement
or other instrument or obligation to which it is a party or by which it or any
of its properties or assets may be bound or (3) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to it or any of its
properties or assets, except in the case of (2) or (3) for violations, breaches
or defaults which do not, individually or in the aggregate, materially impair
the ability of the Buyer to perform its obligations hereunder.
D-3
(c) Good Standing. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the British Virgin Islands and
has all requisite power and authority to execute and deliver this Agreement.
Section 4. Representations and Warranties of the Shareholder. The
Shareholder hereby represents and warrants to the Buyer as follows:
(a) Ownership of Shares. The Shareholder is the record or beneficial
owner of the Shares and has the power to vote and dispose of the Shares. No
other Person has any right to vote or dispose of the Shares either singly or on
a shared basis with the Shareholder.
(b) Due Authorization; Binding Agreement. This Agreement has been duly
and validly executed and delivered by the Shareholder and constitutes a valid
and binding agreement of the Shareholder enforceable against the Shareholder in
accordance with its terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
(c) No Conflicts. Except for (i) the applicable requirements of the
Exchange Act and the Securities Act, (ii) the applicable requirements of state
securities, takeover or blue sky laws and (iii) such notifications, filings,
authorizing actions, orders and approvals as may be required under other laws,
(A) no filing by the Shareholder with, and no permit, authorization, consent or
approval of, any state, federal or foreign public body or authority is necessary
for the execution of this Agreement by the Shareholder and the consummation by
the Shareholder of the transactions contemplated hereby and (B) neither the
execution and delivery of this Agreement by the Shareholder nor the consummation
by the Shareholder of the transactions contemplated hereby nor compliance by the
Shareholder with any of the provisions hereof shall result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract, agreement
or other instrument or obligation to which the Shareholder is a party or by
which it or any of its properties or assets may be bound or (3) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Shareholder or any of its properties or assets, except in the case of (2) or (3)
for violations, breaches or defaults which individually or in the aggregate
would not reasonably be expected to materially adversely affect the ability of
the Shareholder to perform its obligations hereunder.
Section 5. Certain Covenants of the Shareholder. The Shareholder hereby
covenants and agrees as follows:
(a) No Solicitation. During the term of this Agreement, the Shareholder
will not, directly or indirectly, solicit, facilitate, participate in or
initiate any inquiries or the making of any proposal by any person or entity
(other than the stockholder of Vanguard) which constitutes, or may reasonably be
expected to lead to any sale of the Shares or any Company Acquisition Proposal,
except to the extent that such action is taken by the Shareholder or such other
persons in connection with or relating to actions permitted to be taken by the
directors of the Company in compliance with Section 7.7 of the Company Share
Exchange Agreement. If the Shareholder receives an inquiry or proposal with
respect to the sale of Shares, then the Shareholder shall promptly inform the
Buyer of the terms and conditions, if any, of such inquiry or proposal and the
identity of the person making it. The Shareholder shall immediately cease any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
D-4
(b) Restriction on Transfer, Proxies and Non-Interference. From the
date hereof through the earlier of (x) the Closing Date and (y) termination of
this Agreement pursuant to Section 9(g), and except as contemplated hereby, the
Shareholder will not (i) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares or (ii) take any action
that would make any representation or warranty of the Shareholder contained
herein untrue or incorrect or have the effect of preventing, impeding,
interfering with or adversely affecting the performance by the Shareholder of
his obligations under this Agreement.
Section 6. Legend. The Shareholder shall promptly cause the following
legend to be conspicuously noted on each certificate representing the Shares:
"The shares represented by this certificate are subject to a
Principal Shareholders Agreement, dated as of January 21, 2005.
The Principal Shareholders Agreement restricts the
transferability of the shares represented by this certificate
and includes a voting agreement and an irrevocable proxy to
vote the shares represented by this certificate."
Section 7. Further Assurances. From time to time, at the other party's
request and without further consideration, each party to this Agreement shall
execute and deliver such additional documents and take all such further action
as may be necessary or desirable to effectuate the transactions contemplated by
this Agreement.
Section 8. Fiduciary Duties. Nothing in this Agreement shall prevent
the Shareholder from taking any action which is required in his good faith
judgment to fulfill his fiduciary duties as a director of the Company in his
capacity as such.
Section 9. Miscellaneous.
(a) Entire Agreement; Assignment. This Agreement, together with the
Purchase Agreements and the other Documents (i) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof and (ii) shall not be assigned
by operation of law or otherwise, provided that the Buyer may assign its rights
and obligations hereunder to any Related Party of the Buyer, but no such
assignment shall relieve the Buyer of its obligations hereunder if such assignee
does not perform such obligations.
D-5
(b) Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the Shareholder and the Buyer.
(c) Publication. The Shareholder hereby consents to disclosure in any
proxy statement to be filed by the Company in connection with any of the
transactions contemplated by this Agreement or the Purchase Agreements
(including all documents and schedules filed with the SEC) and press releases
with respect thereto, of the identity of the Shareholder and ownership of the
Shares and the nature of his commitments, arrangements and understandings
pursuant to this Agreement. The Company agrees to give the Shareholder a
reasonable opportunity to review the disclosures referenced in the immediately
preceding sentence. The Shareholder will amend the Schedule 13D heretofore filed
by it with the Commission to report the Contemplated Transactions and the
consummation thereof.
(d) Notices. All notices required to be given hereunder shall be in
writing and shall be deemed to have been given if (i) delivered personally or by
documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in the
manner hereinabove described, to the others entitled to notice:
If to the Shareholder, to:
Shmuel BenTov
130 Carthage Road
Scarsdale, New York 10583
Telephone: (914) 725-1948
Facsimile: ______________
with a copy to:
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
21st Floor
New York, NY 10018
Attention: Jeffrey J. Fessler, Esq.
Telephone: (212) 398-4627
Facsimile Number: (212) 930-9725
jfessler@srffllp.com
D-6
If to the Buyer, to:
Oak Finance Investments Limited
c/o Arias Fabrega & Fabrega Trust Company BVI Ltd.
325 Waterfront Drive
Omar Hodge Building, 2nd Floor
Wickham's Cay
Road Town, Tortola,
British Virgin Islands
Telephone: _____________________
Facsimile Number: _______________
with a copy to:
McGuireWoods LLP
1345 Avenue of the Americas
7th Floor
New York, NY 10105
Attention: William A. Newman
Facsimile No.: 212-548-2150
If given personally or by documented courier or delivery service, or transmitted
by facsimile, a notice shall be deemed to have been given when it is received.
If given by mail, it shall be deemed to have been given on the third business
day following the day on which it was posted.
(e) Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York without regard to any laws or regulations
relating to choice of laws (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
(f) Cooperation as to Regulatory Matters. If so requested by The
Company, promptly after the date hereof, the Shareholder will use his reasonable
commercial efforts to make all filings that are required to be made by the
Shareholder to obtain any regulatory approvals that may be required in
connection with the transactions contemplated hereby.
(g) Termination. This Agreement shall terminate on the earlier of (i)
the Closing and (ii) the termination of this Agreement or either of the Purchase
Agreements in accordance with their respective terms; provided, that Section 1
and Section 2 of this Agreement shall terminate, and the Voting Period shall be
deemed to have ended, as to any Shares held by any Shareholder in excess of
500,000 if the board of directors of the Company in the exercise of its
fiduciary duties, withdraws, modifies or changes in any manner adverse to the
Buyer its approval with regard to the transactions contemplated by the
Shareholder Stock Purchase Agreement or its recommendation with regard to any of
the transactions contemplated by either of the Purchase Agreements.
D-7
(h) Third Party Beneficiary. The Shareholder acknowledges and agrees
that the stockholders of Vanguard are relying upon the Stockholder's performance
of and compliance with his obligations under this Agreement and are third party
beneficiaries of this Agreement.
(i) Specific Performance. Each of the parties to this Agreement
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore, each of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which it may be entitled, at law or in
equity.
(j) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other right,
power or remedy by such party.
(k) Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party to this
Agreement of a breach of any provision under this Agreement shall not operate or
be construed as a waiver of any prior or subsequent breach of the same or any
other provision under this Agreement.
(l) Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, and
delivered by means of facsimile transmission or otherwise, each of which when so
executed and delivered shall be deemed to be an original and all of which when
taken together shall constitute but one and the same agreement. If any party
hereto elects to execute and deliver a counterpart signature page by means of
facsimile transmission, it shall deliver an original of such counterpart to each
of the other parties hereto within ten days of the date hereof, but in no event
will the failure to do so affect in any way the validity of the facsimile
signature or its delivery.
(m) Headings. Headings of the Sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretative effect whatsoever.
(n) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
D-8
(o) Signatures. This Agreement may be executed with original or
facsimile signatures in one or more counterparts, each of which will be deemed
to be an original copy of this Agreement and all of which, when taken together,
will be deemed to constitute one-and-the-same document.
D-9
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of
each of the parties hereto, all as of the date first above written.
OAK FINANCE INVESTMENTS LIMITED
By: /s/ Brenda Patricia Cocksedge
-----------------------------
Name: Brenda Patricia Cocksedge
Title: Director
SHAREHOLDER
By: /s/ Shmuel BenTov
--------------------
Name: Shmuel BenTov
Title: Shareholder
D-10
ANNEX E
[EKN logo]
EHRENKRANTZ
KING NUSSBAUM INC
BROKERAGE o ASSET MANAGEMENT o PRIVATE CLIENT SERVICES o INSTITUTIONAL SALES
TRADING
January 19, 2005
The Board of
Directors of
The A Consulting Team,
Inc. 77 Brandt Avenue, Suite 320
Clark, NJ 07066
To The Board of Directors:
Under an engagement letter, dated August, 2005, The A Consulting Team, Inc.
("TACX" or the "Company") retained Ehrenkrantz King Nussbaum Inc. ("EKN") to
provide an opinion to the Board of Directors of the Company as to the fairness,
from a financial point of view, to the shareholders of the Company, of the
Exchange Transaction (as defined below) pursuant to the Share Exchange Agreement
(the "Agreement") to be entered into by and among Vanguard Info-Solutions
Corporation ("Vanguard"), the Vanguard Stockholders named therein, the
Authorized Representative named therein (the "Authorized Representative") and
the Company.
The Agreement provides, among other things, that (i) TACX will issue fully paid
and nonassessable shares of its common stock, par value $0.01 ("Company Common
Stock"), in exchange for all of the shares of common stock no par value, of
Vanguard ("Vanguard Common Stock"), issued and outstanding immediately prior to
the Closing Date (as defined in the Agreement), (ii) at the Closing (as defined
in the Agreement), TACX will issue to the holders of the Company Common Stock
and the holders of the Company's preferred stock a cash dividend of $0.75 per
share of Company Common Stock and Company preferred stock, and (iii) Oak Finance
Investments Limited ("Oak") will purchase from the Company up to 1,250,000
shares of Company Common Stock pursuant to a stock purchase agreement between
Oak and the Company (collectively, the "Exchange Transaction").
At the Closing, the Authorized Representative, on behalf of each Vanguard
stockholder will surrender the certificates representing the shares of Vanguard
Common Stock, in the manner provided for in the Agreement and will receive such
number of shares of Company Common Stock for each share of Vanguard Common Stock
based on an exchange ratio set forth in the Agreement (the "Exchange Ratio").
The opinion addresses the fairness of the Exchange Transaction to holders of
Company Common Stock from a financial point of view, as of the date above, and
does not address what the value of Company Common Stock actually will be when
issued to holders of Vanguard Common Stock pursuant to the Agreement, or the
price at which Company Common Stock will trade subsequent to the date above or
after the Closing. This opinion is addressed to, and is for the use, information
and benefit of, the Board of Directors of the Company and is not a
recommendation to the holders of Company Common Stock to approve the
transactions contemplated by the Agreement. EKN expresses no opinion as to the
merits of the underlying decision by the Company to enter into the Agreement or
to consummate the transactions contemplated thereby.
NEW YORK CITY: o 410 PARK AVENUE o 7TH FLOOR o NEW YORK, NEW YORK 10022
tel: 212.605.0909 800.813.1117 fax: 212.605.0973
PHILADELPHIA: 1760 MARKET STREET E SUITE 200 o PHILADELPHIA, PA 19103
o tel:215.496.4060 888.391.0400 fax: 215.496.4070
WORLDWIDE HEADQUARTERS: 600 OLD COUNTRY ROAD o SUITE 210 o GARDEN CITY. NEW YORK
11530 o tel: 516.369.1234 888.391.1010 fax: 516.396.1289
MEMBER NASD web: WWW.eknstock.com MEMBER SIPC
E-1
In arriving at its opinion, EKN reviewed and considered such financial and other
matters as EKN has deemed relevant, including, among other things:
o a draft of the Share Exchange Agreement dated January 14, 2005;
o certain publicly available financial and other information for the
Company and certain other relevant financial and operating data
furnished to EKN by the management of the Company;
o certain financial and other information for Vanguard;
o certain internal financial analyses, financial forecasts, reports
and other information concerning the Company (the "Company
Forecasts"), prepared by the management of the Company;
o certain internal financial analyses, financial forecasts, reports
and other information concerning Vanguard ("Vanguard Forecasts"),
prepared by the management of Vanguard;
o discussions with certain members of the managements of each of the
Company and Vanguard concerning the historical and current business
operations, financial conditions and prospects of the Company and
Vanguard, and such other matters EKN deemed relevant;
o certain operating results, the reported price and trading history of
the shares of the Company Common Stock as compared to operating
results, the reported prices and trading histories of the shares of
common stock of certain publicly traded companies EKN deemed
relevant;
o certain financial terms of the Exchange Transaction as compared to
the financial terms of certain selected recent business combinations
we deemed relevant; and
o such other information, economic and market criteria and data,
financial studies, analyses and investigations and such other
factors that EKN deemed relevant for purposes of this opinion.
In addition, EKN has not conducted nor has EKN assumed any obligation to conduct
any physical inspection of the properties or facilities of the Company or
Vanguard. EKN has further relied upon the assurance of the management of the
Company that they are unaware of any facts that would make the information
provided to EKN incomplete or misleading in any respect. In connection with its
review and arriving at its opinion, EKN did not assume any responsibility for
the independent verification of any of the foregoing information and relied on
the completeness and accuracy as represented by the Company. With respect to
Company Forecasts and Vanguard Forecasts, EKN assumed that they had been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of TACX and Vanguard, respectively, as to the
future financial performance -of the Company and Vanguard. In addition, EKN did
not make any independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company, nor was EKN furnished with any such
evaluations or appraisals. The opinion is necessarily based upon financial,
economic, market and other conditions as they existed and should be evaluated as
of the date of the opinion. It should be understood that although subsequent
developments may affect the opinion, EKN does not have any obligation to update,
revise or reaffirm the opinion and EKN disclaims any responsibility to do so.
E-2
We have assumed that, the terms of the Exchange Transaction, and in particular,
the Exchange Ratio, were determined through arm's-length negotiations between
the appropriate parties. Any and all analyses performed by EKN were prepared
solely as part of EKN's engagement to assess the fairness, from a financial
point of view, to holders of Company Common Stock in accordance with the terms
of the Agreement.
For the purposes of rendering our opinion EKN has assumed, in all respects
material to its analysis, that the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all the covenants and agreements required to be preformed by it under the
Agreement and that all conditions to the consummation of the Exchange
Transaction will be satisfied without waiver thereof. EKN has assumed that the
final form of the Agreement will be substantially similar to the last draft
reviewed by it. EKN has also assumed that all governmental, regulatory and other
consents and approvals contemplated by the Agreement will be obtained and that
in the course of obtaining any of those consents no restrictions will be imposed
or waivers made that would have an adverse effect on the contemplated benefits
of the Exchange Transaction.
The scope of EKN's opinion is expressly limited to the contents herein. It is
understood that this letter is not intended to confer any rights or remedies
upon any other entity or persons, and may not be quoted or referred to for any
other purpose without our prior written consent, except for inclusion in a proxy
statement or information statement related to the Exchange Transaction that we
have had an opportunity to review (which such proxy statement may also be part
of a registration statement filed by TACX). EKN will receive a fee in connection
with the delivery of this opinion. In the ordinary course of our business, EKN
may have actively traded the equity or debt securities of the Company and may
continue to actively trade the equity or debt securities. In addition, certain
individuals who are employees of or are affiliated with EKN may have in the past
and may currently be shareholders of either or both Vanguard and the Company.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is EKN's opinion that, as of the date hereof,
the terms of the Exchange Transaction as set forth in the Agreement are fair,
from a financial point of view, to the holders of Company Common Stock.
Very truly yours,
/s/ Ehrenkrantz King Nussbaum
Ehrenkrantz King Nussbaum
E-3
ANNEX F
PROJECT VICTORY
Proposed Share Exchange Transaction
between Cicada and Vanguard
January 19, 2005
Ehrenkrantz King Nussbaum Inc.
F-1
CONTENTS
o Scope of Presentation & Analyses
o Methods of Analysis
o Comparable Companies Analysis
o Comparable Transactions Analysis
o Discounted Cash Flows Analysis
o Conclusion
o Appendix A: Comparable Company Profiles - Cicada
o Appendix B: Comparable Company Profiles - Vanguard
F-2
SCOPE OF PRESENTATION & ANALYSES
o As of January 19, 2005, is the Exchange Transaction pursuant to the Share
Exchange Agreement draft dated January 14, 2005 between Vanguard Info
Solutions Corporation ("Vanguard") and The A Consulting Team, Inc.
("Cicada") (as represented to Ehrenkrantz King Nussbaum, Inc.) fair, from
a financial point of view, to the holders of Cicada's common stock?
F-3
SCOPE OF PRESENTATION & ANALYSES
o EKN's opinion is necessarily based on, and limited to, the following
information:
o Discussions with certain members of the managements of Cicada and
Vanguard regarding its proposed share exchange transaction.
o Financial projections for Cicada, Vanguard, and the pro forma combined
company provided by Cicada management.
o Independently developed comparative and financial analyses deemed
appropriate by EKN in accordance with standard investment banking
practices.
F-4
SUMMARY TERMS OF THE TRANSACTION
o Cicada will issue fully paid and non-assessable shares of its common stock
in exchange for all the shares of Vanguard
o Vanguard shareholders will receive approximately 7.3 million new
shares of Cicada common stock. Exchange Ratio in the combined
company: Cicada shareholders - 25%, Vanguard shareholders - 75%
before the Oak Financing (see below).
o As part of the Exchange Transaction, Cicada will issue to its common
shareholders a cash dividend of $0.75 per share of Company common
stock.
o Oak Finance Investments Limited ("Oak"), a private investment
company, will purchase 625,000 new restricted shares of common stock
directly from Cicada for $5 million or $8 per share at the closing
of Exchange Transaction, and will be granted an option to purchase
up to an additional 625,000 new restricted shares of common stock
for $8 per share within 120 days of the Closing of the Exchange
Transaction.
F-5
METHODS OF ANALYSIS
o Comparable Companies Analysis
o Comparative analysis of trading data for companies deemed similar to
Cicada and Vanguard.
o Comparable Transactions Analysis
o Comparative analysis of recent transactions for companies deemed
similar to Cicada and Vanguard.
o Discounted Cash Flows Analysis
o Net present value analysis of Cicada's unlevered free cash flows
based on data provided to EKN by Cicada management.
F-6
COMPARABLE COMPANIES ANALYSIS
o Analysis of trading data of select companies deemed similar to Cicada and
Vanguard.
o Companies similar to Cicada include technology consulting companies and
IT consulting service providers focused on technology infrastructure
advisory services, systems architecture design, strategy formulation
and applications development.
o Companies similar to Vanguard include business process outsourcing
companies in the U.S. and Indian IT services companies having business
process outsourcing operations listed in the U.S.
F-7
COMPARABLE COMPANIES ANALYSIS
o Selected Comparable Companies for Cicada include Perot Systems Corp.,
Keane, Inc., CIBER, Inc., Covansys Corp. and Computer Horizons.
o Selected Comparable Companies for Vanguard include Affiliated Computer
Services, Inc., Ceredian Corporation, Convergys Corp., Lionbridge
Technologies, Inc., Syntel, Inc., Satyam Computer Services Ltd. and
Cognizant Technology Solutions Corp.
F-8
BPO COMPARABLE COMPANIES ANALYSIS
($ in millions, except per share data) As of January 19, 2005
--------------------------------------------
52-WEEK PRICE EV/LTM EV/LTM
Name of the Company Ticker High Low 1/19/05 MKT. CAP ENT. VALUE Revenues EBITDA
- ------------------- ------ ---- --- ------- -------- ---------- -------- ------
Affiliated Computer Services, Inc. ACS $ 61.23 $ 46.01 $ 56.05 $ 7,575.8 $ 7,888.6 1.9x 7.5x
Ceridian Corporation CEN 23.41 16.25 17.75 2,678.7 2,706.1 2.1x 10.9x
Convergys Corp. CVG 19.52 12.30 15.07 2,133.9 2,366.1 1.0x 8.8x
Lionbridge Technlogies, Inc. LIOX 10.95 4.42 6.18 298.4 259.6 1.7x 19.7x
Syntel, Inc. SYNT 30.99 13.27 16.30 668.8 512.6 2.8x 10.8x
Satyam Computer Services Ltd. SAY 28.91 16.0 21.19 3,332.8 2,918.2 4.7x 18.0x
Cognizant Technology Solutions Corp. CTSH 44.08 19.60 38.43 5,883.8 5,613.5 10.7x 47.1x
------ ------
MEAN (EXCLUDING HIGH AND LOW) 2.6x 13.6x
====== ======
F-9
IT SERVICES COMPARABLE COMPANIES ANALYSIS
($ in millions, except per share data) As of January 19, 2005
----------------------------------------------
52-WEEK PRICE EV/LTM EV/LTM
Name of the Company Ticker High Low 1/19/05 MKT CAP ENT. VALUE Revenues EBITDA
- ------------------- ------ ---- --- ------- ------- ---------- -------- ---------
THE A CONSULTING GROUP TACX $ 8.24 $ 2.86 $ 7.66 $ 18.7 $ 16.3 0.6X 8.1x
Perot Systems Corp. PER $ 17.0 $ 11.5 $ 14.7 $ 1,712.3 $1,557.6 0.9x 8.6x
Keane, Inc. KEA 18.20 12.60 12.60 779.4 747.9 0.9x 10.1x
CIBER, Inc. CBR 11.41 6.35 8.43 529.1 713.1 0.9x 13.4x
Covansys Corp. CVNS 16.01 7.00 14.28 544.1 502.7 1.4x 16.3x
Computer Horizons CHRZ 4.64 3.20 4.12 127.4 93.2 0.4x NM
------ -------
MEAN (EXCLUDING HIGH AND LOW AND TACX) 0.9x 11.8x
====== =======
F-10
COMPARABLE TRANSACTIONS ANALYSIS
o Analysis of recent transactions for companies deemed similar to Cicada and
Vanguard.
o Selection Criteria
o Reviewed numerous transactions completed during the last few
years in the IT services and business process outsourcing
industry.
o Selected 12 transactions involving IT consulting service providers
and 9 transactions involving business process outsourcing companies.
F-11
BPO COMPARABLE TRANSACTIONS ANALYSIS
($ in millions, except per share data) As of date of Announcement
- ----------------------------------------------------------------------------------------------------------------------------
MONTH/YEAR EV EV/LTM
ANNOUNCED ACQUIRER NAME TARGET NAME ($ in mm) REVENUES
- ----------------------------------------------------------------------------------------------------------------------------
Nov-04 General Atlantic Partners GE BPO Business in India $835.0 2.0x
Oak Hill Partners
Aug-04 Barclays Intelenet $74.0 2.8x
July-04 HDFC Intelenet $70.0 2.7x
May-04 Citigroup eServe International $126.0 3.0x
May-04 IBM Daksh $160.0 2.7x
Feb-04 TH Lee Putnam Ventures SPI Technologies $100.0 2.6x
Dec-03 PlanVista Corporation ProxyMed, Inc. $99.0 3.1x
Jun-03 Aditya Birla Group Transworks $13.0 2.4x
July-02 Wipro Ltd. Spectramind $126.0 2.8x
------
Mean (excluding high and lows) 2.7x
======
F-12
IT CONSULTING/SERVICES COMPARABLE TRANSACTIONS ANALYSIS
($ in millions, except per share data) As of date of Announcement
- ------------------------------------------------------------------------------------------------------------------------------------
DATE EV EV/LTM EV/LTM
ANNOUNCED ACQUIRER NAME TARGET NAME ($ in mm) REVENUES EBITDA
- ------------------------------------------------------------------------------------------------------------------------------------
9/21/04 Fair Isaac Corporation Braun Consulting, Inc. $30.0 0.8X NM
8/26/04 Affiliated Computer Services, Inc. Blue Star Solutions $73.0 1.5X NA
3/10/04 CGI Group, Inc. American Management Systems, Inc. $784.0 0.8X 10.2X
3/4/04 Infocrossing, Inc. Systems Management Specialists $36.0 1.4X NM
2/12/04 Keane, Inc. Nims-Associates, Inc. $35.0 0.7x NA
10/27/03 CIBER, Inc. SCB Computer Technology, Inc. $88.0 0.8x 8.4x
8/1/03 Lockheed Martin Corp. ACS Federal Government IT Business $658.0 1.0x 10.2x
8/1/03 Affiliated Computer Services, Inc. Lockheed Martin Commercial IT Business $107.0 0.4x NA
1/17/03 Affiliated Computer Services, Inc. CyberRep, Inc. $42.0 0.7x NA
2/13/02 Keane, Inc. Signal Tree Solutions $65.0 1.3x NA
1/2/02 Perot Systems Corp. Claim Services Resource Group, Inc. $63.0 1.0x NA
8/21/01 Keane, Inc. Metro Information Services $212.0 0.7x 9.8x
------- ------
Mean (excluding high and low) 0.9x 10.0x
======= ======
F-13
CICADA DISCOUNTED CASH FLOWS ANALYSIS
o Values future performance not historical results.
o Discount unlevered free cash flow and terminal value to present.
o Used the Company management's financial projections through the fiscal
year ended December 31, 2009.
o Range of Discount rate used in analysis - 15.0%-17.0%.
F-14
CICADA DISCOUNTED CASH FLOWS ANALYSIS
o Terminal value at December 31, 2009 calculated by multiplying the
forecasted EBITDA in the fiscal year ending December 31, 2009 by an EBITDA
multiple ranging from 10.0x to 11.0x and by multiplying the forecasted
revenues in the fiscal year ended December 31, 2009 by a revenue multiple
ranging from 0.9x to 1.0x.
o Assumes revenue growth of 25% for 2004 to 2005, 15% for 2005 to 2006, 10%
per year for 2006 to 2009.
o Assumes tax rate of 40% after 2007.
o DCF analysis indicated that our Total Enterprise Value ranged from $21.9
million to $28.1 million.
F-15
VALUATION SUMMARY
($ in millions)
EQUITY VALUE SUMMARY BASED ON REVENUES LOW HIGH
----------------------
B2B Solutions, Inc. $ 78.8 $ 82.6
Cicada $ 25.6 $ 28.1
----------------------
Pro forma Equity Value $ 104.4 $ 110.7
======================
PRO FORMA OWNERSHIP SUMMARY
B2B Solutions, Inc. 75.5% 74.6%
Cicada 24.5% 25.4%
EQUITY VALUE SUMMARY BASED ON EBITDA LOW HIGH
----------------------
B2B Solutions, Inc. $ 76.8 $ 87.7
Cicada $ 22.4 $ 26.4
----------------------
Pro forma Equity Value $ 99.3 $ 114.1
======================
PRO FORMA OWNERSHIP SUMMARY
B2B Solutions, Inc. 77.4% 76.9%
Cicada 22.6% 23.1%
F-16
CICADA VALUATION SUMMARY
($ in millions) LOW HIGH
------------------------
2004E Revenues $25.7 $25.7
Multiple 0.90x 1.00x
------------------------
Enterprise Value Range $23.2 $25.7
------------------------
Less/Add: Net Debt 2.4 2.4
------------------------
Equity Value Range $25.6 $28.1
========================
2004E EBITDA $2.0 $2.0
Multiple 10.0x 12.0x
------------------------
Enterprise Value Range $20.0 $24.0
------------------------
Less/Add: Net Debt 2.4 2.4
------------------------
Equity Value Range $22.4 $26.4
========================
F-17
VANGUARD VALUATION SUMMARY
($ in millions) LOW HIGH
-----------------------
2004E BPO and Call Center Revenue $27.4 $27.4
Multiple 2.70x 2.75x
-----------------------
Enterprise Value Range $74.0 $75.4
-----------------------
2004E IT Solutions Revenue $11.9 $11.9
Multiple 0.70x 0.90x
-----------------------
Enterprise Value Range $8.3 $10.7
-----------------------
Vanguard Enterprise Value Range $82.3 $86.1
Less: Net Debt (3.5) (3.5)
-----------------------
Equity Value Range $78.8 $82.6
=======================
2004E BPO and Call Center EBITDA $10.2 $10.2
Multiple 7.5x 8.5x
-----------------------
Enterprise Value Range $76.5 $86.7
-----------------------
2004E IT Solutions EBITDA $0.6 $0.6
Multiple 6.00x 7.00x
-----------------------
Enterprise Value Range $3.8 $4.5
-----------------------
B2B Enterprise Value Range $80.3 $91.2
Less: Net Debt (3.5) (3.5)
-----------------------
Equity Value Range $76.8 $87.7
=======================
F-18
CICADA COMMON STOCK TRADING HISTORY
o Current Stock Price on January 19, 2005 - $7.66
o Week high/low - $8.24/$2.86
o Last three months average trading volume - 2,909 shares
F-19
CICADA VALUATION SUMMARY
($ in millions, except number of shares)
Total common stock outstanding prior to the merger 2,122,647
Total preferred stock outstanding prior to the merger 142,903
Shares offered to Directors 30,000
-------------
Total number of shares outstanding prior to the merger 2,295,550
=============
Options outstanding 254,813
No. of shares using the treasury method 142,041
Total number of shares outstanding including options 2,437,591
Share of Cicada in the Exchange Agreement 25%
Value of the Company in the relative exchange $ 26.8
(mid point of the low and high of Cicada revenue valuation)
Price per share $ 10.99
Add: Dividends of $.75 per share $ 0.75
-------------
Total Price per share offered $ 11.74
=============
Total number of shares outstanding prior to the merger 2,437,591
Total number of shares outstanding after the merger(1) 10,375,364
Current Stock Price on January 19, 2005 $ 7.66
Pro forma Market Capitalization(2) $ 79.5
Notes:
1) Includes 625,000 shares purchased by Oak.
2) Pro forma for the exchange assuming no change in the share price.
F-20
CONCLUSION
o Given all of the considerations included herein and otherwise discussed,
it is our opinion that as of January 19, 2005, the terms of the proposed
share exchange transaction of Cicada and Vanguard (as represented to EKN)
is fair, from a financial point of view, to the holders of Cicada's common
stock.
F-21
APPENDIX A
CICADA COMPARABLE COMPANY
PROFILES
F-22
PEROT SYSTEMS CORPORATION is a worldwide provider of information technology (IT)
services and business solutions to a range of customers. The Company offers its
customers integrated solutions designed around their specific business
objectives, chosen from a breadth of services, including technology outsourcing,
business process outsourcing, development and integration of systems and
applications, and business and technology consulting services. It offers its
services under three primary lines of business: IT Solutions, Government
Services and Consulting.
KEANE, INC. is a provider of information technology and business consulting
services. It helps clients plan, build and manage applications software through
its Business Consulting, Application Development and Integration (AD&I) and
Application Development and Management Outsourcing (Application Outsourcing)
services. Keane focuses on three synergistic service offerings: Plan Services,
which include business consulting and program management; Build Services,
including AD&I, and Manage Services, including application outsourcing and
business process outsourcing (BPO). Services are delivered using its global
delivery model, from operations in the United States, the United Kingdom, Canada
and India.
CIBER, INC. and its subsidiaries provide information technology system
integration consulting and other IT services primarily to governmental agencies,
and Fortune 500 and middle market companies, across most major industries, from
offices located throughout the United States and Europe, as well as Canada and
India. The Company provides its clients with a broad range of IT services,
including custom and package software development, maintenance, implementation
and integration. In addition, it also provides IT staff supplementation
services and, to a lesser extent, resell certain IT hardware and software
products.
COVANSYS CORPORATION is a global technology services company with a focus on
industry-specific solutions, outsourcing and integration services. The Company
offers flexible project delivery capabilities by providing clients a choice
among any combination of the options, which include onsite at the client
facility; offsite at one of its development facilities in North America, or
offshore at one of its development facilities in India. Covansys applies its
industry-specific knowledge to deliver a range of outsourcing and integration
services, which include application maintenance and development outsourcing,
custom application development, Web-to-enterprise integration and traditional
e-business services, packaged software implementation, upgrades and enhancements
and software engineering.
COMPUTER HORIZONS CORP. is a strategic solutions and human capital management
company that provides services to multi-national companies through its bestshore
delivery centers located globally. The Company offers global technology
services and solutions, which are divided into three divisions: Solutions, IT
Services and Chimes. It markets solutions to existing and potential clients with
the objective of becoming a preferred provider of IT services and solutions for
such clients.
F-23
APPENDIX B
VANGUARD COMPARABLE
COMPANY PROFILES
F-24
AFFILIATED COMPUTER SERVICES, INC. is a global company delivering comprehensive
business process outsourcing and information technology outsourcing solutions to
commercial and government clients. The Company is organized into commercial,
state and local government and the federal government segments. Within the
commercial segment, ACS provides technology outsourcing, business process
outsourcing and systems integration services to clients in such industries as
insurance, utilities, manufacturing, financial institutions, telecommunications,
healthcare, retail and transportation. In the state and local government
segment, the Company is a business process outsourcing provider to state and
local governments. In the federal government segment, ACS provides systems
integration services, business process outsourcing and technology outsourcing to
federal agencies.
CERIDIAN CORPORATION is an information services company principally in the human
resource, transportation and retail markets. The Company's human resource
solutions business enables customers to outsource employment processes,
including recruitment and applicant screening; payroll, tax filing, human
resource information systems, employee self-service, time and labor management,
benefits administration, employee assistance and work-life programs, and
post-employment Consolidated Omnibus Budget Reconciliation Act (COBRA), the
Health Insurance Portability and Accountability Act of 1996 (HIPAA), and
retirement plan administration. Ceridian has HRS operations in the United
States, Canada and the United Kingdom.
CONVERGYS CORPORATION provides outsourced customer management, employee care and
integrated billing software services. The Company focuses on developing
long-term strategic relationships with clients in employee and customer
intensive industries, including communications, technology and financial
services, as well as governmental agencies. Convergys has two operating
segments: the Customer Management Group, which provides outsourced marketing,
customer support services and employee care services, and the Information
Management Group, which provides outsourced billing and information services and
software.
LIONBRIDGE TECHNOLOGIES, INC. provides a suite of globalization and testing
outsourcing services to businesses in the technology, consumer, retail,
industrial, financial services, manufacturing, life sciences and publishing
industries. The Company's globalization services, including
internationalization, software localization, application development and
maintenance, translation and multilingual content management, enable worldwide
release and ongoing maintenance of products and content in multiple languages.
Its testing services enable clients to reduce downstream support costs, while
its product certification and benchmark testing services confirm that the
independent software vendors' applications meet industry-defined standards for
quality and deliver measurable performance against competitive offerings.
Lionbridge has operations in France, Germany, Ireland, the Netherlands, Brazil,
China, Japan, South Korea, India and the United States.
SYNTEL, INC. is a worldwide provider of information technology services to
Global 2000 companies, as well as to government entities. The Company's service
offerings are grouped into three segments e-business, Applications Outsourcing
and TeamSourcing. e-business consists of practice areas in Web solutions,
customer relationship management, data warehousing/business intelligence and
enterprise applications integration services. Applications Outsourcing consists
of outsourcing services for ongoing management, development and maintenance of
business applications. TeamSourcing consists of professional IT consulting
services.
F-25
SATYAM COMPUTER SERVICES LIMITED is a global professional IT services company.
The Company offers services, including software development, system maintenance,
packaged software integration and engineering design services. It uses the
Company's global infrastructure to deliver value-added services to its customers
to address IT needs in specific industries and to facilitate e-business
initiatives. In addition to the Company's core business of providing IT
services, it has also invested in related businesses. These IT services include
software development, system maintenance, packaged software integration and
engineering design services. Satyam offers customers delivery alternatives
through its offshore centers located in India, through offsite centers that have
been established in markets and through onsite teams operating at the customers'
premises.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION is a provider of custom IT services
related to IT design, development, integration and maintenance services for
Fortune 1,000 companies located in the United States and Europe. Cognizant's
core competencies include Web-centric applications, data warehousing,
component-based development and legacy and client-server systems. Cognizant
provides the IT services it offers using an integrated onsite/offshore business
model, which combines technical and account management teams located onsite at
the customer location and offshore at dedicated development centers located in
India and Ireland.
F-26
Annex G
Vanguard Info-Solutions Corporation's Historical Financial Statements
and Management's Discussion and Analysis of Financial Condition
and Results of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Overview
Vanguard Info-Solutions Corporation and its subsidiaries (collectively,
"Vanguard") provide value-added information technology services ("IT Services"),
customer care and customer acquisition ("Call Center") services and business
process outsourcing ("BPO") services to customers principally in the United
States and the United Kingdom. Vanguard's services primarily address the
telecommunications, medical billing, financial services, debt collection and
utility sectors, serving the needs of Global 1000 companies. From its inception
in March 2000 through the first quarter of 2004, Vanguard operated principally
as an IT service staffing and consulting business and generated its revenues on
a fee-for-services basis, principally for one customer. At the end of the first
quarter of 2004, Vanguard acquired the first of its two Indian subsidiaries,
Vanguard Info-Solution Limited of Delhi, India ("Vanguard-Delhi").
Vanguard-Delhi commenced operations as a Call Center in the first quarter of
2004. At the beginning of the third quarter of 2004, Vanguard acquired the
operations of its second Indian subsidiary, Vanguard Business Process Private
Limited of Bangalore, India ("Vanguard-Bangalore"). Vanguard-Bangalore commenced
operations in the first quarter of 2004. Following these acquisitions, Vanguard
focused on an offshore business model.
Under Vanguard's current business model, its United States operations
principally provide IT Services, and Vanguard-Delhi and Vanguard-Bangalore
principally provide Call Center and BPO services. As of September 30, 2004, the
operations of Vanguard-Delhi and Vanguard-Bangalore provide the majority of
Vanguard's revenue and net income. Call Center offerings include telemarketing,
help desk, technical support and other customer support. BPO offerings include
medical billing, claims processing and debt collection. By leveraging Vanguard's
expertise and offshore delivery model, Vanguard intends to grow within each of
the IT Services, Call Center and BPO services markets.
Vanguard adopted its current business plan after a change in control
that occurred during the first quarter of 2004. For years 2000 through 2003,
during which Vanguard had no subsidiaries and no operations other than its IT
Services business based in North Brunswick, New Jersey, Vanguard provided IT
Services consulting and staffing services in the areas of telecommunications,
web software development, network management, enterprise-wide security, among
others, principally through consulting arrangements for staffing. During this
period, one customer accounted for substantially all of Vanguard's overall
sales. Following the adoption of its current business plan, in 2004, Vanguard's
reliance on IT Services declined, as it accounted for approximately 38% of sales
during the first nine months of 2004 and 18% during the third quarter. This
percentage is decreasing because IT Services revenue is decreasing and revenues
from Call Center and BPO Services is increasing at a faster rate. The customer
that was the principal client for 2002 and 2003 was also the principal client
for Vanguard's IT Services during 2004. Therefore, comparisons of Vanguard's
financial position, results of operations and liquidity for periods prior to
January 1, 2004 with data as at or for the nine months ended September 30, 2004
may not be meaningful or indicative of results or trends for any future periods.
Vanguard's results for the 2004 period exclude the results of
Vanguard-Delhi prior to April 1, 2004 and the results of Vanguard-Bangalore
prior to July 1, 2004. Vanguard believes that, in each case, the results were
not material, since in each case the businesses had commenced shortly before
their acquisition and had not previously generated material revenues or net
income or losses.
G-1
All amounts reflected in the discussion below are in U.S. dollars.
Results of Operations
The following table summarizes Vanguard's results of operations for
2002, 2003 and for the 2004 period:
NINE MONTHS
TWELVE MONTHS TWELVE MONTHS ENDED
ENDED ENDED SEPTEMBER 30,
DECEMBER 31, % OF DECEMBER 31, % OF 2004 % OF
2002 REVENUES 2003 REVENUES (UNAUDITED) REVENUES
------------- -------- ------------- -------- ----------- --------
Revenue $18,763,077 100.0% $17,708,266 100.0% $22,381,052 100.0%
Cost of Revenue $15,037,844 80.1% $15,480,868 87.4% $13,145,460 58.7%
Gross Profit $ 3,725,233 19.9% $ 2,227,398 12.6% $ 9,235,592 41.3%
Selling, General and
Administrative $ 1,758,015 9.4% $ 1,998,285 11.3% $ 3,537,177 15.8%
Income from Operations $ 1,967,218 10.5% $ 229,113 1.3% $ 5,307,033 23.7%
Net Income $ 1,932,430 10.3% $ 94,863 0.5% $ 7,350,760 32.8%
With regard to sources of revenues, as noted above, during 2002 and
2003, IT Services accounted for substantially all of Vanguard's revenues. During
2004 Vanguard's revenues were sourced approximately 38% from IT Services, 52%
from Call Center and 10% from BPO Services. Vanguard believes that IT Services
revenues will decrease, as a percentage of overall revenues, as its Indian
operations grow. Vanguard is attempting to maintain the level of business with
its significant IT Services customer at current levels, but cannot be certain
that historical levels or near-historical levels of this business will continue,
due to a pending change in control of the customer, as well as for other
reasons. Revenues from Call Center and BPO services were generated from
approximately ten customers during 2004. Vanguard's business plan calls for the
broadening of its relationship with those customers, thereby generating
additional and continuing work, as well as expanding to new customers. Since
Vanguard's operations are less than one year old, there are significant risks
that it may not maintain or expand revenues from Call Center and business
process outsourcing services as contemplated in its plan.
During the 2004 period, consistent with the adopted business plan,
Vanguard commenced operations with its offshore business model and:
o substantially increased the number of its employees, particularly
through the hiring of approximately 1,700 professionals at
Vanguard-Delhi and Vanguard-Bangalore, thereby increasing its
full-time work force by approximately 3,300% from its December 31,
2003 levels;
o substantially increased its lease costs and related facility costs
by operating its Delhi and Bangalore facility in addition to its
United States location thereby increasing these operating costs by
approximately 1,600% from its December 2003 levels;
o acquired new equipment under equipment leases with third parties;
G-2
o increased the percentage of its revenues that are generated by the
Call Center and BPO Services, which have higher margins than IT
Services; and
o significantly increased the number of its employees, which may
subject its business to greater risks arising from personnel
shortages and increases in personnel costs.
Vanguard received income for its leased equipment from a third party at
Vanguard's lease cost. Lease income of $3,060,644 is included in net income for
the nine-month period and comprises 41.6% of net income. However, the majority
of these leases were sold to the user of the leased equipment, and this level of
revenue is not expected to continue in the future.
Commission income is anticipated to decline beginning in the fourth
quarter of 2004.
Both lease income and commission income are considered other income
for financial statement purposes and, therefore, are not considered in the
calculation of income from operations.
During years prior to 2004, while owned by two individuals, Vanguard
elected to be taxed as an "S" corporation for federal and state income tax
purposes. Commencing January 1, 2004, Vanguard will be taxed as a "C"
corporation and will pay income taxes. The results for the 2004 period include a
provision for taxes of $275,128. The income of Vanguard-Delhi and
Vanguard-Bangalore are subject to an exemption from Indian income taxes through
2009. Under the current business plan, earnings of the Indian businesses will be
reinvested overseas and not repatriated to the United States and therefore will
not be subject to United States income taxes unless and until distributed as
dividends to the United States parent.
Liquidity and Capital Resources
As of December 31, 2002 and 2003 and September 30, 2004, Vanguard's
liquidity position was as follows:
AS OF
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 2004
2002 2003 (UNAUDITED)
------------ ----------- ------------------
Cash and Cash Equivalents $1,127,422 $635,062 $ 27,557
Working Capital $1,812,227 $597,403 $263,668
IT cash flows for the twelve months ending December 31, 2002 and 2003
and for the 2004 period were as follows:
NINE MONTHS
ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, 2004
2002 2003 (UNAUDITED)
------------ ----------- ------------------
Cash from Operations $1,286,562 $848,733 $2,869,553
Cash from Investing ($103,352) ($78,686) ($1,688,158)
Cash from Financing ($807,367) ($1,252,094) ($1,788,900)
Net Cash Flow $375,843 ($482,047) ($607,505)
During 2002 and 2003 and during the 2004 period, Vanguard's cash
requirements were provided by cash from operations and, to a lesser extent, by
borrowings under working capital loans that had been guaranteed by the
shareholders. Its working capital loans were repaid in full during the 2004
period. Vanguard plans to fund its operating needs and capital expenditures with
cash flow from operations. Expenses relating to its transactions with The A
Consulting Team, Inc. and with Mr. Shmuel BenTov, the principal shareholder of
that company, in the 2004 period have been funded in substantial part by
internal working capital.
G-3
Related Party Transaction
Refer to Note O of the Notes to Vanguard's September 30, 2004
Consolidated Financial Statements for a discussion of related party
transactions.
Off Balance Sheet Arrangements
Vanguard has no off balance sheet arrangements.
Currency Risk
A significant portion of Vanguard's revenues and costs, as well as a
significant portion of its assets, are denominated in Indian Rupees. Currently,
Vanguard has not entered into any hedging or other risk mitigation techniques
with regard to currency risk.
QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
In the normal course of its operations, Vanguard is exposed to market risk,
including foreign currency, interest, liquidity and credit risks. The Company is
exposed to market risk from fluctuations in foreign currency exchange rates.
Since a substantial portion of the Company's operations and revenue occurs
outside the United States, and in currencies other than the U.S. dollar, the
Company's results can be significantly affected by changes in foreign currency
exchange rates. To manage its exposure to fluctuations in currency exchange
rates, the Company may enter into various financial instruments. Were the
foreign currency exchange rates to depreciate immediately and uniformly against
the dollar, the Company's reported cash balance and net assets would decrease.
The effect on revenues would also be expected to have a material adverse effect
on the Company's financial results.
FINANCIAL STATEMENTS
FISCAL YEAR ENDED DECEMBER 31, 2003 (AUDITED)
G-4
VANGUARD INFO-SOLUTIONS CORPORATION
(Formerly B2B Solutions, Inc.)
Financial Statements
Years Ended December 31, 2003, 2002 and 2001
G-5
VANGUARD INFO-SOLUTIONS CORPORATION
(Formerly B2B Solutions, Inc.)
Years Ended December 31, 2003, 2002 and 2001
Table of Contents
Page
Number
------
INDEPENDENT AUDITORS' REPORT................................................. 1
FINANCIAL STATEMENTS
BALANCE SHEETS.............................................................2
STATEMENTS OF INCOME AND RETAINED EARNINGS ................................3
STATEMENTS OF CASH FLOWS...................................................4
NOTES TO FINANCIAL STATEMENTS............................................5-9
G-6
[MERCADIEN, P.C. Logo]
Certified Public Accountants
A MERCADIEN GROUP COMPANY
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of Vanguard Info-Solutions
Corporation (formerly B2B Solutions, Inc.)
We have audited the balance sheets of Vanguard Info-Solutions Corporation
(formerly B2B Solutions, Inc.) as of December 31, 2003, 2002 and 2001, and the
related statements of income and retained earnings, and cash flows for each of
the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vanguard Info-Solutions
Corporation (formerly B2B Solutions, Inc.) as of December 31, 2003, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003 in conformity with U.S.
generally accepted accounting principles.
/s/ MERCADIEN, P.C
December 15, 2004
P.O. Box 7648 * Princeton, NJ 08543-7648 o 609.689.9700 o Fax 609.689.9720
www.mercadien.com
OVER 40 YEARS of SERVICE TO THE COMMUNITY
G-7
VANGUARD INFO-SOLUTIONS CORPORATION
(FORMERLY B2B SOLUTIONS, INC.)
BALANCE SHEETS
December 31,
----------------------------------------------
2003 2002 2001
------------ ------------ ----------
ASSETS
Current Assets
Cash and cash equivalents $ 635,062 $ 1,127,422 $ 715,365
Accounts receivable, less allowance for
doubtful accounts 2003-$45,276;
2002-$58,447; 2001-$28,167 1,576,093 3,931,375 1,274,473
Prepaid taxes 1,712 3,648 5,000
Employee advances 5,929 7,913 11,550
------------ ------------ -----------
Total Current Assets 2,218,796 5,070,358 2,006,388
------------ ------------ -----------
Non-Current Assets
Property and equipment, net 181,387 178,628 127,124
Security deposits 12,461 1,328 1,328
------------ ------------ -----------
Total Non-current Assets 193,848 179,956 128,452
------------ ------------ -----------
Total Assets 2,412,644 5,250,314 $ 2,134,840
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit $ 224,996 $ - $ -
Current portion of loan payable 9,852 10,312 -
Accounts payable 1,201,286 2,967,949 988,291
Accrued expenses 166,621 272,082 315,643
Customer deposits 76,820 - -
Deferred income taxes 143,278 18,100 -
Advances from stockholders 33,388 - 530,195
------------ ------------ -----------
Total Current Liabilities 1,856,241 3,268,443 1,834,129
------------ ------------ -----------
Loan payable, net of current portion 16,049 25,902 -
------------ ------------ -----------
Total Liabilities 1,872,290 3,294,345 1,834,129
------------ ------------ -----------
Stockholders' Equity
Common stock, no par value; authorized 10,000
shares; issued and outstanding, 2003-5,000
shares; 2002 and 2001-10,000 shares
- - -
Additional paid-in capital 10,000 10,000 10,000
Retained earnings 530,354 1,945,969 290,711
Less cost of treasury stock, 2003- 5,000 shares;
2002 and 2001- 0 shares - - -
------------ ------------ -----------
Total Stockholders' Equity 540,354 1,955,969 300,711
------------ ------------ -----------
Total Liabilities and Stockholders' Equity 2,412,644 $ 5,250,314 2,134,840
============ ============ ===========
See Notes to Financial Statements.
G-8
VANGUARD INFO-SOLUTIONS CORPORATION
(FORMERLY B2B SOLUTIONS, INC.)
STATEMENTS OF INCOME AND RETAINED EARNINGS
Year Ended December 31,
------------------------------------------
2003 2002 2001
------------ ------------ -----------
Revenues $17,708,266 $18,763,077 $16,116,052
Cost of revenues 15,480,868 15,037,844 14,044,765
----------- ----------- -----------
Gross profit 2,227,398 3,725,233 2,071,287
----------- ----------- -----------
Selling, general and administrative expenses 1,998,285 1,758,015 1,452,143
----------- ----------- -----------
Income from Operations 229,113 1,967,218 619,144
----------- ----------- -----------
Other income (expenses)
Interest income 5,800 6,886 28,464
Interest expense (3,367) (7,244) (242)
----------- ----------- -----------
Total other income (expenses) 2,433 (358) 28,222
----------- ----------- -----------
Income before income taxes 231,546 1,966,860 647,366
----------- ----------- -----------
Federal and state income taxes 136,683 34,430 11,128
----------- ----------- -----------
Net income 94,863 1,932,430 636,238
Retained earnings, beginning of year 1,945,969 290,711 64,471
Sub-chapter S distributions (1,510,478) (277,172) (409,998)
----------- ----------- -----------
Retained earnings, end of year $ 530,354 $ 1,945,969 $ 290,711
=========== =========== ===========
See notes to financial statements.
G-9
VANGUARD INFO-SOLUTIONS CORPORATION
(FORMERLY B2B SOLUTIONS, INC.)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------------
2003 2002 2001
------------ ------------ -----------
Cash Flows From Operating Activities
Net income $ 94,863 $ 1,932,430 $ 636,238
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 63,592 50,646 20,787
Amortization 1,202 1,202 534
Provision for doubtful accounts and discounts (13,171) 30,280 28,167
Deferred taxes 125,178 18,100 -
Changes in assets and liabilities
Accounts receivable 2,368,453 (2,687,182) 158,705
Prepaid taxes 1,936 1,352 (1,999)
Employee advances 1,984 3,637 (9,926)
Accounts payable (1,766,663) 1,979,658 223,389
Accrued expenses (105,461) (43,561) (220,121)
Customer deposits 76,820 - -
------------ ----------- -----------
Net cash provided by operating activities 848,733 1,286,562 835,774
------------ ----------- -----------
Cash Flows From Investing Activities
Security deposits (11,133) - -
Purchases of property and equipment (67,553) (103,352) (85,107)
------------ ----------- -----------
Net cash used in investing activities (78,686) (103,352) (85,107)
------------ ----------- -----------
Cash Flows From Financing Activities
Sub-chapter S distributions (1,510,478) (277,172) (409,998)
Notes payable, net 224,996 - -
Loans payable (10,313) 36,214 -
Advances from stockholders, net 33,388 (530,195) 187,386
------------ ----------- -----------
Net cash used in financing activities (1,262,407) (771,153) (222,612)
------------ ----------- -----------
Net (decrease) increase in cash and cash
equivalents (492,360) 412,057 528,055
Cash and cash equivalents, beginning of year 1,127,422 715,365 187,310
------------ ----------- -----------
Cash and cash equivalents, end of year $ 635,062 $ 1,127,422 715,365
============ =========== ===========
Supplemental Disclosures of Cash Flow
Information
Cash paid during the year for
State income taxes $ 11,505 $ 16,330 $ 15,117
============ =========== ===========
Interest $ 3,367 $ 7,244 $ 242
============ =========== ===========
See notes to financial statements.
G-10
VANGUARD INFO-SOLUTIONS CORPORATION
(FORMERLY B2B SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Vanguard Info-Solutions Corporation (Formerly B2B Solutions, Inc.)
(the "Company") was incorporated in the State of New Jersey in 2000
and is a provider of IT consulting and solutions services in the
area of telecommunications, web software development, network
management and enterprise - wide security.
BASIS OF ACCOUNTING
The Company prepares its financial statements on the accrual method
of accounting, recognizing revenue when earned and expenses when
incurred.
REVENUE RECOGNITION
Staffing requirement revenue is recognized as the services are
rendered and the related costs are recognized as they are incurred.
Fixed price professional services contract revenues are recognized
as the services are rendered.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
CASH
For purposes of reporting the statements of cash flows, the Company
considers all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are customer obligations due under normal trade
terms. Management reviews accounts receivable on a regular basis to
determine if any receivables will potentially be uncollectible.
Accounts receivable balances that are determined to be
uncollectible, along with a general reserve, are included in the
overall allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off
against the allowance.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Depreciation is computed
on a straight-line basis over the estimated service lives of the
respective classes of property as follows:
Leasehold Improvements Lease Period
Equipment 5 Years
Furniture and Fixtures 7 Years
Automobile 5 Years
G-11
VANGUARD INFO-SOLUTIONS CORPORATION
(FORMERLY B2B SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred taxes are provided on the liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary difference are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
ADVERTISING
Advertising expense for the years ended December 31, 2003, 2002 and
2001 was $4,186, $8,370, and $3,288, respectively.
CONCENTRATION OF CREDIT RISK
The Company maintains cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced
any losses in such accounts. The Company believes it is not exposed
to any significant credit risk on cash and cash equivalents.
B. PROPERTY AND EQUIPMENT
December 31,
------------------------------------
2003 2002 2001
--------- ---------- ---------
Leasehold improvements $ 18,037 $ 18,037 $ 18,037
Equipment 119,806 117,202 94,171
Furniture and fixtures 36,159 26,282 26,282
Automobile 172,325 117,252 36,931
--------- ---------- ---------
Subtotal 346,327 278,773 175,421
Less accumulated
depreciation and
amortization (164,940) (100,145) (48,297)
--------- ---------- ---------
Total $ 181,387 $ 178,628 $ 127,124
========= ========== =========
Depreciation and amortization expense was $64,794, $51,848 and $21,321 for the
years ended December 31, 2003, 2002 and 2001, respectively.
G-12
VANGUARD INFO-SOLUTIONS CORPORATION
(FORMERLY B2B SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
C. INCOME TAXES AND CHANGE IN TAX STATUS
Deferred tax liabilities consist of the following as of December 31, 2003,
2002 and 2001:
2003 2002 2001
---------- ---------- ---------
Deferred tax liabilities:
Revenue recognition $ 143,278 $ 18,100 $ -
========== ========== =========
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of December 31, 2003, 2002 and 2001 as
current liabilities.
The provision for federal and state income taxes charged to operations for
the years ended December 31, 2003, 2002 and 2001 consists of the
following:
2003 2002 2001
---------- ---------- ---------
Current tax expense $ 11,505 $ 16,330 $ 11,128
Deferred tax expense 125,178 18,100 -
--------- --------- --------
$ 136,683 $ 34,430 $ 11,128
========= ========= ========
Prior to January 1, 2004 the Company, with the consent of its
stockholders, elected to be taxed under sections of federal and state
income tax law, which provide that, in lieu of corporation income taxes,
the stockholders separately account for their pro rata shares of the
Company's income, deductions, losses and credits. During 2003, the
Company's stockholders terminated this election effective with the year
beginning on January 1, 2004.
As a result of the termination effective January 1, 2004 the Company
recorded a deferred tax liability by a charge to income tax expense, for
temporary differences between the financial reporting and the income tax
basis of revenues.
D. PENSION PLAN
The Company has established a salary deferral plan under Section 401(k) of
the Internal Revenue Code (the "IRC"). The plan allows eligible employees
to voluntarily defer a portion of their compensation which may not exceed
maximum amounts established by the IRC. The Company is required to match a
portion of the employees' contribution limited to the lesser of 25% of the
employees' contribution or 25% on 6% of the employee's annual gross pay.
Total expense recorded for the Company's match was $50,031 for 2003,
$18,456 for 2002, and $19,156 for 2001.
Due to a delay in funding of the employer contribution as required by the
plan, the Company may be liable for a non compliance penalty. The amount
of this penalty, if any, cannot presently be determined.
G-13
VANGUARD INFO-SOLUTIONS CORPORATION
(FORMERLY B2B SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
E. SHORT TERM BORROWING
Line of credit
The Company has an $850,000 line of credit with a financial institution.
Borrowings from the credit line bear interest at the LIBOR rate plus 3.40%
and are secured by substantially all assets of the Company. The related
debt outstanding at December 31, 2003, is $224,996. No amounts were
outstanding as of December 31, 2002 and 2001. $350,000 of the line is
guaranteed by the Company's stockholders.
F. ADVANCES FROM STOCKHOLDERS
Advances from stockholders represent amounts due to stockholders of the
Company. The advances are unsecured, bear no interest and have no fixed
maturity date.
G. COMMITMENTS AND CONTINGENCIES
Lease commitments and total rental expense
The Company rents its premises at 201 North Center Drive, North Brunswick,
New Jersey under a lease expiring November 30, 2004. The lease provides
that the lessee pay all property taxes, insurance and maintenance plus a
base annual rent of $33,399.
The total rental expense for the years ended December 31, 2003, 2002 and
2001 was $51,733, $53,968 and $55,060, respectively.
The future minimum rental commitments at December 31, 2003 under the
non-cancelable lease are as follows:
Years Ending December 31,
2004 $ 42,133
Thereafter -
--------
$ 42,133
========
State tax filings
The Company has nexus in several states other than the State of New Jersey
but has not filed state corporate tax returns in those states. The
Company's business tax, sales and use tax, payroll and unemployment tax
since inception have not been examined by the tax authorities. The
management of the Company believes that liability, if any, arising out of
examination by the tax authorities will not materially affect the
financial position and operating results of the Company.
H. MAJOR CUSTOMER INFORMATION - ECONOMIC DEPENDENCY
Revenues from one customer amounted to approximately 96%, 93% and 92% of
the overall sales for the years ended December 31, 2003, 2002, and 2001,
respectively. Accounts receivable from this customer represented
approximately 99%, 71%, and 98%, respectively, of total accounts
receivable as of December 31, 2003, 2002 and 2001.
G-14
VANGUARD INFO-SOLUTIONS CORPORATION
(FORMERLY B2B SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
I. RELATED PARTY TRANSACTIONS
Certain of the individuals who provide services to the Company's customers
are employed by various entities that are owned (in whole or in part) by
the Company's stockholders or members of their family. Following is a
summary of transactions and balances with affiliates for 2003, 2002, and
2001:
2003 2002 2001
----------- ---------- -----------
Purchases from affiliates
(included in Cost of Revenues) $ 1,430,163 $2,168,614 $ 1,616,184
Due to affiliates =========== ========== ===========
(included in Accounts
Payable and Accrued Expenses) $ 36,000 $1,189,485 $ 49,774
=========== ========== ===========
J. LOAN PAYABLE
Loan payable represents amounts financed with BMW financial services. The
loan with BMW financial services is payable in monthly installments of
$959 (principal plus interest) and bears interest at the rate of 5.94% per
annum. This loan was repaid subsequent to December 31, 2003.
K. TREASURY CAPITAL STOCK
On December 30, 2003 the Company acquired 500 shares Series A Voting
common Stock and 4,500 shares Series B Non-Voting Common Stock held by
stockholders.
L. SUBSEQUENT EVENTS
On December 31, 2003, the stockholders of the Company reached an agreement
with Excalibur Investment Group Limited ("Excalibur") that, in exchange
for $200,000,500 shares of Series A voting common shares, no par value
and 4,500 shares of Series B non-voting common shares, no par value,
representing in the aggregate 50% of the outstanding shares of the
Company, the Company would acquire 99.90% (directly and through a
subsidiary, Castor Finance Company Private Limited) of the issued and
outstanding shares of Allserve Systems (India) Ltd., a call center and
business process outsourcing center in India. The Company acquired 99.9%
of the issued and outstanding shares of Castor Finance Company Private
Limited simultaneously with the Allserve transaction. These transactions
became effective and were completed before March 31, 2004. The agreement
included an option for Excalibur to buy 300 Series A voting common shares,
no par value and, 2,700 Series B non-voting common shares, no par value,
representing in the aggregate 30% of the issued and outstanding shares of
the Company for a consideration of $2,700,000 directly payable to the
stockholders of the Company. This option was exercised on January 10,
2004.
The acquisition was accounted for in 2004 as a purchase. The net book
value of Allserve Systems (India) Ltd., as of March 31, 2004 was
approximately $3,250,000. This amount, net of the $200,000 cash payment
and a $3,249 minority interest, was credited to additional paid in capital
in 2004.
G-15
INTERIM PERIOD ENDED SEPTEMBER 30, 2004 (UNAUDITED)
VANGUARD INFO-SOLUTIONS CORPORATION
Consolidated Financial Statements
September 30, 2004
(Unaudited)
G-16
VANGUARD INFO-SOLUTIONS CORPORATION
Table of Contents
Page
Number
------
FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEET.............................................G-18
CONSOLIDATED STATEMENT OF INCOME.......................................G-19
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY..............G-20
CONSOLIDATED STATEMENT OF CASH FLOWS ..................................G-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................G-22
G-17
VANGUARD INFO-SOLUTIONS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 2004
ASSETS
Current Assets
Cash and cash equivalents $ 27,557
Accounts receivable, less allowance for discounts and
doubtful accounts of $500,389 13,137,361
Advances to Stockholder 298,737
Deferred taxes 25,929
Prepaid taxes and other current assets 85,494
-----------
Total Current Assets 13,575,078
-----------
Non-Current Assets
Property and equipment, net 19,908,557
Security deposits 505,506
-----------
Total Non-Current Assets 20,414,063
-----------
Total Assets $33,989,141
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 941,405
Current portion of long term debt 99,283
Current portion of capitalized lease obligations 4,672,295
Accounts payable, trade 3,963,101
Accounts payable, affiliate 1,770,401
Accrued expenses 1,421,302
Income taxes payable 443,623
-----------
Total Current Liabilities 13,311,410
-----------
Long Term Liabilities
Long term debt, net of current portion 136,885
Capitalized lease obligations, net of current portion 9,425,306
Minority Interest 4,572
-----------
Total Long Term Liabilities 9,566,763
-----------
Stockholders' Equity
Common stock, no par value, 10,000 shares authorized,
issued and outstanding -
Additional paid-in capital 3,055,586
Retained earnings 7,881,118
Accumulated other comprehensive income 174,264
-----------
Total Stockholders' Equity 11,110,968
-----------
Total Liabilities and Stockholders' Equity $33,989,141
===========
See notes to consolidated financial statements.
G-18
VANGUARD INFO-SOLUTIONS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Nine Months Ended September 30, 2004
Revenues $ 22,381,052
Cost of revenues 13,145,460
------------
Gross profit 9,235,592
------------
Selling, general and administrative expenses 3,537,177
Depreciation and amortization - Operations 397,382
------------
3,934,559
------------
Income from Operations 5,301,033
------------
Other income (expense):
Interest expense (442,541)
Interest income 992
Equipment lease expenses (531,692)
Lease income 3,060,664
Depreciation - Leased assets (704,100)
Commission Income 619,283
Foreign exchange translation 437,850
Miscellaneous expense (110,975)
------------
Total other income 2,329,481
------------
Income before income taxes and minority interest 7,630,514
Federal and state income taxes 275,182
Minority interest in net income of subsidiaries 4,572
------------
Net income $ 7,350,760
------------
See notes to consolidated financial statements.
G-19
VANGUARD INFO-SOLUTIONS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Nine Months Ended September 30, 2004
Accumulated
Other
Comprehensive Retained Comprehensive Common Additional
Total Income Earnings Loss Stock Paid-in Capital
----------- ------------- ----------- ------------- -------- -------------------
Balance, January 1, 2004 $ 540,358 $ - $ 530,358 $ - $ - $ 10,000
Comprehensive income
Net income 7,350,760 7,350,760 7,350,760 - - -
Other comprehensive
income, net of tax
Foreign currency
translation adjustments 174,264 174,264 - 174,264 - -
-----------
Comprehensive income $ 7,525,024
============
Acquisition of Castor and
Vanguard Info-Solution 3,045,586 - - - 3,045,586
----------- ----------- --------- ----- ------------
Balance, September 30, 2004 $11,110,968 $ 7,881,118 $ 174,264 $ - $ 3,055,586
=========== =========== ========= ===== ============
See notes to consolidated financial statements.
G-20
VANGUARD INFO-SOLUTIONS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30, 2004
Cash Flows from Operating Activities
Net income $ 7,350,760
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for doubtful accounts and discounts 455,113
Foreign currency exchange rate gains (437,850)
Depreciation and amortization 1,101,482
Loss on disposal of fixed assets 107,023
Deferred taxes (169,207)
Minority interest in net income of subsidiaries 4,572
Changes in assets and liabilities, net of effects
from acquisition of Vanguard Info-Solution
Accounts receivable (8,996,671)
Prepaid taxes and other current assets 156,727
Accounts payable and accrued expenses 2,930,801
Customer deposits (76,820)
Income taxes payable 443,623
------------
Net cash provided by operating activities 2,869,553
------------
Cash Flows from Investing Activities
Acquisition of Vanguard Info-Solution, net of cash acquired (43,411)
Security deposits (218,358)
Purchases of property and equipment (1,426,389)
------------
Net cash used in investing activities (1,688,158)
------------
Cash Flows from Financing Activities
Advances to stockholders, net (332,125)
Notes payable borrowings, net of repayments 716,409
Repayments of long term debt (82,613)
Repayments of capital lease obligations (2,090,571)
------------
Net cash used in financing activities (1,788,900)
------------
Net decrease in cash and cash equivalents (607,505)
Cash and cash equivalents, beginning of period 635,062
------------
Cash and cash equivalents, end of period $ 27,557
============
Supplemental Disclosures of Cash Flow Information
Cash paid for
Income taxes $ -
============
Interest $ 442,541
============
Capital lease obligations incurred for use of equipment $ 16,188,172
============
See notes to consolidated financial statements.
G-21
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Vanguard Info-Solutions Corporation ("Vanguard USA"), formerly B2B
Solutions, Inc. was incorporated in the State of New Jersey in 2000 and
is a provider of IT consulting and solutions services in the area of
telecommunications, web software development, network management and
enterprise - wide security. Vanguard USA's subsidiaries operate in
India, providing tele-marketing and business process outsourcing
primarily in the areas of medical billing and claims processing, and
data processing. Excalibur Investment Group Limited ("Excalibur"), a
British Virgin Islands entity, acquired 80% of Vanguard USA during the
period.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vanguard
USA and its subsidiaries. Following are Vanguard USA's subsidiaries and
the percentage of ownership at September 30, 2004:
Castor Finance Company Private Limited ("Castor") - 99.90%
Castor was incorporated in March 1985 in India under the Companies Act,
1956. Castor acquired a 32% interest in Vanguard Info-Solution Limited
effective April 1, 2004. Castor has no operations and its sole asset is
its interest in Vanguard Info-Solution Limited.
Vanguard Info-Solution Limited ("Vanguard Info-Solution") (formerly
Allserve Systems (India) Ltd.) - 99.90%
Vanguard Info-Solution was incorporated in June 2003 in India under the
Companies Act, 1956 as a limited company. Vanguard Info-Solution is a
100% Export Oriented Unit (EOU) under the Software Technology Park
(STP) Scheme. Vanguard Info-Solution commenced its commercial activity
on January 1, 2004. Vanguard Info-Solution is an operator of a call
center providing tele-marketing and sales representation, and business
process outsourcing in the areas of medical billing and claim
processing, and data processing. Vanguard Info-Solution has one
wholly-owned subsidiary, Vanguard Business Process Private Limited.
Vanguard Info-Solution was acquired by Castor and the Company effective
April 1, 2004. The accompanying consolidated statement of income
includes the operations of Vanguard Info-Solution from April 1 to
September 30, 2004.
Vanguard Business Process Private Limited ("Vanguard Business") was
incorporated in May 2004 in India under the Companies Act, 1956.
Vanguard Business is a 100% Export Oriented unit (EOU) under the
Software Technology Park (STP) Scheme. Vanguard Business is an operator
of a call center providing tele-marketing and sales representation, and
business process outsourcing in the areas of medical billing and claim
processing, and data processing. Vanguard Info-Solution acquired
Vanguard Business effective July 1, 2004. The accompanying consolidated
statement of income includes the operations of Vanguard Business from
July 1 to September 30, 2004.
G-22
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION (CONTINUED)
All material intercompany accounts and transactions are eliminated in
consolidation. Castor, Vanguard Info-Solutions and Vanguard Business
are collectively referred to herein as the "Indian Subsidiaries".
Vanguard USA and the Indian Subsidiaries are collectively referred to
herein as the "Company".
BASIS OF ACCOUNTING
The Company prepares its financial statements on the accrual method of
accounting, recognizing revenue when earned and expenses when incurred.
REVENUE RECOGNITION
Staffing requirement revenue is recognized as the services are rendered
and the related costs are recognized as they are incurred. Fixed price
professional services contract revenues are recognized as the services
are rendered.
COMMISSION INCOME
During the nine months ending September 30, 2004, Vanguard USA recorded
revenues totaling $619,283 for billing services provided to another IT
service provider.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
CASH
For purposes of reporting the statements of cash flows, the Company
considers all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are customer obligations due under normal trade
terms. Management reviews accounts receivable on a regular basis to
determine if any receivables will potentially be uncollectible.
Accounts receivable balances that are determined to be uncollectible,
along with a general reserve, are included in the overall allowance for
doubtful accounts. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance.
G-23
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Depreciation is computed on a
straight-line basis over the estimated service lives of the respective
classes of property.
The estimated useful lives of property and equipment for the purposes
of computing depreciation are as follows:
Computers Equipment 5 years
Computer Software 5 years
Leasehold Improvements Lease period
Furniture & Fixtures 7 years
Office Equipment 5 years
Vehicles 5 years
INCOME TAXES
Deferred taxes are provided on the liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
difference are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
CONCENTRATION OF CREDIT RISK
The financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents.
The Company holds no collateral for these financial instruments.
Accounts receivables are typically unsecured and are derived from
revenues earned from customers located in the United States of America
and the United Kingdom. The Company monitors the creditworthiness of
its customers to which it grants credit terms in the normal course of
business. Further, the Company has taken credit insurance for its
factored accounts receivables.
G-24
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
B. ACQUISITIONS
On December 31, 2003, the stockholders of Vanguard USA reached an agreement
with Excalibur that, in exchange for $200,000, 500 shares of Series A
voting common shares, no par value, and 4,500 shares of Series B non-voting
common shares, no par value, representing in the aggregate 50% of the
outstanding shares of Vanguard USA, Vanguard USA would acquire 99.90%
(directly and through its subsidiary Castor) of the issued and outstanding
shares of Vanguard Info-Solution (formerly Allserve Systems (India) Ltd.),
a call center and business process outsourcing center in India. Vanguard
USA acquired 99.9% of the issued and outstanding shares of Castor
simultaneously with the Vanguard Info-Solution transaction. These
transactions became effective and were completed before April 1, 2004. The
agreement included an option for Excalibur to buy 300 Series A voting
common shares, no par value and, 2,700 Series B non-voting common shares,
no par value, representing in the aggregate 30% of the issued and
outstanding shares of Vanguard USA for a consideration of $2,700,000
directly payable to the stockholders of Vanguard USA. This option was
exercised on January 10, 2004.
The acquisition was accounted for in 2004 as a purchase. The net book value
of Vanguard Info-Solution as of March 31, 2004 was approximately
$3,250,000. This amount, net of the $200,000 cash payment and a $3,249
minority interest, was credited to additional paid in capital in 2004.
Vanguard Business, pursuant to a memorandum of understanding dated June 17,
2004, acquired property, equipment and certain other assets comprising a
call center in Bangalore, India for approximately $1,200,000. This
acquisition was effective July 1, 2004. Vanguard Business also assumed a
lease in connection with this transaction (Note L).
C. ACCOUNTS RECEIVABLE, TRADE
Accounts receivable as of September 30, 2004, consist of:
Accounts receivable as of September 30, 2004, consist of:
Factored trade receivables with recourse $ 997,351
Non-factored trade receivables 9,796,262
Lease income receivable, non-trade 2,343,748
-----------
Accounts receivable $13,137,361
-----------
Under the terms of the Factoring Agreement described in Note H, certain
receivables of Vanguard Info-Solution are assigned to a factor, SBI Factor
& Commercial Services Private Limited and a substantial portion of its
remaining accounts receivable are pledged under the Factor Agreement.
Vanguard Info-Solution receives advances from SBI equal to 80% of factored
accounts receivables.
G-25
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 2004:
Computer Equipment, including assets
acquired under capital leases
of $16,188,172 $ 18,968,871
Computer Software 1,226,765
Leasehold improvements 639,866
Furniture and fixtures 215,769
Office Equipment 124,160
Vehicles 24,446
-----------
Subtotal 21,199,877
Less accumulated depreciation
and amortization, including
amounts applicable to assets
acquired under capital leases
of $704,100 (1,291,320)
-----------
Total $19,908,557
===========
Substantially all of the Company's fixed assets secure its obligations
under capital leases and long term debt.
Depreciation and amortization expense was $1,101,482 for the nine months
ended September 30, 2004.
E. INCOME TAXES AND CHANGE IN TAX STATUS
Deferred tax liabilities consist of the following as of September 30, 2004:
Deferred tax asset
Accounts receivable reserves $ 25,929
========
The deferred tax amount detailed above has been classified on the
accompanying balance sheet as of September 30, 2004 as a current asset.
The provision for federal and state income taxes charged to operations for
the nine months ended September 30, 2004 consists of the following:
Current tax expense $ 444,419
Deferred tax expense (169,237)
---------
$ 275,182
=========
Prior to January 1, 2004, Vanguard USA, with the consent of its
stockholders, elected to be taxed under sections of federal and state
income tax law, which provide that, in lieu of corporation income taxes,
the stockholders separately account for their pro rata shares of Vanguard
USA's income, deductions, losses and credits. During 2003, Vanguard USA's
stockholders terminated this election effective with the year beginning on
January 1, 2004.
G-26
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
E. INCOME TAXES AND CHANGE IN TAX STATUS (CONTINUED)
As a result of the termination effective January 1, 2004, Vanguard USA
recorded a deferred tax liability in 2003 by a charge to income tax
expense, for temporary differences between the financial reporting and the
income tax basis of revenues. Beginning January 1, 2004, Vanguard USA is
taxed as a United States "C" Corporation.
The Indian Subsidiaries benefit from exemptions from payment of Indian
corporate income taxes for a period of ten consecutive years as software
development facilities designated as "Software Technology Park" (STP units)
subject to fulfillment of specified conditions. The benefits of such tax
incentive will expire in 2009. Deferred tax assets created are likely to be
reversed by fiscal 2009; therefore a valuation allowance has been recorded.
Deferred tax liabilities created are also likely to be reversed by fiscal
2009 and therefore are not accrued. Significant components of activities
that give rise to deferred tax assets and liabilities were as follows:
Deferred tax assets:
Preliminary expenses $ 5,606
Expenses allowable for tax purposes when paid 12,658
--------
Gross deferred tax assets 18,264
Less: Valuation allowance 18,264
--------
Net deferred tax assets (A) -
--------
Deferred tax liabilities:
Depreciation 583,189
Less: Deferred tax liability not recognized (583,189)
--------
Net Deferred tax liabilities (B) -
--------
Net Deferred tax assets/(liabilities) (A - B) $ -
========
Undistributed earnings of the Indian Subsidiaries aggregated approximately
$4,600,000 as of September 30, 2004. Under existing laws, such earnings
will not be subject to U.S. tax until distributed as dividends. Because
these undistributed earnings are expected to be indefinitely reinvested
overseas, deferred income taxes have not been provided thereon. If these
amounts were not considered to be permanently reinvested, additional
deferred tax of approximately $1,500,000 would have been provided.
G-27
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
F. PENSION AND RETIREMENT PLANS
401(k) Plan - Vanguard USA
Vanguard USA has established a salary deferral plan under Section 401(k) of
the Internal Revenue Code (the "IRC") for its employees in the United
States. The plan allows eligible employees to voluntarily defer a portion
of their compensation which may not exceed maximum amounts established by
the IRC. Vanguard USA is required to match a portion of the employees'
contribution limited to the lesser of 25% of the employees' contribution or
25% on the first 6% of the employee's annual gross pay. Total expense
recorded for the Vanguard USA's match was $29,159 for the nine months ended
September 30, 2004.
In 2004, Vanguard USA discovered that it had failed to remit its 2001
through 2003 employer contributions as required by the plan. Vanguard USA
is in the process of remitting its unpaid contributions and has submitted
an application to the IRS under its Voluntary Correction Program. As of
September 30, 2004, Vanguard USA has accrued for the unfunded contributions
and anticipates that further costs to correct this situation, if any, will
be minimal.
Provident Fund - Indian Subsidiaries
In accordance with Indian law, all employees in India are entitled to
receive benefits under the provident fund, which is a defined contribution
plan. Both, the employee and employer make monthly contributions to the
plan at a predetermined rate (presently 12%) of the employees' basic
salary. The employer has no further obligations under the plan beyond its
monthly contributions. These contributions are made to the fund
administered and managed by the Government of India. The Indian
Subsidiaries' monthly contributions are charged to income in the year
incurred. During the period, the Indian Subsidiaries contributed $72,202.
Gratuity Plan - Indian Subsidiaries
In addition to the above benefit, the Indian Subsidiaries provide for their
employees a gratuity plan (the "Gratuity Plan"), a defined benefit
retirement plan covering all employees, when the terms of employment so
provide as per the Payment of Gratuity Act, prevalent in India. The
Gratuity Plan provides a lump sum payment to vested employees at retirement
or termination of employment based on the respective employee's salary and
the years of employment with the Company. Employers are vested in the
Gratuity Plan upon five years of continuous service.
The Indian Subsidiaries accrue a liability under the Gratuity Plan on the
basis of an actuarial valuation. The entire amount is unfunded.
G-28
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
G. PENSION AND RETIREMENT PLANS
The following table sets forth the status of the Gratuity Plan of the
Indian Subsidiaries, and the amounts recognized in the balance sheet as of
September 30, 2004.
Amounts recognized on the balance sheet
Accrued benefit cost $ 21,655
============
Assumptions:
Discount rate
Vanguard Info-Solution 7.50%
Vanguard Business 7.00%
Annual increase in compensation
Vanguard Info-Solution 5.00%
Vanguard Business 8.00% for 5
years, 6%
thereafter
Additional data:
Net periodic cost $ 6,557
============
Benefits paid $ -
============
H. NOTES PAYABLE
Line of Credit
Vanguard USA had a $850,000 line of credit with a financial institution.
Borrowings from the credit line bore interest at the LIBOR rate plus 3.40%
(4.89% as of September 30, 2004) and were secured by substantially all
assets of Vanguard USA. The related debt outstanding at September 30, 2004
was $438,403. This line expired on November 30, 2004 and was not renewed.
Factor Loan
Pursuant to a "Factoring Agreement", loans taken from SBI Factors &
Commercial Services Private Limited are secured by all present and future
goods, receivables and all other movable assets except for that computer
equipment which is security for equipment loans further secured by the
corporate guarantee of Allserve Systems Plc., UK, in the amount of
$538,000. The total amount of revolving facility under the said agreement
with recourse is $750,000 and the Company can receive prepayments up to 80%
of the factored receivables up to $538,000. The weighted average interest
rate on such loan was 8.50% per annum for the period. As of September 30,
2004, out of the sanctioned limit, the Company has factored receivables of
$997,351 and has been advanced $503,002.
G-29
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
I. ADVANCES TO STOCKHOLDER
Advances to Stockholder represents amount due from a stockholder of the
Company. The advances are unsecured, bear no interest and have no fixed
maturity date. Management anticipates that this amount will be repaid
currently.
J. LONG-TERM DEBT
Long-term debt as of September 30, 2004 consists of:
Vehicle loan from bank $ 13,905
Equipment loans from others 222,263
-----------
Total debts 236,168
Less: Current portion of long-term debts 99,283
-----------
Long-term debts, net of current portion $ 136,885
===========
The following is a schedule by year of the future maturities of long term
debt:
Year ending September 30,
2005 $ 99,283
2006 105,432
2007 31,453
---------
$ 236,168
=========
The vehicle loan is secured by the vehicle. The weighted average interest
rate on such loan was 6.78% per annum for the period.
Equipment loans are secured by 450 Computers & Peripherals and the related
operating system software purchased with the proceeds of such loans. The
weighted average interest rate on such loans was 9.26% per annum for the
period.
K. CAPITAL LEASE OBLIGATIONS
As of September 30, 2004 certain computer equipment, is being acquired
under capital leases which contain purchase options under which Vanguard
USA may purchase the equipment for $1 at the expiration of the leases in
2007. The equipment and the related liability under the capital leases were
recorded in 2004 at the present value of the future payments due under the
leases, as determined with discount rates of 5.95% and 7.35%. The related
liability under the capital leases, with a September 30, 2004 balance of
$14,097,601, is due in monthly installments of $498,787, including
interest, through March 2007, reducing to $323,408 through June 2007.
G-30
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
K. CAPITAL LEASE OBLIGATIONS (CONTINUED)
The following is a schedule by year of the future minimum lease payments
under the capital leases together with the present value of the net minimum
lease payments as of September 30, 2004:
Year ending September 30,
2005 $ 5,486,337
2006 5,985,095
2007 3,962,774
------------
Total minimum lease payments 15,434,206
Less the amount representing interest 1,336,605
------------
Present value of net minimum lease payments $ 14,097,601
============
On August 20, 2004 Vanguard USA incorporated a wholly-owned subsidiary
named B2B Solutions USA, Inc. ("B2B USA") under the laws of the State of
Delaware. In December 2004, Vanguard USA assigned its interest in the
assets held under capital leases (Note D) and the related obligation (Note
K) to its subsidiary, B2B USA, with the consent of the lessor. Thereafter
and during December 2004, Vanguard USA sold 100% of the shares of B2B USA
to a third party. This third party has agreed to reimburse Vanguard USA for
all payments made with respect to the capital lease obligations and the
computer equipment leases described in Note L.
L. COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of December, 2004, Vanguard USA rents its office premises in New Jersey
from one of its stockholders on a month to month basis. No formal lease has
been executed between Vanguard USA and the stockholder. Vanguard USA has
entered into various leases for computer equipment which expire through
July 2005.
The following is a schedule of future minimum rental payments related to
Vanguard USA computer equipment as of September 30, 2004:
Year ending September 30,
2005 $ 1,478,971
2006 1,263,765
2007 283,404
-----------
$ 3,026,140
===========
Rent expense under these leases for the nine months ended September 30,
2004 was $531,692. As noted above in Note K, a third party has agreed to
reimburse Vanguard USA for these payments.
G-31
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
L. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Lease Commitments (Continued)
Vanguard Info-Solution leases office space pursuant to a lease dated
October 1, 2003. The lease period is for three years and renewable for
further six years at the option of the Vanguard Info-Solution. The lease
rent will escalate by 15% at the end of each three year period. There are
no restrictions imposed by lease arrangements.
The following is a schedule of future minimum rental payments related to
the Vanguard Info-Solution lease as of September 30, 2004:
Year ending September 30,
2005 $ 433,742
2006 433,742
2007 498,803
2008 498,803
2009 498,803
Thereafter 1,720,871
-----------
$ 4,084,764
===========
Rent expense for the six months ended September 30, 2004 under this lease
was $217,871.
Vanguard Business leases office premises pursuant to a lease dated July 1,
2004. The lease period is for eleven years. The lease agreement contains a
clause for escalation of rent every 3 years by mutual agreement or 25%
increase in rent in case the agreement is not renewed mutually. There are
no restrictions imposed by the lease arrangements.
The following is a schedule of future minimum rental payments related to
the Vanguard Business lease as of September 30, 2004:
Year ending September 30,
2005 $ 99,904
2006 99,904
2007 106,148
2008 124,880
2009 124,880
Thereafter 952,208
-----------
$ 1,507,924
===========
Rent expense for the three month ended September 30, 2004 under this lease
was $25,091.
G-32
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
L. COMMITMENTS AND CONTINGENCIES (CONTINUED)
State Tax Filings
The Company has nexus in several states other than the State of New Jersey
but has not filed state corporate tax returns in those states. The
Company's business tax, sales and use tax, payroll and unemployment tax
since inception have not been examined by the tax authorities. The
management of the Company believes that liability, if any, arising out of
examination by the tax authorities will not materially affect the financial
position and operating results of the Company.
Capital commitments
Vanguard Info-Solution has entered into certain agreements to purchase
computer systems and software, which were not fulfilled as of September 30,
2004. The outstanding commitment for such purchases was approximately
$565,000 as of September 30, 2004.
Bonds and bank guarantees
As required by local law as Export Oriented Units registered with the
Software Technology Park of India, the Indian Subsidiaries have executed
general bonds totaling approximately $470,000 in favor of the President of
India and has also given bank guarantees of approximately $23,000 as of
September 30, 2004 to secure their export obligations.
As of September 30, 2004, the Indian Subsidiaries have utilized
approximately $174,000 of the general bond balance due to duty forgone for
imports and local purchases, and as such, the unutilized balance is
approximately $296,000.
M. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, investments, accounts payable and
accrued liabilities. The current carrying amount of these instruments
approximates fair market value due to the relatively short period of time
to maturity for these instruments and nature of such financial
instruments.
N. MAJOR CUSTOMER INFORMATION - ECONOMIC DEPENDENCY
Revenues from one customer of Vanguard USA amounted to approximately 35% of
consolidated revenues for the period. Amounts receivable from this customer
represented approximately 11% of consolidated accounts receivable at
September 30, 2004. Subsequent to September 30, this customer reduced
significantly its purchases from Vanguard USA due to the customer's
restructuring of its operations and Vanguard USA's significant reliance on
revenues from this customer.
Revenues from one customer of the Indian Subsidiaries amounted to
approximately 15% of consolidated revenues for the nine months ended
September 30, 2004. Amounts receivable from two customers of the Indian
Subsidiaries represented approximately 38% of consolidated accounts
receivable as of September 30, 2004.
G-33
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
O. RELATED PARTY TRANSACTIONS
The Company provides billing and collection services to an entity owned by
one of the Company's stockholders. This related entity is not charged a fee
for this service. As of September 30, 2004 this affiliate was owed
$1,770,400 with respect to collections received by the Company which have
not yet been remitted.
P. SUBSEQUENT EVENT
On January 21, 2005, Vanguard USA and its stockholders entered into a Share
Exchange Agreement with The A Consulting Team, Inc. ("TACT"), a New York
corporation, and the authorized representative named therein providing for
an exchange of 7,312,796 shares of TACT. Additionally, also on January 21,
2005, TACT entered into a Stock Purchase Agreement with Oak Finance
Investments Limited ("Oak"), a British Virgin Islands company, providing
for the sale of between 625,000 and 1,250,000 of TACT common shares to Oak
at a cash purchase price of $8.00 per share. If these transactions are
approved by the stockholders of TACT, upon their completion, the former
shareholders of Vanguard will own between 67.5% and 71.7% of TACT's issued
and outstanding shares of Common Stock, and Oak and other purchasers to
whom it may assign its rights will own between 16.2% and 21.0% of TACT's
issued and outstanding shares of Common Stock. These transactions will
result in a change of control of TACT. If the proposed transactions are
approved and completed, Vanguard USA and its Indian Subsidiaries will
become wholly-owned subsidiaries of TACT.
The board of directors of TACT has approved the Share Exchange Agreement
and the Stock Purchase Agreement and recommended that stockholders of TACT
vote to approve and adopt the share exchange proposal (the "Share
Exchange") and the share issuance proposal (the "Share Issuance"), as well
as the proposal to change the name of TACT to "Vanguard Info-Solutions
International Inc."
Completion of the proposed transaction is subject to various conditions,
including approval by a majority of the current stockholders of TACT.
G-34
ANNEX H
PRO FORMA FINANCIAL INFORMATION
VANGUARD INFO-SOLUTIONS CORPORATION/THE A CONSULTING TEAM, INC
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In January 2005, the Company signed a Share Exchange Agreement with Vanguard
Info-Solutions Corporation (Vanguard), whereby the Company agreed to issue
7,312,796 shares of Common Stock to the Vanguard shareholders in exchange for
all of the outstanding capital stock of Vanguard. In addition, the Company
signed a Stock Purchase Agreement with Oak, whereby Oak agreed to purchase a
minimum of 625,000 shares of Common Stock directly from the Company for $8.00
per share.
The 7,312,796 shares of Common Stock to be issued by the Company to the Vanguard
shareholders represent approximately 71% of the Company's issued and outstanding
voting Common Stock. Accordingly, this business combination is considered to be
a reverse acquisition. As such, for accounting purposes, Vanguard is considered
to be the acquirer while the Company is considered to be the acquiree.
The following pro forma unaudited consolidated balance sheet has been prepared
by taking the September 30, 2004 balance sheets of the Company and Vanguard and
giving effect to the reverse acquisition of Vanguard and the purchase of shares
by Oak, as if they had occurred on September 30, 2004. The pro forma
consolidated condensed balance sheet has been prepared for information purposes
only and does not purport to be indicative of the financial condition that
necessarily would have resulted had this transaction taken place as of September
30, 2004.
The following pro forma unaudited consolidated condensed statements of
operations for the year ended December 31, 2003 and the nine months ended
September 30, 2004, gives effect to the Company's reverse acquisition of
Vanguard and the purchase of shares by Oak, as if they had occurred at the
beginning of the respective periods. The revenues and results of operations
included in the following pro forma unaudited consolidated condensed statement
of operations are not considered necessarily indicative of the results of
operations for the periods specified had the transaction actually been completed
at the beginning of the periods.
These financial statements should be read in conjunction with the notes to the
pro forma unaudited consolidated condensed financial statements, which follow,
the financial statements of the Company and related notes thereto (as previously
filed), and the financial statements of Vanguard and related notes thereto,
included in Annex G.
H-1
VANGUARD INFO-SOLUTIONS CORPORATION
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 2004
VANGUARD TACT
HISTORICAL HISTORICAL
SEPTEMBER 30, SEPTEMBER 30, MERGER PRO FORMA
2004 2004 ADJUSTMENTS COMBINED
--------------- ------------- --------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 27,557 $ 884,402 $ 5,000,000 e $ 5,911,959
Accounts receivable 13,137,361 5,017,121 - 18,154,482
Unbilled receivables - 301,111 - 301,111
Deferred Taxes 25,929 - - 25,929
Advance to Stockholder 298,737 - - 298,737
Prepaid expenses and other
current assets 85,494 223,143 (40,000)e 268,637
--------------- ------------- --------------- --------------
Total current assets 13,575,078 6,425,776 4,960,000 24,960,854
Investments, net - 87,059 - 87,059
Property and equipment, net 19,908,557 553,224 (15,484,072)f 4,977,709
Goodwill - 1,140,964 (1,140,964)d -
Goodwill (New) - - 6,700,841 b 6,700,841
Intangibles, net - 52,000 - 52,000
Deposits and Other 505,506 129,363 - 634,869
--------------- ------------- --------------- --------------
Total assets $ 33,989,141 $ 8,388,385 $ (4,964,194) $ 37,413,331
=============== ============= =============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable 941,405 - - 941,405
Accounts payable and accrued expenses 5,384,403 1,745,637 1,800,000 a/e 8,930,040
Accounts payable, affiliate 1,770,401 - - 1,770,401
Capital lease obligation 4,672,295 290,517 (4,672,295)f 290,517
Deferred income taxes - 28,125 - 28,125
Income taxes payable 443,623 - - 443,623
Current portion of long-term debt 99,283 244,371 - 343,654
--------------- ------------- --------------- --------------
Total current liabilities 13,311,410 2,308,650 (2,872,295) 12,747,765
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 136,885 17,028 - 153,913
Capital lease obligation,
net of current portion 9,425,306 - (9,425,306)f 0
Minority Interest 4,572 - - 4,572
--------------- ------------- --------------- --------------
9,566,763 17,028 (9,425,306) 158,485
Total Liabilities 22,878,173 2,325,678 (12,297,601) 12,906,250
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; - 5,716 (5,716)c -
Common stock, $.01 par value;
30,000,000 shares authorized; - 21,096 (21,096)c 102,033
6,250 e
95,783 a
Paid-in capital 3,055,586 34,163,487 (34,163,487)c 3,055,586
9,726,802 a 9,726,802
4,953,750 e 4,953,750
Accumulated income(deficit) 7,881,118 (28,127,592) 28,127,592 c 7,881,118
(1,386,471)f (1,386,471)
Accumulated other comprehensive loss 174,264 - - 174,264
--------------- ------------- --------------- --------------
Total shareholders' equity 11,110,968 6,062,707 7,333,407 24,507,082
--------------- ------------- --------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 33,989,141 $ 8,388,385 $ (4,964,194) $ 37,413,332
=============== ============= =============== ==============
H-2
VANGUARD INFO-SOLUTIONS CORPORATION
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2003
VANGUARD TACT
HISTORICAL HISTORICAL
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MERGER PRO FORMA
2003 2003 ADJUSTMENTS COMBINED
--------------- --------------- ----------- -------------
REVENUES $ 17,708,266 $ 21,645,763 $ - $ 39,354,029
Cost of revenues 15,480,868 15,829,442 - 31,310,310
--------------- --------------- ----------- -------------
Gross Profit 2,227,398 5,816,321 - 8,043,719
-
OPERATING EXPENSES: -
Selling, general & administrative 1,998,285 5,065,462 - 7,063,747
Depreciation & Amortization-Operations - 752,609 - 752,609
Provision for doubtful accounts - 40,000 - 40,000
--------------- --------------- ----------- -------------
1,998,285 5,858,071 - 7,856,356
--------------- --------------- ----------- -------------
Income (loss) from operations 229,113 (41,750) - 187,363
OTHER INCOME(EXPENSE):
Interest expense, net 2,433 (58,055) - (55,622)
--------------- --------------- ----------- -------------
2,433 (58,055) - (55,622)
--------------- --------------- ----------- -------------
INCOME (LOSS) BEFORE INCOME TAXES & MINORITY INTEREST 231,546 (99,805) - 131,741
Provision (Benefit) for income taxes 136,683 23,500 32,253 bb 192,436
Minority interest in net income of subsidiaries -
--------------- --------------- ----------- -------------
Net income (loss) $ 94,863 $ (123,305) $ (32,253) $ (60,695)
=============== =============== =========== =============
Earning per share: $ 18.97 $ (0.01)
=============== ============
H-3
VANGUARD INFO-SOLUTIONS CORPORATION
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
VANGUARD TACT
HISTORICAL HISTORICAL
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, MERGER PRO FORMA
2004 2004 ADJUSTMENTS COMBINED
-------------- -------------- ------------ ------------
REVENUES $ 22,381,052 $ 18,733,064 $ - $ 41,114,116
Cost of revenues 13,145,460 13,045,840 - 26,191,300
-------------- -------------- ------------ ------------
Gross Profit 9,235,592 5,687,224 - 14,922,816
-
OPERATING EXPENSES: -
Selling, general & administrative 3,537,177 4,385,462 650,000 aa 8,572,639
Depreciation & Amortization-Operations 397,382 292,660 - 690,042
-
-------------- -------------- ------------ ------------
3,934,559 4,678,122 650,000 9,262,681
-------------- -------------- ------------ ------------
Income (loss) from operations 5,301,033 1,009,103 (650,000) 5,660,136
OTHER INCOME(EXPENSE):
Interest expense, net (441,549) (22,501) 430,511 cc (33,539)
Equipment lease expenses (531,692) - (531,692)
Lease income 3,060,664 - (2,528,972)cc 531,692
Depreciation-Leased assets (704,100) - 704,100 cc -
Commission Income 619,283 dd - 619,283
Foreign exchange translation 437,850 - 437,850
Miscellaneous expense (110,975) - (110,975)
-------------- -------------- ------------ ------------
2,329,481 (22,501) (1,394,361) 912,619
-------------- -------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES & MINORITY INTEREST 7,630,514 986,602 (2,044,361) 6,572,755
Provision (Benefit) for income taxes 275,182 98,988 374,170
Minority interest in net income of subsidiaries 4,572 - - 4,572
-------------- -------------- ------------ ------------
Net income (loss) $ 7,350,760 $ 887,614 $ (2,044,361) $ 6,194,013
============== ============== ============ ============
Earning per share: $ 735.08 $ 0.61
============== ============
H-4
VANGUARD INFO-SOLUTIONS CORPORATION/THE A CONSULTING TEAM, INC
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying pro forma unaudited consolidated condensed balance sheet at
September 30, 2004 and statements of operations for the year ended December 31,
2003 and nine months ended September 30, 2004, present the financial position
and results of operations of the Company and Vanguard giving effect to the
reverse acquisition to be consummated if Proposal 2 is approved by the
shareholders and the purchase of shares by Oak to be consummated if Proposal 3
is approved by the stockholders.
In January 2005, the Company signed a Share Exchange Agreement with Vanguard
Info-Solutions Corporation (Vanguard), whereby the Company agreed to issue
7,312,796 shares of common stock to the shareholders of Vanguard in exchange for
all of the outstanding stock of Vanguard. In addition, the Company signed a
Stock Purchase Agreement with Oak Finance Investments Limited ("Oak"), whereby
Oak agreed to purchase a minimum of 625,000 shares of common stock directly from
the Company for $8.00 per share.
The 7,312,796 shares of common stock to be issued by the Company to the selling
shareholders represent approximately 71% of the voting common stock of the
Company. Accordingly, this business combination is considered to be a reverse
acquisition. As such, for accounting purposes, Vanguard is considered to be the
acquirer while the Company is considered to be the acquiree.
The adjustments below were prepared based on estimates or approximations. It is
possible that the actual amounts recorded may have an impact on the results of
operations and the balance sheet different from that reflected in the
accompanying pro forma unaudited consolidated condensed financial statements. It
is therefore possible that the entries below will not be the amounts actually
recorded at the closing date.
H-5
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
BALANCE SHEET AT SEPTEMBER 30, 2004:
(a) To record the reverse acquisition of Vangaurd
for a purchase price of $9,822,584 plus acquisition costs of $1,800,000.
(b) To allocate excess purchase price to goodwill
Goodwill $6,700,841
(c) To eliminate equity and retained earnings of TACT
(d) To eliminate the Goodwill on TACT's books prior to the reverse acquisition
Goodwill $1,140,964
(e) To record the minimum issuance of 625,000 shares of Common Stock to Oak for
$8.00 per share, net of related costs
Cash $5,000,000
Deferred Finance Costs $ 40,000
Common Stock $ 6,250
Paid-in capital $4,953,750
(f) To remove the capital leases on Vanguard's books which were attributable to
equipment that was used by and reimbursed by another company along with all
associated costs. These leases were subsequently transferred to that company in
December 2004
H-6
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 2004:
(aa) To record TACT's additional estimated fees associated with the transaction
(bb) To record a tax provision for Vanguard as if it were a "C" Corporation at
the beginning of the year ended December 31, 2003
(cc) The Lease income on Vanguard's books was derived from equipment leases for
equipment that was used by another company. In December 2004 the majority of
this equipment was transferred to the company using the equipments, therefore,
future periods will have substantially less lease income
(dd) The commission income on Vanguard's books was derived from billing and
collection services, which Vanguard performed for a third party. It is expected
that these services will not continue in future periods.
H-7
ANNEX I
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
THE A CONSULTING TEAM, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
Pursuant to the Provisions of Section 801 and Section 805 of the New
York Business Corporation Law, The A Consulting Team, Inc., a corporation
organized under the laws of the State of New York, certifies the following to
amend its Certificate of Incorporation:
1. The name of the Corporation is The A Consulting Team, Inc.
2. The Certificate of Incorporation was filed with the Department of
State on February 16, 1983.
3. The following amendment to the Certificate of Incorporation of the
Corporation was authorized by unanimous consent of the board and adopted by a
majority vote of all outstanding shares entitled to vote at the ____________,
2005 Annual Meeting of Shareholders.
Section 1 of the Certificate of Incorporation is hereby deleted and
replaced with the following:
1. The name of the Corporation is: VANGUARD INFO-SOLUTIONS
INTERNATIONAL INC.
IN WITNESS WHEREOF, The A Consulting Team, Inc. has caused this
Amendment to Certificate of Incorporation to be signed by its Secretary on this
_____ day of ___________, 2005.
THE A CONSULTING TEAM, INC.
By:
-------------------------------
Richard D. Falcone, Secretary
and Chief Financial Officer
I-1
ANNEX J
THE A CONSULTING TEAM, INC.
AMENDED AND RESTATED 1997 STOCK OPTION AND AWARD PLAN
J-1
TABLE OF CONTENTS
PAGE
Section 1 BACKGROUND, PURPOSE AND DURATION.........................J-7
1.1 Background and Effective Date................................J-7
1.2 Purpose of the Plan..........................................J-7
Section 2 DEFINITIONS..............................................J-7
2.1 "1934 Act"...................................................J-7
2.2 "Affiliate"..................................................J-7
2.3 "Affiliated SAR".............................................J-7
2.4 "Award"......................................................J-8
2.5 "Award Agreement"............................................J-8
2.6 "Board"......................................................J-8
2.7 "Code".......................................................J-8
2.8 "Committee"..................................................J-8
2.9 "Company"....................................................J-8
2.10 "Consultant".................................................J-8
2.11 "Director"...................................................J-8
2.12 "Disability".................................................J-8
2.13 "Employee"...................................................J-8
2.14 "Employee Director"..........................................J-8
2.15 "Exercise Price".............................................J-8
2.16 "Fair Market Value"..........................................J-8
2.17 "Freestanding SAR"...........................................J-9
2.18 "Grant Date".................................................J-9
2.19 "Incentive Stock Option".....................................J-9
2.20 "Non-employee Director"......................................J-9
2.21 "Nonqualified Stock Option"..................................J-9
2.22 "Option".....................................................J-9
2.23 "Participant"................................................J-9
2.24 "Performance Share"..........................................J-9
2.25 "Performance Unit"...........................................J-9
2.26 "Period of Restriction"......................................J-9
J-2
TABLE OF CONTENTS
(continued)
PAGE
2.27 "Plan".......................................................J-9
2.28 "Restricted Stock"...........................................J-9
2.29 "Rule 16b-3".................................................J-9
2.30 "Section 16 Person"..........................................J-9
2.31 "Shares".....................................................J-9
2.32 "Stock Appreciation Right"...................................J-9
2.33 "Subsidiary"................................................J-10
2.34 "Tandem SAR"................................................J-10
2.35 "Termination of Service"....................................J-10
Section 3 ADMINISTRATION..........................................J-10
3.1 The Committee...............................................J-10
3.2 Authority of the Committee..................................J-10
3.3 Delegation by the Committee.................................J-10
3.4 Non-employee Directors......................................J-11
3.5 Decisions Binding...........................................J-11
Section 4 SHARES SUBJECT TO THE PLAN..............................J-11
4.1 Number of Shares............................................J-11
4.2 Lapsed Awards...............................................J-11
4.3 Adjustments in Awards and Authorized Shares.................J-11
4.4 Limits on Awards............................................J-11
Section 5 STOCK OPTIONS...........................................J-11
5.1 Grant of Options............................................J-11
5.2 Award Agreement.............................................J-12
5.3 Exercise Price..............................................J-12
5.3.1 Nonqualified Stock Options.........................J-12
5.3.2 Incentive Stock Options............................J-12
5.3.3 Substitute Options.................................J-12
5.4 Expiration of Options.......................................J-12
5.4.1 Expiration Dates...................................J-12
5.4.2 Death of Participant...............................J-13
J-3
TABLE OF CONTENTS
(continued)
PAGE
5.4.3 Committee Discretion...............................J-13
5.5 Exercisability of Options...................................J-13
5.6 Payment.....................................................J-13
5.7 Restrictions on Share Transferability.......................J-13
5.8 Certain Additional Provisions for Incentive Stock Options...J-13
5.8.1 Exercisability.....................................J-13
5.8.2 Company and Subsidiaries Only......................J-14
5.8.3 Expiration.........................................J-14
5.9 Grant of Reload Options.....................................J-14
Section 6 STOCK APPRECIATION RIGHTS...............................J-14
6.1 Grant of SARs...............................................J-14
6.1.1 Exercise Price and Other Terms.....................J-14
6.2 Exercise of Tandem SARs.....................................J-14
6.3 Exercise of Freestanding SARs...............................J-15
6.4 SAR Agreement...............................................J-15
6.5 Expiration of SARs..........................................J-15
6.6 Payment of SAR Amount.......................................J-15
Section 7 RESTRICTED STOCK........................................J-15
7.1 Grant of Restricted Stock...................................J-15
7.2 Restricted Stock Agreement..................................J-15
7.3 Transferability.............................................J-15
7.4 Other Restrictions..........................................J-16
7.5 Removal of Restrictions.....................................J-16
7.6 Voting Rights...............................................J-16
7.7 Dividends and Other Distributions...........................J-16
7.8 Return of Restricted Stock to Company.......................J-16
Section 8 PERFORMANCE UNITS AND PERFORMANCE SHARES................J-17
8.1 Grant of Performance Units/Shares...........................J-17
8.2 Initial Value...............................................J-17
8.3 Performance Objectives and Other Terms......................J-17
J-4
TABLE OF CONTENTS
(continued)
PAGE
8.4 Earning of Performance Units and Performance Shares.........J-17
8.5 Form and Timing of Payment..................................J-17
8.6 Cancellation................................................J-17
Section 9 NON-EMPLOYEE DIRECTORS..................................J-18
9.1 Granting of Awards..........................................J-18
9.1.1 New Non-employee Directors.........................J-18
9.1.2 Continuing Non-employee Directors..................J-18
9.1.3 Discretionary Options..............................J-18
9.1.4 Other Awards.......................................J-18
9.2 Terms of Nondiscretionary Options...........................J-18
9.2.1 Option Agreement...................................J-18
9.2.2 Exercise Price.....................................J-18
9.2.3 Exercisability.....................................J-18
9.2.4 Expiration of Options..............................J-18
9.2.5 Death of Non-employee Director.....................J-19
9.2.6 Not Incentive Stock Options........................J-19
9.2.7 Other Terms........................................J-19
9.3 Terms of Other Awards.......................................J-19
Section 10 MISCELLANEOUS...........................................J-19
10.1 No Effect on Employment or Service..........................J-19
10.2 Participation...............................................J-19
10.3 Indemnification.............................................J-19
10.4 Successors..................................................J-20
10.5 Beneficiary Designations....................................J-20
10.6 Nontransferability of Awards................................J-20
10.7 No Rights as Stockholder....................................J-20
10.8 Withholding Requirements....................................J-20
10.9 Withholding Arrangements....................................J-20
10.10 Deferrals...................................................J-21
Section 11 AMENDMENT, TERMINATION, AND DURATION....................J-21
J-5
TABLE OF CONTENTS
(continued)
PAGE
11.1 Amendment, Suspension, or Termination.......................J-21
11.2 Duration of the Plan........................................J-21
Section 12 LEGAL CONSTRUCTION......................................J-21
12.1 Gender and Number...........................................J-21
12.2 Severability................................................J-21
12.3 Requirements of Law.........................................J-21
12.4 Compliance with Rule 16b-3..................................J-21
12.5 Governing Law...............................................J-22
12.6 Captions....................................................J-22
J-6
THE A CONSULTING TEAM, INC.
AMENDED AND RESTATED 1997 STOCK OPTION AND AWARD PLAN
THE A CONSULTING TEAM, INC., hereby adopts The A Consulting Team, Inc.
Amended and Restated 1997 Stock Option and Award Plan, as follows:
SECTION 1
BACKGROUND, PURPOSE AND DURATION
1.1 BACKGROUND AND EFFECTIVE DATE. The Plan permits the grant of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, and Performance Shares. Effectiveness of this Plan is subject
to the approval of the shareholders of the Company within twelve (12) months
before or after February 9, 2005 (the date of the Board's adoption of the Plan),
and the Plan shall become effective on the date of such shareholder approval.
1.2 PURPOSE OF THE PLAN. The Plan is intended to increase incentive and
to encourage Share ownership on the part of (1) Employees (including officers
and Directors) of the Company and its Affiliates, (2) Consultants who provide
significant services to the Company and its Affiliates, and (3) Directors of the
Company who are employees of neither the Company nor any Affiliate. The Plan
also is intended to further the growth and profitability of the Company.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings
unless a different meaning is plainly required by the context:
2.1 "1934 ACT" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.2 "AFFILIATE" means any corporation or any other entity (including,
but not limited to, partnerships and joint ventures) controlling controlled by,
or under common control with the Company.
2.3 "AFFILIATED SAR" means a SAR that is granted in connection with a
related Option, and which automatically will be deemed to be exercised at the
same time that the related Option is exercised. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
J-7
2.4 "AWARD" means, individually or collectively, a grant under the Plan
of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, or Performance Shares.
2.5 "AWARD AGREEMENT" means the written agreement setting forth the
terms and provisions applicable to each Award granted under the Plan.
2.6 "BOARD" means the Board of Directors of the Company.
2.7 "CODE" means the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.8 "COMMITTEE" means the committee(s) appointed by the Board (pursuant
to Section 3.1) to administer the Plan.
2.9 "COMPANY" means The A Consulting Team, a New York corporation, or
any successor thereto.
2.10 "CONSULTANT" means any consultant, independent contractor, or
other person who provides significant services to the Company or its Affiliates,
but who is neither an Employee nor a Director.
2.11 "DIRECTOR" means any individual who is a member of the Board.
2.12 "DISABILITY" means a permanent and total disability within the
meaning of Code section 22(e)(3), provided that in the case of Awards other than
Incentive Stock Options, the Committee in its discretion may determine whether a
permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.
2.13 "EMPLOYEE" means any employee (including officers and Directors)
of the Company or of an Affiliate, whether such employee is so employed at the
time the Plan is adopted or becomes so employed subsequent to the adoption of
the Plan.
2.14 "EMPLOYEE DIRECTOR" means a Director who is an Employee of the
Company or of any Affiliate.
2.15 "EXERCISE PRICE" means the price at which a Share may be purchased
by a Participant pursuant to the exercise of an Option.
2.16 "FAIR MARKET VALUE" means the last quoted per share selling price
for Shares on the relevant date, or if there were no sales on such date, the
arithmetic mean of the highest and lowest quoted selling prices on the nearest
day after the relevant date, as determined by the Committee. Notwithstanding the
preceding, with respect to Options granted on the date of the initial public
offering of Shares, fair market value means the price at which each Share is
sold in such offering, as determined by the Committee.
J-8
2.17 "FREESTANDING SAR" means a SAR that is granted independently of
any Option.
2.18 "GRANT DATE" means, with respect to an Award, the date that the
Award was granted.
2.19 "INCENTIVE STOCK OPTION" means an Option to purchase Shares which
is designated as an Incentive Stock Option and is intended to meet the
requirements of section 422 of the Code.
2.20 "NON-EMPLOYEE DIRECTOR" means a Director who is an Employee of
neither the Company nor of any Affiliate.
2.21 "NONQUALIFIED STOCK OPTION" means an option to purchase Shares
which is not intended to be an Incentive Stock Option.
2.22 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.23 "PARTICIPANT" means an Employee, Consultant, Employee Director, or
Non-employee Director who has an outstanding Award.
2.24 "PERFORMANCE SHARE" means a Performance Share granted to a
Participant pursuant to Section 8.
2.25 "PERFORMANCE UNIT" means a Performance Unit granted to a
Participant pursuant to Section 8.
2.26 "PERIOD OF RESTRICTION" means the period during which shares of
Restricted Stock are subject to forfeiture and/or restrictions on
transferability.
2.27 "PLAN" means The A Consulting Team, Inc. Amended and Restated 1997
Stock Option and Award Plan, as set forth in this instrument and as hereafter
amended from time to time. Where appropriate, the term "Plan" also includes The
A Consulting Team, Inc. 1997 Stock Option and Award Plan, as previously
approved, amended and restated.
2.28 "RESTRICTED STOCK" means an Award granted to a Participant
pursuant to Section 7.
2.29 "RULE 16B-3" means Rule 16b-3 promulgated under the 1934 Act, as
amended, and any future regulation amending, supplementing or superseding such
regulation.
2.30 "SECTION 16 PERSON" means a person who, with respect to the
Shares, is subject to section 16 of the 1934 Act.
2.31 "SHARES" means the shares of the Company's common stock, $0.01 par
value.
2.32 "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone
or in connection with a related Option, that pursuant to Section 6 is designated
as a SAR.
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2.33 "SUBSIDIARY" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
2.34 "TANDEM SAR" means a SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
2.35 "TERMINATION OF SERVICE" means (a) in the case of an Employee, a
cessation of the employee-employer relationship between an Employee and the
Company or an Affiliate for any reason, including, but not by way of limitation,
a termination by resignation, discharge, death, Disability, retirement, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous reemployment by the Company or an Affiliate; (b) in the case
of a Consultant, a cessation of the service relationship between a Consultant
and the Company or an Affiliate for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous re-engagement of the consultant by the Company or an
Affiliate; and (c) in the case of an Employee Director or Non-employee Director,
a cessation of the Director's service on the Board for any reason.
SECTION 3
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Committee. The
members of the Committee shall be appointed from time to time by, and shall
serve at the pleasure of, the Board. In addition, the Board may appoint or
remove members of a separate committee to administer the Plan with respect to
Section 16 Persons, which committee shall have all the powers and authorities of
the Committee with respect to such persons and shall consist of (a) the Board
itself or (b) those individuals who shall satisfy the requirements of Rule
16b-3.
3.2 AUTHORITY OF THE COMMITTEE. It shall be the duty of the Committee
to administer the Plan in accordance with the Plan's provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees, Consultants, and Employee Directors shall be
granted Awards, (b) prescribe the terms and conditions of the Awards (other than
the Awards granted to Non-employee Directors), (c) interpret the Plan and the
Awards, (d) adopt rules for the administration, interpretation and application
of the Plan as are consistent therewith, and (e) interpret, amend or revoke any
such rules.
3.3 DELEGATION BY THE COMMITTEE. The Committee, in its sole discretion
and on such terms and conditions as it may provide, may delegate all or any part
of its authority and powers under the Plan to one or more Directors or officers
of the Company; provided, however, that unless otherwise determined by the
Board, the Committee may not delegate its authority and powers in any way which
would jeopardize the Plan's qualifications under Rule 16b-3.
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3.4 NON-EMPLOYEE DIRECTORS. Notwithstanding any contrary provision of
this Section 3, the Board shall administer the Plan with respect to grants of
Awards to Non-employee Directors, and the Committee shall exercise no discretion
with respect to any Awards to Non-employee Directors. In the Board's
administration of the Plan, and the Awards to Non-employee Directors, the Board
shall have all of the authority and discretion otherwise granted to the
Committee.
3.5 DECISIONS BINDING. All determinations and decisions made by the
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3,
the total number of Shares available for grant under the Plan shall not exceed
1,200,000. Shares granted under the Plan may be either authorized but unissued
Shares or treasury Shares.
4.2 LAPSED AWARDS. If an Award terminates, expires, or lapses for any
reason, any Shares subject to such Award again shall be available to be the
subject of an Award.
4.3 ADJUSTMENTS IN AWARDS AND AUTHORIZED SHARES. In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, the
number, class, and price of Shares subject to outstanding Awards, and the
numerical limits of Section 4.4 in such manner as the Committee (in its sole
discretion) shall determine to be appropriate to prevent the dilution or
diminution of such Awards. In the case of Awards granted to Non-employee
Directors pursuant to Section 9, the foregoing adjustments shall be made by the
Board, and any such adjustments also shall apply to the future grants provided
by Section 9. Notwithstanding the preceding, the number of Shares subject to any
Award always shall be a whole number.
4.4 LIMITS ON AWARDS. Subject to the provisions of Section 4.3, the
aggregate maximum number of Shares that may be issued in connection with an
Incentive Stock Option shall be 1,200,000 Shares. No Participant shall receive
Options or Stock Appreciation Rights during any calendar year in excess of
100,000 Shares. No Participant shall receive Performance Shares or Performance
Units during any calendar year in excess of 100,000 Shares.
SECTION 5
STOCK OPTIONS
5.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Employees, Consultants, and Employee Director at any
time and from time to time as determined by the Committee in its sole
discretion. Subject to the terms of the Plan, the Committee, in its sole
discretion, shall determine the number of Shares subject to each Option. The
Committee may grant Incentive Stock Options, Nonqualified Stock Options, or a
combination thereof.
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5.2 AWARD AGREEMENT. Each Option shall be evidenced by an Award
Agreement that shall specify the Exercise Price, the expiration date of the
Option, the number of Shares to which the Option pertains, any conditions to
exercise of the Option, and such other terms and conditions as the Committee, in
its discretion, shall determine. The Award Agreement shall specify whether the
Option is intended to be an Incentive Stock Option or a Nonqualified Stock
Option.
5.3 EXERCISE PRICE. Subject to the provisions of this Section 5.3, the
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
5.3.1 NONQUALIFIED STOCK OPTIONS. In the case of a Nonqualified
Stock Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date.
5.3.2 INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock
Option, the Exercise Price shall be not less than one hundred percent (100%) of
the Fair Market Value of a Share on the Grant Date; provided, however, that if
on the Grant Date, the Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d) of the Code) owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, the Exercise Price shall be not
less than one hundred and ten percent (110%) of the Fair Market Value of a Share
on the Grant Date.
5.3.3 SUBSTITUTE OPTIONS. Notwithstanding the provisions of
Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate
consummates a transaction described in section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons who
become Employees, Consultants or Employee Directors on account of such
transaction may be granted Options in substitution for options granted by their
former employer. If such substitute Options are granted, the Committee, in its
sole discretion and consistent with section 424(a) of the Code, shall determine
the exercise price of such substitute Options.
5.4 EXPIRATION OF OPTIONS.
5.4.1 EXPIRATION DATES. Each Option shall terminate no later than
the first to occur of the following events:
(a) The date for termination of the Option set forth in the
written Award Agreement; or
(b) The expiration of ten (10) years from the Grant Date; or
(c) The expiration of three (3) months from the date of the
Participant's Termination of Service for a reason other than the Participant's
death or Disability; or
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(d) The expiration of one (1) year from the date of the
Participant's Termination of Service by reason of Disability.
5.4.2 DEATH OF PARTICIPANT. Notwithstanding Section 5.4.1, if a
Participant dies prior to the expiration of his or her Options, the Committee,
in its discretion, may provide that his or her Options shall be exercisable for
up to one (1) year after the date of death.
5.4.3 COMMITTEE DISCRETION. Subject to the limits of Sections
5.4.1 and 5.4.2, the Committee, in its sole discretion, (a) shall provide in
each Award Agreement when each Option expires and becomes unexercisable, and (b)
may, after an Option is granted, extend the maximum term of the Option (subject
to Section 5.8.3 regarding Incentive Stock Options).
5.5 EXERCISABILITY OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option.
5.6 PAYMENT. Options shall be exercised by the Participant's delivery
of a written notice of exercise to the Secretary of the Company (or its
designee), setting forth the number of Shares with respect to which the Option
is to be exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to
the Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, owned more than six months or (b) by any other means which the
Committee, in its sole discretion, determines to both provide legal
consideration for the Shares, and to be consistent with the purposes of the
Plan.
As soon as practicable after receipt of a written notification of
exercise and full payment for the Shares purchased, the Company shall deliver to
the Participant (or the Participant's designated broker), Share certificates
(which may be in book entry form) representing such Shares.
5.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
as it may deem advisable, including, but not limited to, restrictions related to
applicable Federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.
5.8 CERTAIN ADDITIONAL PROVISIONS FOR INCENTIVE STOCK OPTIONS.
5.8.1 EXERCISABILITY. The aggregate Fair Market Value (determined
on the Grant Date(s)) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by any Employee during any calendar
year (under all plans of the Company and its Subsidiaries) shall not exceed
$100,000. Termination of Service. No Incentive Stock Option may be exercised
more than three (3) months after the Participant's Termination of Service for
any reason other than Disability or death, unless (a) the Participant dies
during such three-month period, and (b) the Award Agreement or the Committee
permits later exercise.
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5.8.2 COMPANY AND SUBSIDIARIES ONLY. Incentive Stock Options may
be granted only to persons who are Employees of the Company or a Subsidiary on
the Grant Date.
5.8.3 EXPIRATION. No Incentive Stock Option may be exercised after
the expiration of ten (10) years from the Grant Date; provided, however, that if
the Option is granted to an Employee who, together with persons whose stock
ownership is attributed to the Employee pursuant to section 424(d) of the Code,
owns stock possessing more than 10% of the total combined voting power of all
classes of the stock of the Company or any of its Subsidiaries, the Incentive
Stock Option may not be exercised after the expiration of five (5) years from
the Grant Date.
5.9 GRANT OF RELOAD OPTIONS. The Committee may provide in an Award
Agreement that a Participant who exercises all or part of an Option by payment
of the Exercise Price with already-owned Shares, shall be granted an additional
option (a "Reload Option") for a number of shares of stock equal to the number
of Shares tendered to exercise the previously granted Option plus, if the
Committee so determines, any Shares withheld or delivered in satisfaction of any
tax withholding requirements. As determined by the Committee, each Reload Option
shall: (a) have a Grant Date which is the date as of which the previously
granted Option is exercised, and (b) be exercisable on the same terms and
conditions as the previously granted Option, except that the Exercise Price
shall be determined as of the Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, a
SAR may be granted to Employees Consultants, and Employee Directors at any time
and from time to time as shall be determined by the Committee, in its sole
discretion. The Committee may grant Affiliated SARs, Freestanding SARs, Tandem
SARs, or any combination thereof. Subject to the terms of the Plan, the
Committee shall have complete discretion to determine the number of SARs granted
to any Participant.
6.1.1 EXERCISE PRICE AND OTHER TERMS. The Committee, subject to
the provisions of the Plan, shall have complete discretion to determine the
terms and conditions of SARs granted under the Plan. However, the exercise price
of a Freestanding SAR shall be not less than one hundred percent (100%) of the
Fair Market Value of a Share on the Grant Date. The exercise price of Tandem or
Affiliated SARs shall equal the Exercise Price of the related Option.
6.2 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the pay
out with respect to the Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price of the underlying Incentive
Stock Option and the Fair Market Value of the Shares subject to the underlying
Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the
Tandem SAR shall be exercisable only when the Fair Market Value of the Shares
subject to the Incentive Stock Option exceeds the Exercise Price of the
Incentive Stock Option.
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6.3 EXERCISE OF FREESTANDING SARS. Freestanding SARs shall be
exercisable on such terms and conditions as the Committee, in its sole
discretion, shall determine.
6.4 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the Committee, in
its sole discretion, shall determine.
6.5 EXPIRATION OF SARS. A SAR granted under the Plan shall expire upon
the date determined by the Committee, in its sole discretion, and set forth in
the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4
also shall apply to SARs.
6.6 PAYMENT OF SAR AMOUNT. Upon exercise of a SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on
the date of exercise over the exercise price; times
(b) The number of Shares with respect to which the SAR is
exercised. At the discretion of the Committee, payment for a SAR may be in cash,
Shares or a combination thereof.
SECTION 7
RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees, Consultants, Employee Directors in such amounts
as the Committee, in its sole discretion, shall determine. Subject to the terms
of the Plan, the Committee, in its sole discretion, shall determine the number
of Shares to be granted to each Participant.
7.2 RESTRICTED STOCK AGREEMENT. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, any price to be paid for the Shares, and such
other terms and conditions as the Committee, in its sole discretion, shall
determine. Unless the Committee determines otherwise, Shares of Restricted Stock
shall be held by the Company as escrow agent until the restrictions on such
Shares have lapsed.
7.3 TRANSFERABILITY. Shares of Restricted Stock may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction. In no event may the restrictions on
Restricted Stock granted to a Section 16 Person lapse prior to six (6) months
following the Grant Date.
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7.4 OTHER RESTRICTIONS. The Committee, in its sole discretion, may
impose such other restrictions on Shares of Restricted Stock as it may deem
advisable or appropriate, in accordance with this Section 7.4. For example, the
Committee may set restrictions based upon the achievement of specific
performance objectives (Company-wide, divisional, or individual), applicable
Federal or state securities laws, or any other basis determined by the Committee
in its discretion. The Committee, in its discretion, may legend the certificates
representing Restricted Stock to give appropriate notice of the restrictions
applicable to such Shares.
7.5 REMOVAL OF RESTRICTIONS. Shares of Restricted Stock covered by each
Restricted Stock grant made under the Plan shall be released from escrow as soon
as practicable after the last day of the Period of Restriction. The Committee,
in its discretion, may accelerate the time at which any restrictions shall
lapse, and remove any restrictions. After the restrictions have lapsed, the
Participant shall be entitled to have any legend or legends under Section 7.4
removed from his or her Share certificate, and the Shares shall be freely
transferable by the Participant.
7.6 VOTING RIGHTS. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless otherwise provided in the Award
Agreement.
7.7 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock shall be entitled
to receive all dividends and other distributions paid with respect to such
Shares unless otherwise provided in the Award Agreement. If any such dividends
or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
7.8 RETURN OF RESTRICTED STOCK TO COMPANY. On the date set forth in the
Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.
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SECTION 8
PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 GRANT OF PERFORMANCE UNITS/SHARES. Performance Units and
Performance Shares may be granted to Employees, Consultants, and Employee
Directors at any time and from time to time, as shall be determined by the
Committee, in its sole discretion. Subject to the terms of the Plan, the
Committee shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to any Participant.
8.2 INITIAL VALUE. Each Performance Unit shall have an initial value
that is established by the Committee on or before the Grant Date. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the Grant Date.
8.3 PERFORMANCE OBJECTIVES AND OTHER TERMS. The Committee shall set
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Units or Shares
that will be paid out to the Participants. The Committee may set performance
objectives based upon the achievement of Company-wide, divisional, or individual
goals, or any other basis determined by the Committee in its discretion. The
time period during which the performance objectives must be met shall be called
the "Performance Period". Each Award of Performance Units/Shares shall be
evidenced by an Award Agreement that shall specify the Performance Period, and
such other terms and conditions as the Committee, in its sole discretion, shall
determine.
8.4 EARNING OF PERFORMANCE UNITS AND PERFORMANCE SHARES. After the
applicable Performance Period has ended, the Participant shall be entitled to
receive a pay out of the number of Performance Units or Shares earned during the
Performance Period, depending upon the extent to which the applicable
performance objectives have been achieved. After the grant of a Performance Unit
or Share, the Committee, in its sole discretion, may reduce or waive any
performance objectives for Award; provided that Performance Periods of Awards
granted to Section 16 Persons shall not be less than six (6) months (or such
shorter period as may be permissible while maintaining compliance with Rule
16b-3).
8.5 FORM AND TIMING OF PAYMENT. Payment of earned Performance Units or
Performance Shares shall be made as soon as practicable after the expiration of
the applicable Performance Period. The Committee, in its sole discretion, may
pay earned such Awards in cash, Shares or a combination thereof.
8.6 CANCELLATION. On the date set forth in the Award Agreement, all
unearned or unvested Performance Units or Performance Shares shall be forfeited
to the Company, and again shall be available for grant under the Plan.
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SECTION 9
NON-EMPLOYEE DIRECTORS
9.1 GRANTING OF AWARDS.
9.1.1 NEW NON-EMPLOYEE DIRECTORS. Each Non-employee Director who
first becomes a Non-employee Director on or after the effective date of the Plan
automatically shall be granted, as of the date that the individual first is
appointed or elected as a Non-employee Director, an Option to purchase 250
Shares.
9.1.2 CONTINUING NON-EMPLOYEE DIRECTORS. Each Non-employee
Director who is re-elected to serve as a Non-employee Director automatically
shall be granted, as of the date that the individual is re-elected as a
Non-employee Director, an Option to purchase 250 Shares.
9.1.3 DISCRETIONARY OPTIONS. The Board, in its sole discretion,
may grant Nonqualified Stock Options to purchase up to 5,000 Shares per calendar
year to each Non-employee Director. Subject to the terms of the Plan, Options
granted to Non-employee Directors pursuant to this Section 9.1.3 may have the
same or different terms than the Options granted pursuant to Sections 9.1.1 and
9.1.2, as determined by the Board in its sole discretion.
9.1.4 OTHER AWARDS. Subject to the terms of the Plan, SARs,
Restricted Stock, Performance Units, and Performance Shares may be granted to
Non-employee Directors at any time and from time to time, as shall be determined
by the Board in its own discretion.
9.2 TERMS OF NONDISCRETIONARY OPTIONS.
9.2.1 OPTION AGREEMENT. Each Option granted pursuant to Sections
9.1.1 and 9.1.2 shall be evidenced by a written stock option agreement which
shall be executed by the Participant and the Company.
9.2.2 EXERCISE PRICE. The Exercise Price for the Shares subject to
each Option granted pursuant to Sections 9.1.1 and 9.1.2 shall be 100% of the
Fair Market Value of such Shares on the Grant Date.
9.2.3 EXERCISABILITY. Each Option granted pursuant to Sections
9.1.1 and 9.1.2 shall become exercisable in full on the first anniversary of the
Grant Date. Unless provided otherwise in the Award Agreement, once an
Non-employee Director ceases to be a Director, his or her Options which are not
exercisable shall not become exercisable.
9.2.4 EXPIRATION OF OPTIONS. Each Option shall terminate upon the
first to occur of the following events:
(a) The expiration of five (5) years from the Grant Date; or
(b) The expiration of three (3) months from the date of the
Participant's Termination of Service for a reason other the Participant's death
or Disability; or
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(c) The expiration of one (1) year from the date of the
Participant's Termination of Service by reason of Disability.
9.2.5 DEATH OF NON-EMPLOYEE DIRECTOR. Notwithstanding Section
9.2.4, if a Director dies prior to the expiration of his or her options in
accordance with Section 9.2.4, his or her options shall terminate one (1) year
after the date of death.
9.2.6 NOT INCENTIVE STOCK OPTIONS. Options granted pursuant to
Sections 9.1.1 and 9.1.2 shall not be designated as Incentive Stock Options.
9.2.7 OTHER TERMS. All provisions of the Plan not inconsistent
with this Section 9 shall apply to Options granted to Non-employee Directors;
provided, however, that Section 5.2 (relating to the Committee's discretion to
set the terms and conditions of Options) shall be inapplicable with respect to
Non-employee Directors.
9.3 TERMS OF OTHER AWARDS. Subject to the terms of the Plan, each Award
to a Non-employee Director shall be evidenced by an Award Agreement and shall
specify all the terms and conditions for such Award, including, but not limited
to, number of Shares subject to the Award, exercise price (if any) and vesting
and/or performance requirements. All provisions of the Plan not inconsistent
with this Section 9 shall apply to Awards (other than Options) granted to
Non-employee Directors; provided, however, that any section of the Plan that
grants the Committee discretion to set the terms and conditions of Awards shall
be inapplicable with respect to Non-employee Directors.
SECTION 10
MISCELLANEOUS
10.1 NO EFFECT ON EMPLOYMENT OR SERVICE. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates (or between Affiliates) shall not be
deemed a Termination of Service. Employment with the Company and its Affiliates
is on an at-will basis only.
10.2 PARTICIPATION. No Employee, Consultant or Employee Director shall
have the right to be selected to receive an Award under this Plan, or, having
been so selected, to be selected to receive a future Award.
10.3 INDEMNIFICATION. Each person who is or shall have been a member of
the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, by contract, as a matter of law, or
otherwise, or under any power that the Company may have to indemnify them or
hold them harmless.
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10.4 SUCCESSORS. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business or assets of the Company.
10.5 BENEFICIARY DESIGNATIONS. If permitted by the Committee, a
Participant under the Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of the Plan and of the applicable Award Agreement, any
unexercised vested Award may be exercised by the administrator or executor of
the Participant's estate.
10.6 NONTRANSFERABILITY OF AWARDS. No Award granted under the Plan may
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will, by the laws of descent and distribution, or to the limited
extent provided in Section 10.5. All rights with respect to an Award granted to
a Participant shall be available during his or her lifetime only to the
Participant.
10.7 NO RIGHTS AS STOCKHOLDER. Except to the limited extent provided in
Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of the
rights or privileges of a stockholder of the Company with respect to any Shares
issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).
10.8 WITHHOLDING REQUIREMENTS. Prior to the delivery of any Shares or
cash pursuant to an Award (or exercise thereof), the Company shall have the
power and the right to deduct or withhold, or require a Participant to remit to
the Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof). The amount of the withholding
requirement shall be deemed to include any amount which the Committee
determines, not to exceed the amount determined by using the maximum federal,
state or local marginal income tax rates applicable to the Participant with
respect to the Award on the date that the amount of tax to be withheld is to be
determined.
10.9 WITHHOLDING ARRANGEMENTS. The Committee, in its sole discretion
and pursuant to such procedures as it may specify from time to time, may permit
or require a Participant to satisfy the minimum tax withholding obligations in
connection with an Award by (a) having the Company withhold otherwise
deliverable Shares, or (b) delivering to the Company already-owned Shares having
a Fair Market Value equal to the minimum amount required to be withheld. The
Fair Market Value of the Shares to be withheld or delivered shall be determined
as of the date that the taxes are required to be withheld.
J-20
10.10 DEFERRALS. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be delivered to a Participant under the Plan. Any such
deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
SECTION 11
AMENDMENT, TERMINATION, AND DURATION
11.1 AMENDMENT, SUSPENSION, OR TERMINATION. The Board, in its sole
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. The amendment, suspension, or termination of the Plan shall
not, without the consent of the Participant, alter or impair any rights or
obligations under any Award theretofore granted to such Participant. No Award
may be granted during any period of suspension or after termination of the Plan.
11.2 DURATION OF THE PLAN. Effectiveness of this Plan is subject to the
approval of the shareholders of the Company within twelve (12) months before or
after February 9, 2005 (the date of the Board's adoption of the Plan), and the
Plan shall become effective on the date of such shareholder approval, and,
subject to Section 11.1 (regarding the Board's right to amend or terminate the
Plan), shall remain in effect thereafter. However, without further stockholder
approval, no Incentive Stock Option may be granted under the Plan after February
9, 2015.
SECTION 12
LEGAL CONSTRUCTION
12.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
12.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
12.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
12.4 COMPLIANCE WITH RULE 16B-3. Transactions under this Plan with
respect to Section 16 Persons are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan, Award
Agreement or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
Notwithstanding any contrary provision of the Plan, if the Committee
specifically determines that compliance with Rule 16b-3 no longer is required,
all references in the Plan to Rule 16b-3 shall be null and void.
J-21
12.5 GOVERNING LAW. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of New York.
12.6 CAPTIONS. Captions are provided herein for convenience only, and
shall not serve as a basis for interpretation or construction of the Plan.
J-22
EXECUTION
IN WITNESS WHEREOF, The A Consulting Team, Inc., by its duly authorized
officer, has executed the Plan on the date indicated below to record the
adoption of the Plan by the Board on February 9, 2005.
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THE A CONSULTING TEAM, INC.
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Dated as of: February 9, 2005 By /s/ Richard D. Falcone
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Title: Chief Financial Officer
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J-23
ANNEX K
THE A CONSULTING TEAM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Shmuel BenTov, Chief Executive Officer
of The A Consulting Team, Inc., a New York corporation (the "Company"), and
Richard D. Falcone, Chief Financial Officer of the Company, and each of them, as
proxy for the undersigned, with full power of substitution, for and in the name
of the undersigned to act for the undersigned and to vote, as designated below,
all of the shares of common stock, $0.01 par value per share (the "Common
Stock"), all of the shares of Series A Preferred Stock, $0.01 par value per
share and all of the shares of Series B Preferred Stock, $0.01 par value per
share, of the Company that the undersigned is entitled to vote at the 2005
Annual Meeting of Shareholders of the Company, to be held on [____________], at
[______] (local time), at the offices of The A Consulting Team, Inc., 200 Park
Avenue South, Suite 901, New York, New York 10003 and at any adjournments or
postponements thereof, in accordance with the directions as follows with respect
to the following matters:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL NOMINEES NAMED BELOW AND FOR ALL OTHER PROPOSALS
OR OTHERWISE IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
K-1
Please mark |X|
your votes as
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 6. Please mark
your votes as in this example /x/.
1. Election of Directors Nominees.
ANDREW H. BALL FOR WITHHOLD
JOSEPH HARRIS ALL NOMINEES LISTED AUTHORITY
WILLIAM P. MILLER TO THE LEFT (EXCEPT) TO VOTE FOR ALL
STEVEN S. MUKAMAL AS MARKED TO THE NOMINEES LISTED
WILLIAM A. NEWMAN CONTRARY BELOW TO THE LEFT
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2. To approve the Company's issuance of 7,312,796 shares of the Company's
Common Stock to be exchanged for all the issued and outstanding shares of
Vanguard Info-Solutions Corporation, a New Jersey corporation ("Vanguard")
pursuant to the Share Exchange Agreement, dated as of January 21, 2005, by
and among the Company, Vanguard, the Vanguard shareholders, and their
authorized representative.
FOR AGAINST ABSTAIN
| | | | | |
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3. To approve the Company's issuance of between 625,000 and 1,250,000 shares
of the Company's Common Stock to Oak Finance Investments Limited, a
British Virgin Islands company ("Oak"), and to the permitted assignees of
Oak, pursuant to the Stock Purchase Agreement, dated as of January 21,
2005, between the Company and Oak.
FOR AGAINST ABSTAIN
| | | | | |
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4. To approve an amendment to the Company's Certificate of Incorporation to
change the Company's name from The A Consulting Team, Inc. to Vanguard
Info-Solutions International Inc. if the transactions contemplated by
Proposals Nos. 2 and 3 are consummated.
FOR AGAINST ABSTAIN
| | | | | |
K-2
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5. To approve an amendment and restatement of the Company's 1997 Stock Option
and Award Plan.
FOR AGAINST ABSTAIN
| | | | | |
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6. To ratify the selection of Grant Thornton LLP to be the independent
auditors of the Company for the fiscal year ending December 31, 2005 if
the transactions contemplated by Proposals Nos. 2 and 3 are not
consummated, and Mercadien, PC as independent auditors of the Company for
the fiscal year ending December 31, 2005 if the transactions contemplated
by Proposals Nos. 2 and 3 are consummated.
FOR AGAINST ABSTAIN
| | | | | |
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7. IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING.
Signature(s)____________________________________________Dated_____________, 2005
NOTE: Please sign exactly as your name appears on this card. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
Fold and detach here
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K-3