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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:
|_| Preliminary Proxy Statement
|_| CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-
6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under Rule 14a-12
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
|X| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date Filed:
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[TACT 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 the offices of TACT's counsel, Orrick,
Herrington & Sutcliffe LLP, at 666 Fifth Avenue, New York, New York 10103 on
May 5, 2005 at 10:00 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 March 21, 2005,
the record date for the Annual Meeting. 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 MAY 5, 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 10:00 A.M. (LOCAL TIME), ON MAY 5,
2005, AT THE OFFICES OF TACT'S COUNSEL, ORRICK, HERRINGTON & SUTCLIFFE LLP, AT
666 FIFTH AVENUE, NEW YORK, NEW YORK 10103 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 MARCH 21, 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
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This proxy statement is dated April 11, 2005 and is first being mailed to
shareholders on or about April 13, 2005.
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 11 to 16 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
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
TABLE OF CONTENTS
PAGE
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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 .............................................. 3
The Selling Shareholder's Sale Agreement ............................. 3
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 ................ 4
Opinion of Financial Advisor ......................................... 5
Interests of Directors and Executive Officers of TACT in the Share
Exchange and the Share Issuance ..................................... 5
Dissenters' Rights ................................................... 5
Nasdaq Reapplication for Initial Quotation............................ 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 ....................... 8
Voting at the Annual Meeting; Record Date; Quorum; Vote Required ..... 8
Voting Power of Shmuel BenTov ........................................ 9
Voting Requirements for Adoption of Proposals ........................ 9
Assistance ........................................................... 10
THE RELATED PROPOSALS ................................................... 11
Introduction ......................................................... 11
The Companies ........................................................ 11
The A Consulting Team, Inc. ........................................ 11
Vanguard Info-Solutions Corporation and its Subsidiaries ........... 12
Oak Finance Investments Limited .................................... 16
The Combined Companies ............................................... 16
Background of the Share Exchange, Share Issuance, BenTov Sale and
Related Transactions ................................................ 18
Effects of the Share Exchange, Share Issuance, BenTov Sale and
Related Transactions ................................................ 20
The Special Committee ................................................ 21
Opinion of TACT's Financial Advisor .................................. 22
BenTov Sale and Voting Obligations ................................... 26
Interests of Directors, Director Nominees and Executive Officers of
TACT in the Share Exchange and the Share Issuance ................... 26
Dissenters' Rights ................................................... 27
SUMMARY OF TRANSACTION DOCUMENTS ........................................ 28
Share Exchange Agreement ............................................. 28
i
TABLE OF CONTENTS
PAGE
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Stock Purchase Agreement ............................................. 33
Selling Shareholder's Sale Agreement ................................. 35
Principal Shareholder's Agreement .................................... 37
BenTov Employment Agreement .......................................... 38
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS ................................. 40
PROPOSAL NO. 2 -- THE SHARE EXCHANGE .................................... 43
PROPOSAL NO. 3 -- THE SHARE ISSUANCE .................................... 44
PROPOSAL NO. 4 -- AMENDMENT TO OUR CERTIFICATE OF INCORPORATION ......... 45
PROPOSAL NO. 5 -- APPROVAL OF THE AMENDED AND RESTATED 1997 STOCK OPTION
AND AWARD PLAN ........................................ 46
PROPOSAL NO. 6 -- RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS . 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT BEFORE
PROPOSED TRANSACTIONS.................................................. 55
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AFTER
PROPOSED TRANSACTIONS.................................................. 57
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES ................... 59
EXECUTIVE COMPENSATION .................................................. 62
Summary Compensation Table ........................................... 62
2004 Option/SAR Grants ............................................... 62
Aggregated Option/SAR Exercises in 2004 and Year-end Option/SAR
Values .............................................................. 63
Equity Compensation Plan Information ................................. 63
Director Compensation ................................................ 63
Employment Agreements ................................................ 63
Compensation Committee Interlocks and Insider Participation .......... 64
Report of the Compensation Committee of the Board of Directors ....... 64
PERFORMANCE GRAPH ....................................................... 66
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON ................ 66
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......................... 67
ACCOUNTANTS' ATTENDANCE AT THE ANNUAL MEETING ........................... 67
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ................. 67
SHAREHOLDER PROPOSALS FOR 2006 ANNUAL MEETING ........................... 67
OTHER MATTERS ........................................................... 68
SOLICITATION AND EXPENSES OF SOLICITATION ............................... 68
ANNUAL REPORT ........................................................... 68
ii
TABLE OF CONTENTS
ANNEXES PAGE
- ------- ----
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
iii
THE A CONSULTING TEAM, INC.
200 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10003
(212) 979-8228
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
May 5, 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 10:00 a.m. (local time), on May 5, 2005 at the offices of
TACT's counsel, Orrick, Herrington & Sutcliffe LLP at 666 Fifth Avenue, New
York, New York 10103 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 April 13, 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 10. 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.
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 offices of TACT's counsel, Orrick,
Herrington & Sutcliffe LLP, at 666 Fifth Avenue, New York, New York 10103, on
May 5, 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 March 21, 2005, the record date
for the Annual Meeting. On the record date, there were 2,127,647 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.
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.
2
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
28 to 33 of this proxy statement. The full text of the Share Exchange
Agreement is attached to this proxy statement as Annex A and is incorporated
herein by reference. 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 33 to 35 of this proxy statement. The full text of the
Stock Purchase Agreement is attached to this proxy statement as Annex B and is
incorporated herein by reference. We encourage you to read the Stock Purchase
Agreement carefully and in its entirety.
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,
3
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 35 to 37 of this proxy statement. The full text of the
Selling Shareholder's Sale Agreement is attached to this proxy statement as
Annex C and is incorporated herein by reference. 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.
The terms of the Principal Shareholder's Agreement are more fully described
on pages 37 to 38 of this proxy statement. The text of the Principal
Shareholder's Agreement is attached to this proxy statement as Annex D and is
incorporated herein by reference. 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);
4
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
11 through 27 below.
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 and is incorporated herein by reference. 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
and is incorporated herein by reference. 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. 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. 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.
5
o NASDAQ REAPPLICATION FOR INITIAL QUOTATION
The Nasdaq SmallCap Market rules require us to reapply for initial quotation
of our Common Stock in connection with the proposed Share Exchange and the
Share Issuance, since these transactions would result in a change of control
and potentially allow Vanguard, a non-Nasdaq entity, to obtain a Nasdaq
quotation. We submitted a reapplication in anticipation of the Share Exchange
and the Share Issuance under the symbol "VSIX." If the Share Exchange and the
Share Issuance is not consummated, we will withdraw this reapplication and our
Common Stock will continue to be quoted under the symbol "TACX".
We hope to receive approval from The Nasdaq SmallCap Market for its
reapplication prior to the consummation of the Share Exchange and the Share
Issuance, but there are no assurances that we will receive such approval prior
to the consummation of such transactions, which could result in a halt in the
trading of our Common Stock upon consummation of such transactions until we
receive such approval. There are also no assurances that we will receive such
approval at all, in which case our Common Stock would be removed from
quotation on The Nasdaq SmallCap Market.
If our Common Stock were removed from quotation on The Nasdaq SmallCap
Market, any trading in our Common Stock would thereafter be conducted in the
over-the-counter market on the OTC Electronic Bulletin Board or in the "pink
sheets." Accordingly, the liquidity of our Common Stock could be reduced and
the coverage of our company by security analysts and media could be reduced,
which could result in lower prices for our Common Stock than might otherwise
prevail and could also result in spreads between the bid and asked prices for
our Common Stock. Additionally, certain investors will not purchase securities
that are not quoted on The Nasdaq SmallCap Market, which could materially
impair our ability to raise funds through the issuance of our Common Stock or
other securities convertible into our Common Stock.
In addition, if the Company's Common Stock is removed from quotation on
Nasdaq and the trading price of its Common Stock is less than $5.00 per share,
trading in its Common Stock would also be subject to the requirements of Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended. Under
that Rule, broker and dealers who recommend such low priced securities to
persons other than established customers and accredited investors must satisfy
special sales practice requirements, including a requirement that they make an
individualized written suitability determination for the purchaser and receive
the purchaser's written consent prior to transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires
additional disclosure in connection with any trades involving a stock defined
as a penny stock (generally, according to recent regulations adopted by the
SEC, any equity security not traded on an exchange or quoted on Nasdaq or the
OTC Bulletin Board that has a market price of less than $5.00 per share,
subject to certain exceptions), including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny stock market
and the risks associated therewith. Such requirements could severely limit the
market liquidity of the Company's Common Stock. There can be no assurance that
the Company's Common Stock will not be removed from quotation on Nasdaq or
treated as penny stock.
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 May 5, 2005 at 10:00 a.m. (local time) at
the offices of TACT's counsel, Orrick, Herrington & Sutcliffe LLP, at 666
Fifth Avenue, New York, New York 10103.
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.
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 March 21, 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
8
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 2,127,647 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 2,270,550 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.
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).
9
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
10
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 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.
Set forth below is a description of the transactions and material
transaction documents upon which Proposals Nos. 1-4 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.
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
11
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.
TACT's Financial Statements and Supplementary Data, Management's Discussion
and Analysis of Financial Condition and Results of Operation, Qualitative and
Quantitative Disclosures Regarding Market Risk and Financial Statement
Schedules are included in TACT's 2004 Annual Report accompanying this proxy
statement and are incorporated herein by reference. For a complete
understanding of TACT and its historical operations and performance, we
encourage you to review this information in its entirety.
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.
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 is 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.
12
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.
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;
13
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.
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.
14
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,
Vanguard offers customer service and transaction processing, and plans to
offer document management.
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 1,661 employees, of whom 52 were
employed in IT Consulting and 1,604 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 NUMBER OF
- -------- SPACE WORKSTATIONS LEASE EXPIRATION
------------------------ ------------ ----------------
Delhi.......................................... 49,830 square feet
(or 5,393 square meters) 580 2006
Bangalore...................................... 22,400 square feet
(or 2,424 square meters) 288 2015
15
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.
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 and incorporated herein
by reference.
SELECTED FINANCIAL DATA
(in thousands, except number of shares and per share data)
Vanguard Historical
YEARS ENDED DECEMBER 31,
2004 2003 2002 2001
--------- ------- ------- -------
Statement of Operations Data:
Revenues ........................................................ $ 34,402 $17,708 $18,763 $16,116
Income (loss) from operations ................................... 10,375 229 1,967 619
Other income (expense):
Commission Income ............................................... 673 -- -- --
Net income (loss) ............................................... 10,028 95 1,932 636
Net income (loss) per share Basic/Diluted ....................... $1,002.80 $ 19.00 $193.20 $ 63.60
Income per share from operations ................................ $1,037.50 $ 45.80 $196.70 $ 61.90
Book value per share ............................................ $1,406.60 $108.00 $195.60 $ 30.10
Dividends per share ............................................. $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Total assets .................................................... $ 20,978 $ 2,413 $ 5,250 $ 2,135
Long-term liabilities ........................................... 117 16 26 --
Stockholders' equity ............................................ 14,066 540 1,956 301
Number of shares outstanding at period end ...................... 10,000 5,000 10,000 10,000
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. 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.
16
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 and incorporated herein by reference. 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 YEAR ENDED
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Statement of Operations Data:
Revenues ....................................... $ 59,438 $ 39,354
Income (loss) from operations .................. 10,835 187
Other income (expense):
Commission Income .............................. 673 --
Net income (loss) .............................. 10,365 (61)
Net income (loss) per share Basic/Diluted ...... $ 1.02 $ (0.01)
Income per share from operations ............... $ 1.06 $ 0.02
Book value per share ........................... $ 2.83 $ 0.56
Dividends per share ............................ $ -- $ --
BALANCE SHEET DATA:
Total assets ................................... $ 39,787 $ 9,786
Long-term liabilities .......................... 1,008 247
Stockholders' equity ........................... 28,849 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 Pro Forma Unaudited Consolidated Condensed Financial
Statements are attached to this proxy statement as Annex H. For a
17
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.
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
18
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.
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.
The special committee of the Board ofDirectors 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.
19
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, P.C., 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 3.
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
20
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 carry forward 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.
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
21
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.
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.
22
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.
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.
23
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.
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/
24
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.
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
25
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.
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. 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. Ball, a current Vanguard
shareholder, will own 2,303,531 shares (approximately 21.3% to 22.6%) of the
Common Stock upon
26
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.
27
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;
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;
28
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.
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.
29
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.
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
30
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.
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.
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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:
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:
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.
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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.
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.
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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;
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
34
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.
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.
35
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.
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.
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
36
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:
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
37
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.
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.
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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, Mr. 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 Mr. BenTov is solely responsible for the premium
payments under the plan.
39
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:
Andrew H. Ball, 58, was designated by the Vanguard shareholders under the
Share 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
Share 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
40
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
Share 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.
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,
Secretary and Treasurer
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 June 2001 and has also served as the Secretary since July
2003. Mr. Falcone was an employee acting in a special advisory capacity to the
Company from April 2001 to May 2001 and was an advisor to the Company from
January 2001 to March 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 Inc., an
41
e-services provider, from January 1999 to July 2000 and Chief Operating
Officer of Netgrocer.com Inc., an Internet supermarket, 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 63 to 64
below.
Following the consummation of the Share Exchange, the Share Purchase, the
BenTov Sale and related transactions, Donald Kovalevich will serve as the
Chief Executive Officer and President of the Company.
Donald Kovalevich, 55, has served as the President and Chief Executive
Officer of Vanguard since August 2004. From 2003 to August 2004, Mr. Kovalevich
served as a consultant to Vanguard and other businesses. Prior to this
position, from 2000 to 2002, Mr. Kovalevich served as the President and Chief
Executive Officer of Cingular Interactive, L.P., a provider of wireless data
services. From 1994 to 2000, Mr. Kovalevich served as the President of Houston
Cellular Telephone Company, a provider of wireless telephone services, and as
the Chairman and President of Galveston Cellular Partnership, a provider of
wireless telephone services. Mr. Kovalevich has also held senior executive
positions at Masterpiece Studios, Inc., a designer, printer, distributor and
marketer of high end wedding invitations, holiday greeting cards and social
stationery, and GKN plc, a manufacturer of automotive components. He has
served as a member of the Houston Symphony Board, the Leukemia Society Board,
the University of Houston -- Cullen College of Engineering Advisory Board and
the Junior Achievement Board. Currently, he serves on Advisory Boards to
Wireless Startups. Mr. Kovalevich received a B.S. from the Cornell University
College of Engineering and an M.B.A. from the Harvard Graduate School of
Business Administration.
VOTING REQUIREMENTS TO ADOPT THE PROPOSAL
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.
42
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.
43
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.
44
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 and is incorporated herein by reference. 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.
45
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 and is incorporated herein by reference.
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.
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.
46
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.
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
47
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.
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
48
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.
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
49
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.
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
NAME OF INDIVIDUAL OR GROUP SUBJECT TO
- --------------------------- OPTION GRANTS
-------------
Shmuel BenTov .................................................. 7,500
Chairman, Chief Executive Officer
Richard D. Falcone ............................................. 15,000
Chief Financial Officer, Secretary and Treasurer
All current executive officers as a group ...................... 22,500(1)
All current directors who are not executive officers as a group 15,750
All employees, including current officers who are not executive
officers, as a group.......................................... 111,000
- ---------------
(1) This number does not include any shares subject to option grants that may
be made to individuals who will become offers of the Company following the
Share Exchange, the Share Issuance, the BenTov Sale and related
transactions.
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 an
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.
50
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.
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 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 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.
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.
51
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 Mercadien, P.C. to be the
independent auditors of the Company for the year ending December 31, 2005.
Grant Thornton LLP was previously the principal accountant for the Company.
The Audit Committee of the Board of Directors of the Company dismissed Grant
Thornton LLP on April 7, 2005.
Grant Thornton LLP's reports on the Company's financial statements for the
years ended December 31, 2003 and December 31, 2004 did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. In connection with the
audits of the fiscal years ended December 31, 2003 and December 31, 2004 and
through the date of dismissal, there were no disagreements with Grant Thornton
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.
During the two years ended December 31, 2003 and December 31, 2004 and through
the date of dismissal, there were no reportable events (as defined in
Regulation S-K Item 304(a)(1)(i)).
The Audit Committee of the Board of Directors of the Company engaged
Mercadien, P.C. as the independent auditors of the Company on April 7, 2005.
Mercadien, P.C. was not engaged as either the principal accountant to audit
the Company's financial statements or as an independent accountant to audit a
significant subsidiary of the Company during the years ended December 31, 2003
and December 31, 2004. In addition, the Company did not consult Mercadien,
P.C. regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements, or (ii)
any matter that was either the subject of a disagreement (as defined in
Regulation S-K Item 304(a)(1)(iv)) or a reportable event (as defined in
Regulation S-K Item 304(a)(1)(i)). Mercadien, P.C. was engaged on September 30,
2004 as the independent accountants for Vanguard for the years ending
December 31, 2001, December 31, 2002 and December 31, 2003 and was engaged on
January 27, 2005 as the independent accountants for Vanguard for the year
ending December 31, 2004.
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 $242,000 and
$173,000, respectively.
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.
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 $45,000 and $41,020, respectively.
52
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 Mercadien, P.C. 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
The following is the report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2004. The information contained in this report shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference in such filing.
REVIEW WITH MANAGEMENT. The Audit Committee has reviewed and discussed the
Company's audited financial statements with management.
REVIEW AND DISCUSSIONS WITH INDEPENDENT ACCOUNTANTS. The Audit Committee has
discussed with Grant Thornton LLP, the Company's independent accountants for
the fiscal year ended December 31, 2004, the matters required to be discussed
by SAS 61 (Communication With Audit Committees), as amended by SAS 90 (Audit
Committee Communications) that includes, among other items, matters related to
the conduct of the audit of the Company's financial statements. The Audit
Committee has received from Grant Thornton LLP the required written
communication, as required by Independence Standards Board Standard No. 1
(that relates to the accountants' independence from the Company and its
related entities).
CONCLUSION. Based on the review and discussions with management and Grant
Thornton LLP referred to above, the Audit Committee recommended to the Board
of Directors that the Company's audited financial statements be included in
the Company's Annual Report of Form 10-K for the fiscal year ended December 31,
2004.
AUDIT COMMITTEE:
William Miller, Chairman
Reuven Battat
Steven S. Mukamal
VANGUARD'S ACCOUNTANTS
Vanguard currently retains Mercadien, P.C. 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, P.C. which, in turn, retained the accounting
firm of Suresh Surana & Associates ("Suresh") to perform independent auditor
services for Vanguard's Indian subsidiaries. If Proposals Nos. 2 and 3 are
consummated, Suresh will continue to provide these services related to the
Company's Indian subsidiaries.
53
ACCOUNTANTS' ATTENDANCE AT THE ANNUAL MEETING
A representative of each of Grant Thornton LLP, the Company's auditor for
the year ended December 31, 2004, and Mercadien, P.C., the independent
accountant of the Company for the year ending December 31, 2005, are expected
to be present at the Annual Meeting. The 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 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 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.
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 MERCADIEN, PC TO BE THE INDEPENDENT AUDITORS
OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005.
54
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT -- BEFORE PROPOSED TRANSACTIONS
The following table sets forth, as of March 31, 2005, 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 62 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 March 31, 2005, 2,127,647 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 27,375(4) 1.3%
Officer, Secretary and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Common........................... Steven S. Mukamal, Director 13,250(5) *
- -------------------------------------------------------------------------------------------------------------------
Common Reuven Battat, Director 7,000(6) *
- -------------------------------------------------------------------------------------------------------------------
COMMON........................... ALL CURRENT DIRECTORS AND EXECUTIVE 1,109,798(7) 48.2%
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 CURRENT DIRECTORS AND EXECUTIVE 530,304 100%
OFFICERS AS A 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 March 31, 2005. Any security that any person
named above has the right to acquire within 60 days of March 31, 2005 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; (iii) 3,750 shares of
Common Stock owned by Mr. BenTov's spouse; (iv) 7,500 shares of Common
Stock issuable upon exercise of currently exercisable options and (v)
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
55
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.
(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) 5,500 shares of Common Stock and (ii) 21,875 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 49,125 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.
56
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
10,208,346 and 10,833,346 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 10,208,346 shares issued and outstanding if Oak purchases the minimum
of 625,000 shares of Common Stock and there will be 10,833,346 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.
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 62 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 March 31, 2005
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.
57
PERCENTAGE PERCENTAGE
OF CLASS OF CLASS
AMOUNT AND NATURE OF (MINIMUM SHARE (MAXIMUM SHARE
TITLE OF CLASS NAME OF SHAREHOLDER BENEFICIAL OWNERSHIP 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, Secretary and
Treasurer
- -----------------------------------------------------------------------------------------------------------------------------------
Common............ Mr. Steven S. Mukamal, Director 13,500(5) * *
- -----------------------------------------------------------------------------------------------------------------------------------
Common............ Mr. Shmuel BenTov, Former Chief 7,500(6) * *
Executive Officer and Former
President
- -----------------------------------------------------------------------------------------------------------------------------------
Common............ Mr. William A. Newman, Director 250(7) * *
- -----------------------------------------------------------------------------------------------------------------------------------
Common............ Mr. Joseph Harris, Director 250(8) * *
- -----------------------------------------------------------------------------------------------------------------------------------
Common............ ALL POST-TRANSACTION DIRECTORS 2,382,882(9) 23.3% 21.9%
AND EXECUTIVE OFFICERS AS A GROUP
(7 PERSONS)
- -----------------------------------------------------------------------------------------------------------------------------------
Common............ Excalibur Investment Group Ltd. 4,972,701(10) 48.7% 45.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Common............ Oak Finance Investments Ltd. 1,649,697(11) 16.2% 21.0%
(assuming minimum of 625,000 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.
(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) 5,500 shares of Common Stock and (ii) 21,875 shares of
Common Stock issuable upon exercise of options that will be exercisable
on the Consummation Date.
58
(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. Mr. BenTov appears in this table because
he is a "named executive officer" for fiscal year 2004.
(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:
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
59
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.
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.
60
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 pages
21 to 22 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.
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.
61
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 $100,000 or more
for the fiscal year ended December 31, 2004. Accordingly, no information is
reported for such persons.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION (2)
ANNUAL COMPENSATION AWARDS
------------------------------------------- ----------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION FISCAL SALARY BONUS COMPENSATION UNDERLYING
- --------------------------- YEAR ($) ($) ($)(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 -- --
Secretary and Treasurer 2002 $186,000 -- -- 7,500
- ---------------
(1) Includes payments with respect to life insurance, car allowance and health
insurance.
(2) The Company has made no grants of Restricted Stock Awards or SARs to the
named executive officers. There are no reportable LTIP payouts and no
reportable additional compensation.
2004 OPTION/SAR GRANTS (1)
INDIVIDUAL
GRANTS
---------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF
PERCENT OF STOCK PRICE
NUMBER OF TOTAL APPRECIATION
SECURITIES OPTIONS/SARS EXERCISE LATEST FOR OPTION TERM
UNDERLYING GRANTED TO OR BASE POSSIBLE (2)
NAME OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------
- ---- GRANTED(#) 2004 ($/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
62
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
NAME ACQUIRED ON REALIZED YEAR-END(#)(1) YEAR-END($)
- ---- 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.
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
PLAN CATEGORY OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
- ------------- 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
63
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.
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
64
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.
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
65
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.
[PERFORMANCE GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURN
MAR '00 JUN '00 SEP'00 DEC '00 MAR '01 JUN '01 SEP'01 DEC '01 MAR '02 JUN '02 SEP'02 DEC '02
TACT $ 100.00 $ 76.55 $ 65.00 $ 11.55 $10.30 $ 4.50 $ 4.50 $ 2.90 $ 6.00 $ 3.90 $ 3.40 $ 3.40
Peer Index $ 100.00 $ 73.99 $ 46.18 $ 20.41 $20.99 $27.63 $18.85 $24.74 $26.82 $19.57 $11.85 $ 15.40
Major Market Index $ 100.00 $161.13 $149.22 $100.37 $74.76 $87.78 $60.89 $79.24 $74.97 $59.45 $47.62 $ 54.26
MAR '03 JUN '03 SEP'03 DEC '03 MAR '04 JUN '04 SEP'04 DEC '04
TACT $ 3.70 $ 4.90 $ 7.80 $ 9.10 $ 8.40 $ 18.05 $ 15.20 $ 17.78
Peer Index $ 14.66 $ 20.71 $ 22.26 $ 34.41 $ 39.03 $ 32.07 $ 25.29 $ 25.09
Major Market Index $ 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.
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
66
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, P.C.,
the Company's accountants for the fiscal year ending December 31, 2005, are
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.
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.
67
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.
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.
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 MARCH 21, 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.
68
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-6
Section 1.1 Definitions.......................................................................................... A-6
Section 1.2 Other Defined Terms.................................................................................. A-11
Section 1.3 Usage................................................................................................ A-12
ARTICLE 2 CONSUMMATION OF THE EXCHANGE TRANSACTION............................................................. A-12
Section 2.1 The Exchange Transaction............................................................................. A-12
Section 2.2 Issuance of Exchange Shares.......................................................................... A-12
Section 2.3 Closing.............................................................................................. A-13
Section 2.4 Closing Obligations.................................................................................. A-13
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE VANGUARD STOCKHOLDERS.......................................... A-14
Section 3.1 Organization and Good Standing....................................................................... A-14
Section 3.2 No Conflict; No Consent; Enforceability.............................................................. A-14
Section 3.3 Books and Records.................................................................................... A-15
Section 3.4 Capitalization....................................................................................... A-15
Section 3.5 Financial Statements................................................................................. A-15
Section 3.6 No Undisclosed Liabilities........................................................................... A-16
Section 3.7 No Material Adverse Change........................................................................... A-16
Section 3.8 Absence of Certain Changes or Events................................................................. A-16
Section 3.9 Taxes................................................................................................ A-17
Section 3.10 Accounts and Notes Receivable........................................................................ A-18
Section 3.11 Title to Properties; Encumbrances.................................................................... A-19
Section 3.12 Condition and Sufficiency of Assets.................................................................. A-19
Section 3.13 Intellectual Property................................................................................ A-20
Section 3.14 Contracts; No Defaults............................................................................... A-22
Section 3.15 Employees............................................................................................ A-24
Section 3.16 Labor Relations; Compliance.......................................................................... A-25
Section 3.17 Employee Plans....................................................................................... A-25
Section 3.18 Compliance with Legal Requirements................................................................... A-28
Section 3.19 Legal Proceedings; Orders............................................................................ A-28
Section 3.20 Relationships with Related Persons................................................................... A-29
Section 3.21 Accounts and Notes Payable........................................................................... A-29
Section 3.22 Certain Agreements................................................................................... A-29
Section 3.23 Insurance............................................................................................ A-29
Section 3.24 Bank Accounts........................................................................................ A-30
Section 3.25 Brokers or Finders................................................................................... A-30
Section 3.26 Disclosure........................................................................................... A-30
ARTICLE 4 ADDITIONAL REPRESENTATIONS OF THE VANGUARD STOCKHOLDERS.............................................. A-30
Section 4.1 Title to Vanguard Capital Stock; No Agreements....................................................... A-30
Section 4.2 Organization, Good Standing and Power................................................................ A-30
Section 4.3 Enforceability; Authority; No Conflict; No Consent................................................... A-30
Section 4.4 Certain United States Laws........................................................................... A-31
Section 4.5 Investment Representations........................................................................... A-32
Section 4.6 Representation by Legal Counsel; Review of Agreement................................................. A-33
A-2
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF TACT............................................................... A-33
Section 5.1 Organization and Good Standing....................................................................... A-33
Section 5.2 Books and Records.................................................................................... A-33
Section 5.3 No Conflict; No Consent.............................................................................. A-33
Section 5.4 Capitalization....................................................................................... A-34
Section 5.5 No Material Adverse Change........................................................................... A-34
Section 5.6 Absence of Certain Changes or Events................................................................. A-34
Section 5.7 Legal Proceedings; Orders............................................................................ A-35
Section 5.8 SEC Reports.......................................................................................... A-36
Section 5.9 Brokers or Finders................................................................................... A-36
ARTICLE 6 COVENANTS OF VANGUARD PRIOR TO CLOSING DATE.......................................................... A-36
Section 6.1 Access and Investigation............................................................................. A-36
Section 6.2 Required Approvals................................................................................... A-36
Section 6.3 Business Operations of the Acquired Companies........................................................ A-37
Section 6.4 Negative Covenant.................................................................................... A-37
Section 6.5 Notification......................................................................................... A-37
Section 6.6 Payment of Indebtedness by Related Persons........................................................... A-37
Section 6.7 Best Efforts......................................................................................... A-37
Section 6.8 Restriction on Transfer of Exchange Shares........................................................... A-37
Section 6.9 Restrictions on Transfer of Transferred Vanguard Shares Prior to Closing............................. A-39
ARTICLE 7 COVENANTS OF TACT PRIOR TO CLOSING DATE.............................................................. A-39
Section 7.1 Access and Investigation............................................................................. A-39
Section 7.2 Required Approvals................................................................................... A-39
Section 7.3 Business Operations of the Acquired Companies........................................................ A-40
Section 7.4 Negative Covenant.................................................................................... A-40
Section 7.5 Notification......................................................................................... A-40
Section 7.6 Payment of Indebtedness by Related Persons........................................................... A-40
Section 7.7 No Solicitation by TACT.............................................................................. A-40
Section 7.8 Shareholders' Meeting................................................................................ A-41
Section 7.9 Best Efforts......................................................................................... A-42
Section 7.10 Registration Rights.................................................................................. A-42
Section 7.11 Declaration and Payment of Dividend.................................................................. A-42
ARTICLE 8 ADDITIONAL COVENANTS................................................................................. A-42
Section 8.1 Public Announcements................................................................................. A-42
Section 8.2 Confidentiality...................................................................................... A-43
Section 8.3 Board Membership..................................................................................... A-43
ARTICLE 9 CONDITIONS PRECEDENT TO TACT'S OBLIGATION TO CLOSE................................................... A-43
Section 9.1 Accuracy of Representations.......................................................................... A-43
Section 9.2 Vanguard Stockholders' Performance................................................................... A-43
Section 9.3 Additional Documents................................................................................. A-44
Section 9.4 Consummation of Other Transactions................................................................... A-44
Section 9.5 No Proceedings....................................................................................... A-44
Section 9.6 No Material Adverse Effect........................................................................... A-44
Section 9.7 Intentionally Omitted................................................................................ A-44
Section 9.8 Castor............................................................................................... A-44
A-3
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
ARTICLE 10 CONDITIONS PRECEDENT TO VANGUARD STOCKHOLDERS' OBLIGATION TO CLOSE ............................. A-44
Section 10.1 Accuracy of Representations .................................................................... A-44
Section 10.2 TACT's Performance ............................................................................. A-45
Section 10.3 Additional Documents ........................................................................... A-45
Section 10.4 Consummation of Other Transactions ............................................................. A-45
Section 10.5 No Proceedings ................................................................................. A-45
Section 10.6 No Material Adverse Change ..................................................................... A-45
Section 10.7 Falcone Employment Agreement ................................................................... A-45
Section 10.8 Resignations ................................................................................... A-45
ARTICLE 11 INDEMNIFICATION; REMEDIES; LIMITS ON LIABILITY ................................................. A-45
Section 11.1 Indemnification ................................................................................ A-45
Section 11.2 Limitations on Indemnification ................................................................. A-48
Section 11.3 Set-Off Against Escrowed Shares ................................................................ A-49
Section 11.4 Survival of Representations and Warranties ..................................................... A-49
Section 11.5 Claims ......................................................................................... A-49
Section 11.6 Limitation of Remedies as to Berenson .......................................................... A-49
ARTICLE 12 TERMINATION .................................................................................... A-49
Section 12.1 Termination by Mutual Consent .................................................................. A-49
Section 12.2 Termination by the Authorized Representative or TACT ........................................... A-49
Section 12.3 Termination by TACT ............................................................................ A-50
Section 12.4 Termination by the Authorized Representative ................................................... A-50
Section 12.5 Effect of Termination .......................................................................... A-50
Section 12.6 Extension; Waiver .............................................................................. A-51
ARTICLE 13 MISCELLANEOUS PROVISIONS ....................................................................... A-51
Section 13.1 Expenses ....................................................................................... A-51
Section 13.2 Notices ........................................................................................ A-52
Section 13.3 Entire Agreement; Modifications ................................................................ A-53
Section 13.4 Governing Law; Submission to Jurisdiction; Venue ............................................... A-53
Section 13.5 Assignment; Successors; No Third Party Rights .................................................. A-53
Section 13.6 Severability ................................................................................... A-53
Section 13.7 No Waiver ...................................................................................... A-53
Section 13.8 Jurisdiction; Service of Process ............................................................... A-53
Section 13.9 Further Assurances ............................................................................. A-54
Section 13.10 Counterparts ................................................................................... A-54
EXHIBIT A LIST OF VANGUARD STOCKHOLDERS .................................................................. A-55
EXHIBIT 10.7 FALCONE EMPLOYMENT AGREEMENT ................................................................... A-56
EXHIBIT B IRREVOCABLE POWER OF ATTORNEY AND CUSTODY AGREEMENT ............................................ A-57
EXHIBIT C FORM OF STOCKHOLDER'S CERTIFICATE .............................................................. A-62
EXHIBIT D FORM OF ESCROW AGREEMENT ....................................................................... A-64
EXHIBIT E BOARD MEMBERS .................................................................................. A-73
EXHIBIT 9.4(a) VANGUARD'S COUNSEL'S OPINION ................................................................... A-74
EXHIBIT 10.4(a) TACT'S COUNSEL'S OPINION ....................................................................... A-75
A-4
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-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:
"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.
"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.
A-6
"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.
"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.
A-7
"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.
"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.
"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.
A-8
"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.
"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,
A-9
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 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.
"Vanguard Subsidiary" means each Organization that is a Subsidiary of
Vanguard.
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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) A-46
Accounts Receivable .............................. Section 3.10 A-18
Aggregate Claim Threshold ........................ Section 11.2(a) A-48
Aggregate Loss Limit ............................. Section 11.2(a) A-48
Audited 2003 Financial Statements ................ Section 3.5
CIT .............................................. Section 1.1 A-7
Claim Notice ..................................... Section 11.1(c) A-46
Closing .......................................... Section 2.3 A-13
Closing Date ..................................... Section 2.3 A-13
COBRA ............................................ Section 3.17(g) A-26
Company Acquisition Proposal ..................... Section 7.7(a) A-41
Competing Business ............................... Section 3.20 A-29
Confirming Audited Financial Statements .......... Section 6.7
Copyrights ....................................... Section 3.13(a)(iv) A-20
Defined Benefit Plan ............................. Section 11.1(c) A-46
Dividend ......................................... Section 7.11 A-42
Good Faith Negotiation Period .................... Section 11.1(c) A-46
Historical Financial Statements .................. Section 3.5 A-16
Indemnified Person(s) ............................ Section 11.1(c) A-46
Indemnifying Person(s) ........................... Section 11.1(c) A-46
Individual Claim Threshold ....................... Section 11.2(a) A-48
Intellectual Property Assets ..................... Section 3.13(a) A-20
Interim Balance Sheet ............................ Section 3.5 A-15
Interim Financial Statements ..................... Section 3.5 A-15
Losses ........................................... Section 11.1(a) A-45
Marks ............................................ Section 3.13(a) A-20
Net Names ........................................ Section 3.13(a)(iv) A-20
Oak .............................................. Recitals A-5
Owner ............................................ Section 1.1 A-10
PBGC ............................................. Section 3.17(c) A-25
Patents .......................................... Section 3.13(a)(ii) A-20
Shareholders' Meeting ............................ Section 7.8 A-41
Superior Proposal ................................ Section 7.7(a) A-41
Survival Date .................................... Section 11.3 A-49
TACT ............................................. Heading A-5
TACT's Advisors .................................. Section 6.1 A-36
TACT Common Stock ................................ Recitals A-5
TACT Indemnified Person(s) ....................... Section 11.1(a) A-45
TACT Stock Purchase Agreement .................... Recitals A-5
TACT Termination Amount .......................... Section 12.5(a) A-51
Vanguard Stockholders' Closing Documents ......... Section 4.3(a) A-30
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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.
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).
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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;
(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.
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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.
(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;
(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.
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(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.
(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 Statement").
The Year-End Financial Statements and the Interim Financial Statements
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(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.
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;
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(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;
(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.
(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
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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).
(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
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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.
(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.
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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");
(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 websites, 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.
(iii) All products made, used or sold under the Patents have been
marked with the proper patent notice to the extent feasible.
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(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.
(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.
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(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:
(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;
(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;
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(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;
(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.
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(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.
(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.
(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
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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.
(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
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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.
(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.
(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.
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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.
(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.
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(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.
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
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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.
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.
(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.
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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.
(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.
(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.
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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):
(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;
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(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.
(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;
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(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;
(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.
(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.
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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.
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.
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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
(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
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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.
(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 CORPORATION, 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)).
(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.
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(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.
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.
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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;
(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.
(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
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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.
(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
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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.
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
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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.
(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.
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.
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(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.
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
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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.
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
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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.
(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
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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.
(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.
(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
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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:
(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.
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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.
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;
(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.
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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;
(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
A-50
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;
(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.
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
A-51
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
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
A-52
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.
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
A-53
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.
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
A-54
EXHIBIT A
LIST OF VANGUARD STOCKHOLDERS
VANGUARD STOCKHOLDERS
NUMBER OF
NUMBER OF SHARES
SHARES OF TACT INCLUDED IN
CAPITAL STOCK TO THE PRIOR COLUMN
NAME OF VANGUARD STOCKHOLDER NUMBER OF SHARES OF BE RECEIVED AT TO BE PLACED IN
- ---------------------------- 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]
A-56
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:
(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;
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(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.
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
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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.
(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.
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
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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.
(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.
A-60
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.
CUSTODIAN AND ATTORNEY-IN-FACT VANGUARD STOCKHOLDER
- ---------------------------------- Name:
T.V. Govindarajan --------------------------------------
By:
--------------------------------------
Title:
--------------------------------------
Number of Shares:
--------------------------------------
Certificate Number(s):
--------------------------------------
A-61
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.
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
A-62
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.
(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-63
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.
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.
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(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.
(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.
A-65
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 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
A-66
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.
(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.
(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.
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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.
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
A-68
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.
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
A-69
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
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.
(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
A-70
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.
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-71
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-72
EXHIBIT E
BOARD MEMBERS
LIST OF BOARD NOMINEES
Andrew Harry Ball
William A. Newman
A-73
EXHIBIT 9.4(A)
VANGUARD'S COUNSEL'S OPINION
[Intentionally Omitted]
A-74
EXHIBIT 10.4(A)
TACT'S COUNSEL'S OPINION
[Intentionally Omitted]
A-75
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-4
Section 1.1 Definitions .................................................................................... B-4
Section 1.2 Other Defined Terms ............................................................................ B-10
Section 1.3 Usage........................................................................................... B-10
ARTICLE 2 SALE AND TRANSFER OF THE SHARES ................................................................. B-11
Section 2.1 Sale of the Firm Shares ........................................................................ B-11
Section 2.2 Purchase Price ................................................................................. B-11
Section 2.3 Closing ........................................................................................ B-11
Section 2.4 Closing Obligations ............................................................................ B-11
Section 2.5 Sale of the Additional Shares; Delivery of the Additional Shares and Payment
Therefor ..................................................................................... B-12
Section 2.6 Restrictive Legends ............................................................................ B-12
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................................................... B-14
Section 3.1 Organization and Good Standing ................................................................. B-14
Section 3.2 No Conflict; No Consent ........................................................................ B-14
Section 3.3 Books and Records .............................................................................. B-14
Section 3.4 Capitalization ................................................................................. B-15
Section 3.5 SEC Reports .................................................................................... B-15
Section 3.6 No Material Adverse Change ..................................................................... B-15
Section 3.7 Absence of Certain Changes or Events ........................................................... B-16
Section 3.8 Legal Proceedings; Orders ...................................................................... B-16
Section 3.9 Brokers or Finders ............................................................................. B-17
Section 3.10 Issuance of Shares; No Agreements .............................................................. B-17
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYER ..................................................... B-17
Section 4.1 Organization and Good Standing ................................................................. B-17
Section 4.2 Enforceability; Authority; No Conflict ......................................................... B-17
Section 4.3 Brokers or Finders ............................................................................. B-18
Section 4.4 Disclosure ..................................................................................... B-18
Section 4.5 Investment Representation ...................................................................... B-18
Section 4.6 Certain United States Laws ..................................................................... B-19
Section 4.7 Questionnaire .................................................................................. B-19
Section 4.8 Representation by Legal Counsel; Review of Agreement ........................................... B-19
ARTICLE 5 COVENANTS OF THE COMPANY PRIOR TO CLOSING DATE .................................................. B-20
Section 5.1 Access and Investigation ....................................................................... B-20
Section 5.2 Required Approvals ............................................................................. B-20
Section 5.3 Business Operations of the Company and its Subsidiaries ........................................ B-20
Section 5.4 Negative Covenant .............................................................................. B-20
Section 5.5 Notification ................................................................................... B-20
Section 5.6 Payment of Indebtedness by Related Persons ..................................................... B-21
Section 5.7 Best Efforts ................................................................................... B-21
Section 5.8 Form D ......................................................................................... B-21
Section 5.9 NASDAQ Listing; Reporting Status ............................................................... B-21
Section 5.10 Use of Proceeds ................................................................................ B-21
Section 5.11 State Securities Laws .......................................................................... B-21
Section 5.12 Limitation on Certain Actions .................................................................. B-21
ARTICLE 6 COVENANTS OF THE BUYER PRIOR TO CLOSING DATE .................................................... B-22
Section 6.1 Approvals of Governmental Bodies ............................................................... B-22
Section 6.2 Best Efforts ................................................................................... B-22
B-2
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
Section 6.3 Notification ................................................................................... B-22
ARTICLE 7 ADDITIONAL COVENANTS ............................................................................ B-22
Section 7.1 Public Announcements ........................................................................... B-22
Section 7.2 Confidentiality ................................................................................ B-22
ARTICLE 8 CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATION TO CLOSE ......................................... B-23
Section 8.1 Accuracy of Representations .................................................................... B-23
Section 8.2 Company's Performance .......................................................................... B-23
Section 8.3 Additional Documents ........................................................................... B-23
Section 8.4 No Proceedings ................................................................................. B-23
Section 8.5 No Material Adverse Change ..................................................................... B-23
Section 8.6 Consummation of Other Transactions ............................................................. B-23
ARTICLE 9 CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE ....................................... B-24
Section 9.1 Accuracy of Representations .................................................................... B-24
Section 9.2 The Buyer's Performance ........................................................................ B-24
Section 9.3 Additional Documents ........................................................................... B-24
Section 9.4 No Proceedings ................................................................................. B-24
ARTICLE 10 REGISTRATION RIGHTS ............................................................................. B-24
Section 10.1 Mandatory Registration ......................................................................... B-24
Section 10.2 Obligations of the Company ..................................................................... B-26
Section 10.3 Obligations of the Investors ................................................................... B-28
Section 10.4 Rule 144 ....................................................................................... B-29
ARTICLE 11 TERMINATION ..................................................................................... B-29
Section 11.1 Termination Events ............................................................................. B-29
Section 11.2 Effect of Termination .......................................................................... B-29
Section 11.3 Extension; Waiver .............................................................................. B-30
ARTICLE 12 MISCELLANEOUS PROVISIONS ........................................................................ B-30
Section 12.1 No Survival .................................................................................... B-30
Section 12.2 Expenses ....................................................................................... B-30
Section 12.3 Notices ........................................................................................ B-30
Section 12.4 Entire Agreement; Modifications ................................................................ B-31
Section 12.5 Governing Law .................................................................................. B-31
Section 12.6 Assignment; Successors; No Third Party Rights .................................................. B-31
Section 12.7 Severability ................................................................................... B-31
Section 12.8 No Waiver ...................................................................................... B-32
Section 12.9 Jurisdiction; Service of Process ............................................................... B-32
Section 12.10 Further Assurances ............................................................................. B-32
Section 12.11 Counterparts ................................................................................... B-32
B-3
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.
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:
B-4
"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.
"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
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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 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.
"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
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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).
"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.
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"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.
"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 asexcused 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
(ii) the date on which the Investors no longer own or have any right
to acquire any Registrable Securities.
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"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).
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.
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"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.
"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 B-4
Additional Shares Notice ................................. Section 2.5 B-12
Agreement ................................................ Heading B-4
Buyer .................................................... Heading B-4
Buyer's Advisors ......................................... Section 6.1
Closing .................................................. Section 2.3 B-11
Closing Date ............................................. Section 2.3 B-11
Company .................................................. Recitals B-4
Company Share Exchange Agreement ......................... Recitals B-4
Company Stock Purchase Agreement ......................... Recitals B-4
Firm Shares .............................................. Recitals B-4
Owner .................................................... Section 1.1 B-10
Principal Shareholder's Agreement ........................ Recitals B-4
Purchase Price ........................................... Section 2.2 B-11
Restricted Securities .................................... Section 2.6 B-12
Selling Shareholder ...................................... Recitals B-4
Shares ................................................... Recitals B-4
Transfer ................................................. Section 2.6 B-12
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.
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).
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(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
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
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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."
(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.
(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.
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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;
(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.
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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.
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.
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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:
(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.
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
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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.
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
B-17
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.
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;
(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-18
(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.
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.
B-19
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) 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
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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.
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.
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.
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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.
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).
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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:
(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
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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 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.
(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.
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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;
(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
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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
(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;
(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;
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(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.
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
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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.
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-30
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.
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.
B-31
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.
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-32
EXHIBIT 9.3(A)
COMPANY'S COUNSEL'S OPINION
[Intentionally Omitted]
B-33
EXHIBIT 9.3(A)
BUYER'S COUNSEL'S OPINION
[Intentionally Omitted]
B-34
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-4
Section 1.1 Definitions ........................................................ C-4
Section 1.2 Other Defined Terms ................................................ C-8
Section 1.3 Usage .............................................................. C-8
ARTICLE 2 SALE AND TRANSFER OF COMPANY STOCK ............................................. C-9
Section 2.1 Sale of Company Stock .............................................. C-9
Section 2.2 Purchase Price ..................................................... C-9
Section 2.3 Closing ............................................................ C-9
Section 2.4 Closing Obligations ................................................ C-9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER ....................................... C-10
Section 3.1 Organization and Good Standing. .................................... C-10
Section 3.2 No Conflict; No Consent ............................................ C-10
Section 3.3 Books and Records .................................................. C-10
Section 3.4 Capitalization. .................................................... C-11
Section 3.5 Financial Statements. .............................................. C-11
Section 3.6 SEC Reports ........................................................ C-11
Section 3.7 No Material Adverse Change ......................................... C-12
Section 3.8 Absence of Certain Changes or Events ............................... C-12
Section 3.9 Legal Proceedings; Orders .......................................... C-12
Section 3.10 Brokers or Finders ................................................ C-13
Section 3.11 Disclosure ........................................................ C-13
ARTICLE 4 ADDITIONAL REPRESENTATIONS OF SELLER ........................................... C-13
Section 4.1 Title to Company Stock; No Agreements .............................. C-13
Section 4.2 Enforceability; Authority; No Conflict; No Consent ................. C-13
Section 4.3 SEC Reports by Seller .............................................. C-14
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER ........................................ C-14
Section 5.1 Organization and Good Standing ..................................... C-14
Section 5.2 Enforceability; Authority; No Conflict ............................. C-14
Section 5.3 Brokers or Finders ................................................. C-14
Section 5.4 Disclosure ......................................................... C-15
ARTICLE 6 COVENANTS OF SELLER PRIOR TO CLOSING DATE ...................................... C-15
Section 6.1 Access and Investigation ........................................... C-15
Section 6.2 Required Approvals ................................................. C-15
Section 6.3 Business Operations of the Acquired Companies ...................... C-15
Section 6.4 Negative Covenant .................................................. C-15
Section 6.5 Notification ....................................................... C-15
Section 6.6 Payment of Indebtedness by Related Persons ......................... C-16
Section 6.7 Conversion of Series A Preferred Stock ............................. C-16
Section 6.8 Reasonable Best Efforts ............................................ C-16
ARTICLE 7 COVENANTS OF BUYER PRIOR TO CLOSING DATE ....................................... C-16
Section 7.1 Approvals of Governmental Bodies ................................... C-16
Section 7.2 Reasonable Best Efforts ............................................ C-16
ARTICLE 8 ADDITIONAL COVENANTS ........................................................... C-16
Section 8.1 Public Announcements ............................................... C-16
Section 8.2 Confidentiality .................................................... C-16
ARTICLE 9 CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE ............................ C-17
Section 9.1 Accuracy of Representations ........................................ C-17
Section 9.2 Seller's Performance ............................................... C-17
Section 9.3 Consents ........................................................... C-17
C-2
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
Section 9.4 Additional Documents ............................................... C-17
Section 9.5 No Proceedings ..................................................... C-17
Section 9.6 No Claim Regarding Stock Ownership or Sale Proceeds ................ C-17
Section 9.7 No Material Adverse Change ......................................... C-18
Section 9.8 Consummation of Other Transactions ................................. C-18
ARTICLE 10 CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE ........................... C-18
Section 10.1 Accuracy of Representations ....................................... C-18
Section 10.2 Buyer's Performance ............................................... C-18
Section 10.3 Consents .......................................................... C-18
Section 10.4 Additional Documents .............................................. C-18
Section 10.5 No Injunction ..................................................... C-18
ARTICLE 11 INDEMNIFICATION; REMEDIES ...................................................... C-18
Section 11.1 Survival; Right To Indemnification Not Affected By
Knowledge..................................................................... C-18
Section 11.2 Indemnification And Payment of Damages By Seller .................. C-19
Section 11.3 Indemnification And Payment Of Damages By Buyer ................... C-19
Section 11.4 Time Limitations .................................................. C-19
Section 11.5 Procedure For Indemnification-Third Party Claims .................. C-19
ARTICLE 12 TERMINATION. ................................................................... C-20
Section 12.1 Termination Events ................................................ C-20
Section 12.2 Effect of Termination ............................................. C-21
Section 12.3 Extension; Waiver ................................................. C-21
ARTICLE 13 MISCELLANEOUS PROVISIONS ....................................................... C-21
Section 13.1 Expenses .......................................................... C-21
Section 13.2 Notices ........................................................... C-22
Section 13.3 Entire Agreement; Modifications ................................... C-22
Section 13.4 Governing Law ..................................................... C-23
Section 13.5 Assignment; Successors; No Third Party Rights ..................... C-23
Section 13.6 Severability ...................................................... C-23
Section 13.7 No Waiver ......................................................... C-23
Section 13.8 Jurisdiction; Service of Process .................................. C-23
Section 13.9 Further Assurances ................................................ C-23
Section 13.10 Counterparts ..................................................... C-23
Section 13.11 Signatures ....................................................... C-23
C-3
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.
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:
C-4
"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.
"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).
C-5
"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.
"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.
"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).
C-6
"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
(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
C-7
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.
"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 C-4
Balance Sheet ..................................... Section 3.5 C-11
Buyer ............................................. Heading C-4
Buyer's Advisors .................................. Section 6.1 C-15
Buyer's Closing Documents ......................... Section 5.2(a) C-14
Buyer Indemnified Persons ......................... Section 11.2 C-19
Closing ........................................... Section 2.3 C-9
Closing Date ...................................... Section 2.3 C-9
Company ........................................... Recitals C-4
Company Share Exchange Agreement .................. Recitals C-4
Company Stock ..................................... Recitals C-4
Company Stock Purchase Agreement .................. Recitals C-4
Damages ........................................... Section 11.2 C-19
Employment Agreement Amendment .................... Section 2.4(a)(iv) C-10
Indemnified Person ................................ Section 11.5(a) C-19
Indemnifying Person ............................... Section 11.5(a) C-19
Interim Balance Sheet ............................. Section 3.5 C-11
Principal Shareholder's Agreement ................. Recitals C-4
Purchase Price .................................... Section 2.2 C-9
Seller ............................................ Heading C-4
Seller's Closing Documents ........................ Section 4.2(a) C-13
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,
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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.
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;
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(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
(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
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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.
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.
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.
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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;
(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
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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.
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.
(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.
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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.
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
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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.
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
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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 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
(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.
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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.
(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
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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:
(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 obligatedto 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).
(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
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(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 thisAgreement) 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.
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.
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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
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
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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.
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.
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.
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
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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."
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-26
EXHIBIT 9.4(A)
SELLER'S COUNSEL'S OPINION
[Intentionally Omitted]
C-27
EXHIBIT 10.4(A)
BUYER'S COUNSEL'S OPINION
[Intentionally Omitted]
C-28
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.
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
D-1
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.
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
D-2
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.
(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
D-3
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.
(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.
(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
D-4
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
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.
D-5
(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.
(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,
D-6
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been contained
herein.
(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.
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-7
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 o 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.
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.
E-2
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 $8 per
share within 120 days of the Closing of the Exchange Transaction.
F-5
METHODS OF ANALYSIS
o Comparable Companies Analysis
o Comparative analysis of trading data for companies deemed similar to
Cicada and Vanguard.
o Comparable Transactions Analysis
o Comparative analysis of recent transactions for companies deemed
similar to Cicada and Vanguard.
o Discounted Cash Flows Analysis
o Net present value analysis of Cicada's unlevered free cash flows based
on data provided to EKN by Cicada management.
F-6
COMPARABLE COMPANIES ANALYSIS
o Analysis of trading data of select companies deemed similar to Cicada and
Vanguard.
o Companies similar to Cicada include technology consulting companies and
IT consulting service providers focused on technology infrastructure
advisory services, systems architecture design, strategy formulation
and applications development.
o Companies similar to Vanguard include business process outsourcing
companies in the U.S. and Indian IT services companies having business
process outsourcing operations listed in the U.S.
F-7
COMPARABLE COMPANIES ANALYSIS
o Selected Comparable Companies for Cicada include Perot Systems Corp.,
Keane, Inc., CIBER, Inc., Covansys Corp. and Computer Horizons.
o Selected Comparable Companies for Vanguard include Affiliated Computer
Services, Inc., Ceredian Corporation, Convergys Corp., Lionbridge
Technologies, Inc., Syntel, Inc., Satyam Computer Services Ltd. and
Cognizant Technology Solutions Corp.
F-8
BPO COMPARABLE COMPANIES ANALYSIS
AS OF JANUARY 19, 2005
-------------------------------------------
52-WEEK
--------------- PRICE EV/LTM EV/LTM
NAME OF THE COMPANY TICKER HIGH LOW 1/19/05 MKT. CAP. ENT. VALUE REVENUES EBITDA
- ------------------- ------ ------ ------ ------- --------- ---------- -------- ------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
Affiliated Computer Services, Inc. .......... ACS $61.23 $46.01 $56.05 $7,575.8 $7,888.6 1.9x 7.5x
Ceridian Corporation ........................ CEN 23.41 16.25 17.75 2,678.7 2,706.1 2.1x 10.9x
Convergys Corp. ............................. CVG 19.52 12.30 15.07 2,133.9 2,366.1 1.0x 8.8x
Lionbridge Technlogies, Inc. ................ LIOX 10.95 4.42 6.18 298.4 259.6 1.7x 19.7x
Syntel, Inc. ................................ SYNT 30.99 13.27 16.30 668.8 512.6 2.8x 10.8x
Satyam Computer Services Ltd. ............... SAY 28.91 16.0 21.19 3,332.8 2,918.2 4.7x 18.0x
Cognizant Technology Solutions Corp. ........ CTSH 44.08 19.60 38.43 5,883.8 5,613.5 10.7x 47.1x
----- -----
MEAN (EXCLUDING HIGH AND LOW) ............... 2.6x 13.6x
===== =====
F-9
IT SERVICES COMPARABLE COMPANIES ANALYSIS
AS OF JANUARY 19, 2005
-------------------------------------------
52-WEEK
--------------- PRICE EV/LTM EV/LTM
NAME OF THE COMPANY TICKER HIGH LOW 1/19/05 MKT. CAP. ENT. VALUE REVENUES EBITDA
- ------------------- ------ ------ ------ ------- --------- ---------- -------- ------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
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 $1,557.6 0.9x 8.6x
Keane, Inc. ................................. KEA 18.20 12.60 12.60 779.4 747.9 0.9x 10.1x
CIBER, Inc. ................................. CBR 11.41 6.35 8.43 529.1 713.1 0.9x 13.4x
Covansys Corp. .............................. CVNS 16.01 7.00 14.28 544.1 502.7 1.4x 16.3x
Computer Horizons ........................... CHRZ 4.64 3.20 4.12 127.4 93.2 0.4x NM
---- -----
MEAN (EXCLUDING HIGH AND LOW AND TACX) ...... 0.9x 11.8x
==== =====
F-10
COMPARABLE TRANSACTIONS ANALYSIS
o Analysis of recent transactions for companies deemed similar to Cicada
and Vanguard.
o Selection Criteria
o Reviewed numerous transactions completed during the last few years
in the IT services and business process outsourcing industry.
o Selected 12 transactions involving IT consulting service providers and
9 transactions involving business process outsourcing companies.
F-11
BPO COMPARABLE TRANSACTIONS ANALYSIS
AS OF DATE OF
ANNOUNCEMENT
-------------------------
MONTH/YEAR EV EV/LTM
ANNOUNCED ACQUIRER NAME TARGET NAME ($IN MM) REVENUES
---------- -------------------------------------- -------------------------------------- ----------- -----------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
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
AS OF DATE OF ANNOUNCEMENT
----------------------------------------
DATE EV EV/LTM EV/LTM
ANNOUNCED ACQUIRER NAME TARGET NAME ($ IN MM) REVENUES EBITDA
- -------------- --------------------------------- --------------------------------- ----------- ----------- -----------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
9/21/04 Fair Isaac Corporation Braun Consulting, Inc. $ 30.0 0.8x NM
8/26/04 Affiliated Computer Services, Blue Star Solutions $ 73.0 1.5x
Inc. 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 $ 658.0 1.0x
Business 10.2x
8/1/03 Affiliated Computer Services, Lockheed Martin Commercial IT $ 107.0 0.4x
Inc. NA
Business
1/17/03 Affiliated Computer Services, CyberRep, Inc. $ 42.0 0.7x
Inc. NA
2/13/02 Keane, Inc. Signal Tree Solutions $ 65.0 1.3x NA
1/2/02 Perot Systems Corp. Claim Services Resource Group, $ 63.0 1.0x
Inc. 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)
LOW HIGH
------ ------
EQUITY VALUE SUMMARY BASED ON REVENUES
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%
LOW HIGH
------ ------
EQUITY VALUE SUMMARY BASED ON EBITDA
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.
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.
F-25
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 OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Vanguard Info-Solutions Corporation and its subsidiaries (collectively,
"Vanguard") provide value-added information technology services ("IT
Services"), customer care and customer acquisition services ("Call Center
Services") and business process outsourcing services ("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 Services 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
performing Call Center Services 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
performing BPO Services 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. For the year ended
December 31, 2004, the operations of Vanguard-Delhi and Vanguard-Bangalore
provided the majority of Vanguard's revenue and net income. Call Center
Services offered include telemarketing, help desk, technical support and other
customer support. BPO Services offered 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 Services 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, including consulting and staffing services in the areas of
telecommunications, web software development, network management and
enterprise-wide security, among others, principally through consulting
arrangements for staffing. During this period, one customer accounted for
substantially all of Vanguard's revenues. Following the adoption of its
current business plan, in 2004, Vanguard's reliance on IT Services declined,
as IT Services accounted for approximately 100% of revenues during the first
quarter of 2004 and for 29.5% of revenues for the full year ended December 31,
2004. This percentage decreased because IT Services revenue declined during
2004 while revenues from Call Center Services and BPO Services businesses were
introduced in 2004 and grew. 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 between Vanguard's financial position, results of
operations and liquidity for periods prior to January 1, 2004 with
corresponding financial data as at or for the year ended December 31, 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 pre-acquisition results of
these Indian subsidiaries were not material, since in each case the businesses
of these subsidiaries had commenced shortly before their acquisition and had
not previously generated material revenues or net income gains or losses.
This discussion contains forward-looking statements which involve known and
unknown risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "may," "will," "should," "potential," "expects,"
"anticipates," "intends," "plans," "believes" and similar expressions. These
statements are based on our
G-1
current beliefs, expectations and assumptions and are subject to a number of
risks and uncertainties. Our actual results could differ materially from those
discussed in these statements. We refer you to the section entitled
"Cautionary Statement Regarding Forward-Looking Statements" of this proxy
statement for greater detail about our forward-looking statements and certain
risks and uncertainties regarding our business.
In view of our limited operating history and the fact that we only began
providing Call Center and BPO Services in 2004, we have limited experience
forecasting our revenues and operating costs. Therefore, we believe that
period-to-period comparisons of financial results are not meaningful and
should not be relied upon as an indication of future performance.
This discussion should be read together with Vanguard's December 31, 2004
Consolidated Financial Statements and the Notes thereto.
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 2004:
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, % OF DECEMBER 31, % OF DECEMBER 31, % OF
2002 REVENUES 2003 REVENUES 2004 REVENUES
------------- -------- ------------- -------- ------------- --------
Revenue ....................................... $18,763,077 100.0% $17,708,266 100.0% $34,402,490 100.0%
Cost of Revenue ............................... $15,037,844 80.1% $15,480,868 87.4% $18,172,855 52.8%
Gross Profit .................................. $ 3,725,233 19.9% $ 2,227,398 12.6% $16,229,635 47.2%
Selling, General and Administrative Expenses .. $ 1,758,015 9.4% $ 1,998,285 11.3% $ 5,854,605 17.0%
Income from Operations ........................ $ 1,967,218 10.5% $ 229,113 1.3% $10,375,030 30.16%
Net Income $ 1,932,430 10.3% $ 94,863 0.5% $10,028,067 29.15%
With regard to sources of revenues, as illustrated above, during 2002 and
2003, IT Services accounted for substantially all of Vanguard's revenues.
During 2004, Vanguard's revenues were derived approximately 29% from IT
Services, 57% from Call Center Services and 14% from BPO Services. Vanguard
believes that IT Services revenue will decrease, as a percentage of overall
revenue, 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 Services 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. To accomplish this, Vanguard will need to add
infrastructure and incur new expenses related to personnel and programs in
sales and marketing. Since Vanguard's Indian operations are less than one year
old, there are significant risks that Vanguard may not maintain or expand
revenues from Call Center Services and BPO Services as contemplated in its
business plan.
During the year ended December 31, 2004, consistent with the business plan
it adopted in early 2004, Vanguard commenced operations with its offshore
business model, resulting in the following significant changes:
o increase in the number of its employees, particularly through the hiring
of approximately 1,604 professionals at Vanguard-Delhi and Vanguard-
Bangalore, thereby increasing its full-time work force by approximately
1,300% from its December 31, 2003 levels, which may subject its business
to greater risks arising from personnel shortages and increases in
personnel costs;
o increase in its lease costs and related facility costs by operating its
Delhi and Bangalore facilities in addition to its United States location,
thereby increasing these operating costs by approximately 1,018% from its
December 2003 levels;
o acquisition of new equipment under equipment leases with third parties;
and
o increase in the percentage of its revenues that are generated by Call
Center and BPO Services, which have higher margins than IT Services.
G-2
Commission income is considered other income for financial statement
purposes and, therefore, is not considered in the calculation of income from
operations. Commission income began to decline beginning in the fourth quarter
of 2004 and we anticipate that it will continue to decline.
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
United States federal and state taxes of $841,013. The income of Vanguard-
Delhi and Vanguard-Bangalore are subject to an exemption from Indian income
taxes through 2009. Under Vanguard's current business plan, earnings of the
Indian subsidiaries will be reinvested overseas and not will not be
repatriated to the United States. Therefore, earnings from Vanguard's Indian
operations 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, 2003 and 2004, Vanguard's liquidity position was as
follows:
DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2004
----------------- ----------------- -----------------
Cash and Cash Equivalents............................................ $1,127,422 $635,062 $1,107,450
Working Capital...................................................... $1,812,227 $505,833 $9,445,312
Cash flows for the years ended December 31, 2002 and 2003 (which were
derived from IT Services only) and for 2004 (which were derived from IT, Call
Center and BPO Services) were as follows:
DECEMBER 31, 2002 DECEMBER 31, 2003 DECEMBER 31, 2004
----------------- ------------------ -----------------
Cash from Operations................................................ $1,286,562 $ 848,733 $ 2,909,277
Cash from (used in) Investing....................................... $ (103,352) $ (78,686) $(2,363,389)
Cash from (used in) Financing....................................... $ (771,153) $(1,262,407) $ (73,500)
Net Cash Flow....................................................... $ 412,067 $ (492,360) $ 472,388
During 2002, 2003 and 2004, 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 2004. Vanguard plans to fund its
operating needs and capital expenditures with cash flow from operations.
Vanguard paid expenses of approximately $310,000 relating to transactions with
The A Consulting Team, Inc. and with Mr. Shmuel BenTov, the principal
shareholder of that company, in 2004. These expenses were funded in
substantial part by internal working capital.
Related Party Transaction
Vanguard has no material related party transactions.
Off Balance Sheet Arrangements
Vanguard has no off balance sheet arrangements.
QUALITATIVE AND QUANTITATIVE 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.
G-3
VANGUARD INFO-SOLUTIONS CORPORATION
Consolidated Financial Statements
December 31, 2004
G-4
VANGUARD INFO-SOLUTIONS CORPORATION
Table of Contents
PAGE
NUMBER
------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .............. G-5
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS ......................................... G-6
CONSOLIDATED STATEMENTS OF INCOME ................................... G-7
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ........... G-8
CONSOLIDATED STATEMENTS OF CASH FLOWS ............................... G-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .......................... G-10-19
G-5
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Vanguard Info-Solutions Corporation and Subsidiaries
We have audited the consolidated balance sheets of Vanguard Info-Solutions
Corporation and Subsidiaries (the "Company") as of December 31, 2004 and 2003,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2004. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vanguard
Info-Solutions Corporation and Subsidiaries as of December 31, 2004 and 2003,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles.
Mercadien, P.C.
March 18, 2005
Hamilton, New Jersey
G-6
VANGUARD INFO-SOLUTIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------
2004 2003
----------- ----------
ASSETS
Current Assets
Cash and cash equivalents ......................... $ 1,107,450 $ 635,062
Accounts receivable, less allowance for discounts
and doubtful accounts of 2004 - $78,881 and
2003 - $45,276 ................................... 13,691,532 1,576,093
Advances to stockholder ........................... 299,332 --
Prepaid taxes and other current assets ............ 263,986 7,641
----------- ----------
Total Current Assets............................. 15,362,300 2,218,796
----------- ----------
Non-Current Assets
Property and equipment, net ....................... 4,775,995 181,387
Security deposits ................................. 616,827 12,461
Capitalized acquisition costs ..................... 222,875 --
----------- ----------
Total Non-Current Assets......................... 5,615,697 193,848
----------- ----------
Total Assets..................................... $20,977,997 $2,412,644
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable ..................................... $ 578,700 $ 224,996
Current portion of long term debt ................. 107,354 9,852
Accounts payable, trade ........................... 3,830,089 1,201,286
Accrued expenses .................................. 1,259,279 166,621
Customer deposits ................................. -- 76,820
Deferred income taxes ............................. -- --
Income taxes payable .............................. 141,566 --
Advances from stockholders ........................ -- 33,388
----------- ----------
Total Current Liabilities........................ 5,916,988 1,712,963
----------- ----------
Long Term Liabilities
Long term debt, net of current portion ............ 116,943 16,049
Deferred tax liability ............................ 865,777 143,278
Minority interest ................................. 12,022 --
----------- ----------
Total Long Term Liabilities...................... 994,742 159,327
----------- ----------
Stockholders' Equity
Common stock, no par value, 10,000 shares
authorized, issued and outstanding ............... -- --
Additional paid-in capital ........................ 3,055,586 10,000
Retained earnings ................................. 10,558,421 530,354
Accumulated other comprehensive income ............ 452,260 --
----------- ----------
Total Stockholders' Equity....................... 14,066,267 540,354
----------- ----------
Total Liabilities and Stockholders' Equity....... $20,977,997 $2,412,644
=========== ==========
See notes to consolidated finacial statements.
G-7
VANGUARD INFO-SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------------------
2004 2003 2002
----------- ----------- -----------
Revenues............................................................................... $34,402,490 $17,708,266 $18,763,077
Cost of revenues....................................................................... 18,172,855 15,480,868 15,037,844
----------- ----------- -----------
Gross profit.......................................................................... 16,229,635 2,227,398 3,725,233
Selling, general and administrative expenses........................................... 5,854,605 1,998,285 1,758,015
----------- ----------- -----------
Income from operations................................................................. 10,375,030 229,113 1,967,218
----------- ----------- -----------
Other income (expense):
Interest expense...................................................................... (64,690) (3,367) (7,244)
Interest income....................................................................... 1,728 5,800 6,886
Commission income..................................................................... 672,933 -- --
Miscellaneous expense................................................................. (107,148) -- --
----------- ----------- -----------
Total other income (expense)........................................................ 502,823 2,433 (358)
----------- ----------- -----------
Income before income taxes and minority interest....................................... 10,877,853 231,546 1,966,860
Federal and state income taxes......................................................... 841,013 136,683 34,430
Minority interest in net income of subsidiaries........................................ 8,773 -- --
----------- ----------- -----------
Net income............................................................................ $10,028,067 $ 94,863 $ 1,932,430
=========== =========== ===========
See notes to consolidated finacial statements.
G-8
VANGUARD INFO-SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2004, 2003 and 2002
ACCUMULATED
OTHER ADDITIONAL
COMPREHENSIVE RETAINED COMPREHENSIVE COMMON PAID-IN
TOTAL INCOME EARNINGS INCOME STOCK CAPITAL
----------- ------------- ----------- ------------- ------ ----------
Balance January 1, 2002 ...................... $ 300,711 $ 290,711 $ -- $-- $ 10,000
Net income .................................. 1,932,430 $ 1,932,430 1,932,430 -- -- --
-------------
Comprehensive income ......................... $ 1,932,430
=============
Sub-chapter S distributions ................. (277,172) (277,172) -- -- --
----------- ----------- -------- --- ----------
Balance, December 31, 2002 ................... 1,955,969 1,945,969 -- -- 10,000
Net income .................................. 94,863 $ 94,863 94,863 -- -- --
-------------
Comprehensive income ......................... $ 94,863
=============
Sub-chapter S distributions ................. (1,510,478) (1,510,478) -- -- --
----------- ----------- -------- --- ----------
Balance, December 31, 2003 ................... 540,354 530,354 -- -- 10,000
Comprehensive income
Net income .................................. 10,028,067 $ 10,028,067 10,028,067 -- -- --
Other comprehensive income, net of tax
Foreign currency translation adjustments... 452,260 452,260 -- 452,260 -- --
-------------
Comprehensive income ......................... $ 10,480,327
=============
Acquisition of Castor and Vanguard Info-
Solution.................................... 3,045,586 -- -- -- 3,045,586
----------- ----------- -------- --- ----------
Balance, December 31, 2004 ................... $14,066,267 $10,558,421 $452,260 $-- $3,055,586
=========== =========== ======== === ==========
See notes to consolidated finacial statements.
G-9
VANGUARD INFO-SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------
2004 2003 2002
----------- ----------- -----------
Cash Flows from Operating Activities
Net income............................................................................ $10,028,067 $ 94,863 $ 1,932,430
Adjustments to reconcile net income to net cash provided by operating activities
Provision for doubtful accounts and discounts....................................... 43,413 (13,171) 30,280
Depreciation and amortization....................................................... 645,883 64,794 51,848
Loss on disposal of fixed assets.................................................... 107,023 -- --
Deferred taxes...................................................................... 865,776 125,178 18,100
Minority interest in net income of subsidiaries..................................... 8,773 -- --
Changes in assets and liabilities, net of effects from acquisition of Vanguard Info-
Solution
Accounts receivable................................................................ (9,139,142) 2,368,453 (2,687,182)
Prepaid taxes and other current assets............................................. (21,765) 3,920 4,989
Accounts payable and accrued expenses.............................................. 306,503 (1,872,124) 1,936,097
Customer deposits.................................................................. (76,820) 76,820 --
Income taxes payable............................................................... 141,566 -- --
----------- ----------- -----------
Net cash provided by operating activities......................................... 2,909,277 848,733 1,286,562
----------- ----------- -----------
Cash Flows from Investing Activities
Acquisition of Vanguard Info-Solution, net of cash acquired........................... (43,411) -- --
Security deposits..................................................................... (329,679) (11,133) --
Purchases of property and equipment................................................... (1,990,299) (67,553) (103,352)
----------- ----------- -----------
Net cash used in investing activities............................................. (2,363,389) (78,686) (103,352)
----------- ----------- -----------
Cash Flows from Financing Activities
Advances to stockholders, net......................................................... (332,720) 33,388 (530,195)
Notes payable borrowings, net of repayments........................................... 353,704 224,996 --
Repayments of long term debt.......................................................... (94,484) (10,313) 36,214
Sub-chapter S distributions........................................................... -- (1,510,478) (277,172)
----------- ----------- -----------
Net cash used in financing activities............................................. (73,500) (1,262,407) (771,153)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents................................... 472,388 (492,360) 412,057
Cash and cash equivalents, beginning of period......................................... 635,062 1,127,422 715,365
----------- ----------- -----------
Cash and cash equivalents, end of period............................................... $ 1,107,450 $ 635,062 $ 1,127,422
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information
Cash paid for
Income taxes........................................................................ $ -- $ 11,505 $ 16,330
=========== =========== ===========
Interest............................................................................ $ 64,690 $ 3,367 $ 7,244
=========== =========== ===========
See notes to consolidated finacial statements.
G-10
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 areas 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 first two quarters of 2004,
transferred 32% of Vanguard USA to an individual during the third quarter of
2004 and acquired the remaining 20% of Vanguard USA in January 2005.
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 December 31, 2004:
Castor Finance Company Private Limited ("Castor") -- 99.9%
Castor was incorporated in India under the Companies Act, 1956. Vanguard USA
acquired 99.9% of Castor in March 2004. 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.) -- 99.9%
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 telemarketing
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 Vanguard USA
effective April 1, 2004. The accompanying consolidated statement of income
includes the operations of Vanguard Info-Solution from April 1 to December 31,
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
telemarketing 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 April 1, 2004. The
accompanying consolidated statement of income includes the operations of
Vanguard Business from April 1 to December 31, 2004.
All material inter-company accounts, transactions and profits have been
eliminated. 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.
G-11
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 year ended December 31, 2004, Vanguard USA recorded revenues
totaling $672,933 for billing and other 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.
PROPERTY AND 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 service lives of property and equipment for the purposes of
computing depreciation are as follows:
Computer Equipment and 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, operating loss and
tax credit carryforwards, and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their respective
tax bases. Deferred tax assets are reduced by a valuation
G-12
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
allowance when, in the opinion of management, it is more likely than not that
some 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. Furthermore, the Company has obtained credit insurance for its
factored accounts receivable.
CAPITALIZED ACQUISITION COSTS
In connection with the proposed transaction with TACT (Note N), the Company
has incurred certain professional fees. These fees have been capitalized and,
upon the completion of the proposed transaction, will be reflected as a
component of the purchase price.
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency for the Company's operations
in India. Assets and liabilities of these operations are translated to U.S.
dollars at the exchange rate in effect at the end of each period. Income
statement accounts are translated at the average exchange rate prevailing
during the period. Translation adjustments arising from the use of differing
exchange rates from period to period are included as a component of other
comprehensive income within stockholders' equity. Gains and losses from
foreign currency transactions are included in net income for the period.
B. ACQUISITIONS
On December 31, 2003, the stockholders of Vanguard USA reached an agreement
with Excalibur that, in exchange for $200,000, and 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 K).
G-13
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
C. ACCOUNTS RECEIVABLE, TRADE
Accounts receivable as of December 31, 2004 and 2003, consist of:
DECEMBER 31,
------------------------
2004 2003
----------- ----------
Factored trade receivables with recourse ........... $ 726,607 $ --
Non-factored trade receivables ..................... 12,964,925 1,576,093
----------- ----------
Total accounts receivable ......................... $13,691,532 $1,576,093
=========== ==========
Under the terms of the Factoring Agreement described in Note G, certain
receivables of Vanguard Info-Solution are assigned to a factor, SBI Factor &
Commercial Services Private Limited ("SBI") 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
receivable.
D. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2004 and
2003:
DECEMBER 31,
-------------------------
2004 2003
------------ ----------
Computer equipment and software ................... $ 4,553,227 $ --
Leasehold improvements ............................ 675,362 18,037
Furniture and fixtures ............................ 260,969 36,159
Office equipment .................................. 129,768 119,806
Vehicles .......................................... 25,841 172,325
------------ ----------
Subtotal ......................................... 5,645,167 346,327
Less accumulated depreciation and amortization .... (869,172) (164,940)
------------ ----------
Total ............................................ $ 4,775,995 $ 181,387
============ ==========
A portion of the Company's property and equipment secure its obligations
under long-term debt.
Depreciation and amortization expense was $645,883, $64,794 and $51,848 for
the years ended December 31, 2004, 2003 and 2002, respectively.
E. INCOME TAXES AND CHANGE IN TAX STATUS
The provision for federal and state income taxes charged to operations for
the years ended December 31, 2004, 2003 and 2002 consists of the following:
2004 2003 2002
-------- -------- -------
Current tax expense........................... $(24,763) $ 11,505 $16,330
Deferred tax expense.......................... 865,776 125,178 18,100
-------- -------- -------
$841,013 $136,683 $34,430
======== ======== =======
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.
As a result of the termination of this tax election 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
G-14
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
E. INCOME TAXES AND CHANGE IN TAX STATUS--(CONTINUED)
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 implemented in 1999 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:
DECEMBER 31,
--------------------
2004 2003
--------- --------
Deferred tax assets:
Preliminary expenses................................ $ 5,823 $ --
Expenses allowable for tax purposes when paid....... 17,640 --
--------- --------
Gross deferred tax assets ......................... 23,463 --
Less: Valuation allowance............................ (23,463) --
--------- --------
Net deferred tax assets ........................... -- --
--------- --------
Deferred tax liabilities:
Depreciation........................................ 767,884 --
Revenue Recognition................................. 826,097 143,278
Less: Deferred tax liability not recognized......... (728,204) --
--------- --------
Net deferred tax liabilities ...................... 865,777 143,278
--------- --------
Net deferred tax assets/(liabilities) ............. $ 865,777 $143,278
========= ========
Undistributed earnings of the Indian Subsidiaries aggregated approximately
$8,800,000 as of December 31, 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 $3,000,000 would have been provided.
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 $18,084, $50,031 and $18,456 for the years ended
December 31, 2004 and 2003, respectively.
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
December 31, 2004, Vanguard USA has accrued $36,923 for the unfunded
contributions and anticipates that further costs to correct this situation, if
any, will be minimal.
G-15
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
F. PENSION AND RETIREMENT PLANS--(CONTINUED)
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 employee's base 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
ended December 31, 2004, the Indian Subsidiaries contributed $122,017 to the
provident fund.
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. Employees 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.
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
December 31, 2004.
Amounts recognized on the balance sheet:
Accrued benefit cost.............................. $ 30,809
==========================
Assumptions:
Discount rate
Vanguard Info-Solution......................... 7.50%
Vanguard Business.............................. 7.00%
Annual increase in compensation
Vanguard Info-Solution......................... 5.00%
8.00% for 5 years, 6%
Vanguard Business.............................. thereafter
Additional data:
Net periodic cost ............................... $ 14,206
==========================
Benefits paid ................................... $ --
==========================
G. NOTES PAYABLE
Line of Credit
Vanguard USA had an $850,000 line of credit with a financial institution.
Borrowings from the credit line bore interest at the LIBOR rate plus 3.40% and
were secured by substantially all assets of Vanguard USA. This line expired on
November 30, 2004, and was not renewed.
Factor Loan
Pursuant to a Factoring Agreement, loans taken from SBI 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.
G-16
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
G. NOTES PAYABLE--(CONTINUED)
The total amount of revolving facility under the Factoring 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 December 31, 2004, out of
the permitted limit, the Company has factored receivables of $726,607 and has
been advanced $578,700.
H. ADVANCES TO STOCKHOLDER
Advances to Stockholder represents amounts 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.
I. LONG-TERM DEBT
Long-term debt as of December 31, 2004 and 2003, consists of:
2004 2003
-------- -------
Vehicle loan from bank ................................... $ 12,968 $25,901
Equipment loans from others .............................. 211,329 --
-------- -------
Total debts ............................................. 224,297 25,901
Less: Current portion of long-term debts ................. 107,354 9,852
-------- -------
Long-term debts, net of current portion ................. $116,943 $16,049
======== =======
The following is a schedule by year of the future maturities of long term
debt:
YEAR ENDING DECEMBER 31,
--------------------------
2005 ................................................................ $107,354
2006 ................................................................ 113,805
2007 ................................................................ 3,138
--------
$224,297
========
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 and peripherals and by 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.
J. CAPITAL LEASE OBLIGATIONS
During 2004, Vanguard USA entered into agreements to acquire certain
computer equipment under capital leases which contained purchase options under
which Vanguard USA may purchase the equipment for $1 at the expiration of the
leases. 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%.
On August 20, 2004, Vanguard USA incorporated a wholly-owned subsidiary, 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 and the related obligation to 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 K. As a
result, Vanguard USA has no future obligation for lease payments.
G-17
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
K. COMMITMENTS AND CONTINGENCIES
Lease Commitments
As of December 31, 2004, Vanguard USA rents its office premises in New
Jersey from one of its former 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 December 31, 2004:
YEAR ENDING DECEMBER 31,
------------------------
2005 .............................................................. $1,478,971
2006 .............................................................. 1,006,357
2007 .............................................................. 171,069
----------
$2,656,397
==========
Rent expense under these leases for the year ended December 31, 2004 was
$944,130. As noted above in Note J, a third party has agreed to reimburse
Vanguard USA for these payments.
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 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 December 31, 2004:
YEAR ENDING DECEMBER 31,
------------------------
2005 .............................................................. $ 439,605
2006 .............................................................. 456,090
2007 .............................................................. 505,545
2008 .............................................................. 505,545
2009 .............................................................. 524,503
Thereafter ........................................................ 1,598,787
----------
$4,030,075
==========
Rent expense for the year ended December 31, 2004 under this lease was
$329,704.
Vanguard Business leases office space 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 the event the agreement is not renewed mutually.
The following is a schedule of future minimum rental payments related to the
Vanguard Business lease as of December 31, 2004:
YEAR ENDING DECEMBER 31,
-----------------------
2005 ........................................................... $ 101,254
2006 ........................................................... 101,254
2007 ........................................................... 113,911
2008 ........................................................... 126,568
2009 ........................................................... 126,568
Thereafter ..................................................... 933,437
----------
$1,502,992
==========
G-18
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
K. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Rent expense under this lease for the year ended December 31, 2004 was
$50,627.
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 have not been
examined by the tax authorities since inception. 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 December 31,
2004. The outstanding commitment for such purchases was approximately $447,391
as of December 31, 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 $324,000 in favor of the President of
India and have also given bank guarantees of approximately $16,000 as of
December 31, 2004, to secure their export obligations.
As of December 31, 2004, the Indian Subsidiaries have utilized approximately
$161,000 of the general bond balance due to duty forgone for imports and local
purchases, and as such, the unutilized balance is approximately $163,000.
L. 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 the nature of such financial instruments.
M. MAJOR CUSTOMER INFORMATION -- ECONOMIC DEPENDENCY
Revenues from one customer of Vanguard USA amounted to approximately 26%,
96% and 93% of consolidated revenues for the years ended December 31, 2004,
2003 and 2002, respectively. During 2004, this customer significantly reduced
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 20% of consolidated revenues for the year ended December 31,
2004. Amounts receivable from three customers of the Indian Subsidiaries
represented approximately 67% of consolidated accounts receivable as of
December 31, 2004.
N. 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 for all outstanding shares of Vanguard
USA. 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
G-19
VANGUARD INFO-SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
N. SUBSEQUENT EVENT--(CONTINUED)
transactions are approved by the stockholders of TACT, upon their completion,
the former stockholders of Vanguard will own between 67.5% and 71.7% of TACT's
issued and outstanding shares of Common Stock, and after giving effect to the
purchase by Oak of 1,024,697 shares of Common Stock from an officer/
stockholder of TACT in a separate transaction that is expected to occur
simultaneously with the TACT issuance, 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 has 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-20
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 December 31, 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 December 31, 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 December 31, 2004.
The following pro forma unaudited consolidated condensed statement of
operations for the year ended December 31, 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 period. 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
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
VANGUARD TACT
DECEMBER 31, DECEMBER 31, MERGER PRO FORMA
2004 2004 ADJUSTMENTS COMBINED
------------ ------------ ------------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 1,107,450 $ 2,493,104 $ 5,000,000 (e) $ 8,600,554
Accounts receivable ............................................ 13,691,532 3,810,759 -- 17,502,291
Unbilled receivables ........................................... -- 260,000 -- 260,000
Advance to Stockholder ......................................... 299,332 -- -- 299,332
Prepaid expenses and other current assets ...................... 263,986 139,704 (40,000)(e) 363,690
----------- ------------ ------------- -----------
Total current assets.......................................... 15,362,300 6,703,568 4,960,000 27,025,868
Investments, net ............................................... -- 87,059 -- 87,059
Property and equipment, net .................................... 4,775,995 556,896 -- 5,332,891
Goodwill ....................................................... -- 1,140,964 (1,140,964)(d) --
Goodwill (New) ................................................. -- -- 6,563,526 (b)(f) 6,563,526
Intangibles, net ............................................... -- 34,667 -- 34,667
Acquisition costs .............................................. 222,875 -- (222,875)(f) --
Deposits and Other ............................................. 616,827 126,363 -- 743,190
----------- ------------ ------------- -----------
Total assets.................................................. $20,977,997 $ 8,649,515 $ 10,159,686 $39,787,198
=========== ============ ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable ................................................... 578,700 -- -- 578,700
Accounts payable and accrued expenses .......................... 5,089,368 1,666,160 1,800,000 (a) 8,555,528
Capital lease obligation ....................................... -- 290,517 -- 290,517
Deferred income taxes .......................................... -- 22,500 -- 22,500
Income taxes payable ........................................... 141,566 -- -- 141,566
Current portion of long-term debt .............................. 107,354 233,962 -- 341,316
----------- ------------ ------------- -----------
Total current liabilities..................................... 5,916,988 2,213,139 1,800,000 9,930,127
LONG-TERM LIABILITIES:
Long-term debt, net of current portion ......................... 116,943 13,479 -- 130,422
Deferred tax liability ......................................... 865,777 -- -- 865,777
Minority Interest .............................................. 12,022 -- -- 12,022
----------- ------------ ------------- -----------
994,742 13,479 -- 1,008,221
----------- ------------ ------------- -----------
Total Liabilities .............................................. 6,911,730 2,226,618 1,800,000 10,938,348
=========== ============ ============= ===========
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; ............................... -- 5,716 (5,716)(c) --
Common stock, $.01 par value; 30,000,000 shares authorized; .... -- 21,227 (21,227)(c) 102,033
6,250 (e)
95,783 (a)
Paid-in capital ................................................ 3,055,586 34,181,206 (34,181,206)(c) 3,055,586
9,726,801 (a) 9,726,801
4,953,750 (e) 4,953,750
Accumulated income(deficit) .................................... 10,558,421 (27,785,251) 27,785,251 (c) 10,558,421
Accumulated other comprehensive income/(loss) .................. 452,260 -- -- 452,260
----------- ------------ ------------- -----------
Total shareholders' equity ..................................... 14,066,267 6,422,898 8,359,686 28,848,851
----------- ------------ ------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................... $20,977,997 $ 8,649,515 $ 10,159,686 $39,787,198
=========== ============ ============= ===========
H-2
VANGUARD INFO-SOLUTIONS CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
VANGUARD TACT PRO FORMA
HISTORICAL TWELVE HISTORICAL TWELVE ADJUSTMENTS
MONTHS ENDED MONTHS ENDED INCREASE/
DECEMBER 31, 2004 DECEMBER 31, 2004 DECREASE PRO FORMA
----------------- ----------------- ----------- -----------
REVENUES .................................................... $34,402,490 $25,035,167 $ -- $59,437,657
Cost of revenues ............................................ 18,172,855 17,361,526 -- 35,534,381
----------- ----------- --------- -----------
Gross Profit ................................................ 16,229,635 7,673,640 -- 23,903,275
OPERATING EXPENSES:
Selling, general & administrative ........................... 5,854,605 5,952,343 900,000(aa) 12,706,948
Depreciation & Amortization-Operations ...................... -- 360,859 -- 360,859
----------- ----------- --------- -----------
Total operating expenses ................................... 5,854,605 6,313,202 900,000 13,067,807
----------- ----------- --------- -----------
Income (loss) from operations ............................... 10,375,030 1,360,438 (900,000) 10,835,468
OTHER INCOME(EXPENSE):
Interest expense, net ....................................... (62,962) (24,649) -- (87,611)
Commission Income ........................................... 672,933(bb) -- -- 672,933
Miscellaneous expense ....................................... (107,148) -- -- (107,148)
----------- ----------- --------- -----------
Total other income ......................................... 502,823 (24,649) -- 478,174
----------- ----------- --------- -----------
INCOME (LOSS) BEFORE INCOME TAXES & MINORITY INTEREST ....... 10,877,853 1,335,789 (900,000) 11,313,642
Provision (Benefit) for income taxes ........................ 841,013 99,085 -- 940,098
Minority interest in net income of subsidiaries ............. 8,773 -- -- 8,773
----------- ----------- --------- -----------
Net income (loss) ........................................... $10,028,067 $ 1,236,705 $(900,000) $10,364,771
=========== =========== ========= ===========
----------- ----------- --------- -----------
Earning per share: .......................................... $ 1,002.81 $ 1.02
=========== =========== ========= ===========
Basic ....................................................... 10,000 10,203,346
H-3
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
December 31, 2004 and statement of operations for the year ended December 31,
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-4
VANGUARD INFO-SOLUTIONS CORPORATION/THE A CONSULTING TEAM, INC
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--(CONTINUED)
BALANCE SHEET AT DECEMBER 31, 2004:
(a) To record the reverse acquisition of TACT for the purchase
price of $9,822,584 plus acquisition costs of $2,022,875.
(b) To allocate excess purchase price to goodwill
Goodwill .................................................. $6,563,526
(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 reclass Vanguard Acquisition costs to Goodwill.......... $ 222,875
H-5
VANGUARD INFO-SOLUTIONS CORPORATION/THE A CONSULTING TEAM, INC
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--(CONTINUED)
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004:
(aa) To record TACT's additional estimated fees
associated with the transaction
(bb) 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
the future periods.
H-6
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-5
1.1 Background and Effective Date................................................................... J-5
1.2 Purpose of the Plan............................................................................. J-5
Section 2 DEFINITIONS..................................................................................... J-5
2.1 "1934 Act"...................................................................................... J-5
2.2 "Affiliate"..................................................................................... J-5
2.3 "Affiliated SAR"................................................................................ J-5
2.4 "Award"......................................................................................... J-5
2.5 "Award Agreement"............................................................................... J-5
2.6 "Board"......................................................................................... J-5
2.7 "Code".......................................................................................... J-5
2.8 "Committee"..................................................................................... J-5
2.9 "Company"....................................................................................... J-5
2.10 "Consultant".................................................................................... J-6
2.11 "Director"...................................................................................... J-6
2.12 "Disability".................................................................................... J-6
2.13 "Employee"...................................................................................... J-6
2.14 "Employee Director"............................................................................. J-6
2.15 "Exercise Price"................................................................................ J-6
2.16 "Fair Market Value"............................................................................. J-6
2.17 "Freestanding SAR".............................................................................. J-6
2.18 "Grant Date".................................................................................... J-6
2.19 "Incentive Stock Option"........................................................................ J-6
2.20 "Non-employee Director"......................................................................... J-6
2.21 "Nonqualified Stock Option"..................................................................... J-6
2.22 "Option"........................................................................................ J-6
2.23 "Participant"................................................................................... J-6
2.24 "Performance Share"............................................................................. J-6
2.25 "Performance Unit".............................................................................. J-6
2.26 "Period of Restriction"......................................................................... J-6
2.27 "Plan".......................................................................................... J-6
2.28 "Restricted Stock".............................................................................. J-6
2.29 "Rule 16b-3".................................................................................... J-6
2.30 "Section 16 Person"............................................................................. J-6
2.31 "Shares"........................................................................................ J-6
2.32 "Stock Appreciation Right"...................................................................... J-7
2.33 "Subsidiary".................................................................................... J-7
2.34 "Tandem SAR".................................................................................... J-7
2.35 "Termination of Service"........................................................................ J-7
Section 3 ADMINISTRATION.................................................................................. J-7
3.1 The Committee................................................................................... J-7
3.2 Authority of the Committee...................................................................... J-7
3.3 Delegation by the Committee..................................................................... J-7
3.4 Non-employee Directors.......................................................................... J-7
3.5 Decisions Binding............................................................................... J-7
Section 4 SHARES SUBJECT TO THE PLAN...................................................................... J-8
4.1 Number of Shares................................................................................ J-8
4.2 Lapsed Awards................................................................................... J-8
4.3 Adjustments in Awards and Authorized Shares..................................................... J-8
4.4 Limits on Awards................................................................................ J-8
J-2
TABLE OF CONTENTS
(CONTINUED)
PAGE
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Section 5 STOCK OPTIONS................................................................................... J-8
5.1 Grant of Options................................................................................ J-8
5.2 Award Agreement................................................................................. J-8
5.3 Exercise Price.................................................................................. J-8
5.3.1 Nonqualified Stock Options...................................................................... J-8
5.3.2 Incentive Stock Options......................................................................... J-8
5.3.3 Substitute Options.............................................................................. J-9
5.4 Expiration of Options........................................................................... J-9
5.4.1 Expiration Dates................................................................................ J-9
5.4.2 Death of Participant............................................................................ J-9
5.4.3 Committee Discretion............................................................................ J-9
5.5 Exercisability of Options....................................................................... J-9
5.6 Payment......................................................................................... J-9
5.7 Restrictions on Share Transferability........................................................... J-9
5.8 Certain Additional Provisions for Incentive Stock Options....................................... J-9
5.8.1 Exercisability.................................................................................. J-9
5.8.2 Company and Subsidiaries Only................................................................... J-10
5.8.3 Expiration...................................................................................... J-10
5.9 Grant of Reload Options......................................................................... J-10
Section 6 STOCK APPRECIATION RIGHTS....................................................................... J-10
6.1 Grant of SARs................................................................................... J-10
6.1.1 Exercise Price and Other Terms.................................................................. J-10
6.2 Exercise of Tandem SARs......................................................................... J-10
6.3 Exercise of Freestanding SARs................................................................... J-10
6.4 SAR Agreement................................................................................... J-10
6.5 Expiration of SARs.............................................................................. J-11
6.6 Payment of SAR Amount........................................................................... J-11
Section 7 RESTRICTED STOCK................................................................................ J-11
7.1 Grant of Restricted Stock....................................................................... J-11
7.2 Restricted Stock Agreement...................................................................... J-11
7.3 Transferability................................................................................. J-11
7.4 Other Restrictions.............................................................................. J-11
7.5 Removal of Restrictions......................................................................... J-11
7.6 Voting Rights................................................................................... J-11
7.7 Dividends and Other Distributions............................................................... J-11
7.8 Return of Restricted Stock to Company........................................................... J-12
Section 8 PERFORMANCE UNITS AND PERFORMANCE SHARES........................................................ J-12
8.1 Grant of Performance Units/Shares............................................................... J-12
8.2 Initial Value................................................................................... J-12
8.3 Performance Objectives and Other Terms.......................................................... J-12
8.4 Earning of Performance Units and Performance Shares............................................. J-12
8.5 Form and Timing of Payment...................................................................... J-12
8.6 Cancellation.................................................................................... J-12
Section 9 NON-EMPLOYEE DIRECTORS.......................................................................... J-12
9.1 Granting of Awards.............................................................................. J-12
9.1.1 New Non-employee Directors...................................................................... J-12
9.1.2 Continuing Non-employee Directors............................................................... J-12
9.1.3 Discretionary Options........................................................................... J-13
9.1.4 Other Awards.................................................................................... J-13
9.2 Terms of Nondiscretionary Options............................................................... J-13
J-3
TABLE OF CONTENTS
(CONTINUED)
PAGE
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9.2.1 Option Agreement................................................................................ J-13
9.2.2 Exercise Price.................................................................................. J-13
9.2.3 Exercisability.................................................................................. J-13
9.2.4 Expiration of Options........................................................................... J-13
9.2.5 Death of Non-employee Director.................................................................. J-13
9.2.6 Not Incentive Stock Options..................................................................... J-13
9.2.7 Other Terms..................................................................................... J-13
9.3 Terms of Other Awards........................................................................... J-13
Section 10 MISCELLANEOUS................................................................................... J-14
10.1 No Effect on Employment or Service.............................................................. J-14
10.2 Participation................................................................................... J-14
10.3 Indemnification................................................................................. J-14
10.4 Successors...................................................................................... J-14
10.5 Beneficiary Designations........................................................................ J-14
10.6 Nontransferability of Awards.................................................................... J-14
10.7 No Rights as Stockholder........................................................................ J-14
10.8 Withholding Requirements........................................................................ J-14
10.9 Withholding Arrangements........................................................................ J-15
10.10 Deferrals....................................................................................... J-15
Section 11 AMENDMENT, TERMINATION, AND DURATION............................................................ J-15
11.1 Amendment, Suspension, or Termination........................................................... J-15
11.2 Duration of the Plan............................................................................ J-15
Section 12 LEGAL CONSTRUCTION.............................................................................. J-15
12.1 Gender and Number............................................................................... J-15
12.2 Severability.................................................................................... J-15
12.3 Requirements of Law............................................................................. J-15
12.4 Compliance with Rule 16b-3...................................................................... J-15
12.5 Governing Law................................................................................... J-15
12.6 Captions........................................................................................ J-15
J-4
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.
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.
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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.
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.
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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.
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.
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.
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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.
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.
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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
(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
J-9
$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.
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.
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.
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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.
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.
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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.
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.
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.
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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
(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.
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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.
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.
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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.
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.
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.
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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.
THE A CONSULTING TEAM, INC.
Dated as of: February 9, 2005 By /s/ Richard D. Falcone
--------------------------------------
Title: Chief Financial Officer
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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 May 5, 2005, at
10:00 (local time), at the offices of the Company's counsel, Orrick, Herrington
& Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103 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
| | | |
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the line below:
---------------------------------------------------------
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
| | | | | |
---------------------------------------------------------
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
| | | | | |
---------------------------------------------------------
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
---------------------------------------------------------
5. To approve an amendment and restatement of the Company's 1997 Stock Option
and Award Plan.
FOR AGAINST ABSTAIN
| | | | | |
---------------------------------------------------------
6. To ratify the selection of Mercadien, P.C. as independent auditors of the
Company for the fiscal year ending December 31, 2005.
FOR AGAINST ABSTAIN
| | | | | |
---------------------------------------------------------
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