-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DF5hfw40fU0PE3Vy457PD9nzEhXJTUMQPFutsdqIHFj+f7cgr327TQSFzd0MXmdJ LcBymfY/vqV3G57iRvgEng== 0001013816-06-000388.txt : 20060515 0001013816-06-000388.hdr.sgml : 20060515 20060515164537 ACCESSION NUMBER: 0001013816-06-000388 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060401 FILED AS OF DATE: 20060515 DATE AS OF CHANGE: 20060515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MANAGEMENT NETWORK GROUP INC CENTRAL INDEX KEY: 0001094814 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 481129619 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27617 FILM NUMBER: 06842126 BUSINESS ADDRESS: STREET 1: 7300 COLLEGE BLVD., STE 302 CITY: OVERLAND PARK STATE: KS ZIP: 66210 BUSINESS PHONE: 9133459315 MAIL ADDRESS: STREET 1: 7300 COLLEGE BLVD., STE 302 CITY: OVERLAND PARK STATE: KS ZIP: 66210 10-Q 1 form10q_051506.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (x) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 1, 2006 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 0-27617 THE MANAGEMENT NETWORK GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 48-1129619 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7300 COLLEGE BLVD., SUITE 302, OVERLAND PARK, KS 66210 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) 913-345-9315 ------------ Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Accelerated Filer [ ] Large Accelerated Filer [ ] Non- Accelerated Filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of May 12, 2006 TMNG had outstanding 35,854,985 shares of common stock. THE MANAGEMENT NETWORK GROUP, INC. INDEX
PAGE ---- PART I. FINANCIAL INFORMATION: ITEM 1. Condensed Consolidated Financial Statements (unaudited): Condensed Consolidated Balance Sheets - April 1, 2006 and December 31, 2005 ..................................... 3 Condensed Consolidated Statements of Operations and Comprehensive Loss - Thirteen weeks ended April 1, 2006 and April 2, 2005 ........................................... 4 Condensed Consolidated Statements of Cash Flows - Thirteen weeks ended April 1, 2006 and April 2, 2005 ...... 5 Notes to Condensed Consolidated Financial Statements .......... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............... 12 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ................................................. 15 ITEM 4. Controls and Procedures ...................................... 16 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings ............................................ 16 ITEM 1A. Risk Factors ................................................. 16 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds .. 16 ITEM 3. Defaults Upon Senior Securities .............................. 16 ITEM 4. Submission of Matters to a Vote of Security Holders .......... 16 ITEM 5. Other Information ............................................ 16 ITEM 6. Exhibits ..................................................... 16 Signatures............................................................. 17 Exhibits ............................................................... 18
2 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THE MANAGEMENT NETWORK GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) (unaudited)
April 1, December 31, 2006 2005 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents ................................ $ 15,243 $ 10,951 Short-term investments ................................... 33,200 38,700 Receivables: Accounts receivable .................................... 4,276 3,886 Accounts receivable - unbilled ......................... 2,861 2,559 --------- --------- 7,137 6,445 Less: Allowance for doubtful accounts .................. (294) (296) --------- --------- 6,843 6,149 Refundable income taxes ................................. 112 117 Prepaid and other assets ................................ 1,177 1,262 --------- --------- Total current assets ........................... 56,575 57,179 --------- --------- Property and equipment, net ............................... 948 900 Goodwill ................................................... 13,365 13,365 Identifiable intangible assets, net ........................ 1,536 1,651 Other assets ............................................... 452 454 --------- --------- Total Assets ............................................... $ 72,876 $ 73,549 ========= ========= CURRENT LIABILITIES: Trade accounts payable ................................... $ 578 $ 1,025 Accrued payroll, bonuses and related expenses ............ 1,760 1,136 Other accrued liabilities ................................ 1,896 1,893 Unfavorable and capital lease obligations 623 628 --------- --------- Total current liabilities ...................... 4,857 4,682 Unfavorable and capital lease obligations .................. 2,675 2,819 STOCKHOLDERS' EQUITY Common Stock: ............................................ 36 36 Voting - $.001 par value, 100,000,000 shares authorized; 35,790,286 and 35,705,520 issued and outstanding on April 1, 2006 and December 31, 2005, respectively Preferred stock -- $.001 par value, 10,000,000 shares authorized, no shares issued or outstanding Additional paid-in capital ............................... 160,025 159,586 Accumulated deficit ...................................... (94,868) (93,305) Accumulated other comprehensive income - Foreign currency translation adjustment ................. 151 147 Unearned compensation .................................... (416) --------- --------- Total stockholders' equity ...................... 65,344 66,048 --------- --------- Total Liabilities and Stockholders' Equity ................. $ 72,876 $ 73,549 ========= =========
See notes to condensed consolidated financial statements. 3 THE MANAGEMENT NETWORK GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share data) (unaudited) For the Thirteen Weeks Ended ------------------------------ April 1, April 2, 2006 2005 -------- --------- Revenues .................................. $ 7,163 $ 7,067 Cost of services (including equity related charges of $193 and $35 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively)......... 3,544 3,429 -------- -------- Gross Profit .............................. 3,619 3,638 Operating Expenses: Selling, general and administrative (including equity related charges of $510 and $188 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively).......................... 5,581 4,335 Real estate restructuring ............... 75 Intangible asset amortization............ 115 160 -------- -------- Total operating expenses .............. 5,696 4,570 -------- -------- Loss from operations ...................... (2,077) (932) Other Income: Interest income ......................... 535 324 Other, net .............................. 15 -------- -------- Total other income .................... 535 339 -------- -------- Loss from continuing operations before income tax provision ..................... (1,542) (593) Income tax provision ...................... (21) (15) -------- -------- Net loss .................................. (1,563) (608) -------- -------- Other comprehensive item - Foreign currency translation adjustment ............................ 4 (70) -------- -------- Comprehensive loss ........................ $ (1,559) $ (678) ======== ======== Loss per common share Basic and Diluted $ (0.04) $ (0.02) ======== ======== Weighted average shares used in calculation of net loss per common share Basic and Diluted ..................... 35,625 34,977 ======== ======== See notes to condensed consolidated financial statements. 4 THE MANAGEMENT NETWORK GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
For the Thirteen Weeks Ended ------------------------------ April 1, April 2, 2006 2005 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .............................................. $ (1,563) $ (608) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ...................... 214 282 Equity related charges ............................. 703 223 Other changes in operating assets and liabilities: Accounts receivable ........................... (392) 1,066 Accounts receivable - unbilled ................ (302) (2,018) Refundable income taxes ....................... 5 590 Prepaid and other assets ...................... 87 67 Trade accounts payable ........................ (447) (291) Accrued liabilities ........................... 625 59 -------- -------- Net cash used in operating activities ...... (1,070) (630) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments ................... (800) Proceeds from maturities and sales of short-term investments .......................................... 6,300 2,750 Acquisition of property and equipment ................. (147) (86) -------- -------- Net cash provided by investing activities .. 5,353 2,664 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments made on long-term obligations ................ (147) (263) Proceeds from exercise of stock options ............... 152 158 -------- -------- Net cash provided by (used in) financing activities ............................... 5 (105) -------- -------- Effect of exchange rate on cash and cash equivalents ............................................ 4 (70) -------- -------- Net increase in cash and cash equivalents ............... 4,292 1,859 Cash and cash equivalents, beginning of period .......... 10,951 10,882 -------- -------- Cash and cash equivalents, end of period ................ $ 15,243 $ 12,741 ======== ======== Supplemental disclosure of cash flow information: Cash paid during period for interest .................... $ $ 1 ======== ======== Cash paid during period for taxes, net of refunds ....... $ 16 $ 15 ======== ======== Non-cash acquisitions of property and equipment included in accrued liabilities ...................... $ $ 169 ======== ========
See notes to condensed consolidated financial statements. 5 THE MANAGEMENT NETWORK GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Reporting The accompanying condensed consolidated financial statements of The Management Network Group, Inc. ("TMNG" or the "Company") as of April 1, 2006 and for the thirteen weeks ended April 1, 2006 and April 2, 2005, are unaudited and reflect all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the Company's condensed consolidated financial position, results of operations, and cash flows as of these dates and for the periods presented. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Consequently, these statements do not include all the disclosures normally required by accounting principles generally accepted in the United States of America ("US GAAP") for annual financial statements nor those normally made in the Company's annual report on Form 10-K. Accordingly, reference should be made to the Company's annual report on Form 10-K for additional disclosures, including a summary of the Company's accounting policies. The Condensed Consolidated Balance Sheet as of December 31, 2005 has been derived from the audited Consolidated Balance Sheet at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements. Research and Development Costs - Expenditures relating to development of new offerings and services are expensed as incurred. Research and development costs (exclusive of associated sales and marketing related costs) were $180,000 and $115,000 in the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. 2. Share-Based Compensation In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment." SFAS No. 123R is a revision of SFAS No. 123, "Accounting for Stock-based Compensation," and supersedes Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee and non-employee services in exchange for share-based payment transactions. SFAS No. 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees and non-employees. On January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective transition method. Accordingly, prior period amounts have not been restated; however, the balance presented as unearned compensation on nonvested shares (restricted stock) within stockholders' equity has been reclassified to additional paid-in capital as of January 1, 2006. Additionally, amounts previously classified as "equity related charges" on the condensed consolidated statements of operations and comprehensive loss have been reclassified to cost of services or selling, general and administrative expense, as appropriate. SFAS No. 123R requires the netting of estimated forfeitures against compensation expense. The adoption of that policy was immaterial, therefore no cumulative effect change in accounting has been reported. Compensation expense is based on the calculated fair value of the awards and is expensed over the service period (generally the vesting period). Prior to the adoption of SFAS No. 123R, the Company utilized the intrinsic value methodology in accounting for stock-based compensation for employees and non-employee directors in accordance with the provisions of APB No. 25 and related Interpretations. Under the modified prospective transition method, compensation cost associated with stock options and nonvested shares for the thirteen weeks ended April 1, 2006 includes: (a) compensation cost for awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and (b) compensation cost for awards granted subsequent to January 1, 2006, based on the grant date fair value under SFAS No. 123R. Prior to Adoption of SFAS No. 123R During the thirteen weeks ended April 2, 2005, the Company recognized compensation expense of $223,000 related to the nonvested share grants made to key management personnel in prior periods. In addition, during the thirteen weeks ended April 2, 2005, the Company granted options to purchase 205,000 shares of the Company's common stock to employees at a weighted average exercise price of $2.36 per share. At the date of the grants, the exercise price of the option awards equaled the market price of the Company's common stock. 6 The following table summarizes the pro forma effect of stock-based compensation on net loss and net loss per share for the thirteen weeks ended April 2, 2005: THIRTEEN WEEKS ENDED APRIL 2, 2005 ------------- Net loss, as reported: $ (608) Add: stock-based employee compensation expense included in reported net loss 223 Deduct: Total stock-based compensation expense determined under fair value based method for all awards (606) ----------- Pro forma net loss $ (991) =========== Loss per share Basic and diluted, as reported $ (0.02) =========== Basic and diluted, pro forma $ (0.03) =========== Subsequent to Adoption of SFAS No. 123R The Company estimates the fair value of our stock options and stock issued under the Employee Stock Purchase Plan using the Black-Scholes-Merton option pricing model. Groups of employees or non-employee directors that have similar historical and expected exercise behavior are considered separately for valuation purposes. The table below shows the weighted average of the assumptions used in estimating the fair value of stock options granted during the thirteen weeks ended April 1, 2006 and April 2, 2005: THIRTEEN THIRTEEN WEEKS ENDED WEEKS ENDED APRIL 1, 2006 APRIL 2, 2005 ---------------- ----------------- Risk-free interest rate........ 4.46% - 4.83% 3.58% - 3.99% Expected life.................. 6 years 5 years Expected volatility factor..... 83% 90% Expected dividend rate......... 0% 0% The risk-free interest rate is based on the U.S. Treasury yield at the time of grant for a term equal to the expected life of the stock option; prior to the adoption of SFAS No. 123R, the expected life is based on historical and expected exercise behavior; subsequent to the adoption of SFAS No. 123R, the expected life was determined using the simplified method of estimating the life as allowed under Staff Accounting Bulletin No. 107, "Share-Based Payment"; and the expected volatility is based on the historical volatility of our stock price for a period of time equal to the expected life of the stock option. Nearly all of the Company's stock based compensation arrangements utilize graded vesting schedules where a portion of the grant vests annually over a period of two to four years. The Company has a policy of recognizing compensation expense for awards with graded vesting over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. This policy has the effect of accelerating the recognition of expense when compared to a straight-line amortization methodology. As of April 1, 2006, the Company has three share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans under SFAS No. 123R was $703,000 for the thirteen weeks ended April 1, 2006. As of April 1, 2006, unrecognized compensation cost, net of estimated forfeitures, related to the unvested portion of all share-based compensation arrangements was approximately $3.7 million and is expected to be recognized over a weighted-average period of approximately 1.2 years. The Company has historically issued and expects to continue to issue new shares to satisfy stock option exercises, vesting of nonvested shares or purchases of shares under the Employee Stock Purchase Plan. 1998 EQUITY INCENTIVE PLAN Stock Options The Company's 1998 Equity Incentive Plan (the 1998 Plan) is a shareholder approved plan, which provides for the granting of incentive stock options and nonqualified stock options to employees, and nonqualified stock options and nonvested shares to employees, directors and consultants. As of April 1, 2006, the Company has 3,530,362 shares of the Company's common stock available to grant as stock options under the 1998 Plan. Incentive stock options are granted at an exercise price of not less than market value per share of the common stock on the 7 date of grant as determined by the Board of Directors. Vesting and exercise provisions are determined by the Board of Directors. As of April 1, 2006, all options granted under the 1998 Plan were non-qualified stock options. Options granted under the 1998 Plan generally become exercisable over a three to four year period beginning on the date of grant. Options granted under the 1998 Plan have a maximum term of ten years. A summary of the option activity of the Company's 1998 Plan as of April 1, 2006 and changes during the thirteen weeks then ended is presented below:
WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AGGREGATE SHARES EXERCISE PRICE CONTRACTUAL TERM INTRINSIC VALUE ------------ ---------------- ----------------- ----------------- Outstanding at December 31, 2005 5,052,405 $ 4.50 Granted 652,000 $ 2.46 Exercised (84,766) $ 1.78 Forfeited/cancelled (92,377) $ 6.11 --------- Outstanding at April 1, 2006 5,527,262 $ 4.28 7.4 years $469,000 ========= Options exercisable at April 1, 2006 2,730,077 $ 6.19 5.5 years $388,000 ========= Weighted average fair value of options granted during the period $ 1.83
The total intrinsic value of options exercised during the thirteen weeks ended April 1, 2006 was $68,000. As of April 1, 2006, unrecognized compensation cost, net of estimated forfeitures, related to the unvested portion of stock options issued under the 1998 Plan was approximately $2.8 million and is expected to be recognized over a weighted-average period of approximately 1.2 years. Nonvested Shares As of April 1, 2006, the Company has 1,055,000 shares of the Company's common stock available for grant as nonvested shares under the 1998 Plan for key management personnel. The shares are subject to restriction based upon a two to four year vesting schedule. The fair value of nonvested share awards is determined based on the closing trading price of our common stock on the grant date. A summary of the status of nonvested shares granted under the 1998 Plan as of April 1, 2006 and changes during the thirteen weeks then ended is presented below: WEIGHTED AVERAGE GRANT DATE SHARES FAIR VALUE -------- ---------------- Outstanding at December 31, 2005 310,500 $2.31 Vested (43,750) $2.24 -------- Outstanding at April 1, 2006 266,750 $2.32 ======== As of April 1, 2006, there was $329,000 of total unrecognized compensation cost related to nonvested shares granted under the 1998 Plan. The cost is expected to be recognized over a weighted average period of 1.9 years. The total fair value of shares vested during the thirteen weeks ended April 1, 2006 was $98,000. 2000 SUPPLEMENTAL STOCK PLAN As of April 1, 2006, the Company has 2,721,087 shares of the Company's common stock available to grant as stock options under the 2000 Supplemental Stock Plan (the 2000 Plan). The 2000 Plan provides the Company's common stock for the granting of nonqualified stock options to employees and is not subject to shareholder approval. Vesting and exercise provisions are determined by the Board of Directors. Options granted under the plan generally become exercisable over a period of up to four years beginning on the date of grant and have a maximum term of ten years. 8 A summary of the option activity of the Company's 2000 Plan as of April 1, 2006 and changes during the thirteen weeks then ended is presented below:
WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AGGREGATE SHARES EXERCISE PRICE CONTRACTUAL TERM INTRINSIC VALUE ------------ ---------------- ----------------- ----------------- Outstanding at December 31, 2005 957,040 $4.63 Granted 132,500 $2.48 Forfeited/cancelled (22,500) $3.50 --------- Outstanding at April 1, 2006 1,067,040 $4.39 6.8 years $26,000 ========= Options exercisable at April 1, 2006 683,891 $5.45 5.5 years $15,000 ========= Weighted average fair value of options granted during the period $1.82
As of April 1, 2006, unrecognized compensation cost, net of estimated forfeitures, related to the unvested portion of stock options issued under the 2000 Plan was approximately $420,000 and is expected to be recognized over a weighted-average period of approximately 1.2 years. EMPLOYEE STOCK PURCHASE PLAN Under the Employee Stock Purchase Plan (ESPP), shares of the Company's common stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first day of the enrollment period or on the last day of each six-month period. Employees may purchase shares through a payroll deduction program having a value not exceeding 15% of their gross compensation during an offering period. In the thirteen weeks ended April 1, 2006, we recognized expense under SFAS No. 123R associated with purchases under the ESPP of $67,000. 3. Earnings (Loss) Per Share The Company calculates and presents earnings (loss) per share using a dual presentation of basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed in the same manner except the weighted average number of shares is increased for dilutive securities. In accordance with the provisions of SFAS No. 128 "Earnings Per Share", the Company has not included the effect of stock options in the calculation of diluted loss per share for the thirteen weeks ended April 1, 2006 and April 2, 2005, as the Company reported a loss from continuing operations for these periods and the effect would have been anti-dilutive. Had the Company reported net income for the thirteen weeks ended April 1, 2006 and April 2, 2005 the treasury method of calculating common stock equivalents would have resulted in approximately 374,000 and 475,000 additional diluted shares, respectively. 4. Business Segments The Company identifies its segments based on the way management organizes the Company to assess performance and make operating decisions regarding the allocation of resources. In accordance with the criteria in SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information," the Company has concluded it has four operating segments: Operations, Strategy, Marketing and International; which are aggregated in one reportable segment, the Management Consulting Services segment. Management Consulting Services includes business strategy and planning, marketing and customer relationship management, billing system support, operating system support, revenue assurance, corporate investment services, and business model transformation. The company intends to continue to measure and report its activities using our current segment structure. However, as the services provided by the Company evolve, management will continue to evaluate its segment reporting structure. In accordance with the provisions of SFAS No 131, revenues earned in the United States and internationally based on the location where the services are performed are shown in the following table (amounts in thousands): FOR THE THIRTEEN WEEKS ENDED - -------------------------------------------------------------------- APRIL 1, 2006 APRIL 2, 2005 ------------- ------------- United States $ 6,945 $ 6,608 International: The Netherlands 39 United Kingdom 218 345 Other 75 ------- ------- Total $7,163 $ 7,067 ======= ======= 9 5. Other Identifiable Intangible Assets Included in the Company's consolidated balance sheets as of April 1, 2006 and December 31, 2005, are the following identifiable intangible assets (amounts in thousands): April 1, 2006 December 31, 2005 ------------------------ ------------------------ Accumulated Accumulated Cost Amortization Cost Amortization ------- ------------ ------- ------------ Customer relationships $ 1,908 $(1,751) $ 1,908 $(1,709) Employee agreements 3,200 (3,200) S3 license agreement 1,500 (121) 1,500 (48) ------- ------- ------- ------- Total $ 3,408 $(1,872) $ 6,608 $(4,957) ======= ======= ======= ======= Intangible amortization expense for the thirteen weeks ended April 1, 2006 and April 2, 2005 was $115,000 and $160,000, respectively. Intangible amortization expense is estimated to be approximately $346,000 for the remainder of fiscal year 2006, $319,000 in fiscal year 2007 and $290,000 each in fiscal years 2008 through 2010. 6. Income Taxes In the thirteen weeks ended April 1, 2006 and April 2, 2005, the Company generated income tax benefits of $624,000 and $233,000, respectively. The Company recorded full valuation allowances against these income tax benefits in accordance with provisions of SFAS No. 109 "Accounting for income tax", which requires an estimation of the recoverability of the recorded income tax asset balances. In addition, the Company reported income tax provision of $21,000 and $15,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, related to state tax expense. As of April 1, 2006, the Company has recorded $27.8 million of valuation allowances in connection with its net deferred tax assets. 7. Real Estate Restructuring In the fourth quarter of fiscal year 2004, the Company made the decision to consolidate office space. In connection with this decision, a sublease agreement for unutilized space was entered into with a third party for the remainder of the original lease term. In accordance with SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities," the decision to consolidate office space resulted in a charge of $75,000 related to the buyout of an office equipment lease in the thirteen weeks ended April 2, 2005. The restructuring charge has been reflected as a component of Loss from Operations in the Statement of Operations and Comprehensive Loss. 8. Loans to Officers As of April 1, 2006, there is one outstanding line of credit between the Company and its Chief Executive Officer, Richard P. Nespola, which originated in fiscal year 2001. Aggregate borrowing outstanding against the line of credit at April 1, 2006 and December 31, 2005 totaled $300,000 and are due in 2011. These amounts are included in other assets in the non-current assets section of the balance sheet. In accordance with the loan provisions, the interest rate charged on the loans is equal to the Applicable Federal Rate (AFR), as announced by the Internal Revenue Service, for short-term obligations (with annual compounding) in effect for the month in which the advance is made, until fully paid. Pursuant to the Sarbanes-Oxley Act, no further loan agreements or draws against the line may be made by the Company to, or arranged by the Company for its executive officers. Interest payments on this loan are current as of April 1, 2006. 9. Contingencies In June 1998, the bankruptcy trustee of a former client, Communications Network Corporation, sued TMNG for a total of $320,000 in the U.S. Bankruptcy Court in New York seeking recovery of $160,000 alleging an improper payment of consulting fees paid by the former client during the period from July 1, 1996, when an involuntary bankruptcy proceeding was initiated against the former client, through August 6, 1996, when the former client agreed to an order for relief in the bankruptcy proceeding, and $160,000 in consulting fees paid by the former client after August 6, 1996. The bankruptcy trustee also sued TMNG for at least $1.85 million for breach of contract, breach of fiduciary duties and negligence. In March 2006, the Company reached a settlement agreement with the bankruptcy trustee whereby the Company agreed to pay the trustee $255,000 in exchange for being released from all potential liability under the suits discussed above. This settlement was fully reserved for as of December 31, 2005. Additionally, as of April 1, 2006 the Company had outstanding demands aggregating approximately $1.0 million by the bankruptcy trustees of several former clients in connection with collected balances near the customers' respective bankruptcy filing dates. Although the Company does not believe it received any preference payments from these former clients and plans to vigorously defend its position, the Company has established reserves of $727,000 as of April 1, 2006 and December 31, 2005, which it believes are adequate in the event of loss or settlement on remaining outstanding claims. 10 The Company may become involved in various legal and administrative actions arising in the normal course of business. These could include actions brought by taxing authorities challenging the employment status of consultants utilized by the Company. In addition, future customer bankruptcies could result in additional claims on collected balances for professional services near the bankruptcy filing date. While the resolution of any of such actions, claims, or the matters described above may have an impact on the financial results for the period in which they occur, the Company believes that the ultimate disposition of these matters will not have a material adverse effect upon its consolidated results of operations, cash flows or financial position. The Company establishes reserves for potential tax liabilities when, despite the belief that tax return positions are fully supported, certain positions are likely to be challenged and not be fully sustained. Such tax reserves are analyzed on a quarterly basis and adjusted based upon changes in facts and circumstances, such as the progress of federal and state audits, case law and emerging legislation. The Company's effective tax rate includes the impact of such tax reserves and changes to these reserves as considered appropriate by management. The Company establishes the reserves based upon its assessment of exposure associated with possible future assessments that may result from the examination of federal, state, or international tax returns. These tax reserves were $649,000 at April 1, 2006 and December 31, 2005. Management believes that it has established adequate reserves in the event of loss or settlement of any potential tax liabilities. 10. Subsequent Event On April 3, 2006, we entered into an Asset Purchase Agreement with Adventis Limited, a United Kingdom company ("Limited") and Adventis Corporation, a Delaware corporation and the parent of Limited (together with Limited, "Adventis"), pursuant to which we have purchased all of the assets used in the operation of Adventis' international consulting business outside North America. Adventis is a global consulting firm specializing in telecommunications, technology and digital media. The acquired international operations of Adventis consist of 27 consultants located in London and Berlin with revenues from clients in Europe and Asia. The transaction was valued at a purchase price of approximately $1.65 million, with approximately $1.5 million paid in cash at closing, plus the assumption of approximately $125,000 in net working capital deficiency. The acquisition closed on April 3, 2006. Behrman Capital and its affiliates (collectively "Behrman"), an owner of 35% of TMNG's outstanding common stock, also owns 61% of the outstanding common stock of Adventis Corporation. Gant G. Behrman and William M. Matthes, who serve on the Board of Directors, are the Co-Managing Partners of Behrman. Despite owning a majority of Adventis Corporation's common stock, Behrman did not control Adventis at the time of this transaction. Adventis was under the control of its senior secured creditors as it underwent a sale of the business. In order to execute this purchase as an arms-length transaction, TMNG formed a Special Committee of the Board of Directors to evaluate the acquisition. The Special Committee consisted of the four independent board members not part of TMNG management or affiliated with Behrman. Behrman received none of the proceeds of this transaction. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to historical information, this quarterly report contains forward-looking statements. Certain risks and uncertainties could cause actual results to differ materially from those reflected in such forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in our annual report on Form 10-K for the fiscal year ended December 31, 2005. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date of this report. We undertake no obligation to revise, or publicly release the results of any revision to, these forward-looking statements. Readers should carefully review the risk factors described in our annual report and in other documents that we file from time to time with the Securities and Exchange Commission. The following should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations as presented in our annual report on Form 10-K for the fiscal year ended December 31, 2005. EXECUTIVE FINANCIAL OVERVIEW As discussed in our 2005 annual report on Form 10-K for the fiscal year ended December 31, 2005, the communications industry experienced a significant economic recession from 2001 through 2004. We are a consultancy to the industry, and as a result experienced a significant reduction in consulting business primarily due to the recession. We experienced significant revenue declines and/or net losses from 2001 to 2004. During this period we maintained relatively consistent gross margins through innovative pricing and high consultant utilization levels. Beginning in late 2004 and continuing through first quarter of 2006, we have seen significant changes in the industry resulting from consolidation, technology transformation and the convergence of the telecommunications, media and entertainment sectors. During the thirteen weeks ended April 1, 2006, our revenues increased 1.4% compared with the thirteen weeks ended April 2, 2005 and 15% compared to the thirteen weeks ended December 31, 2005. Gross margins were 50.5% in the first quarter of 2006 compared with 51.5% in the first quarter of 2005. On January 1, 2006, we adopted SFAS No. 123R which reduced gross margins for the quarter by 2.6%, offsetting improvements in gross margin due to a shift in the mix of business to more strategy consulting engagements. We continue to focus our efforts on identifying, adapting to and capitalizing on the change elements present in the converging communications industry, as well as emphasizing wireless and IP initiatives within the communications sector. Selling, general and administrative costs in the thirteen weeks ended April 1, 2006 and April 2, 2005 were up 28.7% as compared to the same period of 2005. The increase reflects the impact of the adoption of SFAS No. 123R of $443,000 in the thirteen weeks ended April 1, 2006. In addition we incurred increased recruiting and incentive compensation costs associated with growth in our CSMG business unit along with additional salaries, travel and entertainment expenses associated with investment in new clients and intellectual property. Although these costs have impacted our short-term profitability, we believe they will better enable us to capitalize on the industry convergence and migration toward wireless and IP platforms. We are also focusing our marketing efforts on growth markets surrounding large and sustainable clients to maintain a portfolio of business that is high credit quality, thus reducing bad debt risks. It is important to note that subsequent to April 1, 2006, we finalized an asset purchase agreement with Adventis Limited, a United Kingdom company ("Limited") and Adventis Corporation, a Delaware corporation and the parent of Limited (together with Limited, "Adventis"), pursuant to which we have purchased all of the assets used in the operation of Adventis' international consulting business outside North America. Adventis is a global consulting firm specializing in telecommunications, technology and digital media. The acquired international operations of Adventis consist of 27 consultants located in London and Berlin with revenues from clients in Europe and Asia. The transaction was valued at a purchase price of approximately $1.65 million, with approximately $1.5 million paid in cash at closing, plus the assumption of approximately $125,000 in net working capital deficiency. The acquisition closed on April 3, 2006. OPERATIONAL OVERVIEW Revenues typically consist of consulting fees for professional services and related expense reimbursements. Our consulting services are typically contracted on a time and materials basis, a time and materials basis not to exceed contract price, a fixed fee basis, or contingent fee basis. Revenues on contracts with a not to exceed contract price or a fixed cost contract are recorded under the percentage of completion method, utilizing estimates of project completion under both of these types of contracts. Larger fixed price contracts have recently begun to represent a more significant component of our revenue mix. Contract revenues on contingent fee contracts are deferred until the revenue is realizable and earned. Generally, a client relationship begins with a short-term engagement utilizing a few consultants. Our sales strategy focuses on building long-term relationships with both new and existing clients to gain additional engagements within existing accounts and referrals for new clients. Strategic alliances with other companies are also used to sell services. We anticipate that we will continue to pursue these marketing strategies in the future. Because we are a consulting company, we experience fluctuations in revenues derived from clients during the course of a project lifecycle. As a result, the volume of work performed for specific clients varies from period to period and a major client from one period may not use our services or the same volume of services in another period. In addition, clients generally may end their engagements with little or no penalty or notice. If a client engagement ends earlier than expected, we must re-deploy professional service personnel as any resulting unbillable time could harm margins. 12 Cost of services consists primarily of compensation for consultants who are employees and equity related charges for stock options and nonvested shares (restricted stock) primarily to consultants, as well as fees paid to independent contractor organizations and related expense reimbursements. Employee compensation includes certain unbillable time, training, vacation time, benefits and payroll taxes. Gross margins are primarily impacted by the type of consulting services provided; the size of service contracts and negotiated volume discounts; changes in our pricing policies and those of competitors; utilization rates of consultants and independent subject matter experts; and employee and independent contractor costs, which tend to be higher in a competitive labor market. Operating expenses include selling, general and administrative, equity related charges, intangible asset amortization, and real estate restructuring charges. Sales and marketing expenses consist primarily of personnel salaries, bonuses, and related costs for direct client sales efforts and marketing staff. We primarily use a relationship sales model in which partners, principals and senior consultants generate revenues. In addition, sales and marketing expenses include costs associated with marketing collateral, product development, trade shows and advertising. General and administrative expenses consist mainly of costs for accounting, recruiting and staffing, information technology, personnel, insurance, rent, and outside professional services incurred in the normal course of business. Included in selling, general and administrative expenses are equity related charges incurred in connection with stock-based compensation awards. CRITICAL ACCOUNTING POLICIES While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies are the most critical to our consolidated financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions: - - Allowance for Doubtful Accounts; - - Impairment of Goodwill and Long-lived Intangible Assets; - - Revenue Recognition; and - - Deferred Income Tax Assets. Allowances for Doubtful Accounts - Substantially all of our receivables are owed by companies in the communications industry. We typically bill customers for services after all or a portion of the services have been performed and require customers to pay within 30 days. We attempt to control credit risk by being diligent in credit approvals, limiting the amount of credit extended to customers and monitoring customers' payment record and credit status as work is being performed for them. We recorded no bad debt expense in the thirteen weeks ended April 1, 2006 and April 2, 2005, as no provision was necessary for our allowance for doubtful accounts to maintain a level appropriate with the anticipated default rate of the underlying accounts receivable balances. Our allowance for doubtful accounts totaled $294,000 and $296,000 as of April 1, 2006 and December 31, 2005, respectively. The calculation of these amounts is based on judgment about the anticipated default rate on receivables owed to us as of the end of the reporting period. That judgment was based on uncollected account experience in prior years and our ongoing evaluation of the credit status of our customers and the communications industry in general. We have attempted to mitigate credit risk by concentrating our marketing efforts on the largest and most stable companies in the communications industry and by tightly controlling the amount of credit provided to customers. If we are unsuccessful in these efforts, or if our customers file for bankruptcy or experience financial difficulties, it is possible that the allowance for doubtful accounts will be insufficient and we will have a greater bad debt loss than the amount reserved, which would adversely affect our financial performance and cash flow. Impairment of Goodwill and Long-lived Intangible Assets - Goodwill and other long-lived intangible assets arising from our acquisitions are subjected to periodic review for impairment. SFAS No. 142 requires an annual evaluation at the reporting unit level of the fair value of goodwill and compares the calculated fair value of the reporting unit to its book value to determine whether an impairment has been deemed to occur. Any impairment charge would be based on the most recent estimates of the recoverability of the recorded goodwill. If the remaining book value assigned to goodwill in an acquisition is higher than the estimated fair value of the reporting unit, there is a requirement to write down these assets. The determination of fair value requires management to make assumptions about future cash flows and discounted rates. These assumptions require significant judgment and estimations about future events and are thus subject to significant uncertainty. If actual cash flows turn out to be less than projected, we may be required to take further write-downs, which could increase the variability and volatility of our future results. Revenue Recognition--We recognize revenue from time and material contracts in the period in which our services are performed. In addition to time and materials contracts, our other types of contracts include time and materials contracts not to exceed contract price, fixed fee contracts, and contingent fee contracts. We recognize revenues on time and materials contracts not to exceed contract price and fixed fee contracts using the percentage of completion method. Percentage of completion accounting involves calculating the percentage of services provided during the reporting period compared with the total estimated services to be provided over the duration of the contract. For all contracts, estimates of total contract revenues and costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revisions as the contract progresses. Such revisions may result in a material increase or decrease in revenues and income and are reflected in the financial statements in the periods in which they are first identified. 13 We also may enter into contingent fee contracts, in which revenue is subject to achievement of savings or other agreed upon results, rather than time spent. Due to the nature of contingent fee contracts, we recognize costs as they are incurred on the project and defer revenue recognition until the revenue is realizable and earned as agreed to by our clients. Although these contracts can be very rewarding, the profitability of these contracts is dependent on our ability to deliver results for our clients and control the cost of providing these services. Both of these types of contracts are typically more results-oriented and are subject to greater risk associated with revenue recognition and overall project profitability than traditional time and materials contracts. We did not enter into or deliver on any contingent fee contracts for the thirteen weeks ended April 1, 2006. Deferred Income Tax Assets - We have generated substantial deferred income tax assets primarily from the accelerated financial statement write-off of goodwill, the charge to compensation expense taken for stock options and net operating loss carryforwards. For us to realize the income tax benefit of these assets, we must generate sufficient taxable income in future periods when such deductions are allowed for income tax purposes. In some cases where deferred taxes were the result of compensation expense recognized on stock options, our ability to realize the income tax benefit of these assets is also dependent on our share price increasing to a point where these options will be exercised. In assessing whether a valuation allowance is needed in connection with our deferred income tax assets, we have evaluated our ability to carry back tax losses to prior years that reported taxable income, and our ability to generate sufficient taxable income in future periods to utilize the benefit of the deferred income tax assets. Such projections of future taxable income require significant subjective judgments and estimates by us. As of April 1, 2006, cumulative valuation allowances in the amount of $27.8 million were recorded in connection with the net deferred income tax assets. We continue to evaluate the recoverability of the recorded deferred income tax asset balances. If we continue to report net operating losses for financial reporting in future years, no additional tax benefit would be recognized for those losses, since we would be required to increase our valuation allowance to offset such amounts. RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED APRIL 1, 2006 COMPARED TO THIRTEEN WEEKS ENDED APRIL 2, 2005 On January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective transition method. SFAS No. 123R requires the Company to recognize compensation expense for all share-based awards made to employees and non-employee directors. Compensation expense is based on the calculated fair value of the awards as measured at the grant date using the Black-Scholes-Merton option pricing model and is expensed ratably over the service period of the awards (generally the vesting period). For periods prior to the adoption of SFAS No. 123R, the Company utilized the intrinsic value methodology in accounting for stock-based compensation for employees and non-employee directors in accordance with the provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. REVENUES Revenues increased 1.4% to $7.2 million for the thirteen weeks ended April 1, 2006 from $7.1 million for the thirteen weeks ended April 2, 2005. The increase in revenue is attributable to greater than 100 percent growth in our CSMG business unit, largely offset by the unexpected pullback of a major client project due to the client's business restructuring which negatively impacted revenues by approximately $1 million. During the thirteen weeks ended April 1, 2006, the Company provided services on 83 customer projects, compared to 123 projects performed in the thirteen weeks ended April 2, 2005. Average revenue per project was $86,000 in the thirteen weeks ended April 1, 2006 compared to $57,000 in the thirteen weeks ended April 2, 2005. The increase in average revenue per project was primarily attributable to a shift in the mix of business to larger higher rate strategy-related projects in the thirteen weeks ended April 1, 2006. Our international revenue base decreased to 3.0% of revenues for the thirteen weeks ended April 1, 2006, from 6.5% for the thirteen weeks ended April 2, 2005, due primarily to the completion of multiple large projects in Western Europe in the latter part of fiscal year 2005, combined with an increase in our domestic project and revenue base. Revenues recognized in connection with fixed price and contingent fee engagements totaled $3.4 million and $3.2 million, representing 46.9% and 45.2% of total revenue, for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, . This increase is due to the mix of our business shifting to more strategy and management consulting engagements which are more likely to be structured as fixed price or contingent fee engagements. COSTS OF SERVICES Costs of services increased 3.4% for the thirteen weeks ended April 1, 2006, compared to the thirteen weeks ended April 2, 2005. As a percentage of revenue, our gross margin was 50.5% for the thirteen weeks ended April 1, 2006, compared to 51.5% for the thirteen weeks ended April 2, 2005. The decrease in gross margin was primarily attributable to the adoption of SFAS No. 123R effective January 1, 2006 which resulted in a reduction of gross margins of 2.6%, offsetting improvements in gross margin obtained by a shift in the mix of services to more strategy and management consulting engagements in relation to resourcing engagements. OPERATING EXPENSES In total, operating expenses increased by 24.6% to $5.7 million for the thirteen weeks ended April 1, 2006, from $4.6 million for the thirteen weeks ended April 2, 2005. Operating expenses include selling, general and administrative costs (inclusive of equity related charges), real estate restructuring charges and intangible asset amortization. 14 Selling, general and administrative expense increased to $5.6 million or 28.7% in the thirteen weeks ended April 1, 2006, compared to the thirteen weeks ended April 1, 2005. The increase is partially related to equity related charges of $510,000 in the thirteen weeks ended April 1, 2006 compared to $188,000 for the thirteen weeks ended April 2, 2005. The increase in equity related charges is attributable to the adoption of SFAS No. 123R and incentive compensation effective January 1, 2006. In addition we incurred increased recruiting and incentive compensation costs associated with growth in our CSMG business unit along with additional salaries, travel and entertainment expenses associated with investment in new clients and intellectual property. Intangible asset amortization was $115,000 and $160,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. The decrease in amortization expense was due to certain intangible assets becoming fully amortized in early first quarter 2005. OTHER INCOME AND EXPENSES Interest income was $535,000 and $324,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, and represented interest earned on invested balances. Interest income increased for the thirteen weeks ended April 1, 2006 as compared to the thirteen weeks ended April 2, 2005 due to increases in interest rates from 2005 to 2006. We primarily invest in money market funds and investment-grade auction rate securities as part of our overall investment policy. INCOME TAXES In the thirteen weeks ended April 1, 2006 and April 2, 2005 we recorded no income tax benefit related to our pre-tax losses in accordance with the provisions of SFAS No. 109 "Accounting for Income Taxes" which requires an estimation of the recoverability of the recorded income tax asset balances. We continue to evaluate the recoverability of our recorded deferred income tax asset balances. If we continue to report net operating losses for financial reporting, no additional tax benefit would be recognized for those losses, since we would be required to increase our valuation allowance to offset such amounts. We reported an income tax provision of $21,000 and $15,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, related to state tax expense. NET LOSS Net loss increased 157% to $1.6 million for the thirteen weeks ended April 1, 2006, from $608,000 for the thirteen weeks ended April 2, 2005. The increase was primarily attributable to the impact of the adoption of SFAS No. 123R as well as increased selling, general and administrative expenses due to the strategic addition of consultants to support growth in our CSMG business unit. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $1.1 million and $0.6 million for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. Cash used in operating activities for the thirteen weeks ended April 1, 2006 and April 2, 2005 primarily related to operating losses. Net cash provided by investing activities was $5.4 million and $2.7 million for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. This includes net proceeds from sales and reinvestments of auction rate securities of $5.5 million and $2.8 million in the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively. Cash used in investing activities also includes $147,000 and $86,000 for the thirteen weeks ended April 1, 2006 and April 2, 2005, respectively, related to spending on capitalized office equipment, software and computer equipment. Net cash provided by financing activities was $5,000 in the thirteen weeks ended April 1, 2006, and related to proceeds received from the exercise of employee stock options, partially offset by payments made on long-term obligations. Net cash used in financing activities was $105,000 in the thirteen weeks ended April 2, 2005, and related to payments made by the Company on the current portion of capital lease obligations, partially offset by proceeds received from the exercise of stock options. At April 1, 2006, we had approximately $48.4 million in cash, cash equivalents, and short-term investments. We believe we have sufficient cash and short-term investments to meet anticipated cash requirements, including anticipated capital expenditures, consideration for possible acquisitions, and any future operating losses that may be incurred, for at least the next 12 months. Should our cash and short-term investments prove insufficient we might need to obtain new debt or equity financing to support our operations or complete acquisitions. We have established a flexible model that provides a lower fixed cost structure than most consulting firms, enabling us to scale operating cost structures more quickly based on market conditions. Our strong cash position and absence of long-term debt have enabled us to weather adverse conditions in the telecommunications industry and to make investments in intellectual property we believe are enabling us to capitalize on the current recovery and transformation of the industry; however, if the industry and demand for our consulting services do not continue to rebound and we continue to experience negative cash flow, we could experience liquidity challenges at some future point. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not invest excess funds in derivative financial instruments or other market rate sensitive instruments for the purpose of managing our foreign currency exchange rate risk. We invest excess funds in short-term investments, including auction rate securities, the yield of which is exposed to interest rate market risk. Auction rate securities are classified as available-for-sale and reported on the balance sheet at fair value, 15 which equals market value, as the rate on such securities resets generally every 28 to 35 days. Consequently, interest rate movements do not materially affect the balance sheet valuation of fixed income investments. Changes in the overall level of interest rates do affect our interest income generated from investments. We do not have material exposure to market related risks. Foreign currency exchange rate risk may become material given U.S. dollar to foreign currency exchange rate changes and significant increases in international engagements denominated in the local currency of our clients. ITEM 4. CONTROLS AND PROCEDURES A review and evaluation was performed by our management, including our Chief Executive Officer (the "CEO") and Chief Financial Officer (the "CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that review and evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed and implemented, were effective. There have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of their evaluation. There were no significant material weaknesses identified in the course of such review and evaluation and, therefore, we took no corrective measures. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We have not been subject to any material new litigation or claims since the time of our 10-K filing, on March 30, 2006. For a summary of litigation in which we are currently involved, refer to our annual report on Form 10-K, as filed with the Securities and Exchange Commission on March 30, 2006 and Note 9 of the Condensed Consolidated Financial Statements included elsewhere in this report. In June 1998, the bankruptcy trustee of a former client, Communications Network Corporation, sued TMNG for a total of $320,000 in the U.S. Bankruptcy Court in New York seeking recovery of $160,000 alleging an improper payment of consulting fees paid by the former client during the period from July 1, 1996, when an involuntary bankruptcy proceeding was initiated against the former client, through August 6, 1996, when the former client agreed to an order for relief in the bankruptcy proceeding, and $160,000 in consulting fees paid by the former client after August 6, 1996. The bankruptcy trustee also sued us for at least $1.85 million for breach of contract, breach of fiduciary duties and negligence. In March 2006, we reached a settlement agreement with the bankruptcy trustee whereby we agreed to pay the trustee $255,000 in exchange for being released from all potential liability under the suits discussed above. ITEM 1A. RISK FACTORS There has been no material change in the Risk Factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission on March 30, 2006. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS (a) Exhibits Exhibit 10.1 Asset Purchase Agreement between the registrant and Adventis Limited and Adventis Corporation* Exhibit 31. Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32. Certifications furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation [***]. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RICHARD P. NESPOLA Chairman, President and Chief May 15, 2006 - ------------------------------- Executive Officer Richard P. Nespola (Principal executive officer)
EX-10 2 form10q_051506ex10.txt EXH. 10 ASSET PURCHASE AGREEMENT Exhibit 10 EXECUTION COPY CONFIDENTIAL TREATMENT Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" ASSET PURCHASE AGREEMENT by and among --------------- WILBASS LIMITED as Purchaser, --------------- ADVENTIS LIMITED and ADVENTIS CORPORATION as Sellers Dated April 2, 2006 TABLE OF CONTENTS Page ARTICLE I SALE AND PURCHASE OF ASSETS.........................................1 1.1. Purchase of Assets of Limited...........................1 1.2. Purchase of Assets of AC................................4 1.3. Excluded Assets.........................................6 ARTICLE II PURCHASE PRICE AND COMPLETION......................................7 2.1. Purchase Price..........................................7 2.2. Assumption of Liabilities...............................7 2.3. Time and Place of Completion............................8 2.4. Calculation of Purchase Price...........................8 2.5. Lease Holdback; Bare License to Occupy Premises.........9 2.6. Completion Deliveries..................................12 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS........................14 3.1. Organization and Good Standing.........................14 3.2. Due Authorization......................................15 3.3. No Violation or Conflict...............................15 3.4. Litigation.............................................15 3.5. No Approvals...........................................15 3.6. Accuracy of Disclosure.................................15 3.7. Brokers................................................16 3.8. Title to Assets; Encumbrances..........................16 3.9. Germany Operations.....................................16 3.10. Intellectual Property..................................16 3.11. Employees and Related Liabilities......................17 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................17 4.1. Organization and Good Standing.........................17 4.2. Due Authorization......................................17 4.3. No Violation or Conflict...............................17 4.4. Litigation.............................................18 4.5. Brokers................................................18 4.6. Financial Condition of Purchaser.......................18 ARTICLE V COVENANTS .......................................................18 5.1. Conduct of Business....................................18 5.2. Confidentiality........................................19 5.3. Value Added Tax........................................19 5.4. Employees..............................................21 5.5. Assumed Contracts......................................22 5.6. Receivables............................................22 5.7. Expenses...............................................23 5.8. Other Agreements; Further Assurances...................23 5.9. No Voluntary Insolvency................................23 5.10. Exclusivity............................................24 5.11. Announcements; Notices.................................24 5.12. Landlord's Consent.....................................24 5.13. Use of Intellectual Property...........................24 5.14. Client Confidentiality Obligations.....................24 ARTICLE VI CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS...................25 6.1. Representations and Warranties True at Completion......25 6.2. Release and Consent of Chase...........................25 6.3. Release by Behrman.....................................25 6.4. Board Approval.........................................25 6.5. Completion Deliveries..................................25 ARTICLE VII CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS.....................25 7.1. Representations and Warranties True at Completion......25 7.2. Consents...............................................26 7.3. Board Approval.........................................26 7.4. Completion Deliveries..................................26 ARTICLE VIII TERMINATION OF AGREEMENT........................................26 8.1. Termination............................................26 8.2. Survival...............................................26 8.3. Letter of Intent and Non-Disclosure Agreement..........26 ARTICLE IX SURVIVAL .......................................................27 9.1. Survival of Representations, Warranties; Claims........27 ARTICLE X MISCELLANEOUS......................................................27 10.1. Certain Definitions....................................27 10.2. Further Assurances.....................................32 10.3. Notices................................................32 10.4. Entire Agreement.......................................34 10.5. Waivers and Amendments.................................34 10.6. Default Interest.......................................34 10.7. Governing Law; Non-Exclusive Jurisdiction; Service of Process...........................................34 10.8. Binding Effect; No Assignment..........................34 10.9. Contracts (Rights of Third Parties) Act 1999...........35 10.10. Variations in Pronouns.................................35 10.11. Counterparts; Facsimile Signatures.....................35 10.12. Exhibits and Schedules.................................35 10.13. Effect of Disclosure on Schedules......................35 10.14. Headings...............................................35 10.15. Severability of Provisions.............................35 10.16. Claims Made............................................35 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" EXHIBITS: Exhibit A: Addleshaw Goddard Letter Exhibit B: Form of Escrow Agreement Exhibit C: Bill of Sale Exhibit D: Assignment and Assumption Agreement Exhibit E: Assignment of Intellectual Property Exhibit F: AC/Purchaser IP License Exhibit G: Assignment of Chinese License Exhibit H: Limited and AC Release and Waiver Exhibit I: Intercompany Release Exhibit J: Acknowledgement Regarding Affiliate Contracts Exhibit K: Limited IP License SCHEDULES: Schedule 1.1(a)(1): Outstanding Checks Schedule 1.1(a)(2): Bank Accounts Schedule 1.1(b): Limited Accounts Receivable Schedule 1.1(c): Limited Tangible Personal Property Schedule 1.1(d)(1): Personal Property Leases (Limited as Lessor) Schedule 1.1(d)(2): Personal Property Leases (Limited as Lessee) Schedule 1.1(e): International Client Contracts Schedule 1.1(f): Assumed International Vendor Contracts Schedule 1.1(h): Prepaid Expenses and Deposits Schedule 1.1(i): Limited Intellectual Property Schedule 1.1(j): International Business Licenses Schedule 1.1(n): Limited Nonsolicitation Agreements Schedule 1.2(b): AC Vendor and Supplier Contracts Schedule 1.2(c): AC Tangible Personal Property Schedule 1.2(d)(1): AC Intellectual Property Schedule 1.2(d)(2): Intellectual Property Licensed to AC Schedule 1.2(d)(3): Intellectual Property Retained by AC Schedule 1.2(f): AC International Licenses Schedule 1.2(g): AC Nonsolicitation Agreements Schedule 2.2(a): Assumed Trade Payables Schedule 2.2(c): Employee Liabilities Schedule 2.6(b): Payments to [***] Schedule 3.8: Permitted Encumbrances Schedule 3.11: Limited Employees ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "Agreement"), dated April 2, 2006, is made by and among Wilbass Limited (a wholly-owned subsidiary of TMNG Europe Ltd.) (company number: 05747593) ("Purchaser"), Adventis Corporation, a Delaware corporation ("AC"), and Adventis Limited (company number: 02966071), whose registered office is at 33 Cavendish Square, London, W1G 0PW, UK, a wholly owned subsidiary of AC ("Limited," and together with AC, the "Sellers"). WITNESSETH: WHEREAS, AC is engaged in the business of rendering consulting services in the telecommunications and technology sectors to customers and clients in the United States, Canada and Mexico; WHEREAS, AC and Limited are engaged in the business of rendering consulting services in the same business sectors to Clients (as hereinafter defined) throughout the world other than in the United States, Canada and Mexico (the "International Business"); WHEREAS, Sellers wish to sell, and Purchaser wishes to purchase such right, title, and interest as the Sellers have in the Assets (as hereinafter defined) necessary in order to operate the International Business, subject to the assumption by Purchaser of certain enumerated liabilities of Sellers upon the terms and subject to the conditions hereinafter set forth; WHEREAS, capitalized terms used herein which are otherwise not defined shall have the meaning set forth in Section 10.1 hereof; NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, Purchaser and Sellers hereby agree as follows: ARTICLE I SALE AND PURCHASE OF ASSETS 1.1. Purchase of Assets of Limited. On the terms and subject to the conditions set forth in this Agreement, on the Completion Date, Limited shall sell, transfer, assign, convey and deliver to Purchaser, and Purchaser shall purchase, acquire and accept from Limited, the assets, properties and rights of Limited, in each case with full title guarantee and free and clear of any Encumbrances (except that such assets may be subject to Permitted Encumbrances), other than those assets, properties and rights which are specifically excluded pursuant to Section 1.3 hereof (the foregoing are hereinafter referred to as the "Limited Assets"). The Limited Assets include, without limitation, such right, title, and interest Limited has in or to the following: 1 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" (a) Cash. All cash on hand or in banks, cash equivalents, marketable and non-marketable securities and other investments (except as may be specifically set aside for payment of the outstanding checks set forth on Schedule 1.1(a)(1)), wherever maintained or held (including in the accounts listed on Schedule 1.1(a)(2)); (b) Accounts Receivable. All accounts receivable (both billed and unbilled) and all notes, bonds and other evidences of indebtedness to Limited, and rights of Limited to receive payments, including all work in progress of Limited and including any rights of Limited with respect to any third party collection proceedings which have been commenced in connection therewith, including, without limitation, the accounts receivable listed on Schedule 1.1(b) (the "Limited Accounts Receivable"); (c) Tangible Personal Property. All furniture, fixtures, equipment, computer hardware (including network and telecommunications equipment and servers and any assignable preparatory materials or user manuals associated with any computer software) (the "IT System"), tools, supplies, machinery, phone systems and other tangible personal property owned, licensed or leased and used by Limited in the conduct of its business (including those listed on Schedule 1.1(c)) and including any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person (the "Limited Tangible Personal Property"); (d) Personal Property Leases. (i) All leases or subleases of tangible personal property as to which Limited is the lessor or sublessor, including those listed on Schedule 1.1(d)(1) hereto, and (ii) those certain leases of tangible personal property as to which Limited is a lessee or sublessee, together with any options to purchase or sell the underlying property, that are set forth on Schedule 1.1(d)(2) (the leases and subleases described in subclauses (i) and (ii), the "Limited Personal Property Leases"); (e) Client Contracts. All written or oral contracts and other agreements, engagements, arrangements or working relationships with Clients or under which Limited renders services to its Clients, including all work in progress related thereto and including, without limitation, any contracts of Limited with [***] (the "International Client Contracts"), including, without limitation, those International Client Contracts set forth on Schedule 1.1(e); (f) Vendor Contracts. Only those contracts and other agreements to which Limited is a party and which are utilized in the conduct of the International Business relating to vendors, suppliers, sales representatives and consultants that are specifically set forth on Schedule 1.1(f) (the "Assumed International Vendor Contracts"); (g) Other Assumed Contracts. All licenses, authorisations or permissions (in whatsoever form and whether express or implied) under which Limited uses any Limited Intellectual Property owned by any third party ("Limited IP Licences") and (ii) all arrangements and agreements under which any third party (including AC or any source code deposit agents) provides any element of, or services relating to, the IT System (the "IT Services Contracts"); 2 (h) Prepaid Expenses and Deposits. All of Limited's prepaid expenses and deposits (including those listed on Schedule 1.1(h)); (i) Intellectual Property. All intellectual property presently owned or licensed by Limited, including but not limited to: (i) those set forth on Schedule 1.1(i), (ii) all names and slogans embodying goodwill or indications of origin, other rights in goodwill or to sue for passing off, unfair competition rights, rights of design, all registered and unregistered trademarks, trade names, service marks and applications; (iii) all patents and patent applications, plant varieties rights, all copyrights in both published works and unpublished works; (iv) all computer and electronic databases, data processing programs and software programs and systems and related documentation, tools, research projects, computer software under development, software concepts owned and proprietary intellectual property, processes, formulae and algorithms, including all intellectual property used in the ownership, marketing, development, maintenance, support and delivery of the software; (v) moral rights, rights in confidential information (including know how and trade secrets); (vi) all inventions, trade secrets, methodologies, improvements, developments, modifications and derivative works, whether or not reduced to practice, which Limited, or any employee of Limited, together or individually, alone or in combination with each other or any other person, have made which relates to the International Business; (vii) any rights Limited may have in any research, interviews, deliverables or work product developed or delivered in connection with its business, whether developed or delivered to Clients or otherwise, and (viii) any other intellectual property rights, in each case whether registered or unregistered and including all applications for and renewals or extensions of such rights, and all similar or equivalent rights of forms of protection in any part of the world (collectively, the "Limited Intellectual Property"); (j) Licenses. All licenses, permits, franchises, approvals, registrations and authorizations (including applications therefor), including without limitation such right, title and interest as Limited may have in the license granted in favour of AC by the Director-General of State Administration for Industry and Commerce of the People's Republic of China (the "Chinese License") and those set forth in Schedule 1.1(j); (k) Books and Records. All Books and Records of Limited, but excluding those accounting records required by law or regulation to be retained by Limited. Each of Purchaser and Limited agrees to provide access to such Books and Records as are retained by it to the other party and its agents (at such party's sole expense) on giving reasonable notice and at all reasonable times; (l) Client Information. All of Limited's Client and supplier lists, all Client files, all files related to employees, consultants or independent contractors, all computer data 3 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" bases and other business records in any way relating or pertaining to the International Business; (m) Tax Refund Receivables. All receivables of Limited in the form of tax refunds, reimbursements or any other payments; (n) Nonsolicitation Agreements. All of Limited's contractual rights with any third parties relating to agreements of such third parties not to solicit [***] or employees and/or Clients of Limited, all of which are described on Schedule 1.1(n) hereto and have been previously delivered to Purchaser; (o) Board of Advisors Rights. All of Limited's right to solicit members of the current Board of Advisors of AC for a new board of advisors; (p) Board of Advisors Meeting. Any and all property, rights, contracts and deposits relating to the Board of Advisors meeting scheduled for May 10 and 11, 2006 titled `Industry Disruption: Managing the New S-Curve', including without limitation all rights under any contracts with the venue, service providers and speakers in connection with such event, as well as all rights in any marketing materials, guest lists, or reservation lists relating thereto; (q) International Website. All rights to any information relative to the International Business and/or Limited on Sellers' current website in electronic or other reasonable format requested by Purchaser; and (r) Other. Any and all other property or assets, tangible or intangible, owned, licensed or leased by Limited not included in the Excluded Assets. 1.2. Purchase of Assets of AC. On the terms and subject to the conditions set forth in this Agreement, on the Completion Date, AC shall sell, transfer, assign, convey and deliver to Purchaser, and Purchaser shall purchase, acquire and accept from AC, such right, title, and interest that AC has in the assets enumerated below primarily used in support of the International Business, in each case free and clear of any Encumbrances (except that such assets may be subject to Permitted Encumbrances) (the foregoing are hereinafter referred to as the "AC Assets" and together with the Limited Assets, the "Assets"). The AC Assets include such right, title, and interest that AC has in or to the following: (a) [***] Contracts. All written or oral contracts and other agreements, engagements, arrangements or working relationships between AC and [***] pursuant to which AC renders services to [***], including all work in progress related thereto and including any and all accounts receivable (billed and unbilled) relating to [***], which at the time of Completion is approximately $132,000 (the "[***] Contracts"); 4 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" (b) Vendor and Supplier Contracts. All contracts and other agreements set forth on Schedule 1.2(b) between AC and its vendors and suppliers pursuant to which AC receives services in support of Limited's conduct of the International Business (the "AC Vendor and Supplier Contracts"); (c) Tangible Personal Property. All furniture, fixtures, equipment, computer hardware (including network and telecommunications equipment and servers and any assignable preparatory materials or user manuals associated with any computer software), tools, supplies, machinery, phone systems and other tangible personal property owned by AC that are primarily used in the conduct of the International Business (including those listed on Schedule 1.2(c)) or in connection with the [***] Contracts and including any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person (the "AC Tangible Personal Property" and together with the Limited Tangible Personal Property, the "Tangible Personal Property"); (d) Intellectual Property. All intellectual property presently owned or licensed by AC that is significantly used in connection with the International Business set forth on Schedule 1.2(d)(1), including but not limited to: (i) all patents and patent applications, plant varieties rights, all copyrights in both published works and unpublished works; (ii) all computer and electronic data processing programs and software programs and systems and related documentation, research projects, computer software under development, software concepts owned and proprietary intellectual property, processes, formulae and algorithms, including all intellectual property used in the ownership, marketing, development, maintenance, support and delivery of the software; (iii) moral rights, rights in confidential information (including know how and trade secrets); (iv) all inventions, improvements, developments, modifications and derivative works, whether or not reduced to practice, which AC, or any employee of AC, together or individually, alone or in combination with each other or any other person, have made which relates to the International Business; and (v) any other intellectual property rights, in each case whether registered or unregistered and including all applications for and renewals or extensions of such rights, and all similar or equivalent rights of forms of protection in any territory in which the International Business is conducted, except for all of AC's right, title and interest in the trademarks, service marks and applications for the word "Adventis" (collectively, the "AC Intellectual Property" and together with the Limited Intellectual Property, the "Intellectual Property"); provided, however, that AC shall retain (I) a limited license to use, in North America or in connection with AC's current contract with [***], the AC Intellectual Property that are currently being used in North America or in connection with such contract and that are set forth on Schedule 1.2(d)(2) and (II) ownership of the AC Intellectual Property that are currently being used in North America or in connection with AC's current contract with [***] and that are set forth on Schedule 1.2(d)(3); (e) IP Licenses. To the extent used in connection with the International Business or the [***] Contracts, all licenses, authorisations or permissions (in whatsoever form and whether express or implied) under which AC uses any AC Intellectual Property 5 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" owned by any third party ("AC IP Licences" and together with the Limited IP Licenses, the "IP Licences"); (f) Licenses. All licenses, permits, franchises, approvals, registrations and authorizations set forth on Schedule 1.2(f) (including applications therefor) in any way relating or pertaining to the International Business, including without limitation such right, title and interest of AC in the Chinese License; and (g) Nonsolicitation Agreements. AC's contractual rights set forth in any agreements with any third parties to the extent that such rights consist of the agreements of such third parties not to solicit [***] or employees and/or Clients of Limited, all of which are described on Schedule 1.2(g) hereto and have been previously delivered to Purchaser; and (h) Website. So long as AC is in business in the United States and the rights to the adventis.com domain name have not reverted to the applicable domain name registry, Purchaser shall have the right to keep and maintain the subdomain uk.adventis.com and any associated mail exchange record(s). 1.3. Excluded Assets. Any provision of this Agreement to the contrary notwithstanding, Purchaser shall not acquire and there shall be excluded from the Assets, the right, title and interest of AC and Limited in the following, all of which shall be retained by Sellers (collectively, the "Excluded Assets"): (a) Cash necessary to support those unfunded operating disbursements as of the Completion Date set forth on Schedule 1.1(a)(1); (b) All contracts and other agreements to which Limited is a party and which are utilized in the conduct of the International Business relating to vendors, suppliers, sales representatives and consultants that are not Assumed International Vendor Contracts; (c) The AC Intellectual Property solely set forth on Schedule 1.2(d)(3); (d) Any claims or causes of action that Limited may have against AC or Adventis Holdings, Inc. or any of their respective assets; (e) All rights in and under the existing contract between AC and [***]; and (f) All other assets of AC other than those listed in Section 1.2 above. 6 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" ARTICLE II PURCHASE PRICE AND COMPLETION 2.1. Purchase Price. In consideration of the aforesaid sale, conveyance, assignment, transfer and delivery of the Assets and Sellers', Purchaser shall (i) assume the Assumed Liabilities pursuant to Section 2.2 below and (ii) subject to the provisions of Section 2.5 hereof, pay to Chase (as designated in writing by Sellers to Purchaser) in immediately available funds an aggregate amount in cash equal to ONE MILLION FOUR HUNDRED NINETY-FIVE THOUSAND NINE HUNDRED THIRTY-THREE UNITED STATES DOLLARS AND FIVE CENTS (US$1,495,933.05) (the "Purchase Price") on the Completion Date. 2.2. Assumption of Liabilities. At the Completion, Purchaser shall assume and agree to pay and perform and discharge the following obligations and liabilities of Limited as of the Completion Date, but only to the extent specifically set forth below (collectively, the "Assumed Liabilities"): (a) Those current trade payables of Limited set forth on Schedule 2.2(a) in an aggregate amount not to exceed US$529,066.95, which shall exclude, for the avoidance of doubt, (i) any rent payable to Oxford and City Holdings Limited (the "Landlord") pursuant to the real estate lease (the "London Lease") between Limited and the Landlord for premises located at 33 Cavendish Square, London (the "Premises"), and (ii) any trade payables of Limited owing to [***]; (b) Accrued liabilities with regard to rent due under the London Lease for the month of March, 2006 in an amount not to exceed US$40,000; (c) Those accrued liabilities of Limited set forth on Schedule 2.2(c) with respect to current employees of Limited in the International Business for (i) unpaid wages and employee benefits for the pay period after March 31, 2006, (ii) payroll taxes relating to payroll for the months of February and March, 2006 (it being understood that such amounts for payroll taxes will be escrowed at Completion and paid directly to the relevant taxing authorities upon receipt by the Purchaser of the relevant completed tax return or other documentation or substantiation of the amount due) and (iii) any accrued vacations, unpaid guaranteed bonuses, submitted but unreimbursed travel and entertainment expenses for the month of February, 2006 and commissions earned prior to March 17, 2006, in an aggregate amount not to exceed US$530,000, not including an unliquidated amount for (x) employee travel and entertainment expenses for the month of March, 2006, (y) commissions earned on or after March 17, 2006 or (z) any post-Completion employee-related costs; 7 (d) Liabilities to make monthly cash contributions to each Employee's Pension Plan in accordance with the terms of the contracts of employment of the Employees up to an aggregate amount of US$25,000 but, for the avoidance of doubt, the Purchaser shall not assume any obligation to make payments or contribute to any individual employee contribution plan or other plan (other than the Pension Plan) currently providing for or which has previously provided benefits to Employees of which any Employee or former employee of Limited is a member (including any amount accrued but unpaid by Limited as at the Completion Date); (e) Current liabilities of Limited for VAT and corporation tax in an aggregate amount not in excess of US$300,000, it being understood that such amounts will be escrowed at Completion and paid directly to the relevant taxing authorities upon receipt by the Purchaser of the relevant completed VAT return of Limited and a remittance statement from the Inland Revenue in respect of the corporation tax due in accordance with Section 5.3(a) hereof; and (f) All liabilities under the London Lease that solely relate to periods following the Completion Date, provided, however, that Purchaser shall not be required to pay and discharge any liability for rent payable under the London Lease relating to any period from or after the Completion Date until Purchaser has received the duly executed Landlord's Consent in accordance with Section 2.5(a). Notwithstanding anything else set forth herein, nothing in this Agreement shall pass to the Purchaser, or shall be construed as acceptance by the Purchaser of, any Liability (including, without limitation the Excluded Liabilities) which otherwise is not specifically assumed by the Purchaser under this Agreement (including Assumed Liabilities) or required to be assumed by the Purchaser by law. 2.3. Time and Place of Completion. Subject to the terms of and the satisfaction or waiver of the conditions to Completion contained in this Agreement, the sale and purchase of the Assets shall be deemed to take place at a Completion (the "Completion") effective as of 12:01a.m., local time, on April 2, 2006 (the "Completion Date") unless otherwise agreed in a writing by Sellers and Purchaser. The Completion shall take place at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, Massachusetts, or at such other time, date and place as may be mutually agreed to in writing by the parties hereto. 2.4. Calculation of Purchase Price. (a) Purchaser agrees that the terms and conditions of this Agreement and the exclusions and limitations contained in this Agreement are fair and reasonable in the context of a sale by companies in financial distress having regard to the fact that in settling the consideration payable under this Agreement one of the factors taken into account was the commercial risk to 8 the Purchaser represented by the fact that all the parties believe that the terms and conditions, exclusions and limitations would be recognized as fully effective by the Courts, the Sellers making it clear that on any other basis they would not have agreed to enter into this Agreement except for a higher consideration. (b) Sellers make no representations, warranties or conditions, express or implied, statutory or otherwise, in respect of the International Business or any of the Assets sold or agreed to be sold under this Agreement or of which possession is agreed to be passed under this Agreement other than those specifically set forth herein. Other than the representations specifically set forth herein, the Assets are being sold on an "as is, where is" basis. 2.5. Lease Holdback; Bare License to Occupy Premises. (a) From and after the date hereof, Sellers shall use their reasonable endeavours to obtain: (i) a signed copy of Addleshaw Goddard's draft letter of 31 March 2006 attached to this Agreement as Exhibit A; (ii) the Landlord providing written consent in accordance with the terms of, and for the purposes of, licensing the Purchaser to occupy the Premises (the "Limited Occupancy Licence") without interruption, restriction or disturbance for a period from the Completion Date up to and including 23 June 2006 (the "Occupancy Period"); (iii) a written undertaking by the Landlord to grant a licence to Purchaser on the same terms as the Limited Occupancy Licence and for the unexpired term of the Limited Occupancy Licence in the event that the London Lease terminates for any reason or Limited becomes insolvent; (iv) an agreement in writing by the Landlord confirming that all amounts due under the London Lease to date have been paid and waiving any claim for payment in respect of prior breaches of the London Lease by Limited; and (v) the Landlord's formal written consent (in accordance with clause 3.26 of the London Lease) to the assignment of the London Lease by Limited to the Purchaser prior to the expiration of the Occupancy Period (the "Landlord's Consent"). 9 (b) Upon receipt of the Landlord's Consent during the Occupancy Period, Limited shall, as soon as practicable, assign the London Lease to Purchaser for a consideration of US$1, receipt of which is hereby acknowledged. (c) Upon completion of an assignment of the London Lease to Purchaser, Limited shall deliver a valid VAT invoice for the provision of services, being the supply of facilities, the consideration for which shall be an amount equal to the rent calculated on a daily rate for the number of days the Purchaser occupied the Premises during the Occupancy Period without having completed such assignment. (d) Notwithstanding the transfer to Purchaser of Limited's rights to the deposit monies retained by the Landlord pursuant to the Rent Deposit Deed dated April 25, 2002, in the event that monies due under the rent deposit deed dated April 25, 2002 are released to Limited, such monies shall be held on trust for Purchaser and Limited shall promptly transfer these monies to Purchaser or to the Landlord at the request of Purchaser. (e) In the event that Sellers have not delivered the Landlord's Consent on or prior to the Completion Date, then, notwithstanding anything else set forth herein to the contrary, at the Completion, Purchaser shall deduct from the Purchase Price delivered at the Completion the amount of One Hundred and Fifty Thousand Dollars (US$150,000) (the "Lease Holdback Amount") in order to secure Sellers' obligation to obtain the Landlord's Consent and shall deliver the Lease Holdback Amount to Bingham McCutchen LLP ("Escrow Agent") to be held in escrow pursuant to the terms of an Escrow Agreement in the form attached hereto as Exhibit B to be entered into by and among Purchaser, Sellers and Escrow Agent on the Completion Date (the "Escrow Agreement"). (f) In the event that Purchaser incurs any Demand by the Landlord in connection with the London Lease or any effort to remove Purchaser from the Premises during the Occupancy Period (including, without limitation, any attorneys' fees and amounts paid to the Landlord voluntarily or involuntarily in order to occupy the Premises for the entire Occupancy Period), then Purchaser shall be entitled to deduct all such Demands from the Lease Holdback Amount and such amounts shall be released from escrow to the Purchaser in accordance with the terms of the Escrow Agreement. (g) Purchaser and Sellers shall jointly instruct Escrow Agent (in accordance with the terms of the Escrow Agreement) to deliver to Chase as soon as commercially practicable any remaining portion of the Lease Holdback Amount upon the earliest of the following to occur: (i) Sellers' delivery of the Landlord's Consent to Purchaser prior to the expiration of the Occupancy Period; (ii) Sellers' delivery of the consent and undertaking of Landlord described in Section 2.5(a)(ii) and 2.5(a)(iii) hereof; (iii) the expiration of the Occupancy Period if Purchaser shall have occupied the Premises pursuant to the London Lease without interruption, restriction or disturbance during the entire Occupancy Period; (iv) Purchaser voluntarily exits the Premises during the Occupancy Period (but, for the avoidance of 10 doubt, if Purchaser vacates the Premises because the Landlord threatens eviction or requires an unreasonable sum of money in order to remain in possession of the Premises during the Occupancy Period, such vacation of the Premises shall not be deemed to have been voluntary); or (v) Purchaser ceases to occupy the Premises as a result of Purchaser's failure to comply at all times with the provisions of Sections 2.5(k) and 2.5(l). At such time as the foregoing events are no longer capable of fulfillment, Purchaser shall be entitled to instruct the Escrow Agent to return any remaining portion of the Lease Holdback Amount to it and Purchaser shall have no liability to Sellers therefor. (h) In the event that Limited has not procured the Landlord's Consent on or prior to the Completion Date, from the Completion Date, Limited hereby grants Purchaser the exclusive right to occupy the Premises without interruption, restriction or disturbance for a period up to and including 23 June 2006 or until a date when it shall have made arrangements with the Landlord for its lawful occupation of the Premises (whichever is sooner) (the "Occupancy Licence Period") and to carry on the International Business in the Premises as licensee subject to the rights of the Landlord. For the avoidance of doubt, Purchaser shall vacate the Premises immediately on the expiry of the Occupancy Licence Period, unless it shall have made arrangements with the Landlord for its continued occupation. (i) Subject to Section 2.2(f), Purchaser shall pay all rates and all heating, gas, electricity and telephone charges and such other like expenses in respect of the Premises relating to the period of its occupation forthwith on demand by Limited. (j) Limited shall not interfere with the conduct of Purchaser's business at the Premises during the period which the Purchaser is in occupation of the Premises as Licensee. (k) During the period of its occupation of the Premises, Purchaser shall not and shall procure that its servants, agents or licensees shall not cause any nuisance or annoyance to third parties or their property or any damage, loss or destruction (except any accidental damage, loss or destruction) to the Premises and shall, where any such nuisance or annoyance is complained of, forthwith abate the same and where any such damage or loss or destruction is caused, forthwith repair or replace the same. (l) During the period of Purchaser's occupation of the Premises, Purchaser shall not knowingly do or bring or cause or permit to be done or brought any act, matter or thing upon the Premises or any part of them in reason or in consequence of which the rights of Limited under any policy of insurance in respect of the Premises might be prejudicially affected (save for the fact of its occupation of the Premises under licence without the Landlord's formal consent). 11 2.6. Completion Deliveries. (a) At Completion, Limited and AC shall deliver to Purchaser: (i) physical possession of all the Assets capable of passing by delivery, with the intent that title in such Assets shall pass to the Purchaser by and on such delivery; (ii) a duly executed Bill of Sale in the form attached hereto as Exhibit C (the "Bill of Sale"); (iii) a duly executed Assignment and Assumption Agreement (the "Assignment Agreement") in the form attached hereto as Exhibit D, pursuant to which Limited and AC shall assign all rights in the contracts or agreements included in the Assets and Purchaser shall assume all Liabilities related thereto arising after the Completion Date; (iv) a duly executed Assignment of Intellectual Property in the form attached hereto as Exhibit E, pursuant to which Limited and AC will assign all intellectual property and associated goodwill included in the Assets; (v) a duly executed irrevocable license in the form attached hereto as Exhibit F, pursuant to which AC will grant Purchaser the exclusive right to use the AC Intellectual Property set forth on Schedule 1.2(d)(3) in connection with the International Business in accordance with the terms of such license (the "AC/Purchaser IP License"); (vi) a duly executed Assignment of License in the form attached hereto as Exhibit G, pursuant to which Sellers shall assign to Purchaser all interest in the Chinese License; (vii) a duly executed Release and Waiver in the form attached hereto as Exhibit H, pursuant to which Limited and AC shall release Purchaser and all of its Affiliates from the claims specified therein; (viii) a copy of a duly executed Release in the form attached hereto as Exhibit I, pursuant to which AC shall release Limited from any claims or causes of action that AC or Adventis Holdings, Inc. may have against Limited; 12 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" (ix) all documents of title and certificates in either Seller's possession for the lawful operation and use of, and all service documents pertaining to, the Tangible Personal Property; (x) all documents of title, certificates, deeds, licences, agreements and other documents in either Seller's possession relating to the Intellectual Property and all manuals, drawings, plans, documents and other materials and media on which Client or [***] information is recorded; (xi) the Assumed Contracts and the books, accounts, reference lists of customers, credit reports, price lists, cost records, work tickets, catalogues, advertising and all other documents, papers and records in the possession or under the control of either Seller relating to the International Business or any of the Assets duly written up to the Completion Date; (xii) all records referred to in section 49 of VATA 1994; (xiii) a copy of an original special resolution of the members of Limited resolving to change its name to remove any reference to "Adventis", and a cheque payable to the Registrar of Companies (provided that such cheque may be delivered one (1) Business Day following the Completion Date) for the sum of the Registrars' change of name fee, which the Purchaser shall file with the Registrar of Companies; (xiv) the Book and Records; (xv) a written acknowledgement in the form attached hereto as Exhibit J from Limited certifying that all arrangements to which Limited and either AC or Adventis Holdings, Inc. is a party and which affect the Business or Assets have been cancelled by mutual agreement and without any compensation or damages being payable by either party to the other; (xvi) all National Insurance and PAYE records, fully completed in respect of the Employees and showing that payments are up to date except as set forth on Schedule 2.2(c), and all records required to be kept under the Working Time Regulations 1998; (xvii) a copy of the resolutions of a meeting of the directors of Limited authorizing the execution by Limited of this Agreement; and 13 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" (xviii) possession of the Premises. (b) On the Completion Date, Limited, AC or its agent shall deliver payments to [***] in the amounts set forth on Schedule 2.6(b) hereto for repayment of the outstanding trade payables of Limited to such third parties. (c) At Completion, Purchaser shall deliver: (i) to Chase, the Purchase Price less the Lease Holdback Amount; (ii) to Escrow Agent, the Lease Holdback Amount; (iii) to Osborne Clark, an amount necessary to satisfy the VAT and payroll tax liabilities referenced in Sections 2.2(c) and 2.2(e); (iv) to Limited, the Assignment Agreement, duly executed by Purchaser; (v) a license in the form attached hereto as Exhibit K, pursuant to which Purchaser will grant AC the right to use the Limited Intellectual Property after the Completion Date in accordance with the terms of such license; and (vi) to Sellers, a copy of the resolutions of a meeting of the directors of Purchaser authorizing the execution by Purchaser of this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS Sellers hereby jointly and severally represent and warrant to Purchaser as follows: 3.1. Organization and Good Standing. Each of the Sellers is a corporation, duly organized, validly existing and in good standing under the Laws of its respective state or country of organization and has full corporate power to carry on its business and to own, lease and operate its properties and assets, including the Assets, and to carry on the International Business as now being conducted, and to sell, assign, transfer and convey to Purchaser the Assets as provided in this Agreement. Each of the Sellers is duly qualified to do business as a foreign corporation in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary to carry on the International Business and the operation of the Assets as now conducted. 14 3.2. Due Authorization. Each of the Sellers has full corporate power to execute, deliver and perform this Agreement, and, on or before the Completion Date, shall have taken, or caused to have been taken, all necessary action, corporate or otherwise, to authorize the execution, delivery and performance by each of the Sellers of this Agreement. This Agreement has been duly executed and delivered by each of the Sellers and, assuming due authorization, execution and delivery by Purchaser, constitutes a valid and legally binding agreement of Sellers, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar Laws of general applicability relating to or affecting creditors' rights and to the limitations imposed by general equitable principles or the exercise of judicial discretion in accordance with such principles. 3.3. No Violation or Conflict. Except as otherwise expressly stated herein, neither the execution and delivery of this Agreement by Sellers nor the consummation by Sellers of the transactions contemplated hereby will (i) conflict with or result in a breach of any provision of the charter documents of Sellers, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration or otherwise change the existing rights or obligations of any party thereto) under, any term, condition or provision of any note, bond, mortgage, indenture, lease, agreement or other instrument or obligation to which either of the Sellers are a party or by which either Seller or any of their respective properties is bound, or (iii) violate or conflict with any permit, concession, grant, franchise, license, judgment, order, decree, statute, Law, ordinance, rule or regulation applicable to any Seller or to the Assets or the International Business. 3.4. Litigation. There are no judicial or administrative actions, suits, proceedings or investigations pending or, to the Knowledge of the Sellers, threatened, which (i) might prevent or hinder the consummation of this Agreement and the transactions contemplated hereby or (ii) have been commenced against Limited or that otherwise relate to or may affect the International Business or the Assets. 3.5. No Approvals. Except for any approval required under Chinese Law to transfer the Chinese License, there are no governmental, regulatory, or any other type of approvals, permits, licenses or consents which Sellers must obtain, other than those to be obtained prior to Completion, in order for Sellers to sell, assign and transfer the Assets to Purchaser. 3.6. Accuracy of Disclosure. To the Sellers' Knowledge, none of the information delivered by or on behalf of Sellers to Purchaser or any of its lawyers, advisors or representatives contains any untrue statement of material fact or omits to state a material fact necessary to make the information contained therein not misleading. To the Sellers' Knowledge, no statement made by or on behalf of Sellers in this Agreement, the Schedules attached hereto or the certificate to be delivered pursuant to Section 6.1 hereof, contains any 15 untrue statement of material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. To the Sellers' Knowledge, except as disclosed in this Agreement, no fact or condition exists in any way relating or pertaining to the International Business which, individually or in the aggregate, has or constitutes, or could reasonably be expected to have or constitute, a Material Adverse Effect on the International Business. 3.7. Brokers. Except for America's Growth Capital, LLC, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Sellers directly with Purchaser without the intervention of any Person on behalf of Sellers in such manner as to give rise to any valid claim by any Person against Purchaser for a finder's fee, brokerage commission or similar payment. Sellers agree that they are liable for the payment of any fee owing to America's Growth Capital, LLC in connection with the transactions contemplated hereby and that Purchaser shall have no liability therefor. 3.8. Title to Assets; Encumbrances. Sellers are in possession of and are the lawful owners of and have good and marketable title to all of the properties, documents and Assets used in the conduct of the International Business as presently conducted and all properties and assets acquired by Sellers after the date thereof, free and clear of all liens, pledges, hypothecations, mortgages, security interests, claims, leases, charges, options, rights of first refusal, easements, servitudes, transfer restrictions under any stockholder or similar agreement, encumbrances, restrictions, limitations or third party interests of any nature whatsoever ("Encumbrances"), except (i) those disclosed on Schedule 3.8, (ii) liens for current property taxes not yet due and payable, (iii) liens imposed by Law and incurred in the ordinary course of business for obligations not yet due to carriers, warehousemen, laborers, materialmen and the like and (iv) any other restrictions set forth in the AC/Purchaser IP License ("Permitted Encumbrances"). The Tangible Personal Property and the improvements to leased real properties of Sellers are in good operating condition and repair, ordinary wear and tear excepted, are useable in the ordinary course of business and conform to all applicable statutes, ordinances and regulations relating to their construction, use and operation. Pursuant to the London Lease, Limited is in possession and has actual occupation of the entire Premises on an exclusive basis. 3.9. Germany Operations. Except as set forth on Schedule 2.2(a) or Schedule 2.2(c), Limited represents and warrants that there are no outstanding Liabilities in connection with any International Business conducted in Germany, including with respect to any Taxes payable in Germany. 3.10. Intellectual Property. To the respective Knowledge of each Seller, there has been no infringement by any third party of any Intellectual Property, nor any third party breach of confidence, passing off or actionable act of unfair competition in relation to the International Business and no such infringement, breach of confidence and passing off or 16 actionable act of unfair competition is current or anticipated. To the respective Knowledge of each Seller, the activities involved in the conduct of the International Business: (i) have not infringed, do not infringe and are not likely to infringe the intellectual property rights of any third party; and (ii) have not constituted, do not constitute and are not likely to constitute any breach of confidence, passing off or actionable act of unfair competition. 3.11. Employees and Related Liabilities. Limited represents and warrants to the Purchaser (for itself and as trustee for all other owners for the time being of the whole or any part of the International Business and the Assets) that, as of the Completion Date: (i) the persons set forth on Schedule 3.11 hereto constitute all of the Employees; (ii) Limited has provided to Purchaser copies of all written agreements with Employees as set forth on Schedule 3.11 and has disclosed to Purchaser the terms of any oral agreement with Employees or any other agreements with Employees that have not yet been provided; and (iii) the Liabilities set forth on Schedule 2.2(c) represent the only outstanding liabilities of the Sellers to the Employees. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Sellers as follows: 4.1. Organization and Good Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the country of its organization, and has full corporate power to carry on its business and to own, lease and operate its properties. Purchaser is duly qualified to do business as a foreign corporation in each jurisdiction where the character of the property owned or leased by it or the nature of its activities make such qualification necessary to carry on its business as now conducted. 4.2. Due Authorization. Purchaser has full corporate power to execute, deliver and perform this Agreement, and, on or before the Completion Date, shall have taken, or caused to have been taken, all necessary action, corporate or otherwise, to authorize the execution, delivery and performance of this Agreement by Purchaser. This Agreement has been duly executed and delivered by Purchaser and, assuming due authorization, execution and delivery by Sellers, constitutes a valid and legally binding agreement of Purchaser, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other similar Laws of general applicability relating to or affecting creditors rights, to the limitations imposed by general equitable principles. 4.3. No Violation or Conflict. Neither the execution and delivery of this Agreement by Purchaser nor the consummation by Purchaser of the transactions contemplated hereby will (i) conflict with or result in a breach of any provision of the 17 Memorandum of Association or Articles of Association of Purchaser, (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration or otherwise change the existing rights or obligations of any party thereto) under, any term, condition or provision of any note, bond, mortgage, indenture, lease, agreement or other instrument or obligation to which Purchaser is a party or by which Purchaser or any of its properties is bound, or (iii) violate or conflict with any permit, concession, grant, franchise, license, judgment, order, decree, statute, Law, ordinance, rule or regulation applicable to Purchaser. 4.4. Litigation. There are no judicial or administrative actions, suits, proceedings or investigations pending or threatened, which might prevent or hinder the consummation of the Agreement and the transactions contemplated hereby. 4.5. Brokers. Neither Purchaser nor any affiliate thereof has retained or employed any broker, finder or investment banker in connection with this agreement or the transactions contemplated hereby and no broker or other person is entitled to any commission or finder's fee from Purchaser or any of its respective affiliates in connection with such transactions based on any actions taken by Purchaser or any of its affiliates. 4.6. Financial Condition of Purchaser. Purchaser has been, is and shall be solvent prior to and after giving effect to the transactions contemplated by this Agreement. The Purchaser has the cash available or has existing borrowing facilities in effect which together are sufficient to enable it to pay the Purchase Price at the Completion and to consummate the transactions contemplated by this Agreement and the other Transaction Documents. ARTICLE V COVENANTS 5.1. Conduct of Business. Until the Completion Date, Limited shall conduct the International Business consistent with prior practices and shall not: (a) make any payments to third parties and/or distributions without the prior consent of Purchaser, which consent shall not be unreasonably withheld; (b) take any action that would constitute a default under any of the Assumed Contracts or the London Lease; and (c) transfer any funds to any account owned by either Seller or their Affiliates that is not included in the Assets without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld provided that such transfers are consistent with past practices. 18 5.2. Confidentiality. (a) Sellers and Purchaser agree, for themselves and their Affiliates, that (i) each Seller and the Purchaser and their respective Affiliates shall not disclose the contents or existence of the Transaction Documents, or any prior or contemporaneous discussions between the parties regarding the transactions contemplated thereby, except to those directors, officers, employees, agents and representatives or advisors, including counsel and financial advisors who need to know such information for the purpose of assisting such party in connection with the consummation of the transactions contemplated hereby, except as may be required (upon advice of counsel) to be in compliance with applicable Law, regulation or judicial process, provided that each party shall consult with the other party before making any disclosure which may be so required. (b) Each party will use its commercially reasonable efforts to cause all persons (including any Affiliates) to whom any such information is disclosed not to disclose any of such information to others in violation of the foregoing restrictions; provided, however, that this Section 5.2 shall not apply to communications necessary, but only in so far as necessary, by Sellers and the Purchaser in order to satisfy the conditions precedent contained in Articles VI and VII. The provisions of this Section 5.2 shall not apply and be of no force or effect if a (i) bankruptcy case is filed by or against either Seller or (ii) to the extent otherwise provided by applicable Law or court order. 5.3. Value Added Tax. (a) All amounts paid or payable or consideration provided or to be provided under or in pursuance to this Agreement shall be exclusive of VAT (if any). Where one party (in this Section 5.3 (the "Supplier") makes or is deemed to make a supply to another party (in this Section 5.3 the "Recipient") for the purposes of VAT, whether the supply is for a monetary consideration or otherwise, the Recipient shall pay to the Supplier in accordance with the terms of this Section 5.3(a) an amount equal to the VAT (and any penalty or interest chargeable to the extent that it is attributable to any act or omission by the Recipient) in addition to the consideration provided in this Agreement. The Recipient shall account to the Supplier for any amount so payable upon presentation of a valid VAT invoice from the Supplier in accordance with Section 5.3(c). (b) Limited and the Purchaser agree that the sale of the Assets is the transfer of the business of Limited as a going concern for the purposes of both section 49, VATA and Article 5, Value Added Tax (Special Provisions) Order 1995 ("Article 5"). Sellers and the Purchaser shall use their reasonable endeavours to secure that pursuant to such provisions the sale of the Assets is treated as neither a supply of goods nor a supply of services for the purposes of VAT. 19 (c) If, nevertheless, any VAT is payable on the sale of the Assets under this Agreement and HM Revenue & Customs have so confirmed in writing after full disclosure of all material facts, the Purchaser shall pay to Limited the amount of that VAT immediately on payment of the VAT by Limited or, if later, promptly after delivery by Limited to the Purchaser of a paper VAT invoice in respect of it, together with a copy of confirmation from HM Revenue & Customs that VAT is payable and of the document disclosing all material facts as described in this Section 5.3(c). (d) Before sending any relevant letter to HM Revenue & Customs, Limited shall give the Purchaser a reasonable opportunity to comment on it, and shall make such amendments as the Purchaser reasonably requires. (e) Limited shall, on request, make available any information and documents in its control required to establish to HM Revenue & Customs and any tribunal or court that no liability, or a reduced liability, arises on the Purchaser or any other company under section 44 of VATA 1994 as a result of the sale of the Assets. (f) Limited and Purchaser intend that section 49 of VATA 1994 shall apply to the sale of the Assets under this Agreement and accordingly: (i) Limited shall, on Completion, deliver to the Purchaser all records referred to in section 49 of VATA 1994 ("VAT Records"); (ii) Limited shall not make any request to HM Revenue & Customs for the VAT Records to be preserved by Limited rather than the Purchaser; (iii) The Purchaser shall preserve the VAT Records for such period as may be required by law and, during that period, permit Limited reasonable access to them to inspect or make copies of them; and (iv) The Purchaser may fulfill its obligations under clause 5.3(f)(iii) by procuring that any future transferee of the International Business or any other person preserves the VAT Records and permits reasonable access as mentioned in that clause, in which case the Purchaser shall notify Limited of the name of that person. (g) If the Purchaser pays Limited an amount in respect of VAT under Section 5.3(a) and HM Revenue & Customs note that all or part of it was not properly chargeable, Limited shall repay the amount or relevant part of it to the Purchaser. Limited shall make the repayment as soon as reasonably practicable after the ruling, unless it has already accounted to HM Revenue & Customs for the VAT. In that case, Limited shall apply for a refund of the VAT (plus any interest payable by HM Revenue & Customs), use reasonable endeavours to 20 obtain it as soon as practicable, and pay to the Purchaser the amount of the refund and any interest when and to the extent received from HM Revenue & Customs. (h) The Purchaser warrants that: (i) it is or shall be a taxable person with effect from Completion; (ii) with effect from Completion it intends to use the Assets in carrying on the same kind of business as previously carried on by Limited; and (iii) it is not a party to this Agreement as a trustee, nominee or agent for any other person. (i) Limited warrants that it is a taxable person as at the Completion Date. (j) Limited confirms that it has been paying VAT on all amounts payable by it under the London Lease. 5.4. Employees. (a) The parties acknowledge and agree that, pursuant to the TUPE Regulations, the contracts of employment between Limited and each of the Employees will have effect from the Completion Date as if originally made between the Purchaser and each Employee (except to the extent that such contracts relate to old age, invalidity and survivors' benefits under any occupational pension scheme). (b) Limited agrees (for itself and as trustee for all other owners for the time being of the whole or any part of the International Business and the Assets) that it shall not employ, engage or transfer, or solicit or attempt to employ, engage or transfer, any Employee to work outside the International Business or take any action to prevent or otherwise prohibit Purchaser from employing the Employees in the International Business. (c) Without undue delay after the Completion Date, Limited shall deliver to the Employees located in Germany (the "German Employees"), a joint written communication from Limited and Purchaser, which communication will inform the German Employees in accordance with Sec. 613a para. 5 German Civil Code (BGB) about the transfer of the International Business and Assets and of the employment relationships of the German Employees to the Purchaser. The communication to the German Employees shall be prepared by Limited in cooperation with the Purchaser. Limited shall be responsible and liable that the information provided for, and contained in, the communication to the German Employees is correct, comprehensive and not misleading, as far as the facts or documents, on which such information is based, were known or should have been known to Limited. 21 5.5. Assumed Contracts. (a) Limited shall, with effect from the Completion Date, assign to the order of the Purchaser, or procure the assignment to the order of the Purchaser of, all the Assumed Contracts which are capable of assignment without a Third Party Consent. (b) As soon as reasonably practicable following the Completion, Purchaser and Sellers shall jointly execute an announcement notifying all parties to the Assumed Contracts of the assignment set forth herein and under the other Transaction Documents. (c) If any of the Assumed Contracts cannot be assigned or novated without obtaining a Third Party Consent, then Limited and AC shall use their reasonable best efforts to obtain such consents following the Completion. (d) Insofar as any of the Assumed Contracts cannot be assigned or novated to the Purchaser without Third Party Consent, and such consent is refused or otherwise not obtained, or where any of the Assumed Contracts are incapable of transfer to the Purchaser by assignment, novation or other means, all economic benefits of such Assumed Contracts shall nevertheless be deemed to be assigned to Purchaser and to the extent that either Seller receives any payment in respect thereof, such Seller shall immediately remit such payment directly to Purchaser. Sellers agree that Purchaser shall have all right to take actions on such Assumed Contracts on behalf of or in the name of the relevant Seller in order to gain the full benefits of such Assumed Contracts. After the Completion Date, Sellers agree not to take any actions under the Assumed Contracts without the advance written consent of Purchaser. 5.6. Receivables. (a) As and when required by the Purchaser after Completion, Limited shall deliver to the Purchaser assignments of such of the Limited Accounts Receivables as the Purchaser may specify and Limited irrevocably appoints any director of the Purchaser after Completion to act as its attorney in the execution of any such assignment. (b) Notwithstanding Section 5.6(a), Limited undertakes to hold on trust for the benefit of the Purchaser any payments in respect of any Limited Accounts Receivables received by it and to remit the same to the Purchaser forthwith on receipt. (c) As soon as practicable following the Completion Date, Purchaser shall prepare, and upon receipt from Purchaser, Limited agrees to use its best efforts to sign and deliver to the Purchaser, a letter from Limited to each of the persons from whom the Limited Accounts Receivables are owed requiring them to pay their respective part of the Limited Accounts Receivables to the Purchaser. 22 (d) On notice in writing from the Purchaser, Limited undertakes to hold in trust for the Purchaser any amounts recovered by Limited under the VAT Bad Debt Relief Provisions or otherwise in respect of the Receivables and to pay the same to the Purchaser forthwith. 5.7. Expenses. Whether or not the transactions contemplated by this Agreement are consummated, Sellers and Purchaser will each bear their own costs and expenses incurred in connection with this Agreement, including, without limitation, all fees and expenses of agents, representatives, counsel and accountants, and no such expenses of the Sellers shall be satisfied from any of the Assets. 5.8. Other Agreements; Further Assurances. (a) Sellers and Purchaser agree to take, or cause to be taken, all actions and to do, or cause to be done, all things deemed reasonably necessary by Purchaser, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including, without limitation, the obtaining of all necessary waivers, consents and approvals and the effecting of all necessary registrations and filings, including, but not limited to, submissions of information requested by governmental or regulatory bodies and any other Persons required to be obtained by them for the consummation of the Completion and the continuance in full force and effect of the permits, contracts and other agreements set forth on the Schedules to this Agreement. (b) Sellers shall cooperate in good faith with Purchaser to transfer any and all information or Intellectual Property transferred hereunder relative to the International Business and/or Limited from the Sellers' current website to Purchaser in a format reasonably requested by Purchaser. (c) To the extent that Purchaser waives delivery at the Completion Date of any of the items set forth in Section 2.6(a) hereof, Sellers shall nonetheless deliver such items as soon as practicable following the Completion Date. (d) As soon as practicable following the Completion, Limited shall execute and deliver one or more irrevocable instructions to the bank(s) of Limited as may be necessary or required by such bank(s) to procure the automatic transfer to the Purchaser of any payment that any Client may make to such bank(s) after the Completion Date. 5.9. No Voluntary Insolvency. For so long as Purchaser is occupying the Premises pursuant to the London Lease and none of the events described in Section 2.5(g) hereof have occurred, AC undertakes not to pass any resolution or take any other action (unless required by applicable Law) for the voluntary placement of Limited into any insolvency proceeding. 23 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" 5.10. Exclusivity. Commencing as of the execution of this Agreement and until Termination or the Completion, neither Limited nor any agents working on its behalf shall directly or indirectly enter into any agreement with respect to or engage in any discussions or negotiations regarding any transaction outside the ordinary course of business including but not limited to any transaction involving a merger, transfer or sale of assets or equity interests or similar transaction regarding Limited or the International Business. Limited shall notify Purchaser promptly if it is approached by any third party regarding such a transaction. Limited agrees that it has received good, valuable and adequate consideration for the foregoing agreements. Limited covenants and agrees that it will immediately terminate any negotiations with any third parties regarding the foregoing. The provisions of this Section 5.10 shall not apply and shall be of no further force or effect if an involuntary bankruptcy case or insolvency proceeding is filed in the United States or in the United Kingdom against Limited. 5.11. Announcements; Notices. Notwithstanding anything set forth herein to the contrary, Limited shall not notify [***] and any Client, customer, vendor, supplier, contractor, Employee or any other party to any Assumed Contract or make any public announcement regarding the execution of this Agreement or the nature of the transactions contemplated hereby, without the advance written consent of Purchaser, which may be withheld by Purchaser in its sole discretion, or as otherwise required to comply with applicable Law or this Agreement. 5.12. Landlord's Consent. After Completion, Limited and AC shall use their reasonable endeavors to procure, as soon as practicable, the Landlord's Consent in accordance with Section 2.5 hereof. 5.13. Use of Intellectual Property. Neither Limited, AC nor Adventis Holdings, Inc. shall, at any time after Completion, use in the course of any International Business (with the sole exception of AC's current contract with [***]): (a) the words "Adventis"; (b) any trade or service mark, business or domain name, design or logo which, at the Completion Date, is used primarily in the International Business; or (c) anything which is, in the reasonable opinion of the Purchaser, capable of confusion with such words, marks, names, designs or logos used primarily in the International Business. 5.14. Client Confidentiality Obligations. Purchaser acknowledges and agrees that, in connection with the assignment to it of the International Client Contracts and the [***] Contracts, it shall assume all relevant confidentiality and non-disclosure obligations imposed upon Limited or AC under such International Client Contracts or [***] Contracts. 24 ARTICLE VI CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS The obligations of Purchaser to close this Agreement are subject to the fulfillment on or prior to the Completion Date of each of the following conditions: 6.1. Representations and Warranties True at Completion. The representations and warranties of Sellers contained in this Agreement shall be true and correct, in all respects, on and as of the Completion Date, with the same force and effect as though made on and as of the Completion Date, and Sellers shall have duly performed and complied, in all material respects, with all agreements, covenants and conditions required by this Agreement to be performed or complied with by them prior to or on the Completion Date. Each Seller shall have delivered to Purchaser a certificate, dated the Completion Date and signed by its Secretary or Chief Financial Officer, to the foregoing effect. 6.2. Release and Consent of Chase. Approval of this Agreement by Chase including, in connection with such approval, confirmation in writing that Chase shall release its lien and any claim it has in the Assets. 6.3. Release by Behrman. A written release by Behrman Capital and its Affiliates ("Behrman") of any claim against Sellers or the Purchaser arising out of this Agreement and waiving any right to revoke or rescind this Agreement. 6.4. Board Approval. Sellers shall have obtained consent of its Board of Directors to enter into this Agreement and the other Transaction Documents and to consummate the transactions described herein and therein. 6.5. Completion Deliveries. On or before the Completion Date, Limited and AC shall have taken all actions required to be taken by them, or delivered all items required to be delivered by them, pursuant to Section 2.6 of this Agreement. ARTICLE VII CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS The obligations of Sellers to close this Agreement are subject to the fulfillment on or prior to the Completion Date of each of the following conditions: 7.1. Representations and Warranties True at Completion. The representations and warranties of Purchaser contained in this Agreement shall be true and correct, in all respects, on and as of the Completion Date, with the same force and effect as though made on and as of the Completion Date, and Purchaser shall have duly performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or on the Completion Date. Purchaser shall have delivered to Sellers a certificate, dated the Completion Date and signed by its President or Vice President, to the foregoing effect. 25 7.2. Consents. Purchaser shall have obtained any consents, orders, permits, approvals and authorizations required to be obtained by it in connection with the consummation of the transactions contemplated hereby. 7.3. Board Approval. Purchaser shall have obtained consent of its Board of Directors to enter into this Agreement and the other Transaction Documents and to consummate the transactions described herein and therein. 7.4. Completion Deliveries. On or before the Completion Date, Purchaser shall have taken all actions required to be taken by it, or delivered all items required to be delivered by it, pursuant to Section 2.6 of this Agreement. ARTICLE VIII TERMINATION OF AGREEMENT 8.1. Termination. This Agreement may be terminated at any time prior to the Completion as follows (each, a "Termination"): (i) by Purchaser, on the one hand, or by Sellers, on the other hand, by written notice to the respective other party hereto, in the event that the Completion shall not have occurred on or prior to midnight local (Boston, Massachusetts) time on April 2, 2006 (unless such event has been caused by a breach of this Agreement by the party seeking such termination); or (ii) by mutual agreement of Purchaser and Sellers if one or more of the conditions precedent in Articles VI or VII cannot be met after reasonable efforts to meet such condition precedent. 8.2. Survival. In the event of a Termination, (i) this Agreement shall become null and void and of no further force and effect, except for the provisions of Section 5.2 and Exhibits H and I and (ii) there shall be no liability on the part of Sellers or Purchaser, their Affiliates or their respective partners, officers, directors, employees or agents, provided, however, that if such termination shall result from the breach by a party of the provisions contained in this Agreement, such breaching party shall be fully liable for any and all damages, costs and expenses sustained or incurred by the other parties hereto as a result of such breach. The exercise by the Sellers or Purchaser of the right to terminate this Agreement shall not terminate or limit any remedy that the Sellers or Purchaser may have at law or in equity by reason of the other party's breach of any obligation hereunder prior to such termination. 8.3. Letter of Intent and Non-Disclosure Agreement. Upon execution of this Agreement, the Letter of Intent entered into between the parties dated March 28, 2006 shall terminate and be of no further force and effect. Upon the Completion Date, the Non-Disclosure Agreement shall terminate and be of no further force and effect. 26 ARTICLE IX SURVIVAL 9.1. Survival of Representations, Warranties; Claims. The representations and warranties of the Sellers set forth in Sections 3.4, 3.8, 3.9, 3.10 and 3.11 of this Agreement shall survive the Completion Date and shall terminate and expire on the date that is one (1) year thereafter. ARTICLE X MISCELLANEOUS 10.1. Certain Definitions. As used in this Agreement, the following terms have the following meanings unless the context otherwise requires: "AC" has the meaning specified in the first paragraph of this Agreement. "Affiliate" with respect to any Person, means any other Person controlling, controlled by or under common control with such Person. "Agreement" means this Asset Purchase Agreement. "AC Assets" has the meaning specified in Section 1.2. "AC Intellectual Property" has the meaning specified in Section 1.2(d). "AC IP Licences" has the meaning specified in Section 1.2(e). "AC/Purchaser IP License" has the meaning specified in Section 2.6(a)(v). "AC Tangible Personal Property" has the meaning specified in Section 1.2(c). "AC Vendor and Supplier Contracts" has the meaning specified in Section 1.2(b). "Article 5" has the meaning specified in Section 5.3(b). "Assets" has the meaning specified in Section 1.2. "Assignment Agreement" has the meaning specified in Section 2.6(a)(iii). 27 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" "Assumed Contracts" means the Limited Personal Property Leases, the International Client Contracts, the Assumed International Vendor Contracts, the IT Services Contracts, the [***] Contracts, the AC Vendor and Supplier Contracts, the IP Licences and any other contracts or agreements included in the Assets. "Assumed International Vendor Contracts" has the meaning specified in Section 1.1(f). "Assumed Liabilities" has the meaning specified in Section 2.2. "Bill of Sale" has the meaning specified in Section 2.6(a)(ii). "Books and Records" of any Person means all files, documents, instruments, papers, books and records relating to the business, operations, conditions of (financial or other), results of operations and assets and properties of such Person, including without limitation financial statements, Tax returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, contracts and other agreements, licenses, customer lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in the United States of America are required or authorized to close. "Chase" means JPMorgan Chase Bank. "Chinese License" has the meaning specified in Section 1.1(j). "Clients" means those customers and clients that purchase the services provided by Limited. "Completion" has the meaning specified in Section 2.3. "Completion Date" has the meaning specified in Section 2.3. "contracts and other agreements" means all executory contracts, agreements, understandings, indentures, notes, bonds, loans, instruments, leases, mortgages, franchises, licenses, commitments or other legally binding arrangements, whether written or oral. "Demand" means any action, award, suit, claim or other legal recourse, complaint, cost, debt, demand, expense, fine, liability, loss, deficiency, damage (including diminution of value), outgoing, penalty or proceeding (including without limitation, reasonable professional fees and costs of investigation, litigation, settlement and judgment and interest). "[***]" means [***]. 28 Portions of this document have been redacted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Redacted portions are indicated with the notation "[***]" "[***] Contracts" has the meaning specified in Section 1.2(a). "document or other papers" means any document, agreement, instrument, certificate, notice, consent, affidavit, letter, telegram, telex, statement, schedule (including any Schedule to this Agreement) or exhibit (including any Exhibit to this Agreement). "Employees" means the employees set forth on Schedule 3.11. "Encumbrances" has the meaning specified in Section 3.8. "Escrow Agent" has the meaning specified in Section 2.5(e). "Escrow Agreement" has the meaning specified in Section 2.5(e). "Excluded Assets" has the meaning specified in Section 1.3. "Excluded Liabilities" means any Liability (whether accrued, absolute, contingent, known or unknown) other than the Assumed Liabilities, including, without limitation, those for or in connection with (a) anything done or omitted to be done before Completion in the course of the International Business or in connection with the Assets, (b) any creditors, (c), Taxes attributable to Limited or AC in respect of the Business or Assets relating to the period ending on the Completion Date; and (d) all bank or other overdrafts and loans owing by Limited or AC. "Governmental or Regulatory Body" means any nation, state, county, city, town, village, district, commonwealth, village, parish or other jurisdiction of any nature; federal, state, local, municipal, foreign or other government; governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); multi-national organization or body; or body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature. "Intellectual Property" has the meaning specified in Section 1.2(d). "International Business" has the meaning specified in the recitals to this Agreement. "International Client Contracts" has the meaning specified in Section 1.1(e). "IP Licences" has the meaning specified in Section 1.2(e). "IT Services Contracts" has the meaning specified in Section 1.1(g). "IT System" has the meaning specified in Section 1.1(c). 29 "Knowledge" or "Known" shall mean, with respect to Purchaser, the current actual knowledge, after reasonable inquiry, of the officers or employees of Purchaser, and with respect to either Seller, the current, actual knowledge, after reasonable inquiry, of the officers or employees of Sellers, respectively, and with respect to other Persons, the actual knowledge of such Person or the officers or employees of such Person. "Landlord" has the meaning specified in Section 2.2(a). "Landlord's Consent" has the meaning specified in Section 2.5(a)(v). "Law" means any law, statute, rule, regulation, ordinance and other pronouncement having the effect of law of the United States, England and Wales, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Body. "Lease Holdback Amount" has the meaning specified in Section 2.5(e). "Liabilities" or "Liability" means liabilities, duties and obligations of Limited or AC (as the context requires). "Limited" has the meaning specified in the first paragraph of this Agreement. "Limited Accounts Receivable" has the meaning specified in Section 1.1(b). "Limited Assets" has the meaning specified in Section 1.1. "Limited Intellectual Property" has the meaning specified in Section 1.1(i). "Limited IP Licences" has the meaning specified in Section 1.1(g). "Limited Occupancy Licence" has the meaning specified in Section 2.5(a)(ii). "Limited Personal Property Leases" has the meaning specified in Section 1.1(d). "Limited Tangible Personal Property" has the meaning specified in Section 1.1(c). "London Lease" has the meaning specified in Section 2.2(a). "Non-Disclosure Agreement" means that certain ADVENTIS Corporation Non-Disclosure Agreement and Non-Solicitation Agreement (Standard Reciprocal) dated as of September 12, 2005 by and between by and between ADVENTIS Corporation and The Network Management Group. "North America" means the United States, Canada and Mexico. 30 "Material Adverse Effect" means, in the case of any Person, any change or changes or effect or effects that individually or in the aggregate are or may reasonably be expected to be materially adverse to (i) the assets, properties, business, operations, income, prospects or condition (financial or otherwise) of such Person or the transactions contemplated by this Agreement (taking into account, when determining any such changes or effects, the financial distress under which Sellers have operated immediately prior to the date hereof) or (ii) the ability of such Person to perform its obligations under this Agreement; provided, however, the financial distress of the Sellers, in and of itself, does not constitute a Material Adverse Effect. "Occupancy Period" has the meaning specified in Section 2.5(a)(ii). "Pension Plan" means the Adventis Group Personal Pension Plan. "Permitted Encumbrances" has the meaning specified in Section 3.8. "Person" means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental or Regulatory Body or other entity. "Premises" has the meaning specified in Section 2.2(a). "Purchase Price" has the meaning specified in Section 2.1. "Purchaser" has the meaning specified in the first paragraph of this Agreement. "Recipient" has the meaning specified in Section 5.3(a). "Sellers" has the meaning specified in the first paragraph of this Agreement. "Supplier" has the meaning specified in Section 5.3(a). "Tangible Personal Property" has the meaning specified in Section 1.2(c). "Tax" and "Taxes" means all taxes, charges, fees, levies or other assessments imposed by any federal, state, local or foreign taxing authority, whether disputed or not, including, without limitation, income, capital, estimated, excise, property, sales, transfer, withholding, employment, payroll, and franchise taxes and such terms shall include any interest, penalties or additions attributable to or imposed on or with respect to such assessments. "Termination" has the meaning specified in Section 8.1. "Third Party Consent" means a consent, licence, approval, authorisation or waiver required from a third party for the conveyance, transfer, assignment or novation in favour of the Purchaser of any of the Assets in terms acceptable to the Purchaser. 31 "Transaction Documents" means this Agreement, the Assignment Agreement, the Bill of Sale and each other document entered into in connection with the transactions contemplated by this Agreement. "TUPE Regulations" means the Transfer of Undertakings (Protection of Employment) Regulations 1981. "VAT" means value added tax as provided under the VATA. "VATA" means the Value Added Tax Act 1994 and references to the VATA shall include all statutes, laws, regulations, notices, directions or similar provisions, relating to value added tax and any value added, turnover, sales, purchase or similar tax of the United Kingdom or of any other jurisdiction and references to value added tax shall be construed accordingly. 10.2. Further Assurances. At any time and from time to time after the Completion Date at the request of Purchaser, and without further consideration, Sellers will execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation and take such other action as Purchaser may reasonably deem necessary or desirable in order to transfer, convey and assign more effectively to Purchaser, the Assets to put Purchaser in actual possession and operating control of the International Business and to assist Purchaser in exercising all rights with respect thereto. The parties shall use their best efforts to fulfill or obtain the fulfillment of the conditions to the Completion, including, without limitation, the execution and delivery of any document or other papers, the execution and delivery of which are conditions precedent to the Completion. 10.3. Notices. All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be given personally, telegraphed, telexed, sent by facsimile transmission or sent by prepaid air courier or certified, registered or express mail, postage prepaid. Any such notice shall be deemed to have been given (a) when received, if delivered in person, telegraphed, telexed, sent by facsimile transmission or sent by prepaid air courier and confirmed in writing within three (3) Business Days thereafter or (b) three (3) Business Days following the mailing thereof, if mailed by certified first class mail, postage prepaid, return receipt requested, in any such case as follows (or to such other address or addresses as a party may have advised the other in the manner provided in this Section 10.3): 32 If to Sellers: Adventis Limited/Adventis Corporation c/o TRG 270 Congress Street Boston, MA. 02210 Attention: Michael Epstein Telefax: (617) 482-9804 with a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, MA 02111 Attention: Anthony E. Hubbard, Esq. Telefax: (617) 542-2241 If to Purchaser: Wilbass Limited c/o TMNG Global 7300 College Boulevard, Suite 302 Overland Park, KS 66210 Attention: Micky Woo, Partner Telefax: (913) 451-1845 with a copy to: Bingham McCutchen LLP 2020 K Street, NW, 11th Floor Washington, DC 20006 Attention: John J. Klusaritz, Esq. Telefax: (202) 373-6001 and also to: Shughart Thomson & Kilroy, P.C. Twelve Wyandotte Plaza, 16th Floor 120 W. 12th St. Kansas City, MO 64105 Attention: Jacob W. Bayer , Jr., Esq. Telefax: (816) 374-0509 33 10.4. Entire Agreement. This Agreement (including the Schedules) and the agreements, certificates and other documents delivered pursuant to this Agreement contain the entire agreement among the parties with respect to the transactions described herein, and supersede all prior agreements, written or oral, with respect thereto, except that if this Agreement is terminated before the Completion shall occur, the Non-Disclosure Agreement shall continue in full force and effect in accordance with its terms. 10.5. Waivers and Amendments. This Agreement may be amended, superseded, cancelled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. The rights and remedies of any parties based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the parties as to which there is no inaccuracy or breach). 10.6. Default Interest. If any party defaults in the payment when due of any sum payable under this Agreement (whether payable by agreement or by an order of a court or otherwise), the liability of that party shall be increased to include interest on that sum from the date when such payment was due until the date of actual payment at a rate per annum of 8 per cent above the base rate from time to time of National Westminster Bank Plc. Such interest shall accrue from day to day and shall be compounded annually. 10.7. Governing Law; Non-Exclusive Jurisdiction; Service of Process. This Agreement shall be governed by and construed in accordance with the laws of England and Wales. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may (but shall not be required to) be brought against any of the parties in the courts of the State of Delaware, United States, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 10.8. Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. This Agreement is not assignable by any party hereto without the prior written consent of the other parties hereto except by operation of law and any other purported assignment shall be null and void; provided, however, that Purchaser may assign this Agreement without the consent of the other parties hereto to any lender to Purchaser. 34 10.9. Contracts (Rights of Third Parties) Act 1999. Unless expressly provided in the Agreement, no term of this Agreement is enforceable pursuant to the Contracts (Rights of Third Parties) Act 1999 by any person who is not a party to it. 10.10. Variations in Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. 10.11. Counterparts; Facsimile Signatures. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. For the purposes of facilitating the execution of this Agreement, a facsimile or other electronic transmission of a signature shall be deemed to be an original signature. 10.12. Exhibits and Schedules. The Exhibits and Schedules are a part of this Agreement as if fully set forth herein. All references herein to Sections, subsections, clauses, Exhibits and Schedules shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. 10.13. Effect of Disclosure on Schedules. Any item disclosed on any Schedule to this Agreement shall only be deemed to be disclosed in connection with (a) the specific representation and warranty to which such Schedule is expressly referenced, and (b) any specific representation and warranty which expressly cross-references such Schedule. 10.14. Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. 10.15. Severability of Provisions. If any provision or any portion of any provision of this Agreement or the application of such provision or any portion thereof to any Person or circumstance, shall be held invalid or unenforceable, the remaining portion of such provision and the remaining provisions of this Agreement, or the application of such provision or portion of such provision as is held invalid or unenforceable to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. 10.16. Claims Made. Purchaser acknowledges and agrees that the only Demands that may be made against AC and/or Limited are limited solely to this Agreement and the Purchaser is prohibited from bringing any Demand that does not arise from or relate to this Agreement. The Purchaser further acknowledges and agrees that it is prohibited and shall not bring any Demand against (i) Chase and its present and former agents, employees, subsidiaries, predecessors, successors and assigns, or (ii) any individual person including any 35 current or former employee, officer, director, or agent of Adventis Holdings, Inc., AC or Limited. [SIGNATURES TO FOLLOW ON THE NEXT PAGE] 36 IN WITNESS WHEREOF, the parties have executed this Asset Purchase Agreement as of the date first above written. PURCHASER SELLERS WILBASS LIMITED ADVENTIS LIMITED By: By: ---------------------------- ------------------------------ Name: Richard P. Nespola Name: George C. Roy, Jr. Title: Director Title: Secretary ADVENTIS CORPORATION By: ------------------------------ Name: George C. Roy, Jr. Title: Vice President and Chief Financial Officer EX-31 3 form10q_051506ex31.txt EXH. 31 CERTIFICATIONS PURSUANT TO SECTION 302 EXHIBIT 31 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Richard P. Nespola, Chairman, President and Chief Executive Officer of The Management Network Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Management Network Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 15, 2006 By: /s/ Richard P. Nespola --------------------------------------- Chairman, President and Chief Executive Officer I, Donald E. Klumb, Chief Financial Officer and Treasurer of The Management Network Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Management Network Group, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 15, 2006 By: /s/ Donald E. Klumb --------------------------------------- Chief Financial Officer and Treasurer EX-32 4 form10q_051506ex32.txt EXH. 32 CERTIFICATIONS PURSUANT TO SECTION 906 EXHIBIT 32 CERTIFICATIONS FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with this quarterly report on Form 10-Q of The Management Network Group, Inc., I, Richard P. Nespola, Chairman, President and Chief Executive Officer of the registrant certify that: 1. this quarterly report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the registrant for and as of the end of such quarter. Date: May 15, 2006 By: /s/ Richard P. Nespola --------------------------------------- Chairman, President and Chief Executive Officer In connection with this quarterly report on Form 10-Q of The Management Network Group, Inc., I, Donald E. Klumb, Chief Financial Officer and Treasurer of the registrant certify that: 1. this quarterly report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the registrant for and as of the end of such quarter. Date: May 15, 2006 By: /s/ Donald E. Klumb --------------------------------------- Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----