Exhibit 10.1
STOCK PURCHASE AGREEMENT
EFFECTIVE AS OF
JANUARY 31, 1998
BETWEEN
ADVANCED COMMUNICATION SYSTEMS, INC.
AND
JOHN LIN
TABLE OF CONTENTS
Page
1. Definitions...................................................... 1
2 Purchase and Sale of Company Shares.............................. 7
2.1 Basic Transaction....................................... 7
2.2 Preliminary Purchase Price.............................. 7
2.3 The Closing............................................. 7
2.4 Deliveries at the Closing............................... 7
2.5 Contingent Purchase Price............................... 7
2.6 Contingent Purchase Price Determination Procedures...... 9
3. Representations and Warranties Concerning the Transaction........ 9
3.1 Representations and Warranties of the Seller............ 9
3.2 Representations and Warranties of the Buyer............. 10
4. Representations and Warranties Concerning the Company ........... 11
4.1 Organization, Qualification, and Corporate Power........ 11
4.2 Capitalization.......................................... 11
4.3 Noncontravention........................................ 12
4.4 Brokers' Fees........................................... 12
4.5 Title to Assets......................................... 12
4.6 Financial Statements.................................... 12
4.7 Events Subsequent to the Interim Balance Sheet Date..... 13
4.8 Undisclosed Liabilities................................. 15
4.9 Legal Compliance........................................ 15
4.10 Tax Matters............................................. 15
4.11 Real Property........................................... 16
4.12 Intellectual Property................................... 17
4.13 Tangible Assets......................................... 19
4.14 Inventory............................................... 19
4.15 Contracts............................................... 19
4.16 Notes and Accounts Receivable........................... 20
4.17 Powers of Attorney...................................... 20
4.18 Insurance............................................... 20
4.19 Litigation.............................................. 21
4.20 Product Warranty........................................ 21
4.21 Product Liability....................................... 22
4.22 Employees............................................... 22
4.23 Employee Benefits....................................... 22
4.24 Guaranties.............................................. 24
4.25 Government Contracts.................................... 24
4.26 Environment, Health, and Safety Matters................. 26
4.27 Subsidiaries............................................ 26
4.28 Disclosure.............................................. 26
Page
5. Pre-Closing Covenants............................................ 27
5.1 General................................................. 27
5.2 Notices and Consents.................................... 27
5.3 Operation of Business................................... 27
5.4 Preservation of Business................................ 27
5.5 Full Access, Confidentiality............................ 28
5.6 Notice of Developments.................................. 29
5.7 Exclusivity............................................. 29
6. Post-Closing Covenants........................................... 29
6.1 General................................................. 29
6.2 Litigation Support...................................... 29
6.3 Transition.............................................. 30
6.4 Covenant Not to Compete................................. 30
7. Conditions to Obligation to Close................................ 32
7.1 Conditions to Obligation of the Buyer................... 32
7.2 Conditions to Obligation of the Seller.................. 33
8. Remedies for Breaches of This Agreement.......................... 34
8.1 Survival of Representations and Warranties.............. 34
8.2 Indemnity............................................... 35
8.3 Notice of Claim......................................... 35
8.4 Limitation.............................................. 37
8.5 Recoupment.............................................. 37
9. Tax Matters...................................................... 37
9.1 Section 338(h)(10) Election............................. 37
9.2 Tax Periods Ending on or Before the Closing Date....... 38
9.3 Allocation of Purchase Price ........................... 38
9.4 S Corporation Status.................................... 38
9.5 Tax Period Beginning Before and Ending After
the Closing Date........................................ 39
9.6 Cooperation on Tax Matters.............................. 39
10. Termination and Miscellaneous.................................... 40
10.1 Termination of Agreement................................ 40
10.2 Effect of Termination................................... 40
10.3 Cooperation............................................. 41
10.4 Successors and Assigns.................................. 41
10.5 Entire Agreement........................................ 41
10.6 Counterparts............................................ 41
Page
10.7 Expenses................................................ 42
10.8 Notices................................................. 42
10.9 Governing Law........................................... 43
10.10 Severability............................................ 43
10.11 Absence of Third-Party Beneficiary Rights............... 43
10.12 Mutual Drafting......................................... 43
10.13 Further Representations................................. 43
10.14 Amendment; Waiver....................................... 43
10.15 Public Disclosure....................................... 44
Exhibit A--Form of Employment Agreement for John Lin
Exhibit B--Form of Employment Agreement for Grace Lee
Exhibit C--Form of Opinion of Counsel to the Seller
Exhibit D--List of Executive Level Employees
Schedule 4.1--Organization, Qualification and Corporate Power
Schedule 4.3--Noncontravention
Schedule 4.4--Broker's Fees
Schedule 4.6--Financial Statements
Schedule 4.7--Events Subsequent to Interim Balance Sheet Date
Schedule 4.8--Undisclosed Liabilities
Schedule 4.10--Tax Matters
Schedule 4.11--Real Property
Schedule 4.12--Intellectual Property
Schedule 4.15--Contracts
Schedule 4.16--Notes and Accounts Receivable
Schedule 4.18--Insurance
Schedule 4.19--Litigation
Schedule 4.20--Product Warranties
Schedule 4.23--Employee Benefits
Schedule 4.25--Government Contracts
Schedule 4.28--Disclosure
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of this thirty-first day of
January, 1998, (the "Effective Date") by and between Advanced Communication
Systems, Inc., a Delaware corporation (the "Buyer"), and John Lin (the
"Seller"), and shall be deemed to be effective and the "Purchase," as defined
below, shall be deemed to have occurred as of the date hereof as between the
parties hereto, upon the satisfaction and/or waiver of the conditions to closing
set forth in Section 7. The Buyer and the Seller are referred to collectively
herein as the "Parties."
RECITALS
WHEREAS, the Seller owns all of the outstanding capital stock of
Advanced Management, Inc., a Virginia corporation (the "Company"); and
WHEREAS, this Agreement contemplates a transaction in which the Buyer
will purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of the Company in return for cash (the "Purchase").
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS
"ACS Allocations" means any allocations expenses or costs of the Buyer
to the Company after the Closing Date, except for and excluding any charges by
the Buyer to the Company at cost (not to exceed the cost of the same services
performed on an outsourced basis) for services performed by the Buyer directly
for the Company.
"Adverse Consequences" has the meaning set forth in Section 8.2.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
"Closing Date Balance Sheet" means the balance sheet of the Company as
of January 31, 1998, prepared in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements, reviewed by the
Company's independent certified public accountant and adjusted to take into
account any transactions occurring between January 31, 1998, and the Closing
date that are determined to be outside the Ordinary Course of Business by the
Buyer with the concurrence of the Company's independent certified public
accountant and such other items as the Parties may agree, and delivered by the
Seller to the Buyer within 45 days subsequent to the Closing Date.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Shares" means any share of the Company common stock, par value
$5 per share.
"Confidential Information" means any information concerning the
businesses and affairs of the Company or the Buyer that is not already generally
available to the public.
"Contingent Purchase Price" has the meaning set forth in Section 2.5
below.
"Controlled Group" has the meaning set forth in Code section 1563.
"Earn Out Period" means the Initial Earn Out Period and the Second Earn
Out Period.
"EBITDA" means earnings, determined in accordance with GAAP, before
interest, income taxes, depreciation and amortization determined before (i) any
ACS Allocations, (ii) any Excess Executive Salary, (iii) any Executive Bonus and
(iv) the Excess Employee Benefits, and reduced by any amount contributed to
earnings from any discretionary management reserves existing on the Closing
Date.
"Effective Date" has the meaning set forth in the preface, above.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity that is treated as a single
employer with the Company for purposes of Code Section 414.
"Estimated Net Book Value" means $4 million.
"Excess Employee Benefits" means excess of bonuses paid to or accrued
with respect to the employees of the Company (exclusive of the amount of any
bonus paid to the Seller or Grace Lee) over $375,000.
"Excess Executive Salary" means any annual amount in excess of $150,000
of ordinary salary or wages (including fringe benefits and all other types of
compensations) paid to or accrued during the Earn Out Period on behalf of an
individual hired by the Company to serve initially as Vice President of the
Company reporting to the Seller and expected to eventually serve as President of
the Company upon the retirement of the Seller.
"Excess Purchase Price Adjustment" means the positive excess, if any,
of the Purchase Price Adjustment over the amount of any Initial Product (as
defined in Section 2.5).
"Executive Bonus" means the amount of any bonus payments made to the
Seller or Grace Lee during the Earn Out Period in accordance with the terms of
their employment agreements with the Company.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 4.6 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Entity" means any government or agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal state or local,
domestic or foreign.
"Government Contract" means any Contract between the Company and any
Governmental Entity, and any bids or proposals for any Contract between the
Company and any Governmental Entity.
"Government Subcontract" means any Contract that is a subcontract
between the Company and any third party relating to a prime contract with any
Governmental Entity and any bids or proposals for any Contract that is a
subcontract between the Company and any third party relating to a prime contract
with any Governmental Entity.
"Indemnified Party" has the meaning set forth in Section 8.2 below.
"Indemnifying Party" has the meaning set forth in Section 8.2 below.
"Initial Earn Out Period" means the period commencing on the day after
the Closing Date and ending on the twelfth full month anniversary of the Closing
Date.
"Initial Earn Out Period EBITDA" shall mean EBITDA for the Initial Earn
Out Period as determined by a nationally recognized accounting firm to be in
accordance with GAAP applied on a basis consistent with the preparation of the
Financial Statements and agreed to by the Seller in accordance with the
procedures set forth in Section 2.6 up to a maximum amount of $4.8 million.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Interim Balance Sheet" means the balance sheet contained within the
Interim Financial Statements.
"Interim Financial Statements" has the meaning set forth in Section 4.6
below.
"Knowledge of the Seller" or the "Seller's Knowledge" means the actual
knowledge of the Seller, Grace Lee, and any of the individuals set forth on
Exhibit D.
"Law" means any constitutional provision, statute, law, rule,
regulation, permit, decree, injunction, judgment, order, ruling, determination,
finding or writ of any Governmental Entity.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Effect" means any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
liabilities, condition (financial or otherwise), results of operations or
financial projections of the Company.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Net Book Value" means the excess of assets over liabilities (excluding
any liabilities shown thereon for expenses incurred by the Company with respect
to any transactions contemplated by this Agreement to the extent that such
liabilities will be satisfied on or prior to the Closing Date) as shown on the
Closing Date Balance Sheet.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Distribution" means cash and property having an aggregate
combined fair market value up to $7.4 million distributed from the Company to
the Seller during the period commencing January 1, 1998, and ending on the
Closing Date and including the distribution of any split-dollar life insurance
policy in which the Seller is the Beneficiary and the cash surrender value of
which has not been recorded on the Financial Statements.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Preliminary Purchase Price" has the meaning set forth in section 2.2
below.
"Purchase Price Adjustment" means the positive excess, if any, of
Estimated Net Book Value over Net Book Value.
"Reportable Event" has the meaning set forth in ERISA section 4043.
"Second Earn Out Period" means the period commencing on the day after
the end of the Initial Earn Out Period and ending on the twenty-fourth full
month anniversary of the Closing Date.
"Second Earn Out Period EBITDA" shall mean EBITDA for the Second Earn
Out Period as determined by a nationally recognized accounting firm to be in
accordance with GAAP applied on a basis consistent with the preparation of the
Financial Statements and agreed to by the Seller in accordance with the
procedures set forth in Section 2.6 up to a maximum amount of $5.4 million and
increased (but not so that the Second Earn Out Period EBITDA exceeds $5.4
million) by the excess, if any, of the Initial Earn Out Period EBITDA over the
amount of $4.8 million (such Initial Earn Out Period EBITDA to be determined,
solely for purposes of this sentence, without regard to the to the $4.8 million
maximum amount).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or (c) purchase
money liens and liens securing rental payments under capital lease arrangements.
"Seller" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Year End Financial Statements" has the meaning set forth in Section
4.6 below.
2. PURCHASE AND SALE OF COMPANY SHARES.
2.1. Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, all of his Company Shares for the consideration
specified below in this Section 2.
2.2 Preliminary Purchase Price. The Buyer agrees to pay to the Seller
at the Closing $19.5 million (the "Preliminary Purchase Price") by delivery of
cash by wire transfer to a bank account designated by the Seller. In the event
that the Closing (as defined below) occurs after February 28, 1998, then, within
30 days of the Closing, the Buyer shall pay to the Seller, by delivery of cash
by wire transfer to a bank account designated by the Seller an amount equal to
the lesser of (i) the excess, if any, of Net Book Value over $4.4 million or
(ii) the product of $13,333 multiplied by the number of days that the Closing
occurs after February 28, 1998 (the "Additional Purchase Price").
2.3 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Venable, Baetjer,
Howard & Civiletti in Washington, DC, commencing at 9:00 a.m. local time on the
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Parties may determine, however,
the Closing Date shall be no later than March 15, 1998.
2.4 Deliveries at the Closing. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7.1 below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in Section 7.2
below, (iii) the Seller will deliver to the Buyer stock certificates
representing all of the Company Shares, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) the Buyer will deliver to the Seller the
consideration specified in Section 2.2 above.
2.5 Contingent Purchase Price. The Contingent Purchase Price means the
sum of the Initial Contingent Purchase Price and the Second Contingent Purchase
Price determined and paid as follows:
(a) Subject to the procedures set forth and adjusted in
accordance with the provisions of Section 2.6, below, the Buyer shall pay to the
Seller (by delivery of cash by wire transfer to a bank account selected by the
Seller) the "Initial Contingent Purchase Price," which shall be equal to the
product of seven and one-half (7.5) multiplied by any excess of Initial Earn Out
Period EBITDA over $4.1 million the (the "Initial Product"), such Initial
Product being reduced (but not below zero) by the amount of any Purchase Price
Adjustment. Interest shall accrue on any portion of the Initial Contingent
Purchase Price not paid by the Buyer when due to the Seller in accordance with
the provisions of this Section 2.5 at the rate of the regular commercial prime
rate of interest of NationsBank N.A., which NationsBank N.A. uses as a standard
for determining actual interest rates charged commercial borrowers, beginning on
the date on which such amount was due to the Seller and ending on the date on
which Buyer pays such amount to the Seller, which payment shall include any
interest accrued thereon. The Buyer shall pay the Initial Contingent Purchase
Price to the Seller by the later of (i) 45 days subsequent to the end of the
Initial Earn Out Period (applicable to all amounts not then in dispute), (ii)
the date that is five days after the date on which the Buyer and the Seller
resolve all disputes with respect to the determination the Initial Earn Out
Period EBITDA in accordance with Section 2.6, below, or (iii) the date that is
five days after the date on which the Seller receives the written determination
of the Arbitrator resolving any dispute between the Buyer and the Seller
concerning the calculation of the Initial Earn Out Period EBITDA.
(b) Subject to the procedures set forth and adjusted in
accordance with the provisions of Section 2.6, below, the Buyer shall pay to the
Seller (by delivery of cash by wire transfer to a bank account selected by the
Seller)) the "Second Contingent Purchase Price," which shall be equal to the
product of seven and one-half (7.5) multiplied by any excess of Second Earn Out
Period EBITDA over the amount of $4.7 million (the "Second Product"), such
Second Product being reduced (but not below zero) by the amount of any Excess
Purchase Price Adjustment. Interest shall accrue on any portion of the Second
Contingent Purchase Price not paid by the Buyer when due to the Seller in
accordance with the provisions of this Section 2.5 at the rate of the regular
commercial prime rate of interest of NationsBank N.A., which NationsBank N.A.
uses as a standard for determining actual interest rates charged commercial
borrowers, beginning on the date on which such amount was due to the Seller and
ending on the date on which Buyer pays such amount to the Seller, which payment
shall include any interest accrued thereon. The Buyer shall pay the Second
Contingent Purchase Price, and any interest thereon, to the Seller by the later
of (i) 45 days subsequent to the end of the Second Earn Out Period (applicable
to all amounts not then in dispute), (ii) the date that is five days after the
date on which the Buyer and the Seller resolve all disputes with respect to the
determination the Second Earn Out Period EBITDA in accordance with Section 2.6,
below, or (iii) the date that is five days after the date on which the Seller
receives the written determination of the Arbitrator resolving any dispute
between the Buyer and the Seller concerning the calculation of the Second Earn
Out Period EBITDA.
The Preliminary Purchase Price increased by the amount of any Contingent
Purchase Price and any Additional Purchase Price is referred to herein as the
"Purchase Price."
2.6 Contingent Purchase Price Determination Procedures. Within 30 days
from the end of each of the Earn Out Periods, the Buyer shall deliver to the
Seller a draft calculation of either the Initial Earn Out Period EBITDA or the
Second Earn Out Period EBITDA, as the case may be, (the "Draft EBITDA
Calculations") prepared by a nationally recognized accounting firm. If the
Seller has any objection to the Draft EBITDA Calculations, the Seller shall
deliver a detailed statement describing his objections to the Buyer within 15
days after receiving either of the Draft EBITDA Calculations. The Buyer and the
Seller will use reasonable efforts to resolve any such objections themselves. If
the Buyer and Seller do not finally resolve any of the objections within 15 days
after the Buyer has received the statement of objections, however, the Buyer and
the Seller will select, within 5 days, a nationally recognized independent
accounting firm mutually acceptable to each party (the agreement to the
selection of which shall not be unreasonably withheld) to resolve any such
differences (the "Arbitrator"). The Arbitrator shall settle any remaining
dispute by selecting the position of the party that the Arbitrator determines,
in its sole discretion, to be the most correct. The determination of the
Arbitrator shall be set forth in writing, delivered to each of the Buyer and the
Seller and shall be conclusive and binding on the parties and shall be
non-appealable. The party whose position is not chosen by the Arbitrator shall
pay all expenses of the Arbitrator. The Draft EBITDA Calculations, as adjusted
for any items of dispute resolved by the Buyer and the Seller and for any
determinations of the Arbitrator shall constitute the Initial Earn Out Period
EBITDA and the Second Earn Out Period EBITDA, as the case may be.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
3.1 Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer as of the Effective Date and as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
Effective Date throughout this Section 3.1) as follows:
(a) Authorization of Transaction. The Seller has full power
and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Seller, enforceable in accordance with its terms and
conditions. The Seller need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any Governmental Entity in
order to consummate the transactions contemplated by this Agreement.
(b) Noncontravention. Neither the execution or the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
Governmental Entity, or court to which the Seller is subject or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which he
is bound or to which any of his assets is subject.
(c) Brokers' Fees. The Seller has no Liability or obligation
to pay any fees or commissions to any accountant, lawyer, broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
the Buyer could become liable or obligated.
(d) Company Shares. The Seller holds of record and owns
beneficially all of the Company Shares free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. The Seller is not a party
to any option, warrant, purchase right, or other contract or commitment that
could require the Seller to sell, transfer, or otherwise dispose of any capital
stock of the Company (other than this Agreement). The Seller is not a party to
any voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
3.2 Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller as of the Effective Date and as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
Effective Date of this Agreement throughout this Section 3.2) as follows:
(a) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Buyer has all requisite power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted.
(b) Authorization of Transaction. The representatives of the
Buyer executing this Agreement have all requisite corporate power and authority
to enter into and bind the Buyer to the terms of this Agreement. The Buyer has
full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any Governmental Entity in order to consummate the
transactions contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or subject or any provision of its
charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject.
(d) Brokers' Fees. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
(e) Investment. The Buyer is not acquiring the Company Shares
with a view to distribute or offer for sale in connection with any distribution
thereof within the meaning of the Securities Act.
(f) Financing. The Buyer has, or will have at the Closing
Date, sufficient funds available to make payment of the Preliminary Purchase
Price.
(g) Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending or, to the knowledge of the Buyer,
threatened against the Buyer that in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transaction contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY.
The Seller represents and warrants to the Buyer as of the Effective
Date and as of the Closing Date (as though made then and as though the Effective
Date were substituted for the date of this Agreement throughout this Section 4)
as follows:
4.1 Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. As of the Closing Date, the
Company will be duly authorized to conduct business and will be in good standing
under the laws of each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect. Schedule 4.1 lists all jurisdictions in
which the Company is qualified to do business as a foreign corporation. The
Company has full corporate power and authority and all licenses, permits, and
authorizations necessary to carry on the businesses in which it is engaged and
in which it presently proposes to engage and to own and use the properties owned
and used by it. Schedule 4.1 lists the directors and officers of the Company.
The Seller has delivered to the Buyer correct and complete copies of the charter
and bylaws of the Company (as amended to date). The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of the Company are correct and complete. The Company is not
in default under or in violation of any provision of its charter or bylaws.
4.2 Capitalization. The entire authorized capital stock of the Company
consists of 1,000 Company Shares, of which 1,000 shares are issued and
outstanding and no shares are held in treasury. All of the issued and
outstanding Company Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Seller. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of the
Company. All of the issued and outstanding Company Shares were offered, issued,
sold and delivered by the Company in compliance with all applicable federal laws
and in material compliance with applicable state laws concerning the issuance of
securities. None of the Company Shares was issued in violation of any preemptive
rights created by statute, or by the charter and bylaws of the Company (as
amended to date) or by any agreement to which the Company may be bound. Neither
the voting stock structure of the Company nor the relative ownership of the
Company has been altered or changed in contemplation of this Agreement. To the
Knowledge of the Seller, there is no reason to believe that as a result of the
transactions contemplated by this Agreement, the Buyer will not be the record
and beneficial owner of all outstanding capital stock of the Company and rights
to acquire capital stock of the Company.
4.3 Noncontravention. Except as set forth on Schedule 4.3, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) conflict with or violate any
provision of the charter or bylaws of the Company as now in effect, (ii) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any Governmental Entity or court
to which the Company is subject or any provision of the charter or bylaws of the
Company or (iii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Company is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). Except as set forth on Schedule 4.3, the Company is not required to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any Governmental Entity in order for the Parties to consummate
the transactions contemplated by this Agreement.
4.4 Brokers' Fees. As of the Closing Date, the Company will not have
any Liability or obligation to pay any fees or commissions to any accountant,
lawyer, broker, finder, or agent with respect to the transactions contemplated
by this Agreement.
4.5 Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, shown on the Interim Balance Sheet or acquired after the date
thereof, free and clear of all Security Interests, except for properties
constituting equipment furnished by Governmental Entities and property or assets
disposed of in the Ordinary Course of Business since the date of the Interim
Balance Sheet.
4.6 Financial Statements. Except for the financial statements described
in 4.6(ii) below, which will be delivered to the Buyer on or before February 20,
1998, Schedule 4.6 includes the following financial statements of the Company
(collectively the "Financial Statements"): (i) audited balance sheets as of, and
statements of income, changes in stockholders' equity and cash flow for the
fiscal years ended, December 31, 1995 and 1996 (the 1996 Financial Statements
being referred to herein as the "Year End Financial Statements") for the
Company; and (ii) unaudited balance sheets as of and statements of income (the
"Interim Financial Statements") for the year ended December 31, 1997 (the
"Interim Balance Sheet Date"). The Financial Statements (including the notes
thereto) have been and, in the case of the Interim Financial Statements, will be
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
in all material respects as of such dates and the results of operations of the
Company for such periods, are correct and complete, and are consistent with the
books and records of the Company (which books and records are correct and
complete).
4.7 Events Subsequent to the Interim Balance Sheet Date. Since the
Interim Balance Sheet Date, there has not been any material adverse change in
the business, condition (financial or otherwise), operations, results of
operations, or financial projections of the Company. Without limiting the
generality of the foregoing, except as set forth in Schedule 4.7, since that
date:
(a) the Company has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(b) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $10,000 or outside the Ordinary Course of
Business;
(c) no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving more
than $10,000 to which the Company is a party or by which it is bound;
(d) the Company has not imposed any Security Interest upon any
of its assets, tangible or intangible;
(e) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than $10,000 or
outside the Ordinary Course of Business;
(f) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either involving
more than $10,000 or outside the Ordinary Course of Business;
(g) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation involving more than $10,000.;
(h) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;
(i) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $10,000 or outside the Ordinary Course of Business;
(j) the Company has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(k) there has been no change made or authorized in the charter
or bylaws of the Company;
(l) the Company has not issued, sold, or otherwise disposed of
any of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;
(m) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind, and except for the Permitted Distribution) or redeemed,
purchased, or otherwise acquired any of its capital stock;
(n) the Company has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property;
(o) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, or employees outside the
Ordinary Course of Business or in excess of $10,000 singly or $50,000 in
aggregate;
(p) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(q) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business (except for 1997 employee bonuses and pension plan
contributions not to collectively exceed $350,000);
(r) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);
(s) the Company has not made any other change in employment
terms for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(t) the Company has not made or pledged to make any charitable
or other capital contribution outside the Ordinary Course of Business; and
(v) the Company has not committed to any of the foregoing.
4.8 Undisclosed Liabilities. The Company does not have any material
Liability or obligation, except for (i) Liabilities and obligations set forth on
the face of the Interim Balance Sheet (rather than in any notes thereto) and
(ii) Liabilities and obligations which have arisen after the Interim Balance
Sheet Date in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
4.9 Legal Compliance. The Company has complied in all material respects
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
to the Seller's Knowledge, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
4.10 Tax Matters.
(a) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have been
paid. The Company is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction where the Company does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security Interests on
any of the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(c) Neither the Seller nor any director or officer (or
employee responsible for Tax matters) of the Company expects any authority to
assess any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of the Company
either (i) claimed or raised by any authority in writing to the Company or to
the Seller or (ii) as to which the Seller has Knowledge based upon personal
contact with any agent of such authority. The Seller has made available to the
Buyer correct and complete copies of all federal income Tax Returns previously
filed, examination reports, and statements of deficiencies assessed against or
agreed to by the Company since January 1, 1995.
(d) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) The Company has not filed a consent under Code section
341(f) concerning collapsible corporations. The Company has not been a United
States real property holding corporation within the meaning of Code section
897(c)(2) during the applicable period specified in Code section
897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code section 6662. The Company is
not a party to any Tax allocation or sharing agreement. The Company has not been
and will not be required to include any material adjustment in Taxable income
for any Tax period (or portion thereof) ending on or after the Closing Date
pursuant to Code sections 481 or 263A as a result of transactions, events or
accounting methods employed prior to the Closing Date.
(f) The Company has been classified as an S Corporation,
within the meaning of Code section 1361, since August 1, 1987, and will be an S
corporation up to and including the date of closing.
(g) The Company will not be liable for any Tax under Code
section 1374 in connection with the deemed sale of the Company's assets caused
by the Section 338(h)(10) Election (as defined herein). The Company has not, in
the last 10 years, acquired assets from another corporation in a transaction in
which the Company's Tax basis in the acquired assets was determined, in whole or
in part, by reference to the Tax basis of the acquired assets (or any other
property) in the hands of the transferor.
4.11 Real Property. The Company currently does not own and has never
owned any real property. Schedule 4.11 lists and describes briefly all real
property leased or subleased to the Company. The Seller has delivered to the
Buyer correct and complete copies of the leases and subleases listed in Schedule
4.11 (as amended to date). With respect to each lease and sublease listed in
Section 4.11:
(a) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(b) to the Seller's Knowledge, there is no reason to believe
that the lease or sublease will not continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(c) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification, or acceleration
thereunder;
(d) no party to the lease or sublease has repudiated any
provision thereof;
(e) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(f) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
(g) to the Knowledge of the Seller, all facilities leased or
subleased thereunder have received all approvals of governmental authorities
(including licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with applicable
laws, rules, and regulations; and
(h) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities.
4.12 Intellectual Property.
(a) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted. Each item of Intellectual
Property owned or used by any of the Company immediately prior to the Closing
hereunder will be owned or available for use by the Company on identical terms
and conditions immediately subsequent to the Closing hereunder. The Company has
taken all commercially reasonable action to maintain and protect each item of
Intellectual Property that it owns or uses.
(b) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and neither the Seller nor the directors or officers
(and employees with responsibility for Intellectual Property matters) of the
Company has ever received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of the
Seller, no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of any of the
Company.
(c) Schedule 4.12 identifies each patent or registration which
has been issued to the Company with respect to any of its Intellectual Property,
identifies each pending patent application or application for registration which
the Company has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which the Company has
granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). The Seller has delivered to the Buyer correct
and complete copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and have made available to the
Buyer correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. Schedule 4.12 also
identifies each trade name or unregistered trademark used by the Company in
connection with any of its businesses. With respect to each item of Intellectual
Property required to be identified in Schedule 4.12:
(i) the Company possesses all right, title, and
interest in and to the item, free and clear of any Security Interest, license,
or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or ownership
of the item; and
(iv) the Company has never agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(d) Schedule 4.12 identifies each item of Intellectual
Property that any third party owns and that the Company uses pursuant to
license, sublicense, agreement, or permission. With respect to each item
required to be identified in Schedule 4.12, the Seller has listed:
(i) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in
full force and effect;
(ii) to the Seller's Knowledge, the license,
sublicense, agreement, or permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby (including the assignments
and assumptions referred to in Section 2 above);
(iii) no party to the license, sublicense, agreement,
or permission is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(v) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree, ruling,
or charge;
(vi) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(vii) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or permission.
(e) To the Knowledge of the Seller, the Seller has no reason
to believe that the Company will interfere with, infringe upon, misappropriate,
or otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(f) The Seller has no Knowledge of any new products,
inventions, procedures, or methods of manufacturing or processing that any
competitors or other third parties have developed which reasonably could be
expected to supersede or make obsolete any product or process of the Company.
4.13 Tangible Assets. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
businesses as presently conducted and as presently proposed to be conducted.
Each such tangible asset is free from defects (patent and, to the Seller's
Knowledge, latent), has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and
presently is proposed to be used.
4.14 Inventory. The Company has no inventory other than supplies to be
consumed in the Ordinary Course of Business.
4.15 Contracts. Schedule 4.15 lists the following contracts and
other agreements to which the Company is a party:
(a) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $10,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which extends over a period of more than one year, expected to result in a
loss to the Company, or involve consideration in excess of $10,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $10,000 or under which
it has imposed a Security Interest on any of its assets, tangible or intangible;
(e) any agreement concerning confidentiality or
noncompetition;
(f) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers, and employees;
(g) any collective bargaining agreement;
(h) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $50,000 or providing severance benefits;
(i) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(j) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect; or
(k) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Seller has delivered or made available to the Buyer a correct and complete
copy of each written agreement listed in Schedule 4.15 (as amended to date) and
a written summary setting forth the terms and conditions of each oral agreement
referred to in Schedule 4.15. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
(B) the agreement will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
4.16 Notes and Accounts Receivable. Schedule 4.16 sets forth an
accounts receivable aging schedule as of January 31, 1998. All notes and
accounts receivable of the Company are reflected properly on its books and
records and are bona fide receivables subject to no setoffs or counterclaims.
The amount of any reserve for bad debts set forth on the Interim Balance Sheet,
as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company, is sufficient to cover the amount
of any note or account receivable thereon not collected within 180 days.
4.17 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
4.18 Insurance. Schedule 4.18 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any time since August 1, 1994:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (i) the policy is legal, valid,
binding, enforceable, and in full force and effect; (ii) to the Knowledge of the
Seller, there is no reason to believe that the policy will not continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (iii)
neither the Company nor any other party to the policy is in default or material
breach (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a default or material breach, or permit termination,
modification, or acceleration, under the policy; and (iv) no party to the policy
has repudiated any provision thereof. The Company has been covered during the
past 10 years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Schedule
4.18 describes any self-insurance arrangements affecting the Company.
4.19 Litigation. Schedule 4.19 sets forth each instance in which the
Company: (a) is subject to any outstanding injunction, judgment, order, decree,
ruling, or charge or (b) is a party or is threatened to be made a party to any
action, suit, proceeding, hearing, or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator.
4.20 Product Warranty. Except as set forth on Schedule 4.20, each
service delivered by the Company has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the Company
has no Liability for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product warranty claims
set forth on the face of the Interim Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company. Schedule 4.20
includes the terms and conditions of all warranties to which the services of the
Company are subject.
4.21 Product Liability. The Company does not have any material
Liability arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Company.
4.22 Employees. To the Knowledge of the Seller, no executive, key
employee, or group of employees has any plans to terminate employment with the
Company. The Company is not a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes. The Company has
not committed any unfair labor practice. The Seller has no Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company.
4.23 Employee Benefits.
(a) Schedule 4.23 lists each Employee Benefit Plan that the
Company maintains or to which the Company contributes or has any obligation to
contribute.
(i) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(ii) All required reports and descriptions (including
Form 5500 Annual Reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been timely filed and distributed appropriately with respect
to each such Employee Benefit Plan. The requirements of COBRA have been met
with respect to each suchEmployee Benefit Plan which is an Employee Welfare
Benefit Plan.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of the
Company. All premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a "qualified plan" under
Code section 401(a), has received, within the last two years, a favorable
determination letter from the Internal Revenue Service that it is a "qualified
plan," and the Seller is not aware of any facts or circumstances that could
result in the revocation of such determination letter.
(v) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested and
nonvested Liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(vi) The Seller has made availabe to the Buyer
correct and complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each such
Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that the
Company or any ERISA Affiliate maintains or ever has maintained or to which any
of them contributes, ever has contributed, or ever has been required to
contribute:
(i) Except as set forth in Schedule 4.23, no such
Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been completely or partially terminated or been the
subject of a Reportable Event as to which notices would be such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been instituted or
threatened.
(ii) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit Plan
(other than routine claims for benefits) is pending or threatened. The Seller
has no Knowledge of any Basis for any such action, suit, proceeding, hearing, or
investigation.
(iii) The Company has not incurred, and neither the
Seller nor any of the directors or officers (and employees with responsibility
for employee benefits matters) of the Company has any reason to expect that the
Company will incur, any Liability to the PBGC (other than PBGC premium payments)
or otherwise under Title IV of ERISA (including any withdrawal liability as
defined in ERISA section 4201) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
(c) None of the Company or the other members of the Controlled
Group that includes the Company contributes to, ever has contributed to, or ever
has been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal liability as defined in ERISA section 4201) under any
Multiemployer Plan.
(d) The Company does not maintain and has never maintained and
does not contribute, and has never contributed, and never has been required to
contribute to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with COBRA).
4.24 Guaranties. The Company is not a guarantor or otherwise liable for
any Liability or obligation (including indebtedness) of any other Person.
4.25 Government Contracts.
(a) To the Seller's Knowledge, except as set forth on Schedule
4.25: (i) the Company has complied with all material terms and conditions of
each Government Contract or Government Subcontract, including all clauses,
provisions and requirements incorporated expressly, by reference or by operation
of Law therein, (ii) the Company has complied in all material respects with all
requirements of all Laws or agreements pertaining to each Government Contract or
Government Subcontract and (iii) all representations and certifications
executed, acknowledged or set forth in or pertaining to each Government Contract
or Government Subcontract were complete and correct in all material respects as
of their effective date and the Company has complied in all material respects
with all such representations and certifications.
(b) Except as set forth on Schedule 4.25: (i) neither the U.S.
Government nor any prime contractor, subcontractor or other Person has notified
the Seller or the Company, either in writing or orally, that the Company has
breached or violated any Law, certification, representation, clause, provision
or requirement pertaining to any Government Contract or Government Subcontract
and (ii) no termination for convenience is in effect and no, termination for
default, cure notice or show cause notice has been received pertaining to any
Government Contract or Government Subcontract, (iii) no material cost incurred
by the Company pertaining to any Government Contract or Government Subcontract
has been questioned or challenged by representatives of Governmental Entity, is
the subject of any investigation, or has been disallowed by the U.S. Government,
and (iv) no amount of money due to the Company pertaining to any Government
Contract or Government Subcontract has been withheld or set off nor has any
claim been made to withhold or set off money and the Company is entitled to all
progress payments received with respect thereto.
(c) To the Seller's Knowledge, except as set forth on Schedule
4.25: (i) neither the Company nor any of its directors, officers, employees,
consultants or agents is or during the past three years has been under
administrative, civil or criminal investigation, indictment or information by
any Governmental Entity or any audit or investigation by the Seller or the
Company or any other Person with respect to any alleged irregularity,
misstatement or omission arising under or relating to any Government Contract or
Government Subcontract, and (ii) during the past three years, neither the
Company nor any Affiliate of the Company has conducted or initiated any internal
investigation or made a voluntary disclosure to any Governmental Entity with
respect to any alleged irregularity, misstatement or omission arising under or
relating to a Government Contract or Government Subcontract. There exists no
irregularity, misstatement or omission arising under or relating to any
Government Contract or Government Subcontract that has led during the last three
years to any of the consequences set forth in clause (i) or (ii) of the
immediately preceding sentence or any other damage, penalty assessment,
recoupment of payment or disallowance of cost.
(d) To the Seller's Knowledge, except as set forth on Schedule
4.25, there exist: (i) no outstanding claims against the Company, either by any
Governmental Entity or by any prime contractor, subcontractor, vendor or other
Person, arising under or relating to any Government Contract or Government
Subcontract and (ii) no material disputes between the Company and any
Governmental Entity under the Contract Disputes Act or any other federal statute
or regulation or between the Company and any prime contractor, subcontractor or
vendor arising under or relating to any Government Contract or Government
Subcontract. Except as set forth in Schedule 4.25, the Company does not have any
interest in any pending or potential claim against any Governmental Entity or
any prime contractor, subcontractor or vendor arising under or relating to any
Government Contract or Government Subcontract. Schedule 4.25 lists each
Government Contract or Government Subcontract which is currently under audit by
any Governmental Entity or any other Person that is a party to such Government
Contract or Government Subcontract. Except as set forth in Schedule 4.25, the
Company has not received any draft or final post award audit report, any draft
or final notice of cost disallowance, or any draft or final notice of
noncompliance with any Cost Accounting Standard and there exists no Basis upon
which any Government Entity could disallow any costs in any pending audits, and
that all information provided by the Company for any such audits was current,
complete and accurate and in compliance with applicable regulations and Cost
Accounting Standards.
(e) Except as set forth on Schedule 4.25, the Company has not
been debarred or suspended from participation in the award of contracts with any
Governmental Entity (excluding for this purpose ineligibility to bid on certain
contracts due to generally applicable bidding requirements). There exist no
facts or circumstances that would warrant suspension or debarment or the finding
of nonresponsibility or ineligibility on the part of the Company or any director
or officer of the Company. No payment has been made by the Company or by any
Person on behalf of the Company in connection with any Government Contract or
Government Subcontract in violation of applicable procurement Laws or in
violation of, or requiring disclosure pursuant to, the Foreign Corrupt Practices
Act. Except as set forth on Schedule 4.25, the Company's cost accounting and
procurement systems and the associated entries reflected in the Company's
financial statements with respect to the Government Contracts and Government
Subcontracts are in compliance in all material respects with all applicable
Laws.
(f) Except as set forth in Schedule 4.25, all material test
and inspection results provided by the Company to any Governmental Entity
pursuant to any Government Contract or Government Subcontract or to any other
Person pursuant to a Government Contract or Government Subcontract or as a part
of the delivery to any Governmental Entity or to any other Person pursuant to a
Government Contract or Government Subcontract of any article designed,
engineered or manufactured by the Company were complete and correct in all
material respects as of the date so provided. Except as set forth in Schedule
4.25, the Company has provided all material test and inspection results to the
Department of Defense or to any other Person pursuant to a Government Contract
or Government Subcontract as required by Law and the terms of the applicable
Government Contracts or Government Subcontracts.
(g) Except as set forth in Schedule 4.25, (i) the Company has
obtained or will obtain from any Governmental Entity all authorizations and
consents that are necessary or required because of the change of ownership of
the Company, (ii) the Company has made or will make to any Governmental Entity
all notifications that are necessary or required because of the change of
ownership of the Company, (iii) until the Closing Date, the Company and the
Seller have complied with all requirements to maintain the Company's status as a
small business concern, and (iv) through and including the Company's date of
graduation from the Section 8(a) program administered by the U.S. Small Business
Administration ("SBA"), the Company and the Seller complied with all
requirements to obtain and maintain the Company's status as a concern certified
under the SBA's Section 8(a) program.
4.26 Environmental, Health, and Safety Matters.
(i) To the Knowledge of the Seller, the Company is in
compliance with Environmental, Health, and Safety Requirements, except for such
noncompliance as would not have a Material Adverse Effect on the Company.
(ii) To the Knowledge of the Seller, the Company has not
received any written notice, report or other information regarding any actual or
alleged material violation of Environmental, Health, and Safety Requirements, or
any material liabilities or potential material liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to the Company or its facilities
arising under Environmental, Health, and Safety Requirements, the subject of
which would have a Material Adverse Effect on the Company.
4.27 Subsidiaries. The Company has no subsidiaries and does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation association or business entity (except for publicly
traded corporations in which the Company owns less than 5% of the outstanding
equity interests therein), nor is the Company, directly or indirectly, a
participant in any joint venture, partnership or other entity.
4.28 Disclosure. No representation or warranty made by the Seller in
this Agreement, nor any financial statement, certificate, schedule or exhibit
delivered with or attached to this Agreement and furnished by the Company, the
Seller or its representative pursuant hereto or in connection with the
transaction contemplated hereby, contains or will contain any untrue statement
of material fact, or omits or will omit to state a material fact necessary to
make the statement of facts contained herein or therein not misleading in the
light of the circumstances under which they were furnished. The historical
information, financial projections, listing of Government Contract backlog and
information concerning Government Contracts relating to the Company that was
delivered to the Buyer prior to the date of this Agreement and included in
Schedule 4.28 ("Financial Projections") was delivered in good faith and
constitutes, to the Seller's Knowledge, a good faith estimate of the information
purported to be shown therein. The Seller caused the Company to prepare such
projections and provide such information in good faith based upon reasonable
assumptions, and believes that there is a reasonable basis for such projections.
The Seller has no Knowledge of any fact or information that would lead him to
believe that the Financial Projections are misleading in any material respect.
5. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the
date hereof and the Closing Date.
5.1 General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).
5.2 Notices and Consents. The Seller will cause the Company to give any
notices to third parties, and will cause the Company to use its reasonable best
efforts to obtain any third party consents, that the Buyer reasonably may
request in connection with the matters referred to in Section 4.3 above. Each of
the Parties will (and the Seller will cause the Company to) give any notices to,
make any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of Governmental Entities in connection
with the matters referred to in Section 3.1(b), Section 3.2(c), and Section 4.3
above.
5.3 Operation of Business. The Seller will not cause or permit the
Company to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Seller will not cause or permit the Company to
(i) declare, set aside, or pay any dividend in an or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock (except that the Company shall be entitled to pay the
Permitted Distribution to the Seller) or (ii) otherwise engage in any practice,
take any action, or enter into any transaction of the sort described in Section
4.7 above.
5.4 Preservation of Business. The Seller will cause the Company to keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
5.5 Full Access, Confidentiality.
(a) The Seller will permit, and the Seller will cause the
Company to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Company.
(b) The Seller recognizes and acknowledges that he has had in
the past, currently has, and in the future may possibly have, access to certain
confidential information of the Company and the Buyer, such as lists of
customers, operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's and the Buyer's respective
businesses. The Seller agrees that it will not disclose Confidential Information
with respect to the Company or the Buyer to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except to
authorized representatives of the Buyer and to counsel and other advisers;
provided, however, that such advisors (other than counsel) agree to the
confidentiality provisions of this Section 5.5(b), unless (i) such information
becomes known to the public generally through no fault of the Seller, (ii)
disclosure is required by law or the order of any Governmental Entity under
color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party; and provided further, that prior to disclosing any information
pursuant to clause (i), (ii) or (iii) above, the Seller shall, if possible, give
prior written notice thereof to the Buyer and provide the Buyer with the
opportunity to contest such disclosure.
(c) The Buyer recognizes and acknowledges that it has had in
the past, currently has, and in the future may possibly have, access to certain
confidential information of the Company, such as lists of customers, operational
policies, and pricing and cost policies that are valuable, special and unique
assets of the Company's business. The Buyer agrees that, prior to the Closing,
it will not disclose confidential information with respect to the Company to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Company and the Seller
and to counsel and other advisers and that they will not disclose confidential
information with respect to the Seller to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except to
authorized representatives of the Company and the Seller and to counsel and
other advisers; provided, however, that such advisers (other than counsel) agree
to the confidentiality provisions of this Section 5.5(c), unless (i) such
information becomes known to the public generally through no fault of the Buyer,
(ii) disclosure is required by law or the order of any Governmental Entity under
color of law, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party; and provided further, that prior to disclosing any information
pursuant to clause (i), (ii) or (iii) above, the Buyer shall, if possible, give
prior written notice thereof to the Company and the Seller and provide the
Company and the Seller with the opportunity to contest such disclosure.
5.6 Notice of Developments. The Seller will give prompt written notice
to the Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in Section 3
above. No disclosure by any Party pursuant to this Section 5.6, however, shall
be deemed to amend or supplement any Schedule or Exhibit hereto or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
5.7 Exclusivity. The Seller will not (and the Seller will not cause or
permit the Company or any of the officers, directors, agents, representatives,
or affiliates of the Company to) (a) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of the Company (including any acquisition structured as a merger,
consolidation, or share exchange) or (b) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. The Seller will not vote his Company
Shares in favor of any such acquisition structured as a merger, consolidation,
or share exchange. The Seller will notify the Buyer immediately if any Person
makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
6. POST-CLOSING COVENANTS.
The Parties agree as follows with respect to the period following the
Closing.
6.1 General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
The Seller acknowledges and agrees that from and after the Closing the Buyer
will be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the Company .
6.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
6.3 Transition.
(a) The Seller will not take any action that is designed or intended to
have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of the Company from maintaining the same business
relationships with the Company after the Closing as it maintained with the
Company prior to the Closing. The Seller will use his best efforts to cooperate
with the Buyer to cause the Company to employ an individual to serve initially
as a vice president of the Company and expected to serve eventually as president
of the Company upon the termination of the Seller's employment with the Company.
(b) The Parties intend and expect that subsequent to the Closing and
until the expiration of the Second Earn Out Period, the Company will operate as
a separate subsidiary of the Buyer and that the Company shall be operated in
accordance with its historic business practices. The Parties understand and
acknowledge that Buyer will provide certain administrative support to the
Company and that it is anticipated that the Company will benefit from mutually
beneficial business synergies created by the transactions contemplated by this
Agreement. Except for certain administrative staff provided to the Company by
the Buyer, the parties acknowledge that the Buyer has no obligation to provide
additional support or capital to the Company from the Closing Date through the
end of the Second Earn Out Period. Within 30 days subsequent to the Closing, the
Seller shall submit a proposed detailed budget for each month of 1998 and 1999
to the Company's Board of Directors for approval. The parties anticipate that
such budget will demonstrate sufficient levels revenues and expenditures to
achieve the projected net income levels included in Schedule 4.6 for 1998 and
1999. During any Earn Out Period Buyer will not take any actions, without the
prior approval of the Board of Directors of AMI and the Buyer, which would
prevent the Buyer from performing its obligations under this Agreement.
6.4 Covenant Not to Compete.
(a) Until the later of (x) the end of the four year period
following the Closing Date or (y) two years subsequent to the date on which the
Seller's employment with the Company Terminates, the Seller shall not, for any
reason whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation,
business or other entity of whatever nature:
(i) engage, as a shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an independent contractor,
consultant or advisor, or as a sales representative, in any business selling any
products or services in direct competition with the current business of the
Company;
(ii) call upon any person who is, at that time, an
employee of the Buyer or the Company for the purpose or with the intent of
enticing such employee away from or out of the employ of the Buyer or the
Company; or
(iii) call upon any person or entity which is, at
that time, or which has been, within one year prior to that time, a customer of
the Company for the purpose of soliciting or selling products or services in
competition with the Company.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit the Seller from acquiring as an investment not more than five
percent (5%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
(b) Damages. Because of the difficulty of measuring economic
losses to the Buyer as a result of a breach of the foregoing covenant, and
because of the immediate and irreparable damage that could be caused to the
Buyer for which it would have no other adequate remedy, the Seller agrees that
the foregoing covenant may be enforced by the Buyer in the event of breach by
the Seller, by injunctions and restraining orders.
(c) Reasonable Restraint. The parties agree that the foregoing
covenants in this Section 6.4 impose a reasonable restraint on the Seller in
light of the activities and business of the Buyer on the date of the execution
of this Agreement and the current plans of the Buyer; but it is also the intent
of the Buyer and the Seller that such covenants be construed and enforced in
accordance with the changing activities and business of the Buyer throughout the
term of this covenant. The parties further agree that in the event the Seller
shall enter into a business or pursue other activities not in competition with
the Buyer or similar activities or business in locations the operation of which,
under such circumstances, does not violate Section 6.4(a), the Seller shall not
be chargeable with a violation of this Section 6.4 if the Buyer shall thereafter
enter the same, similar or a competitive (i) business, (ii) course of activities
or (iii) location, as applicable.
(d) Severability; Reformation. The covenants in this Section
6.4 are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant. Moreover, in the
event any court of competent jurisdiction shall determine that the scope, time
or territorial restrictions set forth are unreasonable, then it is the intention
of the parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and the Agreement shall thereby be reformed.
(e) Independent Covenant. All of the covenants in this Section
6.4 shall be construed as an agreement independent of any other provision in
this Agreement, and the existence of any claim or cause of action of the Seller
against the Buyer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Buyer of such covenants. It is
specifically agreed that the period of noncompetition stated at Section 6.4(a),
during which the agreements and covenants of the Seller made in this Section 6.4
shall be effective, shall be computed by excluding from such computation any
time during which the Seller is found by a court of competent jurisdiction to
have been in violation of any provision of this Section 6.4. The covenants
contained in Section 6.4 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
(f) Materiality. The Seller hereby agrees that the covenants
set forth in this Section 6.4 are a material and substantial part of the
transactions contemplated by this Agreement.
(g) Internet Business. Notwithstanding the foregoing, this
Section 6.4 shall not prohibit the Seller from entering into business activities
in which Internet dial-up access services and Web hosting services (the "Lin
Internet Business") are provided to customers ("Internet Customers") so long as
none of any such Internet Customers are customers or prospective customers of
ACS or the Company, as discussed by the Parties from time to time.
7. Conditions to Obligation to Close.
7.1 Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section
3.1 and Section 4 above shall be true and correct in all material respects at
and as of the Closing Date;
(b) the Seller shall have performed and complied with all of
his covenants hereunder in all material respects through the Closing;
(c) the Company shall have procured all of the third party
consents specified in Section 5.2 above.
(d) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (iii) affect adversely the right of the Buyer
to own the Company Shares and to control the Company , or (iv) affect adversely
the right of the Company to own its assets and to operate its businesses (and no
such injunction, judgment, order, decree, ruling, or charge shall be in effect);
(e) no material adverse change in the business operations,
affairs, prospects, properties, assets, existing or potential liabilities,
obligations, profits or condition (financial or otherwise) of the Company shall
have occurred;
(f) the Seller shall have delivered to the Buyer a certificate
dated as of the Closing Date to the effect that each of the conditions specified
in Section 7.1(a) through (e) above is satisfied in all respects;
(g) the Seller and Grace Lee shall have entered into
employment agreements with the Company substantially in the form attached hereto
as Exhibits A and B. All other employment agreements with any employees of the
Company shall have been terminated and be of no further force or effect;
(h) the Buyer shall have received from counsel to the Seller
an opinion in form and substance as set forth in Exhibit C attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
(i) the Buyer shall have received the resignations, effective
as of the Closing, of each director and officer of the Company other than John
Lin;
(j) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer; and
(k) the Company shall of obtained a release from its financial
advisors in a form satisfactory to the Buyer stating that that the Company has
no existing or future Liability to such financial advisors with respect to any
fees, commissions or other amounts payable with respect to the transactions
contemplated by this Agreement;
(l) the Buyer shall have received a favorable opinion from
A.G. Edwards & Sons, Inc., as to the fairness of consideration paid with respect
to the transactions contemplated by this Agreement; and
(m) Reserved
(n) the Buyer's board of directors shall have authorized and
approved the transactions contemplated by this Agreement.
The Buyer may waive any condition specified in this Section 7.1 if it executes a
writing so stating at or prior to the Closing.
7.2 Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by them in connection with
the Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section
3.2 above shall be true and correct in all material respects at and as of the
Closing Date;
(b) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller; and
(e) the Buyer shall have delivered to the Seller a certificate
dated as of the Closing Date to the effect that each of the conditions specified
in Section 7.2(a) through (d) above is satisfied in all respects.
The Seller may waive any condition specified in this Section 7.2 if they execute
a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
8.1 Survival of Representations and Warranties. Except with respect to
Sections 4.10 (Taxes), 4.23 (Employee Benefits), 4.25 (Government Contracts) and
4.26 (Environmental, Health and Safety Matters) all representations and
warranties contained in this Agreement, including those contained in the
exhibits, schedules and other documents delivered pursuant to this Agreement,
above shall survive the Closing hereunder and continue in full force and effect
for a period of eighteen months thereafter. All covenants contained in this
Agreement likewise shall survive the Closing, but shall not be subject to the
limitation on survival set forth in the preceding sentence. Representations and
warranties contained in Section 4.25 and 4.26 shall survive Closing and shall
remain in full force and effect for a period of twenty-four months.
Representations and warranties contained in Sections 4.10 and 4.23 shall survive
Closing and shall remain in full force and effect for a period of three years.
So long as a claim arising out of a breach of a representation or warranty is
made prior to the expiration of such representation or warranty, indemnification
may be had (subject to the other provisions of this Section 8) notwithstanding
that the scope of loss may not be determined, remedial work completed or claim
otherwise resolved prior to such expiration.
8.2 Indemnity. Each party hereto (the "Indemnifying Party") shall
indemnify and hold the other party hereto (each, an "Indemnified Party")
harmless to the extent provided in this Section 8 from and against any and all
losses (consequential or otherwise), Liabilities, claims, disputes, proceedings,
demands, cost unallowability determinations, judgments, settlements, liens,
costs and expenses of any nature whatsoever (including reasonable fees and
disbursements of attorneys, accountants, or other professional advisors relating
to investigation, prosecution, negotiation, defense, settlement, or appeal) (the
foregoing referred to individually as an "Adverse Consequence" and collectively
as "Adverse Consequences") resulting from or arising out of
(i) any breach of any representation or warranty of the Indemnifying
Party contained in this Agreement or in any schedule, exhibit, certificate,
document or other item delivered by the Indemnifying Party or its
representative(s) in connection with this Agreement;
(ii) the nonperformance, partial or total, of any covenant of the
Indemnifying Party contained in this Agreement; and
(iii) the scheduled items set forth on 4.10 or 4.19;
(iv) any and all Adverse Consequences incidental to any of the
foregoing or to the enforcement of this section 8.2. Without limiting the
foregoing, the Seller's indemnification liabilities arising from Section 4 of
this Agreement shall include Adverse Consequences consisting of any and all
Taxes of the Company with respect to any period (or any portion thereof) up to
and including the Closing Date, except for Taxes of the Company (if any) that
are reflected as current or deferred liabilities for Taxes on the Interim
Balance Sheet Date. The Seller hereby agrees that he will not make any claim for
indemnification against the Company by reason of the fact that he was a
director, officer, employee, or agent of the Company or was serving at the
request of the Company as a partner, trustee, director, officer, employee, or
agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) prior to the Closing Date with respect to any
action, suit, proceeding, complaint, claim, or demand brought by the Buyer
against the Seller (whether such action, suit, proceeding, complaint, claim, or
demand is pursuant to this Agreement, applicable law, or otherwise).
8.3 Notice of Claim.
(a) If an Indemnified Party makes any claim against an Indemnifying
Party for indemnification, such claim shall be in writing and shall state in
general terms the facts upon which the Indemnified Party makes such claim.
(b) In the event of any claim or demand asserted against the
Indemnified Party by a third party upon which the Indemnified Party may claim
indemnification, the Indemnifying Party shall give written notice to the
Indemnified Party within 15 days after receipt of notice from the Indemnified
Party indicating whether the Indemnifying Party intends to assume the defense of
such claim or demand. If the Indemnifying Party does assume such defense, it
shall indemnify and hold the Indemnified Party harmless from and against any and
all losses, damages and liabilities caused by or arising out of any settlement
or judgment of such claim and may not claim that it does not have an
indemnification obligation with respect thereto. Notwithstanding such
assumption, the Indemnified Party shall have the right to participate in such
defense, by written notice given to the Indemnifying Party within 15 days from
the date of the Indemnifying Party's notice, provided that such participation
shall be at the expense of the Indemnified Party unless there is a conflict of
interest between the Indemnified Party and the Indemnifying Party, in which case
the cost of such participation (including attorneys' fees for counsel selected
by the Indemnified Party) shall be reimbursed by the Indemnifying Party. If the
Indemnifying Party assumes the defense and the Indemnified Party elects not to
participate, the Indemnifying Party shall have the right fully to control and to
settle the proceeding. If the Indemnified Party elects to participate in such
defense, the parties shall cooperate in the defense of the proceeding, and shall
not settle the same without the consent of each, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party elects not to assume
the defense, the Indemnified Party shall have the right to do so (at the expense
of the Indemnifying Party), and may settle the same without the consent of the
Indemnifying Party.
(c) In the event an Indemnified Party has a claim against an
Indemnifying Party hereunder which does not involve a claim being asserted
against or sought to be collected by a third party, the Indemnifying Party shall
give written notice to the Indemnified Party within 15 days after receipt of
notice from the Indemnified Party indicating whether the Indemnifying Party
disputes such claim. If the Indemnifying Party does not notify the Indemnified
Party within such 15 day period that the Indemnifying Party disputes such claim,
the amount of such claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder. In the event that the Indemnifying Party shall
object in writing to any claim made in accordance with this Section 8.3(c), the
Indemnified Party shall have 15 days to respond in a written statement to the
objection of the Indemnifying Party. If after such 15 day period there remains a
dispute as to any claims, the parties shall attempt in good faith for 30 days to
agree upon the rights of the respective parties with respect to each of such
claims. If the parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties. If the parties cannot
agree within such 30 day period, the parties shall jointly select a single
arbitrator (the "Indemnification Arbitrator"), the selection of which will not
be unreasonably withheld by either party, who shall have substantial experience
with respect to the substance of the matters in dispute and shall have the
authority to hold hearings and to render a decision in accordance with the
arbitration rules of the American Arbitration Association. The Indemnification
Arbitrator shall settle any remaining dispute by selecting the position of the
party that the Arbitrator determines, in its sole discretion, to be the most
correct. The determination of the Indemnification Arbitrator shall be set forth
in writing, delivered to each of the Buyer and the Seller and shall be
conclusive and binding on the parties and shall be non-appealable. The party
whose position is not chosen by the Indemnification Arbitrator shall pay all
expenses of the Indemnification Arbitrator.
8.4 Limitation. Notwithstanding the above, and except for (i)
misrepresentations and breaches of warranties by the Seller under Sections
4.25(g)(iv) and (ii) Adverse Consequences resulting from or arising out of the
scheduled items set forth on 4.10 or 4.19, the Seller shall not be liable under
this Section 8 (y) until the aggregate amount of Adverse Consequences in respect
of misrepresentations and breaches of warranties to the Buyer exceeds $200,000,
and only to the extent of such excess, and (z) to the extent that the Adverse
Consequences to the Buyer exceeds $10 million.
8.5 Recoupment. The Buyer shall have the option of recouping all or any
part of any Adverse Consequences it may suffer (in lieu of seeking any
indemnification to which it is entitled under this Section 8) by notifying the
Seller within 30 days from the end of the applicable Earn Out Period that the
Buyer is reducing the amount of any Contingent Purchase Price otherwise payable
to the Seller. Any amount of the Contingent Purchase Price not in dispute shall
be paid in accordance with Section 2.5. The written notice shall specify the
general, factual basis for such claim and the amount the Contingent Purchase
Price is to be reduced. If the Seller has any objection to the reduction, the
Seller shall have 30 days to make such investigation of the claim as Seller
deems necessary or desirable. For the purposes of such investigation, Buyer
agrees to make available to Seller or its authorized representatives the
information relied upon by Buyer to substantiate the reduction. If the Buyer and
Seller do not agree within such 30 day period, the matter shall be submitted to
arbitration in accordance with the arbitration rules of the American Arbitration
Association then in effect. Within such 30 day period, the parties shall jointly
select a single arbitrator (the "Recoupment Arbitrator"), the selection of which
will not be unreasonably withheld by either party, who shall have substantial
experience with respect to the substance of the matters in dispute and shall
have the authority to hold hearings and to render a decision in accordance with
the arbitration rules of the American Arbitration Association. The Recoupment
Arbitrator shall settle any remaining dispute by selecting the position of the
party that the Arbitrator determines, in its sole discretion, to be the most
correct. The determination of the Recoupment Arbitrator shall be set forth in
writing, delivered to each of the Buyer and the Seller and shall be conclusive
and binding on the parties and shall be non-appealable. The party whose position
is not chosen by the Recoupment Arbitrator shall pay all expenses of the
Recoupment Arbitrator and interest accruing on the amount of reduction, at the
rate of the regular commercial prime rate of interest of NationsBank N.A., which
NationsBank N.A. uses as a standard for determining actual interest rates
charged commercial borrowers, beginning on the date the Contingent Purchase
Price was otherwise due to be paid to the Seller.
9. TAX MATTERS.
The following provisions shall govern the allocation of responsibility
as between the Buyer and the Seller for certain tax matters following the
Closing Date:
9.1 Section 338(h)(10) Election. The Seller agrees, if so directed by
the Buyer, to join with the Buyer in making an election under Code section
338(h)(10) (and any corresponding elections under state, local, or foreign tax
law) (collectively, a "Section 338(h)(10) Election") with respect to the
purchase and sale of the Company Shares. The Seller shall pay any "Tax" (as
defined in Section 4.10 above), including any liability of the Company for any
Tax resulting from application to it of applicable regulations, attributable to
the making of the Section 338(h)(10) Election and will indemnify the Buyer and
the Company against any Adverse Consequences arising out of any failure to pay
such Tax. The Seller shall also pay any state, local or foreign Tax (and
indemnify the Buyer and the Company against any Adverse consequences arising out
of any failure to pay such Tax) attributable to an election under state, local
or foreign law similar to the election available under Section 338(h)(10) of the
Code (or which results from the making of an election under Section 338(h)(10)
of the Code) with respect to the purchase and sale of the Company hereunder.
9.2 Tax Periods Ending on or Before the Closing Date. The Seller shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company for all periods ending on or prior to the Closing Date that are
filed after the Closing Date. The Seller shall permit the Buyer to review and
comment on each such Tax Return described in the preceding sentence prior to
filing. Seller shall pay any Taxes shown on any such Tax Returns.
9.3 Allocation of Purchase Price. Within 15 days from the Closing Date,
the Buyer shall deliver to the Seller a draft schedule allocating the Purchase
Price and the liabilities of the Company among the assets of the Company for all
purposes (including Tax and financial accounting) in a manner consistent with
the fair market values of such assets (the "Draft Purchase Price Allocation").
If the Seller has any objection to the Draft Purchase Price Allocation, the
Seller shall deliver a detailed statement describing his objections to the Buyer
within 5 days after receiving the Draft Purchase Price Allocation. The Buyer and
the Seller will use reasonable efforts to resolve any such objections
themselves. If the Buyer and Seller do not finally resolve any of the objections
within 5 days after the Buyer has received the statement of objections, however,
the Buyer and the Seller will select, within 5 days, a nationally recognized
independent accounting firm mutually acceptable to each party, the agreement to
the selection which shall not be unreasonably withheld, to resolve any such
differences (the "Arbitrator"). The Arbitrator shall settle any remaining
dispute by selecting the position of the party that the Arbitrator determines,
in its sole discretion, to be the most correct. The determination of the
Arbitrator shall be set forth in writing, delivered to each of the Buyer and the
Seller and shall be conclusive and binding on the parties and shall be
non-appealable. The party whose position is not chosen by the Arbitrator shall
pay all expenses of the Arbitrator. The Draft Purchase Price Allocation, as
adjusted for any items of dispute resolved by the Buyer and the Seller and for
any determinations of the Arbitrator shall be referred to herein as the "Final
Purchase Price Allocation." The Buyer and the Seller will file and the Seller
will cause the Company to file all Tax Returns (including amended returns and
claims for refund) and information reports in a manner consistent with the Final
Purchase Price Allocation.
9.4 S Corporation Status. The Seller will not, and will not allow the
Company to, revoke the Company's election to be taxed as an S corporation within
the meaning of Code sections 1361 and 1362. The Seller will not, and will not
allow the Company to, take or allow any action that would result in the
termination of the Company's status as a validly existing S corporation within
the meaning of Code sections 1361 and 1362.
9.5 Tax Periods Beginning Before and Ending After the Closing Date. The
Buyer shall prepare, or cause to be prepared, and file, or cause to be filed,
any Tax Returns of the Company for Tax periods which begin before the Closing
Date and end after the Closing Date. The Buyer shall permit the Seller to review
and comment upon each such Tax Return described in the preceding sentence prior
to filing. The Seller shall pay to the Buyer within fifteen (15) days after the
date on which Taxes are paid with respect to such periods an amount equal to the
portion of such Taxes which relates to the portion of such Taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the reserve
for Tax Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the face of the
Closing Date Balance Sheet. For purposes of this Section, in the case of any
Taxes that are imposed on a periodic basis and are payable for a Taxable period
that includes (but does not end on) the Closing Date, the portion of such Tax
which relates to the portion of such Taxable period ending on the Closing Date
shall (x) in the case of any Taxes other than Taxes based upon or related to
income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the number of
days in the Taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire Taxable period and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company .
9.6 Cooperation on Tax Matters.
(a) The Buyer and the Seller shall, and the Seller shall cause
the Company to, cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Seller agrees (i) to retain all books
and records with respect to Tax matters pertinent to the Company relating to any
taxable period beginning before the Closing Date (except those books and records
in the custody of the Company) until the expiration of the statute of
limitations (and, to the extent notified by Buyer, any extensions thereof) of
the respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (ii) to give the Buyer reasonable
written notice prior to transferring, destroying or discarding any such books
and records and, if the Buyer requests, the Seller shall allow the Buyer to take
possession of such books and records.
(b) Buyer and Seller further agree, upon request, to use their
best efforts to obtain any certificate or other document from any Governmental
Entity or any other Person as may be necessary to mitigate, reduce or eliminate
any Tax that could be imposed (including, but not limited to, with respect to
the transactions contemplated hereby).
(c) Buyer and Seller further agree, upon request, to provide
the other party with all information that either party may be required to report
pursuant to Section 6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
10. TERMINATION AND MISCELLANEOUS.
10.1 Termination of Agreement. This Agreement may be terminated
at any time prior to the Closing Date solely:
(a) by mutual consent of the Buyer and the Seller; or
(b) by the Seller or by the Buyer if the Closing shall not
have occurred on or before March 15, 1998; provided, however, that the right to
terminate this Agreement under this Section 10.1(b) shall not be available to
either party whose material misrepresentation, breach of warranty or failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date; or
(c) by the Seller or by the Buyer if there is or has been a
material breach, failure to fulfill or default on the part of the other party of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Seller or by the Buyer if there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Purchase; or there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Purchase by any Governmental Entity which would make the
consummation of the Purchase illegal.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement shall forthwith become void,
and there shall be no liability or obligation on the part of any party hereto or
its officers, directors, stockholders or members. Notwithstanding the foregoing
sentence, (i) the provisions of this Section 10.2, Sections 5.5(b) and 5.5(c)
(confidentiality) and the other provisions of Section 10 (including without
limitation brokers and expenses), shall remain in full force and effect and
survive any termination of this Agreement; (ii) each party shall remain liable
for any breach of this Agreement prior to its termination; and (iii) in the
event of termination of this Agreement pursuant to Section 10.1(c) above, then
notwithstanding the provisions of Section 10.7 below, the breaching party shall
be liable to the other party to the extent of the expenses incurred by such
other party in connection with this Agreement and the transactions contemplated
hereby, as well as any damages in accordance with applicable law.
10.3 Cooperation. The Seller and the Buyer, for no further
consideration, shall each deliver or cause to be delivered to the other on the
Closing Date, and either before or after the Closing Date at such other times
and places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement. In
connection therewith, if required, the President or Chief Financial Officer of
the Company will execute any documentation reasonably required by the Buyer's
independent public accountants (in connection with such accountant's audit of
the Company) or the Nasdaq National Market. Without limitation of the foregoing,
the Seller will cooperate and use its reasonable efforts to cause the Company's
present officers, directors and employees cooperate with the Buyer before, on
and after the Closing Date in furnishing information, evidence, testimony and
other assistance in connection with any, actions, proceedings, arrangements or
disputes of any nature with respect to matters pertaining to all periods prior
to the Closing Date and the Buyer will cooperate and use its reasonable efforts
to cause its present officers, directors and employees cooperate with the Seller
before, on and after the Closing Date in furnishing any such information to
employees of the Seller and/or the Company who will be continuing employment
with the Company after the sale, regarding such continued employment. Without
limitation of the foregoing, in connection with any securities filing required
of the Buyer as a result of the Purchase, (i) the Seller will cooperate and use
its reasonable efforts to assist the Buyer and the Company in the preparation of
audited and unaudited (as required) financial statements for the Company and
(ii) the Seller will use its reasonable efforts to cause its accountants at the
Buyer's sole cost and expense, to assist the Buyer and the Company in the
preparation of such financial statements.
10.4 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of the Buyer, and the heirs and legal representatives of the Seller.
10.5 Entire Agreement. This Agreement (which includes the Schedules and
Exhibits hereto) sets forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby. It shall not be amended or
modified except by a written instrument duly executed by each of the parties
hereto. Any and all previous agreements and understandings between or among the
parties regarding the subject matter hereof, whether written or oral, are
superseded by this Agreement.
10.6 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered (which deliveries may be
by telefax) by the parties.
10.7 Expenses. The Buyer has paid and will pay the fees, expenses and
disbursements of the Buyer and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement. The
Seller has paid and will pay the fees, expenses and disbursements of the Seller
and the Company and their agents, representatives, financial advisors,
accountants and counsel incurred in connection with the subject matter of this
Agreement.
10.8 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to the Buyer, to:
Advanced Communication Systems, Inc.
10089 Lee Highway
Fairfax, Virginia 22030
Attn: Dev Ganesan, Chief Financial Officer
Fax No.: (703) 385-8684
with a required copy to:
Venable, Baetjer, Howard and Civiletti, LLP
1201 New York Avenue, Suite 1000
Washington, DC 20005
Attn: Wallace E. Christner, Esq.
Fax No.: (202) 962-8300
If to the Seller, to:
John Lin
10721 Falls Pointe Drive
Great Falls, Virginia 22066
Fax No. (703) 759-6145
with a required copy to:
Jenner & Block
601 Thirteenth Street, N.W.
12th Floor
Washington, DC 20005
Attn: Leslie H. Lepow, Esq.
Fax No.: (202) 639-6066
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.9 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the Commonwealth of
Virginia, without regard to conflicts of laws provisions.
10.10 Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any jurisdiction, shall not be
affected thereby, and to this end the provisions of this Agreement shall be
severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 6.4(d).
10.11 Absence of Third-Party Beneficiary Rights. No provision of this
Agreement is intended, nor will be interpreted, to provide or to create any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, member, employee, partner of any party hereto
or any other person or entity.
10.12 Mutual Drafting. This Agreement is the mutual product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the parties, and shall not be
construed for or against any party hereto.
10.13 Further Representations. Each party to this Agreement
acknowledges and represents that it has been represented by its own legal
counsel in connection with the transactions contemplated by this Agreement, with
the opportunity to seek advice as to its legal rights from such counsel. Each
party further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
10.14 Amendment; Waiver. This Agreement may be amended by the parties
hereto at any time prior to the Closing by execution of an instrument in writing
signed on behalf of each of the parties hereto. Any extension or waiver by any
party of any provision hereto shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
10.15 Public Disclosure. Prior to the Closing Date, no party shall make
any disclosure (whether or not in response to an inquiry) of the subject matter
of this Agreement unless previously approved by the Buyer and the Seller in
writing. Each party agrees to keep the others apprised in advance of any planned
disclosure of the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this __ day of ______, 1998.
ADVANCED COMMUNICATION SYSTEMS, INC.
By:_____________________________________
George A. Robinson
President and Chief Executive Officer
-----------------------------------------
John Lin